WEBVTT - James Gorman, Debt Ceiling and the Equity Rally (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.080 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.720 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.000 you listen to podcasts, and at Bloomberg dot com. Slash 0:00:20.040 --> 0:00:22.520 podcast looks good to Allison Williams. She's a senior banks 0:00:22.520 --> 0:00:27.920 analyst at Bloomberg Intelligence. You worked at Morgan Stanley, Allison, 0:00:28.120 --> 0:00:32.440 you've covered this doc forever. Just put into perspective mister 0:00:32.479 --> 0:00:35.639 Gorman's reign here, How does the street pursue his his 0:00:35.640 --> 0:00:36.600 performance at CEO. 0:00:38.040 --> 0:00:41.479 So obviously the biggest thing that Gorman did when he 0:00:41.640 --> 0:00:45.519 was at Morgan Stanley is to transform the business to 0:00:46.760 --> 0:00:49.880 wealth and asset management. So twenty six percent and twenty ten, 0:00:50.360 --> 0:00:54.440 that went to fifty to two percent in twenty twenty two. 0:00:54.480 --> 0:00:58.040 That's of pre text income. And I would say that, 0:00:58.120 --> 0:01:01.240 you know, for me personally, when I was at Morgan Stanley, 0:01:01.240 --> 0:01:04.480 the first time I met James Gorman was at Merrilynch 0:01:05.000 --> 0:01:07.920 and he did a tremendous job there, came into Morgan 0:01:07.959 --> 0:01:11.759 Stanley to run their wealth business, you know, was elevated 0:01:11.800 --> 0:01:17.360 to CEO. Really has transformed that business. At this that 0:01:17.880 --> 0:01:21.000 does sort of perhaps give an edge to Andy Sapperstein. 0:01:21.040 --> 0:01:23.640 He's the one who's running wealth management now he's an 0:01:23.680 --> 0:01:27.560 heir apparent along with Ted Pick who runs the institutional business. 0:01:28.319 --> 0:01:32.200 But Ted Pick also has done a tremendous job with 0:01:32.440 --> 0:01:35.640 their trading business, turning things around first in fixed income 0:01:36.480 --> 0:01:38.520 and then the broader business and gaining share in both 0:01:38.520 --> 0:01:41.120 fixed income and equities under over the long term. 0:01:41.840 --> 0:01:45.160 So he said within twelve months, Allison, and that's a 0:01:45.200 --> 0:01:47.760 relatively short time frame. Do you have a sense or 0:01:48.480 --> 0:01:51.400 of when this may occurs or natural time? 0:01:51.480 --> 0:01:53.520 Do you think so? 0:01:53.640 --> 0:01:56.000 I think that this is a natural time. If we 0:01:56.040 --> 0:02:01.520 think back to when Lloyd Blankfein retired, you know, he 0:02:01.560 --> 0:02:03.920 made the point at the time that he wanted to 0:02:03.960 --> 0:02:08.440 step away in a commer time for markets and turnover 0:02:08.560 --> 0:02:12.880 leadership before we had before we had more turmoil, and 0:02:12.919 --> 0:02:15.880 I think that did successfully put David Solomon in place 0:02:16.600 --> 0:02:19.320 with time to have looked at the business. If you 0:02:19.639 --> 0:02:23.720 recall they had their first investor day and within weeks 0:02:23.760 --> 0:02:27.520 we had the global pandemic take hold, and so I 0:02:27.520 --> 0:02:31.480 think the reason why this is timely for Morgan Stanley is, 0:02:31.800 --> 0:02:34.040 you know, we're just past the pandemic. There's still a 0:02:34.040 --> 0:02:37.000 lot of economic and monetary policy and certainly for sure, 0:02:37.440 --> 0:02:39.519 but as you know, Paul, there there always is, there's 0:02:39.560 --> 0:02:43.239 always going to be, but we're past the pandemic where 0:02:43.280 --> 0:02:48.160 we've digested the company has digested two major acquisitions that 0:02:48.240 --> 0:02:50.880 they did. He traded eaton Vance, and so it does 0:02:50.919 --> 0:02:53.080 seem a commer time and perhaps the right time to 0:02:53.080 --> 0:02:53.800 pass the baton. 0:02:54.560 --> 0:02:58.079 Any is this gonna be a typical succession where you've 0:02:58.080 --> 0:03:01.880 got too clear and maybe even a third person in 0:03:01.919 --> 0:03:04.839 the running for the job that whoever does not get 0:03:04.880 --> 0:03:06.520 the job then leaves the firm? 0:03:06.560 --> 0:03:07.919 Is that kind of the expectation here? 0:03:08.960 --> 0:03:11.920 I mean that that is what does tend to happen. 0:03:12.840 --> 0:03:17.919 These are Ted and Andy are both very strong leaders 0:03:18.680 --> 0:03:21.440 and as I said, have have in their own right 0:03:21.639 --> 0:03:28.000 their own success stories that have contributed to the overall firm. Certainly, 0:03:28.400 --> 0:03:34.080 I think that each does have bigger aspirations. So you know, 0:03:34.160 --> 0:03:36.040 that's that's the kind of thing I think we'll have 0:03:36.080 --> 0:03:36.360 to say. 0:03:36.560 --> 0:03:39.520 Do we have any idea what James Gorman is thinking 0:03:39.560 --> 0:03:41.760 to do here? Is this a true retirement or expect 0:03:41.840 --> 0:03:45.680 him to show up some other place in a meaningful way. 0:03:46.960 --> 0:03:49.920 I think that I think it is a true retirement. 0:03:50.000 --> 0:03:52.400 He's sort of going out on top right, and he 0:03:52.600 --> 0:03:54.680 is going to He has that that he will stay 0:03:54.680 --> 0:03:57.440 with the firm, as you know, is sort of typical, 0:03:58.480 --> 0:04:00.880 you know, just just as Kenjacob said the other day 0:04:00.880 --> 0:04:03.280 with Blizzard. You know he will he will stay on 0:04:03.320 --> 0:04:07.640 the firm. It will ensure some continuity with the clients 0:04:08.120 --> 0:04:13.960 and with the management. But again you never say never. 0:04:14.120 --> 0:04:15.040 Yep, you know what. 0:04:15.120 --> 0:04:17.920 This kind of my second thought after seeing this news 0:04:17.920 --> 0:04:20.360 first left being you know, good for mister Gorman because 0:04:20.400 --> 0:04:21.960 he's had a heck of a run. The second thought 0:04:22.000 --> 0:04:24.760 was this has to shine the light once again on 0:04:24.839 --> 0:04:28.200 Jamie Diamond and JP Morgan. No one wants Jamie Diamond 0:04:28.200 --> 0:04:30.040 to leave. I can't imagine any of the shareholders, any 0:04:30.040 --> 0:04:32.279 of the board members. But if I were a board member, 0:04:32.320 --> 0:04:34.720 I'd be just making sure we have our ducks in 0:04:34.839 --> 0:04:38.680 a row. As it relates to any type of succession, 0:04:38.680 --> 0:04:41.000 what's the feeling at Morgan Stanley these days? I'm sorry 0:04:41.040 --> 0:04:42.440 at JP Morgan these days. 0:04:42.760 --> 0:04:46.120 So I think, as you know, Jamie Diamond is consistently 0:04:46.160 --> 0:04:49.400 asked the question because that is one of the biggest 0:04:49.400 --> 0:04:53.040 concerns for investors. You know, we look at James Gorman, 0:04:53.240 --> 0:04:56.240 who is at the helm for a long period of time, 0:04:56.279 --> 0:04:59.039 but Jamie Diamond is really the one who led JP 0:04:59.160 --> 0:05:03.200 Morgan even bef for the global financial crisis and has 0:05:03.240 --> 0:05:08.919 had continuity even through the most recent crisis, and he 0:05:09.040 --> 0:05:13.040 has consistently said that you know, there are plans in place. 0:05:13.080 --> 0:05:15.520 I'm sure it's something that he and the board talk 0:05:15.600 --> 0:05:19.880 with all the time, and they always have a huge 0:05:19.920 --> 0:05:23.479 slate of contenders at any point in time at JP 0:05:23.560 --> 0:05:26.320 Morgan in terms of who could be next to run 0:05:26.360 --> 0:05:29.000 the bank. To your point earlier, we have seen some 0:05:29.040 --> 0:05:33.880 of those contenders leave in previous shakeups or potentially just 0:05:33.920 --> 0:05:36.719 getting a little bit antsy in terms of wanting to 0:05:36.760 --> 0:05:39.839 go on to do other things, and they sort of 0:05:40.320 --> 0:05:43.719 prooferate some of the other banks across Wall Street in 0:05:43.800 --> 0:05:48.440 terms of their leadership. But also extremely timely since we 0:05:48.480 --> 0:05:50.880 do have the JP Morgan Investor Day on Monday. 0:05:51.320 --> 0:05:55.920 Oh, what's the number one thing you are going to 0:05:55.960 --> 0:05:58.240 be looking for? What could make news for us on Monday? 0:05:58.800 --> 0:06:00.920 The number one thing I'm looking looking for and that 0:06:00.960 --> 0:06:03.479 could make news is anything that they would say on 0:06:03.560 --> 0:06:07.480 the expense front. Right, So we have a look into 0:06:07.760 --> 0:06:10.480 a lot of the macro variables, but expenses are really 0:06:10.520 --> 0:06:14.400 something that are truly up to management discretion, to the 0:06:14.440 --> 0:06:16.960 investment opportunities that they see, and so we think that 0:06:16.960 --> 0:06:20.360 that's where we could potentially get the biggest surprise. We 0:06:20.839 --> 0:06:23.920 have already already gotten a big lift to the net 0:06:23.920 --> 0:06:27.159 interest income outlook with their most recent earnings. Could we 0:06:27.200 --> 0:06:30.159 get further upside there? I would say yes, potentially. We 0:06:30.200 --> 0:06:33.760 think that they were being conserva still a little bit 0:06:33.800 --> 0:06:37.160 conservative when we look at sort of the underlying variables, 0:06:37.240 --> 0:06:41.039 keeping in mind that monetary policy is uncertain, so could 0:06:41.120 --> 0:06:43.159 get a little bit there. We will get an update 0:06:43.200 --> 0:06:45.719 on trading and banking fees. Again, we can see in 0:06:45.720 --> 0:06:50.080 the environment banking fees studying at a lower level. Trading 0:06:50.080 --> 0:06:52.599 is still good, but probably softer than a year ago. 0:06:53.640 --> 0:06:56.400 Credit will also be a big focus. Are there any 0:06:56.440 --> 0:07:01.440 incremental Is there any incremental insight we could get, especially 0:07:01.480 --> 0:07:04.440 with regard to commercial real estate, office lounge, etca. We 0:07:04.480 --> 0:07:08.159 expect maybe they'll provide some more granularity, but again looking 0:07:08.160 --> 0:07:09.760 for these expenses great. 0:07:09.560 --> 0:07:11.560 Steff I'm sure we'll be chatting with you next week 0:07:11.600 --> 0:07:15.120 on that. Allison Williams, Senior Global Banks analyst at Bloomberg Intelligence, 0:07:15.200 --> 0:07:17.720 is also the co director of Research for the Americas 0:07:17.920 --> 0:07:18.960 for Bloomberg Contelligency. 0:07:20.000 --> 0:07:21.200 You're listening to the team. 0:07:21.560 --> 0:07:24.920 Ken's a live program Bloomberg Markets weekdays at ten am 0:07:24.960 --> 0:07:28.360 Eastern on Bloomberg dot com, the iHeartRadio app and the 0:07:28.400 --> 0:07:31.400 Bloomberg Business app, or listen on demand wherever you get 0:07:31.440 --> 0:07:32.240 your podcasts. 0:07:34.000 --> 0:07:36.480 Big News Adam Morgan Stanley, I think the right move. 0:07:36.520 --> 0:07:39.400 It just shows what a nice succession plan can look like. 0:07:39.440 --> 0:07:41.040 You know, we'll see how it plays out. But they've 0:07:41.040 --> 0:07:43.400 got a bench and they've got some good choices, so 0:07:43.520 --> 0:07:44.400 hopefully it'll work out. 0:07:44.520 --> 0:07:45.440 The race is not over. 0:07:45.600 --> 0:07:47.720 Yep, the race is not over. Let's continue our discussion. 