WEBVTT - December Meeting Likely Taper Announcement: Piegza 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.680 at Bloomberg dot com slash podcast. Let's bring in Dr 0:00:22.760 --> 0:00:26.880 Lindsay Piaza. Now she's chief economist for STI Full Financial 0:00:27.200 --> 0:00:31.880 and we'll start off, Lindsay with your reaction to the 0:00:32.280 --> 0:00:34.839 FED discussion and and and the and the release that 0:00:34.880 --> 0:00:37.040 we had yesterday. I want to kick it off of 0:00:37.080 --> 0:00:40.320 the dots because clearly that's what the market paid the 0:00:40.320 --> 0:00:43.400 most attention to. But um, Jerome Palace had take this 0:00:43.440 --> 0:00:45.680 with a grain of salt. This isn't it's not not 0:00:45.720 --> 0:00:48.640 like a plan. We haven't discussed this and we're moving 0:00:48.960 --> 0:00:51.440 in that direction. Um, what do you think about the 0:00:51.479 --> 0:00:54.560 dot plot? Well, I thought it was pretty interesting. We 0:00:54.640 --> 0:00:57.720 saw actually a number of revisions to the Fed's forecast. 0:00:57.800 --> 0:01:01.080 Not only did they x but I to the potential 0:01:01.120 --> 0:01:04.120 pathway for higher rates, but they also increase their expectation 0:01:04.200 --> 0:01:07.200 for inflation and growth and at the same time, they 0:01:07.280 --> 0:01:10.440 left their view of the labor market pretty much unchanged. 0:01:10.760 --> 0:01:14.840 So their expectation for being able to raise rates faster 0:01:15.200 --> 0:01:19.000 is really predicated not on fears of inflation, but the 0:01:19.040 --> 0:01:22.720 fact that the recovery is picking up momentum, that it's 0:01:22.800 --> 0:01:25.640 it's recovering it a faster than expected pace. So I 0:01:25.680 --> 0:01:29.399 thought this was a pretty positive projection from the Fed. 0:01:30.000 --> 0:01:32.840 And you know, on the jobs front, on the labor front, Lindsay, 0:01:33.120 --> 0:01:34.560 you know, the data over the last couple of months 0:01:34.560 --> 0:01:36.399 has been a little bit disappointing in terms of the 0:01:36.400 --> 0:01:40.360 folks getting back to work. How do you view that? 0:01:40.400 --> 0:01:42.039 How do you think the Fed's viewing that is just 0:01:42.120 --> 0:01:44.280 kind of a little bit of an aberration that things 0:01:44.280 --> 0:01:47.520 will pick up. That seems to be what they're suggesting. Well, 0:01:47.560 --> 0:01:50.280 I think the FED was very clear and acknowledging the 0:01:50.360 --> 0:01:52.880 recent improvements that we've seen in the economy. But at 0:01:52.920 --> 0:01:55.760 the same time, I think the chairman was tempering the 0:01:55.800 --> 0:01:58.840 market's expectations to say, wait a minute, we're not entirely 0:01:58.840 --> 0:02:01.760 out of the woods quite yet. Yes, we've taken big 0:02:01.760 --> 0:02:04.280 steps in the right direction, but we still have millions 0:02:04.280 --> 0:02:07.320 of Americans that have yet to return to the labor market. 0:02:07.400 --> 0:02:11.400 So there's further progress that needs to be achieved before 0:02:11.440 --> 0:02:15.280 we can talk about reaching that pre crisis vitality. So 0:02:15.320 --> 0:02:17.640 I think the Fed was very careful to walk this 0:02:17.840 --> 0:02:22.280 delicate line of yes, applauding the improvements, but also justifying 0:02:22.320 --> 0:02:25.960 the need for further accommodation going forward. What do you 0:02:26.000 --> 0:02:30.280 think the ten year yield means that real yielded I 0:02:30.360 --> 0:02:35.040 think negative seven basis points. Does that change significantly through 0:02:35.120 --> 0:02:38.480 your end? I think this says that the market is 0:02:38.520 --> 0:02:44.000 buying into the FEDS inflation dismissal rhetoric, that the market 0:02:44.040 --> 0:02:46.760 is really buying into the notion that these these recent 0:02:46.760 --> 0:02:50.160 price pressures will prove temporary and going into the end 0:02:50.160 --> 0:02:53.520 of the year, in early we'll start to see inflation 0:02:53.600 --> 0:02:56.799 come back down in line with the FEDS two percent targets. 