1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,560 Speaker 1: with essential market moving news. I'm the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,880 Speaker 1: at Bloomberg dot com slash podcast. All right, let's get 7 00:00:21,880 --> 00:00:25,680 Speaker 1: to these banks. That is clearly a big issue. We've 8 00:00:25,680 --> 00:00:28,400 Speaker 1: got a nice little round table here because if I'm 9 00:00:28,440 --> 00:00:30,240 Speaker 1: the feeder reserve, I got to deal with the banks. 10 00:00:30,480 --> 00:00:33,480 Speaker 1: So let's talk to Alison Williams and Bloomberg Intelligence. Plus 11 00:00:33,520 --> 00:00:35,199 Speaker 1: I got to, you know, talk interest rates. So now 12 00:00:35,240 --> 00:00:37,559 Speaker 1: I gotta talk to Ira Jersey. He's actually in the 13 00:00:37,560 --> 00:00:41,519 Speaker 1: Bloomberg studio, which is a rarity, John Tucker, I mean, 14 00:00:41,600 --> 00:00:44,599 Speaker 1: and pretty a shot, so we'll take it. He's all, 15 00:00:44,720 --> 00:00:47,800 Speaker 1: guest Blazer, did you see this? He's all, he's looking 16 00:00:48,680 --> 00:00:50,480 Speaker 1: all right. So we've got Alison Williams covers the banks 17 00:00:50,680 --> 00:00:55,040 Speaker 1: joining us. Phone Ira Jersey in studio. Allison, you know, 18 00:00:55,160 --> 00:00:57,840 Speaker 1: we framed this discussion today with FED chairman j pal 19 00:00:57,960 --> 00:01:00,760 Speaker 1: that he has to address not only interest rates, which 20 00:01:00,800 --> 00:01:02,520 Speaker 1: is why we have ire here, but he's also got 21 00:01:02,520 --> 00:01:05,280 Speaker 1: to talk about the banking sector and the Fed's role 22 00:01:05,440 --> 00:01:09,480 Speaker 1: in monitoring and regulating it. What do you think he 23 00:01:09,600 --> 00:01:15,399 Speaker 1: should say about the banks and the role of the FED. Well, 24 00:01:15,440 --> 00:01:18,319 Speaker 1: I think it is I think it is tricky, and 25 00:01:18,360 --> 00:01:21,920 Speaker 1: I think that you know, a lot of the questions uh, 26 00:01:22,400 --> 00:01:25,360 Speaker 1: percolating and that I've kind of led to this, um 27 00:01:25,640 --> 00:01:28,520 Speaker 1: do relate to market sentiment, and so you are seeing 28 00:01:28,600 --> 00:01:31,880 Speaker 1: regulators sort of more pulling back and just pointing to, 29 00:01:32,480 --> 00:01:34,480 Speaker 1: you know, the strong capital of the banks and sort 30 00:01:34,520 --> 00:01:40,000 Speaker 1: of that as a broad picture. Um general, I think 31 00:01:40,040 --> 00:01:42,280 Speaker 1: that and I'll let I'll let I always speak to 32 00:01:42,319 --> 00:01:46,920 Speaker 1: what the FED does today, but you know, in general, 33 00:01:47,040 --> 00:01:49,280 Speaker 1: I think for what the banks are really waiting for 34 00:01:49,480 --> 00:01:53,360 Speaker 1: is an answer on deposit insurance and what can be 35 00:01:53,400 --> 00:01:56,240 Speaker 1: done there. We're hearing a lot of politicians throwing around 36 00:01:56,320 --> 00:01:58,080 Speaker 1: around a lot of different ideas, but I think we 37 00:01:58,120 --> 00:02:03,000 Speaker 1: do need something sort of broad, perhaps temporary, to help 38 00:02:03,080 --> 00:02:07,480 Speaker 1: stabilise sentiment, which is really the issue at this point. Well, Ira, 39 00:02:07,920 --> 00:02:09,360 Speaker 1: come on in here and talk to us about that 40 00:02:09,400 --> 00:02:13,720 Speaker 1: stabilizing sentiment piece. Alison, just reference twenty five basis points 41 00:02:13,720 --> 00:02:16,720 Speaker 1: priced into the market. What does the pause look like 42 00:02:16,800 --> 00:02:19,000 Speaker 1: in the bontod market. Well, if I think if the 43 00:02:19,080 --> 00:02:22,040 Speaker 1: FED worred to pause, or as I suspect that they'll do, 44 00:02:22,080 --> 00:02:24,240 Speaker 1: they'll hike twenty five basis points and hint that they 45 00:02:24,280 --> 00:02:27,919 Speaker 1: may pause at the main meeting. Is I think as 46 00:02:27,919 --> 00:02:30,440 Speaker 1: long as they're dovish enough, I think that for risk 47 00:02:30,440 --> 00:02:33,000 Speaker 1: assets probably things are okay. But I agree with Alison, 48 00:02:33,360 --> 00:02:36,040 Speaker 1: you know, the issue here is things like how do 49 00:02:36,080 --> 00:02:39,400 Speaker 1: you quell deposit flight? Right, and raising interest rates actually 50 00:02:39,800 --> 00:02:42,160 Speaker 1: doesn't hurt that one way or the other, except in 51 00:02:42,200 --> 00:02:44,400 Speaker 1: so far as the way the financial system has been 52 00:02:44,400 --> 00:02:47,600 Speaker 1: developed over the last couple of decades is that if 53 00:02:47,639 --> 00:02:50,800 Speaker 1: banks don't offer a competitive interest rate on their deposits, 54 00:02:50,840 --> 00:02:53,680 Speaker 1: on their CDs or whatever, people then do what happened 55 00:02:53,680 --> 00:02:55,280 Speaker 1: over the last week and a half and they move 56 00:02:55,320 --> 00:02:58,400 Speaker 1: their money into money market mutual funds which have market 57 00:02:58,440 --> 00:03:00,440 Speaker 1: based yields. And now so with the so the FED 58 00:03:00,480 --> 00:03:03,920 Speaker 1: actually hiking could actually, you know, enhance some of this 59 00:03:04,000 --> 00:03:07,160 Speaker 1: deposit flight unless banks figure out a way to keep 60 00:03:07,200 --> 00:03:11,320 Speaker 1: depositors in their in their firms. So I think it's 61 00:03:11,320 --> 00:03:13,239 Speaker 1: a balancing act that the FED has to do today. 62 00:03:13,240 --> 00:03:16,359 Speaker 1: And I think the J. Powell has to be dovish, 63 00:03:16,400 --> 00:03:20,080 Speaker 1: and that the statement will probably take out a line 64 00:03:20,120 --> 00:03:23,280 Speaker 1: that talks about that continued great hikes, like they won't 65 00:03:23,320 --> 00:03:26,639 Speaker 1: promise basically that they're going to continue hiking. They could, right, 66 00:03:26,720 --> 00:03:28,960 Speaker 1: but I think they have to take that out and 67 00:03:29,000 --> 00:03:32,960 Speaker 1: give themselves more optionality. Alison, you know, the reality is 68 00:03:33,400 --> 00:03:35,800 Speaker 1: for me, at least, it seems like in the past 69 00:03:35,840 --> 00:03:37,720 Speaker 1: couple of weekends, I haven't come into work on Monday 70 00:03:37,760 --> 00:03:39,160 Speaker 1: like we did back in two thousand and eight with 71 00:03:39,480 --> 00:03:43,320 Speaker 1: another bank or handful of banks failing. The argument can 72 00:03:43,320 --> 00:03:45,920 Speaker 1: certainly be made that this is kind of look, it 73 00:03:46,080 --> 00:03:49,200 Speaker 1: is syncratic to a couple of institutions here, and that 74 00:03:49,280 --> 00:03:52,560 Speaker 1: if others broadly had problems, we'd hear about it. By now, 75 00:03:53,600 --> 00:03:55,600 Speaker 1: How are you thinking about a day to day as 76 00:03:55,960 --> 00:03:58,240 Speaker 1: we kind of figure out that this may or may 77 00:03:58,280 --> 00:04:02,960 Speaker 1: not be systemic? So I think, um, I mean, I 78 00:04:03,000 --> 00:04:07,160 Speaker 1: think it's not systemic in the sense that, uh, you know, 79 00:04:07,240 --> 00:04:10,040 Speaker 1: it's more it's more a clause. It's more sort of 80 00:04:10,960 --> 00:04:15,200 Speaker 1: having things in common versus um, you know, one bank's 81 00:04:15,240 --> 00:04:19,560 Speaker 1: downfall causing another bank's downfall. So credit tweets, for example, 82 00:04:19,960 --> 00:04:22,200 Speaker 1: the issues there could have been systema because there are 83 00:04:22,200 --> 00:04:25,839 Speaker 1: a lot of inter relationships, even though we we expect 84 00:04:26,040 --> 00:04:30,040 Speaker 1: that the US banks manage those down significantly over time. UM, 85 00:04:30,279 --> 00:04:33,320 Speaker 1: certainly there are inter relationships, especially to the other banks 86 00:04:33,360 --> 00:04:38,880 Speaker 1: with the US banks. You know. The issue is just that, um, 87 00:04:38,960 --> 00:04:43,120 Speaker 1: you know, this this setup could cause an issue if 88 00:04:43,160 --> 00:04:45,720 Speaker 1: we continue to have this negative sentiment. And that's why 89 00:04:45,760 --> 00:04:48,400 Speaker 1: I think you need more of a broad statement, right 90 00:04:48,440 --> 00:04:51,839 Speaker 1: because you had uh, you know, we've had a few 91 00:04:51,880 --> 00:04:57,160 Speaker 1: banks now, um that event that have failed. Everyone's watching 92 00:04:57,760 --> 00:05:02,119 Speaker 1: a couple of more banks. But and those banks find 93 00:05:02,160 --> 00:05:04,919 Speaker 1: their answers. You know, investors will continue, I think, to 94 00:05:05,000 --> 00:05:08,040 Speaker 1: go onto the next and the next until there is 95 00:05:08,080 --> 00:05:13,800 Speaker 1: some kind of stability, some kind of broad answer that 96 00:05:13,880 --> 00:05:16,960 Speaker 1: that quells those fears. Well, Alison, I want to get 97 00:05:16,960 --> 00:05:20,640 Speaker 1: your quick read on the PacWest story. This morning, they 98 00:05:20,680 --> 00:05:23,920 Speaker 1: access that fed facility from US sixteen billion. They got 99 00:05:23,960 --> 00:05:27,320 Speaker 1: about one point four billion financing from Atlas as well. 100 00:05:27,880 --> 00:05:29,760 Speaker 1: A lot of people will worry that PacWest was the 101 00:05:29,800 --> 00:05:32,000 Speaker 1: next shoe to drop. Are we in the clear now 102 00:05:32,040 --> 00:05:36,640 Speaker 1: from that? I mean, you know, the thing that I 103 00:05:36,680 --> 00:05:40,960 Speaker 1: think investors will focus on is that is the deposit flight. 104 00:05:41,640 --> 00:05:44,960 Speaker 1: And so again I think we have a situation where 105 00:05:45,080 --> 00:05:48,520 Speaker 1: one particular bank is coming out and talking about, you 106 00:05:48,560 --> 00:05:52,120 Speaker 1: know that they've stabilized things, but people are focusing on 107 00:05:52,160 --> 00:05:57,279 Speaker 1: the deposits, the past of those deposits, and again worried 108 00:05:57,279 --> 00:06:00,919 Speaker 1: about what's happening at other banks, and there's not a 109 00:06:00,960 --> 00:06:06,800 Speaker 1: lot of transparency. So I think that I think, again, 110 00:06:07,200 --> 00:06:10,280 Speaker 1: you need something that that can kind of broadly stabilize 111 00:06:10,279 --> 00:06:12,720 Speaker 1: that we're not going to continue to go you know, bank, 112 00:06:12,800 --> 00:06:17,400 Speaker 1: my bank, right, my story? Right? Iver, what's the key 113 00:06:17,440 --> 00:06:21,640 Speaker 1: thing that I'm not a FED watcher, thank goodness, But 114 00:06:21,720 --> 00:06:23,560 Speaker 1: what's the one thing a non Fed watcher should be 115 00:06:23,600 --> 00:06:26,440 Speaker 1: listening for today at two thirty? Yeah, I think well, 116 00:06:26,800 --> 00:06:29,960 Speaker 1: so at two thirty, I think it's the um you know, 117 00:06:30,040 --> 00:06:35,360 Speaker 1: how the tone of j Powell's comments around the banking crisis, right, So, 118 00:06:35,400 --> 00:06:39,320 Speaker 1: how concerned is the FED that it could become systemic? Because, 119 00:06:39,360 --> 00:06:42,919 Speaker 1: like Allison mentioned, you know, Credit Suite was potentially a 120 00:06:42,960 --> 00:06:45,120 Speaker 1: systemic institution, right. The problem with two thousand and seven, 121 00:06:45,160 --> 00:06:47,120 Speaker 1: two thousand and eight was that you had large financial 122 00:06:47,160 --> 00:06:50,400 Speaker 1: institutions that were very interconnected. So far, at least, we 123 00:06:50,480 --> 00:06:52,920 Speaker 1: haven't had you know, a lot of a big bank 124 00:06:52,960 --> 00:06:55,200 Speaker 1: outside of Credit Suite that was very interconnected to the 125 00:06:55,240 --> 00:06:57,599 Speaker 1: rest of the system, that could make the whole system collapse. 