WEBVTT - Surveillance: Fed & Inflation With Crescenzi 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:30.479 and of course on the Bloomberg Terminal. This is the 0:00:30.520 --> 0:00:33.760 interview of the day on the shock in awe of 0:00:33.800 --> 0:00:36.720 the short term paper market six months in. It is 0:00:36.760 --> 0:00:39.479 our Kane. It's complex, and you've got to read the 0:00:39.520 --> 0:00:43.600 fourteen thousand pages of stagums written by Tony Kriscenzi to 0:00:43.760 --> 0:00:45.960 understand a little bit of it. We don't have the 0:00:46.000 --> 0:00:48.400 time to do that, so we'll talk to him instead. 0:00:48.479 --> 0:00:52.080 Chriscenzi a pintel Now on where we are, Tony, there 0:00:52.080 --> 0:00:56.240 are two groups. The FED is organized. The FED is 0:00:56.320 --> 0:01:00.600 providing stability and the overnight market surge we've seen in 0:01:00.680 --> 0:01:05.280 Rebo is no big deal. There's another camp that says, Bologny, 0:01:05.400 --> 0:01:08.720 the world's fallen apart, which is a bringing chart upbread 0:01:08.800 --> 0:01:11.240 for TV and on radio. All you need to know 0:01:11.280 --> 0:01:14.080 it's a spike like you've never seen. Think about Jeff 0:01:14.120 --> 0:01:17.760 Bezos going up in space. That's what the spike looks like, Tony, 0:01:17.800 --> 0:01:22.119 what's it mean? Well, it's as if the FED wrote 0:01:22.160 --> 0:01:26.720 its recent framework on disappearing inc to some. Because the 0:01:26.720 --> 0:01:30.720 FEDS new framework released last August said that it wouldn't 0:01:30.840 --> 0:01:33.039 raise this policy rate until the inflation rate had gone 0:01:33.080 --> 0:01:36.520 above its two percent target for some time. It hasn't 0:01:36.520 --> 0:01:38.679 really done that for some time, and so hence the 0:01:38.720 --> 0:01:42.320 idea of disappearing INC. This is the spike we're seeing 0:01:42.319 --> 0:01:46.000 in rates. Of course, relates to the FEDS communication. And 0:01:46.080 --> 0:01:48.880 I should add that Bembrank is an advisor to Pimco 0:01:48.960 --> 0:01:54.920 has famously said that FED policy is two percent action communication. 0:01:55.120 --> 0:01:59.640 It goes to show how how strongly markets take the 0:01:59.680 --> 0:02:03.720 word of the Federal reserved. And certainly UM they were 0:02:03.760 --> 0:02:06.840 taken very strongly. So so the rising rates to just 0:02:06.880 --> 0:02:10.799 to sum up UH, I would say that it's as 0:02:10.800 --> 0:02:13.640 if the Fed is UH put the inflation cop back 0:02:13.800 --> 0:02:16.480 on the beat. It wanted to regain control of the 0:02:16.520 --> 0:02:20.919 inflation narrative because the public's hype over inflation had gotten 0:02:21.040 --> 0:02:24.400 too high. The fact got spooked. That's what it says, 0:02:24.480 --> 0:02:28.680 and it'll probably be good final words Tom on this UM. 0:02:28.800 --> 0:02:31.200 It'll probably be good for the equity market, for the 0:02:31.200 --> 0:02:35.160 credit markets, private investments, including real estate, because it looks 0:02:35.160 --> 0:02:39.120 like it will uh rain in inflation fears, but it 0:02:39.160 --> 0:02:41.880 made in fact. But Tony, this is really important. If 0:02:41.919 --> 0:02:45.839 Chrisensi's telling me that FED got spooked, that's really really important. 0:02:46.000 --> 0:02:50.000 What about the responsiveness, the male ability, the dynamics, the 0:02:50.120 --> 0:02:56.000 elasticity of trillions of dollars. I don't understand the theoretical 0:02:56.160 --> 0:03:02.440 model of what that money does. It came from this pandemic. Well, 0:03:02.520 --> 0:03:05.120 we see seven fifty billion of it in a FED 0:03:05.480 --> 0:03:08.800 repro facility. There's still a lot of money slashing around. 