WEBVTT - Bloomberg Surveillance: Beyond the Crypto Winter (Podcast) 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.200 --> 0:00:32.920 Cameron Dawson tear eyed over the quality of that data. 0:00:33.000 --> 0:00:35.800 Check Cio of New Edge Wealth joining us right now. 0:00:35.840 --> 0:00:38.120 What's your conviction the next year? I'm talking about you 0:00:38.200 --> 0:00:39.000 need to get conviction. 0:00:39.080 --> 0:00:40.360 Now, do you have a lot of conviction? 0:00:41.320 --> 0:00:43.280 I think that we have to judge as we go 0:00:43.360 --> 0:00:45.800 into the end of the year when we look at 0:00:45.800 --> 0:00:48.879 where we in the year with positioning and sentiment and 0:00:49.000 --> 0:00:52.720 valuations and earnings expectations, because if we get to a 0:00:52.760 --> 0:00:55.040 point where those things are stretched, where people have been 0:00:55.120 --> 0:00:57.560 drawn into the market, everybody chases the market into a 0:00:57.680 --> 0:01:00.600 rallying to the year end, that's when you probably want 0:01:00.600 --> 0:01:03.760 to start asking questions of how sustainable or durable is 0:01:04.080 --> 0:01:06.720 We learned that lesson really powerfully this year in the 0:01:06.720 --> 0:01:10.319 opposite direction. People were underweight, valuations had come in, positioning 0:01:10.440 --> 0:01:13.200 was very light, and that set up for a very 0:01:13.200 --> 0:01:14.240 powerful year this year. 0:01:14.560 --> 0:01:16.400 One really difficult thing for a lot of people is 0:01:16.440 --> 0:01:18.440 to get two things right. Won the call on the 0:01:18.440 --> 0:01:22.120 economy and to what the economy means for financial markets. 0:01:22.160 --> 0:01:24.160 I was looking at Deutsche Bank's call yesterday least when 0:01:24.160 --> 0:01:26.039 I were going back and forth on this, They've got 0:01:26.080 --> 0:01:29.080 recession one hundred and seventy five basis points of cuts. 0:01:29.400 --> 0:01:31.560 Then bink chat is saying fifty one hundred on the SMP. 0:01:32.319 --> 0:01:34.319 Is good news bad news? Or is bad news good news? 0:01:34.400 --> 0:01:34.760 What is it? 0:01:34.920 --> 0:01:36.760 I mean, it's sort of that I want it all 0:01:36.840 --> 0:01:38.920 and I want it now kind of mentality, which is 0:01:38.959 --> 0:01:41.720 that I want a FED that's supportive, and I want 0:01:41.760 --> 0:01:44.160 an economy and earnings that are going to be growing 0:01:44.319 --> 0:01:46.880 very strongly. And I have to think that we need 0:01:46.920 --> 0:01:49.400 to ask the question of if a strong economy and 0:01:49.480 --> 0:01:52.760 strong earnings are consistent with having FED rate cuts and 0:01:52.960 --> 0:01:55.760 a recession, and if we can have both at the 0:01:55.800 --> 0:01:58.240 same time, meaning that if the FED is cutting rates, 0:01:58.480 --> 0:02:01.400 can we really grow earnings at twelve percent next year? 0:02:01.560 --> 0:02:04.040 Do we actually have the potential that we could have 0:02:04.080 --> 0:02:06.600 a third year in a row of earnings being closer 0:02:06.640 --> 0:02:08.280 to flat. If we have a recession. 0:02:08.680 --> 0:02:11.720 Well, this is John Sulfis basically saying people think we're 0:02:11.840 --> 0:02:14.519 late cycle, we're actually mid cycle. That if the Federal 0:02:14.560 --> 0:02:16.880 cuts rates is just sort of a mechanical year over 0:02:17.000 --> 0:02:21.840 year trying to adapt restrictiveness to inflation, and that that 0:02:21.919 --> 0:02:25.040 will pave the way for companies to continue to evolve, 0:02:25.080 --> 0:02:27.400 particularly in the consumer cyclicals. 0:02:28.280 --> 0:02:28.640 Thoughts. 