0:07:47.760 --> 0:07:49.560 The banks will focus on some of the regional banks. 0:07:49.720 --> 0:07:53.920 We'll focus on some of the credit side of the 0:07:53.960 --> 0:07:56.360 equation because we can do that here. We have Bloomberg 0:07:56.400 --> 0:07:59.679 Intelligence four hundred analysts covering two thousand companies one hundred 0:07:59.680 --> 0:08:02.160 and thirty industries. B I go on the terminals a 0:08:02.160 --> 0:08:05.520 function you need to get access to the best research 0:08:05.560 --> 0:08:09.560 on Wall Street. Check it out Herman Chan and Arnold Kakuda. 0:08:09.800 --> 0:08:12.000 They are two of the analys we have a Bloomberg intelligence. 0:08:12.280 --> 0:08:15.560 Arnold focuses on the regional banks and I'm sorry Herman 0:08:15.640 --> 0:08:18.400 focuses on the regional banks are Arnold Kakuda focuses on 0:08:18.440 --> 0:08:20.680 the credit side of the equation for all the banks here. 0:08:21.040 --> 0:08:25.239 So Herman, let's start with you here. Any I haven't 0:08:25.280 --> 0:08:29.240 sensed any you know, kind of big potholes blowing up 0:08:29.320 --> 0:08:31.040 over the last couple of weeks. It seems to have 0:08:31.040 --> 0:08:33.280 been pretty calm. What's your read of what's happening in 0:08:33.320 --> 0:08:34.880 the regional banks based these days? 0:08:34.920 --> 0:08:38.600 It definitely has calmed down a lot. I think it's 0:08:38.640 --> 0:08:41.400 interesting that Western Alliance of all the banks is the 0:08:41.440 --> 0:08:45.120 bell weather these days, with them announcing two billion dollars 0:08:45.120 --> 0:08:48.839 of deposits in the second quarter coming back to the bank, 0:08:48.840 --> 0:08:52.479 and that's really calm the waters for the rest of 0:08:52.080 --> 0:08:54.640 the industry, which is really interesting to see. 0:08:54.880 --> 0:08:58.480 And from an industry. 0:08:58.240 --> 0:09:02.079 Perspective, we've seen deposits really stabilize over the past couple 0:09:02.040 --> 0:09:06.200 of months after the big spike down in March, and 0:09:07.520 --> 0:09:10.439 consequently there hasn't been a lot of emergency fed barns 0:09:10.440 --> 0:09:11.320 from the discount window. 0:09:11.960 --> 0:09:15.200 Now I'm curious also because what does this mean in 0:09:15.320 --> 0:09:18.520 terms of changes Herman, there's a sense that it's going 0:09:18.600 --> 0:09:21.160 to get more expensive for banks, banks of many different sizes, 0:09:21.280 --> 0:09:24.400 now that we've seen some fail. How soon our investors 0:09:24.400 --> 0:09:27.040 turning the page to look at the next phase for 0:09:27.120 --> 0:09:27.720 these banks. 0:09:28.120 --> 0:09:28.320 Yeah. 0:09:28.600 --> 0:09:32.079 I think if you look at the valuations where they're trading, 0:09:32.120 --> 0:09:35.600 the low tangible book value on average, a lot of 0:09:35.600 --> 0:09:39.040 the negativity is really priced in. So you've got tougher 0:09:39.160 --> 0:09:44.920 regulatory regime coming with tougher liquidity requirements, higher capital requirements. 0:09:46.000 --> 0:09:49.000 Arnold can talk about increasing the debt issue once. For 0:09:49.360 --> 0:09:53.720 the larger regionals, you've got higher expenses from the FDIC assessment, 0:09:53.880 --> 0:09:56.760 you have weaker margins, you have lower lending, you've got 0:09:56.880 --> 0:10:00.120 higher costs for deposits. So it's still a tough on 0:10:00.160 --> 0:10:00.719 the middle of view. 0:10:01.120 --> 0:10:02.760 I want to bring an Arnold here for a second 0:10:02.760 --> 0:10:05.200 here because the stock price story of PacWest this week 0:10:05.280 --> 0:10:07.120 makes it seem like we're all on the clear, But 0:10:07.160 --> 0:10:08.800 when you look at how their bonds are trading, it's 0:10:08.800 --> 0:10:11.600 still thirty one cents on the dollar. They've barely moved. Actually, 0:10:11.720 --> 0:10:14.440 they've kind of gotten worse throughout the month. Western Alliance 0:10:14.480 --> 0:10:16.280 has done a little better, but it's still at sixty 0:10:16.280 --> 0:10:18.960 four cents on the dollar. This is well below par. 0:10:19.440 --> 0:10:22.680 What are the bonds telling you about how investors feel 0:10:22.720 --> 0:10:23.559 about the stories? 0:10:23.840 --> 0:10:25.560 Well, I guess you know, we live in this world 0:10:25.640 --> 0:10:28.480 of you know, it's like a factory eighteen days since 0:10:28.480 --> 0:10:31.640 the Lens Bank failure, right so, you know recently. 0:10:31.320 --> 0:10:32.520 They're not even counting. 0:10:33.200 --> 0:10:38.120 I've been counting, so so yeah, it's you know, these 0:10:38.120 --> 0:10:41.000 these two banks have suffered multiple rating downgrades and definitely 0:10:41.240 --> 0:10:43.719 lots of concern. But I think, you know, and as 0:10:43.720 --> 0:10:45.280 Sermon said, these kind of are. 0:10:45.160 --> 0:10:46.199 The bell weathers right now. 0:10:47.120 --> 0:10:49.559 But really, you know, we've had a sea change in 0:10:49.840 --> 0:10:53.319 regional bank bond space. Where it used to be before 0:10:53.320 --> 0:10:55.800 twenty twenty three, these were they didn't issue a lot 0:10:55.800 --> 0:10:58.520 of debt. They traded very tight. You couldn't get enough 0:10:58.520 --> 0:11:01.320 of it. Right now it's oh my gosh, you know, 0:11:01.400 --> 0:11:04.520 these things are really dangerous. You might get zero and 0:11:05.120 --> 0:11:08.640 with upcoming regulation, these guys might need to issue a 0:11:08.640 --> 0:11:11.360 lot more debt. So so I think the way to 0:11:11.440 --> 0:11:14.240 play this is, you know, we had charge swap coming 0:11:14.280 --> 0:11:17.080 to market. I think a day or two ago, you know, 0:11:17.360 --> 0:11:18.880 and you know, we know there's gonna be more and 0:11:18.880 --> 0:11:21.800 more bank dead issues from this space, and it's gonna 0:11:21.840 --> 0:11:22.480 come really wide. 0:11:22.600 --> 0:11:23.480 So I think that's. 0:11:23.400 --> 0:11:27.120 An opportunity for you know, portfolio managers to come step 0:11:27.120 --> 0:11:28.839 in little by little if if they want to get in. 0:11:28.880 --> 0:11:30.560 All right, So just probably define if I look at 0:11:30.559 --> 0:11:33.400 the bond market for the banks, the big banks, what's. 0:11:33.240 --> 0:11:34.880 It telling you here? I mean, is it telling you 0:11:35.000 --> 0:11:36.600 that they're concerned. 0:11:36.160 --> 0:11:39.520 About there's any unusual concerns in this system? Or are 0:11:39.520 --> 0:11:41.640 they kind of trading as they should trade? 0:11:41.920 --> 0:11:44.880 Yeah? No, absolutely, the regionals have definitely underperformed, you know, 0:11:45.000 --> 0:11:47.760 definitely the you know, just just as we've seen the 0:11:47.800 --> 0:11:51.280 deposits kind of gravit towards JP Morgan. That's been kind 0:11:51.280 --> 0:11:53.840 of the safety in the space and and kind of 0:11:53.920 --> 0:11:56.040 you know, even within the big six banks, really the 0:11:56.559 --> 0:11:59.280 banks with more of a kind of regional footprint, like 0:11:59.320 --> 0:12:01.199 like the Bank of America and Wells Fargo with a 0:12:01.240 --> 0:12:04.000 lot of kind of long dated mortgages, those have underperformed 0:12:04.040 --> 0:12:06.160 a bit. But but you know, the preference definitely has 0:12:06.200 --> 0:12:07.920 been with these the biggest banks. 0:12:07.920 --> 0:12:10.240 Okay, toss up for the star panel here because you 0:12:10.280 --> 0:12:12.959 saw a shop come to market issue debt. Does that 0:12:13.120 --> 0:12:16.080 mean that the capital markets are open for the banking 0:12:16.120 --> 0:12:19.920 system and does that mean that we're kind of more 0:12:20.240 --> 0:12:23.320 close or to the all clear? You'd think back to 0:12:23.320 --> 0:12:26.079 Silicon Valley Bank trying to tap equity markets and that's 0:12:26.080 --> 0:12:27.200 set off a run on the bank. 0:12:28.200 --> 0:12:31.120 Yeah, I think you know, nobody wants to really issue 0:12:31.120 --> 0:12:34.840 equity in this market, given how much the valuations have 0:12:34.920 --> 0:12:36.880 come down, right, And I think you know it was 0:12:36.920 --> 0:12:41.160 it Western Alliance or a prafic pac Quest. Oh, you know, 0:12:41.520 --> 0:12:44.760 they looked we're looking for a solution or equity ways 0:12:44.760 --> 0:12:47.160 and then you know the opportunity wasn't right, right, So 0:12:48.000 --> 0:12:49.640 I think that that's a that's a you know, no 0:12:49.800 --> 0:12:51.679 for now. But you know the way these guys, You 0:12:51.720 --> 0:12:54.000 know that these regional banks have less regulation that they 0:12:54.040 --> 0:12:57.640 are viewed as under equitized, right, less capital because they've 0:12:57.640 --> 0:13:00.760 been able to exclude these unreal as losses and they're 0:13:00.760 --> 0:13:03.880 available for sale securities from their radiatory capital right so 0:13:04.240 --> 0:13:07.040 on on an adjusted basis compared to what the bigger 0:13:07.080 --> 0:13:09.839 banks like the JP Morgans have to do, right, they 0:13:09.840 --> 0:13:13.000 look under capitalized. So you know, we think regulation will 0:13:13.000 --> 0:13:14.920 increase from that standpoint as well. 0:13:14.960 --> 0:13:16.640 But right now they look under equitized. 0:13:16.720 --> 0:13:17.040 Right now. 0:13:17.679 --> 0:13:20.240 So when the banks report earnings, the big investment banks, 0:13:21.200 --> 0:13:23.000 oftentimes they come to the market and raised debt. 0:13:23.920 --> 0:13:26.800 What's that all about, Oh, they need to it's basically, 0:13:26.840 --> 0:13:29.840 you know, over the past three the actually, so let 0:13:29.880 --> 0:13:32.719 me step back, the past three years have been extremely 0:13:32.760 --> 0:13:37.040 active for these big jesips. And that's because global systemically 0:13:37.040 --> 0:13:37.800 important banks. 0:13:37.640 --> 0:13:40.480 Say, we have lives. We don't we're not into that stuff. Okay, 0:13:40.600 --> 0:13:43.400 that's not just an audience too. We have we have 0:13:43.480 --> 0:13:45.560 social lives. We don't know what jesips are. Okay, so 0:13:45.600 --> 0:13:45.920 go ahead. 0:13:46.400 --> 0:13:51.280 I So it's it's these systemically important banks that that 0:13:51.400 --> 0:13:54.880 if they cannot fail, right, and so part of that process, 0:13:55.000 --> 0:13:56.640 you know, we saw in two thousand and eight, the 0:13:57.120 --> 0:13:59.520 you know, when these guys got into trouble, the government 0:13:59.559 --> 0:14:02.120 had to step been with equity investments. Well, in the 0:14:02.240 --> 0:14:05.120 US and Europe, we can't have that anymore. So what 0:14:05.160 --> 0:14:07.640 we have instead is these big banks need to have 0:14:07.720 --> 0:14:10.920 a big liability stack debt really that that in a 0:14:10.960 --> 0:14:13.600 case of a crisis, that can be used as the 0:14:13.640 --> 0:14:17.199 new equity. Right, and so that's what this TI LAK 0:14:17.559 --> 0:14:20.840 regulation is total less observant capacity, and so that's where 0:14:21.080 --> 0:14:23.160 we've seen a lot of volatility with these regional banks. 