0:03:08.919 --> 0:03:11.600 And it's the reason why the Federal Reserve raised a 0:03:11.680 --> 0:03:15.960 few official polls. Just should say technical policy rates that 0:03:16.000 --> 0:03:18.320 it attracts it has. Its official policy, of course, is 0:03:18.320 --> 0:03:21.239 around zero. But it does things to tweak behavior in 0:03:21.280 --> 0:03:24.280 the money markets. And last week it raised two specific 0:03:24.360 --> 0:03:27.000 rates by five basis points because so there's so much 0:03:27.000 --> 0:03:30.080 money floating around that it was putting downward pressure on 0:03:30.240 --> 0:03:33.519 money market rates called commercial paper, etcetera. And three month bible, 0:03:33.520 --> 0:03:35.640 which reached an all time low of thirteen basis points 0:03:35.680 --> 0:03:38.360 last week. And so there's still that money still is 0:03:38.440 --> 0:03:40.960 out there so to speak, and it won't be removed 0:03:41.000 --> 0:03:43.440 for a long time. Remember, the FED is still purchasing 0:03:44.200 --> 0:03:46.440 billion dollars new securities per month. In other words, it's 0:03:46.480 --> 0:03:50.320 printing another one billion of money each month. It will 0:03:50.440 --> 0:03:53.240 do so into next year, and it won't shrink its 0:03:53.600 --> 0:03:56.000 balance sheet for a wild Why because it's going to 0:03:56.040 --> 0:03:58.640 reinvest the principle and interest payments it gets on the 0:03:58.640 --> 0:04:02.600 mortgages it has. And the Lisa, I don't mean interrupt, Tony, 0:04:02.640 --> 0:04:05.400 but this is so damn important, Lisa. What's so important? 0:04:05.400 --> 0:04:08.720 And Mr Senz just said, is that phrase for a 0:04:08.840 --> 0:04:11.640 very long time? I mean, that's really what the markets 0:04:11.720 --> 0:04:14.320 arguing about. Yeah, the the issue here is that people 0:04:14.360 --> 0:04:17.279 are trying to extra plate forward. What the trillions of 0:04:17.320 --> 0:04:21.000 dollars in excess cash slashing around that Clearly banks and 0:04:21.040 --> 0:04:23.520 the FED are struggling to know how to handle what 0:04:23.680 --> 0:04:27.200 the ramifications for this will be. Salton Posar of Credit 0:04:27.200 --> 0:04:30.280 Suite writing in a recent note that by paying trillions 0:04:30.320 --> 0:04:33.880 in reserves five basis points, the FED just planted the 0:04:33.880 --> 0:04:39.039 seeds of the next liquidity crisis. Tony, do you agree? No? 0:04:39.640 --> 0:04:43.400 For one, markets understand the Federal Reserve's reaction function, which 0:04:43.440 --> 0:04:45.640 is that if there were a liquidity problem with that, 0:04:45.680 --> 0:04:50.200 the federals would stand up and inject additional liquidity. This 0:04:50.279 --> 0:04:52.720 is something we learned after the g FC, the Global 0:04:52.720 --> 0:04:55.600 financial crisis. There was some doubts about whether the FED 0:04:55.640 --> 0:04:57.680 would stick to it in two thousand and thirteen when 0:04:57.680 --> 0:04:59.680 there was a so called tape attention. When there's a 0:04:59.720 --> 0:05:02.839 fear are like now that the FED might remove its 0:05:02.880 --> 0:05:07.000 monetary accommodation. That fear subsided over the years, and look today, 0:05:07.400 --> 0:05:11.520 Federal reserves communicated an idea that the markets didn't believe 0:05:11.560 --> 0:05:16.200 in previously. Yet the reaction was not much of a reaction. 0:05:16.320 --> 0:05:19.800 It's it's rather tame. Uh. You're not seeing meaningful movement 0:05:19.839 --> 0:05:24.400 in global markets from this, i e. Downward movement in equities, 0:05:24.480 --> 0:05:28.000 credit and our jump in interest rates. And so it's 0:05:28.000 --> 0:05:32.320 a rather benign notion related to the reaction function the idea. 0:05:32.880 --> 0:05:36.000 So this notion that there isn't enough liquidity to the 0:05:36.080 --> 0:05:40.240 liquidity crunches, uh, not not happening in my idea. What 0:05:40.320 --> 0:05:42.800 one quick gut notion though, to think about is the 0:05:42.839 --> 0:05:46.840 idea of chaos in periods when UH credit cycles end. 0:05:46.920 --> 0:05:51.480 After two thow we all saw that credit instruments did 0:05:51.520 --> 0:05:54.400 not trade well. And this relates to the breakdown the 0:05:54.400 --> 0:05:57.480 so called principal agent model, which is that there's so 0:05:57.520 --> 0:06:01.760 many dead securities in existence that when the investors go 0:06:01.839 --> 0:06:05.480 to sell that the system can't handle those securities because 0:06:05.520 --> 0:06:09.400 there is no intermediary to bid for them. So that's 0:06:09.400 --> 0:06:12.880 where there's a liquidity crunch in financial markets in debt 0:06:12.960 --> 0:06:18.400 securities because of the problems in the broth the principal 0:06:18.400 --> 0:06:21.440 agent model, and Tony that sort of speaks the so 0:06:21.640 --> 0:06:25.520 called paper tantrum type of model, particularly in credit, because 0:06:25.520 --> 0:06:27.800 it isn't traded in the same kind of way as 0:06:27.920 --> 0:06:30.880 a full faith and credit government debt of the United States. 