0:02:28.800 --> 0:02:31.320 Yeah, it's interesting. You go back to the times when 0:02:31.360 --> 0:02:33.280 the Fed cut rates and we didn't have a recession 0:02:33.400 --> 0:02:36.920 ninety five, ninety eight, and twenty nineteen. What's interesting is 0:02:36.919 --> 0:02:39.519 that the Fed was actually very fearful of a recession 0:02:39.600 --> 0:02:42.000 in each of those times. They talked about the US 0:02:42.000 --> 0:02:45.040 not being an island. What's interesting is that the market 0:02:45.240 --> 0:02:48.040 wasn't scared of a recession. There was no impact to earnings. 0:02:48.080 --> 0:02:50.840 You had the market hitting all time highs as they 0:02:50.840 --> 0:02:52.880 were cutting rates. So I think we have to take 0:02:52.919 --> 0:02:55.440 the cue from the market if it starts to sniff 0:02:55.440 --> 0:02:57.960 out that data is weakening, that data is starting to 0:02:58.000 --> 0:03:00.400 come in where we need to be cutting earnings stents 0:03:00.480 --> 0:03:02.960 we don't hit all time highs in markets, that's when 0:03:02.960 --> 0:03:05.680 you'd say maybe recession risk is actually higher. 0:03:05.919 --> 0:03:08.680 So what's your conviction is it to basically shift away 0:03:08.800 --> 0:03:11.639 from the conviction of everybody else that equities are going 0:03:11.680 --> 0:03:14.359 to go higher and to take the other side. 0:03:14.680 --> 0:03:17.720 I think it's incredibly important to remain invested even in 0:03:17.800 --> 0:03:20.400 times of uncertainty, and the way that we do that 0:03:20.480 --> 0:03:23.080 is focusing on quality, focusing on companies that can block 0:03:23.120 --> 0:03:25.560 and tackle, which just means that I want to take 0:03:25.600 --> 0:03:27.839 out the risk that the economy is going to roll 0:03:27.840 --> 0:03:30.200 over and I'm going to have big earnings downside. But 0:03:30.280 --> 0:03:32.000 I also don't want to be over levered. I don't 0:03:32.040 --> 0:03:34.760 want to be overextended on risk having to have the 0:03:34.760 --> 0:03:37.440 best case scenario in order for my investments to work. 0:03:37.680 --> 0:03:39.960 So it's still that middle ground. It's worked really well 0:03:40.000 --> 0:03:42.920 this year, it likely works really well next year as well, 0:03:42.960 --> 0:03:45.480 as we think we are still in that late cycle environment. 0:03:46.000 --> 0:03:49.840 What's so interesting to me is the idea of developing 0:03:49.880 --> 0:03:55.280 a conviction with five percent money market fund trillions out there. 0:03:55.800 --> 0:03:58.480 Is part of your optimism of that money shifts given 0:03:58.520 --> 0:04:00.520 disinflation yields? 0:04:00.760 --> 0:04:02.840 Yeah, you know, it's a really good question. If all 0:04:02.880 --> 0:04:05.440 the money market funds is truly investible cap. 0:04:05.680 --> 0:04:08.360 Not all, but even at the margin that supports the bid. 0:04:08.600 --> 0:04:11.000 And we do know that investors compared to the twenty 0:04:11.040 --> 0:04:14.480 twenty two peak are about three percent less allocated to 0:04:14.560 --> 0:04:16.719 equities than they were at the peak and twenty twenty 0:04:16.720 --> 0:04:20.120 two looking at the AAII data, so that would suggest 0:04:20.160 --> 0:04:22.280 that there is still money on the sidelines, that there 0:04:22.360 --> 0:04:25.200 still is positioning to be drawn back in. And the 0:04:25.200 --> 0:04:27.800 good news is that there's cash, there's liquidity. In order 0:04:27.880 --> 0:04:30.039 to do that, we'll have to continue to watch that 0:04:30.120 --> 0:04:32.880 data because once people get fully invested. 0:04:32.720 --> 0:04:34.560 This is critical. I don't mean to interrupt, but you've 0:04:34.640 --> 0:04:37.480 nailed it. Three percent as the delta here from. 0:04:37.440 --> 0:04:40.720 AAI or whatever it is, AARP, whatever. But the answer 0:04:40.880 --> 0:04:43.279 is if that money shifts and makes up the three 0:04:43.320 --> 0:04:46.760 percent difference, what does that do in SMP or Dell points. 