0:14:23.200 --> 0:14:27.320 So maybe they're not global systemic important, but you know, 0:14:27.520 --> 0:14:30.000 maybe if these guys had a big debt stack, then 0:14:30.080 --> 0:14:33.000 they can reequitize in a case of of an issue, right, 0:14:33.040 --> 0:14:34.040 And so that's where we're headed. 0:14:34.200 --> 0:14:36.360 You know, I'm interested, Herman, do you think part of 0:14:36.400 --> 0:14:39.320 the reason shrob was able to raise money in bond 0:14:39.360 --> 0:14:43.080 markets and from what I understand at slightly more favorable 0:14:43.200 --> 0:14:45.680 terms than they initially set out for. Is there a 0:14:45.760 --> 0:14:49.640 huge difference between how investors view like a Schwab versus. 0:14:49.440 --> 0:14:50.000 A pack list. 0:14:50.000 --> 0:14:51.360 Is Schwab viewed as much safer? 0:14:51.520 --> 0:14:51.680 Oh? 0:14:51.880 --> 0:14:54.720 I think definitely, just given the stable a deposit base 0:14:54.800 --> 0:15:00.600 and they Schwab hasn't had to restructure there their entire 0:15:00.640 --> 0:15:03.000 balance sheet, like like a Western Alliance has, where Western 0:15:03.000 --> 0:15:06.680 Alliance is looking to sell assets and seeing deposits down 0:15:07.880 --> 0:15:10.720 somewhat like twenty percent enter quarter in the first quarter. 0:15:10.840 --> 0:15:12.880 So you can just. 0:15:12.920 --> 0:15:17.760 See from the equity valuations where PacWest is trading well 0:15:17.840 --> 0:15:22.000 south of Tantoba book value. And what investors are thinking 0:15:22.040 --> 0:15:25.480 about now is that how much can the bank return 0:15:25.600 --> 0:15:28.960 back to a normal situation versus the straw is still 0:15:28.960 --> 0:15:30.320 operating in a normal fashion. 0:15:31.120 --> 0:15:33.240 So I happen to think, I guess what I learned 0:15:33.280 --> 0:15:35.640 during this whole crisis from I guess your stuff and 0:15:35.680 --> 0:15:38.560 others is there's the US has roughly more than four 0:15:38.600 --> 0:15:42.240 thousand regional banks. I happen to think that's a strength 0:15:42.480 --> 0:15:45.920 of our banking system visa visa Europe, where they have less. 0:15:45.760 --> 0:15:50.000 Banks, they have more national banks. A Is that true? 0:15:50.040 --> 0:15:51.680 Do you think that's the strength of our banking system? 0:15:51.680 --> 0:15:54.680 And B maybe if not, is there gonna be some 0:15:54.680 --> 0:15:55.880 consolidation going forward? 0:15:56.080 --> 0:15:56.480 It is? 0:15:56.560 --> 0:15:59.920 It is a strength because I think of it as 0:16:00.160 --> 0:16:05.520 shopping for for a suitor or a jacket. If you 0:16:05.560 --> 0:16:08.200 go to Brooks Brothers, you can buy something off the rack, 0:16:08.400 --> 0:16:10.640 and that's it's going to be too regular for me 0:16:11.000 --> 0:16:13.560 what you too are so you know what you're getting. 0:16:13.600 --> 0:16:16.320 But the region banks offer a bit more of a 0:16:16.360 --> 0:16:19.280 bespoke typ experience where where they will work with the 0:16:19.320 --> 0:16:21.480 barrow or you know, it's not going to be a 0:16:21.480 --> 0:16:23.200 cookie cutter type loan that you would get at a 0:16:23.280 --> 0:16:25.720 JP Morgan or a b of A. And these these 0:16:25.760 --> 0:16:28.960 regional banks know their community a bit better, so I 0:16:29.160 --> 0:16:33.000 can can structure a deal that's more favorable for that 0:16:33.120 --> 0:16:36.440 potential borrower. So that's that's something that that is helpful 0:16:36.520 --> 0:16:39.560 for the US economy where where you have credit more 0:16:39.560 --> 0:16:43.880 credit availability versus other regions and geographies like in Europe. 0:16:44.080 --> 0:16:45.640 All right, guys, thanks so much for joining us. Really 0:16:45.680 --> 0:16:48.160 appreciated two experts folks. I can't tell you how fortunate 0:16:48.160 --> 0:16:50.960 we are to have these folks available to us, Hermit 0:16:51.040 --> 0:16:54.560 chan and Arnold Kakuda. They cover the bank's equities, fixed income, 0:16:54.600 --> 0:16:56.560 credit side, the whole thing that got the banks covered, 0:16:56.560 --> 0:16:59.200 along with Allison Williams on some of the bigger banks. 0:16:59.240 --> 0:17:02.560 There so great great research coming out of Bloomberg Intelligence. 0:17:02.680 --> 0:17:05.359 They're both joining us here in our Bloomberg Interactive Broker Studio. 0:17:05.680 --> 0:17:08.800 You're listening to the tape. Catch our live program Bloomberg 0:17:08.840 --> 0:17:12.439 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:17:12.480 --> 0:17:14.640 tune in app, Bloomberg dot Com, and the. 0:17:14.520 --> 0:17:15.720 Bloomberg Business App. 0:17:15.760 --> 0:17:18.560 You can also listen live on Amazon Alexa from our 0:17:18.600 --> 0:17:23.680 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:17:24.520 --> 0:17:26.800 You know, we talk a lot, Schanali about inflation, but 0:17:26.840 --> 0:17:29.439 where one of the areas I see it most is 0:17:29.480 --> 0:17:31.480 in food prices, whether it's you know, at a restaurant 0:17:31.560 --> 0:17:34.640 or in the supermarket. And here's an article just from 0:17:34.680 --> 0:17:37.560 a week or so ago from Bloomberg News. US price 0:17:37.680 --> 0:17:40.560 is a baby formula and baby food jump by the 0:17:40.600 --> 0:17:43.040 most on record to an all time high last month, 0:17:43.080 --> 0:17:45.240 that would be April. Data from the Bureau of Labor 0:17:45.280 --> 0:17:48.000 Statistics showed Wednesday prices in the category rose by four 0:17:48.040 --> 0:17:50.520 point three percent in April from the prior month and 0:17:50.560 --> 0:17:53.720 from a year ago throughout eight point eight percent. So 0:17:53.760 --> 0:17:55.359 I said, we need to figureut what's going on there, 0:17:55.640 --> 0:17:58.040 and fortunately we have a great guest who can help 0:17:58.119 --> 0:17:58.479 us out there. 0:17:58.640 --> 0:17:59.320 Laura Mody. 0:17:59.520 --> 0:18:02.760 She's this It's THEEO and co founder of Bobby and 0:18:02.840 --> 0:18:06.719 Bobby is a baby formula delivery startup that sells direct 0:18:06.720 --> 0:18:09.960 to consumer and offers a subscription service to parents across 0:18:10.000 --> 0:18:10.320 the US. 0:18:10.359 --> 0:18:11.719 So a pretty cool business. 0:18:11.720 --> 0:18:13.400 We've been talking to Lara a lot over the last 0:18:13.440 --> 0:18:16.280 several years during a pandemic when there really was a 0:18:16.320 --> 0:18:19.240 you know, a concern about the availability of baby formula. 0:18:19.359 --> 0:18:22.719 So Lara give us a sense of where the baby 0:18:22.760 --> 0:18:25.880 formula is, where, where the market is for baby formula now. 0:18:25.880 --> 0:18:28.479 I mean, the pricing is just and the price inflation 0:18:28.600 --> 0:18:31.040 is just really dramatic, isn't it. 0:18:31.040 --> 0:18:31.359 It is. 0:18:31.920 --> 0:18:35.400 Good morning, Paul, great to stat with you again. It is, 0:18:35.480 --> 0:18:37.520 And you know, I think it's also disheartening on the 0:18:37.560 --> 0:18:39.840 back of what parents have just gone through, which is 0:18:39.880 --> 0:18:42.120 a very tough year for formula and just not being 0:18:42.160 --> 0:18:45.360 able to find it. Now we're finally seeing shells get 0:18:45.440 --> 0:18:49.560 stopped and they are seeing prices go up. I mean, 0:18:49.600 --> 0:18:52.119 look where this is coming from. Is it really is 0:18:52.160 --> 0:18:54.919 because of the shortage. A few things happened off the 0:18:54.960 --> 0:18:57.960 back of last year, and the first is I believe 0:18:58.000 --> 0:19:01.440 in March, the FDA came out with new regulations they're 0:19:01.480 --> 0:19:05.920 really supported off leveling safety and that's forced ultimately a 0:19:06.040 --> 0:19:10.440 change in production and infrastructure with the hopes of improving 0:19:10.520 --> 0:19:14.359 safety getting more formula to market, and the consequences of 0:19:14.400 --> 0:19:16.119 that was seeing an increase in price. 0:19:17.480 --> 0:19:19.679 I'm kind of curious here about how you got the 0:19:19.760 --> 0:19:22.480 job done, Laura. I think you have such an interesting background. 0:19:22.560 --> 0:19:25.040 You've been written about as a wartime CEO for your 0:19:25.040 --> 0:19:28.120 work during this infant formula crisis. You've worked with some 0:19:28.240 --> 0:19:32.440 really interesting names including Gwyneth Paltrow to raise some of 0:19:32.480 --> 0:19:36.480 the money to get this done. How do you bring 0:19:36.520 --> 0:19:37.320 people on board? 0:19:38.840 --> 0:19:45.080 Great question. Honestly, it's approaching this in the complete opposite 0:19:45.080 --> 0:19:48.200 way that the industry has for the last few decades. 0:19:48.920 --> 0:19:52.960 It's representing your customers who they are. I'm the only 0:19:53.400 --> 0:19:57.359 female CEO of an infant formula company, and it starts there. 0:19:58.000 --> 0:20:01.359 And we have been able to relate to parents throughout 0:20:01.359 --> 0:20:03.800 this shortage by making one of the toughest decisions when 0:20:03.800 --> 0:20:07.200 the shortage hit, which was we became the only formula 0:20:07.320 --> 0:20:11.000 company to reliably continue to serve our subscribers, and I 0:20:11.040 --> 0:20:12.680 have to make a really tough call at the time 0:20:13.200 --> 0:20:16.760 to stop growing the business while we kept product in 0:20:16.880 --> 0:20:18.920 stock for our current subscribers. 0:20:19.600 --> 0:20:22.560 So where are you in terms of your company, Bobby? 0:20:22.640 --> 0:20:24.359 Just give us a sense of how, you know, the 0:20:24.440 --> 0:20:27.040 last couple of years have been for you during the pandemic, 0:20:27.040 --> 0:20:28.960 and maybe you know how are things right now. 0:20:30.480 --> 0:20:33.280 They've been a long few years and they've definitely been 0:20:33.320 --> 0:20:37.200 accelerated obviously throughout the pandemic and then the shortage. We're 0:20:37.200 --> 0:20:39.640 in a position right now where we're serving about three 0:20:39.640 --> 0:20:42.879 to four percent of baby born in the US continuing 0:20:42.920 --> 0:20:46.399 to grow, but growth also comes with having to invest 0:20:46.440 --> 0:20:49.920 in infrastructure and supply. So our sites are an outset 0:20:50.040 --> 0:20:51.720 on what are we doing to be able to grow 0:20:51.760 --> 0:20:53.920 our supply and continue to serve more of the population, 0:20:54.400 --> 0:20:57.159 And that in itself just takes further investment, which I'm 0:20:57.160 --> 0:20:58.000 setting my eyes. 0:20:57.840 --> 0:21:01.000 On setting your eyes on. The other thing you've done, too, 0:21:01.040 --> 0:21:03.480 beyond expanding a business here, is that you've taken to 0:21:03.520 --> 0:21:06.600 Congress as well to make changes to kind of solve 0:21:06.680 --> 0:21:09.399 some of the crisis that had been seen in the shortages. 0:21:09.880 --> 0:21:11.800 Talk to us about that process. 0:21:13.080 --> 0:21:19.080 Well, look, Bobby's entire existence is to reform the industry. 