1 00:00:05,080 --> 00:00:08,280 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa A. 2 00:00:08,320 --> 00:00:11,640 Speaker 2: Bromoids, along with Tom Keen and Jonathan Ferrell. Join us 3 00:00:11,680 --> 00:00:15,280 Speaker 2: each day for insight from the best in economics, geopolitics, 4 00:00:15,320 --> 00:00:16,440 Speaker 2: finance and investment. 5 00:00:16,760 --> 00:00:18,760 Speaker 1: Subscribe to Bloomberg Surveillance. 6 00:00:18,320 --> 00:00:21,840 Speaker 2: On demand on Apple, Spotify and anywhere you get your podcasts, 7 00:00:22,120 --> 00:00:25,200 Speaker 2: and always on Bloomberg dot Com, the Bloomberg Terminal and 8 00:00:25,200 --> 00:00:26,440 Speaker 2: the Bloomberg Business App. 9 00:00:27,240 --> 00:00:30,040 Speaker 3: We're waiting for the PC data. We're joined by Mike 10 00:00:30,120 --> 00:00:34,400 Speaker 3: Nicky Aron the Deak. So we're waiting for the personal spending, 11 00:00:34,760 --> 00:00:38,120 Speaker 3: the deflator. Mike, will it be disinflationary? Roll of the dice, 12 00:00:38,159 --> 00:00:39,720 Speaker 3: that's the question. We're waiting for the numbers to come 13 00:00:39,720 --> 00:00:42,200 Speaker 3: down on the Bloomberg Terminal. 14 00:00:42,280 --> 00:00:45,519 Speaker 4: Well, I got about four seconds until that happens. But 15 00:00:46,000 --> 00:00:49,200 Speaker 4: the ideas we may get a little more disinflation. Let's 16 00:00:49,200 --> 00:00:52,280 Speaker 4: find out from the Bureau of Economic Analysis, and here 17 00:00:52,280 --> 00:00:55,720 Speaker 4: come the numbers. And we'll start with the inflation numbers. 18 00:00:55,760 --> 00:00:58,960 Speaker 4: They come in hotter than anticipated, up four tenths of 19 00:00:58,960 --> 00:01:01,040 Speaker 4: a percent. I don't know month over a month basis. 20 00:01:01,080 --> 00:01:04,319 Speaker 4: For the headline, the core comes in up a three 21 00:01:04,400 --> 00:01:07,720 Speaker 4: tenths which is about what was expected, although there was 22 00:01:07,760 --> 00:01:11,720 Speaker 4: some leaning towards maybe a little lower number year over year. 23 00:01:11,800 --> 00:01:14,560 Speaker 4: Now we see the PCE headline number at three point 24 00:01:14,640 --> 00:01:17,919 Speaker 4: four percent, that's down from three to five, and the 25 00:01:17,959 --> 00:01:20,679 Speaker 4: core comes in at three seven, down from three to nine. 26 00:01:20,840 --> 00:01:24,399 Speaker 4: Both of those expected. All the people who like to 27 00:01:24,440 --> 00:01:28,039 Speaker 4: dive into all those numbers and figure out what actually 28 00:01:28,160 --> 00:01:32,320 Speaker 4: changed will be with us in a few seconds. Personal 29 00:01:32,360 --> 00:01:35,240 Speaker 4: income up three tenths. That's lower than the prior month 30 00:01:35,240 --> 00:01:38,600 Speaker 4: of four tenths gain, but also lower than what was 31 00:01:38,640 --> 00:01:43,319 Speaker 4: anticipated a four tenths gain. Spending up seven tenths, I 32 00:01:43,319 --> 00:01:44,039 Speaker 4: mean not strong. 33 00:01:44,120 --> 00:01:45,640 Speaker 5: On the back of that, on the back of that 34 00:01:45,680 --> 00:01:47,119 Speaker 5: GDP and the connginut. 35 00:01:46,800 --> 00:01:48,800 Speaker 4: Well, this number is in the GDP because this is 36 00:01:48,800 --> 00:01:52,279 Speaker 4: a September number. It was the third month of the quarter, 37 00:01:52,400 --> 00:01:55,000 Speaker 4: so he kind of sort of backed out the numbers 38 00:01:55,040 --> 00:01:57,520 Speaker 4: and anticipated that this would be fairly strong. We were 39 00:01:57,600 --> 00:02:00,840 Speaker 4: up four tenths the prior month. The question is now 40 00:02:00,880 --> 00:02:06,320 Speaker 4: do we continue to see that spending happen, Because if 41 00:02:06,360 --> 00:02:09,480 Speaker 4: incomes are falling behind and they have been the spending 42 00:02:09,520 --> 00:02:11,880 Speaker 4: levels over the last couple of months, that would suggest 43 00:02:11,919 --> 00:02:14,640 Speaker 4: that maybe there's a pullback ahead. Now I'm not the 44 00:02:14,639 --> 00:02:15,200 Speaker 4: expert here. 45 00:02:15,200 --> 00:02:19,240 Speaker 3: There's one more there is, indeed, La Rain chief economists 46 00:02:19,240 --> 00:02:20,440 Speaker 3: out with us this morning. 47 00:02:21,280 --> 00:02:25,799 Speaker 6: First take, I think that we continue to see inflation 48 00:02:26,400 --> 00:02:30,799 Speaker 6: coming down, but it's still uncomfortably It's still unacceptably high 49 00:02:31,120 --> 00:02:33,280 Speaker 6: from the point of view of the Fed, and I 50 00:02:33,280 --> 00:02:38,000 Speaker 6: think the conversation as we go into next year continues 51 00:02:38,040 --> 00:02:41,040 Speaker 6: to the options for the Fed continue to narrow because 52 00:02:41,080 --> 00:02:44,240 Speaker 6: if inflation stays about where it is and it's going 53 00:02:44,240 --> 00:02:46,560 Speaker 6: to take a long time for it to get closer 54 00:02:46,600 --> 00:02:50,000 Speaker 6: to too, their room to maneuver should the economy. 55 00:02:49,639 --> 00:02:51,040 Speaker 1: Slow at all, is going to be very narrow. 56 00:02:51,360 --> 00:02:54,240 Speaker 6: And look by these numbers, it looks like the economy 57 00:02:54,280 --> 00:02:57,040 Speaker 6: is just still incredibly strong. We know that from the 58 00:02:57,080 --> 00:03:00,760 Speaker 6: GDP numbers that we already got, but I mean the 59 00:03:00,840 --> 00:03:04,480 Speaker 6: spending has just by the households that has defied every 60 00:03:04,760 --> 00:03:07,840 Speaker 6: expectation of it to slow, and it's accelerated so much 61 00:03:07,880 --> 00:03:08,600 Speaker 6: in the third quarter. 62 00:03:08,800 --> 00:03:09,880 Speaker 1: That's what's extraordinary. 63 00:03:10,040 --> 00:03:13,280 Speaker 4: I think savings rate comes in a three point four percent. 64 00:03:13,320 --> 00:03:15,600 Speaker 4: People have been watching that for some indication of whether 65 00:03:15,680 --> 00:03:17,359 Speaker 4: or not they're going to run out of money in 66 00:03:17,400 --> 00:03:20,160 Speaker 4: the American consumer. It's down from four percent and it's 67 00:03:20,160 --> 00:03:24,880 Speaker 4: been a steady decline. But historically, before the pandemic, we 68 00:03:25,200 --> 00:03:28,160 Speaker 4: used to say people spend what they make. They don't 69 00:03:28,520 --> 00:03:31,040 Speaker 4: dip into savings the way people tend to think they do. 70 00:03:31,880 --> 00:03:35,000 Speaker 4: And so if that's the case, then there's more of 71 00:03:35,000 --> 00:03:39,040 Speaker 4: a case now for maybe a slow down. People don't 72 00:03:39,160 --> 00:03:41,480 Speaker 4: have as much to dip into if they wanted to, 73 00:03:41,560 --> 00:03:43,840 Speaker 4: but they're also not making as much as they were. 74 00:03:44,040 --> 00:03:46,120 Speaker 3: Well, I had johnat Henry with me this morning from 75 00:03:46,240 --> 00:03:48,960 Speaker 3: HSBC and she said, actually Americans are more likely to 76 00:03:49,000 --> 00:03:51,080 Speaker 3: dip into their savings and spend, spend, spend right to 77 00:03:51,200 --> 00:03:51,800 Speaker 3: the very end. 78 00:03:52,040 --> 00:03:54,200 Speaker 5: But I want to bring you an idea. 79 00:03:54,040 --> 00:03:58,000 Speaker 3: From UBS, which is Paul Donovan, where he said, you know, 80 00:03:58,000 --> 00:04:01,000 Speaker 3: when we go to write the history of twenty twenties, 81 00:04:01,840 --> 00:04:05,800 Speaker 3: do not bet against the headonism of the US consumer. 82 00:04:05,800 --> 00:04:06,760 Speaker 5: It's very rich. I love it. 83 00:04:06,800 --> 00:04:08,480 Speaker 3: I mean, there's a there's a brilliant wine place in 84 00:04:08,480 --> 00:04:09,640 Speaker 3: London called Hedonism Wines. 85 00:04:09,680 --> 00:04:12,560 Speaker 5: Whole other story the hedonism. You can tell us that later. 86 00:04:12,880 --> 00:04:13,520 Speaker 5: I could tell you. 87 00:04:13,600 --> 00:04:16,599 Speaker 3: That later, but I want to understand from you laya 88 00:04:16,680 --> 00:04:21,039 Speaker 3: the hedonism of the US consumer. Is that real or 89 00:04:21,200 --> 00:04:23,080 Speaker 3: do you think that runs out of mileage as well. 90 00:04:23,160 --> 00:04:25,720 Speaker 6: Next sure, listen, he's got a point. That's a really 91 00:04:25,720 --> 00:04:27,920 Speaker 6: colorful way to put it. But that's what the third 92 00:04:28,000 --> 00:04:33,160 Speaker 6: quarter felt like. Between the headlines about the concerts, Yeah, 93 00:04:33,200 --> 00:04:35,440 Speaker 6: all of that, and then and all everyone who followed. 94 00:04:35,760 --> 00:04:38,479 Speaker 6: I think, you know, people seem to be looking for 95 00:04:38,520 --> 00:04:41,960 Speaker 6: that next experience and looking to pay whatever is required 96 00:04:42,000 --> 00:04:45,719 Speaker 6: to get it. You know, this issue of savings has 97 00:04:45,760 --> 00:04:50,000 Speaker 6: gotten so complicated because we of course have the excess 98 00:04:50,040 --> 00:04:55,240 Speaker 6: savings that accumulated during the shutdown. Is that more you know, 99 00:04:55,320 --> 00:04:58,360 Speaker 6: bucketed with these you know sort of now the highest 100 00:04:58,480 --> 00:05:02,120 Speaker 6: quintile of quartile of household that sort of maybe aren't 101 00:05:02,160 --> 00:05:03,680 Speaker 6: going to spend them as much. We know that that 102 00:05:03,720 --> 00:05:06,560 Speaker 6: access savings is run out for a lot of the 103 00:05:06,680 --> 00:05:08,600 Speaker 6: lower you know sort of strata. 104 00:05:08,839 --> 00:05:10,080 Speaker 7: The other seventy. 105 00:05:09,720 --> 00:05:11,719 Speaker 6: Five percent of us, we're not in that upper quintal. 