0:04:46.760 --> 0:04:49.360 Well, it likely means that we can continue the rally, 0:04:49.480 --> 0:04:52.760 But then it calls into question the durability of the rally. 0:04:52.800 --> 0:04:55.760 Do we test the twenty twenty two high, do we 0:04:55.839 --> 0:04:58.200 break through it with gusto and really have the kind 0:04:58.240 --> 0:05:00.320 of rally that we saw coming out of time like 0:05:00.520 --> 0:05:03.760 twenty eighteen, twenty nineteen, or instead, do we have this 0:05:03.839 --> 0:05:06.039 sideways chop that looks a lot more like what we 0:05:06.160 --> 0:05:08.719 experienced in the seventies or even in the two thousands. 0:05:08.720 --> 0:05:10.720 And it's Chris Harvey is talking about did you just 0:05:10.839 --> 0:05:12.120 request a down forecast? 0:05:12.360 --> 0:05:14.040 I did, just busting this. 0:05:14.200 --> 0:05:15.279 You have a down forecast? 0:05:15.480 --> 0:05:16.200 Absolutely not. 0:05:16.320 --> 0:05:19.359 I'm sorry. That was beautiful. Do you want to explain 0:05:19.400 --> 0:05:21.360 why you don't have a down forecast. 0:05:20.920 --> 0:05:22.440 Because it's a price weighted index? 0:05:22.720 --> 0:05:24.640 Thank you, Cameron Tak Is that enough? 0:05:24.920 --> 0:05:28.280 Jar Denney SPX five thousands, forty one thousand. 0:05:27.960 --> 0:05:29.120 On the show clip that? 0:05:29.200 --> 0:05:32.440 I mean, honestly, you guys just gonnatrol each other all 0:05:32.480 --> 0:05:33.839 morning beautiful. 0:05:34.040 --> 0:05:36.479 And I said, the perfect ending to this exchange was 0:05:36.560 --> 0:05:37.880 very good. You know it was great. 0:05:37.920 --> 0:05:38.840 It was very good. Camera. 0:05:38.880 --> 0:05:40.600 Thank you. It's going to see it. Cameron Dawson, I 0:05:40.720 --> 0:05:42.320 knew ittch Wealth, welcome back anytime. 0:05:47.000 --> 0:05:48.520 I'm going to play this off my book of the 0:05:48.600 --> 0:05:51.599 year years ago, Ken rog I was very courageous, The 0:05:51.680 --> 0:05:54.640 Curse of Cash. He's writing about where we are with 0:05:54.680 --> 0:05:58.880 digital currencies, what the Bank of International Settlements in Geneva thinks, 0:05:59.160 --> 0:06:00.240 what Central Bank says. 0:06:00.279 --> 0:06:01.719 He was at the New York Fed. Thanks. 0:06:01.720 --> 0:06:05.000 Bill Dudley joins us right now writing an important column 0:06:05.400 --> 0:06:11.240 on c B d C central bank digital currencies, Bill Dudley, 0:06:11.320 --> 0:06:16.080 very valuable and thought provoking. This morning, we just saw 0:06:16.560 --> 0:06:22.400 criminal trials, guilty verdicts, maybe appeals involved. But are we 0:06:22.520 --> 0:06:27.400 getting away from the presumed criminality, the punishment, the secrecy 0:06:27.480 --> 0:06:29.680 that Ken Rogoff had the courage to talk about. 0:06:31.400 --> 0:06:36.680 Well, I think that the crypto space is in disarray 0:06:36.760 --> 0:06:38.920 right now, and the real question now is our central 0:06:38.920 --> 0:06:41.520 banks around the world going to introduce central bank digital 0:06:41.560 --> 0:06:45.680 currencies to sort of take up that slack. I think 0:06:45.720 --> 0:06:48.839 that's going to happen, probably going to be more evolutionary 0:06:48.880 --> 0:06:52.160 than revolutionary, because it depends on what payment system that 0:06:52.200 --> 0:06:54.840 you're starting with. I think we're central bank digital currencies 0:06:54.880 --> 0:06:57.359 could play a very very important role. This is highlighted 0:06:57.400 --> 0:06:59.039 a new paper that we put out by the brent 0:06:59.080 --> 0:07:02.520 Witz Committee is really on cross border payments. We had 0:07:02.520 --> 0:07:05.600 a system of central bank digital currencies where the interfaces 0:07:05.600 --> 0:07:08.640 were harmonized, you could probably execute payments on a cross 0:07:08.680 --> 0:07:11.640 border basis at a fraction of the cost. Today, for 0:07:11.640 --> 0:07:13.920 a lot of migrant workers when they're