0:06:31.120 --> 0:06:33.760 Here we are, though, with two year yields moving and 0:06:33.839 --> 0:06:37.720 as a number of analysts noted, people expressing the hawkishness 0:06:37.880 --> 0:06:40.800 heard by a number of the FED members in markets, 0:06:40.839 --> 0:06:43.360 but not, as you point out, in credit, we are 0:06:43.440 --> 0:06:46.640 not seeing the stress in risk assets. How do you 0:06:46.720 --> 0:06:50.160 make sense of this? Well, first, I thought the first 0:06:50.160 --> 0:06:51.919 thing I came to my head when you said that 0:06:52.040 --> 0:06:56.559 is corporate profit story cash flow. What investors care about 0:06:56.640 --> 0:06:59.800 bond investors ecuting investors is cash flow. A bond investor 0:07:00.080 --> 0:07:03.720 is about getting his or her or its money back. Uh. 0:07:03.720 --> 0:07:06.360 And the earning story is quite good. In fact, we 0:07:06.440 --> 0:07:10.760 think the the equity that investors should be overweight equities 0:07:10.760 --> 0:07:14.240 today overweight credit. The story and equities is that the 0:07:14.280 --> 0:07:18.080 earnings will grow near thirty percent this year, and most 0:07:18.080 --> 0:07:20.480 projected we would project as well that earnings will grow 0:07:20.520 --> 0:07:22.600 tem percent next year, tem percent the year after that. 0:07:22.920 --> 0:07:28.080 The Federal Reserves communication, if anything, will elongate the economic 0:07:28.120 --> 0:07:34.360 expansion by team tapering, I should say, bringing down inflation expectations, 0:07:34.400 --> 0:07:38.920 inflation fears the type that might have truncated the the 0:07:38.960 --> 0:07:42.120 economic expansion. And so the story is looking good. And 0:07:42.160 --> 0:07:45.000 again I mentioned I refer back to the notion of 0:07:45.000 --> 0:07:49.680 the Fed's reaction function. Most believed that the Federal Reserve 0:07:49.800 --> 0:07:53.280 would step in and take action if, in fact the 0:07:53.360 --> 0:07:59.280 knockts got into trouble. Tony, I wonder about the renewed 0:07:59.760 --> 0:08:02.000 as Ben Rom calls it on the m Live blog. 0:08:02.440 --> 0:08:04.720 Hey hey, Tony, good to talk to you. He says, 0:08:04.760 --> 0:08:07.840 there's a renewed quest for duration, and I wonder if 0:08:07.840 --> 0:08:11.800 that just point to market expectations of real volatility coming 0:08:11.800 --> 0:08:16.720 back in rates. Looking out several years and into so 0:08:16.800 --> 0:08:19.840 called forward rates, one sees that and even out five 0:08:19.920 --> 0:08:23.920 years that the market consensus is that interest rates of course, 0:08:23.960 --> 0:08:26.000 the you OC curve will be in the low twos. 0:08:26.320 --> 0:08:29.400 In fact, that's down twenty basis points in the past 0:08:29.400 --> 0:08:32.920 week or so. We would say that the sixty forty 0:08:33.000 --> 0:08:36.360 model is alive and well. Returns have been quite good 0:08:36.400 --> 0:08:40.240 this year, called it seven or so. We still believe 0:08:40.280 --> 0:08:43.479 in the hedge value of high quality fixed income instruments. 