106 00:05:11,760 --> 00:05:15,400 Speaker 6: I think as we think about it, people, the normal people, 107 00:05:15,640 --> 00:05:19,640 Speaker 6: I think, and yet you know, we just see the 108 00:05:19,839 --> 00:05:24,840 Speaker 6: strong job growth I think reinforces the foundation of the household, 109 00:05:25,240 --> 00:05:29,040 Speaker 6: and we just see this reacceleration is really unexpected in. 110 00:05:29,040 --> 00:05:34,640 Speaker 4: Terms of your hedonism. Example, here services spending went up 111 00:05:34,680 --> 00:05:37,480 Speaker 4: eight tenths whereas goods spending went up seven tents. There 112 00:05:37,480 --> 00:05:39,720 Speaker 4: was always a story about people switching away from goods, 113 00:05:39,720 --> 00:05:42,640 Speaker 4: but they still seem to be spending a lot on goods. 114 00:05:43,040 --> 00:05:45,159 Speaker 4: Services don't go into the retail sales numbers that we 115 00:05:45,200 --> 00:05:48,760 Speaker 4: got earlier this month, except for bars and drinking places 116 00:05:49,279 --> 00:05:52,960 Speaker 4: fitting your theme, but eight tenths of a percent to 117 00:05:53,160 --> 00:05:56,400 Speaker 4: gain for services pretty strong. So it looks like people 118 00:05:56,480 --> 00:05:59,520 Speaker 4: were spending money during the third quarter on all sorts 119 00:05:59,560 --> 00:05:59,919 Speaker 4: of things. 120 00:06:00,000 --> 00:06:02,120 Speaker 6: I do think there's an interesting dynamic here, which is 121 00:06:02,160 --> 00:06:05,320 Speaker 6: that if you look at consumer confidence, it's still well 122 00:06:05,360 --> 00:06:09,240 Speaker 6: below where it was before the pandemic, and that's, you know, 123 00:06:09,279 --> 00:06:10,600 Speaker 6: despite strong growth. 124 00:06:10,800 --> 00:06:12,359 Speaker 5: So can you tie those two together. 125 00:06:12,480 --> 00:06:14,599 Speaker 3: You know that the consumer confidence is being a little 126 00:06:14,640 --> 00:06:18,160 Speaker 3: bit battered, but the spending it remains unabated. 127 00:06:18,680 --> 00:06:21,560 Speaker 6: To me, it really, I think inflation is something that 128 00:06:21,640 --> 00:06:25,440 Speaker 6: is still really casting a long shadow over the household, 129 00:06:25,480 --> 00:06:28,120 Speaker 6: because you know, when I'm not here, I'm the mom 130 00:06:28,160 --> 00:06:30,240 Speaker 6: at the grocery store and I've got one bag of 131 00:06:30,240 --> 00:06:32,640 Speaker 6: groceries and it still cost me ninety five dollars and 132 00:06:32,640 --> 00:06:34,520 Speaker 6: I can't figure out what's in it, you know, So 133 00:06:34,600 --> 00:06:37,400 Speaker 6: I think you know this idea that your over year 134 00:06:37,440 --> 00:06:40,640 Speaker 6: inflation is coming down, but the sticker shock is still 135 00:06:40,640 --> 00:06:43,760 Speaker 6: a very real and present pain point to household budgets. 136 00:06:43,800 --> 00:06:47,080 Speaker 3: And Coca Cola are raising prices, and Netflix are raising prices, 137 00:06:47,480 --> 00:06:51,000 Speaker 3: and there are a Whole and Apple TV they're raising 138 00:06:51,040 --> 00:06:54,040 Speaker 3: prices as well, and we are moderately immune to those. 139 00:06:54,279 --> 00:06:56,240 Speaker 5: Do you know that you'll still order a Coca Cola? 140 00:06:56,480 --> 00:06:58,840 Speaker 5: You'll still order You'll still order your Netflix movie. 141 00:06:58,880 --> 00:07:01,839 Speaker 4: Mike Well, I was looking here to see if we 142 00:07:01,839 --> 00:07:04,360 Speaker 4: get super Core. I haven't got that number pulled out yet, 143 00:07:04,400 --> 00:07:07,760 Speaker 4: but that's the one that the Chairman of the Fed 144 00:07:07,800 --> 00:07:10,560 Speaker 4: says he likes the most. See if we have that 145 00:07:10,680 --> 00:07:15,560 Speaker 4: number calculated yet, because you got to take out. 146 00:07:15,000 --> 00:07:18,840 Speaker 6: And then the CPI number that had risen the most 147 00:07:19,000 --> 00:07:22,280 Speaker 6: since you know, about a year, so it had. I 148 00:07:22,360 --> 00:07:24,280 Speaker 6: think that's going to be a key piece of today's 149 00:07:24,280 --> 00:07:24,960 Speaker 6: report too. 150 00:07:25,120 --> 00:07:27,600 Speaker 3: Well, just looking at the bond market, it's virtually flat. 151 00:07:27,640 --> 00:07:29,560 Speaker 3: I mean four eighty five is where we are on 152 00:07:29,640 --> 00:07:33,160 Speaker 3: tenure government bonds. So there's a sort of a flat, 153 00:07:33,400 --> 00:07:37,160 Speaker 3: sort of unknown entity within the bond market. Let's just 154 00:07:37,240 --> 00:07:40,040 Speaker 3: check in on equities up for tenenths of one percent again, 155 00:07:40,080 --> 00:07:42,600 Speaker 3: you've got an Amazon recovery and nice kicker there. It 156 00:07:42,640 --> 00:07:44,440 Speaker 3: was up six percent at one juncture, giving a little 157 00:07:44,440 --> 00:07:47,600 Speaker 3: bit back. You're looking at ten year years, just still 158 00:07:47,640 --> 00:07:52,160 Speaker 3: incrementally rising. This morning at four eighty five, we just 159 00:07:52,240 --> 00:07:54,800 Speaker 3: had Bmo in Lingen here with us saying look, the 160 00:07:54,840 --> 00:07:58,480 Speaker 3: next three weeks will define where the endpoint is for 161 00:07:58,560 --> 00:08:01,560 Speaker 3: the bond spike. Use oil is up one point ninety 162 00:08:01,560 --> 00:08:04,360 Speaker 3: three percent this morning. Again there's more geopolitical anks with 163 00:08:05,280 --> 00:08:09,000 Speaker 3: military action in Syria from the US side, and that 164 00:08:09,080 --> 00:08:12,840 Speaker 3: has brought again a geopolitical bid back to the oil markets. 165 00:08:12,840 --> 00:08:16,720 Speaker 3: But personal income rises zero point three percent. The estimate 166 00:08:16,840 --> 00:08:21,080 Speaker 3: was for plus point four percent, So Mike this the 167 00:08:21,160 --> 00:08:24,400 Speaker 3: takeaway from this is the core price index rises to 168 00:08:24,440 --> 00:08:28,160 Speaker 3: three point seven percent, pretty much in line with the estimates. 169 00:08:28,360 --> 00:08:32,319 Speaker 4: We're seeing disinflation, I mean O creative inflation is slowing down. 170 00:08:32,679 --> 00:08:36,200 Speaker 4: It's not slowing down as perhaps fast as people would like. 171 00:08:36,280 --> 00:08:40,200 Speaker 4: And to Lar's point, especially about the being the moment 172 00:08:40,200 --> 00:08:44,640 Speaker 4: at the grocery store, prices go up at a slower rate, 173 00:08:44,760 --> 00:08:48,280 Speaker 4: but they don't come down. So you're paying more for 174 00:08:49,120 --> 00:08:51,480 Speaker 4: a lot of staples and they're going to just stay 175 00:08:51,480 --> 00:08:53,360 Speaker 4: at that price. And so people look at that and 176 00:08:53,679 --> 00:08:57,440 Speaker 4: they're still experiencing inflation, even if inflation is not as 177 00:08:57,480 --> 00:08:58,520 Speaker 4: bad as it was before. 178 00:08:59,440 --> 00:09:02,880 Speaker 3: What what happens then to this view in the market 179 00:09:02,920 --> 00:09:06,439 Speaker 3: that we're going to get right cuts into twenty twenty 180 00:09:06,480 --> 00:09:08,599 Speaker 3: four does not debate change. 181 00:09:09,200 --> 00:09:12,480 Speaker 6: It's got to continue. The FED, I think now has 182 00:09:12,600 --> 00:09:16,560 Speaker 6: to just continue to ring rate cut expectations out of 183 00:09:16,600 --> 00:09:19,320 Speaker 6: that future's curve. I feel like this is the deal 184 00:09:19,320 --> 00:09:21,560 Speaker 6: with the devil right now, because if you had told 185 00:09:21,600 --> 00:09:23,880 Speaker 6: me that we were going to have GDP growth of 186 00:09:23,920 --> 00:09:25,760 Speaker 6: almost five percent and the FED was not going to 187 00:09:25,840 --> 00:09:28,840 Speaker 6: cut rates again, I would have just not believed that 188 00:09:29,000 --> 00:09:32,480 Speaker 6: was a possible outcome. But FED future's markets are not 189 00:09:32,600 --> 00:09:35,280 Speaker 6: pricing in another rate cut. Markets seem very convinced the 190 00:09:35,320 --> 00:09:37,320 Speaker 6: Fed is done. And I think the only way that 191 00:09:37,400 --> 00:09:39,840 Speaker 6: works is if we continue to get this drift higher 192 00:09:40,200 --> 00:09:42,600 Speaker 6: in long term yields. And there's a room for that 193 00:09:42,960 --> 00:09:46,240 Speaker 6: because today markets have seventy five basis points of rate 194 00:09:46,320 --> 00:09:48,840 Speaker 6: cuts priced in for next year, So if the FED 195 00:09:48,880 --> 00:09:51,280 Speaker 6: is going to kind of stay on hold, there's room 196 00:09:51,320 --> 00:09:53,240 Speaker 6: for that to continue to come out, for long term 197 00:09:53,320 --> 00:09:54,800 Speaker 6: rates to continue to move higher. 198 00:09:54,960 --> 00:09:57,680 Speaker 5: How do you think they look at this in the Fed? 199 00:09:57,760 --> 00:10:00,560 Speaker 3: In the Fed might give you look at this the 200 00:10:00,559 --> 00:10:03,920 Speaker 3: top line is pce is it a four month high 201 00:10:03,960 --> 00:10:08,720 Speaker 3: consumer spending picks up. It doesn't leave them that huge 202 00:10:08,760 --> 00:10:12,240 Speaker 3: optionality to be very very dubbish, does it. 203 00:10:12,280 --> 00:10:14,800 Speaker 4: They can just sit on this at the moment because 204 00:10:14,840 --> 00:10:18,040 Speaker 4: they forecast in September, the last time they did forecast 205 00:10:18,040 --> 00:10:21,120 Speaker 4: that we would see PCEE core at three point seven 206 00:10:21,160 --> 00:10:22,880 Speaker 4: percent at the end of the year. Well, I'm with 207 00:10:23,000 --> 00:10:26,800 Speaker 4: there bang on where we are. So most economists think 208 00:10:26,800 --> 00:10:28,480 Speaker 4: with a couple of months to go, we're going to 209 00:10:28,480 --> 00:10:30,640 Speaker 4: come in below that. So the Fed could argue its 210 00:10:30,960 --> 00:10:33,839 Speaker 4: targets are being hit. And you mentioned Ian Ling, and 211 00:10:33,880 --> 00:10:37,360 Speaker 4: he had a great note this morning about how we're 212 00:10:37,559 --> 00:10:43,120 Speaker 4: starting to see more impacts from higher FED rates and 213 00:10:43,520 --> 00:10:47,080 Speaker 4: that is slowly getting into the economy and we should 214 00:10:47,080 --> 00:10:48,880 Speaker 4: see more. So the Fed is probably going to sit 215 00:10:48,880 --> 00:10:51,400 Speaker 4: there and say what we're doing is working. We're at 216 00:10:51,440 --> 00:10:54,240 Speaker 4: a level where inflation is still coming down. We don't 217 00:10:54,240 --> 00:10:56,400 Speaker 4: have to go up more right now with all this 218 00:10:56,559 --> 00:10:58,640 Speaker 4: uncertainty out there about what's going to happen. 