0:02:56.840 --> 0:02:59.520 So I think from here the market is signaling that 0:02:59.639 --> 0:03:03.160 ape Can inflation has already been priced in, and in fact, 0:03:03.200 --> 0:03:05.880 we could continue to see some downward pressure on the 0:03:05.960 --> 0:03:08.160 longer end of the curve as we do start to 0:03:08.280 --> 0:03:12.760 see that reduced price pressures come to fruition or translate 0:03:12.800 --> 0:03:16.760 into the data. So, lindsay, what's your sense of timing here, 0:03:16.800 --> 0:03:19.960 as we think about tapering, is going to be the first, 0:03:20.680 --> 0:03:23.520 you know, act that we will get from this Federal Reserve. 0:03:23.560 --> 0:03:26.800 How are you thinking about that and from a timing perspective, Well, 0:03:26.840 --> 0:03:28.480 I think the FED has been pretty clear that they're 0:03:28.480 --> 0:03:31.360 going to give the market ample notice in terms of 0:03:31.360 --> 0:03:34.560 that discussion, and once the discussion begins, they're going to 0:03:34.680 --> 0:03:37.720 again give the market ample notice before a formal announcement 0:03:37.840 --> 0:03:41.680 is made. So if we anticipate that the discussion really 0:03:41.680 --> 0:03:45.240 begins around that August September time frame, it's likely that 0:03:45.320 --> 0:03:47.520 by the end of the year, at that December meeting, 0:03:47.800 --> 0:03:51.800 the FED initiates a formal announcement that taper will begin, 0:03:52.400 --> 0:03:56.800 making the actual process of drawing down those purchases two 0:03:56.880 --> 0:03:58.840 event and I do think this is going to be 0:03:58.880 --> 0:04:04.600 a very deliberate, very slow, very transparent process over six twelve, 0:04:04.680 --> 0:04:08.240 maybe even eighteen months period, pushing out to that first 0:04:08.360 --> 0:04:12.480 rate increase well into which again lines up with what 0:04:12.560 --> 0:04:14.760 we saw in terms of the latest dot plot with 0:04:14.840 --> 0:04:17.920 the vast majority of FETE officials anticipating at least one 0:04:18.040 --> 0:04:21.160 rate hike by the end of What do you think 0:04:21.160 --> 0:04:24.080 about the housing market, Lindsay David Rosenberg. Obviously he's a 0:04:24.080 --> 0:04:26.279 bear um, but he says we're in a bubble and 0:04:26.320 --> 0:04:30.919 it's not hard to understand why. Well, I do think 0:04:31.000 --> 0:04:34.279 that the housing market strength is very different from what 0:04:34.320 --> 0:04:36.760 we saw going into the oh seven o eight recession. 0:04:36.839 --> 0:04:40.440 This time around, it's not being driven by speculative demand 0:04:40.720 --> 0:04:44.320 or purchases of vacation homes or second homes. This is 0:04:44.320 --> 0:04:49.120 a shift, a structural shift in demand for homes, particularly 0:04:49.200 --> 0:04:51.880 outside of the urban centers. Now some of the variable 0:04:51.960 --> 0:04:54.920 some of the factors are COVID related, but some are not. 0:04:55.400 --> 0:04:58.520 We see an entire generation of millennials finally deciding to 0:04:58.600 --> 0:05:01.640 jump into the housing market, and so there is some 0:05:01.720 --> 0:05:05.000 structural demand that I do think will continue to support 0:05:05.560 --> 0:05:08.880 this type of growth going forward. So I think it's 0:05:08.920 --> 0:05:11.039 a little bit premature to say that this is a 0:05:11.080 --> 0:05:13.840 bubble um. I do think this is more of a 0:05:13.880 --> 0:05:16.919 long standing structural support that we'll see in terms of 0:05:16.920 --> 0:05:19.599 the housing market. All right, Lindsay, thanks so much for 0:05:19.720 --> 0:05:22.960 joining us. We always appreciate getting your perspective here. Lindsay 0:05:22.960 --> 0:05:26.240 PEEGSA chief economists for Stephi Financial, joining us on the 0:05:26.240 --> 0:05:28.200 phone from Chicago, and I guess if you're in the 0:05:28.240 --> 0:05:30.839 market for buying a home, Matt, it might be higher 0:05:30.839 --> 0:05:35.080 prices for longer. That hurts. That hurts to hear. But 0:05:35.160 --> 0:05:37.279 the good news is if you're in the market for 0:05:37.400 --> 0:05:41.040 selling a home, you're gonna probably get a higher price. 