WEBVTT - Surveillance: Bank Turmoil with KBW's Michaud 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Faroe and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always on Bloomberg dot com, 0:00:26.600 --> 0:00:30.960 the Bloomberg Terminal and the Bloomberg Business app. If you 0:00:31.000 --> 0:00:33.720 are part of Global Wall Street, this is the point 0:00:33.720 --> 0:00:37.280 where you stop on radio, on television and you listen. 0:00:38.000 --> 0:00:41.040 In this banking crisis, you need somebody that is so 0:00:42.120 --> 0:00:45.160 knowledgeable on it. And at Middlebury College a few years 0:00:45.159 --> 0:00:48.800 ago study back the ten banking crisis, back to Jackson. 0:00:49.320 --> 0:00:52.680 That would be Thomas Machow. Thomas showed is CEO of 0:00:52.800 --> 0:00:56.680 kbwor thrilled he could join us this morning here within 0:00:56.880 --> 0:01:00.720 the crisis perspective as well. How's a week then, what's 0:01:00.720 --> 0:01:02.680 the biggest sweat this week for you on a day 0:01:02.680 --> 0:01:05.200 to day grank? Well, first of all, it's been NonStop. 0:01:05.240 --> 0:01:07.959 You know, you really can have markets work and economy work. 0:01:07.959 --> 0:01:10.679 At the banking system's not working, and it's really it's 0:01:10.680 --> 0:01:14.160 a step beyond that because it creates a lack of confidence. 0:01:14.360 --> 0:01:17.480 You mentioned earlier about a history of bank panics. You 0:01:17.520 --> 0:01:19.800 can argue whether it was eight, nine or ten, but 0:01:19.880 --> 0:01:22.120 let's say roughly ten bank panics in the history of 0:01:22.120 --> 0:01:26.320 the United States. It's not it is. Look, banks made mistakes. 0:01:26.360 --> 0:01:28.840 We just had the second and third largest bank failure 0:01:29.440 --> 0:01:33.480 in American history. But the banking industry is built on confidence, 0:01:33.480 --> 0:01:36.840 and when confidence is shaken, it could absolutely impact the 0:01:36.840 --> 0:01:41.320 whole economy. Eighteen thirty one National Bank of Middlebury, perfect 0:01:41.360 --> 0:01:45.080 example of a small bank going, wait, they're gonna come 0:01:45.120 --> 0:01:47.520 in here, cash out and give it to James Diamond 0:01:47.960 --> 0:01:50.840 explain to us the dynamic right now of the National 0:01:50.880 --> 0:01:55.240 Banks of Middlebury out there, scared stiff of those top five. Well, 0:01:55.480 --> 0:01:57.760 first of all, so it's not only National Bank of Middlebury, 0:01:57.800 --> 0:02:00.680 which actually is a bank that you mentioned specifically, but 0:02:00.840 --> 0:02:04.840 it's but the big banks lead the global banking system. 0:02:04.880 --> 0:02:08.959 This is an industry where the American big banks lead 0:02:09.000 --> 0:02:11.959 the global financial system. That's number one. But it's really 0:02:12.040 --> 0:02:14.440 the midsize banks that I think we want need to 0:02:14.480 --> 0:02:18.280 talk about. And if let's just say for around numbers, 0:02:18.520 --> 0:02:21.400 the big banks today have sixty percent of the deposits 0:02:21.400 --> 0:02:25.360 in America. There is they do not make sixty percent 0:02:25.400 --> 0:02:29.880 of the loans to Middle America and small America. So 0:02:29.960 --> 0:02:32.360 if the deposits are going to the big banks but 0:02:32.480 --> 0:02:34.640 they're not the ones making the loans to middle and 0:02:34.680 --> 0:02:37.760 small America, it's going to have an impact on the economy. 0:02:37.919 --> 0:02:40.840 And I think long term down the road, we're not 0:02:40.880 --> 0:02:42.320 going to be in a good place. But the last 0:02:42.320 --> 0:02:45.080 thing is you would say, why is that happening, Tom, 0:02:45.120 --> 0:02:49.880 because there's this implicit guarantee that banks can be too 0:02:49.919 --> 0:02:52.920 big to fail. We just saw it with Credit Suiee. 