Speaker 1: This is Bloomberg Business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: All right, guys, you know you've been listening to Bloomberg,
Speaker 1: watching Bloomberg, checking us out online. You know what's going on.
Speaker 1: Credit suites reeling after that top shareholder ruled out uping
Speaker 1: at stake in the bank, so shares, the credit suees
Speaker 1: having their biggest ever one day sell off in Europe.
Speaker 1: We've seen ADRs down about twenty five percent here in
Speaker 1: the US, the whole banking sector under pressure. So Jess
Speaker 1: and I have been watching that. So let's get to
Speaker 1: our roundtable of what you need to know and kind
Speaker 1: of where we are. So with us is Bloomberg News
Speaker 1: Wall Street reporter Shinelli Basik on the phone in New
Speaker 1: York City. Also with us Bloomberg Intelligence senior Global banks analyst.
Speaker 1: We are talking about Alison Williams. She is on the
Speaker 1: phone from BI headquarters in Princeton, New Jersey. Should only
Speaker 1: want to kick it off with you. So Credit Swie.
Speaker 1: They've been in trouble for a while. How did they
Speaker 1: get here? What's the outlook? What's the most important thing
Speaker 1: that we have to understand about what's going on with
Speaker 1: Credit Suie and its strains right now? Well, the breaking
Speaker 1: things that we have to think about is a few
Speaker 1: things we've recently reported, or just about up an hour
Speaker 1: or so ago that BNP is the first thing we
Speaker 1: learned on of that is reducing counterparty risk in the
Speaker 1: swap market in a significant way. And so do others
Speaker 1: continue to follow up? What does that mean specifically when
Speaker 1: they do that? What does that mean? It means that
Speaker 1: you know, they have these bilateral agreements right swap In
Speaker 1: this case, it's the swap markets that we're talking about,
Speaker 1: and it sounds very esoteric, but it is just financial
Speaker 1: contracts in which credit sez counter party and now they're
Speaker 1: just reducing their exposure to Credit swe being that counterparty.
Speaker 1: Allison can stat me explaining this in a really horrible way,
Speaker 1: but that is what's happening. And the reason that's happening
Speaker 1: is because if something were to happen more drastic to credits, please,
Speaker 1: because remember, people were not necessarily worried about the banks liquidity.
Speaker 1: This is a matter of people worried about the psychology
Speaker 1: here to people pull deposits more. The stock is trading
Speaker 1: at scary lows. Cbs, which are basically insurance contracts that
Speaker 1: ensure against the potential for default, are at record wides here.
Speaker 1: So that's the fear that you're seeing in the market.
Speaker 1: And the news now also is that bank leaders and
Speaker 1: government officials have talked about options that include a public
Speaker 1: statement of support of potential liquidity backstop so people know
Speaker 1: that they're safe and they're supported by the government. And
Speaker 1: ideas that were floated include a separation of the banks
Speaker 1: slipt unit or a tie up that everybody has been
Speaker 1: thinking about a long time in watching for a long time,
Speaker 1: a tie up in some way with ubs, which is
Speaker 1: a long shot, but that's something that they would consider.
Speaker 1: All right, great summary, Allison, come on in on this.
Speaker 1: Is this all about psychology or is this about potential
Speaker 1: you know, fundamental problems that are out there within global banking.
Speaker 1: So it's about the psychology. But the concern is that
Speaker 1: the markets can create a reality and that's I mean,
Speaker 1: that is the concern and I do think, um, you know,
Speaker 1: at Nale's point. You know what a lot of people
Speaker 1: are worried about now with the US banks, the bigger banks,
Speaker 1: is that is that counterparty risk. The one thing I
Speaker 1: would note is that you know, this is not an SVB,
Speaker 1: which happened almost overnight. It was stunning how quickly that happened.
Speaker 1: You know, Credit Suites has had some issues for a
Speaker 1: couple of years, and to be clear, they did raise
Speaker 1: capital in the fourth quarter. All they had, you know,
Speaker 1: very strong capital ratio exiting the air, they had very
Speaker 1: strong liquidity. Uh. You know that the last time that
Speaker 1: we saw a significant stress in the stock was back
Speaker 1: in October, and I think the concerns there were that
Speaker 1: people knew that they had to raise capital, and so
Speaker 1: that was when we saw these very dramatic outflows. There
Speaker 1: was a lot of media attention, There was a lot
Speaker 1: of talk about the health of the bank and that
Speaker 1: manifested in client outflows. They completed their capital raise, they
Speaker 1: got that behind them, they said that things started to study.
Speaker 1: There's some questions around those statements, but the CEO, I
Speaker 1: believe was told Francy Lacois, who's one of our European
Speaker 1: anchors on one of the programs. So I believe it
Speaker 1: was yesterday that they did see inflows on Monday, So
Speaker 1: that's one positive thing, but we really need more than that.
Speaker 1: We need something to boost confidence. The company coming out
Speaker 1: and saying they don't need capital that tends not to
Speaker 1: be supportive of banks chairs so I think that it
Speaker 1: really does. You know, the one biggest investors, so they're
Speaker 1: not stepping in. They had another investor, a longtime investor,
Speaker 1: which sold their stocks. So I think at this point
Speaker 1: it really is up to the regulators to come out
Speaker 1: and say something to calm the market. Sinally, I wanted
Speaker 1: to bring you back in where specifically are other cracks
Speaker 1: forming right now? You know, this is an interesting you're
Speaker 1: asking if there's a fundamental issue or if this is
Speaker 1: a confident issue. And of finance executive, who's the counterparty
Speaker 1: to criticise who I spoke to literally like minutes ago.
Speaker 1: What he was saying was what he's afraid of here
Speaker 1: as the whisper campaign. Remember Silicon Valley Bank, even when
Speaker 1: they lost deposit there was about more than forty billion dollars. Essentially,
Speaker 1: overnight fear can cause bank runs. That is the worry,
Speaker 1: and the worry here is that the market will look
Speaker 1: for cracks, and then they will take those cracks and
Speaker 1: they will break them wide open again. We can't say
Speaker 1: that's happening. You don't want to cause that to be happening.
Speaker 1: But investors right now because of the by the way,
Speaker 1: I remember the markets have experienced an extraordinary amount of
Speaker 1: pain already. And remember their credit sleet as a globally
Speaker 1: systemic financial institution with tentacles across the entire globe, not
Speaker 1: only with wealth management. Clients have big institutions. They've been
Speaker 1: big lenders to corporations, and so you know, even if
Speaker 1: they're reduced presence here causes a strain in the market
Speaker 1: because they were such a big player. And even the
Speaker 1: counterparties who are reducing risk right now are saying, we
Speaker 1: hate this because it means we're concentrating our risk to
Speaker 1: a smaller number of banks, and that sucks. All right,
Speaker 1: So let's go to that, Allison. I'm looking at JP Morgan,
Speaker 1: down almost six percent as lows. It's still down about
Speaker 1: five percent in today's session. I guess my first question
Speaker 1: is do we have to be worried at all about
Speaker 1: JP Morgan or Bank of America or City or Goldman
Speaker 1: any of those big banks at this point, and as
Speaker 1: a result of what's going on, do they just get stronger,
Speaker 1: bigger and the like. So it does seem that the
Speaker 1: latter is the more likely case. Uh. And in fact,
Speaker 1: one thing that you know, one thing I think that
Speaker 1: needs to become more clear in the coming days or
Speaker 1: week is exactly what is going to be the policy
Speaker 1: on insurance deposits here in the US. So we have
Speaker 1: to failed banks where depositors are outrightly insured now, so
Speaker 1: there is a question in terms of is that the
Speaker 1: precedent that does that effectively mean all US deposits are insured?