0:05:41.200 --> 0:05:44.680 And I see that Porscha is now putting out the 0:05:44.839 --> 0:05:48.600 new nine eleven nine nine two in GT three form. Sure, 0:05:49.160 --> 0:05:51.600 so I would say, anyone who's selling a home right now, 0:05:51.800 --> 0:05:55.799 seriously consider buying this nine eleven that you heard it here. First, 0:05:59.080 --> 0:06:02.880 skin over now to Ian Billina. He is the founder 0:06:02.880 --> 0:06:06.400 and CEO at Token Metrics. He's been involved in the 0:06:06.440 --> 0:06:12.280 crypto space for uh three four human years, which is 0:06:12.360 --> 0:06:15.120 like twenty crypto years. He can speak to us on 0:06:15.600 --> 0:06:19.520 what he's seen in terms of well, let's talk about 0:06:19.560 --> 0:06:23.080 bitcoin to to start with, Ian, Um, I know there 0:06:23.120 --> 0:06:27.919 are five thousand, four hundred and sixty eight other coins 0:06:27.920 --> 0:06:33.039 out there, but you think bitcoin is widely considered still 0:06:33.120 --> 0:06:37.719 the most important and um expected to be still the 0:06:37.760 --> 0:06:43.719 most important cryptocurrency in the next decade. Oh wow. First 0:06:43.720 --> 0:06:46.240 of all, thanks for heaving me to be on So 0:06:46.360 --> 0:06:50.440 bitcoin right now is the most impromative piturency in the market. UM, 0:06:50.480 --> 0:06:53.200 it's basically a proxy for the whole market. But we 0:06:53.279 --> 0:06:56.520 actually take a contragrant viewpoint on this. We believe in 0:06:56.600 --> 0:06:59.640 the future in the next ten years belong to a 0:06:59.720 --> 0:07:02.640 crypt Well, we're not over bitcoin. Bitcoin we had the 0:07:02.680 --> 0:07:05.880 person of our advantage. However, if you see all the 0:07:05.920 --> 0:07:09.080 growth happening in the space, it's happening in other block chains, 0:07:09.120 --> 0:07:12.360 for example in DeFi. Right now, Defy has over one 0:07:13.080 --> 0:07:16.040 billion dollars in total value and over so many type 0:07:16.040 --> 0:07:18.960 percent of that is happening on Etheria. So well, bitkoin 0:07:19.040 --> 0:07:21.400 was first and it's definitely the champion of the space. 0:07:21.880 --> 0:07:25.520 There's lots of innovation happening all over the space. Ian, 0:07:25.920 --> 0:07:27.760 I'd love to get your view on this one of 0:07:27.760 --> 0:07:30.119 the issues or one of the I guess the selling 0:07:30.160 --> 0:07:32.440 points if you will, or when the attributes a bitcoin 0:07:32.600 --> 0:07:35.920 was it's uh anonymity that can't be traced. But yet 0:07:35.960 --> 0:07:39.920 we've seen in some of the ransomware nymity. Yes, bitcoin 0:07:40.040 --> 0:07:42.960 is never was never thought to be anonymous. We we've 0:07:43.000 --> 0:07:46.000 always known that it is on a public ledger and 0:07:46.120 --> 0:07:48.760 can be traced by everyone in the world. Well, that 0:07:48.840 --> 0:07:51.800 was see, that was news to me at least, I guess, 0:07:52.040 --> 0:07:55.240 and you know, so talk to us about what happened 0:07:55.240 --> 0:07:59.200 with some of those ransomware and the ability of authorities 0:07:59.240 --> 0:08:02.840 to kind of trace it and get it back. Yeah. Well, 0:08:02.880 --> 0:08:05.760 I mean that's one of the miscommunications when it comes 0:08:05.760 --> 0:08:09.280 to crypto and bitcoin. People think bitcoin is completely anonymous. Now, 0:08:09.400 --> 0:08:12.200 early on, in the early days, yes, there was dark 0:08:12.400 --> 0:08:14.200 there was the dark web, so code and all those 0:08:14.400 --> 0:08:17.800 the farious actors were using bigmoin for crypto in general. 