0:21:19.200 --> 0:21:21.679 It's not just to get out there and sell infant formula. 0:21:22.200 --> 0:21:26.040 When you look at the ingredients, the way the product 0:21:26.119 --> 0:21:28.800 is made of, even how it's sold, and the narrative 0:21:28.880 --> 0:21:32.760 that surrounds it, it is fundamentally broken. So when the 0:21:32.760 --> 0:21:36.560 shortage hit, we put out a hotline to allow customers 0:21:36.560 --> 0:21:40.159 to call in with their fire and fury, basically to 0:21:40.200 --> 0:21:44.399 tell Congress what needs to change. We created Bobby for 0:21:44.560 --> 0:21:47.480 Change dot org, which allowed us to go out and 0:21:47.680 --> 0:21:51.280 really fight for policy changes to support parents, to support 0:21:51.320 --> 0:21:54.520 mothers where they're at and one of those policy changes 0:21:54.520 --> 0:21:57.439 that we're looking to change is to put out a 0:21:57.480 --> 0:22:00.760 bill to be able to support more product and more 0:22:00.840 --> 0:22:04.880 manufacturing domestically in the US so that we don't experience 0:22:04.880 --> 0:22:08.360 a shortage again. I'm very fortunately happen to be here 0:22:08.400 --> 0:22:12.160 in DC beside it all and to see the action 0:22:12.280 --> 0:22:14.080 and momentum from this has been wonderful. 0:22:14.520 --> 0:22:17.800 So lar why isn't the marketplace taking care of this itself? 0:22:17.840 --> 0:22:19.520 Why do we need regulation? 0:22:19.720 --> 0:22:24.080 Aren't the manufacturers themselves saying we need the diversify our manufacturing, 0:22:24.119 --> 0:22:27.280 We need to diversify our suppliers. Isn't this what are 0:22:27.280 --> 0:22:30.080 the big players in this baby food business saying? 0:22:31.720 --> 0:22:34.840 I think in a regulated industry there's really three legs 0:22:34.840 --> 0:22:37.080 to the stool on this. There is the private sector, 0:22:37.160 --> 0:22:41.720 of course, and companies themselves are looking for ways to diversify. 0:22:42.080 --> 0:22:45.440 But because it is regulated, it's also having the support 0:22:45.440 --> 0:22:48.720 of both government and the FDA as well. And if 0:22:48.800 --> 0:22:52.359 those three agencies can come together and figure out how 0:22:52.560 --> 0:22:55.200 within the next seven to ten years, we can look 0:22:55.280 --> 0:22:59.000 back at a truly reformed industry and I mean reformed 0:22:59.119 --> 0:23:04.879 domestically using domestic suppliers, local farmers, and be proud of 0:23:04.880 --> 0:23:07.359 our instant formula. Then I think those three bodies will 0:23:07.400 --> 0:23:09.280 have done the right job, but it will take the 0:23:09.280 --> 0:23:10.680 three of them coming together. 0:23:11.600 --> 0:23:13.160 Three of them coming together. I think it's the past 0:23:13.240 --> 0:23:17.159 question on as suppliers here are interesting, but equally, you know, 0:23:17.160 --> 0:23:19.080 I'd like to double down on this idea here that 0:23:19.160 --> 0:23:22.560 you worked at Airbnb, you worked at Google finance. What 0:23:22.680 --> 0:23:25.160 role is Internet playing and helping you get the job done? 0:23:26.960 --> 0:23:29.120 I think I think it starts with just the mindset 0:23:29.560 --> 0:23:32.560 of being able to look at a traditional industry and 0:23:32.600 --> 0:23:36.199 say that we can do differently. Airbnb was born on 0:23:37.560 --> 0:23:42.359 the back of seeing travel being different and disrupting really 0:23:42.400 --> 0:23:45.159 the travel industry. So we come at this with the 0:23:45.160 --> 0:23:47.600 mindset which is it can be different and the status 0:23:47.640 --> 0:23:51.440 quo isn't good enough. But I also do believe that technology, 0:23:51.480 --> 0:23:56.640 whether it's tracking supply and the data surrounding in stock rates, 0:23:56.880 --> 0:23:59.560 which frankly, if they were all in place to begin with, 0:23:59.560 --> 0:24:02.960 we would be staring at the shortage today. So I 0:24:03.000 --> 0:24:06.280 think using data and you know, even dare I say 0:24:06.320 --> 0:24:09.879 this's movement towards AI as well, I do believe can 0:24:09.920 --> 0:24:11.439 get us into a position where we're not going to 0:24:11.440 --> 0:24:13.400 be dealing with another crisis in the future, and we've 0:24:13.400 --> 0:24:14.159 just gotten ahead of this. 0:24:15.040 --> 0:24:17.119 Lauria, we just got about thirty seconds left over the 0:24:17.119 --> 0:24:19.919 next year or two. What's the biggest challenge opportunity for 0:24:19.920 --> 0:24:20.399 your company? 0:24:20.400 --> 0:24:23.000 Bobby and I think. 0:24:22.800 --> 0:24:24.800 It really is production. We need to be in a 0:24:24.840 --> 0:24:28.600 position where we are not waiting on the edge of 0:24:28.600 --> 0:24:31.600 our seats and questioning if another shortage happens, we'll be 0:24:31.720 --> 0:24:34.359 able to serve the market. We need to break up 0:24:34.400 --> 0:24:38.920 concentration and competition and introduce more players to the market. 0:24:39.200 --> 0:24:41.680 Laura Modi, thank you so much for joining us. Lara Moti, 0:24:41.720 --> 0:24:44.960 she's a CEO and co founder of Bobby and Bobby 0:24:45.000 --> 0:24:47.240 is a baby formula delivery startup that sells direct to 0:24:47.280 --> 0:24:51.080 consumer and offers a subscription service to parents across the US. 0:24:51.119 --> 0:24:52.920 When we first got introduced to Laura, you know, a 0:24:52.960 --> 0:24:55.040 few years ago during the pandemic, when we really had 0:24:55.040 --> 0:24:57.280 that shortage in that if you think back in how 0:24:57.320 --> 0:24:59.679 serious that was at the time, and we needed a 0:24:59.720 --> 0:25:01.840 smart voice to kind of explain it all to us, 0:25:01.920 --> 0:25:04.600 explain the challenges, and Laura was that person. So like 0:25:04.640 --> 0:25:06.119 checking in with larav every once in a while to 0:25:06.160 --> 0:25:08.280 see how that business and the you know, the greater 0:25:08.359 --> 0:25:11.120 food business and distribution business, how that's playing out. 0:25:12.200 --> 0:25:15.600 You're listening to the team Ken's our line program, Bloomberg 0:25:15.640 --> 0:25:19.000 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:25:19.119 --> 0:25:22.280 the iHeartRadio app and the Bloomberg Business app, or listening 0:25:22.320 --> 0:25:24.440 on demand wherever you get your podcasts. 0:25:26.800 --> 0:25:28.320 Right now, we're bringing Ira Jersey. 0:25:28.320 --> 0:25:33.120 He's the chief US interest rate strategist for Bloomberg Intelligence. So, Ira, 0:25:33.200 --> 0:25:37.000 we've got current FED Chairman Jpal, former FED chair Ben 0:25:37.000 --> 0:25:38.639 Bernanke making some comments today. 0:25:39.359 --> 0:25:40.400 What are you taking away here? 0:25:41.680 --> 0:25:44.880 Well, first, I'm taking away that there's multiple headlines going 0:25:44.880 --> 0:25:46.439 on at the same time and it's hard to pay attention. 0:25:48.080 --> 0:25:51.920 That's number one. Number two, you know, I think Chair 0:25:52.000 --> 0:25:56.600 Powell's comments about forward guidance and about the market not 0:25:57.280 --> 0:26:00.480 pricing what the dot plot says, and that it seems 0:26:00.480 --> 0:26:02.520 like the market has a different forecast than the FED, 0:26:03.720 --> 0:26:05.399 and you know, hinting that we think that we'll be 0:26:05.480 --> 0:26:07.960 right based on the incoming data that we've seen recently. 0:26:08.640 --> 0:26:10.080 I think it is interesting it's not going to be 0:26:10.200 --> 0:26:13.560 enough to job own the market as significantly, maybe as 0:26:13.640 --> 0:26:17.240 the hopes it would. You know, I think the fact 0:26:17.240 --> 0:26:20.440 that we're pricing in significant chance of rake cuts later 0:26:20.520 --> 0:26:23.199 this year is easing financial conditions and actually might be 0:26:23.240 --> 0:26:25.440 making their job a little bit harder than it would 0:26:25.480 --> 0:26:27.800 be if we were pricing for the FED to be 0:26:27.800 --> 0:26:29.920 on hold a bit longer than we currently are. 0:26:30.240 --> 0:26:33.200 To the point on competing headlines, you had this idea 0:26:33.400 --> 0:26:37.720 here that the banking stress is taking hold from Powell, 0:26:37.880 --> 0:26:39.399 but then you have the debt ceiling talks. At the 0:26:39.440 --> 0:26:41.480 same time, you had a big drop off and yields 0:26:41.480 --> 0:26:44.600 from the Powell comments or not big, but you know, 0:26:44.880 --> 0:26:48.320 meaningful time to day, and then you know you're seeing 0:26:48.320 --> 0:26:50.560 a slight rise once again, if you think about it, 0:26:50.600 --> 0:26:54.280 we're just getting all these headlines. We're still getting Powell headlines, 0:26:54.600 --> 0:26:57.520 the most recent being that FED was expecting further tightening 0:26:57.600 --> 0:27:04.159 until recently, which is significant, which force wins out the 0:27:04.160 --> 0:27:07.200 fiscal strains or the or the monetary ones. 0:27:07.400 --> 0:27:10.000 Well, I think near term, the market's going to probably 0:27:10.000 --> 0:27:13.160 react to the debt ceialing angst quite significantly. So our 0:27:13.200 --> 0:27:16.000 model still shows that the government runs out of money 0:27:16.040 --> 0:27:18.120 on June fifth, if someone doesn't get paid on that day, 0:27:18.160 --> 0:27:21.560 and then the June sixth tea bills are significantly at 0:27:21.640 --> 0:27:25.040 risk of maybe missing a payment. And so I think 0:27:25.080 --> 0:27:27.760 that the markets and and risk assets and in particular 0:27:27.760 --> 0:27:30.679 are going to wind up moving, you know, quite dramatically, 0:27:30.720 --> 0:27:33.760 probably on some of these debt ceiling headlines. You know, 0:27:33.800 --> 0:27:36.640 it's not obvious what the Republicans are trying to get 0:27:36.680 --> 0:27:40.879 out of these negotiations. You know, it's like, you know, 0:27:40.920 --> 0:27:44.520 obviously the Democrats want something clean, that the Republicans want 0:27:44.560 --> 0:27:46.440 to use this as a bargaining chip to try to 0:27:46.640 --> 0:27:52.000 reduce government spending uh and and reduce deficits. But at 0:27:52.000 --> 0:27:53.920 the same time, you know that there's there's a time 0:27:53.960 --> 0:27:55.879 to do that, and there's a time not to. And 0:27:55.960 --> 0:27:58.840 you know, I'm sympathetic to the idea that deficits are 0:27:58.840 --> 0:28:01.160 too high, that the stock of that outstanding right now 0:28:01.240 --> 0:28:05.040 is making liquidity in some markets, and even in the 0:28:05.040 --> 0:28:08.479 treasury market itself a challenge just because of the of 0:28:08.520 --> 0:28:14.920 the quantum of of treasury securities available. So but at 0:28:14.920 --> 0:28:17.359 the same time, you know, you play this game when 0:28:17.520 --> 0:28:20.320 when the right you're working on a budget, not when 0:28:20.320 --> 0:28:21.760 you're working on whether or not you're going to pay 0:28:21.760 --> 0:28:22.040 your bill. 0:28:22.240 --> 0:28:22.560 Right. 