Speaker 1: And um, you know, that sort of an interesting angle,
Speaker 1: you know, if you think about that versus some of
Speaker 1: the other countries. You know, does that make the US banks,
Speaker 1: which have been a safe haven have gained share in
Speaker 1: the training businesses because of their stronger balance sheets? You know,
Speaker 1: does that make them even stronger internationally? From a local perspective,
Speaker 1: you know, JP, Morgan Bank, America, Wells Fargo, these are
Speaker 1: banks that are in all the local markets. You know,
Speaker 1: wild Smarco does have the asset cap, They're not as
Speaker 1: well positioned. City Group is as much smaller in terms
Speaker 1: of the branch network. So it's really JP Morgan and
Speaker 1: Bank of America that are in a lot of these
Speaker 1: markets with these smaller regional banks, and as I said
Speaker 1: that they are insured or backstopped, but I think people
Speaker 1: will still look and think about putting their money in
Speaker 1: a stronger bank. Into the extent they're doing that in
Speaker 1: local markets, it's really JP Morgan and bancam America that
Speaker 1: look to be best positioned on that front. Sationally, we
Speaker 1: just with Alson talking about when you're looking at the
Speaker 1: bigger banks, which on ones could potentially hold up better.
Speaker 1: But I was curious as far as when you're looking
Speaker 1: at the banking industry in general, where are you seeing
Speaker 1: potential types of industries that might be less scathed more
Speaker 1: so than others. You know, It's the reason that's such
Speaker 1: an interesting question is because think about it this way.
Speaker 1: You have a market right now where investors are sorely burned,
Speaker 1: and investors in this market today are being earned that
Speaker 1: one out drastically last year. These are the quants. These
Speaker 1: are the hedge fund managers that were macro traders. These
Speaker 1: are the people that made a lot of money off
Speaker 1: a volatile market that are now feeling a lot of pain.
Speaker 1: Why does that matter? Because when the investors feel pain,
Speaker 1: it's very difficult for them to redeploy more money into
Speaker 1: different trades. And so there you start to have like
Speaker 1: a ripple effect here of the pressure on pricing when
Speaker 1: you look at the market, and so I think that,
Speaker 1: you know, I'm biased, right, a cover hedge funds, so right,
Speaker 1: I watched them really closely, and so I think about
Speaker 1: where the pain starts, and then we're an infult trades
Speaker 1: and so you have to here, here's what my sources
Speaker 1: are saying. What is safety? Is it gold? Right? Because
Speaker 1: even the treasury market is looking really scary out there. Yeah,
Speaker 1: I mean it's really kind of remarkable. Hey, Allison, thirty
Speaker 1: seconds left here. You talked earlier about like regulators having
Speaker 1: to come out. Do we need Jay Powell? We know
Speaker 1: there's a FED beeting next week to come out and
Speaker 1: say guys were on it more to come. Don't you
Speaker 1: worried or something? Just quickly? I mean I feel like
Speaker 1: the Fed did that right. They did that when they
Speaker 1: said we're going to week that we're going to protect
Speaker 1: the depositors and we're going to put this backstop in
Speaker 1: place for a year. They basically said look, we're you know,
Speaker 1: shutting down the immediate risks. Yeah, and we recognize that
Speaker 1: there is an issue, and so well we'll see what
Speaker 1: more they have to say. You guys, I know you've
Speaker 1: had busy days, busy weeks, and we so appreciate you
Speaker 1: just kind of setting the stage for us on this
Speaker 1: Wednesday of all that is going on and it's just
Speaker 1: you know, happening in real time. Alison Williams, Senior Global
Speaker 1: Banks Analyst at Bloomberg Intelligence from BI headquarters in Princeton,
Speaker 1: New Jersey, Shinoli Bossak while shoot your reporter at Bloomberg
Speaker 1: News on the phone in New York City. This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot Com, the Ion Radio app, and the Bloomberg
Speaker 1: Business App, or watch us live on YouTube. I want
Speaker 1: to get right to our guests. Bill Isaac is a
Speaker 1: former chairman of the fdi C there during the eighties
Speaker 1: nineteen eighties when some three thousand banks and thrifts failed.
Speaker 1: He's now chairman of the consulting firm Secura Isaac and
Speaker 1: a member of the boards of directors of Immigrant Bank
Speaker 1: and New York Private Bank and Trust who joins us
Speaker 1: via Zoom from Sarasota, Florida built So nice to have
Speaker 1: you here with us. How do you see what is
Speaker 1: going on? Silicon Valley Bank, three regional banks in the
Speaker 1: past week here in the US collapsing, You got credit suites.
Speaker 1: Is this great financial crisis banking breakdown two point zero
Speaker 1: or something different? We don't know what it is right now.
Speaker 1: And you know it's it's not a surprise that these
Speaker 1: things are happening. Why Why Well, because the federal government
Speaker 1: has been out of control for a long time. It
Speaker 1: just reminds me very much of the of the nineteen
Speaker 1: eighties when I was chairman of the sci C of
Speaker 1: late seventies and through the eighties. We had guns and
Speaker 1: butter approach in the nineteen sixties with the Vietnam War
Speaker 1: that was not paid for by taxes and big deficits,
Speaker 1: and we had the Great Society programs went in Johnson
Speaker 1: and note they were not paid for, So we had
Speaker 1: very very high budget deficits, and we had a very accommodating,
Speaker 1: will say, loose fed policies, monetary policies and that led
Speaker 1: to a decade or more of very high inflation, and
Speaker 1: finally Paul Boker was appointed chairman in nineteen seventy nine.
Speaker 1: I was appointed in the FDIC in nineteen seventy eight,
Speaker 1: and we worked together. But Paul Boker was determined in
Speaker 1: the FENDER was determined to bring down inflation, and they did.
Speaker 1: They raised ridge very high, and that led to all
Speaker 1: sorts of problems. And we're repeating that period right now.
Speaker 1: I don't I don't know how long it's going to last.
Speaker 1: I don't know how many firms it's going to happen,
Speaker 1: but I do think we're trying to chanke your bill.
Speaker 1: If things are different us right, what specifically is different
Speaker 1: this time around is the issue because of specifically depositors.
Speaker 1: What's different about about the depositors? In your mind, well,
Speaker 1: the issue surrounding depositors with those FDIC limits. Also usually
Speaker 1: when you'd think back, that was more geared toward individuals,
Speaker 1: but now you're dealing with companies. Is that the hurdle
Speaker 1: this time around versus in past crises that you've seen.