0:08:17.840 --> 0:08:20.440 For that means, however, the blockchain has been one of 0:08:20.480 --> 0:08:23.600 the best innovations in the last twenty years. So now 0:08:23.800 --> 0:08:27.720 regulators and that the police and FBI are able to 0:08:27.800 --> 0:08:31.760 work and transact and track transactions on the blockchain. The 0:08:31.840 --> 0:08:35.320 companies out there like chain analysis that helps regulators do 0:08:35.400 --> 0:08:38.040 just that. Right, So the people think they can hide 0:08:38.559 --> 0:08:43.560 from bitcoin and blocking blatchin transactions, that's completely false. If anything, 0:08:43.559 --> 0:08:47.240 it makes it easier to catch somebody. Yeah. I always, uh, 0:08:47.280 --> 0:08:50.679 whenever I'm talking to a money launderer or a drug dealer, 0:08:51.280 --> 0:08:55.000 I always say stick to cash, buddy, because everyone in 0:08:55.080 --> 0:08:58.120 the world can see the blockchain. It's all laid out 0:08:58.160 --> 0:09:00.640 in the open for you on the web. And I 0:09:00.679 --> 0:09:04.760 guess some people have strategies of breaking up their payments 0:09:04.800 --> 0:09:07.560 into tiny little pieces and sending it out to a 0:09:07.640 --> 0:09:11.480 million different wallists to try and confuse the Feds. But look, 0:09:11.520 --> 0:09:14.920 anybody with a little time on his or her hands 0:09:15.480 --> 0:09:19.120 or their hands can can go out there and and 0:09:19.200 --> 0:09:20.760 chase everything. I want to talk a little bit more 0:09:20.760 --> 0:09:24.959 about Defy, you know, because blockchain has become so ubiquitous, 0:09:25.040 --> 0:09:28.120 and I guess the community has now accepted that it 0:09:28.240 --> 0:09:33.679 needs more stringent regulation or at least clarification on regulation. 0:09:34.400 --> 0:09:37.479 Is Defy different in that it's more kind of libertarian 0:09:37.600 --> 0:09:43.040 still in its heart, I would say yes, right, I 0:09:43.040 --> 0:09:45.760 mean not all the way, but definitely yes. So Defy 0:09:46.240 --> 0:09:49.120 essentially is taking services that were typically done by the 0:09:49.120 --> 0:09:52.720 backing industry and Wall Street, and it's letting people now 0:09:53.160 --> 0:09:56.200 be able to participate in that globally, not having any 0:09:56.200 --> 0:09:59.280 mod aman, not having to ask for permission from anybody. 0:09:59.360 --> 0:10:04.720 So take different services such as lending, savings, investing. Now 0:10:04.760 --> 0:10:08.000 anybody globally can participate in this new economy, in this 0:10:08.080 --> 0:10:10.600 in this new world of open finance. So to me, 0:10:10.679 --> 0:10:13.360 this is breaking down barriers. This is breaking down borders, 0:10:13.400 --> 0:10:18.040 and it's it's becoming more inclusive. Is there a sense 0:10:18.400 --> 0:10:22.840 um in that in the crypto space broadly defined that regulation. 0:10:23.280 --> 0:10:27.560 Government regulation is coming and it's something that this industry 0:10:27.600 --> 0:10:31.960 needs to be ready for. Yes, I believe. So I 0:10:32.000 --> 0:10:34.880 think for crypto assets to go mainstream, they definitely do 0:10:34.960 --> 0:10:38.719 need more regulation. For example, today, Uh, the then e 0:10:38.880 --> 0:10:42.360 t F was perspected by the SEC. And for example, 0:10:42.360 --> 0:10:44.560 if the et F does get approved, that will be 0:10:44.640 --> 0:10:48.680 huge for both retail and institutional adoption. So if crypto 0:10:48.760 --> 0:10:51.240 ever hopes to go mainstream, uh, in a way, it 0:10:51.320 --> 0:10:53.760 kind of already is. But to fully go mainstream and 0:10:53.800 --> 0:10:57.800 gave global adoption, it doesn't need to have regulation and 0:10:57.840 --> 0:11:01.640 compliance were all all regular. It will be happy with it. 0:11:03.080 --> 0:11:07.040 And you went from um IBM as a technical sales 0:11:07.160 --> 0:11:13.600 engineer and open source UM Analytics sales executive into UM 0:11:13.760 --> 0:11:18.280 dealing with cloud essay software is a service UM and 0:11:18.360 --> 0:11:21.040 then into and then you and then you started token 0:11:21.080 --> 0:11:24.080 matrix and you have uh apparently kind of a moneyball 0:11:24.120 --> 0:11:28.120 approach to the way you invest in crypto. Yeah, what 0:11:28.240 --> 0:11:31.400 about analysis? Could you give us a price target for 0:11:31.440 --> 0:11:36.640 example on bitcoin year end? Oh? Wow, Well, I mean 0:11:36.640 --> 0:11:38.400 so we're talking with twecks. We use machine learning and 0:11:38.480 --> 0:11:41.959 data analytics to help the customers make money. Crypto or 