sending their payments abroad, 0:07:13.920 --> 0:07:16.120 it costs over five percent of the value of the 0:07:16.160 --> 0:07:20.320 payment just to execute the trade. It's very slow. So 0:07:20.360 --> 0:07:22.560 we can certainly do a lot better than than we're 0:07:22.560 --> 0:07:25.080 doing right now now in this process. The FIT is 0:07:25.800 --> 0:07:28.600 very far far behind in terms of their work on 0:07:28.680 --> 0:07:31.120 central bank digital currencies, and in the US there's a 0:07:31.200 --> 0:07:33.360 quite a bit of skepticism about the need for central 0:07:33.360 --> 0:07:34.400 bank digital currencies. 0:07:34.800 --> 0:07:36.320 Why is this work continue? 0:07:36.400 --> 0:07:37.480 Well, that's so hard of the matter. 0:07:37.520 --> 0:07:39.360 I'm going to go to Raphael Our owns a high 0:07:39.400 --> 0:07:43.760 ground on this at BIS. He's documented the incredible friction 0:07:43.880 --> 0:07:47.400 of transactions in the real world. We all thought we'd 0:07:47.440 --> 0:07:49.960 be trading bitcoin and you know, John would be down 0:07:49.960 --> 0:07:52.720 at Selene trading bitcoin for a sweater, but the answers 0:07:52.720 --> 0:07:55.960 were not. We could really get down to where this 0:07:56.040 --> 0:07:59.640 is efficacious for central banks. We could really squeeze us 0:07:59.680 --> 0:08:02.520 down to where there's no transactional friction. 0:08:03.920 --> 0:08:06.960 Well, that'll obviously always give a little bit of transactional friction, 0:08:07.040 --> 0:08:08.880 but we can do a lot better than we're doing 0:08:08.960 --> 0:08:12.720 right now. I mean, in central bank digital currencies should 0:08:12.760 --> 0:08:15.720 be a pretty significant improvement over cash. I'll be just 0:08:15.760 --> 0:08:19.320 the safest cash, but in terms of the fault risk, 0:08:19.360 --> 0:08:21.400 because you'll be guaranteed by the sovereign. 0:08:21.160 --> 0:08:24.000 Nation, but you don't have worries about storage. 0:08:24.040 --> 0:08:28.840 You can transact with digital cash across long distances, So 0:08:28.960 --> 0:08:32.559 to me, it's like cash plus it's superior to cache 0:08:33.400 --> 0:08:36.200 and something that we the US should start to innovate on. 0:08:36.640 --> 0:08:39.840 There's a concern bill that as you disintermediate banks, essentially 0:08:40.200 --> 0:08:44.480 those agents that really capitalize from those frictions that exist, 0:08:44.920 --> 0:08:47.960 that some of the functioning of markets that traditionally has 0:08:48.040 --> 0:08:53.080 supported things like treasuries starts to ebb away. How concerned 0:08:53.120 --> 0:08:56.200 are you as you start to adopt new, less friction 0:08:56.320 --> 0:08:59.560 build methods and as capital markets slow in the wake 0:08:59.600 --> 0:09:02.840 of rate hikes, how much does that really disintermediate banks 0:09:02.840 --> 0:09:05.600 that really are still essential for the functioning of the 0:09:05.600 --> 0:09:06.360 treasury market. 0:09:07.240 --> 0:09:10.080 It really depends on central bank digital currency design, and 0:09:10.080 --> 0:09:11.760 I think there you want to have a two tier 0:09:11.840 --> 0:09:15.920 system where the banks continue to own the customer relationships. 0:09:16.440 --> 0:09:19.960 Central banks don't want to have customer relationships with hundreds 0:09:20.000 --> 0:09:22.080 of millions of households, so. 0:09:22.000 --> 0:09:24.520 They should hand that off to the banking system. 0:09:24.800 --> 0:09:26.280 The second thing you want to do is make sure 0:09:26.280 --> 0:09:29.000 that the central bank digital currency doesn't pay interest. If 0:09:29.000 --> 0:09:30.880 it doesn't pay interest, it's basically going to be used 0:09:30.880 --> 0:09:34.120 for payments, not for investment, So that preserves the role 0:09:34.160 --> 0:09:37.120 of the central of commercial banks as intermediaries. 