Speaker 1: I don't. I don't think that's materially different. Uh, we
Speaker 1: had a lot more depositors back then, in terms of
Speaker 1: numbers and numbers of banks, we had thirteen thousand banks
Speaker 1: when I was Cairman of the FDIC, and now we
Speaker 1: have about forty five hundred banks. And but we I mean,
Speaker 1: I'm not saying that things aren't different there. It's a
Speaker 1: lot of different things today, but some of the things
Speaker 1: are not different. Let's take let's sake s B, the
Speaker 1: Silicone Valley Bank, that's not new at all. That's that
Speaker 1: I mean, they were doing new types of financing, but
Speaker 1: it was the same problem. We had a crisis we
Speaker 1: had in nineteen seventy nine with First Pennsylvania Bank, the
Speaker 1: largest bank in Pennsylvania, the oldest national chartered bank in
Speaker 1: the country, and they've decided they had a great idea,
Speaker 1: let's invest in government bombs, which they did. They loaded
Speaker 1: up on government bombs at fixed rates. And then Paul
Speaker 1: Boker became Chairman of the FED and decided he was
Speaker 1: going to raise rates very high and kill inflation. So
Speaker 1: history has shown us that we've been here before, is
Speaker 1: basically what you're saying. We've been here before. And why
Speaker 1: these guys did this again, I don't know. It was
Speaker 1: not very smart. Well, so then do you fault regulators here?
Speaker 1: You were a former regulator? I mean, is it regulators
Speaker 1: in the United States elsewhere, FED, FDIC, Treasury and Moore
Speaker 1: that have to some extent once again failed us. Yeah,
Speaker 1: I'm not trying to pick on anybody, but this is
Speaker 1: primarily the problem of a bank banks that had a
Speaker 1: board of directors that was not doing its job properly,
Speaker 1: and a bank that had managements that was not doing
Speaker 1: its job properly. And they and they did a bunch
Speaker 1: of things that they should not have done, and they
Speaker 1: weren't they and it failed. And now we're trying to
Speaker 1: clean it up, and and the FDIC and the FED
Speaker 1: and so horror will clean it up. This is not
Speaker 1: something we haven't done before, even in bigger ways than this.
Speaker 1: So we will clean it up. And should we faulter regulators,
Speaker 1: of course we should. The regulators did not do their job.
Speaker 1: As this bank grew in two years from sixty billion
Speaker 1: in size to over two hundred billion dollars in size.
Speaker 1: That's insane. So it is that a red fleix. So
Speaker 1: help help us out here because oversight obviously lacking. So
Speaker 1: what stones should we as analysts, as investors, as regulators
Speaker 1: be overturning what balance sheets? What sectors are the financial system?
Speaker 1: Would you be focusing right now and asking lots of
Speaker 1: questions about since we've already missed some big things. The
Speaker 1: red flags were out here. You tripled the size of
Speaker 1: the more than tripled the size of the bank in
Speaker 1: two years. That is a huge red flag that every regulator,
Speaker 1: every analyst, every board member, everybody ought to be on
Speaker 1: top of. Why is this thing growing tripling in two years?
Speaker 1: That's that's that's a huge red flag. And and I
Speaker 1: don't know how. I don't know how they got away
Speaker 1: with it, frankly, without being without being brought down faster
Speaker 1: and sooner. I mean, I really don't understand. Yeah, how
Speaker 1: this took so long to find? Bill, we only have
Speaker 1: about twenty seconds left. Could you tell us should the
Speaker 1: FDIC limit of two hundred and fifty thousand dollars? Should
Speaker 1: that be changed? I'm sorry to do. What should the
Speaker 1: FDIC limit be changed of two hundred and fifty thousand dollars?
Speaker 1: So as they kind of look forward and think about
Speaker 1: maybe what we should be doing differently. I think there's
Speaker 1: been a lot of conversation about that two hundred and
Speaker 1: fifty thousand deposit levels. Should that be changed in your view? Well,
Speaker 1: I shouldn't. I don't believe it should be increased. It was,
Speaker 1: it was I think it was forty when I arrived
Speaker 1: at the FDIC, and then it went to one hundred,
Speaker 1: and that went to two fifty. And I don't see
Speaker 1: why it keeps on growing. But there's one thing that
Speaker 1: we really could do, and that is we need to
Speaker 1: pay attention to non interest bearing business accounts. Those those,
Speaker 1: in my opinion, should have much more coverage, much more protection.
Speaker 1: We need to do that because that money is not
Speaker 1: hot money. It's it's money that's been supporting payrolls and
Speaker 1: business and you know, and we really should not have
Speaker 1: that money running and so I believe that we really
Speaker 1: need to pay attention to that. I recommended that when
Speaker 1: I was at the FDIC before I left, that we
Speaker 1: needed to increase coverage on nine interest bearing business accounts.
Speaker 1: That would be very, very helpful to the economy when
Speaker 1: times gets tough. Well, so appreciate your perspective. I know
Speaker 1: it's a busy day for everybody, including yourself. So Bill,
Speaker 1: thank you so much. Be While Bill Isaac, He's former
Speaker 1: chairman of the FDI, see chairman of Secure at ISAAC.
Speaker 1: It is a consulting firm and, as we mentioned, on
Speaker 1: the board of directors of a few banks. You're listening
Speaker 1: to the Bloomberg Business Week podcast. Catch us live weekday
Speaker 1: afternoons from three to six Eastern on Bloomberg Radio, the
Speaker 1: Bloomberg Business app, and YouTube. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station, Jo
Speaker 1: Say Alexa play Bloomberg eleven thirty. All right, everybody, we
Speaker 1: are going to talk about budgets. It's certainly it's on
Speaker 1: the minds of many consumers. We saw that play out
Speaker 1: a little bit in the retail sales numbers today. It's
Speaker 1: not just about global banks, although that is obviously very
Speaker 1: important US retail sales. We got a data point this morning.
Speaker 1: Jess has been talking about it. We all have been
Speaker 1: US retail sales falling in February after surgeon the prior months,
Speaker 1: suggesting consumers spending while holding up is getting challenged by
Speaker 1: high inflation. The value of overall retail purchases decreased four
Speaker 1: tens of a percent after revised three point two percent
Speaker 1: advance in January. Back out gasoline and autos retail sales
Speaker 1: were flat. So let's get into what's going on with
Speaker 1: retail and the health of the consumer with us Katie Thomas.
Speaker 1: She's lead at Carney Consumer Institute, their consulting firms. She
Speaker 1: joins us via zoom from Pittsburgh, Pennsylvania. Katie, nice to
Speaker 1: have you here with Jess and myself. So retailers and
Speaker 1: retail getting tired, getting nervous? Are consumers running out of
Speaker 1: money to spend? How are you seeing it? You know
Speaker 1: right now, I'm still not that nervous. I've been pretty
Speaker 1: bullish on the consumer, and I say that way. You know,
Speaker 1: we talked to consumers about their spend over the last
Speaker 1: six months. Two out of three said they were still
Speaker 1: spending the same or they were still buying the same
Speaker 1: products and services despite the price increases. They're saying that
Speaker 1: continue to be pinched. But today's number is given that
Speaker 1: they were flat X gas and auto, it's actually pretty
Speaker 1: reasonable for February, you know, when you take into account
Speaker 1: weather sort of removing the hangover of January numbers, New
Speaker 1: Year's resolutions and all of that. So I think, you know,
Speaker 1: you're seeing consumers are making trade offs. So are they
Speaker 1: evaluating some degree of pullback perhaps, but what they're really
Speaker 1: doing is making trade offs across their wallet and across sectors,
Speaker 1: rather than feeling like they have to have some massive
Speaker 1: pullback and spend overall. Something I was curious about is
Speaker 1: the goods versus services equation. Are you've seeing any changes
Speaker 1: continuing on that front a little bit? I mean, that's
Speaker 1: a great example is looking at the restaurant number there,
Speaker 1: so you're seeing consumers. You know, there was a little
Speaker 1: bit of softness there, down two point two percent versus
Speaker 1: last month. And when we talk to consumers, they said,
Speaker 1: that's actually an area where they like to cook at
Speaker 1: home now, so they can splurge on a nice cut
Speaker 1: of meat, a nice bottle of wine, and they're willing
Speaker 1: to spend on those goods rather than the services. More
Speaker 1: broadly speaking, there's still a little bit of the pandemic
Speaker 1: where we're still happy to be back out and about,
Speaker 1: and really you're seeing a bit more of an investment
Speaker 1: in services from hospitality to concerts and events, and you know,
Speaker 1: kind of supplanting some of the material goods. But you know,
Speaker 1: it's really a mixed bag depending on the consumers in
Speaker 1: their financial situation. So when you talk about the consumer
Speaker 1: and retail though you can't talk about it in a vacuum.