219 00:10:58,880 --> 00:11:01,319 Speaker 6: Well, and unless inflation is a nine percent there really 220 00:11:01,400 --> 00:11:04,760 Speaker 6: is no emergency reason to raise rates. That's usually you know, 221 00:11:04,880 --> 00:11:06,960 Speaker 6: not a thing. So they you know, to your point, 222 00:11:06,960 --> 00:11:10,959 Speaker 6: they have the time and yet. To me, this increase 223 00:11:11,000 --> 00:11:14,720 Speaker 6: in long term interest rates is the reason that they 224 00:11:14,760 --> 00:11:18,240 Speaker 6: can be patient, and that is going to continue to 225 00:11:18,520 --> 00:11:20,920 Speaker 6: sort of pump the brakes on activity. You know, when 226 00:11:20,920 --> 00:11:24,040 Speaker 6: I look ahead at next year, my forecast is for 227 00:11:24,120 --> 00:11:27,040 Speaker 6: slower growth. I think these higher interest rates have actually 228 00:11:27,080 --> 00:11:29,040 Speaker 6: increased the chance of a recession, not decreased. 229 00:11:29,280 --> 00:11:33,520 Speaker 5: Is that slower growth? No landing, soft landing, not hard landing. 230 00:11:33,840 --> 00:11:36,720 Speaker 6: I think it has to be as soft landing. I 231 00:11:36,760 --> 00:11:39,120 Speaker 6: still feel like there is very real risk of recession 232 00:11:39,160 --> 00:11:41,560 Speaker 6: next year, and we cannot discount that. But all the 233 00:11:41,600 --> 00:11:43,880 Speaker 6: reasons why we've been saying it might be a mild 234 00:11:43,920 --> 00:11:47,480 Speaker 6: recession could also mean that you just end up with 235 00:11:47,520 --> 00:11:48,440 Speaker 6: some sluggish growth. 236 00:11:48,960 --> 00:11:50,960 Speaker 3: So, Mike, as we go to the close of the year, 237 00:11:51,000 --> 00:11:52,400 Speaker 3: what's the next piece that you're going to hang your 238 00:11:52,400 --> 00:11:54,160 Speaker 3: hat on in terms of dead We've got Michigan at 239 00:11:54,200 --> 00:11:55,040 Speaker 3: University of Michigan. 240 00:11:55,800 --> 00:11:58,040 Speaker 4: Yeah, I don't think that's going to move the needle 241 00:11:58,080 --> 00:12:01,080 Speaker 4: a whole lot. But I think what we are going 242 00:12:01,160 --> 00:12:04,040 Speaker 4: to focus on is all the data next week, particularly 243 00:12:04,800 --> 00:12:07,480 Speaker 4: the ISM numbers and then jobs at the end of 244 00:12:07,520 --> 00:12:11,559 Speaker 4: the week. The Fed meets on Wednesday, so they won't 245 00:12:11,559 --> 00:12:14,800 Speaker 4: have the jobs figures, but at this point to get 246 00:12:14,800 --> 00:12:16,920 Speaker 4: an idea of where they're going to go, and nobody 247 00:12:17,320 --> 00:12:19,559 Speaker 4: is less than a two percent chance they do anything 248 00:12:19,600 --> 00:12:24,280 Speaker 4: on Wednesday, but nobody expects that. But the question is 249 00:12:24,280 --> 00:12:28,640 Speaker 4: then what happens January December, January, and the jobs report 250 00:12:28,640 --> 00:12:30,360 Speaker 4: will contribute to that. That's what will. 251 00:12:30,200 --> 00:12:45,400 Speaker 2: Be joining us is Isaac Boltanski, director of policy research 252 00:12:45,400 --> 00:12:47,680 Speaker 2: at BTIG. Can you give us a sense, to Isaac, 253 00:12:48,000 --> 00:12:50,640 Speaker 2: of just what kind of leader Mike Johnson is going 254 00:12:50,679 --> 00:12:53,840 Speaker 2: to be? Can he find some sort of consensus within 255 00:12:53,880 --> 00:12:55,160 Speaker 2: a very fractured party. 256 00:12:56,480 --> 00:12:59,200 Speaker 7: I think the simple answer to that is now. I 257 00:12:59,240 --> 00:13:01,840 Speaker 7: think I think that there are lots of folks who 258 00:13:01,840 --> 00:13:04,640 Speaker 7: are breathing this deep sigh of relief because now there's 259 00:13:04,640 --> 00:13:07,520 Speaker 7: someone with a gavel and we can begin handling the 260 00:13:07,520 --> 00:13:10,280 Speaker 7: people's business again. But when you take a step back, 261 00:13:10,440 --> 00:13:13,800 Speaker 7: you've got to see that the House Republican caucus is 262 00:13:13,800 --> 00:13:17,120 Speaker 7: still deeply fractured. It's not clear how well they're going 263 00:13:17,160 --> 00:13:20,040 Speaker 7: to be able to govern going forward. There's no semblance 264 00:13:20,040 --> 00:13:23,480 Speaker 7: of bipartisanship anywhere on Capitol Hill, and frankly, Lisa I 265 00:13:23,520 --> 00:13:27,160 Speaker 7: think that people are downplaying the risk associated with a 266 00:13:27,520 --> 00:13:31,440 Speaker 7: prolonged government shutdown. I still think that is distinctly possible 267 00:13:31,480 --> 00:13:34,959 Speaker 7: because we are nowhere, and I mean this nowhere when 268 00:13:34,960 --> 00:13:37,400 Speaker 7: it comes to figuring out a way to fund the 269 00:13:37,400 --> 00:13:40,559 Speaker 7: government and deal with all the supplemental funding requests that 270 00:13:40,600 --> 00:13:41,880 Speaker 7: have been sent from the White House. 271 00:13:41,920 --> 00:13:43,439 Speaker 2: There's a lot to impact there, and a lot of 272 00:13:43,480 --> 00:13:45,600 Speaker 2: people have pushed backed against that and said that actually, 273 00:13:45,640 --> 00:13:47,880 Speaker 2: the fact that we have a speaker makes it less 274 00:13:47,960 --> 00:13:49,920 Speaker 2: likely that we will have a government shutdown. Are you 275 00:13:50,000 --> 00:13:52,640 Speaker 2: disagreeing with that? Are you saying that basically this is 276 00:13:52,800 --> 00:13:57,040 Speaker 2: just a window dressing over a pretty big fracture fissure 277 00:13:57,080 --> 00:13:57,920 Speaker 2: in the Congress. 278 00:13:57,960 --> 00:14:02,080 Speaker 7: In Congress, though, the unknown right now is how much 279 00:14:02,120 --> 00:14:05,240 Speaker 7: of a honeymoon speaker the new speaker is going to get. 280 00:14:05,800 --> 00:14:07,800 Speaker 7: But my sense when you start to look at some 281 00:14:07,960 --> 00:14:11,480 Speaker 7: of the specific issues here and really hone in on 282 00:14:11,559 --> 00:14:15,640 Speaker 7: things like Ukraine funded, or you take a step back 283 00:14:15,840 --> 00:14:18,120 Speaker 7: and you look at the fact that we haven't even 284 00:14:18,160 --> 00:14:22,000 Speaker 7: agreed on overall spending levels, I think it's incredibly difficult 285 00:14:22,000 --> 00:14:24,520 Speaker 7: to believe that that this group is going to be 286 00:14:24,520 --> 00:14:28,120 Speaker 7: able to easily avert a shutdown. My base case is 287 00:14:28,120 --> 00:14:30,280 Speaker 7: that we are going to see a shutdown later this year. 288 00:14:30,440 --> 00:14:33,000 Speaker 7: I don't think that's going to be a massive market 289 00:14:33,080 --> 00:14:37,640 Speaker 7: moving event, but I do think that the getting the 290 00:14:37,720 --> 00:14:41,560 Speaker 7: gabble to Speaker Johnson has lessened fears in the market, 291 00:14:41,560 --> 00:14:43,160 Speaker 7: and that that's unfounded at this point. 292 00:14:43,880 --> 00:14:46,120 Speaker 3: So the President wants a total of what one hundred 293 00:14:46,120 --> 00:14:50,720 Speaker 3: and sixty two billion dollars from Congress across Ukraine, Israel, 294 00:14:50,960 --> 00:14:56,080 Speaker 3: supplemental spending, et cetera. How contentious is this going to be? 295 00:14:56,520 --> 00:14:58,400 Speaker 3: How much of a flashpoint is this going to be? 296 00:14:59,000 --> 00:15:01,280 Speaker 3: Will it all be cojoin? Will it just be a 297 00:15:01,280 --> 00:15:04,360 Speaker 3: great dissipation of this request. 298 00:15:05,200 --> 00:15:08,880 Speaker 7: So first and foremost, they haven't even agreed on basic 299 00:15:08,960 --> 00:15:11,920 Speaker 7: funding levels yet, right, so we're not even at a 300 00:15:11,960 --> 00:15:14,800 Speaker 7: point of agreement over the normal funding levels, and that's 301 00:15:14,840 --> 00:15:16,360 Speaker 7: going to be the fight for the next few weeks 302 00:15:16,600 --> 00:15:20,000 Speaker 7: when we then dig into the supplementals, where you do 303 00:15:20,200 --> 00:15:23,120 Speaker 7: have over one hundred billion in different ass I think 304 00:15:23,160 --> 00:15:26,520 Speaker 7: that there is clearly political support for things like funding 305 00:15:26,640 --> 00:15:29,640 Speaker 7: Israel and supporting Israel and it's battle with Hamas. I 306 00:15:29,640 --> 00:15:33,200 Speaker 7: think that fourteen billion dollars is very likely to get done. 307 00:15:33,240 --> 00:15:36,560 Speaker 7: There's clearly support for more money at the US southern border. 308 00:15:36,920 --> 00:15:40,160 Speaker 7: I think that that's bipartisan and by Camel on Ukraine, 309 00:15:40,240 --> 00:15:42,479 Speaker 7: it's going to be a little bit tougher. And note 310 00:15:42,560 --> 00:15:45,280 Speaker 7: that this is something that the News Speaker has actually 311 00:15:45,680 --> 00:15:49,120 Speaker 7: fought against in the past. Last night he did suggest 312 00:15:49,200 --> 00:15:51,720 Speaker 7: that there is a way to move forward on Ukraine funding, 313 00:15:52,000 --> 00:15:54,360 Speaker 7: but that they're going to have to be conditions attached 314 00:15:54,400 --> 00:15:56,960 Speaker 7: to that. No one knows what those conditions are yet. 315 00:15:57,400 --> 00:15:58,960 Speaker 7: Put it all together, and I think that there is 316 00:15:59,000 --> 00:16:02,640 Speaker 7: a way forward on this spending package. I just think 317 00:16:02,640 --> 00:16:04,440 Speaker 7: that we're going to have to go through the same 318 00:16:04,600 --> 00:16:07,960 Speaker 7: type of pain that we were seeing before when Speaker 319 00:16:08,040 --> 00:16:09,240 Speaker 7: McCarthy lost the gap. 320 00:16:09,680 --> 00:16:11,480 Speaker 3: How long do you think this speaker lasts or do 321 00:16:11,520 --> 00:16:13,120 Speaker 3: you think he is there for the duration? 