0:08:43.720 --> 0:08:46.840 And I said earlier that we prefer to be overweight credit, 0:08:46.920 --> 0:08:51.520 overweight equities, ovoid private assets including real estate. But that's 0:08:51.559 --> 0:08:55.000 not a very balanced portfolio. We would say then that 0:08:55.480 --> 0:08:59.280 the way to balance that is, of course through the 0:08:59.400 --> 0:09:03.839 use of aition having fixed income up in a portfolio 0:09:03.880 --> 0:09:08.120 because in the long run of adverse scenarios will affect 0:09:08.960 --> 0:09:12.880 treasuries in a way that benefits portfolio while the other 0:09:12.920 --> 0:09:17.000 instruments don't fare so well. So so we believe in 0:09:17.000 --> 0:09:21.760 the head value of treasuries and and the still big 0:09:21.760 --> 0:09:24.760 believers in that's a shock, you know, I was. I've 0:09:24.760 --> 0:09:26.840 been terrified to check my I r A over the 0:09:26.880 --> 0:09:29.440 last couple of years as we continue to hear that 0:09:29.480 --> 0:09:33.800 the sixty forty model is dead and gone. Why was 0:09:33.880 --> 0:09:36.200 that and and how come you think it's it's healthy 0:09:36.200 --> 0:09:40.280 and surviving well. Thinking first of the returns for the year, 0:09:40.400 --> 0:09:44.960 which are quite respectable. UH cent or so is a 0:09:44.960 --> 0:09:50.320 fair return, and it's very difficult to surmise that in 0:09:50.400 --> 0:09:54.520 a quite adverse scenario that longer term treasuries, and then 0:09:54.520 --> 0:09:56.480 this has been demonstrated in the past week, would not 0:09:56.559 --> 0:10:01.320 fare well in an adverse scenario. So last week a microcosm, 0:10:01.400 --> 0:10:04.920 perhaps when the Dow Jones Industrial average was following five 0:10:05.360 --> 0:10:08.920 points longer term treasury yields with falling uh and this 0:10:09.000 --> 0:10:11.480 is the sort of behavior we would expect in other 0:10:11.679 --> 0:10:15.160 adverse scenarios, and that could be prompted by numerous things 0:10:15.200 --> 0:10:18.680 that are difficult to predict, but we do believe that 0:10:18.720 --> 0:10:21.160 investors would move in that way. I should add finally 0:10:21.200 --> 0:10:26.840 that the reach duration is a global story, and this 0:10:26.920 --> 0:10:29.840 is obvious in Germany where yields where you are, where 0:10:29.920 --> 0:10:33.959 yields are still in negative territory, and also in Japan, 0:10:34.120 --> 0:10:36.880 of course, where the near zero all the way years 0:10:36.920 --> 0:10:40.480 practically correct. So the the reach for duration, the need 0:10:40.600 --> 0:10:42.240 for it is still high, and I should the final 0:10:42.280 --> 0:10:46.319 final note is in sixty models because of the performance 0:10:46.320 --> 0:10:49.760 of equities, if anything, is likely to be some adjustments 0:10:49.760 --> 0:10:53.920 by large pension funds and other investors following it into 0:10:53.920 --> 0:11:00.400 fixed income, especially given some of the volatility of thank 0:11:00.400 --> 0:11:09.800 you so much, thanks this morning. Right now, all of 0:11:09.800 --> 0:11:13.800 this market action dovetails into the banks. There has never 0:11:13.840 --> 0:11:17.320 been a crisis like this in the career of Gerard Cassidy. 0:11:17.320 --> 0:11:20.480 He's with RBC Capital Markets and joins us right now. 0:11:20.520 --> 0:11:24.720 He has seen this before. Angst and handwringing. What does 0:11:24.800 --> 0:11:30.600 all this uproar, Jerry mean for the big banks, tomm 0:11:30.640 --> 0:11:33.719 You're right, We've been through a number of different cycles 0:11:33.760 --> 0:11:36.960 and each one has a different side to it, but 0:11:37.080 --> 0:11:40.920 this one it's quite interesting because we've not seen this 0:11:41.000 --> 0:11:44.520 low rate environment persists for so long, particularly on the 0:11:44.520 --> 0:11:48.160 long end of the curve, with the likelihood of inflation 0:11:48.480 --> 0:11:51.800 heating up two levels possibly we haven't seen in over 0:11:51.840 --> 0:11:55.920 twenty five years. So the industry right now is grappling 0:11:55.960 --> 0:11:59.959 with an excess amount of liquidity caused by the quantitative 0:12:00.080 --> 0:12:03.080 vizing by the Federal Reserve. As you know, Tim, they're 0:12:03.080 --> 0:12:06.880 balancing defense balance sheet now is over eight trillion dollars, 0:12:07.240 --> 0:12:10.119 and that's up from four trillion prior to the pandemic, 0:12:10.320 --> 0:12:12.800 and that's got into the banking system, which is weighing 0:12:12.840 --> 0:12:15.440 on their margins along with this rate environment. You