Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: at Bloomberg dot com slash podcast. The Mannheim Index used
Speaker 1: car prices rising and this was one of the big
Speaker 1: upward pressures on inflation over the last year. We thought
Speaker 1: it had subsided, and maybe it has. This could be
Speaker 1: a head fake, of course, but still worth talking about
Speaker 1: with Anna Wong. She's our chief US economists from Bloomberg
Speaker 1: Economics UM, and she joins us ahead of, of course,
Speaker 1: the all important interview with your own Palace afternoon. To
Speaker 1: believe that's a twelve thirty this afternoon. We'll carry it
Speaker 1: on Bloomberg Radio on Bloomberg Television. Anna, thanks for joining us.
Speaker 1: What do you think about this slight revival and used
Speaker 1: car prices? Is its seasonal? Um? Could it be just
Speaker 1: an anomaly in the data, because we've had some pretty
Speaker 1: crazy anomalies thus far with new jobs at it on Friday? Yeah,
Speaker 1: So Um, you know, we we had slags before that.
Speaker 1: The disinflation in particularly cars category might not be a
Speaker 1: very sustainable one because if you look at the inventory
Speaker 1: to sales ratios to cars, it's still substantially below the
Speaker 1: pre pandemic level, which means that the supply, even though
Speaker 1: the supply demand conditions are you know, getting better, it's
Speaker 1: still the very very tight. So I I always thought that, um,
Speaker 1: you know, it's not gonna last. The sharp decline in prices.
Speaker 1: What matters more today? Anna, is it the what Chairman
Speaker 1: Powell may or may not say or deviate from his messaging?
Speaker 1: Where is it the State of the Union speech? I'm
Speaker 1: wondering how much of geopolitics needs to be factored in here? Yeah,
Speaker 1: I think so. Notice that Jerome Power Power that barely
Speaker 1: talked about China and his press conference last week. So
Speaker 1: I think he is not going to talk too much
Speaker 1: about geopolitics or even Ukraine. I mean, um, you know, so,
Speaker 1: I think he's going to focus his message on the
Speaker 1: US labor market because that is the number one driving
Speaker 1: force of inflation in the US right now, and he's
Speaker 1: going to you know, perhaps try to, um, you know,
Speaker 1: be more focused on his message that the FED still
Speaker 1: has a long way to go, But he said that
Speaker 1: last week. It's just that it's the conviction in his tone.
Speaker 1: It's the tone, not the substance that needs to change.
Speaker 1: But I doubt that the tone can be changed that
Speaker 1: much because I think the non farm paywall report last
Speaker 1: Friday really put a lot more confusion in in the
Speaker 1: picture of the economy. And you know, and the market
Speaker 1: is not Verry does not do very well with nulence
Speaker 1: in the message. And right now, what Powell wants to
Speaker 1: convey is the nw olence and uncertainty and the economy. So, um,
Speaker 1: can you convey that without the market thinking is too devish?
Speaker 1: Can you convey that without the market pricing and rate cuts?
Speaker 1: Because you know, he at the last press conference that
Speaker 1: financial conditions are getting tighter, And I guess if you
Speaker 1: pick any point in time with which to compare today
Speaker 1: to uh you could make that argument. But most everyone
Speaker 1: agrees financial conditions are really loose right now. For a
Speaker 1: FED that's trying to fight you know, four or five
Speaker 1: percent inflation, well, you know, the set is looking at
Speaker 1: a different financial conditions, not an index, but certain variables.
Speaker 1: Right if you look at the credit officers survey, it
Speaker 1: shows that the kind of like the landing standards have
Speaker 1: been tightening, and that is something that that really cares about.
Speaker 1: If you know, if it's harder for people to borrow,
Speaker 1: that is clearly, you know, a more hardening of financial conditions.
Speaker 1: That also, the feed is looking at the yield curve,
Speaker 1: the real rates along the yield curve, and with inflation
Speaker 1: falling so fast in the last couple of months, it
Speaker 1: means that the real yields happened staying at kind of
Speaker 1: what that level has been a couple of months ago.
Speaker 1: But are they trying to fight inflation through a housing
Speaker 1: crash or I thought they were trying to affect the
Speaker 1: jobs market and they clearly haven't done that yet. Well,
Speaker 1: you know, most of the economy is driven by consumption,
Speaker 1: and when consumption slows, then job growth is slow and
Speaker 1: consumption if you look at the lending standards, That's why
Speaker 1: I mentioned the lending standards. Uh, it's it's it's hard.