Speaker 1: And so I'm thinking about the newsflow of the past
Speaker 1: week and I haven't heard you mention it. So how
Speaker 1: do you factor that in? Because I feel like we
Speaker 1: were just talking about psychology versus fundamentals. Psychology can affect fundamentals.
Speaker 1: It does impact fundamentals. There's got to be folks out there,
Speaker 1: consumers are saying, I'm getting a little nervous bank runs. Yeah,
Speaker 1: I would have thought I lived through a pandemic and
Speaker 1: now I'm talking about bank runs. This is things that
Speaker 1: people dealt with, you know, a hundred years ago. Yeah,
Speaker 1: I love that psychology fundamentals. I heard you say that
Speaker 1: I may have to steal that. Well. The interesting part
Speaker 1: there is, you know, consumer sentiment has been pretty meek,
Speaker 1: medio good for a while now, but worse than actual
Speaker 1: consumer spend. So I think that's what you're continuing to
Speaker 1: see with the issues with the banks, is you're seeing
Speaker 1: that uncertainty, that frustration. To your point, consumers are like,
Speaker 1: when is all this going to end? So sentiment is mediocre,
Speaker 1: but it's not necessarily driving a huge pullback and spend
Speaker 1: because people like the wage market is still strong, the
Speaker 1: labor market is still strong, so they're still feeling like
Speaker 1: they have money to spend. So some ways, it's sort
Speaker 1: of that battle of like sentiment versus reality, and it
Speaker 1: is that psychology of look, i'm sick of bad news,
Speaker 1: I'm sick of one thing after another. But then you
Speaker 1: almost get a little bit of a shift into that
Speaker 1: Yolo mentality, the pent up demand from the pandemic of like,
Speaker 1: with everything that's going on, I'm just going to keep
Speaker 1: living my life and spending on the things I want
Speaker 1: to spend on. That's interesting because we've seen some of
Speaker 1: this wage inflation data pull back a bit, but it
Speaker 1: sounds like you're not seeing that change yet in the
Speaker 1: consumer behavior. Not totally. I mean, consumers are evaluating. So
Speaker 1: it's just really that nuance of if you want to
Speaker 1: think of it as like a major pullback versus a tradeoff,
Speaker 1: I think consumers are being incredibly thoughtful about those spend
Speaker 1: versus splurge categories. So we've heard from you know, big
Speaker 1: box retailers through dollar discount stores, they've seen an uptick
Speaker 1: higher income consumers. That means people know they want to
Speaker 1: get their best bang for their buck on those everyday
Speaker 1: items where they are feeling inflation. Food and gas is
Speaker 1: where people have felt inflation the most. That's where they're
Speaker 1: really being thoughtful, but in order to save there, they're
Speaker 1: also shifting that spend into other categories where they're still
Speaker 1: wanting to splurge or save a little bit. So it's
Speaker 1: really about evaluating, you know, all those different things. And
Speaker 1: I think that's why you haven't seen it necessarily hit
Speaker 1: one sector that hard is because in a lot of ways,
Speaker 1: consumers it's very individual in terms of where you know,
Speaker 1: they're really deciding they want to spend. So when you look,
Speaker 1: you know, you talked about the past six months of data,
Speaker 1: So I'm just curious as you try to get kind
Speaker 1: of data in real time, what do you look at?
Speaker 1: Is it revolving debt? What is it that you look
Speaker 1: at to see more about the health of the consumer
Speaker 1: than ultimately it's impact on retail. Yeah. Absolutely, those are
Speaker 1: the numbers right now that do give me a little pause,
Speaker 1: do give me a little concern. So while I've generally
Speaker 1: been bullish that consumers are just informed, thoughtful, savvy in
Speaker 1: terms of how they want to spend, looking at savings rates,
Speaker 1: looking at credit card increasing credit card debt, likelihood of defaults.
Speaker 1: We're seeing all of those numbers moving a wrong direction, yes, exactly.
Speaker 1: So those are the numbers where you're seeing there really
Speaker 1: is the reality in the market kind of moving in
Speaker 1: the wrong direction. And those are the most concerning to me,
Speaker 1: especially as you start to break it down by income
Speaker 1: and sort of the disproportionate defense. Yeah, a couple of
Speaker 1: days ago, like within the last week. I mean, it's
Speaker 1: gotta be worrisome, exactly. And you know, for a while,
Speaker 1: people have these record savings rates and the stimulus checks,
Speaker 1: so you know, you'll see you're seeing people evaluate those
Speaker 1: bigger projects delay maybe you know, the bigger spend. So
Speaker 1: that's when it comes to big household purchases. You saw
Speaker 1: a little bit of softness, for instance, this month in
Speaker 1: furniture furniture stores. People invest in their homes. Now they're
Speaker 1: pressing pause, they're evaluating a little I'm gonna explorage on
Speaker 1: a beauty and new lift stick instead of you know,
Speaker 1: a new couch this month. But that's really some of that,
Speaker 1: you know, kind of moderation and the cautious outlooks you're
Speaker 1: hearing from. Honestly, most retailers. Right now, you brought up
Speaker 1: specifically the savings rate in people. Adding to that, where
Speaker 1: exactly do you think when you're crunching the data, or
Speaker 1: people more willing to save on certain things rather than
Speaker 1: spin Because I know you brought up the furniture and
Speaker 1: those other details, but is it more geared toward a
Speaker 1: way to gauge as far as where the economy is
Speaker 1: headed and is that why they're going to potentially put
Speaker 1: more money aside? Well, I actually meant quite the opposite,
Speaker 1: which is we had record high savings during the pandemic
Speaker 1: from the stimulus checks, which have now go down to
Speaker 1: I think the last number I saw was two to
Speaker 1: three percent, right, so almost record lows there. So yeah,
Speaker 1: I think, you know, in general, consumers are really it's
Speaker 1: sort of some of the things related to the pandemic.
Speaker 1: So you know what was I able and not able
Speaker 1: to do during the pandemic. Like I said, I think
Speaker 1: that everyday items is where you're seeing consumers want to
Speaker 1: be almost as frugal as possible, where they're being what
Speaker 1: they want to make sure they're getting the best bang
Speaker 1: for their buck, and that quality, that quality really works
Speaker 1: hard for them. I mean over seventy percent of consumers
Speaker 1: said they will spend more on things they feel like
Speaker 1: quality is there. So that's again where you get into
Speaker 1: these muddy definitions of like, it's not just low price,
Speaker 1: it's got to be that right sort of nebulous price
Speaker 1: value equate. So, Katie, you work in the consumer space,
Speaker 1: You've got clients, and I'm just curious what those clients
Speaker 1: you know, whether they're you know, consumer product companies and
Speaker 1: the like, how what's the question that they're coming most
Speaker 1: often to you about right now? And just got about
Speaker 1: forty five seconds. Yeah, I mean, it's just what we're
Speaker 1: all saying right now, which is how do we try
Speaker 1: to predict for the unpredictable? And what we've seen throughout
Speaker 1: the pandemic is just so much change, so fast, consumers
Speaker 1: buying a category one day, stopping buying it the next.