0:11:42.080 --> 0:11:45.880 rather also prevented from losing money. Um prediction wise, our 0:11:45.920 --> 0:11:47.640 predictions only go out for about a month or so. 0:11:47.960 --> 0:11:51.520 But we are pretty optimistic in bitcoin and crypto this year. 0:11:52.120 --> 0:11:54.560 I'm optimistic all the way into about QUO three and 0:11:54.600 --> 0:11:57.840 then QUO four to Pree. Historically has not been a 0:11:57.880 --> 0:12:00.920 good except for maybe in December during Christmas to see 0:12:00.960 --> 0:12:06.640 them cycle back in right now, forty k. We're kind 0:12:06.640 --> 0:12:09.480 of in Limbor territory next month, and so we do 0:12:09.720 --> 0:12:13.959 expect summer somewhere between July and August and September. But 0:12:14.080 --> 0:12:15.959 bitcoin and it didom to go up because the room 0:12:16.080 --> 0:12:19.480 is going to have an upgrade, but the bitcoin, I 0:12:19.520 --> 0:12:21.640 wouldn't be surprised that bitcoin want to do my k 0:12:21.960 --> 0:12:23.960 okay here, all right, and thanks so much for joining 0:12:24.040 --> 0:12:26.160 us to really appreciate a fascinating im Bilina, founder and 0:12:26.200 --> 0:12:31.480 CEO of Token Metric. Alright, So yesterday we had the 0:12:31.559 --> 0:12:33.280 FED coming in and you know, a little bit of 0:12:33.280 --> 0:12:36.320 a hawkish view here as it relates to interest rates, 0:12:36.320 --> 0:12:37.920 and we want to get a sense of what that 0:12:37.960 --> 0:12:39.679 means for the banks because the banks have had such 0:12:39.720 --> 0:12:42.600 a good trade here recently and it's been such a 0:12:42.600 --> 0:12:44.720 good place. So if you want to talk banks, Matt, 0:12:44.760 --> 0:12:46.920 there's only one person to chat with, and that's Mike Mayo, 0:12:47.040 --> 0:12:51.160 senior banking analysts for Wells Fargo Securities. Mike, what was 0:12:51.200 --> 0:12:55.080 your takeaway for the banks that you cover as it 0:12:55.160 --> 0:12:57.960 relates to what looks to be You know, we're gonna 0:12:58.000 --> 0:13:01.040 have some ingust rates going up by you three. What 0:13:01.040 --> 0:13:04.760 does that mean for your call on the banks? Well, Matt, 0:13:05.160 --> 0:13:10.040 we have several nineteen seventies classics. We had disco, leisure suits, 0:13:10.480 --> 0:13:14.600 mood rings, and inflation, and I thought those were all gone. 0:13:15.080 --> 0:13:17.960 But right up front in the four page FED press release, 0:13:18.280 --> 0:13:22.800 they had the three key words inflation has risen. And 0:13:22.840 --> 0:13:25.480 then as you said, now now the FED is saying 0:13:25.840 --> 0:13:30.640 to interest rate increases sooner than people had expected. Um. 0:13:30.679 --> 0:13:33.839 And you know, inflation can be either heaven or hell 0:13:34.080 --> 0:13:36.200 for the banks, and it was hell for the banks 0:13:36.679 --> 0:13:41.400 in the nineteen seventies, and frankly, in UM that was 0:13:41.520 --> 0:13:44.720 pretty hellish. Uh. Banks had all sorts of losses on 0:13:44.800 --> 0:13:49.520 securities and derivatives and mismatches between their assets and liabilities. 0:13:50.000 --> 0:13:52.240 But I think in this scenario, I think it's in 0:13:52.280 --> 0:13:55.440 the direction of heaven. Banks have really paid a big 0:13:55.480 --> 0:13:59.760 price for the unusual low level of interest rates. UH. 0:13:59.800 --> 0:14:03.079 The our net interest margin over the past year showed 0:14:03.120 --> 0:14:06.920 the biggest decline in a century. And that's because while 0:14:06.920 --> 0:14:09.800 banks has spent a lot of money gathering deposits with 0:14:09.920 --> 0:14:14.120 branches and technology and service and everything else, they haven't 0:14:14.160 --> 0:14:16.640 earned much on those deposits. Are now they can finally 0:14:16.960 --> 0:14:21.480 redeploy those deposits and the potentially higher yielding securities and 0:14:21.480 --> 0:14:24.720 and hopefully loans. Let's talk about the big investment banks 0:14:24.720 --> 0:14:28.000 for a moment, because we had I mean we were 0:14:28.080 --> 0:14:30.720 we weren't expecting trading to keep up with