126 00:06:58,120 --> 00:07:00,400 Speaker 1: But of course you get enough smaller institute that do 127 00:07:00,480 --> 00:07:03,120 Speaker 1: that and suddenly become systemic. So I think it's how 128 00:07:03,160 --> 00:07:05,560 Speaker 1: concerned is he and the more concerned he sounds, the 129 00:07:05,600 --> 00:07:09,279 Speaker 1: more dovish that should be. And you should note then 130 00:07:09,360 --> 00:07:11,840 Speaker 1: that maybe the FED is going to be done after 131 00:07:11,960 --> 00:07:15,200 Speaker 1: today's hike. All right, great stuff. Really appreciate getting two 132 00:07:15,200 --> 00:07:17,800 Speaker 1: of the smartest minds we've got in the building together 133 00:07:17,920 --> 00:07:20,920 Speaker 1: at one time, Alison Williams, Senior Global Banks annalyst for 134 00:07:20,920 --> 00:07:24,280 Speaker 1: Bloomberg Intelligence, and Ira Jersey, chief US interest rates strategists 135 00:07:24,600 --> 00:07:27,760 Speaker 1: with Bloomberg Intelligence getting them together, And you know right 136 00:07:27,920 --> 00:07:30,200 Speaker 1: we did that is because the FED is thinking they've 137 00:07:30,240 --> 00:07:32,800 Speaker 1: got two mandates today, that's to deal with the banking 138 00:07:32,840 --> 00:07:36,400 Speaker 1: issues and then obviously deal with the interest rates and inflation. 139 00:07:36,640 --> 00:07:38,280 Speaker 1: And that's how we want to approach it. Right here, 140 00:07:40,520 --> 00:07:44,400 Speaker 1: you're listening to the Team Cancer Live program Bloomberg Markets 141 00:07:44,440 --> 00:07:47,520 Speaker 1: weekdays at ten am Eastern on Bloomberg dot Com, the 142 00:07:47,600 --> 00:07:50,280 Speaker 1: I Heart Radio app, and the Bloomberg Business app, or 143 00:07:50,360 --> 00:07:55,840 Speaker 1: listen on demand wherever you get your podcast. Consensus seems 144 00:07:55,840 --> 00:07:57,960 Speaker 1: to be the Federal raised twenty five basis points. My 145 00:07:58,080 --> 00:08:01,840 Speaker 1: question is, if it weren't for the bank in challenges 146 00:08:01,880 --> 00:08:04,720 Speaker 1: out there in a market marketplace, the turmoil in some 147 00:08:04,760 --> 00:08:08,160 Speaker 1: of these regional banks, would that change the Fed's behavior. 148 00:08:08,240 --> 00:08:11,040 Speaker 1: Lets check in with one of our favorite FED watchers, 149 00:08:11,120 --> 00:08:13,800 Speaker 1: Danielle d Martino Booth. She's a CEO and chief strategist 150 00:08:14,120 --> 00:08:17,200 Speaker 1: for Quill Intelligence. She's also a former advisor at the 151 00:08:17,200 --> 00:08:20,000 Speaker 1: Federserve Bank at Dallas, so she knows how they make 152 00:08:20,040 --> 00:08:23,280 Speaker 1: the sauces down there at the FED. So, Danielle, do 153 00:08:23,320 --> 00:08:27,040 Speaker 1: you think if it were not for the banking turmoil 154 00:08:27,080 --> 00:08:31,800 Speaker 1: that the FED would maybe go fifty basis points here? No, 155 00:08:32,120 --> 00:08:35,760 Speaker 1: I think that I think that the CPI report, I 156 00:08:35,800 --> 00:08:37,959 Speaker 1: think that the inflation data had been a little bit 157 00:08:38,000 --> 00:08:41,120 Speaker 1: hotter than what was expected. But on the flip side 158 00:08:41,120 --> 00:08:43,480 Speaker 1: of that, I think that there's more evidence. Now we've 159 00:08:43,520 --> 00:08:46,960 Speaker 1: got what eighty four percent of the US population is 160 00:08:47,000 --> 00:08:51,880 Speaker 1: living in states with rising initial jobless claims. Uh, you know, 161 00:08:51,920 --> 00:08:55,640 Speaker 1: that's that's a pretty that's it's it's a huge chunk 162 00:08:55,679 --> 00:08:59,920 Speaker 1: of America. There's more a recognition among average working men 163 00:09:00,000 --> 00:09:03,160 Speaker 1: and women that the labor cycle has turned. So I 164 00:09:03,200 --> 00:09:06,400 Speaker 1: think that that in conjunction with inflation not being you know, 165 00:09:06,559 --> 00:09:09,960 Speaker 1: super red hot, would have kept the FED at twenty 166 00:09:09,960 --> 00:09:12,040 Speaker 1: five basis points. I actually think they're going as much 167 00:09:12,080 --> 00:09:15,360 Speaker 1: as they wanted to go to day. Danielle, again, we 168 00:09:15,480 --> 00:09:18,000 Speaker 1: got to talk about this kind of minority view in 169 00:09:18,040 --> 00:09:20,360 Speaker 1: the markets, which is there may at the end of 170 00:09:20,360 --> 00:09:23,920 Speaker 1: the day be a pause. Would a pause, although perhaps 171 00:09:23,960 --> 00:09:27,240 Speaker 1: creating panic, be justified from an economic point of view. 172 00:09:29,000 --> 00:09:31,720 Speaker 1: From an economic point of view, I think that a 173 00:09:31,800 --> 00:09:35,640 Speaker 1: pause would be justified. I just said that, you know, 174 00:09:36,520 --> 00:09:39,200 Speaker 1: eighty four percent of Americans live in states with rising 175 00:09:39,280 --> 00:09:43,040 Speaker 1: jobless claims. But I think that at this point it 176 00:09:43,200 --> 00:09:45,520 Speaker 1: would it would upset the markets. You've got a ninety 177 00:09:45,520 --> 00:09:49,440 Speaker 1: percent probability going in of this twenty five basis points, 178 00:09:49,880 --> 00:09:53,200 Speaker 1: and I think that it wouldn't supprise me to have 179 00:09:53,760 --> 00:09:57,240 Speaker 1: Powell echo to a certain extent Christine Lagarde last week 180 00:09:57,280 --> 00:10:02,480 Speaker 1: and say, you know, four guidances, bye bye, We're we're 181 00:10:02,559 --> 00:10:04,439 Speaker 1: just going to try and take this on a day 182 00:10:04,440 --> 00:10:08,679 Speaker 1: by day basis. Obviously, if systemic risk comes on glued, uh, 183 00:10:08,880 --> 00:10:12,280 Speaker 1: you know, he will he will pause. But I think 184 00:10:12,360 --> 00:10:14,840 Speaker 1: Powell's trying to fight a war on two fronts. I 185 00:10:14,840 --> 00:10:18,280 Speaker 1: think he's trying to maintain tight monetary policy. I don't 186 00:10:18,280 --> 00:10:20,920 Speaker 1: think it necessarily keeps him up at night that the 187 00:10:20,960 --> 00:10:27,120 Speaker 1: credit cycles um underway, that bankruptcies are happening, that the 188 00:10:27,240 --> 00:10:31,360 Speaker 1: risk is operators with the worst business models are are 189 00:10:31,480 --> 00:10:34,440 Speaker 1: having to restructure. I think he's okay with that. I 190 00:10:34,440 --> 00:10:37,359 Speaker 1: think he's okay with that being an outgrowth of his policy. 191 00:10:37,720 --> 00:10:40,720 Speaker 1: The flip side of that is credit standards are tightening 192 00:10:41,000 --> 00:10:45,160 Speaker 1: real quick here. So that's that that could be something 193 00:10:45,320 --> 00:10:49,200 Speaker 1: that that that that should be staying his hand today 194 00:10:49,240 --> 00:10:51,800 Speaker 1: because try and get try and get a cash out refinancing, 195 00:10:51,800 --> 00:10:53,480 Speaker 1: try and get a car loan, try and get a 196 00:10:53,520 --> 00:10:57,360 Speaker 1: commercial real estate loan. Good luck. So, Danielle, I just 197 00:10:57,440 --> 00:11:01,319 Speaker 1: typed into my terminal d ots dots go. This is 198 00:11:01,360 --> 00:11:03,960 Speaker 1: a FED meeting where we do get the dot thing right? 199 00:11:04,040 --> 00:11:05,640 Speaker 1: Is that still a thing I need to pay attention to. 200 00:11:07,920 --> 00:11:10,640 Speaker 1: I think that I think that the dots right now 201 00:11:10,679 --> 00:11:14,679 Speaker 1: are more like you know, playing darts in the sense 202 00:11:14,720 --> 00:11:18,559 Speaker 1: that given the magnitude I mean, we just watched one 203 00:11:18,600 --> 00:11:21,880 Speaker 1: of the world's thirty largest banks go bye bye. Given 204 00:11:21,880 --> 00:11:26,360 Speaker 1: the magnitude of the backdrop, I think the dots mean less. 205 00:11:26,880 --> 00:11:30,559 Speaker 1: What I think people will be paying attention to, though, 206 00:11:31,320 --> 00:11:38,880 Speaker 1: is when said leaders anticipate the first rate cut. If 207 00:11:38,920 --> 00:11:42,600 Speaker 1: they all stand their ground, remember Leo Brainer's gone, She's 208 00:11:42,640 --> 00:11:45,000 Speaker 1: not there in the room these last two days. If 209 00:11:45,040 --> 00:11:47,800 Speaker 1: they all stand their ground, that we're not going to 210 00:11:47,840 --> 00:11:50,520 Speaker 1: be that the Fed is not going to be lowering 211 00:11:50,559 --> 00:11:53,960 Speaker 1: interest rates until twenty twenty four. I think that that 212 00:11:54,040 --> 00:11:57,800 Speaker 1: will definitely raise an eyebrow or two. Danielle. You talked 213 00:11:57,800 --> 00:11:59,520 Speaker 1: about the dots a little bit, but let's talk then 214 00:11:59,559 --> 00:12:01,880 Speaker 1: about when it comes to kind of economic forecast, the 215 00:12:01,960 --> 00:12:05,520 Speaker 1: GDP picture as well. I had an interview last week 216 00:12:05,880 --> 00:12:08,680 Speaker 1: with the CEO of DHL and he said, look, the 217 00:12:08,760 --> 00:12:12,840 Speaker 1: economy is still expanding. They're still hiring, they're still seeing 218 00:12:12,960 --> 00:12:16,760 Speaker 1: volumes grow on a quarter by quarter basis. From a 219 00:12:16,960 --> 00:12:20,160 Speaker 1: kind of GDP growth point of view, Danielle, the economy 220 00:12:20,200 --> 00:12:21,959 Speaker 1: is still growing. Why is that such a bad thing. 221 00:12:23,679 --> 00:12:25,720 Speaker 1: It's not a bad thing that the economy is still growing. 222 00:12:25,720 --> 00:12:27,920 Speaker 1: The economy is about to have a full blown heart 223 00:12:27,920 --> 00:12:31,640 Speaker 1: attack and stop growing, but it's not a bad thing 224 00:12:31,840 --> 00:12:35,960 Speaker 1: that we still had economic output going into where we 225 00:12:36,000 --> 00:12:38,520 Speaker 1: are today. But whether you're talking to people in logistics 226 00:12:38,640 --> 00:12:44,760 Speaker 1: or trucking or industrial packaging. They have seen unlike the 227 00:12:44,800 --> 00:12:49,600 Speaker 1: gentleman from DHL, they've seen a sudden stop in the economy. 228 00:12:49,760 --> 00:12:51,600 Speaker 1: The New York said put out you guys had it 229 00:12:51,600 --> 00:12:53,280 Speaker 1: on the terminal. Yesterday, the New York FD put out 230 00:12:53,320 --> 00:12:57,040 Speaker 1: a new survey. People are getting rejected for credit left 231 00:12:57,080 --> 00:12:59,720 Speaker 1: and right, whether it's trying to do a cash out refinancing, 232 00:12:59,800 --> 00:13:03,480 Speaker 1: or get or get a car loan. So prior to 233 00:13:03,600 --> 00:13:07,120 Speaker 1: even the banking crisis setting in, there were definitely signs 234 00:13:07,160 --> 00:13:10,600 Speaker 1: in the economy of slowing or if nothing else, slowing 235 00:13:10,640 --> 00:13:15,080 Speaker 1: to come. What is your call here on the labor market, 236 00:13:15,200 --> 00:13:18,120 Speaker 1: because that's been one of the issues, Danielle, that a 237 00:13:18,160 --> 00:13:20,720 Speaker 1: lot of folks are put pushing back on a recession scenario, 238 00:13:20,880 --> 00:13:24,120 Speaker 1: saying you can't have a recession with this level of unemployment. 