0:09:37.280 --> 0:09:39.840 So I think if you do those two things essentially 0:09:39.880 --> 0:09:40.520 protect that. 0:09:40.760 --> 0:09:45.559 The commercial banking system is providing financial intermediation services, but 0:09:45.640 --> 0:09:49.040 the central bank helps provide a better payments medium. 0:09:49.440 --> 0:09:51.319 The reason why I ask is on a broader sense 0:09:51.360 --> 0:09:54.720 away from digital currencies, is there is increasing concern about 0:09:54.720 --> 0:09:57.360 how much of the risk taking activity and how much, frankly, 0:09:57.360 --> 0:10:00.640 of financial market functioning has moved outside of the highly 0:10:00.640 --> 0:10:04.240 regulated banks into the private sector. Earlier this morning, UBAS 0:10:04.360 --> 0:10:07.960 chair Clem Kelliher came out warning again that there's a 0:10:07.960 --> 0:10:11.040 bubble in private markets and that there's risks building there 0:10:11.080 --> 0:10:13.720 as an increasing amount of lending moved to that area. 0:10:13.800 --> 0:10:15.840 Are you concerned about that? Do you think that there 0:10:15.960 --> 0:10:19.240 is this sort of situation forming on the heels of 0:10:19.520 --> 0:10:22.600 rate hikes, on the heels of the more tightly regulated 0:10:22.640 --> 0:10:24.560 banks that deserves greater scrutiny. 0:10:25.559 --> 0:10:26.199 Absolutely? 0:10:26.280 --> 0:10:28.000 I think this notion that all we need to do 0:10:28.120 --> 0:10:29.880 to fix the problems that we saw in March of 0:10:29.920 --> 0:10:32.640 twenty twenty in the banking system is to appile a 0:10:32.679 --> 0:10:34.960 lot higher capal requirements on the largest banks. 0:10:35.120 --> 0:10:36.160 I think that's misguided. 0:10:36.920 --> 0:10:39.120 Increase the cabal requirements on the biggest banks, You're just 0:10:39.120 --> 0:10:41.960 going to push activity out into the non regulated banking sector, 0:10:42.400 --> 0:10:45.760 and that's going to make the financial system less secure, 0:10:46.400 --> 0:10:48.640 more unstable than the current regime. 0:10:48.679 --> 0:10:49.760 So I think we need to think. 0:10:49.600 --> 0:10:51.680 Really hard about what were the problems in March twenty 0:10:51.760 --> 0:10:53.040 twenty and how to address them. 0:10:53.240 --> 0:10:54.720 Bill, thanks for catching out with us. 0:10:54.880 --> 0:10:57.280 Give us an your view on that built outly the 0:10:57.320 --> 0:10:59.280 former New York Fed President. 0:11:09.280 --> 0:11:10.320 Lie So this is joy. 0:11:10.360 --> 0:11:13.280 Why don't you bring in mister Mayo here because he's 0:11:13.480 --> 0:11:16.760 all AI in bankings. 0:11:16.240 --> 0:11:20.480 Which makes me very happy actually because Thanksgiving dinners several 0:11:20.480 --> 0:11:23.120 of them. All of the discussion was about artificial intelligence. 0:11:23.679 --> 0:11:26.400 Mike Mayo focused on artificial intelligence as well, saying that 0:11:26.440 --> 0:11:28.880 it's not just going to be in big tech, it's 0:11:28.920 --> 0:11:31.800 also going to be in banks that you need to 0:11:31.800 --> 0:11:35.080 have AI talent at the financial institution, saying the marriage 0:11:35.080 --> 0:11:37.800 of banks with tech, including AI, is a long term 0:11:37.840 --> 0:11:42.080 positive that can help the industry trend toward record efficiency. 0:11:42.200 --> 0:11:44.880 Joining us now is the one and only Michael Mayo, Mike, 0:11:45.080 --> 0:11:47.560 thank you so much for being with us. So tell 0:11:47.640 --> 0:11:50.719 us just how much banks could benefit at a time 0:11:50.800 --> 0:11:53.199 where people have written them off as utilities that are 0:11:53.240 --> 0:11:56.040 overspending and are not going to make big returns. 