Speaker 1: It's getting harder for people to qualify for auto loans,
Speaker 1: it's hard for people to get harder for people to
Speaker 1: qualify for housing loans or credit cards loans. So so
Speaker 1: so I think that that's that's what the FEAT is
Speaker 1: talking about when they are looking about tightening financial conditions.
Speaker 1: You know, what does that then mean when it comes
Speaker 1: to something like the debt ceiling. I don't quite understand
Speaker 1: how this is even factored in when you're looking at
Speaker 1: a a period of significant tightening from the federal reserve,
Speaker 1: and then you have things like expanded TV credits as well,
Speaker 1: At what points fiscal policy really factor in here? Well,
Speaker 1: there's two types of fiscal policy um UM, the federal
Speaker 1: level and also the state and local level. And at
Speaker 1: the federal level it's UM, it's actually working towards what
Speaker 1: the Fed wants things to write. Of course, the depth
Speaker 1: ceiling default would be catastrophic. However, at the federal level, UM,
Speaker 1: you know, if they got a negotiation for UM fiscal
Speaker 1: cuts as a result of UM, you know, uh, avoiding
Speaker 1: this death feeling default, then it's actually working towards uh
Speaker 1: the fat's inflation takes. But however, the states responsibility, right,
Speaker 1: it would be nice if we just didn't spend willy
Speaker 1: nilly with with no end in sight constantly, you know, yes,
Speaker 1: and and and the infrastruct Sure Bill. The inflationary impact
Speaker 1: of the Infrastructure Bill is going to kick in this
Speaker 1: year as well. So, but at the state on local level,
Speaker 1: and this is something that Powell has said several times already,
Speaker 1: that they're still flushed with cash. We did a study
Speaker 1: last year and found that the state and local government
Speaker 1: have about seven billion in excess net savings UM and
Speaker 1: that's why you saw a whole bunch of states giving
Speaker 1: out the text credit late last year. And that's why
Speaker 1: some households income growth of so robuff heading into late
Speaker 1: last year partly, and I think that could explain why
Speaker 1: consumption could actually be still rather solid in the first quarter,
Speaker 1: just because there was heading to towards the end of
Speaker 1: last year. There's just a lot of fiscal spending income
Speaker 1: coming from the state. Yeah, because I guess the fiscal
Speaker 1: spending that we saw over the last few years had
Speaker 1: long and variable lags as well. Did you hear, by
Speaker 1: the way, did you hear Danny blanche Flower? Uh? He
Speaker 1: was kind of ripping on the Bank of England. But
Speaker 1: his argument makes sense when apply to the Fed as well,
Speaker 1: that these um this monetary tightening doesn't hit the economy
Speaker 1: until I think he's had eighteen months to two years later.
Speaker 1: That's what he was looking at when he was on
Speaker 1: the Bank of England Monetary Policy Committee. So, um, he's
Speaker 1: saying they should already have paused. And I'm sure he
Speaker 1: believes the same thing about the US because his concern
Speaker 1: is that a deep recession is worse than you know,
Speaker 1: the abating inflation picture. Yeah. So um, the eighteen to
Speaker 1: twenty four months monetary lag is kind of the standard
Speaker 1: good old textbook lags, right, but it's estimated based on
Speaker 1: the last one, you know, twenty thirty years of data.
Speaker 1: And I think at the FED right now there's a
Speaker 1: heated debate on how, how, how how much shorter is
Speaker 1: the lack And it's likely because of the the FED
Speaker 1: communication style now with the press conference and you know
Speaker 1: immediately uh doing hand only like using for guidance to
Speaker 1: guide the market and changing the shape of the yield curve.