0:28:22.640 --> 0:28:25.200 But here we are again, And the thing is that 0:28:25.600 --> 0:28:27.840 to most of the country and to most of the world, 0:28:27.920 --> 0:28:30.200 what they see as a bunch of sparring in Washington 0:28:30.400 --> 0:28:33.320 for something that usually works itself out at the very end, 0:28:33.600 --> 0:28:37.240 but for more hom sitting covering markets, banks, market makers, 0:28:37.359 --> 0:28:41.000 investment firms that are levered towards treasury and repo markets. 0:28:41.600 --> 0:28:44.840 There are more worries and this gentle sense of panic 0:28:44.920 --> 0:28:48.280 under the market right that things will be very volatile 0:28:48.320 --> 0:28:51.800 and potentially throw things off course. You know, how drastic 0:28:51.920 --> 0:28:54.720 are we going to have to see? I mean, do 0:28:54.760 --> 0:28:56.040 you think we'll have to get to the point that 0:28:56.080 --> 0:28:58.120 the Fed would have to step in? I mean, at 0:28:58.120 --> 0:29:00.800 what point are some of these sharp moves is going 0:29:00.840 --> 0:29:02.080 to be troubling for the market. 0:29:02.760 --> 0:29:04.440 Well, I don't think that the Fed will step in, 0:29:04.600 --> 0:29:07.719 because you know, their their job is financial stability, and 0:29:07.760 --> 0:29:10.800 if Congress doesn't want financial stability, then you know that 0:29:10.840 --> 0:29:13.040 the Fed Reserve is going to be the uh a 0:29:13.120 --> 0:29:14.720 financial stabilizer of less resort. 0:29:15.040 --> 0:29:15.480 But but that. 0:29:15.400 --> 0:29:18.719 Probably doesn't come unless the unless the government actually defaults 0:29:18.720 --> 0:29:19.120 on the debt. 0:29:19.160 --> 0:29:21.040 I would suspect we're downgraded. 0:29:20.600 --> 0:29:25.680 Right, Well, yeah, down but downgraded doesn't necessarily mean a 0:29:25.680 --> 0:29:28.280 whole heck of a lot. Mandates don't change. So most 0:29:28.360 --> 0:29:32.640 mandates for fixed income investors globally is that you can buy, 0:29:32.960 --> 0:29:36.440 you know, a sovereign government debt of OECD countries, you 0:29:36.440 --> 0:29:39.920 know agency debt. So in the United States, most most 0:29:39.920 --> 0:29:44.040 mandates say treasuries agencies, and then you know investment grade 0:29:44.120 --> 0:29:47.280 or or triple A corporates, right so so so so 0:29:47.480 --> 0:29:50.880 treasuries are still a completely separate asset class from that 0:29:50.880 --> 0:29:53.560 that are that are devoid of ratings, at least for now. 0:29:54.640 --> 0:29:56.960 You know that might that could change in the future potentially, 0:29:57.000 --> 0:29:58.959 But you look at somewhere like Japan. Japan hasn't had 0:29:58.960 --> 0:30:00.960 a triple A credit rating in ages and ages, and 0:30:01.040 --> 0:30:04.280 yet their interest rates don't have a particular problem. So, 0:30:05.200 --> 0:30:08.719 you know, sovereign ratings for investment grade, for for very 0:30:08.800 --> 0:30:14.200 high rated company countries that issue debt primarily in their 0:30:14.200 --> 0:30:17.920 own currency, really don't mean a whole act of a lot, 0:30:18.240 --> 0:30:20.560 because it really has more to do with investor sentiment 0:30:20.640 --> 0:30:23.640 and with not with the ability to pay, but the 0:30:23.640 --> 0:30:25.880 willingness to pay, which is exactly what we're dealing with 0:30:25.960 --> 0:30:27.560 right now with the dead limit IRA. 0:30:27.680 --> 0:30:30.800 What do you think are the the upcoming key data 0:30:30.800 --> 0:30:33.040 points that we need to we need to be focusing on. 0:30:33.120 --> 0:30:36.200 Maybe the FED is focusing on what should we be 0:30:36.240 --> 0:30:36.640 looking for. 0:30:37.160 --> 0:30:39.840 Yeah, so we have the PC data coming up next week. 0:30:40.360 --> 0:30:43.760 You know, that's probably the biggest one that that we have. 0:30:43.840 --> 0:30:46.400 You know, we get a revision and GDP that's you know, 0:30:46.760 --> 0:30:49.520 not probably not going to be significantly market moving, but 0:30:49.640 --> 0:30:51.960 the PC data that we get because that's for April, 0:30:52.040 --> 0:30:54.600 so that's going to be important for uh, you know, 0:30:54.640 --> 0:30:57.840 where GDP and where consumer spending and what the inflationary 0:30:58.440 --> 0:31:02.440 impulse is. Remember that the PC deflator uses similar data 0:31:02.480 --> 0:31:04.480 to the CPI, but but the weightings are different. So 0:31:04.560 --> 0:31:07.520 the weightings are weighted more toward what actually was purchased 0:31:07.640 --> 0:31:09.920 in the month of April. So that's one reason why 0:31:10.000 --> 0:31:12.920 the Fed Reserve concentrates on that particular measure, and so 0:31:13.240 --> 0:31:17.040 there will be some modest differences between that data and 0:31:17.040 --> 0:31:19.600 what we got in CPI. But but regardless, you're still 0:31:19.640 --> 0:31:23.240 likely to see the inflation continuing to move lower, but 0:31:23.320 --> 0:31:25.840 just at a you know, but still wind up you know, 0:31:25.880 --> 0:31:27.800 well above four percent for example, on a year on 0:31:27.880 --> 0:31:30.200 year basis for the headline PC. 0:31:30.920 --> 0:31:34.360 And in that scenario, IRA does a FED just kind 0:31:34.360 --> 0:31:36.960 of sit on the sidelines and wait, and that it really. 0:31:36.880 --> 0:31:37.400 Is a pause. 0:31:37.960 --> 0:31:40.760 Yeah, that's what I think the Fed's most likely to do. 0:31:40.880 --> 0:31:43.480 And Powell did hint at that during his remarks today, 0:31:44.520 --> 0:31:46.760 And and I think that the FED would it would 0:31:46.800 --> 0:31:48.480 behove the Fed at this point just to take a 0:31:48.480 --> 0:31:50.360 weight and see action. They can talk about, you know, 0:31:50.440 --> 0:31:53.640 the long and variable legs of how monetary policy works. 0:31:53.680 --> 0:31:56.960 They can still say, like the banking sector is, you know, 0:31:57.040 --> 0:31:59.880 still tightening financial conditions. You look at the senior loan, 0:32:00.120 --> 0:32:03.920 the survey and some other measures of credit conditions, and 0:32:03.960 --> 0:32:06.600 they can say that, you know, credit conditions are modestly tightening, 0:32:06.640 --> 0:32:08.440 and we're just going to take away and see approach. 0:32:08.480 --> 0:32:10.920 And of course so they'll say that symmetric you know 0:32:10.960 --> 0:32:14.440 that in the future, if inflation does in fact, you know, rebound, 0:32:14.480 --> 0:32:18.040 we can hike more. I think if he couches it 0:32:18.280 --> 0:32:20.880 in those kind of language, then maybe the market will 0:32:20.920 --> 0:32:22.720 wake up and we'll start to price out some of 0:32:22.760 --> 0:32:25.560 the cuts that are currently in the market, kind of 0:32:25.560 --> 0:32:26.760 as a risk management measure. 0:32:27.080 --> 0:32:28.840 All right, Ira, thanks so much for joining us. I 0:32:28.880 --> 0:32:30.480 really appreciate getting your insights. 0:32:30.720 --> 0:32:33.800 You're listening to the tape Cat's our live program Bloomberg 0:32:33.880 --> 0:32:37.440 markets weekdays at ten am Eastern on Bloomberg Radio, the 0:32:37.520 --> 0:32:39.480 tune in app, Bloomberg dot Com, and. 0:32:39.440 --> 0:32:40.760 The Bloomberg Business App. 0:32:40.800 --> 0:32:43.600 You can also listen live on Amazon Alexa from our 0:32:43.640 --> 0:32:48.680 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:32:49.720 --> 0:32:51.520 We need the roundtable list in a big way. We've 0:32:51.520 --> 0:32:53.239 got some smart people that are joining us. So we've 0:32:53.240 --> 0:32:56.800 got Abigail Doolittle, she covers all the markets for Bloomberg Television. 0:32:56.880 --> 0:32:58.920 She joins us here in our studio, Billy House. He's 0:32:58.920 --> 0:33:02.160 down in Washington, DC Congress for Bloomberg News. He's going 0:33:02.200 --> 0:33:04.200 to join us, give us the latest on what's happening 0:33:04.200 --> 0:33:06.840 with these debt talks, and then we have a real 0:33:06.880 --> 0:33:10.360 treat here. Monica Defend, chief strategist at Amundi. A Mundi 0:33:10.560 --> 0:33:13.760 is an extraordinarily large global investor. Will get a great 0:33:13.760 --> 0:33:15.920 global view of kind of how the markets are viewing 0:33:15.960 --> 0:33:18.000 what's happening here in the States and abroad. 0:33:18.480 --> 0:33:20.040 Abigail, let's start with you. What have we seen in 0:33:20.080 --> 0:33:20.560 these markets? 0:33:21.160 --> 0:33:23.400 A little bit of inter day volatility, if not a lot, 0:33:23.480 --> 0:33:25.160 and it's cross asset and of course has to do 0:33:25.200 --> 0:33:27.400 with all these different headlines that we've seen. Now, I'll 0:33:27.440 --> 0:33:29.120 start off with feed shair J. 0:33:29.320 --> 0:33:29.840 Powell. 0:33:29.880 --> 0:33:33.120 Every now and then he drops, I don't want to 0:33:33.160 --> 0:33:39.560 say a bomb, but a surprise, and I would I 0:33:39.560 --> 0:33:44.080 would characterize his thought that rates may not need to 0:33:44.160 --> 0:33:50.160 rise as high given credit stress as a possible, not pivot, 0:33:50.760 --> 0:33:53.959 but a nuance worth watching going forward, because he's been 0:33:54.000 --> 0:33:57.880 pretty consistent in his message to my memory over basically 0:33:57.920 --> 0:34:00.880 the last year, saying that the Fed is hike rates 0:34:00.920 --> 0:34:03.840 are going higher. The hikes may get smaller, but they're 0:34:03.840 --> 0:34:05.880 going to go higher higher. And now all of a 0:34:05.880 --> 0:34:10.839 sudden he's saying, whoa credit stress, bank turmoil, bank crisis. 0:34:11.040 --> 0:34:13.799 So maybe not as high now on that we saw 0:34:13.920 --> 0:34:15.719 stocks take a little bit of a dip, But I'll 0:34:15.719 --> 0:34:17.560 stress the word little because right now we have that 0:34:17.640 --> 0:34:19.480 S and P five hundred down two tens of one percent, 0:34:19.480 --> 0:34:22.000 although on on interday basis it has been a turnaround 0:34:22.320 --> 0:34:26.040 of almost less than a percent, but close to Chanale 0:34:26.080 --> 0:34:27.960 not so long ago, was talking about the huge move 0:34:28.000 --> 0:34:30.160 we've seen in yields. Yields had been hired than they 0:34:30.160 --> 0:34:33.320 were lower by a considerable amount. They gave up fourteen 0:34:33.360 --> 0:34:36.560 basis points on that headline now about flat on the day, 0:34:36.760 --> 0:34:39.840 the dollar down a little bit, and then following Powell 0:34:40.239 --> 0:34:42.080 having this, I'm going to call it the Powell nuance. 0:34:42.120 --> 0:34:43.880 I know it doesn't sound as good as a Powell pivot, 0:34:43.920 --> 0:34:46.680 but just to be accurate, the debt limit talks hit 0:34:46.719 --> 0:34:48.719 a roadblock, and on that we saw stocks drop a 0:34:48.719 --> 0:34:49.200 little bit too. 0:34:49.440 --> 0:34:51.959 Right, all right, let's just bring up Billy House because 0:34:52.040 --> 0:34:53.920 I need to figure out what's going on down in Washington, DC. 0:34:54.040 --> 0:34:56.040 Job, this is in the driver's seat. I think we 0:34:56.040 --> 0:34:57.000 could safely. 