239 00:13:24,320 --> 00:13:28,439 Speaker 1: What's your view there, Look, I think that I think 240 00:13:28,440 --> 00:13:33,199 Speaker 1: that the labor market is is pushing out unequivocal evidence 241 00:13:33,360 --> 00:13:37,559 Speaker 1: of how bad things are getting. A Walmart closes about 242 00:13:37,600 --> 00:13:40,600 Speaker 1: once a week. They're clearly passed there. It's just usual 243 00:13:40,640 --> 00:13:43,360 Speaker 1: business type of model. We have four hundred foot lockers 244 00:13:43,400 --> 00:13:45,320 Speaker 1: announced that they were closing just a few days ago. 245 00:13:45,400 --> 00:13:49,280 Speaker 1: So retail mcgeddon is picking up stream about steam and 246 00:13:49,320 --> 00:13:51,720 Speaker 1: we're you know, we've just seen Amazon dot Com go 247 00:13:51,760 --> 00:13:55,120 Speaker 1: through it's with its third round of layoffs one two three, 248 00:13:55,480 --> 00:13:59,040 Speaker 1: So I mean, it's it's good to say, look look 249 00:13:59,040 --> 00:14:00,920 Speaker 1: at the unemployment rate, it's still so low. Or look 250 00:14:00,920 --> 00:14:03,800 Speaker 1: at unemployment claims, there's still still on a level basis, 251 00:14:03,840 --> 00:14:06,920 Speaker 1: that's the case, But sixty seven percent of states have 252 00:14:07,080 --> 00:14:09,760 Speaker 1: rising claims. Again, eighty four percent of the population lives 253 00:14:09,760 --> 00:14:12,360 Speaker 1: in a state with rising claims on a year over 254 00:14:12,520 --> 00:14:17,280 Speaker 1: year basis, So that's tangible. So you're talking about the 255 00:14:17,320 --> 00:14:20,040 Speaker 1: labor market here. Should we be worried about the housing market? 256 00:14:20,080 --> 00:14:22,160 Speaker 1: I still don't feel like a lot of people are 257 00:14:22,240 --> 00:14:26,040 Speaker 1: raising the alarm bells when it comes to housing. You 258 00:14:26,080 --> 00:14:28,160 Speaker 1: know how things a funny thing, right, because we had 259 00:14:28,160 --> 00:14:31,680 Speaker 1: this dip in mortgage rates. Everybody rushed in in these 260 00:14:31,720 --> 00:14:35,240 Speaker 1: months that are typically seasonally very weak December, January, February, 261 00:14:36,040 --> 00:14:38,480 Speaker 1: and yet if you don't have an income, it's really 262 00:14:38,480 --> 00:14:41,720 Speaker 1: hard to get a mortgage. And that is why I 263 00:14:41,760 --> 00:14:44,800 Speaker 1: think it was critical to pay attention to the Federal 264 00:14:44,800 --> 00:14:47,880 Speaker 1: Reserve's most recent Senior Loan Officer survey that said even 265 00:14:47,920 --> 00:14:51,360 Speaker 1: for residential mortgages that lending standards were tightening, and you 266 00:14:51,400 --> 00:14:53,320 Speaker 1: see that in the fact that the ten year treasury 267 00:14:53,400 --> 00:14:56,920 Speaker 1: yield has come down but the thirty year fixed mortgage 268 00:14:57,000 --> 00:15:00,400 Speaker 1: rate has gone up in the last ten days. That's 269 00:15:00,560 --> 00:15:06,800 Speaker 1: telling you something about lender's willingness to extend credit into 270 00:15:06,840 --> 00:15:10,040 Speaker 1: a housing market when they foresee trouble down the pipe, 271 00:15:10,080 --> 00:15:11,400 Speaker 1: which is that's what you get when you have a 272 00:15:11,480 --> 00:15:16,240 Speaker 1: labor cycle right, It's going to lead into intrastrate sensitive 273 00:15:16,240 --> 00:15:18,360 Speaker 1: sectors and sectors where you have to have an income 274 00:15:18,440 --> 00:15:22,400 Speaker 1: to get the financing to buy it. Danielle again, the 275 00:15:22,440 --> 00:15:24,960 Speaker 1: release of the statement at two pm Wall Street time, 276 00:15:24,960 --> 00:15:28,680 Speaker 1: and then the press commerce at two thirty. Is there 277 00:15:28,720 --> 00:15:31,960 Speaker 1: a mistake that Chairman Pal could make today that's in 278 00:15:32,000 --> 00:15:33,480 Speaker 1: the back of your mind that you're saying, boy, I 279 00:15:33,480 --> 00:15:35,600 Speaker 1: hope he doesn't do this because that could be really 280 00:15:35,640 --> 00:15:40,120 Speaker 1: bad for the markets. I think he needs to be 281 00:15:40,320 --> 00:15:44,360 Speaker 1: unscripted today. I think he needs to not be so 282 00:15:44,480 --> 00:15:47,760 Speaker 1: nervous at the podium that he's reading his answers. He 283 00:15:47,960 --> 00:15:52,080 Speaker 1: has to come out and exude confidence at a time 284 00:15:52,240 --> 00:15:55,920 Speaker 1: of a lot of people being really freaked out. He 285 00:15:56,000 --> 00:15:58,440 Speaker 1: has to stand up and be a leader. And I 286 00:15:58,520 --> 00:16:00,720 Speaker 1: think that that could be challenging for him because this 287 00:16:00,840 --> 00:16:05,080 Speaker 1: is probably the hardest podium time he'll ever have in 288 00:16:05,120 --> 00:16:08,160 Speaker 1: his entire life. But the last few meetings he's been 289 00:16:08,320 --> 00:16:11,680 Speaker 1: very perfunctory reading his answers. I think he needs to 290 00:16:11,720 --> 00:16:13,960 Speaker 1: be ready for what's going to be asked of him 291 00:16:14,240 --> 00:16:17,400 Speaker 1: and be confident in his reply and say, we've got 292 00:16:17,440 --> 00:16:21,160 Speaker 1: macroprudential solutions that we can attach to this financial banking 293 00:16:21,200 --> 00:16:23,720 Speaker 1: type of crisis. It's burgeoning. We think we can handle this. 294 00:16:23,960 --> 00:16:25,840 Speaker 1: At the same time, we think we can also run 295 00:16:25,880 --> 00:16:30,000 Speaker 1: monetary policy on a separate track. We can wage a war, 296 00:16:31,280 --> 00:16:35,680 Speaker 1: we can wage more, you know, on two fronts. Daniel, lastly, 297 00:16:35,800 --> 00:16:38,160 Speaker 1: just about thirty seconds, based upon what we know today, 298 00:16:39,200 --> 00:16:41,760 Speaker 1: is the banking turmoil systemic or not? Do we know? 299 00:16:43,200 --> 00:16:45,560 Speaker 1: I don't think we know if the banking turmoil is systemic. 300 00:16:45,600 --> 00:16:50,000 Speaker 1: I suspect that is, it is potentially systemic, because quietly 301 00:16:50,120 --> 00:16:52,960 Speaker 1: First Republic, like Silicon Valley, has not been able to 302 00:16:53,040 --> 00:16:58,760 Speaker 1: raise capital. So when we cross these rubicons, Uh, there's 303 00:16:58,840 --> 00:17:02,480 Speaker 1: definitely something along with the system when banks cannot raise capital. 304 00:17:03,240 --> 00:17:05,680 Speaker 1: All right, we'll have to see a busy, busy day today. 305 00:17:05,880 --> 00:17:08,000 Speaker 1: We appreciate getting a few minutes of your time. You 306 00:17:08,040 --> 00:17:11,520 Speaker 1: know you're busy. Danielle Danielle di Martino Booth CEO and 307 00:17:11,680 --> 00:17:15,639 Speaker 1: chief strategists at Quill Intelligence. Some great stuff there. Follow 308 00:17:16,240 --> 00:17:18,960 Speaker 1: her work. She's got a great Twitter game as well. 309 00:17:19,080 --> 00:17:21,760 Speaker 1: I follow her on Twitter. Lots of good discussion there 310 00:17:22,359 --> 00:17:24,840 Speaker 1: with Danielle and some of her colleagues. She was a 311 00:17:24,880 --> 00:17:26,919 Speaker 1: former advisor at the Federal Reserve Bank of Dallas. So 312 00:17:26,960 --> 00:17:29,280 Speaker 1: again we love talking to her about the FED critty 313 00:17:29,320 --> 00:17:32,640 Speaker 1: because she knows kind of how inner workings go. Yeah, 314 00:17:32,680 --> 00:17:34,320 Speaker 1: and when you have a FED meeting like today, it's 315 00:17:34,359 --> 00:17:36,360 Speaker 1: good to check in with those folks. Yeah, It's nice 316 00:17:36,359 --> 00:17:38,639 Speaker 1: to hear kind of how they go about thinking about 317 00:17:38,640 --> 00:17:40,679 Speaker 1: this because I gotta say, Paul, you could not Paey 318 00:17:40,960 --> 00:17:42,879 Speaker 1: to be an a condist at the Federal Reserve right now. 319 00:17:42,920 --> 00:17:45,439 Speaker 1: This feels like quite literally being stuck between a rock 320 00:17:45,440 --> 00:17:47,040 Speaker 1: and hard place. Yeah. So we'll have to see what 321 00:17:47,160 --> 00:17:49,320 Speaker 1: we hear from the Federal Reserve later today, and of 322 00:17:49,359 --> 00:17:52,240 Speaker 1: course we'll have full coverage of it. You're listening to 323 00:17:52,320 --> 00:17:55,680 Speaker 1: the Tape cats a our live program Bloomberg Markets weekdays 324 00:17:55,720 --> 00:17:59,520 Speaker 1: at ten am Eastern on Bloomberg Radio, in APT, Bloomberg 325 00:17:59,560 --> 00:18:02,160 Speaker 1: dot Com and the Bloomberg Business app. You can also 326 00:18:02,200 --> 00:18:05,800 Speaker 1: listen live on Amazon Alexa from our flagship New York station, 327 00:18:06,000 --> 00:18:11,919 Speaker 1: jo Say Alexa play Bloomberg eleven thirty. One of our 328 00:18:12,000 --> 00:18:17,760 Speaker 1: favorite topics to discuss is ETF exchange traded funds, so 329 00:18:17,880 --> 00:18:21,320 Speaker 1: much so that we ask Katie Greifeld from Bloomberg News 330 00:18:21,359 --> 00:18:24,000 Speaker 1: to join us here because she is the ETF boss 331 00:18:24,080 --> 00:18:26,720 Speaker 1: here for Bloomberg News. She joins us here in a 332 00:18:26,760 --> 00:18:29,720 Speaker 1: Bloomberg Interactive broker studio because we have a great guest 333 00:18:29,960 --> 00:18:33,280 Speaker 1: to check out. Joanna Gayego's co founder of Bond Blocks, 334 00:18:33,359 --> 00:18:36,080 Speaker 1: joins us here in our studio. Joanna, can you remind 335 00:18:36,119 --> 00:18:39,760 Speaker 1: us again what you guys at Bondblocks do. What we 336 00:18:39,840 --> 00:18:42,520 Speaker 1: do Bonblocks is fixed income ets. Yes, we're the only 337 00:18:42,560 --> 00:18:46,280 Speaker 1: fixed income issuer that's one hundred percent focus on fixed income, 338 00:18:46,640 --> 00:18:49,760 Speaker 1: and so we build out precision fixed income tools for investors. 339 00:18:50,359 --> 00:18:53,160 Speaker 1: And let's talk about the year that fixed income ETFs 340 00:18:53,200 --> 00:18:56,080 Speaker 1: are having, because my terminal is just booting up. But 341 00:18:56,359 --> 00:18:58,480 Speaker 1: if you look at the flows year to date into 342 00:18:58,560 --> 00:19:03,040 Speaker 1: the ETF universe, over all fixed income and equity ETFs 343 00:19:03,040 --> 00:19:05,600 Speaker 1: are like neck and Neck. I think fixed income might 344 00:19:05,640 --> 00:19:09,239 Speaker 1: have surpassed the flows into equities in the past day 345 00:19:09,320 --> 00:19:12,359 Speaker 1: or so. Have to check. I can't remember the last 346 00:19:12,359 --> 00:19:15,560 Speaker 1: time that happened when overall for the year more money 347 00:19:15,760 --> 00:19:18,919 Speaker 1: was going into bonds. I mean, just speak to the 348 00:19:18,960 --> 00:19:21,520 Speaker 1: appetite that we're seeing in the wrapper right now for 349 00:19:22,160 --> 00:19:24,840 Speaker 1: fixed income. Yeah, it's very simple. It's because of what 350 00:19:24,920 --> 00:19:27,680 Speaker 1: happened in twenty twenty two and yields being back. So 351 00:19:27,800 --> 00:19:29,840 Speaker 1: people say bonds are back, and it makes sense. But 352 00:19:30,600 --> 00:19:33,679 Speaker 1: what people need to consider is that total return is 353 00:19:33,720 --> 00:19:35,960 Speaker 1: more important than ever in your portfolio. And so with 354 00:19:36,040 --> 00:19:38,520 Speaker 1: yields having moved over four hundred and fifty bases points 355 00:19:38,520 --> 00:19:41,040 Speaker 1: in twenty twenty two and you know will continue to rise, 356 00:19:41,320 --> 00:19:45,439 Speaker 1: is what expectations call bonds are really important tool for 357 00:19:45,480 --> 00:19:49,240 Speaker 1: twenty twenty three because it's probably the most simplest way 358 00:19:49,280 --> 00:19:52,520 Speaker 1: to see return in your portfolio. And where is that 359 00:19:53,040 --> 00:19:55,400 Speaker 1: return though, when you look across the curve, obviously we're 360 00:19:55,400 --> 00:19:59,480 Speaker 1: seeing biblical volatility in the front end. But still I 361 00:19:59,600 --> 