Speaker 1: So it's really trying to hone in on how to
Speaker 1: think about these behavior a little bit differently, How do
Speaker 1: we plan for them, How can we become more agile
Speaker 1: and you know, rethink the way that we're thinking about
Speaker 1: our forecasts and demand planning in a way that allows
Speaker 1: for some of these shifts that are happening. Really quickly,
Speaker 1: and you know, allows for these potential supply chain risk.
Speaker 1: It's really continues to be those discussions around agility that
Speaker 1: are really top of mind for clients right now. Five seconds.
Speaker 1: Do you think we'll see some consolidation as a result
Speaker 1: in this space right now? In consumers in the consumer space, absolutely,
Speaker 1: consumers are overwhelmed with options, as are the brand So
Speaker 1: I think you'll continue to see a little bit of
Speaker 1: culling of options to make life easier for everybody. All right,
Speaker 1: Good to check in with you, Katie Thomas. She's a
Speaker 1: leaded at the Carney Consumer Institute. Joining us via zoom
Speaker 1: from Pittsburgh, Pennsylvania. Carol Mass or Jess Manton. You're listening
Speaker 1: and watching Bloomberg Radio. You're listening to the Bloomberg Business
Speaker 1: Week podcast. Catch us live week afternoons from three to
Speaker 1: six Eastern Listen on Bloomberg dot com, the Ihard Radio
Speaker 1: app and the Bloomberg Business App. Or want us live
Speaker 1: on YouTube. I want to get to our next guest.
Speaker 1: You know the backdrop Global markets on edge Fresh termoil
Speaker 1: at Credit Suite. Just a few days after the collapse
Speaker 1: of some American regional banks spurred a frantic rush for cover.
Speaker 1: You've got the FED working with the Treasury to review
Speaker 1: US financial sector's exposure to credit sweets, and then we've
Speaker 1: seen a real repricing when it comes to expectations on
Speaker 1: the FED. So jam pack Day great to have back
Speaker 1: with us. Peter Atwater, adjunct Professor of Economics at William
Speaker 1: and Mary, former Wall Streeter, someone who really so smartly
Speaker 1: connects Wall Street and Main Street and Washington. He is
Speaker 1: the person who coined the term K shaped economy, and
Speaker 1: he's a financial historian and he is joining Sva Zoom
Speaker 1: in Pennsylvania. Peter, good to have you here with Jess
Speaker 1: and myself. I gotta first ask you, if you were
Speaker 1: still on Wall Street, would you be hunkering down and
Speaker 1: moving assets into safe havens because you thought, Okay, there's
Speaker 1: more to this crisis and we've seen so far, and
Speaker 1: I as soon you use crisis, I think, actually it's
Speaker 1: three banks that have gone down. Credit Spiece has had
Speaker 1: problems for a long time, So I've got to be
Speaker 1: careful in what I say. Yeah, I think we're in
Speaker 1: the midst of a panic, and so I think that's
Speaker 1: a good term because it describes the environment in terms
Speaker 1: at least in terms of confidence in the way people feel.
Speaker 1: You know, I think everybody is hunkering down. It's a
Speaker 1: natural response to our low confidence. So I expect that
Speaker 1: every firm on Wall Street, if not regional banks and
Speaker 1: global banks right now are looking at all their positions.
Speaker 1: It's a natural, impulsive, emotional response to what we've seen. Peter,
Speaker 1: you mentioned the environment. How important is it for us
Speaker 1: to really understand how did we get here? So it's
Speaker 1: critically important because the backdrop of confidence really drives what
Speaker 1: we do. And I think underappreciated, particularly for the last
Speaker 1: six or nine months, has been the fact that at
Speaker 1: least American confidence, if not global confidence, has been really low.
Speaker 1: And when that happens, we are predisposed to act impulsively, dramatically.
Speaker 1: If you look at history, these are the times when
Speaker 1: banks fail. Bank runs don't happen when everybody is confident.
Speaker 1: They only happen when people feel powerless and uncertain. And
Speaker 1: that's what this sort of environment is fostering. Is a
Speaker 1: lot of it too, that we've just quickly moved from.
Speaker 1: It feels like a very low rate, negative rate environment,
Speaker 1: easy money, liquid environment. How many adjectives can I use here,
Speaker 1: Peter to a very different environment where we're tightening as
Speaker 1: the FED moves to rain and inflation. Yeah, I would
Speaker 1: frame it a little differently. I think we went from
Speaker 1: extreme confidence in fixed income reflected in the trillions of
Speaker 1: dollars of negative interest rates. So we had that peaking
Speaker 1: at the same time that we had all of this abstraction, NFTs, crypto,
Speaker 1: all the different coins and spacts, and so what I
Speaker 1: think we're seeing here is a collision in the falling confidence,
Speaker 1: not only in terms of abstraction and what we've seen
Speaker 1: in the equity market, but the same decline and confidence
Speaker 1: that's hitting us in fixed income. And so those two
Speaker 1: really came together with a Silicon valley where you had
Speaker 1: this double whammy of people fearful of the crypto connection
Speaker 1: as well as the bond connection. You talked about how
Speaker 1: this is a panic. I want to know more specifically,
Speaker 1: why do you think this is a panic this time around?
Speaker 1: Versus people who are arguing, well, this is more if
Speaker 1: you're looking at the types of midsize banks that had
Speaker 1: these exposures, specifically towards deposits. Because I'm looking at the
Speaker 1: behavior and so the behavior reflects panic, which is that
Speaker 1: movement that we have as our sense of powerlessness and
Speaker 1: uncertainty swell, and that happens generally towards lows and confidence
Speaker 1: and panic. If you think about it, if you've ever
Speaker 1: experienced a panic attack, what that is is anticipate. It's
Speaker 1: an extrapolation of the trend. And so that's what we're
Speaker 1: seeing here at lows and towards this low and confidence
Speaker 1: is people are extrapolating the fact that one bank has
Speaker 1: gone bad, therefore others will occur. And that's that's the
Speaker 1: nature of this panic contagion that you see throughout history.
Speaker 1: Totally get that. And this is part of what we
Speaker 1: were talking earlier about psychology and how you know, versus fundamentals,
Speaker 1: but how psychology can drastically change fundamentals that can really
Speaker 1: play out. Having said that, Peter Bill Isaac, former head
Speaker 1: of the FDI, see, you know there in the late
Speaker 1: seventies and eighties, saw a lot of bank problems. You know, said,
Speaker 1: you know, looking at Silicon Valley Bank, this is a
Speaker 1: bank who's balance sheet just exploded in terms of assets.
Speaker 1: So it makes me wonder, where is the regulatory oversight?