0:02:53.240 --> 0:02:56.919 There was really no worry that counterparties or credit suite 0:02:56.960 --> 0:02:59.160 weren't going to be made whole. And if that is 0:02:59.240 --> 0:03:03.200 the sense of the land, it's going to drive business 0:03:03.280 --> 0:03:06.000 away from these midsized banks, and I think is going 0:03:06.040 --> 0:03:08.519 to have a detrimental effect on the economy. So why 0:03:08.560 --> 0:03:11.400 haven't the steps that the FDIC, that the Federal Reserve, 0:03:11.440 --> 0:03:14.480 that the Treasure Department already have taken to basically de 0:03:14.600 --> 0:03:18.280 facto ensure all deposits for most midsized banks been enough 0:03:18.520 --> 0:03:21.560 to really garner that support that they're backstop two. We 0:03:21.639 --> 0:03:24.440 got close, Lisa, but we didn't go the distance. So 0:03:25.080 --> 0:03:29.040 Secretary yelling when she spoke still left the door open 0:03:29.160 --> 0:03:33.320 between implicit and explicit. And look, if you saw what 0:03:33.400 --> 0:03:36.960 the first reaction was at the FDIC with Silicon Valley, 0:03:37.240 --> 0:03:40.720 it was to give certificates, not deposits, money back. So 0:03:40.760 --> 0:03:44.640 I think that actually accelerated the outflows of banks on 0:03:44.680 --> 0:03:49.000 that Friday, and I think what we need is orderliness. 0:03:49.680 --> 0:03:53.480 My preference would be the administration came out right now 0:03:53.800 --> 0:03:56.839 and said we're going to use our authorities and we're 0:03:56.840 --> 0:03:59.120 going to say that any bank that fails of any 0:03:59.160 --> 0:04:03.080 size the next year, we're going to guarantee the deposits 0:04:03.200 --> 0:04:05.440 while we figure this out. I think it would be 0:04:05.600 --> 0:04:08.720 very good for the economy. Putting long standing solutions aside 0:04:08.760 --> 0:04:10.920 for a minute. You talked about how a lot of 0:04:10.920 --> 0:04:13.120 these smaller banks punch above their weight when it comes 0:04:13.120 --> 0:04:16.920 to lending. How much have you actually heard of tightening 0:04:17.000 --> 0:04:20.560 of lending standards, of actually retracing some of the loans 0:04:20.600 --> 0:04:22.760 that some of these regional banks have been making. It's 0:04:22.800 --> 0:04:24.800 going to be the story of the second half of 0:04:24.839 --> 0:04:28.080 twenty twenty three that that is happening. It was happening 0:04:28.240 --> 0:04:32.200 before we had the recent bank run. It was happening 0:04:32.240 --> 0:04:34.800 before that, and I'll tell you that story. As soon 0:04:34.880 --> 0:04:37.760 as COVID started, the first thing that happened over twenty 0:04:37.760 --> 0:04:41.960 four months was about five trillion dollars of deposits came 0:04:42.000 --> 0:04:45.479 into the banking system. We had thirteen trillion go to eighteen. 0:04:45.960 --> 0:04:49.080 Never in my career has I seen the deposit system 0:04:49.160 --> 0:04:52.159 grow that quickly. That was the COVID relief and the 0:04:52.240 --> 0:04:55.800 stimulus coming into the system. It's now being drained as 0:04:55.800 --> 0:04:59.000 a purposeful part of our policy. So we are probably, 0:04:59.000 --> 0:05:03.000 according to our number, still ten percent too high in 0:05:03.120 --> 0:05:06.680 terms of surge COVID deposits. So the industry sort of 0:05:06.680 --> 0:05:11.400 fighting two competitive elements. Number one is FDIC deposits are 0:05:11.480 --> 0:05:14.600 shrinking as a part of government policy. That's going to 0:05:14.680 --> 0:05:17.600 be a tightening effect in the economy. And then number two, 0:05:17.960 --> 0:05:20.360 we have this confidence which is a little bit shaken, 0:05:20.480 --> 0:05:22.160 which by the way, it's gotten better. I want to 0:05:22.160 --> 0:05:24.440 make sure it's gotten better, but it is still shaken 0:05:24.839 --> 0:05:28.560 and that is driving deposit flows. Two, so it's really 0:05:28.640 --> 0:05:31.640 turmoil in the economy, which is going to slow the economy. 0:05:31.720 --> 0:05:33.760 Keep talking, you're lifting the two year yield. I got 0:05:33.760 --> 0:05:35.760 bad news time I showed for you, You're not the 0:05:35.800 --> 0:05:39.359 most important person at Keif Brietton Woods. Jade Romany is 0:05:39.839 --> 0:05:42.599 right now when you look at commercial real estate and 0:05:42.720 --> 0:05:46.360 his work in mortgages and your security analysts, what you 0:05:46.400 --> 0:05:50.920 guys are known for for decades At KBW, Jade Romany 0:05:51.760 --> 0:05:54.600 is the guy on what's going to happen with commercial 0:05:54.640 --> 0:05:56.760 real estate? What's he telling you when you call him? 0:05:56.839 --> 0:05:58.880 So about a month ago we came out with this 0:05:59.040 --> 0:06:02.240 call because the other thing is this banking issue is 0:06:02.279 --> 0:06:05.080 not just the banking. It's not specific just the banks. 