00:20:02,679 Speaker 1: hear lot of calls that basically you just want to 362 00:20:02,720 --> 00:20:04,520 Speaker 1: sit in cash. You want to sit in short of 363 00:20:04,520 --> 00:20:06,119 Speaker 1: the shorter end of the yield curve. When you think 364 00:20:06,119 --> 00:20:10,200 Speaker 1: about duration the curve and its totality. What's your thoughts. So, yes, 365 00:20:10,359 --> 00:20:13,080 Speaker 1: in duration, which is a measure of interest rate risks, 366 00:20:13,200 --> 00:20:15,080 Speaker 1: you are seeing a lot of flows in the short 367 00:20:15,200 --> 00:20:17,840 Speaker 1: end because that there's less duration, there's less interest rate 368 00:20:17,920 --> 00:20:20,399 Speaker 1: risk in something like a six month treasury or one 369 00:20:20,480 --> 00:20:24,040 Speaker 1: year a treasury. That's just intuitive cash management use. You 370 00:20:24,040 --> 00:20:26,560 Speaker 1: should be on the short end with zero risk, easy 371 00:20:26,640 --> 00:20:29,120 Speaker 1: easy decision. But what we see and what we've done 372 00:20:29,160 --> 00:20:31,520 Speaker 1: in fixed income is we've cut up parts of the 373 00:20:31,560 --> 00:20:34,000 Speaker 1: credit and part of the risk spectrum of fixed income, 374 00:20:34,040 --> 00:20:37,479 Speaker 1: so you can see different opportunities amongst those areas. And 375 00:20:37,520 --> 00:20:40,200 Speaker 1: so what's really compelling is that if you look at 376 00:20:40,200 --> 00:20:43,680 Speaker 1: things in high yield or even across IG you're not 377 00:20:43,800 --> 00:20:47,360 Speaker 1: seeing spreads from that risk free rate that are different 378 00:20:47,520 --> 00:20:50,040 Speaker 1: or very much or very much away from their non 379 00:20:50,080 --> 00:20:52,560 Speaker 1: recession levels. So I think people have been waiting for 380 00:20:52,560 --> 00:20:55,360 Speaker 1: like this massive bottom in fixed income before they come in. 381 00:20:55,800 --> 00:20:59,160 Speaker 1: But with the yields increasing and doubling over the last year, 382 00:20:59,440 --> 00:21:02,040 Speaker 1: you're seeing fourteen percent in triple c's, which is sort 383 00:21:02,080 --> 00:21:05,600 Speaker 1: of the highest credit rating, highest credit risk you could 384 00:21:05,640 --> 00:21:08,879 Speaker 1: have in high yield, all the way down to something 385 00:21:09,880 --> 00:21:12,400 Speaker 1: like five hundred in something in a in a double 386 00:21:12,440 --> 00:21:15,160 Speaker 1: B or a B. Those are normal levels, and so 387 00:21:15,280 --> 00:21:17,200 Speaker 1: it's kind of one of those confounding things we're seeing 388 00:21:17,200 --> 00:21:19,359 Speaker 1: in economic data where you're seeing a lot of demand, 389 00:21:19,440 --> 00:21:22,800 Speaker 1: you're seeing low job, low unemployment, but you're also not 390 00:21:22,880 --> 00:21:25,280 Speaker 1: seeing a lot of distress and high yield, and so 391 00:21:25,320 --> 00:21:28,280 Speaker 1: we think there's a lot of interesting areas of risk 392 00:21:28,400 --> 00:21:31,600 Speaker 1: to think about in fixed income. So I think it's yes, 393 00:21:31,680 --> 00:21:34,359 Speaker 1: everyone is in on the short end, but we really 394 00:21:34,440 --> 00:21:37,280 Speaker 1: don't think people are taking enough action and looking at 395 00:21:37,320 --> 00:21:40,560 Speaker 1: the risk assets in fixed income, which are pretty straightforward 396 00:21:40,600 --> 00:21:44,120 Speaker 1: given those yields for twenty twenty to be pretty brave 397 00:21:44,200 --> 00:21:45,959 Speaker 1: though I don't know, to go into high yield right 398 00:21:46,000 --> 00:21:48,760 Speaker 1: now doesn't say high risk, high reward. Yeah, it sounds 399 00:21:48,760 --> 00:21:51,160 Speaker 1: like it's let the entire argument on those at one bonds, 400 00:21:51,200 --> 00:21:54,080 Speaker 1: it's like, well they're super risky, but they could yield 401 00:21:54,080 --> 00:21:56,720 Speaker 1: and juicy returns. That's sort of what bond box is about. 402 00:21:56,720 --> 00:21:59,200 Speaker 1: We're about making sure that people can see those individual 403 00:21:59,200 --> 00:22:02,040 Speaker 1: opportunities across the risk spectrum. So yeah, you don't have 404 00:22:02,080 --> 00:22:04,000 Speaker 1: to take the full risk of triple c's, but it's 405 00:22:04,040 --> 00:22:06,439 Speaker 1: there for you to compare and break out of what 406 00:22:06,480 --> 00:22:09,160 Speaker 1: you're seeing in broad bet based thoughts about high yield 407 00:22:09,200 --> 00:22:12,520 Speaker 1: like that, Yes, high yield is an exchange of risk 408 00:22:12,640 --> 00:22:16,200 Speaker 1: and in return, but there are opportunities amongst them. We 409 00:22:16,280 --> 00:22:18,919 Speaker 1: want people to see those in individual products. You know. 410 00:22:19,040 --> 00:22:21,440 Speaker 1: With this banking turmoil, which is a term I'm most 411 00:22:21,440 --> 00:22:23,560 Speaker 1: comfortable with as opposed to a crisis, what we are 412 00:22:23,600 --> 00:22:25,439 Speaker 1: seeing as a lot of deposits come out of a 413 00:22:25,440 --> 00:22:28,160 Speaker 1: lot of banks and the expectations to going to money 414 00:22:28,160 --> 00:22:31,400 Speaker 1: market funds are going to maybe some bigger banks. Are 415 00:22:31,440 --> 00:22:34,960 Speaker 1: you seeing that in your business and the fund flows, yes, okay, 416 00:22:35,000 --> 00:22:37,200 Speaker 1: talking about that. So the short as Katie mentioned, the 417 00:22:37,320 --> 00:22:39,959 Speaker 1: short end of the curve and products and ETFs are 418 00:22:39,920 --> 00:22:42,560 Speaker 1: seeing a lot of flow. ETFs are interesting is that 419 00:22:42,560 --> 00:22:44,880 Speaker 1: it allows an investor in and not have to reinvest 420 00:22:45,240 --> 00:22:47,720 Speaker 1: their their short term cash or their strategy to cash. 421 00:22:47,760 --> 00:22:50,640 Speaker 1: So um like a like a money market fund, you're 422 00:22:50,640 --> 00:22:53,719 Speaker 1: going to be getting a yield that continues with you 423 00:22:53,920 --> 00:22:58,000 Speaker 1: within the market. So ETFs are an alternative to deposits, 424 00:22:58,520 --> 00:23:00,639 Speaker 1: but they are not locked up up. There's something you 425 00:23:00,680 --> 00:23:04,160 Speaker 1: can withdraw on any day of the week and their 426 00:23:04,280 --> 00:23:06,879 Speaker 1: yield is going to grow or contract with the market. 427 00:23:07,000 --> 00:23:09,520 Speaker 1: So it's a very simple, convenient way to get access 428 00:23:09,560 --> 00:23:12,520 Speaker 1: to treasury yields or short term risk. If I think 429 00:23:12,560 --> 00:23:15,239 Speaker 1: about the past two weeks, one of the I don't know, 430 00:23:15,320 --> 00:23:17,160 Speaker 1: I don't know how I want to describe it. One 431 00:23:17,160 --> 00:23:19,280 Speaker 1: of the more interesting facts to me is that when 432 00:23:19,280 --> 00:23:22,280 Speaker 1: you think about what happened at Silicon Valley Bank, at 433 00:23:22,280 --> 00:23:24,640 Speaker 1: the end of the day, it was just duration risk. 434 00:23:24,680 --> 00:23:28,359 Speaker 1: They were holding long dated treasuries, you know, government bonds. 435 00:23:28,400 --> 00:23:31,360 Speaker 1: It's not like it was anything that's supposed to be risky, 436 00:23:31,480 --> 00:23:34,120 Speaker 1: but it was duration risk. In the end. What are 437 00:23:34,160 --> 00:23:39,560 Speaker 1: your clients thinking about when it comes to longer dated debt? Yeah, 438 00:23:39,640 --> 00:23:41,800 Speaker 1: so if you want to take on duration, we actually 439 00:23:41,920 --> 00:23:44,800 Speaker 1: wanted to solve this problem for investors. We wanted to 440 00:23:44,800 --> 00:23:47,320 Speaker 1: put it on the label exactly how much interest rate 441 00:23:47,400 --> 00:23:50,440 Speaker 1: risk you're taking in a treasury product, and so we 442 00:23:50,600 --> 00:23:54,560 Speaker 1: created products that are duration targeted. So what we see 443 00:23:54,840 --> 00:23:59,080 Speaker 1: the clients are generally in fixing portfolios. When you want 444 00:23:59,080 --> 00:24:01,919 Speaker 1: to take on more risk, you're adding duration because of 445 00:24:01,960 --> 00:24:04,880 Speaker 1: interest rate risk that's coming up. So what we see 446 00:24:04,960 --> 00:24:06,919 Speaker 1: is obviously most of the flows are going into the 447 00:24:06,960 --> 00:24:09,320 Speaker 1: shorter side on the interest rate side, because there's been 448 00:24:09,359 --> 00:24:12,439 Speaker 1: expectations all year that there'd be increasing interest rate hikes, 449 00:24:12,800 --> 00:24:15,760 Speaker 1: but with sort of the back and forth we've seen 450 00:24:15,800 --> 00:24:17,720 Speaker 1: in the last few weeks, there is a view that 451 00:24:17,840 --> 00:24:20,359 Speaker 1: interest rates may be coming down as soon as the 452 00:24:20,480 --> 00:24:22,800 Speaker 1: end of the year or even very early in twenty 453 00:24:22,880 --> 00:24:26,080 Speaker 1: twenty four, and so we are seeing people taking longer 454 00:24:26,160 --> 00:24:30,040 Speaker 1: duration five to seven, even ten and twenty. I think 455 00:24:30,240 --> 00:24:32,280 Speaker 1: having that precision to be able to see which your 456 00:24:32,280 --> 00:24:35,000 Speaker 1: interest rate risk is is critical right now, and we 457 00:24:35,040 --> 00:24:38,600 Speaker 1: actually launched those products so that people could more precisely 458 00:24:38,640 --> 00:24:41,800 Speaker 1: put duration into their portfolio, even in the treasury space. Well, 459 00:24:41,800 --> 00:24:44,000 Speaker 1: I like think you said more precisely, because I want 460 00:24:44,040 --> 00:24:46,240 Speaker 1: to talk to specifically about not the bond market, but 461 00:24:46,320 --> 00:24:48,160 Speaker 1: the vehicle through which you're investing in the bond market. 462 00:24:48,240 --> 00:24:51,880 Speaker 1: Essentially ETFs as a product themselves. Given this kind of 463 00:24:52,640 --> 00:24:56,200 Speaker 1: environment where liquidity in treasuries is a concern, perhaps not immediately, 464 00:24:56,200 --> 00:24:58,320 Speaker 1: but it was a couple of months ago and might 465 00:24:58,359 --> 00:25:02,000 Speaker 1: be again, our et then considered more attractive as kind 466 00:25:02,000 --> 00:25:03,760 Speaker 1: of a tool to get your hands on them. They 467 00:25:03,880 --> 00:25:08,000 Speaker 1: democratize access to our financial markets. They always have. They 468 00:25:08,119 --> 00:25:10,639 Speaker 1: have been really important vehicles to source. I call it 469 00:25:10,680 --> 00:25:13,160 Speaker 1: the first port of liquidity. It's like the first call 470 00:25:13,200 --> 00:25:15,080 Speaker 1: it's where you can go to see where a market 471 00:25:15,160 --> 00:25:17,880 Speaker 1: is trading, and in treasuries it's no different. And so 472 00:25:17,960 --> 00:25:20,040 Speaker 1: the way that those markets function, they're very easy to 473 00:25:20,080 --> 00:25:22,800 Speaker 1: access for all investors. It's not something that's exclusive to 474 00:25:22,880 --> 00:25:25,720 Speaker 1: someone that's in an institution or doesn't know how, doesn't 475 00:25:25,760 --> 00:25:28,400 Speaker 1: have a you know, a way to access the bonds directly. 