322 00:16:14,320 --> 00:16:15,960 Speaker 7: So what of the first things he's going to have 323 00:16:16,000 --> 00:16:18,120 Speaker 7: to do is try to get rid of that motion 324 00:16:18,240 --> 00:16:21,880 Speaker 7: to vacate which pulled Kevin McCarthy out of the chair. 325 00:16:22,680 --> 00:16:25,520 Speaker 7: I think that this speaker has a decent runway to 326 00:16:25,520 --> 00:16:28,359 Speaker 7: get into first quarter of next year at a minimum. 327 00:16:28,880 --> 00:16:31,560 Speaker 7: My conversation suggests that there's a real focus on at 328 00:16:31,640 --> 00:16:34,960 Speaker 7: least getting to April of next year. As a reminder, 329 00:16:35,120 --> 00:16:38,480 Speaker 7: that's when the one percent across the board. Budget cuts 330 00:16:38,480 --> 00:16:41,480 Speaker 7: will go into effect if Congress does not pass the 331 00:16:41,520 --> 00:16:44,400 Speaker 7: twelve appropriation spills. So I think that that's the date 332 00:16:44,400 --> 00:16:46,800 Speaker 7: that a lot of people have circled on their calendar 333 00:16:46,880 --> 00:16:48,880 Speaker 7: just trying to make it to that point. 334 00:16:50,040 --> 00:16:52,440 Speaker 8: So, Isaac, how do you deal with the fact that 335 00:16:52,480 --> 00:16:54,960 Speaker 8: you are in a situation where the interest that the 336 00:16:54,960 --> 00:16:57,200 Speaker 8: government has to pay continues to go up? Where does 337 00:16:57,200 --> 00:17:00,160 Speaker 8: that fall in these budgetary arguments? No one seems to 338 00:17:00,200 --> 00:17:02,360 Speaker 8: talk about it, but it's on the rise. So if 339 00:17:02,400 --> 00:17:04,439 Speaker 8: we can't cut the budget at all to do what 340 00:17:04,480 --> 00:17:06,600 Speaker 8: we want to do, how are we dealing with spending 341 00:17:06,600 --> 00:17:08,200 Speaker 8: that we now are compelled to do. 342 00:17:09,359 --> 00:17:11,399 Speaker 7: That's one of the most frustrating parts of the past 343 00:17:11,440 --> 00:17:14,280 Speaker 7: three weeks is that we weren't talking about the real issues. 344 00:17:14,320 --> 00:17:16,560 Speaker 7: We weren't talking about the thirty three trillion in debt, 345 00:17:16,600 --> 00:17:19,359 Speaker 7: we weren't talking about the two trillion deficit we're running 346 00:17:19,359 --> 00:17:22,480 Speaker 7: this year. We weren't talking about the seven hundred billion 347 00:17:22,560 --> 00:17:26,359 Speaker 7: dollars it costs US just this year to fund our deficits. 348 00:17:26,520 --> 00:17:30,560 Speaker 7: And so I think that I remain deeply disheartened because 349 00:17:30,560 --> 00:17:34,240 Speaker 7: we're not having those conversations, and more broadly, no one, 350 00:17:34,440 --> 00:17:37,880 Speaker 7: no one, No one cares about the deficit when they're 351 00:17:37,880 --> 00:17:41,199 Speaker 7: in the majority. They only care about the deficit when 352 00:17:41,240 --> 00:17:44,280 Speaker 7: they're in the minority. And so until we see something 353 00:17:44,359 --> 00:17:48,920 Speaker 7: that shocks DC tou to the point where it's forced 354 00:17:49,280 --> 00:17:52,320 Speaker 7: to think about the debts and deficit differently, it's going 355 00:17:52,400 --> 00:17:54,960 Speaker 7: to be status quo business as usual. 356 00:17:55,280 --> 00:17:57,280 Speaker 8: How do you force someone to take a look at 357 00:17:57,280 --> 00:18:00,280 Speaker 8: their own balance sheet and say, your payment next year 358 00:18:00,359 --> 00:18:02,520 Speaker 8: is going to be double what your payment was this year, 359 00:18:02,680 --> 00:18:04,400 Speaker 8: and you couldn't afford your payment this year. 360 00:18:04,400 --> 00:18:05,040 Speaker 1: Why do we not? 361 00:18:05,160 --> 00:18:07,359 Speaker 8: Why is that not part of the conversation. I know 362 00:18:07,440 --> 00:18:09,240 Speaker 8: nobody wants to have it when they're in the majority. 363 00:18:09,400 --> 00:18:12,000 Speaker 8: Nobody wants to not spend because everybody wants they get there, 364 00:18:12,040 --> 00:18:13,879 Speaker 8: has a million things they want to spend on. But 365 00:18:13,920 --> 00:18:15,720 Speaker 8: it's sort of like no one is dealing with the 366 00:18:15,720 --> 00:18:18,159 Speaker 8: elephant in the room, no pun intended, which is the 367 00:18:18,160 --> 00:18:20,000 Speaker 8: fact that we've got all this spending that still has 368 00:18:20,000 --> 00:18:22,400 Speaker 8: to come through on this And I find that particularly 369 00:18:22,440 --> 00:18:25,640 Speaker 8: frustrating in general. So I just how do we get 370 00:18:25,680 --> 00:18:26,480 Speaker 8: to that conversation? 371 00:18:27,560 --> 00:18:29,879 Speaker 7: You should run for office, come on down here and 372 00:18:29,480 --> 00:18:31,280 Speaker 7: try to try to figure it out. But look, We're 373 00:18:31,280 --> 00:18:34,080 Speaker 7: going to have a real, real fight over this with 374 00:18:34,200 --> 00:18:38,240 Speaker 7: the Trump tax cuts expiring. You've got trillions of dollars 375 00:18:38,280 --> 00:18:40,800 Speaker 7: in tax cuts that are coming due in twenty twenty 376 00:18:40,800 --> 00:18:44,960 Speaker 7: five from the expiration of the Trump tax cuts, and 377 00:18:44,960 --> 00:18:47,119 Speaker 7: I think that that could be a forcing mechanism for 378 00:18:47,119 --> 00:18:49,960 Speaker 7: a broader conversation, but it's going to depend who's in power, 379 00:18:50,440 --> 00:18:53,080 Speaker 7: right and sot. The next hurdle is to understand who's 380 00:18:53,119 --> 00:18:54,080 Speaker 7: ahead in the elections. 381 00:18:54,359 --> 00:18:58,000 Speaker 2: How much is Jennet Yellen's idea the mainstream that yields 382 00:18:58,000 --> 00:18:59,920 Speaker 2: are going to go back down once we get past 383 00:19:00,119 --> 00:19:02,679 Speaker 2: this blip, and that higher yields in the US is 384 00:19:02,720 --> 00:19:05,520 Speaker 2: not a reflection of deficits but really just a reflection 385 00:19:05,560 --> 00:19:08,320 Speaker 2: of how strong the US economy is. Is that the 386 00:19:08,359 --> 00:19:11,200 Speaker 2: main idea and belief in Washington, DC. 387 00:19:13,280 --> 00:19:16,320 Speaker 7: It's the hope of many on Capitol Hill. I don't 388 00:19:16,320 --> 00:19:19,560 Speaker 7: think that there is anyone who has a firm feel 389 00:19:19,720 --> 00:19:22,920 Speaker 7: for where yields are going, surely not on Capitol Hill. 390 00:19:22,960 --> 00:19:25,320 Speaker 7: But it is definitely the hope at this point that 391 00:19:25,400 --> 00:19:28,160 Speaker 7: everything will fix itself. Because our politics are so broken, 392 00:19:28,200 --> 00:19:31,119 Speaker 7: they're unable to fix the problems, and so there is 393 00:19:31,200 --> 00:19:33,439 Speaker 7: a hope that that's the direction that's going, Lisa. But 394 00:19:33,520 --> 00:19:35,479 Speaker 7: I don't think anyone has a firm feeling one way 395 00:19:35,520 --> 00:19:35,840 Speaker 7: or the other. 396 00:19:37,000 --> 00:19:39,359 Speaker 2: Hope is not a strategy. I just keep thinking about that. 397 00:19:39,359 --> 00:19:42,760 Speaker 2: Isaac Boltanski of BTIG, thank you so much for being 398 00:19:42,760 --> 00:19:50,160 Speaker 2: with us. Joining us now is Lisa Shallatt CIO at 399 00:19:50,160 --> 00:19:52,399 Speaker 2: Morgan Stanley Wealth Management, And Lisa, I just want to 400 00:19:52,440 --> 00:19:54,879 Speaker 2: start with have we sold off enough? Because I know 401 00:19:54,920 --> 00:19:57,919 Speaker 2: you've been bearished, particularly on tech. Has this been a 402 00:19:57,960 --> 00:20:00,000 Speaker 2: big enough sell off for you? 403 00:20:01,000 --> 00:20:04,840 Speaker 9: Look, we're not interested in getting in here unless you're 404 00:20:04,960 --> 00:20:08,920 Speaker 9: a trader. What we, you know, tend to point our 405 00:20:08,960 --> 00:20:13,560 Speaker 9: clients to is being investors, being long term investors. And 406 00:20:13,640 --> 00:20:16,080 Speaker 9: you know, our perspective is going has been that we're 407 00:20:16,080 --> 00:20:20,520 Speaker 9: going to continue to trade in this bear market range, 408 00:20:20,960 --> 00:20:24,159 Speaker 9: which is where we've been for two years. I mean, 409 00:20:24,200 --> 00:20:27,600 Speaker 9: people have to pull out their telescope and look at 410 00:20:27,600 --> 00:20:30,240 Speaker 9: where we've been. You look at the s and P 411 00:20:30,320 --> 00:20:33,760 Speaker 9: five hundred. We were here in the summer spring of 412 00:20:33,840 --> 00:20:37,480 Speaker 9: twenty twenty one, and so you know, this is a 413 00:20:37,640 --> 00:20:41,480 Speaker 9: trader's market right now. We don't think we break out 414 00:20:41,560 --> 00:20:44,800 Speaker 9: of this range of somewhere around forty two forty five 415 00:20:44,880 --> 00:20:48,640 Speaker 9: hundred really until the middle of next year, and that's 416 00:20:48,680 --> 00:20:52,800 Speaker 9: when the fog clears on whether or not we're really 417 00:20:52,800 --> 00:20:56,720 Speaker 9: going to see growth reaccelerate or we're going to see 418 00:20:57,359 --> 00:21:00,760 Speaker 9: us you know, probabilities of recession increase. And we've been 419 00:21:00,800 --> 00:21:05,040 Speaker 9: in the camp that we're going to be in that 420 00:21:05,240 --> 00:21:10,040 Speaker 9: second scenario where next year economic growth, particularly in the 421 00:21:10,040 --> 00:21:13,480 Speaker 9: second half, disappoints. I mean, look at the third quarter GDP, 422 00:21:14,000 --> 00:21:18,159 Speaker 9: we're doing nominal eight percent. What kind of a cop 423 00:21:18,320 --> 00:21:20,480 Speaker 9: year over year is that going to be in the 424 00:21:20,520 --> 00:21:21,720 Speaker 9: second half next year. 425 00:21:21,800 --> 00:21:22,800 Speaker 1: It's a great point. 426 00:21:22,960 --> 00:21:24,840 Speaker 2: You said that this is a trader's market when it 427 00:21:24,840 --> 00:21:27,520 Speaker 2: comes to equities. Is it also a trader's market when 428 00:21:27,560 --> 00:21:30,080 Speaker 2: it comes to bonds. You've been bullish on longer term 429 00:21:30,160 --> 00:21:32,960 Speaker 2: bonds at a time where there's a feeling that maybe 430 00:21:32,960 --> 00:21:36,960 Speaker 2: this selloff has legs and actually is fundamentally driven, including 431 00:21:37,119 --> 00:21:39,000 Speaker 2: by how much the US has to finance. 