know, 0:12:15.520 --> 0:12:17.760 I looked your right and we were talking about thirty 0:12:17.800 --> 0:12:20.079 or four dollar lobster roles because we were coming on 0:12:20.280 --> 0:12:23.480 with Gerard Cassidy of Portland, Maine. And I guess the 0:12:23.559 --> 0:12:25.959 question is, when you see a pullback in JP, we're 0:12:25.960 --> 0:12:30.080 going of eleven percent or other selected Cassidy stocks, is 0:12:30.080 --> 0:12:32.920 it time for Gerard Cassidy to load the lobster boat. 0:12:34.920 --> 0:12:37.640 I think it is, Tom. In fact, this pullback is 0:12:37.640 --> 0:12:41.120 a great opportunity for investors to buy bank stocks, whether 0:12:41.160 --> 0:12:44.320 it's JP, Morgan Chase, or Bank America, earning the large 0:12:44.320 --> 0:12:47.840 regionals like a PNC or Truest. And you're right, Tom, 0:12:48.080 --> 0:12:50.480 if you believe that the U. S economy is truly 0:12:50.640 --> 0:12:53.959 growing at six or seven percent and throwing three or 0:12:54.000 --> 0:12:58.160 four percent for inflation loan growth historically, Tom, going back 0:12:58.200 --> 0:13:01.440 to the nineteen forties, it's carlat it's a nominal GDP 0:13:01.559 --> 0:13:04.200 growth and the low growth hasn't shown up yet because 0:13:04.240 --> 0:13:07.280 of the liquidity of corporates and consumers. But over the 0:13:07.320 --> 0:13:10.199 next twelve months, we do expect to see loan growth 0:13:10.240 --> 0:13:12.880 with the growth in the economy the way it's projected today, 0:13:12.960 --> 0:13:15.600 at least that this is so important, you know, Grizzel 0:13:15.640 --> 0:13:18.480 pro like Cassidy who remembers that a lobster roll was 0:13:18.520 --> 0:13:23.200 three dollars forty And I'm sorry, the fact of the 0:13:23.200 --> 0:13:26.880 matter is he's looking at twelve months, not twelve hours. Tom. 0:13:26.880 --> 0:13:29.080 I love that your priority right now is a lobster roll. 0:13:29.240 --> 0:13:32.080 I am right there with you, Gerard, talking about the 0:13:32.120 --> 0:13:36.199 liquidity beyond perhaps the beverage of your choice to accompany 0:13:36.440 --> 0:13:39.760 a lobster roll, but rather the liquidity in the financial system. 0:13:39.760 --> 0:13:42.240 You talk about extending loans. The idea that there's three 0:13:42.280 --> 0:13:46.640 point nine trillion dollars of cash of reserves at the 0:13:46.640 --> 0:13:50.880 Federal Reserve versus pre financial crisis of forty six billion 0:13:50.920 --> 0:13:55.679 dollars on average, a complete magnitude change. What is the 0:13:55.720 --> 0:13:59.520 trajectory of getting that money into lending at the same 0:13:59.600 --> 0:14:03.560 time people are drawing down their deposits and actually spending 0:14:03.600 --> 0:14:06.560 that cash, perhaps taking that cash out of the banks 0:14:06.600 --> 0:14:10.640 and into the economy. Now that that is the key metric, 0:14:10.840 --> 0:14:13.880 and it's you're very observant on the numbers, and I 0:14:13.880 --> 0:14:16.760 would suggest that that's what the banks want to do 0:14:16.800 --> 0:14:20.440 to the banks. As I try to remind myself and investors, 0:14:20.640 --> 0:14:22.880 banks are in the business to lend money. They want 0:14:22.880 --> 0:14:26.040 to lend money to qualified borrows, and in right now 0:14:26.120 --> 0:14:29.320 the demands not there, but as the liquidity is used up. 0:14:29.480 --> 0:14:32.800 And remember, the consumer has a number of benefits that 0:14:32.840 --> 0:14:35.520 are expiring in the fall. For example, if you're a 0:14:35.520 --> 0:14:38.840 student and you're deferred your loan payments, that expires in 0:14:38.880 --> 0:14:40.880 the fall. So I think you're gonna find people are 0:14:40.880 --> 0:14:43.520 going to be used up their stimulus payments to help 0:14:43.560 --> 0:14:46.600 with their monthly cash flows. And then we're revolved back 0:14:46.640 --> 0:14:49.360 onto credit cards, which were starting to actually see so 0:14:49.440 --> 0:14:51.600 maybe they are buying those lots of roles Tom the 0:14:51.680 --> 0:14:55.320 thirty ft dollars. Maybe people are buying lobster roles. I 0:14:55.360 --> 