0:06:05.120 --> 0:06:07.640 What we're dealing with is when interest rates go up 0:06:07.680 --> 0:06:12.080 this fast, there are implications and there will be other implications. 0:06:12.440 --> 0:06:14.400 So we wrote a report about a month ago that 0:06:14.520 --> 0:06:19.560 Jade Lee led the author Good Memory Tom, and he said, basically, 0:06:19.600 --> 0:06:23.960 he thinks there's thirty percent downside in office buildings in 0:06:24.080 --> 0:06:27.200 major markets around the country, with about half of that 0:06:27.279 --> 0:06:29.640 due to the cap rates, and about half of it 0:06:29.720 --> 0:06:35.200 do just the factors of other factors around occupancy and inflation. 0:06:35.600 --> 0:06:39.840 You're already seeing it. This is a more slow motion event. 0:06:40.000 --> 0:06:42.360 It's going to take two years to play out. But 0:06:42.440 --> 0:06:45.760 that's the next. That's the next. What's it means for 0:06:45.839 --> 0:06:48.279 Global Wall Street. What's it mean? I'm selfish here. What's 0:06:48.279 --> 0:06:51.280 it mean for the people in Manhattan, including Bramo, And 0:06:51.400 --> 0:06:54.160 what's it mean critically for our viewers and listeners. If 0:06:54.160 --> 0:06:56.480 we're going to see a thirty percent negative. I just 0:06:56.520 --> 0:06:59.640 think it's gonna I think it's going to impact economic growth, 0:06:59.800 --> 0:07:01.920 and I think it'll just mean that we're not going 0:07:02.000 --> 0:07:04.680 to have a in my opinion, I think that will 0:07:04.720 --> 0:07:08.480 be a headwind for economic growth as all the industries 0:07:08.560 --> 0:07:11.840 adjust around that, and it is going to cause banks 0:07:12.120 --> 0:07:16.240 to tighten their lending criteria, which in and of itself 0:07:16.320 --> 0:07:18.880 is a big form of at least you just see 0:07:18.880 --> 0:07:21.200 this in car loans right now. I mean, I'm reading 0:07:21.200 --> 0:07:23.120 about it percolating and you can't go out, you know, 0:07:23.200 --> 0:07:24.880 there's a general statement you can't go out in an 0:07:24.880 --> 0:07:27.000 auto loan nut because they're tightening up. Yeah, and I 0:07:27.080 --> 0:07:28.680 think there was something like the lending that a lot 0:07:28.680 --> 0:07:31.160 of them have been rejected Tom But but don't remember too. 0:07:31.240 --> 0:07:34.120 We just came through a period where zero interest rates 0:07:34.240 --> 0:07:37.720 was the rocket fuel for shadow banking. So and now 0:07:37.800 --> 0:07:41.400 we're we're gonna dial that back somewhat too, in my opinion, 0:07:41.800 --> 0:07:44.680 which will be will be an effect for slower growth. 0:07:45.160 --> 0:07:47.120 There's a confluence of a lot of different factors here, 0:07:47.120 --> 0:07:50.600 and teasing out all of the different interconnected pieces can 0:07:50.680 --> 0:07:52.480 be tough. I want to go back to something that 0:07:52.520 --> 0:07:55.040 you said that we're still about ten percent elevated when 0:07:55.040 --> 0:07:57.280 it comes to the deposits. The cash sort of a 0:07:57.360 --> 0:07:59.600 wash in the banking system, and you talked about how 0:07:59.600 --> 0:08:01.160 that's going to get withdrawn and that that's going to 0:08:01.240 --> 0:08:04.480 have a sort of accelerating tightening feature to the economy. 0:08:04.960 --> 0:08:09.280 Is that deposit base going to disproportionately leave those regional banks? 