0:11:56.600 --> 0:11:59.360 Well, if you're a bank and don't have an AI strategy, 0:12:00.080 --> 0:12:03.160 then you don't have a strategy because if the bank 0:12:03.200 --> 0:12:08.800 across the street has calculators or spreadsheets or Bloomberg terminals, yes, 0:12:09.120 --> 0:12:11.480 and you don't have those, then how are you going 0:12:11.559 --> 0:12:15.439 to compete? So AI is here to stay. The marriage 0:12:15.480 --> 0:12:18.640 of banks and tech has been a good one. It's 0:12:18.640 --> 0:12:22.640 stalled recently, but I think AI can rekindle that relationship 0:12:22.960 --> 0:12:27.640 by taking the productivity benefits which have been revenues per 0:12:27.640 --> 0:12:30.200 employee have improved by one third over the last decade. 0:12:30.240 --> 0:12:33.160 So banks and tech have been working, but I think 0:12:33.200 --> 0:12:35.000 AI can take that to another level. 0:12:35.160 --> 0:12:36.480 Is it a kind of thing where there'll be a 0:12:36.480 --> 0:12:40.040 few winners you mentioned Golias Mike Mayo in your noe 0:12:40.120 --> 0:12:42.120 is a kind of thing where four or five will 0:12:42.120 --> 0:12:44.800 win and the rest lose? Or can it actually be 0:12:44.840 --> 0:12:47.800 a benefit distributed across the industry? 0:12:48.640 --> 0:12:52.599 Well, I think most jobs at banks will be impacted. 0:12:52.600 --> 0:12:55.080 I mean, think of what I do. I'm an analyst, 0:12:55.520 --> 0:12:59.760 and analysis can be improved by this extra tool called 0:12:59.840 --> 0:13:02.320 a Now I do think there will always be a 0:13:02.559 --> 0:13:05.600 human in the loop for most cases. In other words, 0:13:06.120 --> 0:13:08.880 to prepare for your show today, Lisa and Tom, I 0:13:08.920 --> 0:13:12.079 went to chat GPT and said, what should I say 0:13:12.080 --> 0:13:14.240 in one sentence about this? And they said it's a 0:13:14.280 --> 0:13:18.280 revolution that will enable productivity, savings and better customer service. 0:13:18.320 --> 0:13:21.480 Well that's an improval. Well that's an improved starting point. 0:13:21.480 --> 0:13:23.320 But you know it's partly wrong. First, I'm not sure 0:13:23.360 --> 0:13:26.840 it's a revolution, especially at banks. It tends to be 0:13:26.880 --> 0:13:31.400 more of an evolution, and simply by enabling that potential 0:13:31.720 --> 0:13:34.199 doesn't mean that becomes a reality. And you've seen false 0:13:34.200 --> 0:13:38.120 starts cloud, You've had some buyers remorse. Blockchain didn't come 0:13:38.160 --> 0:13:41.040 out as quickly as expected. You know the dot com 0:13:41.400 --> 0:13:44.560 bubble one point. Oh, Tom, you remember all these Internet 0:13:44.600 --> 0:13:48.840 pollows which didn't survive. So I'm positive on the implications 0:13:49.080 --> 0:13:51.559 of AI, but I also I'm aware of the. 0:13:51.520 --> 0:13:55.480 Cast come back even further. George Ball E. F. Hutton. 0:13:55.679 --> 0:13:56.360 They blew it. 0:13:56.400 --> 0:13:58.320 They couldn't keep up on technology. 0:13:58.600 --> 0:13:59.199 This is Lisa. 0:13:59.240 --> 0:14:01.360 When there were cards with holes in them and a 0:14:01.400 --> 0:14:04.000 thing called Fortran. The answer is I want to know 0:14:04.040 --> 0:14:05.960 who the losers are going to be in this. I mean, 0:14:06.400 --> 0:14:08.360 I know you've got single best buys in all this, 0:14:08.480 --> 0:14:11.320 but what is the scale of the losers that you 0:14:11.400 --> 0:14:11.839 see in. 0:14:11.840 --> 0:14:14.640 Technology and banking three to five years out. 0:14:14.720 --> 0:14:16.640 Well, I do think Goliath is winning, and you have 0:14:16.760 --> 0:14:20.640 this poll by Evident. I know they've had the founders 0:14:20.720 --> 0:14:22.240 on your show. In fact, they have an all day 0:14:22.240 --> 0:14:25.720 conference in New York City tomorrow. So JP Morgan is 0:14:25.800 --> 0:14:28.560 number one front and center right now and their investment 0:14:28.840 --> 0:14:32.000 in technology are paying off. I'm surprised to see City 0:14:32.040 --> 0:14:35.000 