0:14:58.440 wonder if companies are going to start buying other companies, 0:14:58.480 --> 0:15:00.960 because he asked the consumer balance it's looking pretty healthy, 0:15:00.960 --> 0:15:02.840 but companies have a lot of cash on hand as well. 0:15:02.840 --> 0:15:05.120 And Jamie Diamond last week and talking about the fact 0:15:05.120 --> 0:15:07.440 that okay, yeah, trading isn't going to be as great 0:15:07.640 --> 0:15:10.200 look to M and A as a driver. How much 0:15:10.200 --> 0:15:12.000 of a growth catalyst do you think M and A 0:15:12.040 --> 0:15:14.680 will be for these banks. And you know, and that's 0:15:14.680 --> 0:15:16.480 a real good question, and I think it will be 0:15:16.520 --> 0:15:20.480 a real driver because as corporates become more confident that 0:15:20.560 --> 0:15:23.640 the U. S economy is out of the downturn that 0:15:23.680 --> 0:15:26.680 we experienced last year, do the pandemic, they will have 0:15:26.760 --> 0:15:29.880 more confidence to either build new plant or equipment or 0:15:29.920 --> 0:15:32.560 go out and buy a competitor to become more efficient. 0:15:32.720 --> 0:15:34.880 So we do see that as being one of the 0:15:34.920 --> 0:15:38.560 accelerants to loan growth, along with regular corporate loan demand, 0:15:38.760 --> 0:15:42.400 you know, the building of all the new green initiatives, 0:15:42.440 --> 0:15:45.960 whether it's electric vehicles and other things, those two are 0:15:46.000 --> 0:15:49.600 really demanding corporate borrowing. And that you will pick up 0:15:49.680 --> 0:15:53.640 as again confidence comes back into this economy. How much 0:15:53.680 --> 0:15:56.520 does your buy banks call get threatened by a flattening 0:15:56.560 --> 0:15:58.960 yield curve as many people now are looking at the 0:15:59.000 --> 0:16:03.480 consensus call as being of that continuing No, that that 0:16:03.640 --> 0:16:07.160 is a risk. I I don't disagree with you whatsoever. 0:16:07.560 --> 0:16:10.400 If we're chatting here a year from now, in the 0:16:10.480 --> 0:16:12.920 ten year government bond yield is a hundred and ten 0:16:12.960 --> 0:16:15.880 basis points or a hundred and twenty basis points, and 0:16:15.920 --> 0:16:19.600 there's more talk of the FED raising shorting that that is, 0:16:19.800 --> 0:16:22.760 that would be a very challenging bank stock environment. I 0:16:22.760 --> 0:16:25.680 don't disagree with you, Jerry, I don't care what I 0:16:25.720 --> 0:16:30.280 care about drug Cassidy is Connecticut or a main lobster role? 0:16:30.360 --> 0:16:33.280 Are you gonna go with a butter sauce? Or in 0:16:33.400 --> 0:16:35.920 honor of your colleague and crime, are you gonna go 0:16:36.000 --> 0:16:39.600 with the Mike mayonnaise Like a good main guy. You 0:16:39.680 --> 0:16:44.000 gotta go with the butter sauce. Time with the nice 0:16:44.080 --> 0:16:46.520 I p A and we'll we'll call it a day. 0:16:47.000 --> 0:16:51.680 Butter sauce. I never thought, Lisa, I'm absolutely shocked. Really yeah, 0:16:52.640 --> 0:16:56.200 just think he was ice called Mike Mayonnaise and the 0:16:56.240 --> 0:17:01.520 whole thing. No, butter sauces is far superior. Okay, thank you. 0:17:01.600 --> 0:17:05.360 I learned something finally today on the show Gerard Cassidy 0:17:05.359 --> 0:17:08.520 of RBC Capital Markets, truly expert. We didn't even have 0:17:08.600 --> 0:17:11.160 time there to go for his single best buy within 0:17:11.200 --> 0:17:21.600 the south Side and ben Emma's was booked. We said, yeah, okay, great, 0:17:21.720 --> 0:17:24.399 seven a slot. Is wonderful that Ben Emmons with us 0:17:24.440 --> 0:17:27.520 on this Monday, and then things blew up on Friday. 0:17:27.560 --> 0:17:30.440 So this is a genius booking of Benjamin Emmons and 0:17:30.520 --> 0:17:33.760 mentally Global Advisors with an important research note over the weekend, 0:17:33.800 --> 0:17:36.320 what'd you right? Yeah at him, I was looking at 0:17:36.359 --> 0:17:38.639 the dynamic of the of the curve on Friday, and 0:17:38.840 --> 0:17:41.480 you know it speaks to that you get guidance actually 0:17:41.560 --> 0:17:43.600 through the dop lots, which was different in the twenty 0:17:43.640 --> 0:17:46.280 thirteen when the fat actually didn't do that and yields jumped, 0:17:46.680 --> 0:17:48.800 and so the opposite effect that happens on the long 0:17:48.920 --> 0:17:51.359 end of the UK that says, okay, maybe these future 0:17:51.440 --> 0:17:55.479 right acts are sufficient to control inflation around that two percent. 