0:08:09.280 --> 0:08:11.880 In other words, it might be ten percent of overall deposits, 0:08:11.880 --> 0:08:15.280 but a much greater portion of just the specific smaller 0:08:15.280 --> 0:08:19.080 and mid sized banks. Given the consolidation of deposits in 0:08:19.120 --> 0:08:21.520 some of the big vehemence, it actually was going to 0:08:21.600 --> 0:08:25.080 leave the bigger banks more because they're bigger. So, for example, 0:08:25.120 --> 0:08:28.080 our estimate is roughly sixty billion dollars I think we 0:08:28.080 --> 0:08:31.680 were going to see come out of JP Morgan this quarter, 0:08:31.720 --> 0:08:34.600 and now it'll be less because of this remixing. But 0:08:34.720 --> 0:08:37.920 even Jamie Diamond's been in his calls talking about the 0:08:37.920 --> 0:08:41.040 fact that he saw hundreds of billions of dollars of 0:08:41.240 --> 0:08:43.280 shrinkage in his deposits. But I don't want to alarm 0:08:43.320 --> 0:08:46.720 anybody by that because the industry has been planning for 0:08:46.800 --> 0:08:49.600 that and knew that that was going to happen. And 0:08:49.720 --> 0:08:52.400 remember when we talk about it, what is that, Well, 0:08:52.440 --> 0:08:56.600 that's the FED shrinking the money supply. It's also depositors 0:08:56.760 --> 0:09:00.760 buying Treasury bonds because they yield more rather than bank deposits. 0:09:00.800 --> 0:09:04.959 That's cash sorting. So I think it's navigable, but if 0:09:05.000 --> 0:09:09.000 we put a crisis around it, it just makes it trickier, 0:09:09.320 --> 0:09:12.760 given the likely increase in it flows out of some 0:09:12.840 --> 0:09:16.240 of these deposits, given commercial real estate and the stress there, 0:09:16.640 --> 0:09:19.680 given the shadow banking system and potential fractures that people 0:09:19.679 --> 0:09:22.640 are expecting there. Do you think that this banking crisis 0:09:22.720 --> 0:09:26.000 is over? I think every day that goes by, we're 0:09:26.000 --> 0:09:29.160 getting more stability. I think Washington wants it to stop. 0:09:29.600 --> 0:09:32.559 I think, barring any other major shocks, I think it's 0:09:33.000 --> 0:09:35.520 behind us and that we can now deal with some 0:09:35.559 --> 0:09:39.120 of the more challenged institutions. But also too, if we 0:09:39.160 --> 0:09:41.440 had more time and I laid out the statistics of 0:09:41.520 --> 0:09:44.480 Silicon Valley, it was off the charts on a couple 0:09:44.480 --> 0:09:47.600 of risk measures. I mean off the charts. And remember 0:09:47.640 --> 0:09:50.040 we have forty seven hundred banks in the United States. 0:09:50.280 --> 0:09:53.400 Two of them have failed spectacularly and quite large, so 0:09:53.440 --> 0:09:56.920 we're not underestimating the impact. Ways to go here, I 0:09:57.000 --> 0:09:59.559 got time for one question. Somebody emails in here and 0:10:00.080 --> 0:10:02.920 one hundred to play at Middlebury years ago when Wendell 0:10:02.960 --> 0:10:06.280 Forbes was coaching. When in God's name is Middlebury going 0:10:06.400 --> 0:10:09.400 D one hockey? They were born to play D one 0:10:09.800 --> 0:10:13.520 ecac hockey? When does this happen? You're in charge. Middlebury 0:10:13.600 --> 0:10:15.680 is good and I gotta tell you now, baseball's made 0:10:15.679 --> 0:10:18.320 a run at Middlebury. But when I played baseball, we 0:10:18.400 --> 0:10:20.280 got our fans when they walked past the field to 0:10:20.320 --> 0:10:26.080 go watch lacrosse. But now get all the visibility. When 0:10:26.080 --> 0:10:28.400 do you guys go D one high? It was made 0:10:28.400 --> 0:10:31.480 to happen. I would support that We've got a great 0:10:31.520 --> 0:10:33.520 there we go. That's the news we need to have today, 0:10:33.559 --> 0:10:36.280 Thomas show to Middlebury or the support uproot seven And 0:10:36.320 --> 0:10:40.640 of course a small matter at KBW definitive. I'm banking 0:10:40.920 --> 0:10:53.680 research stumbling through a Wednesday. Edward als sin He joins 0:10:53.760 --> 0:10:56.600 us right now. Senior interest rate strategist of Columbia thread. 