0:34:56.719 --> 0:34:58.319 Say yeah, yeah, I don't know. 0:34:58.360 --> 0:35:00.839 All right, Bill, You're done in DC here. Now, when 0:35:01.760 --> 0:35:04.960 the GOOP negotiators walked out, did they angrily walk out? 0:35:05.000 --> 0:35:08.040 Did they did they hop skin walk out? Like what's 0:35:08.080 --> 0:35:08.920 going on down there? 0:35:09.600 --> 0:35:11.920 Well? I wouldn't say they stormed out, but they certainly 0:35:11.960 --> 0:35:15.680 walked out abruptly after the meeting. Shortly after them again 0:35:16.080 --> 0:35:19.920 and the lead negotiator for Kevin McCarthy, the speaker, Garrett 0:35:19.920 --> 0:35:23.120 Grays of Louisiana, said that they were being unreasonable, meaning 0:35:23.120 --> 0:35:25.600 the White House team, and that things were being put 0:35:25.600 --> 0:35:27.600 on pause. He didn't know if they were going to 0:35:27.600 --> 0:35:30.879 meet again today or even this weekend. He didn't get 0:35:30.880 --> 0:35:33.080 provided any specifics, but we believe it has something to 0:35:33.120 --> 0:35:38.120 do with the discussions over work requirements and the hesitance 0:35:38.160 --> 0:35:40.640 of the White House to embrace anything that the House 0:35:40.680 --> 0:35:42.240 Republicans want in that regard. 0:35:42.440 --> 0:35:43.280 Where's the speaker? 0:35:44.440 --> 0:35:47.040 The speaker and I'm standing right here in front of 0:35:47.040 --> 0:35:48.840 a door in which he's supposed to arrive at the 0:35:48.880 --> 0:35:52.160 Capitol and walk through at any second. He touched down 0:35:52.200 --> 0:35:54.640 apparently at the airport around eleven thirty and makes his 0:35:54.719 --> 0:35:57.320 way over here. We hope to get details from him, 0:35:58.040 --> 0:36:00.640 and details that are a lot broader. He's been giving 0:36:00.680 --> 0:36:03.640 us last two days of over pessimism, I mean over 0:36:03.719 --> 0:36:07.040 optimism apparently, but who knows these things? People play roles, 0:36:08.360 --> 0:36:10.920 and again we're on pause. We don't know if it's 0:36:10.920 --> 0:36:13.640 a breakdown really, but they're calling it a pause. 0:36:14.480 --> 0:36:16.359 Monica, I want to bring you in here, Monica defend 0:36:16.400 --> 0:36:20.239 chief strategist at a Mundi Monica, How do how do 0:36:20.360 --> 0:36:23.840 investors view what's happening in Washington, this this long, tortuous 0:36:23.880 --> 0:36:25.600 path of just trying to get to a point where 0:36:26.120 --> 0:36:28.440 the United States government can at least pay its bills. 0:36:29.480 --> 0:36:31.279 How do you think the markets are viewing it? All 0:36:31.320 --> 0:36:31.840 over the world? 0:36:33.440 --> 0:36:36.400 Yeah, thank you. Well, you know, I'm so lucky because 0:36:36.960 --> 0:36:39.080 I am based in Europe, and I have to say, 0:36:39.160 --> 0:36:42.000 guys that how we see things in Europe it might 0:36:42.120 --> 0:36:44.920 be a little bit different from how are you ask, colleague, 0:36:45.000 --> 0:36:47.640 So where it seems to us that there is and 0:36:47.719 --> 0:36:50.840 they will be definitely a lot of noise may be 0:36:51.880 --> 0:36:56.440 entering in June on the market. So still we are 0:36:56.520 --> 0:36:59.880 not that concerning that a technical the force the war 0:37:00.160 --> 0:37:04.520 happens in our opinion, but we might be more worried 0:37:04.719 --> 0:37:08.120 on the people. So these things might play out with 0:37:08.239 --> 0:37:12.080 people not getting there the salaries or spending cuts to 0:37:12.600 --> 0:37:16.640 kick in, and this might be painful for the US economy. 0:37:16.880 --> 0:37:19.280 Well, it's to date we've been climbing a wall of worry. 0:37:19.320 --> 0:37:22.080 Can we climb more with this added worry? 0:37:24.239 --> 0:37:28.560 Well, I think that this might be, but it really 0:37:28.640 --> 0:37:32.160 depends what kind of worries you are looking for, whether 0:37:32.680 --> 0:37:37.120 it is or not market and monectivity. Yes, this will materialize, 0:37:37.480 --> 0:37:40.600 it is it is likely so as we've seen so far. 0:37:41.280 --> 0:37:45.640 But then when it goes down to more entrenched consequences 0:37:45.680 --> 0:37:49.200 on the economic cycle, while we expect this to be 0:37:49.280 --> 0:37:49.879 less likely. 0:37:51.000 --> 0:37:54.120 So the market, sorry. 0:37:53.960 --> 0:37:56.800 That blue button thing, so abigail these markets here, What 0:37:57.080 --> 0:37:59.440 do you think the market is kind of factoring in here? 0:37:59.520 --> 0:38:02.920 It relates to this debt, silly negotiations. The things have 0:38:03.000 --> 0:38:04.880 been kind of the optics has been kind of building 0:38:04.960 --> 0:38:06.600 for the last twenty four to thirty six hours. 0:38:06.640 --> 0:38:08.439 And this was a little bit of surprise here. 0:38:09.160 --> 0:38:12.520 Yes, maybe a little bit of a surprise for sure. 0:38:12.640 --> 0:38:15.280 On the other hand, if you go back to twenty eleven, 0:38:15.719 --> 0:38:18.920 it really went down right to the wire. So I 0:38:18.960 --> 0:38:24.279 think that if investors traders thought that this was this 0:38:24.400 --> 0:38:27.960 pause is a breakdown, you would see a massive move 0:38:28.320 --> 0:38:31.560 flight to safety and out of risk assets. And I'm 0:38:31.560 --> 0:38:34.680 also about to pull up a term chart here because 0:38:34.760 --> 0:38:37.719 there's a very interesting divergence. It's a slight divergence. It 0:38:37.840 --> 0:38:40.279 suggests that investors don't think that there's going to. 0:38:40.320 --> 0:38:43.560 Be a default. 0:38:43.920 --> 0:38:46.399 And I'm just trying to find this here. Ooh boy boy. Here, 0:38:46.440 --> 0:38:49.080 let's see. I'm just looking for the Yeah, I'm we're 0:38:49.120 --> 0:38:52.080 the charters. This is less of a churches chart and 0:38:52.120 --> 0:38:55.480 more of a rates chart. Talking about I'll describe it, 0:38:55.520 --> 0:38:58.279 which is I just I'm curious to see where the 0:38:58.280 --> 0:39:00.319 current levels are. I think this is going to be 0:39:00.520 --> 0:39:04.799 this chart which basically those tea bills that are maturing 0:39:05.040 --> 0:39:07.480 in May. Okay, So this is interesting. It's moving a 0:39:07.560 --> 0:39:10.399 little bit. So the tea bills maturing in May. On 0:39:10.640 --> 0:39:14.040 this announcement, they went from being around three point fifty 0:39:14.480 --> 0:39:17.200 to now above four percent. So we're seeing a little 0:39:17.200 --> 0:39:20.719 bit of a premium place there. Investors demanding a little 0:39:20.719 --> 0:39:23.160 bit more of a premium for bills that are maturing 0:39:24.120 --> 0:39:27.239 next week May twenty fifth, and then the following Tuesday, 0:39:27.280 --> 0:39:30.439 May thirtieth, and then those bills d in June. They're 0:39:30.480 --> 0:39:33.520 all above five percent, so that divergence is still there. 0:39:33.560 --> 0:39:36.719 It had been wider. Prior to today. It had been a 0:39:36.760 --> 0:39:40.440 two percent divergence. So for those bills maturing this month 0:39:40.600 --> 0:39:43.440 with no debt sealing drama or imminency of not being 0:39:43.480 --> 0:39:46.760 able to pay immediately on these bills, it was demanding 0:39:46.760 --> 0:39:49.560 three fifty relative to five point fifty for the other ones. 0:39:49.680 --> 0:39:52.719 The thing I would point out, though it's an interesting divergence, 0:39:52.800 --> 0:39:55.160 it tells you, yes, the markets are not totally asleep. 0:39:55.200 --> 0:39:57.960 They're aware that there is this stress down in Washington. 0:39:58.280 --> 0:40:01.120 But if anybody thought that the government we're truly going 0:40:01.120 --> 0:40:03.120 to go into default, I would make the case that 0:40:03.200 --> 0:40:05.680 those June bills they would be at I don't know 0:40:05.680 --> 0:40:07.480 how you would price this out. It would be bond math, 0:40:07.520 --> 0:40:10.359 but it would be ten percent because you'd be looking 0:40:10.400 --> 0:40:13.319 at the possibility of not getting your your premium back 0:40:14.360 --> 0:40:16.759 or your principle back. Although I don't know for how 0:40:16.800 --> 0:40:19.280 long I was having a complicated discussion with Doug Prisner 0:40:19.280 --> 0:40:21.360 and neither of us knew the answer on this, but 0:40:21.400 --> 0:40:23.720 that you would get your principle back at some point 0:40:23.760 --> 0:40:26.360 in the future. But then you're talking about opportunity cost. 0:40:26.600 --> 0:40:29.720 Hey, Billy House on Capitol Hill waiting for the speaker, 0:40:29.960 --> 0:40:31.319 how much money do we have left? 0:40:33.239 --> 0:40:33.359 Uh? 0:40:34.040 --> 0:40:37.319 You know, I don't know as of today. I do 0:40:37.520 --> 0:40:41.280 know that there's differences of opinion. The Speaker, trying to 0:40:41.640 --> 0:40:45.719 push a deal swiftly, is saying that just the process 0:40:45.760 --> 0:40:49.840 here getting a bill written and then of course approved 0:40:49.960 --> 0:40:53.279 and dealing with the you know, the flanks of both 0:40:53.320 --> 0:40:58.480 parties who will pose anything, just makes makes the deadline 0:40:58.520 --> 0:41:03.920 that June one tended to deadline almost we've almost we're 0:41:03.920 --> 0:41:05.719 pushing right up against it already. 0:41:05.880 --> 0:41:06.080 Yep. 0:41:06.239 --> 0:41:09.440 Hey, Monica, I want to get your perspective from Europe here. 0:41:09.480 --> 0:41:12.160 I mean, we see the central banks around the world, 0:41:12.239 --> 0:41:14.560 the ECB, the the Bank of England, even the Bank 0:41:14.600 --> 0:41:20.200 of Japan. How how well do you think this policy 0:41:20.320 --> 0:41:23.359 seems fairly coordinated? But I mean, what's the what are 0:41:23.360 --> 0:41:26.200 you expecting next from some of these central banks? 0:41:27.880 --> 0:41:30.799 Well when it goes to the ECB, but also the 0:41:31.000 --> 0:41:33.520 Bank of England, and we think they're going to continue 0:41:33.600 --> 0:41:34.640 to bike. 0:41:34.840 --> 0:41:35.759 Okay, thank you guys. 0:41:36.000 --> 0:41:38.359 The reason sorry, go ahead, man, the. 0:41:38.320 --> 0:41:42.880 Reason and the reason being that the inflation is proving 0:41:42.960 --> 0:41:46.200 speaker and then then expected while when it turns to 0:41:46.239 --> 0:41:48.879 the said, we think they're going to pause with all 0:41:48.920 --> 0:41:51.880 the consequences of this myself for example on the on 0:41:51.960 --> 0:41:57.280 the US dollar. But we had the Juster Shnabel making 0:41:57.520 --> 0:42:01.600 her statements in a speech that been just released one 0:42:01.640 --> 0:42:06.880 hour ago, saying that we need to disentangle financial stability 0:42:07.040 --> 0:42:11.360 from from inflation, and inflation will be the main target 0:42:11.480 --> 0:42:14.240 for the for the central bank. Actually, how we see 0:42:14.760 --> 0:42:19.640 three fifty as a terminal rate because we don't think 0:42:19.680 --> 0:42:24.680 that eventually economists might afford the hot terminal rate at 0:42:24.800 --> 0:42:26.160 four or above. 