0:17:56.080 --> 0:17:58.359 So the market is given some credibility on that front 0:17:58.359 --> 0:18:01.160 to the FAT. But as also lot of technicals at work, 0:18:01.280 --> 0:18:03.439 and you probably have talked about with Tony, you know, 0:18:03.600 --> 0:18:06.600 dis positioning that took place prior to all this flattening 0:18:06.640 --> 0:18:10.199 ever seen was really predicated on that market expecting as 0:18:10.560 --> 0:18:12.280 this is folks, this is what we do when we 0:18:12.320 --> 0:18:15.160 invented surveillance. This was a couple of months ago, when 0:18:15.200 --> 0:18:17.880 we invented surveillance, we said what we want to do 0:18:18.080 --> 0:18:21.199 is get a short term guy like Chriscenzi on the 0:18:21.240 --> 0:18:23.800 show and then get a long term guy like Emmon's 0:18:23.840 --> 0:18:27.919 as well parachute in the Chriscenzi's market. Long term, people 0:18:27.960 --> 0:18:30.880 like you and frankly Jerome Powell, what do they think 0:18:30.920 --> 0:18:34.720 of trillions of dollars in the Kresenzi space, overnight repo 0:18:34.840 --> 0:18:38.159 and the rest of it. So it's not only substantial, 0:18:38.200 --> 0:18:41.040 but it will continue to compress short term interest rates 0:18:41.080 --> 0:18:43.760 over time. As much as you want to communicate that 0:18:43.840 --> 0:18:46.720 you're going to raise rates, you can't have expected to 0:18:46.880 --> 0:18:49.919 yield to jump all the way out to this projective 0:18:50.000 --> 0:18:51.880 rate that the fetest put out. I think it's more 0:18:51.920 --> 0:18:56.600 like a very slow normalization and markets are no notice 0:18:56.640 --> 0:19:00.000 actually because we've experienced this in two when we were 0:19:00.000 --> 0:19:02.399 eating slowly with the two yields over time, I think 0:19:02.440 --> 0:19:04.959 that's what you can expect um. Whereas on the low 0:19:05.040 --> 0:19:07.360 end of the U curve it's this dynamic. I think 0:19:07.400 --> 0:19:10.199 of a technical positioning and the fact that you know, 0:19:10.440 --> 0:19:13.120 maybe these rates are sufficient to keep inflation the future 0:19:13.160 --> 0:19:15.760 under control. All right, So if it is technical, are 0:19:15.800 --> 0:19:18.480 we almost through with the technicality? Ben are we moving 0:19:18.520 --> 0:19:21.440 into a period where perhaps long ends along end of 0:19:21.600 --> 0:19:25.520 rates can possibly rise on the prospect of less fed accommodation. 0:19:26.880 --> 0:19:29.120 I think we said that the weights communicated this same 0:19:29.160 --> 0:19:32.440 compared to twenty thirteen. Is that you know, we were 0:19:32.480 --> 0:19:35.439 missing guidance own rates in twenty thirteen. And if we 0:19:35.520 --> 0:19:38.480 have this idea now that okay, it's gonna go that trajectory, 0:19:38.960 --> 0:19:41.000 you take out some of that rish premium out of 0:19:41.000 --> 0:19:43.480 the low end. At the same time, to your points, 0:19:43.680 --> 0:19:46.840 probably there some scope for rising long term rates as 0:19:46.880 --> 0:19:49.880 new data comes in and surprises still to the upside. 0:19:49.880 --> 0:19:52.040 You know, let's face it, we have an economy that's 0:19:52.520 --> 0:19:55.600 really strong. It's not normal to have rates at these 0:19:55.640 --> 0:19:58.560 low levels. Um, it's as we talked about a few 0:19:58.600 --> 0:20:00.399 weeks ago. It looks like this loca it so I 0:20:00.440 --> 0:20:02.720 would think an explay Rover report, even the core PC 0:20:03.000 --> 0:20:06.040 data comes out this week, surprise to the upside, probably 0:20:06.040 --> 0:20:08.600 a catalyst for rates to somewhat normalize. Again, back to 0:20:09.160 --> 0:20:11.560 inside the race where we came from, Ben, did we 