Group in the top ten for all their issues with 0:14:35.040 --> 0:14:38.080 their back office, and they have major issues. They're making 0:14:38.120 --> 0:14:41.760 some efforts with AI. On the other hand, those banks 0:14:41.760 --> 0:14:46.120 that have not advanced with digitization and the cloud and 0:14:46.160 --> 0:14:48.840 getting their data together could struggle. And I do wonder 0:14:48.840 --> 0:14:51.360 about some of these mid sized banks. I mean, do 0:14:51.400 --> 0:14:55.040 they have the scale to really leverage these solutions and 0:14:55.080 --> 0:14:58.080 getting talent. Talent is such a big issue and you 0:14:58.120 --> 0:15:01.520 can't just buy talent off shelf. You can get solutions, 0:15:01.760 --> 0:15:04.840 but who's actually going to implement those solutions in each 0:15:04.880 --> 0:15:05.640 business line? 0:15:05.760 --> 0:15:07.560 So when I'm listening to you, I'm thinking how much 0:15:07.560 --> 0:15:09.000 are they're going to pay them. I mean, we're talking 0:15:09.000 --> 0:15:11.760 about open AI paying eight hundred thousand dollars to engineers 0:15:11.760 --> 0:15:13.480 at just at of a base level. I mean, how 0:15:13.520 --> 0:15:15.200 much your bank's going to have to pay some of 0:15:15.240 --> 0:15:17.640 this talent to come to their bank and develop similar 0:15:17.680 --> 0:15:23.440 solutions that can effectively support and reduce certain headcount in 0:15:23.480 --> 0:15:24.360 certain areas well. 0:15:24.400 --> 0:15:26.160 I think what you'll see is you'll see a reduction 0:15:26.280 --> 0:15:29.440 in headcount and some of those savings plowed back into 0:15:29.680 --> 0:15:34.040 paying other employees more money, especially AI engineers. They're in 0:15:34.400 --> 0:15:36.200 serious demand. But if you go to one of the 0:15:36.280 --> 0:15:38.640 largest banks, you have a whole career path. You can 0:15:38.760 --> 0:15:42.760 scale these solutions across tens of millions of customers as 0:15:42.800 --> 0:15:45.360 opposed to going to a smaller bank. I mean, what's 0:15:45.360 --> 0:15:47.840 your pitch. Now? There are some smaller banks in this 0:15:48.160 --> 0:15:51.920 evidence survey that performed quite well because they were already 0:15:51.920 --> 0:15:55.239 ahead on technology. So I think those winning in technology 0:15:55.600 --> 0:15:58.480 can keep winning more and those that are behind are 0:15:58.520 --> 0:16:01.520 going to have to have kind of a existential moment here. 0:16:01.640 --> 0:16:04.440 This can all work if banks have the cash to 0:16:04.640 --> 0:16:06.920 invest right and that sort of you put a pause 0:16:06.960 --> 0:16:09.920 on that at a time when potentially there could be 0:16:09.960 --> 0:16:11.680 a slow down and there could be some kind of 0:16:11.680 --> 0:16:16.280 reduction in revenues tied to slowing capital markets how much 0:16:16.360 --> 0:16:18.720 I understand this is a longer term call, but how 0:16:18.800 --> 0:16:21.360 much do you see a thawing in that kind of 0:16:21.440 --> 0:16:24.040 environment next year versus a tightening and the screws I mean, 0:16:24.040 --> 0:16:26.040 this is sort of one of the big disagreements for 0:16:26.080 --> 0:16:28.920 the backdrop for banks and capital markets activity at a 0:16:28.920 --> 0:16:31.520 time where yields are still high, but we also are 0:16:31.520 --> 0:16:33.160 potentially going to start seeing the effects of that. 0:16:33.480 --> 0:16:35.720 Well, I promise you I will be the first analyst 0:16:35.720 --> 0:16:38.160 to ask that question or earnings calls. If banks are 0:16:38.200 --> 0:16:41.160 spending too much money. Banks have no choice because of 0:16:41.200 --> 0:16:46.360 the headwinds from rates, recession possibility, and regulation. They must 0:16:46.400 --> 0:16:48.720 get more efficient. So if I'm the CEO of any 0:16:48.760 --> 0:16:50.880 bank and you're