432 00:21:40,480 --> 00:21:40,760 Speaker 5: Yeah. 433 00:21:40,840 --> 00:21:44,240 Speaker 9: I mean, look, our perspective is that we are probably 434 00:21:45,119 --> 00:21:50,159 Speaker 9: within fifty basis points of a peak in rates, and 435 00:21:50,200 --> 00:21:53,840 Speaker 9: that having clients begin to embrace this market lock in 436 00:21:53,920 --> 00:21:58,800 Speaker 9: some of these coupons with the potential for rates on 437 00:21:58,840 --> 00:22:03,240 Speaker 9: a cyclical basis to reset, creates a double digit return 438 00:22:03,400 --> 00:22:07,159 Speaker 9: with a third of the volatility. So again, as as 439 00:22:07,200 --> 00:22:11,840 Speaker 9: as UH you know investors, we think that that the 440 00:22:11,880 --> 00:22:14,560 Speaker 9: buy and hold on some of these bonds UH is 441 00:22:14,720 --> 00:22:19,480 Speaker 9: a good value proposition. But I think here too, there's 442 00:22:19,520 --> 00:22:22,199 Speaker 9: a lot of volatility, and that means you've got to 443 00:22:22,240 --> 00:22:25,040 Speaker 9: be a trader if you're going to be uh, you know, 444 00:22:25,160 --> 00:22:28,840 Speaker 9: in this market looking for returns on the month or 445 00:22:28,880 --> 00:22:29,480 Speaker 9: on the quarter. 446 00:22:30,119 --> 00:22:31,760 Speaker 3: Lisa, good morning, it's manas. I think that's one of 447 00:22:31,800 --> 00:22:34,119 Speaker 3: the most honest interpretations. You're not prepared to step and 448 00:22:34,160 --> 00:22:36,360 Speaker 3: buy into this market in a trading market that we've 449 00:22:36,359 --> 00:22:39,359 Speaker 3: heard in quite a while. But there is the other side, 450 00:22:39,400 --> 00:22:42,440 Speaker 3: which is you either view that you've got to build 451 00:22:42,440 --> 00:22:44,440 Speaker 3: some kind of defense, and I'm drawn to your view 452 00:22:44,720 --> 00:22:46,760 Speaker 3: that you want real assets and you want gold. Gold 453 00:22:46,880 --> 00:22:51,000 Speaker 3: is nearly a two thousand dollars and so are you 454 00:22:51,200 --> 00:22:55,840 Speaker 3: actively adding more real assets than if you're not convinced 455 00:22:55,840 --> 00:22:56,640 Speaker 3: on pure equity. 456 00:22:58,359 --> 00:23:01,400 Speaker 9: We are adding and encouraging folks to add some real 457 00:23:01,440 --> 00:23:04,959 Speaker 9: assets here. I mean, one of our themes has been that, 458 00:23:05,800 --> 00:23:10,119 Speaker 9: you know, the equity markets in particular are just not 459 00:23:10,400 --> 00:23:13,760 Speaker 9: pricing real risk premiums. And you know, one of the 460 00:23:13,760 --> 00:23:17,320 Speaker 9: things that has, you know, given us has been heartening 461 00:23:17,400 --> 00:23:21,119 Speaker 9: to us is the fact not only are we getting 462 00:23:21,880 --> 00:23:24,320 Speaker 9: higher real rates in the bond market, but that there's 463 00:23:24,359 --> 00:23:28,199 Speaker 9: a term premium that suddenly people realize that in a 464 00:23:28,320 --> 00:23:32,600 Speaker 9: new inflation and in a new interest rate regime where 465 00:23:32,640 --> 00:23:35,439 Speaker 9: the FED is going to be data dependent, there is 466 00:23:35,800 --> 00:23:39,840 Speaker 9: lumpiness and there is uncertainty over time about how that 467 00:23:39,960 --> 00:23:43,000 Speaker 9: data is going to come out. Add in all the 468 00:23:43,080 --> 00:23:48,320 Speaker 9: geopolitical dimensions to what's going on right now, the dimensions 469 00:23:48,320 --> 00:23:52,120 Speaker 9: of dysfunction in Washington, d C. The fact we're rolling 470 00:23:52,200 --> 00:23:56,320 Speaker 9: into an election year in the US where I think 471 00:23:56,359 --> 00:23:59,080 Speaker 9: that the headlines and the developments are going to be 472 00:23:59,119 --> 00:24:05,040 Speaker 9: extraordinarily volatile. Our view is that real assets, things like commodities, 473 00:24:05,119 --> 00:24:11,840 Speaker 9: things like real estates, things like energy, infrastructure assets could really, 474 00:24:12,440 --> 00:24:14,879 Speaker 9: you know, be a source of protection here in stability 475 00:24:14,880 --> 00:24:15,800 Speaker 9: in portfolios. 476 00:24:15,920 --> 00:24:18,720 Speaker 3: We just had in Lincoln here from BMO. We talked 477 00:24:18,760 --> 00:24:21,639 Speaker 3: about a number of different things that could drive the 478 00:24:21,720 --> 00:24:23,639 Speaker 3: bond market, term premium. 479 00:24:23,240 --> 00:24:25,280 Speaker 5: Being one, fiscal deficit's being another. 480 00:24:25,760 --> 00:24:29,359 Speaker 3: He thinks that the peak, the peak spike in rates 481 00:24:29,400 --> 00:24:32,840 Speaker 3: could be over the next couple of weeks. Would you 482 00:24:32,920 --> 00:24:35,800 Speaker 3: agree with that, and if so, what. 483 00:24:35,880 --> 00:24:36,959 Speaker 5: Part of the bond market. 484 00:24:37,080 --> 00:24:39,439 Speaker 3: Would you like to take a portion off or add 485 00:24:39,440 --> 00:24:42,520 Speaker 3: to if you're adding real commodities, what would you add 486 00:24:42,640 --> 00:24:43,240 Speaker 3: in duration? 487 00:24:44,480 --> 00:24:47,800 Speaker 9: Yeah, we're we're looking at Our perspective is that the 488 00:24:47,840 --> 00:24:52,920 Speaker 9: best value right now is really intermediate, somewhere between four 489 00:24:52,920 --> 00:24:56,280 Speaker 9: to six. We're finding some value in sevens in the 490 00:24:56,320 --> 00:25:00,119 Speaker 9: treasury market in fact, but we're looking at investment and 491 00:25:00,160 --> 00:25:03,479 Speaker 9: great corporate, so you know, we're taking the treasury yield 492 00:25:04,160 --> 00:25:07,520 Speaker 9: and taking some of that spread. We do believe that 493 00:25:08,119 --> 00:25:11,880 Speaker 9: there are quality balance sheets out there that can service 494 00:25:12,600 --> 00:25:17,040 Speaker 9: you know, these coupons. So we're we're enthusiastic that the 495 00:25:17,040 --> 00:25:20,560 Speaker 9: middle of the curve could produce double digit returns over 496 00:25:20,600 --> 00:25:22,760 Speaker 9: the next you know, twelve to eighteen months. 497 00:25:23,040 --> 00:25:28,200 Speaker 6: Lisa, I'm curious about this really different reaction when it's 498 00:25:28,280 --> 00:25:32,480 Speaker 6: come to this geopolitical these devastating geopolitical events. Normally we 499 00:25:32,520 --> 00:25:35,840 Speaker 6: would see US yields plunge in the face of this, 500 00:25:35,920 --> 00:25:38,479 Speaker 6: and we had that reaction. But you know, you blinked 501 00:25:38,480 --> 00:25:41,000 Speaker 6: and you missed it. We're right back up again. Does 502 00:25:41,080 --> 00:25:45,679 Speaker 6: that represent a more fundamental reassessment of treasuries as a 503 00:25:45,760 --> 00:25:48,080 Speaker 6: risk free asset? You know, you were going into this 504 00:25:48,160 --> 00:25:51,840 Speaker 6: government shutdown again, an episode which historically has given us 505 00:25:51,960 --> 00:25:54,840 Speaker 6: lower yields, and we sort of shrug it off. Is 506 00:25:54,880 --> 00:25:58,120 Speaker 6: this time going to be different because people are fundamentally 507 00:25:58,160 --> 00:26:01,600 Speaker 6: reassessing the dollar as a flight to quality and the 508 00:26:01,640 --> 00:26:02,480 Speaker 6: result treasures. 509 00:26:03,359 --> 00:26:05,679 Speaker 9: Yeah, I mean, I love that you're bringing up this issue. 510 00:26:05,720 --> 00:26:08,400 Speaker 9: I mean, this is one of the issues that we 511 00:26:08,480 --> 00:26:12,520 Speaker 9: talk about with our clients all the time because it 512 00:26:12,680 --> 00:26:17,280 Speaker 9: is our sense that something fundamental is going on and 513 00:26:17,320 --> 00:26:24,040 Speaker 9: that the appetite for US treasury debt is different this time. Clearly, 514 00:26:24,200 --> 00:26:27,040 Speaker 9: you know, the market is readjusting to not having the 515 00:26:27,080 --> 00:26:30,959 Speaker 9: FED as a price and sensitive buyer, right, we know that, 516 00:26:31,280 --> 00:26:36,760 Speaker 9: and and QT is certainly a weight here. But you know, 517 00:26:36,960 --> 00:26:41,399 Speaker 9: you look at what's going on among Japanese investors. They're 518 00:26:41,480 --> 00:26:46,160 Speaker 9: facing the realities of a tough currency compare and really 519 00:26:46,200 --> 00:26:49,840 Speaker 9: tough hedging costs in terms of their ability to buy 520 00:26:49,880 --> 00:26:53,200 Speaker 9: treasuries in the size that they have been buying really 521 00:26:53,240 --> 00:26:59,000 Speaker 9: over the last decade. The geopolitical dimensions of this, you know, historically, 522 00:26:59,080 --> 00:27:02,439 Speaker 9: we know China has has been a big buyer given 523 00:27:02,680 --> 00:27:07,200 Speaker 9: their you know, trade balances and foreign currency reserves and 524 00:27:07,320 --> 00:27:11,520 Speaker 9: US dollars. Uh, there's a lot of complexity UH, and 525 00:27:11,600 --> 00:27:15,880 Speaker 9: a lot I believe to question about why we haven't 526 00:27:15,960 --> 00:27:21,560 Speaker 9: seen that flight to safety UH manifest as it historically 527 00:27:21,640 --> 00:27:24,480 Speaker 9: has in US treasuries. I do think that this is 528 00:27:24,520 --> 00:27:27,680 Speaker 9: something we need to watch and study and really think 529 00:27:27,760 --> 00:27:31,800 Speaker 9: hard about about whether or not something is changing and 530 00:27:31,840 --> 00:27:36,359 Speaker 9: whether the US treasury market is vulnerable to geopolitics for 531 00:27:36,400 --> 00:27:39,520 Speaker 9: the first time, maybe since World War Two. 532 00:27:39,880 --> 00:27:53,480 Speaker 2: Lisa Chalatte Morgan Stanley Wealth mentioned it is clear cut 533 00:27:53,520 --> 00:27:56,960 Speaker 2: that when people are spending on clothes, Amazon does well. 534 00:27:57,000 --> 00:27:59,639 Speaker 2: But that seems to be what we experienced yesterday in 535 00:27:59,680 --> 00:28:01,480 Speaker 2: the Earth, straining us now to really pass through it. 536 00:28:01,560 --> 00:28:05,639 Speaker 2: Anor A Karana and Punam Goyle of Bloomberg Intelligence covering 537 00:28:05,640 --> 00:28:07,879 Speaker 2: the tech and the retail side of things. Anag, I 538 00:28:07,920 --> 00:28:10,359 Speaker 2: want to start with you, are we basically just learning 539 00:28:10,520 --> 00:28:12,879 Speaker 2: that Microsoft is taking the lead when it comes to 540 00:28:12,920 --> 00:28:15,959 Speaker 2: cloud computing and Amazon and Google are falling behind. 