Speaker 1: What are we missing in either shadow banking or the
Speaker 1: private markets that I feel like there isn't that much
Speaker 1: transparency over So I think, as as with everything, when
Speaker 1: confidence sores the way it did certainly in financial services
Speaker 1: up until a year or two ago, you see the
Speaker 1: regulatory environment follow suit. So regulation naturally becomes more laxed
Speaker 1: before confidence turns down. And sadly, this is a phenomenon
Speaker 1: that we see again repeated in history, and so you're
Speaker 1: seeing regulators now playing catch up. And you know what
Speaker 1: we'll see is once things you know, once the barn
Speaker 1: door is you know, the animals are out, they will
Speaker 1: once again close the barn door after them. Are there
Speaker 1: more animals to come out? Pigs can move kind of fast,
Speaker 1: Cows can move kind of slowly, you know what I mean? Though,
Speaker 1: But should we expect that there's more to happen here?
Speaker 1: So I think we have to watch how people are
Speaker 1: behaving because if mood continues to deteriorate, there will be
Speaker 1: more contagion, Things will move more quickly, more widespread. If
Speaker 1: this was the bottom in terms of some sort of capitulation,
Speaker 1: then we should see start confidence begin to rebound. But
Speaker 1: I think we need to be cognitists of the fact
Speaker 1: that after a traumatic event like this, we are continue
Speaker 1: to be hyper vigilant, and so we have to be
Speaker 1: careful that we don't have this false start and then
Speaker 1: roll over again. Carol mentioned earlier about how you popularize
Speaker 1: this term the key shaped recovery. What are we in
Speaker 1: store moving forward? What kind of shape here are we
Speaker 1: talking about? Well, I actually think what we're witnessing is
Speaker 1: a lot of confidence at the very high end that
Speaker 1: preceding this was extraordinarily confident is receding. And so I'm
Speaker 1: seeing this beginning of this closing of some sort of
Speaker 1: an alligator jaw where you know, those at the top
Speaker 1: moved substantially higher and they're starting to move down. And
Speaker 1: remember for those at the bottom, you know, is this
Speaker 1: continues to be an extremely difficult environment because of inflation,
Speaker 1: because of you know, particularly food and energy and certainly
Speaker 1: housing in cars. Just got about twenty seconds, Peter, your
Speaker 1: thoughts on what the FED needs to do next week.
Speaker 1: I think the Fed has done a remark workable job
Speaker 1: this past weekend in terms of trying to instill confidence
Speaker 1: in the system. As far as what they do next week,
Speaker 1: I'm watching the tebow market because the tebow market is
Speaker 1: going to lead the FED into where they position themselves.
Speaker 1: I think they have to be very conscious of not
Speaker 1: unsettling things and making investors feel more powerless and uncertain
Speaker 1: than they feel today. This was so great, Peter, Thank
Speaker 1: you so much. Really appreciate you joining us on this Wednesday.
Speaker 1: Peter Atwater, he's adjunct professor of economics, Everet Will even
Speaker 1: Marry joining us via zoom from Pennsylvania. You're listening to
Speaker 1: the Bloomberg Business Week podcast. Catch us live weekday afternoons
Speaker 1: from three to six Eastern on Bloomberg Radio, the Bloomberg
Speaker 1: Business App, and YouTube. You can also listen live on
Speaker 1: Amazon Alexa from our flagship New York station Just Say Alexa,
Speaker 1: playing Bloomberg eleven thirty. We are talking about walking on
Speaker 1: a fine line. It certainly feels that way in terms
Speaker 1: of the banking sector, feels a little fragile. Although, as
Speaker 1: you've heard from a lot of our conversations today, a
Speaker 1: lot of folks saying, this isn't, you know, another financial crisis,
Speaker 1: this isn't another banking maildown, but nonetheless we are all
Speaker 1: keeping a watch on it. You are listening in watching
Speaker 1: Bloomberg BusinessWeek on this Wednesday. Carol Master along with Jess Metton.
Speaker 1: So we did talk a lot about credit suees today.
Speaker 1: The stock spiraling as it was unable to line up
Speaker 1: a top shareholder to up at stake in the bank,
Speaker 1: as you know, did cause shivers through global banking on
Speaker 1: top of an already heightened nervousness following the collapse of
Speaker 1: three regional banks in the past week, most notably Silicon
Speaker 1: Valley Bank. So let's get into how Silicon Valley banks
Speaker 1: collapse threatens an already fragile economy that's storing the upcoming
Speaker 1: new issue of Bloomberg Business Week on newsstands starting tomorrow,
Speaker 1: already online at Bloomberg dot com, slash BusinessWeek and on
Speaker 1: the Bloomberg Let's get to it with Bloomberg News Fed
Speaker 1: and US Economy reporter Chris Condon on the phone in Washington, DC,
Speaker 1: and also with us the editor Bloomberg BusinessWeek, Joel Webber
Speaker 1: here in our Bloomberg Interactive Broker's studio. Um, Joey, you know,
Speaker 1: we talk about black swans or unknowns when we talk
Speaker 1: about the economic outlook. Who would have thought a couple
Speaker 1: of weeks ago that we would be talking about you know,
Speaker 1: it feels like some continued problems in the banking sector,
Speaker 1: and it all started off It feels like with SVB
Speaker 1: um or maybe jo j Yeah, right, there's that guy
Speaker 1: who uh, you know, been raising interest rates and at
Speaker 1: some point, Um, we're maybe going to see some cracks
Speaker 1: in a facade, as as Chris has in his story. Um.
Speaker 1: And and I think we were all kind of maybe
Speaker 1: waiting for something somewhere to track, and now we've seen
Speaker 1: what that looks like. Um. And you know this is
Speaker 1: also interesting, Chris, because we're gonna have maybe some more
Speaker 1: movement next week. Right, So what's on the docket from
Speaker 1: the Fed may thing of course to I think J.
Speaker 1: Powell is going to be testifying again. Um, and then
Speaker 1: maybe we're not too long. The foc is going to
Speaker 1: meet and they're going to have to decide how to
Speaker 1: handle their interest rate policy. People had been expecting at
Speaker 1: least a twenty five basis point increase, if not fifty.
Speaker 1: Powell signal the door was opened to fifty in his
Speaker 1: last appearance before Congress. Now the calculations are going to
Speaker 1: have to change. Obviously, the Fed is not only focused
Speaker 1: single mindedly on inflation, but they have to worry about
Speaker 1: financial stability, so that will certainly kind of change the
Speaker 1: entire mix. They have to steal unemployment because that's the
Speaker 1: other part of that dumanded. But okay, let's say let's
Speaker 1: stay with it, because there's this lag that has been
Speaker 1: talked about a lot. How much does J POW care
Speaker 1: about that lag? Very much so, because we'll look at
Speaker 1: how much they've already raised, Joel, you know that they
Speaker 1: went from just above zero to where they are here
Speaker 1: almost at five percent. The full effect of those increases
Speaker 1: has an not really been transmitted into the economy. So
Speaker 1: even if they stopped now, you can expect the economy
Speaker 1: will continue to slow because of that, make financial conditions tighter,
Speaker 1: make it more difficult for firms and households to borrow money,
Speaker 1: purchase things, and invest. So they have to think about,
Speaker 1: you know, how those previous increases will be transmitted into
Speaker 1: the economy and when, and then how much they want
Speaker 1: to add on top of that makes their calculus always
Speaker 1: a pretty complex one and it's not always clear and
Speaker 1: looking at the economy how much of the past increases
Speaker 1: has been fully realized yet? Well, the good news no,
Speaker 1: there is none. There is some historical precedent for what
Speaker 1: interest rate increases you know, can do, and the implications
Speaker 1: that they can have for their kind of I walk
Speaker 1: us through some of what you wrote about in the story. Well,
Speaker 1: the history of rate hiking cycles is not a very
Speaker 1: pretty one. It's not only, of course, everybody says it's
Speaker 1: very difficult to pull off the so called soft landing,
Speaker 1: but even more than that, when you don't get the
Speaker 1: soft landing and you get a recession, you almost never
Speaker 1: glide gently into that recession. Generally, the economy is slowing down,
Speaker 1: things start to become fragile, weak points begin to get exposed,
Speaker 1: and then something breaks, something like an SVB or in
Speaker 1: previous cases of the dot com bubble burst or another
Speaker 1: bank failure happened, and then it serves as a trigger point,
Speaker 1: and it shakes the confidence of investors, shakes the confidence
Speaker 1: of consumers and the lending, and you get this retrenchment.