0:10:56.600 --> 0:10:58.439 You know, I'm really being in the news with a 0:10:58.559 --> 0:11:00.560 nice write up. I believe in the ft recently, and 0:11:00.600 --> 0:11:03.040 I'm going to cut to the chase, and you nail 0:11:03.160 --> 0:11:07.040 this working in international economics at Harvard years ago. So 0:11:07.160 --> 0:11:12.000 much about these moments, in these crises is fear of 0:11:12.240 --> 0:11:17.520 making a mistake that invades monetary policy, including Martin Wolfe's 0:11:17.559 --> 0:11:21.280 wonderful essay today, what are we afraid of making? Is 0:11:21.320 --> 0:11:25.959 a mistake in our new central bank policy? Yeah, it's 0:11:26.480 --> 0:11:29.240 difficult as you're balancing three different elements. You don't know 0:11:29.280 --> 0:11:32.200 what's going on with inflation, you know, not quickly monitoring 0:11:32.200 --> 0:11:35.480 policies filtering into the real economy. And now I don't 0:11:35.480 --> 0:11:38.480 know what's happening with the banking sector and the extent 0:11:38.559 --> 0:11:41.440 to which that's going to affect growth in inflation down 0:11:41.480 --> 0:11:45.439 the line, and you have to prioritize these unknowns. Inevitably, 0:11:45.640 --> 0:11:50.479 in my mind, defense going to prioritize inflation. If they 0:11:50.600 --> 0:11:53.920 prioritize inflation, we've got to dual mandate. Maybe we have 0:11:53.920 --> 0:11:57.840 a triple mandate. To Steve Roach invented talking about financial stability, 0:11:58.280 --> 0:12:02.080 Can financial stability way in on a May third FED 0:12:02.160 --> 0:12:08.200 meeting debate very unlikely in my mind. They've done really 0:12:08.240 --> 0:12:11.120 good job of separating the two, at least on paper. 0:12:11.679 --> 0:12:14.760 In practice, more than anything, they've been looking in the 0:12:14.840 --> 0:12:19.080 sense that this particular banking crisis hasn't spiraled, particularly hasn't 0:12:19.080 --> 0:12:22.600 spiraled into credit markets. So I think they can take 0:12:22.600 --> 0:12:25.600 comfort in the fact that the liquidity facilities they put in, 0:12:26.280 --> 0:12:28.800 what the FDIC is down, that's rig fence some of 0:12:28.840 --> 0:12:31.760 the issues at least at this point. And again, one 0:12:31.840 --> 0:12:34.520 they get to the May meeting, it's more likely than 0:12:34.600 --> 0:12:37.000 not that the lab we focus on inflation once again, 0:12:37.240 --> 0:12:39.520 Does it make sense to you that we've priced in 0:12:39.720 --> 0:12:42.079 at one point almost a hundred basis points of rate 0:12:42.120 --> 0:12:44.480 cuts by early next year. We've retraced that a little bit, 0:12:44.679 --> 0:12:48.400 but not that much. It's been very violent, it's very 0:12:48.640 --> 0:12:51.720 it's been exceptionally violent. Right, So we went from you know, 0:12:51.720 --> 0:12:54.319 a peak grade of five to seven and the FED 0:12:54.400 --> 0:12:56.679 on hold in the second half of the year just 0:12:56.760 --> 0:13:00.320 three weeks ago to now defend entering and aggressive easing 0:13:00.360 --> 0:13:03.840 cycle in the second half. Um, you know which scenario 0:13:04.000 --> 0:13:07.440 is most appropriate to the data. I would say something 0:13:07.480 --> 0:13:10.520 that's closer to a whole. But but now that you 0:13:10.520 --> 0:13:12.679 know the banking system genies out of the bottle, it's 0:13:12.720 --> 0:13:16.080 it's exceptionally difficult to price out an easing cycle in 0:13:16.080 --> 0:13:18.000 a recession of being brought forward. And that's that's what 0:13:18.080 --> 0:13:21.680 markets are really struggling with. So here's the dissonance risk 0:13:21.679 --> 0:13:25.080 ass it's a rallying perhaps because you're seeing perhaps a 0:13:25.120 --> 0:13:28.360 slower pace of rate hikes or rate cuts. Does this 0:13:28.440 --> 0:13:30.640 make sense if the only way that we get that 0:13:30.880 --> 0:13:32.800 is with the pain that comes with some sort of 0:13:32.800 --> 0:13:37.400 either crisis or massive credit tightening. Yeah, it's been interesting, 0:13:37.480 --> 0:13:40.600 you know, risk again to some extent as reflecting two 0:13:40.640 --> 0:13:43.400 things in my mind. One, the underlying strength of the 0:13:43.440 --> 0:13:47.160 economy and the underlying strength of corporate balance sheets is 0:13:47.200 --> 0:13:49.160 still with us. That's something we entered the year with. 0:13:49.360 --> 0:13:52.600 We've we've talked to that, you know at length. Um 0:13:52.800 --> 0:13:54.959 has been actually been one of the frustrations for the FED. 0:13:56.040 --> 0:13:59.280 The other thing is interest rate politility, which exploded in 0:13:59.360 --> 0:14:01.800 the course of the asked a couple of weeks, is 0:14:01.840 --> 0:14:04.120 starting to cool down, particularly in the longer part of 0:14:04.160 --> 0:14:07.840 the curves. That's a positive backdrop tos gassets. We see 0:14:08.280 --> 0:14:11.440 let's say an investment grade markets. Markets starting starting to 0:14:11.480 --> 0:14:14.920 open up, not quite so primary markets in high yield. 