Speaker 1: That's how that's why the lacks of monetary policy would
Speaker 1: be much shorter than you know, back in the days
Speaker 1: when most of the lending and credit conditions in in
Speaker 1: the in the in the economy is influenced by you
Speaker 1: know actual uh uh, by by the long lags of
Speaker 1: when when interest rate would finally rise. So I think
Speaker 1: I think the lags are much shorter today, and your
Speaker 1: model had previously predicted a chance of recession which is
Speaker 1: pretty high um this year. Do you still see that
Speaker 1: when you look at your model, Well, the model is
Speaker 1: showing slightly lower probability of recessions. But our assessment has
Speaker 1: always been that's not one. But now I would say
Speaker 1: on the whole it's it's you know, if you ask
Speaker 1: me what's the probability of twenty four months ahead probability recession,
Speaker 1: I will still say it's very high, because the SUD
Speaker 1: gets to determine whether there's a recession here. If the
Speaker 1: said think the economy is growing too fast, they will
Speaker 1: raise rates such the economy will have to fall into
Speaker 1: the recession. All right, Anna Wong, thank you so much
Speaker 1: for joining us, Bloomberg's chief US Bloomberg Economics chief US
Speaker 1: Economists talking to us about really what to expect from
Speaker 1: Jerome Powell this afternoon. Let's get back though to the
Speaker 1: equity markets. UH and fixed income focus on the cross
Speaker 1: asset UMU the assets. I guess I should say that
Speaker 1: that we focus on most with Mike Green, he's portfolio
Speaker 1: manager and chief strategists that simplify asset management and they
Speaker 1: have UM a suite of e t F s. Mike
Speaker 1: talked to us about simplify first and tell us about
Speaker 1: your products. Sure, so Simplified was launched in September to
Speaker 1: take advantage of a rule change the facilitated the introduction
Speaker 1: of derivatives within the et F structures. That creates the
Speaker 1: opportunity for us to offer products that would offer a
Speaker 1: core exposure, for example, to a ten year bond or
Speaker 1: to an smp US large cape equities and then modify
Speaker 1: that payout by incorporating a derivative overlay associated with it.
Speaker 1: That was very difficult to do prior to September, and
Speaker 1: since September has become much easier. It's allowed us to
Speaker 1: offer products that we think you're unique and offer benefits
Speaker 1: to into individual investor portfolios, into the r R a
Speaker 1: community that services them. So what you've done in E
Speaker 1: t f s and what others have done over the
Speaker 1: past few years has really changed the investment landscape UM
Speaker 1: in a way that makes I think active management more
Speaker 1: possible with E t s and it ever has been before.
Speaker 1: How do you see the passive versus active UM argument
Speaker 1: right now? Well, so that's a really complicated question. But um, well,
Speaker 1: because for a long time, right, you know, after this
Speaker 1: sort of Jack Bogel revolution, and of course that's mute
Speaker 1: tool funds really and not ets, but everybody was looking
Speaker 1: to index and keep costs low. And I think e
Speaker 1: t f s in a way kind of sprang out
Speaker 1: of that in the late eighties early nineties. But um,
Speaker 1: now we've seen a lot more nuanced products that aren't
Speaker 1: as straightforward as those early e t f s, like
Speaker 1: the ones from Simplify. Yeah, I think that's I think
Speaker 1: that's true. And so this is part of the growing
Speaker 1: ranks of active management e t s UM. The challenge
Speaker 1: that the industry really faces this is that it has
Speaker 1: been bifurcated and effectively blackguard, black rock Vanguard and the rest.
Speaker 1: And the real challenge exists in the form of obtaining distribution,
Speaker 1: obtaining shelf space effectively within the retail universe when it
Speaker 1: is so dominated by the players a black rock vanguard,
Speaker 1: who through a combination of scale, a combination of lobbying, etcetera,
Speaker 1: get themselves into a position where any product that they
Speaker 1: launched can immediately go to scale, immediately become a viable product, etcetera.
Speaker 1: That's making it very difficult for everybody else in the
Speaker 1: industry to to to be straightforward. That's the reason why
Speaker 1: in this uh, in this case, really it do apply
Speaker 1: in a sense, right, Well, it's yeah, So it's actually
Speaker 1: important that you recognize that there is that characteristic that
Speaker 1: this is an oligopalistic industry that we've seen increasing concentration
Speaker 1: to the point that candidly, most of my work in
Speaker 1: the space around active passive and if you google my
Speaker 1: name or you google any of my work on this,
Speaker 1: there's plenty of speeches out there talking about this component.
Speaker 1: It is actually tangibly beginning to change the structure of
Speaker 1: the market. Market behavior that we're seeing is increasingly reminiscent
Speaker 1: of the kind of low float, extreme behaviors that we
Speaker 1: saw in the ninety nineties associated with the dot com cycle.