Speaker 1: And so suddenly the economy previously just kind of gently
Speaker 1: slowing down kind of just tips over and turns into
Speaker 1: a recession. And then unemployment can very sharply ramp up
Speaker 1: after that. And so the big question of Chorus now
Speaker 1: is is this SVB incident going to be that kind
Speaker 1: of trigger point? It's really not certain yet. The credit
Speaker 1: SWEE situation that is greatly complicating it. Of course, it's
Speaker 1: not really very similar to svbing. It's but it's suffering
Speaker 1: from now this leaking away of confidence in financial markets.
Speaker 1: And so I don't think it's clear yet that these
Speaker 1: really will be the break point. But we're at a
Speaker 1: very perilous moment, that's for sure. Okay, so maybe I'm
Speaker 1: trying to find the silver lining. If we do see
Speaker 1: this collapse or this triggering of a recession, does that
Speaker 1: mean inflation? Actually Chris gets back down to two percent,
Speaker 1: and they fed like, whoa, I can start cutting rights. Well, yeah,
Speaker 1: there are a couple of things, Carol. In fact, number one, yes,
Speaker 1: if we go into recession, the inflation problem will very
Speaker 1: likely disintegrate. The other thing that is a bit of
Speaker 1: a silver lining. Economists will will point out that, you know,
Speaker 1: outside certain sectors, the economy is in pretty good shape.
Speaker 1: Balance sheets pretty good. The banking sector, particularly the largest banks,
Speaker 1: are very well capitalized. They were forced to be sold
Speaker 1: by the twenty and ten Dodd Frank changes. Household balance
Speaker 1: sheets are also pretty darn good shape. And so most
Speaker 1: economists say that they're expecting a recession, but a shallow one.
Speaker 1: So if that's the silver lining, perhaps that's what you're
Speaker 1: looking for. So, Chris, with this week's data, when you're
Speaker 1: looking at CPI, the we're coming a little bit hotter
Speaker 1: than expected, but you're seeing these sort of maybe silver
Speaker 1: linings with producer prices easing up again and then also
Speaker 1: some softwarese in the retail sales. Where exactly does this
Speaker 1: leave the FED as we're heading into next week with
Speaker 1: this big, great decision. You know, I do think they're
Speaker 1: not going to be so worried about the latest inflation
Speaker 1: data points. First of all, you know, they are never
Speaker 1: they're not expecting this to be a straight line inflation.
Speaker 1: The inflation figures months to months will always be bumpy.
Speaker 1: They're gonna want to look at friend line first of all.
Speaker 1: And then in the context of these bank issues and
Speaker 1: the financial stability questions, they're just going to want to
Speaker 1: kind of thread the needle here and first and foremost,
Speaker 1: do no more additional harm, Do not spook the markets
Speaker 1: with something the markets are not expecting on the hawkish side.
Speaker 1: And at the same time, they're going to want to say, look,
Speaker 1: even if we pause, we're we're going to get right.
Speaker 1: You know, once things are settled down, we're going to
Speaker 1: get right back to fighting inflation. That job is not done.
Speaker 1: They're gonna want to signal that one way or another. Okay, Well,
Speaker 1: just to put a bow on all this, I'm gonna
Speaker 1: give you the quote that Chris has in the story
Speaker 1: from David Wilcox, who's the director of US Economic Research
Speaker 1: at Bloomberg Economics, also a former division director at the FED,
Speaker 1: who said, it's hard to be totally certain of anything
Speaker 1: once a crack has appeared in facade. So yeah, I
Speaker 1: have a glass of wine. Yeah, good idea. That facade
Speaker 1: crack is what I think we're all watching. That is
Speaker 1: for sure. All right, Chris Connin, thank you so much,
Speaker 1: FED and US Economy reporter at Bloomberg News on the
Speaker 1: phone in Washington, DCR. Thanks to the editor of Bloomberg
Speaker 1: Business Week, Till Webber. Here in our interactive broker studio,
Speaker 1: this store in the upcoming new issue on newstands tomorrow,
Speaker 1: online at Bloomberg dot com, slash business Week, and already
Speaker 1: on the Bloomberg terminal, you're listening to the Bloomberg Business
Speaker 1: Week podcast. Catch us Live weekday afternoons from three to
Speaker 1: six Eastern. Listen on Bloomberg dot com, the Ihard Radio
Speaker 1: app and the Bloomberg Business app, or watch us live
Speaker 1: on YouTube. Road journal. Now, bet you let me drive?
Speaker 1: Oh no, no, no, no, who's going to drive home? Honey? Please?
Speaker 1: I'll do the riding drivels. I want to drive. Good
Speaker 1: question drives? This is the drive to the globe coming well?
Speaker 1: Driver up down on Bloomberg Radio. All right, everybody, just
Speaker 1: about eighteen minutes to go until we wrap up this
Speaker 1: trading day only Wednesday. How to check you, Jess. There's
Speaker 1: been a lot going on. We had a repricing going
Speaker 1: on in assets. We've got the Fed now pricing in
Speaker 1: what a one percent rate cut this year? I mean,
Speaker 1: what a different week makes if you think about where
Speaker 1: the two year was one week ago exactly, and just
Speaker 1: seeing those roundabout moves, and then especially repricing, if you're
Speaker 1: looking at those world interest rate probabilities. Now all of
Speaker 1: a sudden, we're going from a potential we thought the
Speaker 1: veeder was going to continue to high rates into the summer.
Speaker 1: Now they could potentially cut by a hundred basis points
Speaker 1: after this next meeting. It's like whiplash, all right. So
Speaker 1: let's get with it and to it with our drive
Speaker 1: to the closed. Guests with us is Phil Taves. He's founder,
Speaker 1: president and CEO at Taves Asset Management. They're about a
Speaker 1: billion dollars. They're a registered investment advisor, tactical asset manager.
Speaker 1: And he's here in our Bloomberg Interactive Broker's studio. So
Speaker 1: how do you see what's going on and what it
Speaker 1: means for the investment environment. Well, so we view it
Speaker 1: as a potential slow meiltdown. One of the ways we
Speaker 1: frame the market is whoa, whoa, whoa slow maildown? You
Speaker 1: got my attention? You had me at hello? What exactly?
Speaker 1: What kind of slow mailtdown? That sounds worrisome? Well, sou
Speaker 1: with the markets, everyone tends to you know, you get
Speaker 1: in this orderly state of things, and last year, even
Speaker 1: even the decline last year, for the most part, was
Speaker 1: pretty orderly, and everyone just assumes that that's the way
Speaker 1: it's going to be. So the problem, however, is that
Speaker 1: often these things come out of nowhere, and like this
Speaker 1: is a perfect example. I mean, prior last week at
Speaker 1: this time, who was talking about a run on the bank.