0:14:16.240 --> 0:14:19.240 So it's a different degree of tension that's priced across 0:14:19.400 --> 0:14:22.800 risk and rates at this point, I would expect those 0:14:22.840 --> 0:14:26.320 two stories to connect in the coming months. If the 0:14:26.320 --> 0:14:29.320 Fed does cut rates, as the markets pricing in, do 0:14:29.360 --> 0:14:31.880 you start to get less constructive on ten year treasuries, 0:14:31.920 --> 0:14:36.760 which you have been perhaps overweight. We like them, I mean, 0:14:36.840 --> 0:14:39.240 look at the fat cuts. One of the things that 0:14:39.320 --> 0:14:42.000 the last couple of weeks as illustrated to us is 0:14:42.040 --> 0:14:45.600 that treasuries once again play a very very effective role 0:14:45.640 --> 0:14:49.080 as a buffer against risk. That negative colation between rates 0:14:49.120 --> 0:14:51.800 and risk returned in the course of the past three 0:14:51.840 --> 0:14:54.960 weeks as people sought a hate to safe avid acid 0:14:55.400 --> 0:14:59.000 in the face of heightened possessions. That's fantastic. So if 0:14:59.000 --> 0:15:02.200 the Fed's cutting, they are seeing something on the horizon 0:15:02.240 --> 0:15:06.080 that's disinflationary, that's bringing down inflation, that's potentially bringing down roth. 0:15:06.440 --> 0:15:09.000 That's a really good story for treasuries. We can argue 0:15:09.000 --> 0:15:11.080 about where you want to be overcurved in that kind 0:15:11.080 --> 0:15:13.920 of environment, where you want to be long duration and 0:15:14.000 --> 0:15:17.000 long interest rate risk in that environment. H ed great 0:15:17.040 --> 0:15:19.160 to catch up as always and our Sonny there of 0:15:19.240 --> 0:15:26.320 Columbia Threadnadol ed, thank you. Let's get to Jeff, you 0:15:26.520 --> 0:15:28.880 senior market is trying to just at bmy melon. Jeff, 0:15:28.920 --> 0:15:31.120 I think reflecting gone yesterday and thanks for being with 0:15:31.200 --> 0:15:33.960 It's Jeff reflected on yesterday, just trying to work out 0:15:34.000 --> 0:15:36.920 whether we have a regulatory problem or an enforcement problem. 0:15:37.000 --> 0:15:41.800 Which one is it? Well, I think the regulators, politicians, 0:15:41.840 --> 0:15:44.240 all of them, they are going to be looking at 0:15:44.320 --> 0:15:47.440 this and globally. You know, Tom, you mentioned after each 0:15:47.640 --> 0:15:49.800 events over the last few decades. You know they do. 0:15:49.960 --> 0:15:52.240 You know, they do have the discussion at least now. 0:15:52.240 --> 0:15:53.800 I'll just point you to what Sam would you ahead 0:15:53.800 --> 0:15:56.680 of the PIRA said yesterday, already calling for a tightening 0:15:56.800 --> 0:16:00.880 of liquidity rules, so liquidity coverage ratios to make sure 0:16:01.360 --> 0:16:04.800 that all banks you have enough cash. Right So, I 0:16:04.880 --> 0:16:06.560 think it is going to be a bit of a both, 0:16:06.600 --> 0:16:09.600 you know, looking at in the global situation, but crucially 0:16:09.640 --> 0:16:11.760 for central banks right now, they also really want to 0:16:11.840 --> 0:16:14.920 steer the discussion away from the impact of monetary policy 0:16:14.920 --> 0:16:18.080 as well financi stability, priceability, they are separate. There's if 0:16:18.120 --> 0:16:21.080 you your London school of economics. This warning in magdal 0:16:21.200 --> 0:16:23.640 lords Lord desided down with a piece of chart in 0:16:23.720 --> 0:16:27.200 his hand and he's lecturing on the general equilibrium of 0:16:27.280 --> 0:16:31.400 the system. Are we super restrictive right now in our 0:16:31.520 --> 0:16:37.120 general