0:42:27.400 --> 0:42:29.880 Monarcha. As you're speaking and looking at the tacks, you know, 0:42:30.360 --> 0:42:35.200 we almost closed our record high for the German dacks. 0:42:35.800 --> 0:42:40.040 Uh is you're continuing the out form the US and 0:42:40.160 --> 0:42:41.560 will that continue. 0:42:43.400 --> 0:42:46.640 To be To be honest with you, we've been slashing 0:42:46.640 --> 0:42:53.000 down our exposure overall on UH ON equities with the 0:42:53.440 --> 0:42:58.520 with the concern related to to GDP numbers and economic cycle, 0:42:58.920 --> 0:43:03.040 and we said that why we expect the US enter 0:43:03.280 --> 0:43:10.520 sessions UH cou four UH you area. We are still flattish. 0:43:10.680 --> 0:43:15.000 So probably let's see how the clouds will get clear 0:43:15.080 --> 0:43:20.040 out on the ECB and then we will might reconsider 0:43:20.560 --> 0:43:24.360 any opposition. But honestly, we doubt that we will have 0:43:24.520 --> 0:43:28.680 US striking our performance of Europe versus the US, and 0:43:28.719 --> 0:43:30.560 we prefer to see it on the corcual site. 0:43:31.840 --> 0:43:34.080 All right, Monica, thank you very much for joining us. 0:43:34.200 --> 0:43:36.640 We really appreciate you coming out and spending a couple 0:43:36.680 --> 0:43:39.920 of minutes with us. Monica defend head and chief strategist 0:43:39.920 --> 0:43:43.279 at Mundi Institute, Abigail Dolittle covers all. 0:43:43.160 --> 0:43:44.600 The markets for US for Bloomberg News. 0:43:44.640 --> 0:43:46.960 We appreciate getting her time and Billy House down and Washington, DC, 0:43:47.120 --> 0:43:50.080 literally on the steps of Congress waiting to see how 0:43:50.120 --> 0:43:52.600 that news breaks down there with the talks. Want to 0:43:52.600 --> 0:43:56.919 bring you John Authors here Bloomberg Opinion A columnists, Uh, John, 0:43:57.040 --> 0:43:59.560 A lot going on, a lot of big picture stuff 0:43:59.560 --> 0:44:02.600 here with it that ceiling, we've got the Federal reserve. 0:44:02.719 --> 0:44:04.120 Kind of how do you put it all together? 0:44:04.120 --> 0:44:05.640 Because I can tell you just looking at the screen 0:44:05.719 --> 0:44:08.479 right here, the market minute by minutes, trying to figure 0:44:08.480 --> 0:44:09.160 out what's going on. 0:44:10.200 --> 0:44:14.840 I think with the debt ceiling, this isn't going to 0:44:14.880 --> 0:44:18.000 be terribly helpful. People might ask why I'm being paid 0:44:18.000 --> 0:44:23.200 by salary. You can't really make much of it. It 0:44:23.680 --> 0:44:29.000 is the classic example of something that markets cannot deal 0:44:29.040 --> 0:44:34.960 with well, which is very low probability extreme events. Not 0:44:35.000 --> 0:44:37.800 only that it's a political event rather than a financial 0:44:37.840 --> 0:44:41.120 one that would then have financial consequences. So you know, 0:44:41.239 --> 0:44:46.520 it's completely reasonable that it would be having the kind 0:44:46.560 --> 0:44:49.840 of effect it will. That the odds are very strong 0:44:49.960 --> 0:44:54.759 that we're not going to have a default. I suppose 0:44:55.440 --> 0:44:59.000 I would try to perhaps if there's one key issue 0:44:59.040 --> 0:45:02.920 that is hadn't looked at too much because people think 0:45:02.960 --> 0:45:07.080 of it as being so binary. Back in twenty eleven, 0:45:07.800 --> 0:45:12.000 the really big depth ceiling set to the market tanked 0:45:12.200 --> 0:45:17.520 much further after the deal had been done successfully other 0:45:17.520 --> 0:45:20.560 than it had done when the brinkmanship was still going on, 0:45:21.520 --> 0:45:26.760 basically because the Obama administration agreed to cuts that seemed 0:45:27.760 --> 0:45:32.640 implausibly difficult to implement to many in the market. I 0:45:32.719 --> 0:45:38.960 think perhaps the actual detail of whats concessions might be 0:45:39.080 --> 0:45:43.000 made isn't so binary, and perhaps we should be focusing 0:45:43.040 --> 0:45:46.280 more on that. You do see some signs that that's 0:45:46.320 --> 0:45:48.240 what people are beginning to look. 0:45:48.120 --> 0:45:50.759 At, hey John, Since the beginning of the year s 0:45:50.800 --> 0:45:55.359 and p. Five hundred up nine percent nasdanca what over 0:45:55.440 --> 0:45:56.200 twenty percent? 0:45:56.640 --> 0:45:58.600 Twenty two? The last I checked twenty two? 0:45:58.840 --> 0:46:04.200 Is this being held together? There would spit and chewing gum. 0:46:04.680 --> 0:46:08.319 It's being held together. I wrote this up last night. 0:46:08.640 --> 0:46:12.800 It's been woken held together, firstly by an absence of 0:46:12.960 --> 0:46:16.759 new bad news. So earnings for the first quarter were 0:46:16.760 --> 0:46:23.720 a bit better than pretty bearish expectations. The unemployment still 0:46:23.800 --> 0:46:28.480 hasn't absolutely tanked, Inflation isn't coming down as quickly as 0:46:28.520 --> 0:46:32.200 many would want, but at least it's not continuing to write, 0:46:32.239 --> 0:46:36.000 so that there is an absence of clear bad news, 0:46:36.120 --> 0:46:39.320 which is always good, because there was a lot of 0:46:39.360 --> 0:46:43.680 bad news in the price and then you've got the 0:46:43.680 --> 0:46:46.160 perverse effect of the banking crisis appears to have been 0:46:46.200 --> 0:46:51.800 that the amount of liquidity that was available for banks 0:46:51.800 --> 0:46:55.720 to borrow against their bonds. Money is fungible, it finds 0:46:55.760 --> 0:46:58.279 its way to where it can make a return, so 0:46:58.760 --> 0:47:02.960 that money is having an affec even though the said 0:47:03.000 --> 0:47:08.040 funds rate stays high. And then finally we have and 0:47:08.080 --> 0:47:10.719 this is another classic thing that markets find it very 0:47:10.719 --> 0:47:17.120 difficult to deal with. Is a genuine, a genuine boom, 0:47:17.160 --> 0:47:22.800 a genuine moment of excitement this time over AI. And 0:47:24.400 --> 0:47:26.799 I don't want to seem I don't know enough about 0:47:26.840 --> 0:47:30.759 the subject to really declaim as to how it's going 0:47:30.800 --> 0:47:37.319 to pan out. But you know, the Internet obviously really 0:47:37.320 --> 0:47:40.080 did change our lives in the end, and that didn't 0:47:40.120 --> 0:47:42.279 mean that you couldn't lose a heck of a lot 0:47:42.280 --> 0:47:44.839 of money along the way trying to figure it out. 0:47:45.160 --> 0:47:46.439 I think that's all. 0:47:46.400 --> 0:47:47.759 Right, John, thank you so much for joining us. We 0:47:47.760 --> 0:47:50.040 appreciate you hopping on there. When we want to know 0:47:50.080 --> 0:47:52.320 about AI, We've probably got some. I'm going to somebody, 0:47:52.680 --> 0:47:53.600 you know, Robert. 0:47:53.280 --> 0:47:55.480 Telling you pets AI revived. 0:47:56.440 --> 0:47:58.719 It's coming. It's coming, all right, John Tucker, fall sween 0:47:58.840 --> 0:48:00.920 here with you. We're gonna have more coming up this 0:48:00.920 --> 0:48:01.480 is board. 0:48:03.520 --> 0:48:06.640 You're listening to the tape Cat's are live program Bloomberg 0:48:06.719 --> 0:48:10.319 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:48:10.360 --> 0:48:12.520 tune in app, Bloomberg dot Com, and the. 0:48:12.400 --> 0:48:13.600 Bloomberg Business App. 0:48:13.640 --> 0:48:16.440 You can also listen live on Amazon Alexa from our 0:48:16.480 --> 0:48:21.520 flagship New York station, Just say Alexa play Bloomberg eleven thirty. 0:48:22.840 --> 0:48:24.400 All right, Charlie calla. Thank you so much. 0:48:24.440 --> 0:48:26.640 We appreciate that. All Right, we got John Tucker as 0:48:26.640 --> 0:48:28.160 a co host today, so I figure we got to 0:48:28.200 --> 0:48:30.480 talk weed, right John, I mean, let's go. 0:48:30.440 --> 0:48:34.160 There, shall I take the perspective of a parent of. 0:48:34.480 --> 0:48:36.960 Yes, I am kids, So yeah, John, john'son not a 0:48:37.000 --> 0:48:39.440 big fan of this whole legalized cannabis thing. But our 0:48:39.480 --> 0:48:43.680 next guest is Andres Fajardo, close enough, CEO of Clever 0:48:43.800 --> 0:48:50.640 Leaves ticker CLVR joints us Here Andres, you're based in Bogota, Columbia. 0:48:50.719 --> 0:48:54.560 You're up here talk to us about your company. How 0:48:54.560 --> 0:48:56.320 do you guys operate within the cannabis space? 0:48:56.960 --> 0:49:00.279 No, thanks for having me here. And you know, Leaves 0:49:00.320 --> 0:49:02.600 a say company that was born with a very simple idea, 0:49:02.719 --> 0:49:05.440 which was you have to grow cannabis where you should, 0:49:05.520 --> 0:49:07.120 and then you have to sell it where you should 0:49:07.120 --> 0:49:10.000 and that sounds a little silly, but regulation, you know, 0:49:10.080 --> 0:49:13.200 has made companies to grow cannabis where they are selling it, 0:49:13.239 --> 0:49:15.799 and that never makes sense. So we set up a 0:49:15.840 --> 0:49:19.440 company with operations in Colombia back in twenty sixteen. H 0:49:19.680 --> 0:49:21.400 you know, we're a company that right there is the 0:49:21.440 --> 0:49:23.799 first one to get licensed. We're the largest right now 0:49:23.840 --> 0:49:26.560 over there with one point eight million square feet of cultivation. 0:49:27.200 --> 0:49:29.279 I would say that we're quite unique because we have, 0:49:30.120 --> 0:49:33.040 you know, all of the pharmaceutical certifications that you required 0:49:33.120 --> 0:49:36.319 to actually ship medical cannabis, you know, across borders. We 0:49:36.400 --> 0:49:38.879 have the European certification that allows us to do that, 0:49:39.120 --> 0:49:41.960 the Brazilian one, the Colombian one, and we also have 0:49:42.040 --> 0:49:44.279 the cost So we are a very unique company with 0:49:44.560 --> 0:49:48.680 low cost, high quality, high scale of products that are 0:49:48.719 --> 0:49:52.440 shipping currently, you know, from Colombia to Brazil, to Germany 0:49:52.480 --> 0:49:55.359 to Australia to the UK. So that's our business model. 0:49:55.400 --> 0:49:57.960 We're a little different, and we're basically here to disrupt 0:49:58.000 --> 0:49:59.360 the cannabis markets as. 0:49:59.239 --> 0:50:02.799 It is patchwork in the United States where states some 0:50:02.880 --> 0:50:05.399 states have approved it, but on the federal level, it's 0:50:05.400 --> 0:50:09.440 still illegal and you stay away from the United States 0:50:09.440 --> 0:50:10.800 because of that. Exactly. 0:50:10.880 --> 0:50:14.120 We operate where there are federally legal markets where import 0:50:14.120 --> 0:50:16.879 and export is permitted. The US, uh, you know, has 0:50:16.960 --> 0:50:19.680 legalized in a state by state basis with differences, which 0:50:19.680 --> 0:50:22.200 is within its each state and companies you know are 0:50:22.239 --> 0:50:25.160 called them as those because there are basically mini companies 0:50:25.160 --> 0:50:26.280 in each of the different states. 0:50:26.320 --> 0:50:29.640 So so what you you don't operate in the United States. 