0:20:11.560 --> 0:20:14.479 already get the taper tantrum? Was that what March was? 0:20:16.119 --> 0:20:19.480 Maybe Caylee, but um, you know there's a definition about 0:20:19.520 --> 0:20:22.560 the state potenttrum at Antoni thirteen. It was really a 0:20:22.600 --> 0:20:28.480 communication that confused markets and led to this repositioning on Okay, 0:20:28.520 --> 0:20:30.480 we didn't really expect you to go this fast with 0:20:30.680 --> 0:20:32.879 ending quee and then moving to rate acts maybe in 0:20:32.880 --> 0:20:35.880 the future. So and that respect, the FED I think 0:20:35.880 --> 0:20:38.919 has done a really good job controlling that aspect. But 0:20:39.040 --> 0:20:41.280 I think what the markets were not expecting last week 0:20:41.400 --> 0:20:43.720 was to see this dog blot shift. And I think 0:20:43.720 --> 0:20:46.880 what really having on Friday was just completely recalibrating what 0:20:46.920 --> 0:20:49.800 we saw in March, where you know, the expectation for 0:20:49.880 --> 0:20:52.600 rate acts were the same as they are now today, 0:20:52.720 --> 0:20:55.040 with now the difference that the markets understand what the 0:20:55.040 --> 0:20:58.359 FED is potentially planning to do, including you know, working 0:20:58.400 --> 0:21:01.280 towards this the start of the tapering process. Well, Ben 0:21:01.520 --> 0:21:04.479 to Kelly's point though, isn't it surprising that you're not 0:21:04.560 --> 0:21:07.320 seeing a bigger wobble and risk assets given the fact 0:21:07.480 --> 0:21:11.040 that people are starting to think about tapering sooner. I 0:21:11.080 --> 0:21:13.160 think it's a two two things going on at least 0:21:13.200 --> 0:21:17.240 that because yes, stapering means you know, removal of accommodation 0:21:17.400 --> 0:21:20.480 over time, but we also have to discount of fact 0:21:20.480 --> 0:21:23.440 that the fet is still super accommodated. Fact we will 0:21:23.480 --> 0:21:26.399 continue buy on twenty billion dollars a month, which by 0:21:26.400 --> 0:21:29.640 the way larger than in when it was like eighty 0:21:29.720 --> 0:21:32.400 five billion. So so we're going to continue on that 0:21:32.440 --> 0:21:35.200 pace for at least a number of months, if not longer, 0:21:35.280 --> 0:21:39.240 until that tapering actually happens, maybe presumably in two So 0:21:39.280 --> 0:21:41.800 you're looking at a balance sheet that's going to extend 0:21:42.080 --> 0:21:45.479 beyond nine very quickly, around of time, very quickly. Here, 0:21:45.520 --> 0:21:47.600 what do you need to hear from FETE officials in 0:21:47.600 --> 0:21:50.720 the coming days, including today? I think you want to 0:21:50.760 --> 0:21:53.919 hear that what they've put out as as projections is 0:21:53.960 --> 0:21:57.480 a what we call bullish forecast. They're looking at the 0:21:57.520 --> 0:22:01.639 economy will be protected. Here again, this surge of inflation 0:22:02.359 --> 0:22:04.360 and this forecast that they put out on dop plot 0:22:04.400 --> 0:22:07.280 has always been considered to be an individual that a's 0:22:07.320 --> 0:22:10.359 re emphasized right. They are still at the starting phase 0:22:10.440 --> 0:22:14.520 of considering future organization. Thank you so much for Medally 0:22:14.520 --> 0:22:24.760 Global Advisors. Jane Foley joins the rubble Bank. She's been 0:22:24.800 --> 0:22:27.760 dead on And what's so important, folks, is there price 0:22:27.800 --> 0:22:30.560 targets are moving. I mean the idea of you get 0:22:30.560 --> 0:22:33.120 a price target and a cup of coffee later you're 0:22:33.160 --> 0:22:35.440 halfway there? What do you do with your movable feast 0:22:35.480 --> 0:22:38.800 of FX targets? Jane, how ugly is this ben and 0:22:38.880 --> 0:22:41.639 how do you adapt and adjust rubble bank on a 0:22:41.680 --> 0:22:45.359 Monday morning. Well, to be honest, you know, my my 0:22:45.480 --> 0:22:47.320 one month target at the end of last in the 0:22:47.359 --> 0:22:49.880 middle of last week was at one twenty. I haven't 0:22:49.920 --> 0:22:51.520 changed that yet because we could have a little bit 0:22:51.560 --> 0:22:54.160