equilibrium? Are we at a point of over restriction? Well, 0:16:37.200 --> 0:16:39.400 you know, as part of a dynamic process. It really 0:16:39.440 --> 0:16:41.560 depends on where your starting point is. Right. I think 0:16:41.600 --> 0:16:43.840 all of them would agree with that. But the problem 0:16:44.040 --> 0:16:46.240 is you only find out you are too restrictive, you know, 0:16:46.400 --> 0:16:49.160 after the fact. But based on all of the communication 0:16:49.240 --> 0:16:51.960 we've had in global central banks, and everyone's taking a 0:16:52.080 --> 0:16:54.880 leak out of Madam the guards, but right now they're 0:16:54.920 --> 0:16:58.880 still comfortable hiking rates, inflation, managing priceability. That has to 0:16:58.960 --> 0:17:01.600 remain a priority. And as long as that's the messaging 0:17:01.680 --> 0:17:04.359 and looking forward to hearing from that lineup. As you mentioned, 0:17:04.920 --> 0:17:07.560 I don't think we are in fully restrictive territory. Yet. 0:17:07.640 --> 0:17:09.240 You look at credit spreads, you know, you look at 0:17:09.400 --> 0:17:12.280 where the dollar is. I think policymakers will say they 0:17:12.320 --> 0:17:14.359 can do more. When will we start to see, Jeff, 0:17:14.400 --> 0:17:17.400 the effects of potential credit tightening from some of these 0:17:17.440 --> 0:17:20.720 regional banks. When will we get that data? Well, I 0:17:20.800 --> 0:17:23.640 think the data we really have to monitor the twofold. 0:17:23.800 --> 0:17:26.560 No one is just basically the credit data is loan demand, 0:17:26.640 --> 0:17:28.919 loan growth, and loan officer surveys. Are they picking up? 0:17:28.920 --> 0:17:31.560 Are they showing a clear material sign of things been 0:17:31.680 --> 0:17:35.119 coming off? But at the same time, then the realized data, 0:17:35.200 --> 0:17:38.359 the hard data, our mortgages, are they starting to come 0:17:38.400 --> 0:17:41.080 off in mortgage approvals, things like that globally that that 0:17:41.200 --> 0:17:44.400 will take time. There is a lad process, as Governor 0:17:44.440 --> 0:17:47.359 Baby has highlighted. But let's be clear, the events over 0:17:47.359 --> 0:17:50.200 the last few weeks has been an equivalent too tightening 0:17:50.320 --> 0:17:53.399 or be different in different jurisdictions, but this certainly has 0:17:53.400 --> 0:17:56.480 slow the overall process of rate heights. Are you sympathetic, Jeff, 0:17:56.720 --> 0:17:58.880 to the stack balls who are saying, if you look 0:17:58.920 --> 0:18:01.520 around right now, still look good and if the FED 0:18:01.560 --> 0:18:03.960 cuts rates, that will make things only look better. So 0:18:04.119 --> 0:18:06.240 perhaps you can worry, but you're just worrying in a 0:18:06.359 --> 0:18:10.159 sort of vacuum of information. Yes, I am sympathetic to 0:18:10.320 --> 0:18:12.399 risk on, but nothing to do with the FED. If anything, 0:18:12.440 --> 0:18:14.080 I think the FED and global central banks, so they 0:18:14.119 --> 0:18:17.600 will keep rates higher for longer, not super high as 0:18:17.800 --> 0:18:19.680 we've feared in the past, but they will be higher 0:18:19.680 --> 0:18:21.920 for longer. The reason we can be positive on risk 0:18:22.119 --> 0:18:25.399 data aside cash on the sidelines, there's just so much 0:18:25.440 --> 0:18:27.439 sitting there. Looking at our investor flows, and we've put 0:18:27.480 --> 0:18:30.399 out a report on this recently, there's no conviction people 0:18:30.520 --> 0:18:33.640 at almost like limit underweight risk assets. And it's quarter 0:18:33.800 --> 0:18:36.840 end rebalancing month and rebalancing we've had another adjustment lower. 