541 00:28:17,880 --> 00:28:20,359 Speaker 10: See I'm a big fan about Microsoft's down over the years, 542 00:28:20,359 --> 00:28:22,200 Speaker 10: but I would not say that they are leading here. 543 00:28:22,680 --> 00:28:25,600 Speaker 10: I would just say that in the Genai, you know, Frenzy, 544 00:28:25,840 --> 00:28:28,080 Speaker 10: they just have a leg up because of their relationship 545 00:28:28,080 --> 00:28:31,159 Speaker 10: with open Ai. But Amazon is still the biggest cloud 546 00:28:31,200 --> 00:28:34,520 Speaker 10: out there. They have more, yeah, I would say revenue 547 00:28:34,520 --> 00:28:38,600 Speaker 10: than anybody else. That's partially the reason why their relative 548 00:28:38,600 --> 00:28:41,360 Speaker 10: growth rates are not as strong. But last night's comments 549 00:28:41,360 --> 00:28:43,880 Speaker 10: on the conference call were so positive and I think 550 00:28:43,920 --> 00:28:46,680 Speaker 10: that's what's driving the stock up here. Before that, the 551 00:28:46,720 --> 00:28:49,160 Speaker 10: stock was flat, and you know, it was just the 552 00:28:49,760 --> 00:28:52,880 Speaker 10: positive I would say body language of the management team 553 00:28:53,000 --> 00:28:55,120 Speaker 10: that you know, the cloud bottom may be here for them. 554 00:28:55,680 --> 00:29:00,160 Speaker 3: Okay, who's got the strongest who has the strongest cloud offering, 555 00:29:00,440 --> 00:29:03,000 Speaker 3: and who will win the most market share? 556 00:29:04,440 --> 00:29:07,320 Speaker 10: Well, Amazon's far bigger in terms of you know, revenue, 557 00:29:07,320 --> 00:29:10,400 Speaker 10: the revenue boundard is closer to ninety billion dollars compared 558 00:29:10,440 --> 00:29:13,400 Speaker 10: to Microsoft, which is closer to sixty billion, and with 559 00:29:13,920 --> 00:29:16,160 Speaker 10: Google somewhere around twenty four to twenty five billion. So 560 00:29:16,320 --> 00:29:21,480 Speaker 10: Amazon's clearly the leader with the biggest network and biggest footprint. 561 00:29:22,880 --> 00:29:25,880 Speaker 3: But let's bring you into the conversation here. This has 562 00:29:25,920 --> 00:29:28,280 Speaker 3: been a brutal week. At one junction, we lost two 563 00:29:28,320 --> 00:29:30,560 Speaker 3: hundred billion dollars in market cap of some of these 564 00:29:30,600 --> 00:29:36,600 Speaker 3: biggest and most loved, most owned stocks in the US. 565 00:29:36,760 --> 00:29:39,000 Speaker 3: As you go to the close of the week, there 566 00:29:39,080 --> 00:29:42,040 Speaker 3: was a brutalization of stocks that disappointed on Clyde, But 567 00:29:42,080 --> 00:29:44,120 Speaker 3: the one thing that stood out to me is that 568 00:29:44,200 --> 00:29:48,520 Speaker 3: there are these tech companies and they are raising prices. 569 00:29:48,840 --> 00:29:50,640 Speaker 3: How does that play into your thinking? 570 00:29:51,680 --> 00:29:52,400 Speaker 1: Yeah, I think on. 571 00:29:52,400 --> 00:29:54,920 Speaker 11: The retail side, Amazon actually has done a great job 572 00:29:54,920 --> 00:29:57,520 Speaker 11: in maintaining its share and even growing it. You know, 573 00:29:57,520 --> 00:30:00,480 Speaker 11: when you talk about raising crisis, do then in flee. 574 00:30:00,640 --> 00:30:03,680 Speaker 11: I think it's quite the opposite at Amazon. You're actually 575 00:30:03,720 --> 00:30:07,000 Speaker 11: seeing them push forward low crisis, especially on those deal 576 00:30:07,080 --> 00:30:10,160 Speaker 11: days that they have, like Prime Days, and that's driving 577 00:30:10,200 --> 00:30:14,320 Speaker 11: the consumer spend. We're expecting Amazon to use it scale 578 00:30:14,400 --> 00:30:17,440 Speaker 11: and speed to really push the pedal on prices even 579 00:30:17,520 --> 00:30:20,240 Speaker 11: more as we go through the holiday season, and that's 580 00:30:20,280 --> 00:30:23,960 Speaker 11: going to drive consumers to their platform, allowing them to 581 00:30:24,000 --> 00:30:25,840 Speaker 11: go gain share over competitors. 582 00:30:26,560 --> 00:30:29,080 Speaker 12: Plunum advertising revenue has been growing at a double digit 583 00:30:29,080 --> 00:30:32,320 Speaker 12: clip based on what two hundred million global Prime subscribers 584 00:30:32,320 --> 00:30:34,520 Speaker 12: were able to get an early WED on that Prime 585 00:30:34,600 --> 00:30:36,040 Speaker 12: Video ads edition. 586 00:30:37,280 --> 00:30:39,520 Speaker 11: I think the ad edition is going to take time 587 00:30:39,560 --> 00:30:42,200 Speaker 11: to build right now. The bulk of that advertising revenue 588 00:30:42,560 --> 00:30:45,280 Speaker 11: is driven from the retail side, and I think that's 589 00:30:45,440 --> 00:30:48,080 Speaker 11: really key here that's going to continue to climb. And 590 00:30:48,200 --> 00:30:51,719 Speaker 11: remember that advertising is a much more profitable business than 591 00:30:51,760 --> 00:30:54,600 Speaker 11: the retail business and even the cloud business. So as 592 00:30:54,640 --> 00:30:58,120 Speaker 11: that business scales beyond fifty billion, which it's trending to 593 00:30:58,280 --> 00:31:01,360 Speaker 11: right now, it's going to drive the bottom line for Amazon. 594 00:31:01,800 --> 00:31:05,080 Speaker 11: And that edition of the ads that you're talking about, 595 00:31:05,320 --> 00:31:07,080 Speaker 11: I think that's just icing on the cake. 596 00:31:07,160 --> 00:31:08,360 Speaker 9: I mean, that's really going. 597 00:31:08,160 --> 00:31:12,120 Speaker 11: To also help build revenues for Amazon and allow customers 598 00:31:12,200 --> 00:31:14,360 Speaker 11: to choose do they want the ads or do they 599 00:31:14,440 --> 00:31:18,200 Speaker 11: want the content without the ads where they would have to. 600 00:31:18,120 --> 00:31:18,960 Speaker 13: Pay attlefore that. 601 00:31:19,600 --> 00:31:23,480 Speaker 12: And you're right, we've now digested earnings from Alphabet, Meta, Intel, IBM, 602 00:31:23,520 --> 00:31:26,160 Speaker 12: you name it. You know, what are the primary takeaways 603 00:31:26,160 --> 00:31:28,200 Speaker 12: from you from three third quarter performance? 604 00:31:29,600 --> 00:31:32,240 Speaker 10: I think if we are not very close to the bottom, 605 00:31:32,440 --> 00:31:34,320 Speaker 10: you know, we have probably a quarter or two away, 606 00:31:34,480 --> 00:31:36,520 Speaker 10: and I think that really sets up well for a 607 00:31:36,520 --> 00:31:39,160 Speaker 10: big rebound in twenty twenty four. And I think this 608 00:31:39,400 --> 00:31:41,600 Speaker 10: was the biggest fear that we have that what's going 609 00:31:41,640 --> 00:31:44,880 Speaker 10: to happen beginning of next year with geopolitical conditions getting worse. 610 00:31:45,120 --> 00:31:48,040 Speaker 10: And I think last night's results and even Microsoft's comments 611 00:31:48,520 --> 00:31:50,360 Speaker 10: give us some hope that things are not as bad 612 00:31:50,360 --> 00:31:53,000 Speaker 10: as you know, you know, people are making out to be. 613 00:31:53,160 --> 00:31:55,480 Speaker 2: It does raise a question though, about the differentiation on 614 00:31:55,680 --> 00:31:58,720 Speaker 2: rog within the cloud space, within the AI space, and 615 00:31:58,760 --> 00:32:02,240 Speaker 2: whether companies are being reward for investing in some of 616 00:32:02,280 --> 00:32:06,960 Speaker 2: the AI intelligence AI programming that could make a lot 617 00:32:06,960 --> 00:32:09,160 Speaker 2: of money. Did you get the sense that Amazon was 618 00:32:09,160 --> 00:32:10,840 Speaker 2: rewarded more on that front than Google. 619 00:32:12,360 --> 00:32:13,960 Speaker 10: See. One of the biggest thing I think it's the 620 00:32:14,000 --> 00:32:17,440 Speaker 10: scale matters now, And you have to remember most enterprises 621 00:32:17,480 --> 00:32:19,840 Speaker 10: around the world fortune two thousand companies are going to 622 00:32:19,880 --> 00:32:23,480 Speaker 10: experiment with this technology over the next twelve to twenty 623 00:32:23,480 --> 00:32:25,720 Speaker 10: four months. Who are they going to go to. All 624 00:32:25,760 --> 00:32:28,560 Speaker 10: these companies have the building blocks for people to experiment, 625 00:32:28,800 --> 00:32:30,800 Speaker 10: So I'm not saying one's going to win over the other. 626 00:32:31,040 --> 00:32:32,880 Speaker 10: All three of them are going to get their fair 627 00:32:32,960 --> 00:32:36,400 Speaker 10: share of revenue from the clients. The problem is on 628 00:32:36,440 --> 00:32:39,120 Speaker 10: the other side, they actually don't have enough GPU capacity 629 00:32:39,120 --> 00:32:41,640 Speaker 10: to go out and build some of that AI workloads 630 00:32:41,720 --> 00:32:46,680 Speaker 10: or training models and other things. But I'm fairly confident 631 00:32:46,720 --> 00:32:48,680 Speaker 10: that over the next twelve for twenty four months, all 632 00:32:48,720 --> 00:32:52,400 Speaker 10: three of them are going to see some benefit from Jenai. 633 00:32:52,640 --> 00:32:54,960 Speaker 3: Who's got the ability to deliver the best margins. You 634 00:32:55,080 --> 00:32:59,120 Speaker 3: note that revenue grew by twelve percent of aws, but the 635 00:32:59,120 --> 00:33:02,080 Speaker 3: margin jump by third thirty percent. Who else is at 636 00:33:02,160 --> 00:33:04,360 Speaker 3: thirty percent or beating that? Or is that where the 637 00:33:04,400 --> 00:33:07,360 Speaker 3: aspiration is to deliver stronger margins? 