476 00:25:28,800 --> 00:25:31,199 Speaker 1: Anybody with a brokerage account and trade in ETF So 477 00:25:31,240 --> 00:25:35,040 Speaker 1: they're a really important tool for liquidity for all investors. Joan, 478 00:25:35,200 --> 00:25:37,119 Speaker 1: just real quick here, what do you expect from the 479 00:25:37,160 --> 00:25:39,760 Speaker 1: Fed today? Well, the consensus, as you guys have been 480 00:25:39,760 --> 00:25:41,520 Speaker 1: talking about the last few minutes, is that they are 481 00:25:41,560 --> 00:25:45,800 Speaker 1: going to raise another another quarter point. I think what 482 00:25:45,880 --> 00:25:47,640 Speaker 1: we really need to expect from the Fed is sort 483 00:25:47,640 --> 00:25:50,200 Speaker 1: of what they say and how they're sort of responding 484 00:25:50,240 --> 00:25:53,040 Speaker 1: to the stability and this line they're trying to balance 485 00:25:53,080 --> 00:25:56,520 Speaker 1: between financial stability the economic data that has come in 486 00:25:56,520 --> 00:25:59,320 Speaker 1: in this quarter, which is sort of our portfolio manager 487 00:25:59,440 --> 00:26:01,720 Speaker 1: Elias Schwartz like to say, has been flashing red lights 488 00:26:01,720 --> 00:26:03,520 Speaker 1: and green lights to the bond market. You don't know 489 00:26:03,600 --> 00:26:05,560 Speaker 1: which which is going to happen on any given day. 490 00:26:05,640 --> 00:26:07,800 Speaker 1: So what they say is going to be really important 491 00:26:07,800 --> 00:26:10,800 Speaker 1: for us to understand next steps. But we need more trends, 492 00:26:10,880 --> 00:26:12,760 Speaker 1: we need more data, and we'll have to see what 493 00:26:13,640 --> 00:26:16,600 Speaker 1: the great stuff. Johanna, thank you so much for coming 494 00:26:16,640 --> 00:26:19,159 Speaker 1: into our Bloomberg Get Interactive Broker Studio. Really appreciate that. 495 00:26:19,240 --> 00:26:22,399 Speaker 1: Joanna Gayego's co founder of bond Blocks. She co found 496 00:26:22,400 --> 00:26:27,560 Speaker 1: at Bondblocks in twenty twenty one. You're listening to the 497 00:26:27,640 --> 00:26:31,320 Speaker 1: team Ken's our live program Bloomberg Markets weekdays at ten 498 00:26:31,400 --> 00:26:34,480 Speaker 1: am Eastern on Bloomberg dot com, the r Heard radio 499 00:26:34,520 --> 00:26:37,280 Speaker 1: app and the Bloomberg Business app. We're listening on demand 500 00:26:37,320 --> 00:26:42,320 Speaker 1: wherever you get your podcast. You know what's doing well here? 501 00:26:42,560 --> 00:26:45,520 Speaker 1: John just called it out. Bitcoin. It's up another one 502 00:26:45,520 --> 00:26:49,120 Speaker 1: point nine percent today. It's you know, pushing twenty nine 503 00:26:49,119 --> 00:26:52,199 Speaker 1: thousand on bitcoin. Where's Tom Keane with his bitdog right? 504 00:26:52,800 --> 00:26:56,800 Speaker 1: You need it getting closer to that third leash thousand level. Also, Paul, 505 00:26:56,920 --> 00:26:59,720 Speaker 1: if you look back and in a sense function over 506 00:26:59,760 --> 00:27:03,840 Speaker 1: the past ten days, it's up close to thirty four percent. 507 00:27:04,119 --> 00:27:07,480 Speaker 1: Admit of this big sella. Obviously we've seen banks rebound, 508 00:27:07,520 --> 00:27:11,040 Speaker 1: but during this heightened volatility over the past few weeks, 509 00:27:11,440 --> 00:27:14,400 Speaker 1: seeing bitcoin, what are the winners here? Exactly. So when 510 00:27:14,400 --> 00:27:16,160 Speaker 1: I want to talk anything crypto, I want to talk 511 00:27:16,200 --> 00:27:20,840 Speaker 1: with Mike McLoone senior macro strategist with Bloomberg in Intelligence. 512 00:27:22,320 --> 00:27:25,360 Speaker 1: You know, Mike, what is going on with bitcoin here 513 00:27:25,440 --> 00:27:27,520 Speaker 1: and does it relate at all to what we've been 514 00:27:27,520 --> 00:27:29,479 Speaker 1: experienced our last couple of weeks with some of these 515 00:27:29,520 --> 00:27:34,640 Speaker 1: regional banks born hey, Paul, Born of the last financial crisis. 516 00:27:34,680 --> 00:27:38,000 Speaker 1: This financial crisis seems to be defining bitcoin, and it's 517 00:27:38,080 --> 00:27:40,480 Speaker 1: quite impressive. I mean, I've been looking for an inflection 518 00:27:40,520 --> 00:27:43,199 Speaker 1: point to bitcoin to be trading more like gold and 519 00:27:43,280 --> 00:27:46,480 Speaker 1: long bonds, and it's happening. So one good example is 520 00:27:46,520 --> 00:27:49,040 Speaker 1: Je mentioned bitcoins up about seventy three percent in the year. 521 00:27:49,080 --> 00:27:51,480 Speaker 1: But part of this is what's been happening with that 522 00:27:51,560 --> 00:27:54,280 Speaker 1: Great Scale Bitcoin Trust and GBTC. It just hit one 523 00:27:54,320 --> 00:27:56,840 Speaker 1: hundred percent mark on the year today, and that's the 524 00:27:56,920 --> 00:28:00,560 Speaker 1: litigation that might allow ETFs on the lane. But the 525 00:28:00,600 --> 00:28:04,040 Speaker 1: macro is significant. People are seeing this as Okay, well, 526 00:28:04,080 --> 00:28:06,680 Speaker 1: this is no one's project, no one's liability, no one's risk. 527 00:28:06,960 --> 00:28:10,000 Speaker 1: Banks aren't involved, and we're seeing it as a bit 528 00:28:10,040 --> 00:28:13,440 Speaker 1: of a flight to quality, flight to safety. It is 529 00:28:13,480 --> 00:28:15,760 Speaker 1: a digital reserve asset and actually some of this is 530 00:28:15,760 --> 00:28:19,520 Speaker 1: coming from this the crypto dollars, the stable coins which 531 00:28:19,520 --> 00:28:21,399 Speaker 1: aren't being somewhat looked at it and so okay, so 532 00:28:21,440 --> 00:28:25,800 Speaker 1: they have full reserves. That's quite impressive. So, Mike, has 533 00:28:25,960 --> 00:28:30,960 Speaker 1: Bitcoin reached its inflection point versus stocks yet? And if not, 534 00:28:31,240 --> 00:28:34,439 Speaker 1: what are you watching to gauge when that could potentially happen. 535 00:28:35,200 --> 00:28:37,919 Speaker 1: I think it's happening right now, Jessin. That's you know, 536 00:28:38,040 --> 00:28:40,560 Speaker 1: and we're seeing it in real time. But the key 537 00:28:40,600 --> 00:28:44,000 Speaker 1: thing to think about is I'm worried about what Gina 538 00:28:44,040 --> 00:28:46,600 Speaker 1: Martin Adams says. She's our equity stratis and she's been 539 00:28:46,680 --> 00:28:49,000 Speaker 1: spot on. And when she says that the FED hiking 540 00:28:49,120 --> 00:28:51,440 Speaker 1: is bad for equities and five percent tea bills is 541 00:28:51,440 --> 00:28:54,360 Speaker 1: bad for equities, I expect that. So I fully expect 542 00:28:54,400 --> 00:28:56,480 Speaker 1: after we yet today and the FED hikes into what's 543 00:28:56,520 --> 00:29:00,200 Speaker 1: turning out to me a significant deflationary periody of look 544 00:29:00,240 --> 00:29:03,720 Speaker 1: at banking and housing and commodities that we get that 545 00:29:03,800 --> 00:29:07,400 Speaker 1: downturn inequities. Bitcoin will fall, but it is showing divergence trick. 546 00:29:07,440 --> 00:29:10,040 Speaker 1: It's quite impressive, and it's doing it more than most 547 00:29:10,080 --> 00:29:12,680 Speaker 1: of the other cryptos it's you know, it's that single 548 00:29:12,760 --> 00:29:17,560 Speaker 1: thing like gold and like and T bonds where people 549 00:29:17,560 --> 00:29:20,200 Speaker 1: are saying, okay, well, what's my risk here? There's no 550 00:29:20,200 --> 00:29:23,280 Speaker 1: one to bail this out, which might be better, And 551 00:29:23,320 --> 00:29:26,600 Speaker 1: so I think we're at that now. Also Bitcoin outperforming 552 00:29:26,680 --> 00:29:30,400 Speaker 1: commodities as well. Right, Yes, I've enjoyed writing about that 553 00:29:30,440 --> 00:29:32,480 Speaker 1: for quite a while. When people are talking about commoditis 554 00:29:32,480 --> 00:29:36,720 Speaker 1: supercycle last year, Paul's I hear Paul giggling because I 555 00:29:36,840 --> 00:29:39,120 Speaker 1: just pointed out the key facts about bitcoin is it's 556 00:29:39,240 --> 00:29:42,560 Speaker 1: low and early days for adoption in his definable diminishing supply. 557 00:29:42,640 --> 00:29:44,400 Speaker 1: Now you look what's happening to crude oil since last 558 00:29:44,440 --> 00:29:46,960 Speaker 1: year when people were calling from one fifty, we're learning 559 00:29:47,000 --> 00:29:48,760 Speaker 1: that crude oil is the world's none those one, world's 560 00:29:48,760 --> 00:29:51,200 Speaker 1: most significant in commodity, but it's the world's most autoco 561 00:29:51,440 --> 00:29:54,680 Speaker 1: correlated acid. It goes down because it goes up, and 562 00:29:54,720 --> 00:29:58,920 Speaker 1: that's because it crushes that demand and brings on more supply. 563 00:29:59,280 --> 00:30:01,760 Speaker 1: And to me, that's what's happening. People are realizing, well, 564 00:30:01,800 --> 00:30:05,840 Speaker 1: this supercycle might be happening in bitcoin. So oil here 565 00:30:05,920 --> 00:30:08,320 Speaker 1: I'm looking at wtat crude oil. At seventy we were 566 00:30:08,360 --> 00:30:12,720 Speaker 1: below seventy today? Is this just you know, the marketplace 567 00:30:12,760 --> 00:30:16,040 Speaker 1: saying I think we got to demand problem looking forward 568 00:30:16,120 --> 00:30:19,040 Speaker 1: here it's all the above pots. I love how people 569 00:30:19,080 --> 00:30:21,600 Speaker 1: making excuses those of us who really got you know, 570 00:30:21,640 --> 00:30:23,760 Speaker 1: I was initially wrong last year and I said crudel 571 00:30:23,760 --> 00:30:26,120 Speaker 1: is going back to fifty. I think it's getting there. 572 00:30:26,320 --> 00:30:28,360 Speaker 1: And the key thing is it always does that. It 573 00:30:28,400 --> 00:30:30,520 Speaker 1: looks very similar to what it did in nineteen ninety. 574 00:30:30,560 --> 00:30:32,560 Speaker 1: I was in a trading pitst initially got all signs, 575 00:30:32,600 --> 00:30:34,480 Speaker 1: but it went to forty, back to twenty, and then 576 00:30:34,520 --> 00:30:36,600 Speaker 1: it took about fourteen years agave above that high. The 577 00:30:36,640 --> 00:30:39,880 Speaker 1: difference is now the US is a net energy exporter. 578 00:30:39,960 --> 00:30:43,160 Speaker 1: This has never happened, and we're seeing what normally happens 579 00:30:43,160 --> 00:30:45,800 Speaker 1: in crude oil. It's the world's most autocorrelated acid when 580 00:30:45,800 --> 00:30:47,520 Speaker 1: it goes up and makes it go down. But the 581 00:30:47,600 --> 00:30:50,360 Speaker 1: key is the key thing at this similar stage in 582 00:30:50,400 --> 00:30:52,680 Speaker 1: two thousand and eight, when we had that pump and 583 00:30:53,320 --> 00:30:57,000 Speaker 1: the FED was aggressively easy. Now they're still tightening. And 584 00:30:57,080 --> 00:30:59,360 Speaker 1: one thing I need to point out is back in 585 00:30:59,400 --> 00:31:01,680 Speaker 1: two thousand and nine was the last time we had 586 00:31:02,000 --> 00:31:05,400 Speaker 1: the worst than the most negative PPI Producer Price Index 587 00:31:05,400 --> 00:31:08,240 Speaker 1: ever really driven by commodities. We are going towards that 588 00:31:08,280 --> 00:31:10,719 Speaker 1: too when we get to July. July thirteenth says, when 589 00:31:10,720 --> 00:31:13,360 Speaker 1: we're going to get June PPI, it's very likely going 590 00:31:13,400 --> 00:31:15,720 Speaker 1: to be negative on a year over year basis because 591 00:31:15,760 --> 00:31:19,240 Speaker 1: of plunging commodities in crudel. And that's not profound, that's 592 00:31:19,320 --> 00:31:21,160 Speaker 1: just the way the math is going at the moment. 