coming to me with the program for 0:16:50.920 --> 0:16:53.440 AI and want to invest a lot of money, I'd say, great, 0:16:53.640 --> 0:16:55.240 where are you saving the money to fund that? 0:16:55.360 --> 0:16:57.200 Nobody cares. All we want to know from Mike Mayo 0:16:57.280 --> 0:16:59.320 is what to do this year? Twelve months out, twelve 0:16:59.320 --> 0:17:02.040 months ago now flat on its back. We've had a 0:17:02.080 --> 0:17:06.200 magnificent seven moonshot right now. Keith briat Indexes twenty five 0:17:06.240 --> 0:17:09.679 percent above the pandemic low. Is this the year twenty 0:17:09.760 --> 0:17:11.920 twenty four of the banks? Do you load the boat 0:17:12.000 --> 0:17:12.800 here on banking? 0:17:13.560 --> 0:17:17.320 Well, look, the long arc of the benefits of the 0:17:17.359 --> 0:17:21.520 industry de risking has still yet to play out. Banks 0:17:21.520 --> 0:17:24.119 didn't get credit through the pandemic. The excuse was the 0:17:24.160 --> 0:17:28.200 government stimulus. Right now, you had some smaller regional banks 0:17:28.200 --> 0:17:31.000 fail earlier this year, so it's still delayed. So I 0:17:31.040 --> 0:17:33.480 still think over the next two to three years you 0:17:33.520 --> 0:17:37.640 see the benefit of the improved banking industry resiliency play out, 0:17:37.960 --> 0:17:40.680 and then they aren't as risky as perceived and they 0:17:41.240 --> 0:17:44.200 re rate at least back to historical And then the 0:17:44.240 --> 0:17:46.680 bigger question is longer term for the rerate above. Now, 0:17:46.680 --> 0:17:49.760 it's not immediate tom. I think as you get further out, 0:17:49.800 --> 0:17:53.280 you get better inflection points when it comes to banks, 0:17:53.320 --> 0:17:57.800 bread revenues, interest rates, effects, monetizing that capital markets backlog, 0:17:58.000 --> 0:18:01.439 and more clarity on regulation, which is a very big issues. 0:18:01.440 --> 0:18:03.840 Still, just real quick, just to follow up on the AI, 0:18:04.520 --> 0:18:08.120 what is the right AI investment? Is it getting some 0:18:08.200 --> 0:18:11.639 sort of application to write your reports for you. Is 0:18:11.680 --> 0:18:14.840 it being able to collate data from your customers to 0:18:14.920 --> 0:18:18.200 basically prescribe what they're going to do or want. What's 0:18:18.240 --> 0:18:19.800 the correct way. 0:18:19.920 --> 0:18:22.359 There's no one size fits off when it comes to 0:18:22.400 --> 0:18:26.320 AI investments. It's about banks tailoring those AI investments to 0:18:26.520 --> 0:18:29.440 their use cases that they have that's unique to them. 0:18:29.720 --> 0:18:34.240 So I find interesting anything related to compliance, fraud, cyber 0:18:34.320 --> 0:18:37.879 that's where you're seeing some really low hanging fruit early benefits. 0:18:38.160 --> 0:18:41.280 I think when it comes to some additional automation in. 0:18:41.240 --> 0:18:41.959 The back office. 0:18:42.080 --> 0:18:44.320 I love what it can do for technology, the idea 0:18:44.320 --> 0:18:49.640 of Cobyl program change to Python, change to c plus plus, 0:18:49.680 --> 0:18:52.760 the ability to change archaic code. And by the way, 0:18:52.800 --> 0:18:56.679 most or almost all large banks still are advertising for 0:18:56.760 --> 0:18:57.960 Cobyl programmers. 0:18:58.680 --> 0:19:01.320 Tom, why are you killing me? 0:19:02.200 --> 0:19:05.160 By my first programming class at punch cards too. 0:19:05.040 --> 0:19:07.679 So fourteen Yeah, what were that? Ancient? Lisa is like, 0:19:07.680 --> 0:19:09.320 what are they talking about? Single? 0:19:09.359 --> 0:19:13.320 Best buy ten seconds, JP Morgan and City Group. I 0:19:13.359 --> 0:19:15.399 had said, Okay, Barbell. 0:19:15.040 --> 0:19:17.679 Approach, Barbell approached, Mike Mayol, thank you so much, as 0:19:17.720 --> 0:19:18.640 WILLI s Fargo. 0:19:22.600 --> 0:19:25.320