0:18:37.000 --> 0:18:39.680 People are underweight risk relatives to benchmark. We're seeing that 0:18:39.800 --> 0:18:42.400 in our data, and that in itself is a tactical 0:18:42.440 --> 0:18:44.800 reason to see risk on across all astic pasts. So 0:18:44.840 --> 0:18:46.360 I think the NASTAC has had one of the best 0:18:46.400 --> 0:18:48.760 quarters going back to twenty twenty. Jeff. Now this quarter 0:18:48.800 --> 0:18:50.320 has still got a couple of days to go. But 0:18:50.440 --> 0:18:52.560 based on what you just said, Jeff, where's your favorite 0:18:52.600 --> 0:18:55.840 place to take risk at the moment? Well, right now, 0:18:56.160 --> 0:18:58.320 I think well within FX. You know, we are looking 0:18:58.400 --> 0:19:00.600 at emerging markets. You know, this is the area which 0:19:00.680 --> 0:19:02.760 is heavily sold last year. I look at our month 0:19:02.800 --> 0:19:04.520 tend to be a balancing Nobles. You know, we're looking 0:19:04.560 --> 0:19:06.920 at being positive on the Mexican pay so you know, 0:19:07.040 --> 0:19:11.159 for example, we're seeing buying in Eastern European sovereign debt 0:19:11.280 --> 0:19:13.440 and that's where you get good nominal yield, maybe good 0:19:13.480 --> 0:19:16.480 real yield up ahead inflation in Europe's slows as well. 0:19:16.680 --> 0:19:18.560 So really I would favor EM. But if you look 0:19:18.600 --> 0:19:21.080 at the n data too, and tech for example, you 0:19:21.119 --> 0:19:23.480 can see that they're probably quite aligned right now. And 0:19:23.600 --> 0:19:26.680 that's why we are seeing risk radio across the board. 0:19:26.720 --> 0:19:28.880 For let's be clear, this is less of a fundamental story, 0:19:28.960 --> 0:19:31.280 more of an aff allocation story. Hey, Jeff Aha, thank 0:19:31.320 --> 0:19:33.359 you for that, sir, Jeff you there, I we and 0:19:33.400 --> 0:19:45.400 wind Mellon right now, the balance of power shifts to privadens. 0:19:45.480 --> 0:19:49.480 Rude Island, Wendy Schill are absolutely definitive at Brown University 0:19:49.560 --> 0:19:53.720 and American history. Wendy, when you watch these hearings in 0:19:53.840 --> 0:19:57.400 the baille and the political pasturing, how close are wed 0:19:57.440 --> 0:20:00.640 to the debate at Andrew Jackson Learning the ninete century. 0:20:01.000 --> 0:20:04.560 We've been doing this, not for decades, We've been doing 0:20:04.640 --> 0:20:11.000 this for centuries. This distrust of fancy people on Wall Street. Yeah, Tom, 0:20:11.400 --> 0:20:14.080 we can go back to Thomas Jefferson and Alexander Hamilton, right. 0:20:14.119 --> 0:20:17.480 I mean there are big fights really centered around the 0:20:17.640 --> 0:20:20.440 role of private industry, private economy. How much should the 0:20:20.480 --> 0:20:26.480 government subsidize incurred debt, backstop debt. This is all Alexander 0:20:26.560 --> 0:20:29.600 Hamilton versus Thomas Jefferson at the very beginning, and in 0:20:29.680 --> 0:20:33.440 the end Alexander hamiltons one and Jefferson lost in the 0:20:33.560 --> 0:20:36.680 sense that we did have a centralization of financial power 0:20:37.040 --> 0:20:40.480 and we do have governments of debt as we've seen 0:20:40.520 --> 0:20:44.480 a bad mistakes, justa and you know, Ron Wine, Senator 0:20:44.560 --> 0:20:47.000 Winden's you know, it's not an accident. This is coming 0:20:47.040 --> 0:20:50.080 out today because the Democrats really need to show that 0:20:50.200 --> 0:20:53.080 in other realms they're going after rich people, they're going 0:20:53.200 --> 0:20:55.760 after bank let's mess up, right, So this is not 0:20:55.840 --> 0:20:58.240 an accident. This is coming out today, as I just said, 0:20:58.840 --> 0:21:01.800 because the Democrats are really are in trouble here in 0:21:01.880 --> 0:21:04.320 some ways, right, and many Democrats are more than a 0:21:04.400 --> 0:21:07.840 few voted with the deregulation or the loosening of regulations 0:21:07.880 --> 0:21:11.200 in twenty eighteen and the Trump administration for banks like SVB, 0:21:11.760 --> 0:21:13.760 and you know, this is a problem for them. They 0:21:13.800 --> 0:21:16.840 can go after, you know, somewhat the banks. But on 0:21:16.920 --> 0:21:20.000 the other hand, they allowed them, you know, they participated 0:21:20.040 --> 0:21:23.320 in the deregulation and so now that and they're now 0:21:23.400 --> 0:21:27.080 that has to clean it up. It's clearly documented the 0:21:27.160 --> 0:21:30.320 Swiss people are livid over the Swiss failures in banking. 0:21:30.440 --> 0:21:33.320 Here bring it to the present. Are the American people 0:21:33.560 --> 0:21:37.000