593 00:31:21,680 --> 00:31:24,320 Speaker 1: And something I'm curious about because I've had sources talk 594 00:31:24,360 --> 00:31:26,880 Speaker 1: about when they're specifically looking at equities, they don't want 595 00:31:26,880 --> 00:31:30,640 Speaker 1: to see oil treading around fifty dollars. Again, when it 596 00:31:30,680 --> 00:31:33,720 Speaker 1: comes to crypto, if you're seeing that happening in the 597 00:31:33,840 --> 00:31:36,520 Speaker 1: crude markets, what do you think that means potentially for 598 00:31:36,640 --> 00:31:39,479 Speaker 1: bitcoin if that would happen. Yeah, So I'm glad you 599 00:31:39,480 --> 00:31:41,200 Speaker 1: mentioned that. This is part of been my premise to 600 00:31:41,240 --> 00:31:45,640 Speaker 1: be bullish gold because I see what's happening in crudel 601 00:31:45,680 --> 00:31:49,320 Speaker 1: and commodities is what is crudels an enduring bear market 602 00:31:49,320 --> 00:31:51,440 Speaker 1: that bounced last year and it's tilting back towards that 603 00:31:51,480 --> 00:31:54,440 Speaker 1: bear market, which means deflation. And you look at things 604 00:31:54,440 --> 00:31:57,240 Speaker 1: like gold and bitcoin, they're enduring bull markets. They have 605 00:31:57,320 --> 00:32:00,280 Speaker 1: dipped and probably tipping back towards bull markets. And for 606 00:32:00,480 --> 00:32:02,840 Speaker 1: that tilt, you need the deflation to come back, and 607 00:32:02,880 --> 00:32:05,040 Speaker 1: it's clearly going there. So let's look at one example 608 00:32:05,040 --> 00:32:09,720 Speaker 1: for crudel is the benchmark for heat, electricity, and fertilizer 609 00:32:09,760 --> 00:32:12,120 Speaker 1: in this country's natural gas. It's down eighty percent from 610 00:32:12,160 --> 00:32:14,360 Speaker 1: last year's high. It's returned to his cost of production 611 00:32:14,400 --> 00:32:16,760 Speaker 1: around two and I fully expect the same thing in 612 00:32:16,800 --> 00:32:19,080 Speaker 1: crude oil, which is around forty to fifty dollars a barrel. 613 00:32:19,200 --> 00:32:20,959 Speaker 1: Forty dollars or fifty dollars a barrel is the cost 614 00:32:21,080 --> 00:32:23,960 Speaker 1: of production and the world's largest producer of crude oil 615 00:32:24,000 --> 00:32:26,800 Speaker 1: and liquid fuels, and that's the US. And by the way, 616 00:32:26,960 --> 00:32:30,000 Speaker 1: for our listeners, Mike made that call like when oil 617 00:32:30,040 --> 00:32:31,760 Speaker 1: was at one hundred and twenty five dollars a barrel. 618 00:32:31,840 --> 00:32:34,840 Speaker 1: So if you listen to Mike, you made some dough 619 00:32:34,920 --> 00:32:39,000 Speaker 1: Ray me. Mike, you cover everything from crypto to pork bellies. 620 00:32:40,600 --> 00:32:43,560 Speaker 1: What are you looking at now? What's getting your tension here? Well, 621 00:32:43,600 --> 00:32:46,720 Speaker 1: obviously to be the macro is overwhelming, Paul, and I 622 00:32:46,760 --> 00:32:48,400 Speaker 1: think that's what people are missing, the fact that the 623 00:32:48,480 --> 00:32:52,080 Speaker 1: FED and DCB are still tightened versus all the forward 624 00:32:52,120 --> 00:32:56,480 Speaker 1: looking measures. Aren't just plunging. Commodities aren't just falling, they're collapsing. 625 00:32:56,760 --> 00:32:59,320 Speaker 1: The bloomer combany in next is down over twenty percent 626 00:32:59,360 --> 00:33:01,320 Speaker 1: over the year of basis, and it's been we've had 627 00:33:01,320 --> 00:33:03,480 Speaker 1: the history of since nineteen sixty. The FED is never 628 00:33:03,560 --> 00:33:06,320 Speaker 1: tightened in that environment, Yet they still are. We see 629 00:33:06,320 --> 00:33:09,040 Speaker 1: a housing market pinking, and now we have a banking crisis, 630 00:33:09,080 --> 00:33:11,800 Speaker 1: and they're still pointing out lagging inflation. And I pointed 631 00:33:11,800 --> 00:33:13,520 Speaker 1: out with PPI in July and the year of year 632 00:33:13,560 --> 00:33:15,600 Speaker 1: is probably gonna be negative. So to me, that's a 633 00:33:15,680 --> 00:33:17,760 Speaker 1: ten on a scale of everything one to ten and 634 00:33:17,880 --> 00:33:20,000 Speaker 1: everything else is a five or lower. Just the fact 635 00:33:20,000 --> 00:33:22,760 Speaker 1: that today we're talking about tightening when a year from now, 636 00:33:22,720 --> 00:33:24,560 Speaker 1: I sally expect when we speak and we're gonna be 637 00:33:24,640 --> 00:33:27,400 Speaker 1: talking about and during inflation partly sparked by the FED 638 00:33:27,560 --> 00:33:29,080 Speaker 1: who just was a little bit too late on the 639 00:33:29,120 --> 00:33:32,520 Speaker 1: inflation and then way too aggressive fighting it. And now 640 00:33:32,560 --> 00:33:34,880 Speaker 1: it's way past I mean, the ship is turning and 641 00:33:34,880 --> 00:33:37,840 Speaker 1: they're still tainting. Wow, all right, folks, what you just 642 00:33:38,000 --> 00:33:41,120 Speaker 1: heard is an analyst on the top of his or 643 00:33:41,160 --> 00:33:43,880 Speaker 1: her game for a couple of reasons. One, he knows 644 00:33:43,920 --> 00:33:47,600 Speaker 1: his stuff, he does the work, he does the math. Second, 645 00:33:48,120 --> 00:33:51,360 Speaker 1: he provides his opinions and his analysis with conviction. I 646 00:33:51,400 --> 00:33:54,840 Speaker 1: mean what you just heard there was analysis, got conviction 647 00:33:54,880 --> 00:33:58,240 Speaker 1: in his call. Yet conviction oil going forty to fifty one, 648 00:33:58,360 --> 00:34:00,880 Speaker 1: twenty five, and we get conviction again whether we're talking 649 00:34:00,960 --> 00:34:04,120 Speaker 1: pork bellies or crypto. So we're fortunate to have Mike 650 00:34:04,200 --> 00:34:07,360 Speaker 1: McLoone with us. He's a sconce down in Miami, holding 651 00:34:07,400 --> 00:34:10,600 Speaker 1: down the Bloomberg Intelligence, a Southern tier down there in Miami. 652 00:34:11,600 --> 00:34:14,160 Speaker 1: You're listening to the take Ken's a our live program, 653 00:34:14,200 --> 00:34:18,160 Speaker 1: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, 654 00:34:18,320 --> 00:34:21,000 Speaker 1: the tun In half, Bloomberg dot Com, and the Bloomberg 655 00:34:21,080 --> 00:34:24,160 Speaker 1: Business alf. You can also listen live on Amazon Alexa 656 00:34:24,280 --> 00:34:27,560 Speaker 1: from our flagship New York station, Just say Alexa play 657 00:34:27,640 --> 00:34:31,600 Speaker 1: Bloomberg eleven thirty. I want to get to right to 658 00:34:31,640 --> 00:34:35,040 Speaker 1: our next guest, Lisian Sanders, chief investment strategist at Charles 659 00:34:35,080 --> 00:34:37,680 Speaker 1: Schwab Lizards a million ways a week ago here, and 660 00:34:37,680 --> 00:34:39,520 Speaker 1: we'll certainly get to the fed. But I'd love to 661 00:34:39,560 --> 00:34:43,319 Speaker 1: ask a veteran strategists such as yourself what do you 662 00:34:43,360 --> 00:34:46,760 Speaker 1: make of the last two weeks with Silicon Valley Banks, 663 00:34:46,840 --> 00:34:49,919 Speaker 1: Signature Bank, and some of these other California banks. What's 664 00:34:49,920 --> 00:34:53,399 Speaker 1: your take? So my take is maybe broader than what's 665 00:34:53,400 --> 00:34:56,000 Speaker 1: been the focus in the past couple of weeks. Yes, 666 00:34:56,120 --> 00:34:59,520 Speaker 1: there is a crisis going on here in the banking system, 667 00:34:59,520 --> 00:35:02,440 Speaker 1: but I think it's part parcel of a broader story 668 00:35:02,520 --> 00:35:05,759 Speaker 1: about the end of the end of the era of 669 00:35:05,760 --> 00:35:09,480 Speaker 1: easy money coming off the zero bound, the capital misallocation 670 00:35:09,640 --> 00:35:14,480 Speaker 1: that occurred during that era, just ample liquidity and zero rates, 671 00:35:14,560 --> 00:35:17,680 Speaker 1: and now I think we're sort of paying the piper. 672 00:35:17,880 --> 00:35:21,200 Speaker 1: And there's just been so much concentration on the banking 673 00:35:21,280 --> 00:35:23,120 Speaker 1: part of this. But I think this is a broader 674 00:35:23,160 --> 00:35:26,440 Speaker 1: story of of you know, who's swimming naked when the 675 00:35:26,480 --> 00:35:29,399 Speaker 1: liquidity tide goes out? Liz, I have to ask, how 676 00:35:29,480 --> 00:35:32,840 Speaker 1: frustrating is it when the narratives keep changing in market 677 00:35:32,880 --> 00:35:37,960 Speaker 1: pricing and also trying to position specifically around that. Well, yeah, 678 00:35:38,000 --> 00:35:41,279 Speaker 1: it is frustrating. It's unique in terms of how rapidly 679 00:35:41,960 --> 00:35:46,120 Speaker 1: not just information is changing, but the reaction function. But 680 00:35:46,280 --> 00:35:48,400 Speaker 1: I'm not a trader, and I don't I don't advise 681 00:35:48,480 --> 00:35:52,480 Speaker 1: short term traders, so we're not trying to kind of 682 00:35:52,520 --> 00:35:55,880 Speaker 1: play every wiggle in here. That the lead into the 683 00:35:55,920 --> 00:36:00,279 Speaker 1: FED meeting is extraordinary in terms of how dramatic the 684 00:36:00,400 --> 00:36:04,160 Speaker 1: change in expectations have been from as recently as March eighth, 685 00:36:04,200 --> 00:36:08,240 Speaker 1: an assumption of fifty by the FED or hikes between 686 00:36:08,280 --> 00:36:10,120 Speaker 1: now and year end, you know, five to seven on 687 00:36:10,200 --> 00:36:13,440 Speaker 1: the terminal rate, and now we're sub five. Still a 688 00:36:13,480 --> 00:36:17,960 Speaker 1: bias toward twenty five. But even thinking that, maybe they pause. Yeah, 689 00:36:18,000 --> 00:36:20,560 Speaker 1: So if you're if you're trying to trade around this stuff, 690 00:36:21,640 --> 00:36:26,319 Speaker 1: good luck. But so liszt intantly having God, No, I 691 00:36:26,360 --> 00:36:27,879 Speaker 1: was just gonna ask, you know, we've got the FED 692 00:36:27,920 --> 00:36:30,720 Speaker 1: coming up later today, and this is a unique meeting 693 00:36:30,719 --> 00:36:34,000 Speaker 1: for FED Chairman j Pals. He does have this kind 694 00:36:34,000 --> 00:36:37,480 Speaker 1: of simmering banking turmoil out there in addition to his 695 00:36:37,640 --> 00:36:42,000 Speaker 1: remit on inflation and everything. What would you like, What 696 00:36:42,080 --> 00:36:43,680 Speaker 1: do you think he should do today? What do you 697 00:36:43,680 --> 00:36:47,920 Speaker 1: think the message should be today? I think they should pause, 698 00:36:48,400 --> 00:36:51,600 Speaker 1: but certainly the market is saying that they're not going to. 699 00:36:51,800 --> 00:36:56,360 Speaker 1: It's eighty six percent chance of twenty five. My guests, though, 700 00:36:56,600 --> 00:37:00,560 Speaker 1: is that if they hike, it'll be a a hike, 701 00:37:00,760 --> 00:37:04,520 Speaker 1: or if they pause, it'll be a hawkish pause, and 702 00:37:04,680 --> 00:37:07,200 Speaker 1: that just means I think if they if they hike, 703 00:37:07,239 --> 00:37:09,839 Speaker 1: it's consistent with market expectations. They tend to go along 704 00:37:09,880 --> 00:37:13,640 Speaker 1: with market expectations, but they will talk a lot about 705 00:37:13,680 --> 00:37:16,719 Speaker 1: what their facilities are, that we have the tools that 706 00:37:16,920 --> 00:37:19,960 Speaker 1: you know, we're probably closer to the end. Conversely, if 707 00:37:20,000 --> 00:37:23,040 Speaker 1: they opt to pause, which would be against market expectations, 708 00:37:23,360 --> 00:37:26,520 Speaker 1: I think the messaging might be more about our inflation 709 00:37:26,560 --> 00:37:29,359 Speaker 1: fight may not be done. If things settle down in 710 00:37:29,400 --> 00:37:32,280 Speaker 1: the financial system, hikes could be back on the table. 