638 00:33:07,400 --> 00:33:08,880 Speaker 5: Is that part of the buy thesis. 639 00:33:10,120 --> 00:33:11,760 Speaker 10: So one of the things we have talked about, think 640 00:33:11,760 --> 00:33:15,000 Speaker 10: about all the three companies in the long run. Now 641 00:33:15,040 --> 00:33:16,480 Speaker 10: the long run could be five years. 642 00:33:16,360 --> 00:33:16,960 Speaker 13: Or ten years. 643 00:33:17,200 --> 00:33:20,880 Speaker 10: These businesses have potential to grow operating margins north of 644 00:33:20,800 --> 00:33:23,640 Speaker 10: forty percent. Now that's the reason why we say that 645 00:33:23,760 --> 00:33:26,240 Speaker 10: is if you look at you know, processing companies and 646 00:33:26,320 --> 00:33:29,840 Speaker 10: other things, when they reach maturity stage, these are highly 647 00:33:29,880 --> 00:33:33,360 Speaker 10: scalable business Once you you know, go through the cycle 648 00:33:33,400 --> 00:33:35,600 Speaker 10: of capax, you don't really require that much money to 649 00:33:36,160 --> 00:33:39,200 Speaker 10: maintain them. We are confident in the long run all three 650 00:33:39,200 --> 00:33:39,560 Speaker 10: of them. 651 00:33:39,520 --> 00:33:40,560 Speaker 13: Will have great margins. 652 00:33:40,600 --> 00:33:42,880 Speaker 10: The other two companies don't really disclose it at the 653 00:33:42,920 --> 00:33:46,800 Speaker 10: cloud level, at that infrastructure level, but to that extent, 654 00:33:46,840 --> 00:33:49,760 Speaker 10: I mean, I mean, frankly, alphabet is still losing money 655 00:33:49,760 --> 00:33:52,920 Speaker 10: in their cloud portfolio. But there is a lot of 656 00:33:53,160 --> 00:33:54,400 Speaker 10: different things that go into that. 657 00:33:54,520 --> 00:33:56,480 Speaker 2: Put on what's the takeaway that we've gotten in terms 658 00:33:56,520 --> 00:33:59,520 Speaker 2: of these earnings about how much retailers in the US 659 00:33:59,640 --> 00:34:01,480 Speaker 2: continue their hedonistic tendencies. 660 00:34:02,760 --> 00:34:04,480 Speaker 13: Yeah, I thank you for the retailers. 661 00:34:04,480 --> 00:34:07,000 Speaker 11: It's going to be mixed. As we moved through holiday, 662 00:34:07,360 --> 00:34:09,600 Speaker 11: there is going to be clear winners and losers. And 663 00:34:10,200 --> 00:34:13,040 Speaker 11: we do think that the consumer is really focused on 664 00:34:13,160 --> 00:34:15,960 Speaker 11: value and that trend isn't going away for the holiday season, 665 00:34:16,360 --> 00:34:18,480 Speaker 11: so they're going to have to suction the pedal on 666 00:34:18,560 --> 00:34:21,600 Speaker 11: price and inventories aren't as high as they were last year, 667 00:34:22,000 --> 00:34:24,960 Speaker 11: so it's really going to depend on their ability to 668 00:34:25,200 --> 00:34:28,680 Speaker 11: bring product in to drive demand and really keep prices 669 00:34:28,760 --> 00:34:30,000 Speaker 11: well the holiday season. 670 00:34:30,280 --> 00:34:32,640 Speaker 2: Un I'm Gail on our grounda both of you. Thank 671 00:34:32,680 --> 00:34:39,920 Speaker 2: you so much for being with us. One aspect of 672 00:34:39,920 --> 00:34:41,800 Speaker 2: the market that's kind of flown under the radar is 673 00:34:41,840 --> 00:34:44,959 Speaker 2: the regional banks in particular, especially as we talk about 674 00:34:44,960 --> 00:34:47,160 Speaker 2: the big banks and the successors and all of that, 675 00:34:47,520 --> 00:34:49,439 Speaker 2: and we could see that so far you're to date 676 00:34:49,840 --> 00:34:55,480 Speaker 2: the BKX, the KBX KBW index is down twenty five percent, 677 00:34:55,960 --> 00:34:58,600 Speaker 2: close to the lows that we saw during the crisis 678 00:34:58,719 --> 00:35:01,640 Speaker 2: back in March. Now is Chris Marinac, director of research 679 00:35:01,640 --> 00:35:04,000 Speaker 2: at Jenny Montgomery Scott. And I know Chris that you've 680 00:35:04,040 --> 00:35:06,640 Speaker 2: been really bullish on the banking sector and I want 681 00:35:06,640 --> 00:35:08,920 Speaker 2: to get your take on what you make of the 682 00:35:08,960 --> 00:35:10,560 Speaker 2: selloff that has persisted. 683 00:35:11,719 --> 00:35:11,879 Speaker 11: Well. 684 00:35:11,920 --> 00:35:15,000 Speaker 14: I think, Lisa, there's been some continued struggles about the 685 00:35:15,040 --> 00:35:17,600 Speaker 14: fears of credit quality getting worse in twenty twenty four. 686 00:35:18,000 --> 00:35:20,480 Speaker 14: I think that there's been some passive flows against the banks. 687 00:35:20,560 --> 00:35:23,120 Speaker 14: I've heard of a lot of folks shorting the KRX 688 00:35:23,160 --> 00:35:25,200 Speaker 14: and the KRE and then going along in the Nasdaq 689 00:35:25,280 --> 00:35:27,480 Speaker 14: one hundred, So that has been a challenge in terms 690 00:35:27,520 --> 00:35:30,360 Speaker 14: of incremental selling. I think to some extent, the banks 691 00:35:30,360 --> 00:35:33,719 Speaker 14: are not sexy here and they're not doing anything from 692 00:35:33,760 --> 00:35:36,960 Speaker 14: a growth perspective that causes investors to dive in. And 693 00:35:37,040 --> 00:35:39,000 Speaker 14: I think most of the fun flows has been to 694 00:35:39,200 --> 00:35:41,880 Speaker 14: other growth areas and other areas that are kind of 695 00:35:42,360 --> 00:35:47,800 Speaker 14: avoiding anything that's economically sensitive and perhaps recession recession. 696 00:35:47,400 --> 00:35:49,480 Speaker 2: proNT So have you gotten less bullish on this area 697 00:35:49,520 --> 00:35:52,560 Speaker 2: because we have seen a bit of underperformance versus expectations, 698 00:35:52,560 --> 00:35:55,640 Speaker 2: particularly in the regional space, and there isn't a clear 699 00:35:55,719 --> 00:35:56,760 Speaker 2: pathway to growth. 700 00:35:58,000 --> 00:36:00,239 Speaker 14: Well, the stocks have an opportunity to trade back to 701 00:36:00,280 --> 00:36:02,600 Speaker 14: forty five to forty seven on the KRE. I think 702 00:36:02,640 --> 00:36:05,400 Speaker 14: the question is can we get investors to pay attention 703 00:36:05,480 --> 00:36:06,320 Speaker 14: to what really. 704 00:36:06,080 --> 00:36:09,160 Speaker 13: Matters, which is cash flow. The operating cash. 705 00:36:09,000 --> 00:36:11,600 Speaker 14: Flow for most banks is only down about ten percent 706 00:36:12,000 --> 00:36:15,960 Speaker 14: from the August estimate's pre third quarter earnings, and so 707 00:36:16,120 --> 00:36:18,480 Speaker 14: I think the other ninety percent of PP and R 708 00:36:18,640 --> 00:36:21,080 Speaker 14: is actually very strong to allow banks to earn through 709 00:36:21,120 --> 00:36:23,879 Speaker 14: the cycle on credit issues and anything. 710 00:36:23,600 --> 00:36:24,359 Speaker 13: That comes their way. 711 00:36:24,400 --> 00:36:28,040 Speaker 14: I think their capacity to absorb losses is extremely good, 712 00:36:28,440 --> 00:36:30,720 Speaker 14: and that's one of the reasons I've thought the stocks 713 00:36:30,719 --> 00:36:32,240 Speaker 14: have opportunities. 714 00:36:31,640 --> 00:36:32,200 Speaker 13: To do better. 715 00:36:32,480 --> 00:36:34,000 Speaker 14: I don't think we'll go back to where we would 716 00:36:34,000 --> 00:36:36,160 Speaker 14: have been on the KRE pre Silicon valley, but I 717 00:36:36,200 --> 00:36:38,440 Speaker 14: do think we can be better than we are, and 718 00:36:38,440 --> 00:36:41,080 Speaker 14: I think we have to get through this recession discounting 719 00:36:41,080 --> 00:36:42,240 Speaker 14: that the market is doing. 720 00:36:42,040 --> 00:36:42,560 Speaker 13: At the moment. 721 00:36:42,680 --> 00:36:45,359 Speaker 3: Yeah, we are pretty obsessed with the recession dis kind 722 00:36:45,440 --> 00:36:48,280 Speaker 3: in it just hasn't come home Durus yet, Chris good Morning. 723 00:36:49,000 --> 00:36:51,799 Speaker 3: Provisioning was something that stood out for me as being 724 00:36:51,840 --> 00:36:53,760 Speaker 3: on the low side in this reporting season. 725 00:36:54,520 --> 00:36:56,800 Speaker 5: Of course, if there is no dramatic. 726 00:36:56,440 --> 00:36:58,839 Speaker 3: Slow dying and there is no hard landing, then that's 727 00:36:58,880 --> 00:37:01,560 Speaker 3: all justified that The acinting reason, do you think twenty 728 00:37:01,560 --> 00:37:05,000 Speaker 3: twenty four is going to be madred by an increase 729 00:37:05,080 --> 00:37:09,080 Speaker 3: a material increase in provisioning, and if so, word does 730 00:37:09,120 --> 00:37:10,520 Speaker 3: it hurt the most. 731 00:37:11,080 --> 00:37:13,680 Speaker 14: So I think that the provisions will rise in twenty 732 00:37:13,680 --> 00:37:16,120 Speaker 14: four primarily because I think charge offs will go up. 733 00:37:16,160 --> 00:37:18,040 Speaker 14: We have a lot of companies who are writing off 734 00:37:18,120 --> 00:37:20,759 Speaker 14: fifteen to twenty basis points of charge offs, which is 735 00:37:21,160 --> 00:37:23,760 Speaker 14: very very low. So going back to thirty or forty 736 00:37:23,800 --> 00:37:26,799 Speaker 14: basis points for most mid sized banks is normal. I 737 00:37:26,840 --> 00:37:30,400 Speaker 14: think your large national companies probably right off between forty 738 00:37:30,400 --> 00:37:32,759 Speaker 14: five and fifty, so that's a little higher than the 739 00:37:32,760 --> 00:37:35,640 Speaker 14: forty range that they are today, So that will cause 740 00:37:35,680 --> 00:37:38,279 Speaker 14: provision to rise. I think generally most banks are going 741 00:37:38,320 --> 00:37:42,600 Speaker 14: to set aside reserves to kind of build confidence with themselves. Clearly, 742 00:37:42,600 --> 00:37:46,240 Speaker 14: the accounting on SECOIL has led banks to actually limit 743 00:37:46,280 --> 00:37:47,360 Speaker 14: their reserve growth. 744 00:37:47,080 --> 00:37:48,960 Speaker 13: This quarter, less than I would have fought. 