the same 0:14:31.040 --> 0:14:33.960 um at the same pace as last year this time, 0:14:34.000 --> 0:14:38.400 but we've had a number of CEO s um Jamie Diamond, 0:14:38.440 --> 0:14:41.920 I think Gorman also saying that you know it's time 0:14:41.960 --> 0:14:44.360 to come back to earth already trading Credit Suite is 0:14:44.560 --> 0:14:49.440 dismantling their trading business kind of unrelated reasons. But UM, 0:14:49.600 --> 0:14:52.240 they have said that M and A may make up 0:14:52.360 --> 0:14:54.600 for some of the loss there. What's your view on 0:14:54.600 --> 0:15:00.000 on the big investment banks. Well, look from the trading side, UM, 0:15:00.080 --> 0:15:05.360 nobody expected the levels to be sustained at two pieces. 0:15:05.360 --> 0:15:08.120 In fact, going into the year everybody said we expect 0:15:08.560 --> 0:15:10.200 and the way it's playing out is it's going to 0:15:10.240 --> 0:15:16.280 be somewhere between based on our forecast. So there's just 0:15:16.400 --> 0:15:22.120 no big surprises there. Um And frankly, corporations frontloaded a 0:15:22.200 --> 0:15:25.440 lot of their financing earlier in the pandemic and that's 0:15:25.440 --> 0:15:27.600 a good thing, and trading plays off of that, so 0:15:27.720 --> 0:15:32.280 less issue was less trading. On the other hand, Wow, mergers, 0:15:32.760 --> 0:15:35.120 This might have been missed by the market, but Jamie 0:15:35.200 --> 0:15:38.640 Diamond just said investment banking this quarter could be one 0:15:38.640 --> 0:15:41.800 of the best quarters they've ever seen. Um So, you 0:15:41.880 --> 0:15:45.200 know the likes of Goldman, Sachs and JP Morgan And 0:15:45.240 --> 0:15:48.200 if you think about it, take a step back, every 0:15:48.200 --> 0:15:52.640 company and every industry globally is in some way rethinking 0:15:52.640 --> 0:15:56.800 their business model post pandemic, given the acceleration or the 0:15:56.880 --> 0:16:01.320 second wave of digitization. Um So you have Murders are strong, 0:16:01.800 --> 0:16:05.480 that's likely to have legs trading its subsiding some but 0:16:05.600 --> 0:16:08.800 that shouldn't be a big surprise. Mike, what's your top 0:16:08.920 --> 0:16:11.320 conviction bet right here? I know you've been focusing a 0:16:11.320 --> 0:16:14.440 lot on technology for these global banks, but what's the 0:16:14.520 --> 0:16:17.280 what's the bet You're what's the bank you're talking to 0:16:17.360 --> 0:16:21.440 most of your clients. Well, I don't like using the 0:16:21.440 --> 0:16:27.720 word debt. It's it's it's a new because we've been 0:16:27.760 --> 0:16:31.920 a lot of ours dissecting the financial statements and dissecting 0:16:31.960 --> 0:16:35.640 what management has to say, and on both fronts, Bank 0:16:35.680 --> 0:16:40.520 America really is surprising. I thought that the CEO Bank 0:16:40.560 --> 0:16:44.320 America should have been fired um a little less than 0:16:44.320 --> 0:16:47.440 a decade ago. I went to the shareholder meetings, I 0:16:47.520 --> 0:16:50.640 spoke up. They weren't always happy about that, but you know, 0:16:50.680 --> 0:16:52.520 that's what the facts said to me at the time. 0:16:52.560 --> 0:16:56.320 That never stopped you before, But now, as a fact 0:16:56.440 --> 0:16:59.440 change so to our conclusions. And now I think the 0:16:59.440 --> 0:17:02.760 CEO Bank America, Brian Monahan, is really one of the 0:17:02.800 --> 0:17:06.200 best um and it's really remarkable how he's grown into 0:17:06.240 --> 0:17:09.600 that position. And there you know, they start off saying 0:17:09.920 --> 0:17:13.280 responsible growth. Everybody at the company knows responsible growth, and 0:17:13.320 --> 0:17:15.359 at first I thought it was an empty platitude that 0:17:15.400 --> 0:17:18.600 didn't mean much at the beginning, but now it means 0:17:18.640 --> 0:17:22.000 a great deal. Not just to have earnings growth sustainably 0:17:22.119 --> 0:17:25.360 by not being in the most risky segments. Remember they 0:17:25.440 --> 0:17:28.720 bought countrywide and how all the mortgage problems, but also 0:17:28.800 --> 0:17:32.920 means