711 00:37:32,440 --> 00:37:35,279 Speaker 1: So that's my best guests heading into what is a 712 00:37:35,400 --> 00:37:38,920 Speaker 1: very tricky meeting. And Liz, everybody obviously has been talking 713 00:37:38,960 --> 00:37:41,279 Speaker 1: about the dot plots that are quarterly we're going to 714 00:37:41,360 --> 00:37:44,319 Speaker 1: get another update on those and the meeting plot back 715 00:37:44,360 --> 00:37:46,440 Speaker 1: at that December meeting was five point one percent for 716 00:37:46,560 --> 00:37:50,200 Speaker 1: twenty twenty three. But are you expecting, I mean, how 717 00:37:50,239 --> 00:37:53,360 Speaker 1: are you expecting markets to respond to that, because obviously 718 00:37:53,440 --> 00:37:55,120 Speaker 1: we won't just get them for this year, we'll get 719 00:37:55,120 --> 00:37:57,560 Speaker 1: them for the next coming years as well. But what 720 00:37:57,600 --> 00:37:59,120 Speaker 1: are you expecting to see there and how do you 721 00:37:59,160 --> 00:38:04,880 Speaker 1: think market Frankly, markets shouldn't respond dramatically to the Summary 722 00:38:04,880 --> 00:38:07,239 Speaker 1: of Economic Projections or the dots plot. There's not been 723 00:38:07,280 --> 00:38:10,240 Speaker 1: a lot of accuracy in those, but it does represent 724 00:38:10,320 --> 00:38:13,160 Speaker 1: a bit of a signal for me. The issue will 725 00:38:13,200 --> 00:38:17,840 Speaker 1: be is there consistency in terms of the message within 726 00:38:17,920 --> 00:38:20,759 Speaker 1: the Summary of Economic Projections. What might be odd to 727 00:38:20,800 --> 00:38:24,520 Speaker 1: see and I think would be disconcerting is if the 728 00:38:25,320 --> 00:38:29,120 Speaker 1: dots and suggests that rate cuts are very much on 729 00:38:29,160 --> 00:38:33,000 Speaker 1: the table before year end, but it's not reflected in 730 00:38:33,040 --> 00:38:36,799 Speaker 1: a deterioration in the economic projections. That I think would 731 00:38:36,840 --> 00:38:39,160 Speaker 1: be a troubling message, which is, hey, we think we're 732 00:38:39,160 --> 00:38:41,400 Speaker 1: going to be cutting rates, not because the economy is 733 00:38:41,440 --> 00:38:44,160 Speaker 1: going to suffer, but you would infer that it meant 734 00:38:44,200 --> 00:38:47,680 Speaker 1: we think the financial system problem is larger. If the 735 00:38:48,040 --> 00:38:54,480 Speaker 1: economic growth expectations are weaker and inflation expectations are lower, 736 00:38:54,920 --> 00:38:57,920 Speaker 1: and the FED suggests rate cuts might be on the table, 737 00:38:58,000 --> 00:39:00,319 Speaker 1: I think that's a better broader message. So I think 738 00:39:00,320 --> 00:39:03,840 Speaker 1: it's sort of the combination of what the SEP and 739 00:39:03,880 --> 00:39:07,359 Speaker 1: the dots show, and I think that dissecting is going 740 00:39:07,400 --> 00:39:09,600 Speaker 1: to be more important this time. What are you thinking 741 00:39:09,640 --> 00:39:12,600 Speaker 1: in terms of any potential descents when it comes to 742 00:39:12,640 --> 00:39:14,760 Speaker 1: the FED and whether or not they could raise questions 743 00:39:14,760 --> 00:39:16,839 Speaker 1: as far as potentially, what do they see that maybe 744 00:39:16,840 --> 00:39:20,760 Speaker 1: we aren't seeing right now? Yeah, that's you know, normally, 745 00:39:21,280 --> 00:39:24,479 Speaker 1: particularly when it's you, it was unanimous that nobody pays 746 00:39:24,560 --> 00:39:27,120 Speaker 1: much attention, and at times there might be a dissent 747 00:39:27,239 --> 00:39:29,840 Speaker 1: or two and it doesn't tend to capture headlines. But clearly, 748 00:39:29,840 --> 00:39:33,840 Speaker 1: in this environment, if it's say more than one off descent, 749 00:39:34,040 --> 00:39:36,960 Speaker 1: I think that will garner attention. I would be surprised 750 00:39:36,960 --> 00:39:41,160 Speaker 1: if if Powell gets asked about that, but to see 751 00:39:41,200 --> 00:39:44,040 Speaker 1: that wouldn't surprise me. There's got to be uncertainty that 752 00:39:44,560 --> 00:39:49,520 Speaker 1: leads to voting members having different perspectives on things. In fact, 753 00:39:49,560 --> 00:39:54,680 Speaker 1: I'd be a bit more surprised if there was unanimity. Liz, 754 00:39:55,520 --> 00:39:59,360 Speaker 1: how do you think Chairman Powell should respond to questions 755 00:39:59,360 --> 00:40:03,080 Speaker 1: about banking turmoil out there, whether it's how it impacted 756 00:40:04,239 --> 00:40:06,600 Speaker 1: the defense decision over the past couple of days, or 757 00:40:07,560 --> 00:40:11,239 Speaker 1: how well or not well the bank did in terms 758 00:40:11,280 --> 00:40:14,120 Speaker 1: of dealing with some of these banks are preventing some 759 00:40:14,160 --> 00:40:17,080 Speaker 1: of these issues. How do you think he should respond? Well, 760 00:40:17,840 --> 00:40:21,839 Speaker 1: I think he should stick with the facts and the 761 00:40:21,920 --> 00:40:24,520 Speaker 1: data and not speculate too much. If it's on the 762 00:40:24,560 --> 00:40:29,719 Speaker 1: basis of just his perspective on what happens. So I 763 00:40:30,040 --> 00:40:32,759 Speaker 1: think he should talk about the take up at the 764 00:40:32,800 --> 00:40:36,520 Speaker 1: discount window and maybe a sense of what that's going 765 00:40:36,520 --> 00:40:39,680 Speaker 1: to look like when it's released on Thursday this week. 766 00:40:39,719 --> 00:40:42,000 Speaker 1: I think that's become sort of the hot piece of 767 00:40:42,040 --> 00:40:44,120 Speaker 1: news now that comes out. We were all obsessed with 768 00:40:44,160 --> 00:40:48,200 Speaker 1: inflation data points. Now I think it's that weekly Thursday 769 00:40:48,280 --> 00:40:50,680 Speaker 1: release of of how much borrowing is happening at the 770 00:40:50,719 --> 00:40:54,719 Speaker 1: discount window. So I I you know, I'm sure he's 771 00:40:54,719 --> 00:40:57,239 Speaker 1: going to try to offer suthing words that has the 772 00:40:57,320 --> 00:41:02,400 Speaker 1: tools and the resources, but I would assume he's not 773 00:41:02,520 --> 00:41:06,920 Speaker 1: going to provide over its speculation without a backed up 774 00:41:06,920 --> 00:41:09,440 Speaker 1: by the data we all are in possession of and 775 00:41:09,520 --> 00:41:11,960 Speaker 1: maybe a bit more from what the FED as all Right, 776 00:41:12,239 --> 00:41:15,279 Speaker 1: So putting all this together, you know the FED, what 777 00:41:15,320 --> 00:41:17,680 Speaker 1: we're dealing with in the banking system, where we are 778 00:41:17,719 --> 00:41:22,360 Speaker 1: with economic growth. What is your call to Schwab investors 779 00:41:22,400 --> 00:41:26,719 Speaker 1: these days about how they should be investing. Well, one 780 00:41:26,719 --> 00:41:30,080 Speaker 1: of my lines that I've always used in Tupper times, 781 00:41:30,120 --> 00:41:32,239 Speaker 1: a panic is not an investment strategy, and I think 782 00:41:32,280 --> 00:41:35,400 Speaker 1: great times that that applies. I think we're actually seeing 783 00:41:35,920 --> 00:41:40,359 Speaker 1: some perhaps rational action in the market. You know, there's 784 00:41:40,400 --> 00:41:42,800 Speaker 1: been a lot of concern why haven't the equity market 785 00:41:42,920 --> 00:41:45,400 Speaker 1: reflected this with more downside? But when you look at 786 00:41:45,440 --> 00:41:49,160 Speaker 1: where leadership shifts have occurred, kind of up the cap spectrum, 787 00:41:49,600 --> 00:41:53,200 Speaker 1: out the quality spectrum, the equity market may be sending 788 00:41:53,200 --> 00:41:56,360 Speaker 1: a message that all right, the FED may stop tightening, 789 00:41:56,400 --> 00:41:59,120 Speaker 1: but now banks are going to probably tighten. So small 790 00:41:59,120 --> 00:42:02,359 Speaker 1: and regional bank take off take up where the Fed 791 00:42:02,520 --> 00:42:05,680 Speaker 1: left off, and that has different implications depending on whether 792 00:42:06,080 --> 00:42:08,920 Speaker 1: you have higher interest costs, do you have the cash flow? 793 00:42:09,440 --> 00:42:11,480 Speaker 1: So I think that there's a sort of a factor 794 00:42:11,680 --> 00:42:16,200 Speaker 1: story that we're trying to emphasize. What types of characteristics 795 00:42:16,200 --> 00:42:18,480 Speaker 1: do you want to look for in companies within the 796 00:42:18,520 --> 00:42:22,279 Speaker 1: equity market for this very unique period of time, as 797 00:42:22,760 --> 00:42:25,640 Speaker 1: opposed to making a you know, all in, all out 798 00:42:26,640 --> 00:42:28,759 Speaker 1: broad equities call. I think this is where you have 799 00:42:28,840 --> 00:42:32,160 Speaker 1: to add a lot of specificity in terms of what 800 00:42:32,200 --> 00:42:35,600 Speaker 1: you're screening for. For lack of a better term, All right, Lizianne, 801 00:42:35,640 --> 00:42:37,239 Speaker 1: thank you so much for joining us. I know this 802 00:42:37,320 --> 00:42:40,040 Speaker 1: is a busy, busy day for you, like it is 803 00:42:40,080 --> 00:42:43,120 Speaker 1: for many folks in the marketplace. Lizian Saunders, she's a 804 00:42:43,160 --> 00:42:46,640 Speaker 1: chief investment strategist for Charles Schwab. Just I think one 805 00:42:46,680 --> 00:42:50,440 Speaker 1: of the very highly respected voices in the marketplace, and 806 00:42:50,640 --> 00:42:53,560 Speaker 1: certainly Schwab has, you know, so many accounts out there, 807 00:42:53,640 --> 00:42:55,319 Speaker 1: so many clients out there, that she has a big 808 00:42:55,360 --> 00:42:57,120 Speaker 1: impact on a big part of the market. So we 809 00:42:57,160 --> 00:43:01,440 Speaker 1: appreciate getting some of Lizze's time there. You're listening to 810 00:43:01,480 --> 00:43:04,960 Speaker 1: the tape cans are live program Bloomberg Markets weekdays at 811 00:43:05,040 --> 00:43:09,280 Speaker 1: ten am Eastern on Bloomberg Radio, tuning app, Bloomberg dot Com, 812 00:43:09,280 --> 00:43:12,040 Speaker 1: and the Bloomberg Business App. You can also listen live 813 00:43:12,160 --> 00:43:15,200 Speaker 1: on Amazon Alexa from our flagship New York station. Just 814 00:43:15,360 --> 00:43:20,480 Speaker 1: say Alexa play Bloomberg eleven thirty. Let's bring on our 815 00:43:20,520 --> 00:43:22,640 Speaker 1: next guests we're talking about we get some great guests hour. 816 00:43:22,680 --> 00:43:25,160 Speaker 1: How about this this guy, Cam Harvey, professor of finance 817 00:43:25,239 --> 00:43:28,759 Speaker 1: at the Duke University Fuqual School of Business. Disclosure, he 818 00:43:28,880 --> 00:43:31,840 Speaker 1: was my professor. I took a couple of his classes, 819 00:43:31,920 --> 00:43:35,239 Speaker 1: and there's lots of math in his classes, and I 820 00:43:35,280 --> 00:43:37,560 Speaker 1: think that you got his khd from Chicago that might 821 00:43:37,600 --> 00:43:39,960 Speaker 1: have something to do with it. But I'm just not 822 00:43:40,160 --> 00:43:42,360 Speaker 1: that matthy of a guy. So there was a challenge 823 00:43:42,400 --> 00:43:45,120 Speaker 1: for me, but I did make it through cam. There's 824 00:43:45,120 --> 00:43:47,120 Speaker 1: a million things we could talk about here, the FED, 825 00:43:47,480 --> 00:43:49,480 Speaker 1: the yield curve, but I want to start off with 826 00:43:49,640 --> 00:43:52,560 Speaker 1: Silicon Valley Bank and some of these other banks on 827 00:43:52,600 --> 00:43:55,320 Speaker 1: the West Coast. It's not every day we get bank runs. 828 00:43:56,080 --> 00:44:00,759 Speaker 1: What do you make of it? So I make of it. 829 00:44:01,560 --> 00:44:05,440 Speaker 1: There's a lot of blame to go around here. And 830 00:44:05,960 --> 00:44:11,359 Speaker 1: Number one, this is a gross failure of regulatory supervision. 