0:50:29.360 --> 0:50:29.799 We don't know. 0:50:29.800 --> 0:50:32.600 You couldn't be because of important we couldn't. 0:50:32.640 --> 0:50:34.879 We are and we're a NaSTA listed company too, which 0:50:34.880 --> 0:50:37.200 means we're not a plant touching you know, company in 0:50:37.239 --> 0:50:37.960 the US at all. 0:50:38.320 --> 0:50:39.759 So we have an operation in the US. 0:50:39.840 --> 0:50:43.680 It's a nutraceutical business that does nothing related to cannabis 0:50:43.719 --> 0:50:46.320 at this point, you know, but it is a potential 0:50:46.320 --> 0:50:50.000 pathway to the US when it opens up. But for now, 0:50:50.040 --> 0:50:53.279 we're focused on medical cannabis produced in Columbia and sent 0:50:53.680 --> 0:50:54.319 all over the world. 0:50:54.320 --> 0:50:56.720 All right, So what are some of your growth markets? 0:50:56.719 --> 0:50:57.960 What are some of the markets that you guys are 0:50:57.960 --> 0:50:58.880 experienced the most success. 0:50:58.960 --> 0:50:59.960 It's very interesting, you know. 0:51:00.160 --> 0:51:02.200 First, you know, I sound like a broken record, but 0:51:02.239 --> 0:51:04.320 I think Brazil, Brazil is going to become one of 0:51:04.400 --> 0:51:07.680 the largest medical markets in terms of patient counts. I think, 0:51:07.840 --> 0:51:09.359 you know, as soon at the end of this year. 0:51:09.800 --> 0:51:11.920 And the regulation in Brazil has been shaped in such 0:51:11.960 --> 0:51:14.520 a way that it has allowed for the larger pharmaceutical 0:51:14.560 --> 0:51:16.480 companies in that country to actually participate. 0:51:16.520 --> 0:51:17.520 It's highly regulated. 0:51:17.840 --> 0:51:20.040 You can take two years to register a product. It's 0:51:20.120 --> 0:51:23.640 very pharmaceutical. But once you're in, it's sticky. It has 0:51:23.719 --> 0:51:26.239 high barriers to entry. And with the power of large 0:51:26.239 --> 0:51:28.880 pharmaceutical companies like for example, our case where we have 0:51:28.960 --> 0:51:31.759 a you know, a partnership with High Parapharma or one 0:51:31.800 --> 0:51:35.759 of the largest pharmaceutical companies in Brazil and Green Cerry 0:51:35.840 --> 0:51:39.080 cannabis company over there, you know, it has huge potential. 0:51:39.480 --> 0:51:42.120 People don't look at it because well, first Brazil, South 0:51:42.120 --> 0:51:44.040 America is going to be big. Well Brazil is one 0:51:44.080 --> 0:51:47.719 of the largest economies in the world. So yes, Australia 0:51:47.760 --> 0:51:50.839 is another way is very interesting one. Australia, although it's 0:51:50.880 --> 0:51:53.719 a low population, some market that's been developing, has been 0:51:53.760 --> 0:51:57.759 growing and now it's becoming more demanding in terms of 0:51:57.800 --> 0:52:01.359 the certifications and the requirements of the products. So while 0:52:01.360 --> 0:52:03.440 we were growing, you know, we had a product that 0:52:03.560 --> 0:52:07.719 was probably overspec Now the requirements are increasing, so some 0:52:07.760 --> 0:52:10.719 of our competitors are being left out, which opens up 0:52:10.920 --> 0:52:14.400 a significant opportunity for us in Australia. Yeah, in other markets, 0:52:14.440 --> 0:52:16.600 I would say Germany is an interesting market for sure. 0:52:16.680 --> 0:52:19.359 You know, there is a change in legislation. It's still 0:52:19.440 --> 0:52:22.440 medical that we're going to go adult use. You know, 0:52:22.480 --> 0:52:25.440 people were all bullish on it. It will happen. It 0:52:25.480 --> 0:52:28.719 won't happen soon, as I've always said. Uh, but it 0:52:28.840 --> 0:52:32.480 basically expands medical It gives us, you know, additional time, 0:52:32.680 --> 0:52:34.839 and it broadens the opportunity for us. 0:52:34.880 --> 0:52:39.879 What's the difference between medical or medicinal cannabis and recreational 0:52:39.880 --> 0:52:41.880 in terms of is it the same product? That's just 0:52:41.880 --> 0:52:42.880 a question of how you market it. 0:52:42.920 --> 0:52:45.239 The product is basically the same. I would say the 0:52:45.239 --> 0:52:49.239 greatest you know difference is that the medical requires a 0:52:49.360 --> 0:52:52.880 prescription most while the adult uses use it, you know, 0:52:52.960 --> 0:52:56.400 for for different reasons. It doesn't mean that maybe somebody 0:52:56.400 --> 0:52:58.839 who uses adult use cannabis cannot use it for an 0:52:58.840 --> 0:52:59.480 illness they have. 0:52:59.520 --> 0:53:01.879 It's probably or or vice versa. 0:53:02.040 --> 0:53:03.840 But it's basically prescription. 0:53:04.160 --> 0:53:04.600 Uh. 0:53:04.680 --> 0:53:07.120 You know, would would you consider getting in your market, 0:53:07.120 --> 0:53:08.640 So you're in getting into adult use. 0:53:09.440 --> 0:53:10.279 We would, we would. 0:53:10.360 --> 0:53:13.000 I think that a very interesting tailwind for us, for example, 0:53:13.040 --> 0:53:15.800 is that in Colombia, you know, the adult use regulation 0:53:16.320 --> 0:53:18.680 has passed six out of the eight debates that must 0:53:18.760 --> 0:53:21.320 happen in Congress before becoming effective. 0:53:21.719 --> 0:53:22.880 We're missing too, you know. 0:53:22.920 --> 0:53:24.560 We hope that they pass in the next month and 0:53:24.600 --> 0:53:26.920 a half and that will be a tremendous market for 0:53:27.000 --> 0:53:29.680 us in terms of the size. You know, in Colombia, Uh, 0:53:29.760 --> 0:53:32.800 you know, we have one of the largest or highest 0:53:32.800 --> 0:53:36.200 GDP sorry no GDP, but a per capita consumption of 0:53:36.400 --> 0:53:37.280 beer and alcohol. 0:53:37.520 --> 0:53:37.920 So it's a. 0:53:37.920 --> 0:53:40.799 Country that you know likes to enjoy life. Uh, you know, 0:53:41.560 --> 0:53:45.320 uh for for the opportunity for cannabis, uh, when it 0:53:45.440 --> 0:53:47.880 legalizes for adult is going to be great. And we 0:53:47.960 --> 0:53:49.439 have a very good position to be in. 0:53:49.440 --> 0:53:52.319 To the legal company, a publicly traded company. Like did 0:53:52.360 --> 0:53:56.440 you run into in Colombia the illegal drug trade a 0:53:56.520 --> 0:53:57.239 conflict there? 0:53:57.600 --> 0:53:58.600 Not at all, not at all. 0:53:58.640 --> 0:54:02.400 It's completely different. The channels are completely different. You know, 0:54:02.440 --> 0:54:04.840 we don't even even you know, you weren't stepping on 0:54:04.880 --> 0:54:07.560 anybody's not really that's the reality. 0:54:07.680 --> 0:54:10.040 Not so Andre if you're here in New York City. 0:54:10.040 --> 0:54:11.719 Here, I'm sure you've been walking up and down the 0:54:11.760 --> 0:54:15.359 streets of New York and you see every block has 0:54:15.400 --> 0:54:16.960 gotten multiple. 0:54:16.760 --> 0:54:19.160 Okay, every time I leave this building, I'm not saying 0:54:19.160 --> 0:54:22.680 it's here, but it's just like the smell wafting through 0:54:22.680 --> 0:54:23.080 the air. 0:54:23.239 --> 0:54:24.960 It's the new World order. You gotta get used to it. 0:54:25.239 --> 0:54:26.960 Yeah, but I mean every block I got three or 0:54:26.960 --> 0:54:29.000 four of these stores, and by the way, they're not legal. 0:54:29.239 --> 0:54:31.440 What do you make about how we're doing it here 0:54:31.480 --> 0:54:33.120 in the States and maybe even in New York. 0:54:33.840 --> 0:54:36.120 You know, as I said, we don't know operating in 0:54:36.200 --> 0:54:38.879 the US. But what I do know from from our 0:54:38.920 --> 0:54:41.080 peers who do is, you know, there are states that 0:54:41.080 --> 0:54:42.960 are getting it right, that are doing it, you know, 0:54:43.040 --> 0:54:44.360 in a more organized way. 0:54:44.960 --> 0:54:45.160 You know. 0:54:45.239 --> 0:54:47.200 The only way I think you can really maintain a 0:54:47.280 --> 0:54:51.040 business that's so highly regulated and has you know, makes 0:54:51.080 --> 0:54:53.640 you produce where you need to sell, is such it 0:54:53.680 --> 0:54:55.959 is one where you control supply a little bit, when 0:54:56.200 --> 0:54:58.040 you know, when you control the whole supply chain. So 0:54:58.080 --> 0:55:00.160 there are some states doing that. You have you know, 0:55:00.200 --> 0:55:02.680 states like California where very few people are making money 0:55:02.719 --> 0:55:04.759 because there's a lot of supply et cetera, et cetera. 0:55:05.280 --> 0:55:05.879 And New York. 0:55:05.960 --> 0:55:07.920 You know, New York is one of these states that 0:55:07.960 --> 0:55:10.719 everybody's paying attention to. And I think, you know, there's 0:55:10.760 --> 0:55:13.839 a problem with the evolution of regulation, but also in 0:55:13.880 --> 0:55:19.239 reality with the you know, making sure that there is enforcement. Right, 0:55:19.320 --> 0:55:22.239 because some of these things continue, it's going to make 0:55:22.280 --> 0:55:25.120 it more difficult for the more legal cannemies operators. 0:55:25.160 --> 0:55:29.080 Twenty seconds, you came to market through the vehicle a SPAC, right, 0:55:29.080 --> 0:55:30.800 Why was that like twenty seconds? 0:55:31.040 --> 0:55:31.239 Now? 0:55:31.640 --> 0:55:34.759 We we were looking to find in the company. Further, 0:55:34.800 --> 0:55:36.880 we wanted to have access to the NASDAK and the markets. 0:55:36.920 --> 0:55:38.840 We had the operations that allowed us to be in 0:55:38.880 --> 0:55:40.839 the in the NASDAK, and it was a good way 0:55:40.880 --> 0:55:42.040 to do it back in twenty twenty. 0:55:42.280 --> 0:55:44.239 Yeah, back in the day that was the time of 0:55:44.760 --> 0:55:48.400 the SPACs. Well, so much for that, So much for that. Yeah, exactly, 0:55:48.480 --> 0:55:50.120 all right, Andres, thank you so much for joining us. 0:55:50.160 --> 0:55:52.600 Really appreciate you coming into the studio here. 0:55:52.680 --> 0:55:56.760 Andres Fajardo, CEO of Cleve Releaves that is a Nasdaq 0:55:57.080 --> 0:56:01.520 traded stock CLVR, talking about the cannabis business, the medical 0:56:01.600 --> 0:56:02.400 and I didn't. 0:56:02.160 --> 0:56:04.960 Give my anti cannabis rant get you to thank me 0:56:05.000 --> 0:56:05.319 for that. 0:56:05.480 --> 0:56:07.880 Yep, as a parent, I get where you're coming from. 0:56:08.360 --> 0:56:10.319 But this is the new world order, at least in 0:56:10.360 --> 0:56:12.480 a lot of states here in the US. All Right, 0:56:12.480 --> 0:56:13.759 we're gonna have more coming up. We get a little 0:56:13.760 --> 0:56:15.600 bit of red on the screen. That continues. We'll have 0:56:15.640 --> 0:56:16.840 some some more coming up. 0:56:17.000 --> 0:56:18.080 This is Bloomberg. 0:56:23.800 --> 0:56:26.880 Thanks for listening to the Bloomberg Markets podcasts. You can 0:56:26.920 --> 0:56:30.720 subscribe and listen to interviews at Apple Podcasts or whatever 0:56:30.800 --> 0:56:34.520 podcast platform you prefer. I'm Matt Miller. I'm on Twitter 0:56:34.719 --> 0:56:36.640 at Matt Miller nineteen seventy three. 0:56:37.120 --> 0:56:39.480 And I'm fall Sweeney. I'm on Twitter at pt Sweeney. 0:56:39.600 --> 0:56:42.239 Before the podcast, you can always catch us worldwide at 0:56:42.239 --> 0:56:43.120 Bloomberg Radio com.