responsible to you know, their their customers and their 0:17:32.920 --> 0:17:36.480 employees and their communities, and you know they're out front 0:17:36.520 --> 0:17:39.720 and center saying we're gonna pay a dollar minimum. Ways 0:17:39.720 --> 0:17:44.000 by the Brian Morning and on the Sunday talk shows 0:17:44.359 --> 0:17:47.359 talk about cyber security. So what you have here is 0:17:47.400 --> 0:17:53.760 both UM strategically positioned much better than before. Financially they 0:17:53.840 --> 0:17:56.879 benefit from higher interest rates three times more than the 0:17:56.960 --> 0:18:01.200 average bank, and then just from a you know, tone 0:18:01.480 --> 0:18:04.639 of society, they're they're right on top of it. So 0:18:04.760 --> 0:18:07.239 Bank America is the name that we've been going with, 0:18:07.359 --> 0:18:09.600 and they're also one of the best fintech players in 0:18:09.640 --> 0:18:11.640 the world. By the way, I was talking to UH 0:18:11.920 --> 0:18:16.040 David Rosenberg this morning, and Rosie said something along the 0:18:16.080 --> 0:18:20.840 lines of when the housing bubble bursts now, there will 0:18:20.880 --> 0:18:23.560 be people arguing that we're seeing that we're wait seeing 0:18:23.560 --> 0:18:25.280 a housing bubble right now, but you've got to admit 0:18:25.320 --> 0:18:29.560 it's red hot this market. How important is that UM 0:18:30.720 --> 0:18:34.760 and and how dangerous is that to the big banks? Well, 0:18:34.800 --> 0:18:38.159 I think what's interesting here is just the degree of 0:18:38.240 --> 0:18:41.919 collateral that banks have. So you know, when banks have 0:18:42.359 --> 0:18:46.439 a big crisis, they don't normally repeat the same problem 0:18:46.440 --> 0:18:49.560 in the next grace, it's right. So the type of 0:18:49.640 --> 0:18:53.240 underwriting for homes, the type of people who get those loans, 0:18:53.640 --> 0:18:56.320 the collateral behind that. I mean, you you know, you know, 0:18:56.440 --> 0:18:59.440 I've lived through the global financial graces and saw how 0:18:59.520 --> 0:19:02.800 crazy it was. I mean, everyone from you know, kids 0:19:02.840 --> 0:19:07.000 to dogs to deceive people got application that that's real, right, 0:19:07.600 --> 0:19:13.879 Florida strippers with five condos exactly. And the crazy thing is, 0:19:13.920 --> 0:19:16.280 you know, people were like getting credit without everyone else 0:19:16.320 --> 0:19:17.960 knowing what kind of credit they were getting. It was 0:19:18.160 --> 0:19:21.080 the best. The banking industry is cleaned up, by the way, 0:19:21.119 --> 0:19:24.800 if there's if there's risk, it's remember banks provide less 0:19:24.840 --> 0:19:28.760 than one third of all loans in our economy, so 0:19:28.800 --> 0:19:30.880 if there's risk of some of these non banked players 0:19:30.920 --> 0:19:33.080 out there. So when it comes to housing, I think 0:19:33.119 --> 0:19:36.280 that's fine. I think, you know, areas to watch continue 0:19:36.320 --> 0:19:41.600 to be commercial real estate offices. That's not a new phenomena, 0:19:41.760 --> 0:19:45.639 but it's still something worth noting. And look, I do 0:19:45.920 --> 0:19:48.200 go back to interest rates though, I mean it could 0:19:48.200 --> 0:19:51.959 be you know, a heaven or hell, and you know 0:19:52.280 --> 0:19:55.960 hell comes in two forms if you have deflation like Japan, 0:19:56.119 --> 0:19:58.159 and that's what you know, the bed and everybody was 0:19:58.200 --> 0:20:00.480 worried about for a number of years. But there is 0:20:00.480 --> 0:20:05.120 still tail risk for hell, if rates get out of control. 