Speaker 1: So we all basically woke up to it this weekend
Speaker 1: we hear about run on the banks, we start to
Speaker 1: think about it and the fact the way that rates
Speaker 1: sort of create lack of profitability for banks. Why aren't
Speaker 1: we talking about it last week? I don't know. But
Speaker 1: then in addition to that, you've got the fact that
Speaker 1: really tried a little bit because you would look at
Speaker 1: the bank sector, even though its rate expectations were going up, right,
Speaker 1: bank stocks weren't going up exactly. Yeah, to me, that
Speaker 1: was a disconnect exactly. Well, so that that was there,
Speaker 1: that was evidence. But so then you've got the fact
Speaker 1: that the FDIC is we all realize, or we all knew,
Speaker 1: but only as ensuring two hundred fifty thousand dollars. You've
Speaker 1: got these massive deposits that are uninsured, and so a
Speaker 1: run on a bank is actually a real thing again, right,
Speaker 1: I mean right, So it's a real thing. And this
Speaker 1: statement that the that the FED made when they came
Speaker 1: out to protect everything. And by the way, I think
Speaker 1: the thinking was coming into Monday, is the FED, either
Speaker 1: or the government or whoever or whoever else protects everything
Speaker 1: or is massive outflows out of these small banks into
Speaker 1: big banks. So I think they made the right move.
Speaker 1: But their statement said that there's systemic risk with these
Speaker 1: two banks and so we're going to come in and
Speaker 1: backstop them. So that that's an incomplete statement as it
Speaker 1: pertains to small banks, right, so maybe there are small
Speaker 1: banks out there that don't have represent systemic risk. So
Speaker 1: I think it's an evolving situation. I think, yeah, Credit
Speaker 1: SUITEE it was. It's a horrible situation today with their
Speaker 1: stock price and uh, you know, with for pr for them.
Speaker 1: But I think it's like a slow moving situation and
Speaker 1: we're not going to KNOWE today or tomorrow, and I
Speaker 1: think it's just going to have to play out over time.
Speaker 1: But it creates nothing is more credits we separate from
Speaker 1: what we're seeing in the three banks have failed. Yeah,
Speaker 1: I think so. I think so because they've had problems
Speaker 1: for a long time, and and there's they've they've had
Speaker 1: a hard time managing risk. But you know, I just
Speaker 1: I think it's important to like think in terms of
Speaker 1: people and their portfolios, to think about contingency planning right now,
Speaker 1: to consider even if we think we may not move lower,
Speaker 1: I think it's probably not the end. They're probably aren't
Speaker 1: a lot of people saying wow, potential long term term
Speaker 1: systemic crisis with banks. Let's invest now. So I think
Speaker 1: it's it's it's probably going to get worse rather than
Speaker 1: better over the next three to six months. And I'm
Speaker 1: glad you brought up people's portfolios because I know you
Speaker 1: have a very unique way with how your funds work,
Speaker 1: with a sort of defensive type nature. But contrarian would say,
Speaker 1: you're in a situation environment like this, how are you
Speaker 1: positioning at this point? Yeah, So with all of our strategies,
Speaker 1: what we do as affirm is we try to provide
Speaker 1: investors with ways to be in the markets, so to
Speaker 1: participate paid in the kind of conventional assets like stocks
Speaker 1: and bonds that everyone wants to be in. But what
Speaker 1: we do is we with our methodology, try to address
Speaker 1: the contingency of significant dislocations. And we do that through
Speaker 1: one of two different ways. It's like a hedge fund
Speaker 1: strategy kind of, although many hedge funds are super complex
Speaker 1: and are betting short and long and taking leverage. So
Speaker 1: with our strategies, all we're doing is across the board.
Speaker 1: With our strategies, when we're invested, we're just one notional
Speaker 1: We're just trying to own the markets, just like an
Speaker 1: index fund when we're invested, but we try to hedge
Speaker 1: risk in two different ways. One of them is through
Speaker 1: trend following algorithms that attempt to move out of the
Speaker 1: markets in the very early stages of declines before big
Speaker 1: declines happen and just live on the sidelines. The sidelines
Speaker 1: don't look terrible right now when one month treasuries we're
Speaker 1: paying around five percent. The other way we do it
Speaker 1: is we have, for example, we have an ETF for
Speaker 1: example that has able to just have options for full
Speaker 1: notional protection. So with the market moves down, you have
Speaker 1: offsetting potentially offsetting appreciation in those option contracts. So in
Speaker 1: either case, what the thinking is then is you may
Speaker 1: not do as well during the rising market, but if
Speaker 1: the market, you know, falls into the ice, into the
Speaker 1: cold water, as we may be doing over the next
Speaker 1: six months, it allows you to just sort of be
Speaker 1: chill and maybe have some losses, but hopefully not as
Speaker 1: much losses as the market. So are you seeing more
Speaker 1: people come in to your funds now in this situation
Speaker 1: not as a result of what's happening in the market.
Speaker 1: So I mean, we have a sales effort and we
Speaker 1: try to bring assets in and we market primarily to advisors.
Speaker 1: But we're nowhere near the point where I think the
Speaker 1: public is looking at this with their stock investments and
Speaker 1: saying this is a panic mode. I mean, you know,
Speaker 1: obviously for those of the works, should they be. I mean,
Speaker 1: you did say slow meltdown before. That to me says
Speaker 1: a little bit gets my heart, you know, like, so
Speaker 1: so we did. So You've got the fear index, which
Speaker 1: is the VIX index, right, and you know it's a
Speaker 1: contrarian indicator, and when it's the lowest around ten or eleven,
Speaker 1: that's when you should have them most fear. And when
Speaker 1: it's the highest, that's when you actually want to invest
Speaker 1: in the markets. It's at twenty six and change right now. Yeah,
Speaker 1: so we're I mean, it's elevated, but it's not like
Speaker 1: as high as it can be up in the sixties
Speaker 1: or seventies or even higher. But so people aren't panicking.
Speaker 1: I'm I'm not sure I would say that people should panic.
Speaker 1: You know, our approach, which we're trying to spread the
Speaker 1: word and we have been for decades now, is that
Speaker 1: that most people get it wrong. Like the idea is
Speaker 1: not to outperform the markets, aren't necessarily even to perform
Speaker 1: as well as the markets. The vast majority of people
Speaker 1: just want to have gains above inflation. But to address
Speaker 1: the contingency of big falling markets. Why is that so hard?
Speaker 1: Right now? It's so hard because even during the financial
Speaker 1: crisis the decline only lasted six months. It can get
Speaker 1: much worse. And I think that's what one needs to
Speaker 1: think about, and you know, not panic, but address, like,
Speaker 1: address that possibility. Think about it when you're building your portfolio.
Speaker 1: It does feel like a churn, and it does feel like,
Speaker 1: certainly if the Fed, even if it pauses and then
Speaker 1: resumes the interest rate hikes because inflation is still a problem,
Speaker 1: that this could go on for a while. You know,
Speaker 1: just quick think five second. Yeah, So the Fed is
Speaker 1: in this new situation, they're creating what's brother thinking their web?
Speaker 1: All right, come come back soon. This was fun. Phil
Speaker 1: taves He is chief executive Officer at TVES Asset Management.
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