745 00:37:49,040 --> 00:37:51,680 Speaker 14: I think to some extent it is driven by unlimited 746 00:37:51,719 --> 00:37:54,200 Speaker 14: balance sheet growth and also the Moody's forecast that a 747 00:37:54,239 --> 00:37:57,000 Speaker 14: lot of banks use has actually pushed out the recession, 748 00:37:57,239 --> 00:37:59,760 Speaker 14: and that is also tamped down the reserve calculations. 749 00:38:00,120 --> 00:38:02,600 Speaker 3: I mean, you think the consensus is obviously JP Morgan 750 00:38:02,719 --> 00:38:05,960 Speaker 3: just keeps getting bigger. It's just like this juggernaut that 751 00:38:06,560 --> 00:38:09,000 Speaker 3: just swallows everything and moves everything out of its way. 752 00:38:09,960 --> 00:38:12,600 Speaker 3: You've listened to the conference calls, You've listened to a 753 00:38:12,600 --> 00:38:15,520 Speaker 3: couple of these CEOs. Who's under most pressure in the 754 00:38:15,560 --> 00:38:17,799 Speaker 3: banking sphere? I know I have my target list, But 755 00:38:18,239 --> 00:38:19,719 Speaker 3: who do you think is under the most pressure as 756 00:38:19,719 --> 00:38:20,680 Speaker 3: the CEO at the moment? 757 00:38:21,400 --> 00:38:24,040 Speaker 14: Well, I think there are regional banks who have capital 758 00:38:24,120 --> 00:38:27,400 Speaker 14: ratios that are depressed when you take the mark to 759 00:38:27,480 --> 00:38:31,160 Speaker 14: market for all securities, both for the available for sale 760 00:38:31,160 --> 00:38:34,120 Speaker 14: and held the maturity, So that issue has to be resolved. 761 00:38:34,160 --> 00:38:36,200 Speaker 14: I think to some extent, banks will work out of 762 00:38:36,280 --> 00:38:39,040 Speaker 14: their issues on their own because securities are going to 763 00:38:39,120 --> 00:38:42,719 Speaker 14: start maturing in four and twenty five and to some 764 00:38:42,760 --> 00:38:45,520 Speaker 14: extent these marks start to flatten out. We don't have 765 00:38:45,560 --> 00:38:47,879 Speaker 14: to see FED policy chains for the marks to get better. 766 00:38:47,920 --> 00:38:50,000 Speaker 14: I think somebody think that some of the payoffs of 767 00:38:50,080 --> 00:38:53,279 Speaker 14: securities coming due at maturity will help. I think the 768 00:38:53,320 --> 00:38:55,799 Speaker 14: pressure is on the regional banks who are going to 769 00:38:55,880 --> 00:39:00,160 Speaker 14: have these new FED accounting rules, which basically means who 770 00:39:00,239 --> 00:39:02,960 Speaker 14: ratios are lower than they're reported, And even though it's 771 00:39:03,000 --> 00:39:06,200 Speaker 14: phased in over a three year period, the market just 772 00:39:06,239 --> 00:39:08,920 Speaker 14: perceives that they have to adopt those capital rules today, 773 00:39:09,160 --> 00:39:10,919 Speaker 14: so to some extent, I think we have to fight 774 00:39:10,960 --> 00:39:13,880 Speaker 14: through that. The good news is the banks are profitable, 775 00:39:14,080 --> 00:39:16,680 Speaker 14: they can pay dividends. There's no changes happening on some 776 00:39:16,760 --> 00:39:20,359 Speaker 14: of those major items like common and preferred dividends. So 777 00:39:20,400 --> 00:39:22,959 Speaker 14: I think the attitude for the investors should be better 778 00:39:22,960 --> 00:39:24,520 Speaker 14: than it is. But I think the pressure is really 779 00:39:24,600 --> 00:39:26,520 Speaker 14: on the regional banks where the definition is. 780 00:39:26,520 --> 00:39:27,920 Speaker 13: Changing on capital. 781 00:39:28,280 --> 00:39:30,720 Speaker 14: I do think will work through it, but that continues 782 00:39:30,760 --> 00:39:32,080 Speaker 14: to be the pressure point. 783 00:39:31,840 --> 00:39:32,360 Speaker 13: At the moment. 784 00:39:33,680 --> 00:39:37,040 Speaker 8: So does that mean that we have to extend the 785 00:39:37,040 --> 00:39:40,560 Speaker 8: BTFP and do you believe that they will extend that we. 786 00:39:40,760 --> 00:39:41,840 Speaker 13: Don't have to extend it. 787 00:39:41,760 --> 00:39:44,000 Speaker 14: It would be nice to extend because it simply takes 788 00:39:44,040 --> 00:39:45,440 Speaker 14: one issue off the table. 789 00:39:46,320 --> 00:39:48,240 Speaker 13: The use of BTFP has been very limited. 790 00:39:48,239 --> 00:39:50,759 Speaker 14: It's hovering around one hundred and nine billion for weeks 791 00:39:50,800 --> 00:39:52,520 Speaker 14: and weeks, and so the banks who have used it 792 00:39:52,600 --> 00:39:55,960 Speaker 14: have used it. Some may renew if given the opportunity, 793 00:39:56,000 --> 00:39:58,320 Speaker 14: but if they don't, I don't think it's a big problem. 794 00:39:58,520 --> 00:39:59,600 Speaker 13: It would be nice to do that. 795 00:39:59,640 --> 00:40:02,880 Speaker 14: It would be nice to have some FDIC deposit insurance 796 00:40:02,920 --> 00:40:06,480 Speaker 14: reform to be able to buy insurance on uninsured depositors. 797 00:40:06,560 --> 00:40:08,399 Speaker 14: I'm not sure the FDIC is going to go there, 798 00:40:09,360 --> 00:40:10,759 Speaker 14: so that would be my thought on that. 799 00:40:11,360 --> 00:40:14,800 Speaker 8: So it sounds like the regional banks have a maturity 800 00:40:14,840 --> 00:40:16,799 Speaker 8: profile that's not as dire as I think some of 801 00:40:16,840 --> 00:40:18,960 Speaker 8: us were worried about. But I think about some of 802 00:40:18,960 --> 00:40:21,080 Speaker 8: the assets that are sitting there. Are the regional banks 803 00:40:21,160 --> 00:40:23,160 Speaker 8: kind of stuck like utilities where I'm in a flat 804 00:40:23,200 --> 00:40:25,560 Speaker 8: yield curve, so I don't have a lot going on there. 805 00:40:25,640 --> 00:40:27,399 Speaker 8: I have some things I may have to write off, 806 00:40:27,520 --> 00:40:29,160 Speaker 8: but I just don't see a lot of growth ahead 807 00:40:29,200 --> 00:40:31,239 Speaker 8: of me. And they don't have the diversification of some 808 00:40:31,280 --> 00:40:32,240 Speaker 8: of the money center banks. 809 00:40:33,280 --> 00:40:36,080 Speaker 13: Well, I actually think the diverse location is actually very good. 810 00:40:36,120 --> 00:40:39,200 Speaker 14: I mean, you have office real estates very limited, even 811 00:40:39,239 --> 00:40:42,240 Speaker 14: commercial real estates very limited. Within the C and I space, 812 00:40:42,280 --> 00:40:44,719 Speaker 14: there's a lot of different mid size and small businesses 813 00:40:44,760 --> 00:40:47,760 Speaker 14: that regional banks and even community banks do and provide 814 00:40:47,800 --> 00:40:50,520 Speaker 14: a great service for that. The economy is healthier than 815 00:40:50,560 --> 00:40:52,920 Speaker 14: I think folks realize. But even if it changes, the 816 00:40:52,960 --> 00:40:56,000 Speaker 14: ability for companies to earn through is very good. What 817 00:40:56,080 --> 00:40:58,759 Speaker 14: we see happening is actually less balance sheet growth but 818 00:40:58,840 --> 00:41:02,560 Speaker 14: more turnover old loans that are at low yields, renewing 819 00:41:02,560 --> 00:41:03,400 Speaker 14: at high yields. 820 00:41:03,560 --> 00:41:05,279 Speaker 13: A new loan today is going on the books at 821 00:41:05,320 --> 00:41:06,439 Speaker 13: eight percent, and. 822 00:41:06,360 --> 00:41:08,480 Speaker 14: That actually is very attractive, and it's going to cosset 823 00:41:08,560 --> 00:41:12,120 Speaker 14: the mix to shift on netatrist margin. We think margins 824 00:41:12,120 --> 00:41:14,600 Speaker 14: may actually bottom in the first quarter, if not sooner, 825 00:41:14,880 --> 00:41:16,080 Speaker 14: and that will help the stocks. 826 00:41:16,120 --> 00:41:17,640 Speaker 13: I think catch a little bit of a bid. 827 00:41:18,000 --> 00:41:20,080 Speaker 2: Chris, just real quick here, final word on Ted Pick 828 00:41:20,160 --> 00:41:22,840 Speaker 2: the idea of some of the succession at Morgan Stanley. 829 00:41:23,200 --> 00:41:25,640 Speaker 2: Is it significant in terms of the direction of that 830 00:41:25,680 --> 00:41:27,520 Speaker 2: bank or do you think that it's basically going to 831 00:41:27,560 --> 00:41:28,680 Speaker 2: be a continuing of the guard. 832 00:41:29,800 --> 00:41:32,600 Speaker 14: Well, the investment banking business is the highest margin business 833 00:41:32,840 --> 00:41:36,120 Speaker 14: of these large international firms, so it didn't surprise me 834 00:41:36,200 --> 00:41:38,560 Speaker 14: at all that he was the choice. I think that 835 00:41:39,040 --> 00:41:42,160 Speaker 14: his leadership inside the company has been very well thought 836 00:41:42,200 --> 00:41:44,520 Speaker 14: of for a long time, so it seemed to make sense. 837 00:41:44,840 --> 00:41:46,360 Speaker 14: I think to some extent they want to put the 838 00:41:46,440 --> 00:41:49,840 Speaker 14: best foot forward, not to be negative on the wealth 839 00:41:49,840 --> 00:41:52,359 Speaker 14: management space, because it's certainly a huge driver. They picked 840 00:41:52,440 --> 00:41:54,400 Speaker 14: up a lot of new customers from the First Republic 841 00:41:54,440 --> 00:41:57,680 Speaker 14: failure in April and May, so there's a lot happening there. 842 00:41:57,719 --> 00:42:00,719 Speaker 14: But it seemed to be kind of continuing on the 843 00:42:00,760 --> 00:42:02,439 Speaker 14: investment banking Angela. 844 00:42:02,360 --> 00:42:04,960 Speaker 2: Chris Marrinac of Jenny Montgomery Scott. Thank you so much. 845 00:42:05,440 --> 00:42:08,920 Speaker 2: Subscribe to the Bloomberg Surveillance Podcast on Apple, Spotify, and 846 00:42:08,960 --> 00:42:12,400 Speaker 2: anywhere else you get your podcasts. Listen live every weekday 847 00:42:12,400 --> 00:42:15,000 Speaker 2: starting at seven am Eastern on Bloomberg dot com, the 848 00:42:15,040 --> 00:42:17,120 Speaker 2: iHeartRadio app tune In, and. 849 00:42:17,239 --> 00:42:18,440 Speaker 1: The Bloomberg Business app. 850 00:42:18,719 --> 00:42:22,000 Speaker 2: You can watch us live on Bloomberg Television and always 851 00:42:22,120 --> 00:42:25,520 Speaker 2: on the Bloomberg Terminal. Thanks for listening. I'm Lisa Abramowitz, 852 00:42:25,560 --> 00:42:26,600 Speaker 2: and this is Bloomberg