0:20:05.359 --> 0:20:08.960 And this is something we had a bank conference last month, 0:20:09.000 --> 0:20:11.760 and this is something that investors we're talking about more 0:20:11.800 --> 0:20:15.440 than I had heard in like maybe over a decade 0:20:15.520 --> 0:20:17.760 or two it and um, so that's a sort of 0:20:17.800 --> 0:20:20.399 chail risk. And if rates went up too much too quickly, 0:20:20.800 --> 0:20:24.439 then you could have credit issues because then the interest 0:20:24.480 --> 0:20:27.520 cost for borrows would go higher. So, Mike, you've been 0:20:27.520 --> 0:20:31.000 covering these banks for decades. Can they earned the returns 0:20:31.040 --> 0:20:33.360 they earned before the financial crisis? Or is the where 0:20:33.400 --> 0:20:38.160 is the industry just fundamentally changed on a secular basis? Well, 0:20:38.359 --> 0:20:43.160 yes and no, Um, we don't have their traditional banking revenues, 0:20:43.160 --> 0:20:46.640 their traditional banking margins getting back to where they were 0:20:46.760 --> 0:20:50.639 pre pandemic for a few more years. And that's just 0:20:50.720 --> 0:20:54.320 the nature of low rates. And frankly, you could say 0:20:54.359 --> 0:20:56.560 banks benefited from some of the government programs, but they 0:20:56.600 --> 0:20:59.600 also got hurt a lot by the low level rate. 0:21:00.000 --> 0:21:02.040 In the other hand, we think banks for making up 0:21:02.080 --> 0:21:07.040 the difference by improving efficiency, by lowering unit costs, by 0:21:07.119 --> 0:21:10.920 you know, embracing the tech revolution. And you know what, 0:21:11.320 --> 0:21:13.800 I went to a tech conference as a bank analyst. 0:21:13.880 --> 0:21:16.320 What was I doing there? I didn't I didn't understand 0:21:17.600 --> 0:21:20.200 of what I heard, the jargon it was, it was 0:21:20.280 --> 0:21:22.360 kind of crazy. But the one percent that I did 0:21:22.400 --> 0:21:25.600 take away with my aha moment. My aha moment was 0:21:25.960 --> 0:21:28.800 look at all these other industries that have implemented tech, 0:21:29.200 --> 0:21:32.640 you know, whether it's retail or healthcare or pick your industry, 0:21:32.880 --> 0:21:36.520 They've already had their transformation. And so now banks are 0:21:36.520 --> 0:21:39.800 in the cusp of doing what's already been done elsewhere. 0:21:39.840 --> 0:21:42.280 So you're not it's not like you're reinventing the wheel. 0:21:42.320 --> 0:21:46.080 You're just applying what's already been tried and true elsewhere. 0:21:46.119 --> 0:21:49.440 So when you know the CEO of Microsoft, as Satia 0:21:49.760 --> 0:21:53.680 talks about the second wave of the digital transformation, well, 0:21:53.800 --> 0:21:58.760 banks are about to jump on board on that. Mike, 0:21:58.800 --> 0:22:01.080 thanks so much for joining us. Always a pleasure talking 0:22:01.080 --> 0:22:03.800 to you. Um, I wish we could spend more time. 0:22:03.840 --> 0:22:05.840 We could talk to you for an hour. Maybe someday 0:22:05.880 --> 0:22:08.680 we'll do that, Mike Mayo. UM, they're talking to us 0:22:08.760 --> 0:22:13.000 about the banks, and as we've said, he's probably one 0:22:13.040 --> 0:22:17.359 of the most well known banking analysts in in the US, 0:22:17.400 --> 0:22:20.800 if not the world. Um. There he is the US 0:22:20.920 --> 0:22:25.280 large cat bank research director, managing director at Wells Fargo Securities. 0:22:28.720 --> 0:22:31.960 Now I'm gonna bring in David Deeds right now. He 0:22:32.080 --> 0:22:35.359 is managing principal and senior portfolio strategies at Pepack Private 0:22:35.359 --> 0:22:38.560 Wealth Management. They have just under ten billion dollars in 0:22:38.640 --> 0:22:42.320 assets under management. And i'll at first, David, ask your 0:22:42.359 --> 0:22:46.280 take on j Pal's performance yesterday. How how do you 0:22:46.280 --> 0:22:51.280 think he handled well, no real moves, but kind of uh, 0:22:52.119 --> 0:22:56.000 a little bit of a more hawkish tone. Yeah, I 0:22:56.000 --> 0:22:58.840 think he did a good job. Obviously, it did catch 0:22:58.920 --> 0:23:01.440 the market a little bit by surprising. You never want 0:23:01.440 --> 0:23:04.119 to catch the market by surprise. You always want to 0:23:04.160 --> 0:23:06.760 ease into things. I think they were just a little 0:23:06.760 --> 0:23:09.600 bit more hawkish than they were just several months ago, 0:23:09.760 --> 0:23:13.080 by um, you know, pulling forward the potential data, the 0:23:13.080 --> 0:23:15.879 first rate hike, at least it's reflected in that dot plot. 0:23:16.240 --> 0:23:18.520