831 00:44:12,440 --> 00:44:17,399 Speaker 1: So this is obviously a regulated bank, the state chartered bank, 832 00:44:17,760 --> 00:44:21,880 Speaker 1: but regulated by the FED. But it's less than two 833 00:44:21,960 --> 00:44:25,239 Speaker 1: hundred and fifty billion dollars, so they're not held to 834 00:44:25,280 --> 00:44:30,400 Speaker 1: the same regulatory standard, for example, the stress test. But 835 00:44:30,719 --> 00:44:33,440 Speaker 1: even if they had to do the stress test, they 836 00:44:33,440 --> 00:44:37,719 Speaker 1: would have passed. So what's going on. It turns out 837 00:44:37,800 --> 00:44:43,080 Speaker 1: that the regulator put together the stress test not realizing 838 00:44:43,239 --> 00:44:47,480 Speaker 1: what is going to happen to the FED funds rate. 839 00:44:48,160 --> 00:44:52,480 Speaker 1: So the extreme scenario that the FED gives the bank 840 00:44:53,280 --> 00:44:58,560 Speaker 1: to stress test is not extreme enough. And it's it's 841 00:44:58,600 --> 00:45:05,520 Speaker 1: the regulator, the FED, that actually creates this scenario outside 842 00:45:06,160 --> 00:45:10,680 Speaker 1: of their own extreme scenario. So that is a failure. 843 00:45:12,360 --> 00:45:17,080 Speaker 1: Now it's not just a regulatory failure. This is a 844 00:45:17,120 --> 00:45:20,840 Speaker 1: regional bank, and it's also a bank that caters to 845 00:45:21,080 --> 00:45:25,560 Speaker 1: a particular industry, and that means that your loan book 846 00:45:25,719 --> 00:45:31,400 Speaker 1: is not and your clients are not diversified, both geographically 847 00:45:31,800 --> 00:45:35,200 Speaker 1: and across industry. So that means that you need to 848 00:45:35,239 --> 00:45:39,160 Speaker 1: be held to a higher risk standard. And the other 849 00:45:39,200 --> 00:45:43,000 Speaker 1: thing is that it's kind of remarkable, and we can 850 00:45:43,040 --> 00:45:48,280 Speaker 1: talk about this more that these banks, and Silicon Valley 851 00:45:48,280 --> 00:45:52,759 Speaker 1: Bank in particular, doesn't seem to understand one of the 852 00:45:52,800 --> 00:45:57,279 Speaker 1: most basic risk concepts. And Paul, I think this was 853 00:45:57,400 --> 00:46:02,480 Speaker 1: Lecture three of Finance one oh one, and that's duration risk. 854 00:46:03,080 --> 00:46:06,640 Speaker 1: So just because you buy a long dated tric rate 855 00:46:07,200 --> 00:46:10,000 Speaker 1: doesn't mean it doesn't have any risk. It doesn't have 856 00:46:10,040 --> 00:46:14,000 Speaker 1: a default risk, but it's got interest rate risk. So 857 00:46:14,680 --> 00:46:20,160 Speaker 1: they didn't do any hedging. So banks can hedge, and 858 00:46:20,360 --> 00:46:24,840 Speaker 1: it turns out that SVB in the past had hedged, 859 00:46:25,320 --> 00:46:29,080 Speaker 1: but then they let the hedges expire they're too expensive. 860 00:46:30,320 --> 00:46:33,120 Speaker 1: How systemic, if at all, do you think this is 861 00:46:33,200 --> 00:46:35,680 Speaker 1: CAM or do you think this is more specific to 862 00:46:36,560 --> 00:46:38,759 Speaker 1: SVB or maybe even just a handful of banks that 863 00:46:38,880 --> 00:46:43,359 Speaker 1: that catered to that customer base. So the last time 864 00:46:43,400 --> 00:46:46,080 Speaker 1: I was on we talked about the Eel curve, and 865 00:46:46,120 --> 00:46:50,480 Speaker 1: the Oel curve is relevant for this particular situation because 866 00:46:50,600 --> 00:46:55,839 Speaker 1: you think the usual banking model, you gather deposits and 867 00:46:56,160 --> 00:47:00,799 Speaker 1: you're paying your depositors a short term interest rate savings rate, 868 00:47:01,640 --> 00:47:06,279 Speaker 1: and then you lend some money out to companies and 869 00:47:06,360 --> 00:47:11,759 Speaker 1: things like that, or you buy long dated treasuries. So 870 00:47:13,320 --> 00:47:17,960 Speaker 1: what you're getting is, in terms of revenue, is a 871 00:47:18,080 --> 00:47:22,000 Speaker 1: longer term rate and what you're paying is a shorter 872 00:47:22,160 --> 00:47:25,640 Speaker 1: term rate. And that works great if the yield curve 873 00:47:25,680 --> 00:47:28,399 Speaker 1: has got a positive slope, which meaning the long term 874 00:47:28,480 --> 00:47:31,560 Speaker 1: rates are higher than short term rates. But when the 875 00:47:31,680 --> 00:47:36,040 Speaker 1: yield curve inverts, that puts stress on the banking system 876 00:47:36,480 --> 00:47:38,600 Speaker 1: because all of a sudden, what they have to pay 877 00:47:38,640 --> 00:47:43,560 Speaker 1: out in savings deposits is high, and it could also 878 00:47:43,600 --> 00:47:47,600 Speaker 1: be the case that the value of the liabilities changes. 879 00:47:48,239 --> 00:47:53,640 Speaker 1: So this is the reason to actually do some hedging, 880 00:47:53,800 --> 00:47:58,960 Speaker 1: but not all banks do the hedging. And because the 881 00:47:59,040 --> 00:48:02,759 Speaker 1: Yeld curve inverse stresses the banks, it kind of makes 882 00:48:02,800 --> 00:48:06,960 Speaker 1: sense that the FED should take that into account. So 883 00:48:07,160 --> 00:48:12,000 Speaker 1: I'm very interested in reading the minutes of the FOM 884 00:48:12,040 --> 00:48:15,879 Speaker 1: at C five years from now when they actually come 885 00:48:15,920 --> 00:48:21,520 Speaker 1: out to see if they actually did their homework and say, oh, well, 886 00:48:21,560 --> 00:48:25,399 Speaker 1: we're thinking of inverting theeal curve even more. How many 887 00:48:25,440 --> 00:48:31,160 Speaker 1: banks does that put at risk? Okay, so I was 888 00:48:31,200 --> 00:48:33,920 Speaker 1: going to ask you, because you're specifically bringing up the 889 00:48:34,040 --> 00:48:36,560 Speaker 1: yield curve when you're looking at that, is it telling 890 00:48:36,640 --> 00:48:38,920 Speaker 1: us or we headed into a big event? Or did 891 00:48:38,960 --> 00:48:42,920 Speaker 1: the big event already happen? So, so think of it 892 00:48:42,960 --> 00:48:45,799 Speaker 1: this way. The yeld curve's got information has been very 893 00:48:45,800 --> 00:48:51,279 Speaker 1: accurate in terms of forecasting processions. It is something that 894 00:48:51,960 --> 00:48:58,040 Speaker 1: precedes economic bad times. And you can the yeal curve 895 00:48:58,080 --> 00:49:01,080 Speaker 1: has been inverted for quite a while now, and you 896 00:49:01,160 --> 00:49:04,520 Speaker 1: can see some of the damage that is doing. So 897 00:49:04,600 --> 00:49:07,840 Speaker 1: we went in like a year ago, our financial system 898 00:49:09,040 --> 00:49:13,319 Speaker 1: was very robust, in very good shape, leverage less than 899 00:49:14,560 --> 00:49:18,719 Speaker 1: it was, for example, before the global financial crisis. But 900 00:49:18,960 --> 00:49:24,640 Speaker 1: once you start to engineer a yield curve inversion, it 901 00:49:24,719 --> 00:49:30,440 Speaker 1: puts at risk the basic banking model and for those 902 00:49:30,480 --> 00:49:37,080 Speaker 1: banks that are not sufficiently hedged, that puts them at risk. So, 903 00:49:37,760 --> 00:49:42,040 Speaker 1: and this is exactly what's happened. So the FED, in 904 00:49:42,200 --> 00:49:47,160 Speaker 1: taking these actions, has weakened the banking system. And again 905 00:49:47,480 --> 00:49:51,960 Speaker 1: this is not just a regulatory problem. It's also a 906 00:49:51,960 --> 00:49:57,120 Speaker 1: problem of moral hazard because these banks, well, why should 907 00:49:57,120 --> 00:50:01,640 Speaker 1: we hedge. The Fed's going to bail us out. Yeah, 908 00:50:01,840 --> 00:50:03,840 Speaker 1: that's kind of what it seems like at this point. 909 00:50:03,840 --> 00:50:06,360 Speaker 1: But so now now you're the Federal Reserve, your j 910 00:50:06,480 --> 00:50:11,600 Speaker 1: pal today at two o'clock, Cam, what do you do here? Okay, 911 00:50:11,600 --> 00:50:14,120 Speaker 1: So the last time I was on your show was 912 00:50:14,200 --> 00:50:17,960 Speaker 1: just before the previous announcement, where I said that they 913 00:50:17,960 --> 00:50:23,400 Speaker 1: should stand down and pause and collect more data, and 914 00:50:23,640 --> 00:50:26,080 Speaker 1: they did not do that. I considered that a mistake, 915 00:50:26,560 --> 00:50:30,560 Speaker 1: and indeed that could have been the tipping point that 916 00:50:30,680 --> 00:50:35,240 Speaker 1: hike to invert the OL curve just a little bit more, 917 00:50:35,719 --> 00:50:40,920 Speaker 1: that that could have been the pivot point to push 918 00:50:41,000 --> 00:50:46,920 Speaker 1: us into a potential serious banking crisis. So what I 919 00:50:46,960 --> 00:50:50,000 Speaker 1: would like to do today if I was at the 920 00:50:50,040 --> 00:50:52,840 Speaker 1: FED would be the cut twenty five base of points. 921 00:50:52,880 --> 00:50:56,359 Speaker 1: I know that's not going to happen because it would 922 00:50:56,400 --> 00:51:01,359 Speaker 1: be a sign of a panic of desperate measures. But 923 00:51:01,560 --> 00:51:04,080 Speaker 1: the right thing to do, and I agree with Lisian 924 00:51:04,880 --> 00:51:09,160 Speaker 1: who's on previously, is to stand down, to pause and 925 00:51:09,239 --> 00:51:13,279 Speaker 1: say we need to collect more data. And really what 926 00:51:13,320 --> 00:51:16,719 Speaker 1: this means is we need to collect the data that 927 00:51:16,840 --> 00:51:20,440 Speaker 1: we should have collected last time and the time before 928 00:51:20,880 --> 00:51:24,799 Speaker 1: to do the analysis of the banks to figure out 929 00:51:24,880 --> 00:51:30,160 Speaker 1: what their risk actually is and how it was induced 930 00:51:30,520 --> 00:51:35,360 Speaker 1: with the yeal curve inversion, and and is it the 931 00:51:35,400 --> 00:51:41,680 Speaker 1: case that the equity in these banks, if we look 932 00:51:41,719 --> 00:51:45,760 Speaker 1: at their assets and mark them to market, has taken 933 00:51:45,760 --> 00:51:49,359 Speaker 1: a hit, potentially a two trillion dollars hit. There's an 934 00:51:49,400 --> 00:51:53,000 Speaker 1: academic paper that suggests that there's hundreds of banks that 935 00:51:53,160 --> 00:51:57,160 Speaker 1: could be underwater right now, and the FED needs to 936 00:51:57,200 --> 00:52:00,799 Speaker 1: do that work. And that work includes not just looking 937 00:52:00,840 --> 00:52:05,440 Speaker 1: at the balance sheet, but also looking at off balance sheet. 938 00:52:06,000 --> 00:52:09,520 Speaker 1: So we need to know if for these companies are 939 00:52:09,560 --> 00:52:15,040 Speaker 1: hedging and how they're hedging, so they should be hedging 940 00:52:15,440 --> 00:52:19,279 Speaker 1: their interest rate risk, but we don't know. That's very 941 00:52:19,320 --> 00:52:23,959 Speaker 1: opaque right now. The Fed, it's got four hundred PhD economists. 942 00:52:24,400 --> 00:52:28,080 Speaker 1: They should give this high priority. All right, KEM, thank 943 00:52:28,120 --> 00:52:31,120 Speaker 1: you so much. We appreciate it. Clear and concise as always, 944 00:52:31,640 --> 00:52:34,480 Speaker 1: Cam Harvey. He's a professor of finance at the Duke 945 00:52:34,600 --> 00:52:39,440 Speaker 1: University's Fuqua School of Business. I survived his classes. No 946 00:52:39,600 --> 00:52:41,759 Speaker 1: walk in the park. You had to bring your a game, 947 00:52:42,480 --> 00:52:44,880 Speaker 1: but the better for it, I think. Thanks for listening. 948 00:52:44,920 --> 00:52:48,399 Speaker 1: To the Bloomberg Markets podcast. You can subscribe and listen 949 00:52:48,440 --> 00:52:52,720 Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer. 950 00:52:53,120 --> 00:52:56,400 Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen 951 00:52:56,520 --> 00:52:59,120 Speaker 1: seventy three and on ball Sweeney, I'm on Twitter at 952 00:52:59,200 --> 00:53:02,080 Speaker 1: pt Sweeney. Before the podcast, you can always catch us 953 00:53:02,080 --> 00:53:03,480 Speaker 1: worldwide at Bloomberg Radio