Speaker 1: We largely put that not at the feet of the FED,
Speaker 1: which is a convenient scapeboad for this, but actually the
Speaker 1: changing market structure that's caused by the concentration of assets
Speaker 1: and those two players, Well, can you elaborate on that
Speaker 1: the changing market structure? What exactly is changing here? So
Speaker 1: what's happening is is that you're creating giant pools of
Speaker 1: capital that only face the market when there is a
Speaker 1: net order flow. Right. So, if you're a client of Vanguard,
Speaker 1: and I'm a client of Vanguard within their index mutual funds,
Speaker 1: you buy I sell that actually never hits the market.
Speaker 1: It's simply crossed at N A V at the UM
Speaker 1: at the end of the day, Right, So that's not
Speaker 1: actually liquidity. That is how they demanded or required of
Speaker 1: the market when they are gaining share. It means that
Speaker 1: every order that they're placing effectively shows up as a buy.
Speaker 1: It's very few days in history in which Vanguard has
Speaker 1: been a net seller, for example. That means they're continually
Speaker 1: providing liquidity. They're continually creating demand for securities. That's contributing
Speaker 1: to the general rise and valuation that we've seen over
Speaker 1: the last forty years. Um. The problem, of course, emerges
Speaker 1: as they become larger and larger. Those net flows when
Speaker 1: there's an imbalance have becomes so large now that that
Speaker 1: can meaningfully impact market behavior. One of the most terrifying
Speaker 1: statistics that came out of COVID pandemic was Vanguard quite
Speaker 1: proudly announcing that less than one percent of their clients
Speaker 1: had tried to transact in that environment. My reaction to
Speaker 1: that is, oh, my god, what if it had been
Speaker 1: too because that would be such a huge number. It's
Speaker 1: such a huge number. It's an unfathomably large number for
Speaker 1: a market that is really incapable of meeting some very
Speaker 1: basic liquidity needs already. Mike, you've been talking about this
Speaker 1: for some time. As you said, Um, is there any
Speaker 1: possibility that regulators take action as we start to see
Speaker 1: that kind of thing come back? Right? Um, the d
Speaker 1: o J trying to break up a big company in
Speaker 1: Google for the first time since mob el Um has
Speaker 1: has anybody at the sec UM or um in any
Speaker 1: other part of the regulatory environment stated concerns about the
Speaker 1: bigness if I can trumpify it of of Vanguard and
Speaker 1: black Rock. So I think you're facing similar characteristics and
Speaker 1: similar challenges that you see in the companies like Google. Right.
Speaker 1: So Google would argue that they don't have particularly high
Speaker 1: market share, that they actually compete, you know, with all
Speaker 1: forms of information gathering, right, whether it's newspapers, etcetera, or
Speaker 1: all forms of advertising. Those are really disingenuous arguments, as
Speaker 1: we all kind of know. Um. You know, Peter Thiel
Speaker 1: has a book called Zero to One, in which he
Speaker 1: makes a very clear statement that monopolies lie in order
Speaker 1: to protect their monopoly. I'd argue the same thing is
Speaker 1: true within the Vanguard black Rock framework, where you know,
Speaker 1: ostensibly the market share of Vanguard of black Rock combined
Speaker 1: is hovering somewhere in the fifteen percent range. That doesn't
Speaker 1: appear to trigger the traditional dynamics of antitrust. But within
Speaker 1: segments of the industry, particularly within things like four oh
Speaker 1: one case for example, or within target dat funds, which
Speaker 1: are the fastest growing form of retirement vehicle, those market
Speaker 1: shairs are dramatically higher. So, for example, most evidence which
Speaker 1: suggests that Vanguard's marginal market share in other words, the
Speaker 1: percentage of each incremental retirement aller is now approaching. Those
Speaker 1: are just astonishingly large numbers and financial markets and candidly
Speaker 1: numbers that should be pursued by the FCC in the
Speaker 1: same way that they're going after Google. Well, speaking of
Speaker 1: the financial markets, let's talk about today's trade. Specifically, you
Speaker 1: are seeing equities off by about two tons of one percent.
Speaker 1: The bond market again um yields only lower well flat
Speaker 1: actually right now, when you're looking at the ten uere
Speaker 1: Yield talk to us a little bit about what the
Speaker 1: trade is today when we hear from Chairman Powell at twelve,
Speaker 1: I believe so the real question is how much he's
Speaker 1: going to push back against the pricing that was correct
Speaker 1: in large part yesterday, right. So, Um, there's generally been
Speaker 1: a perception that the bond market is trying to price
Speaker 1: in a FED pivot in three, that the Fed will
Speaker 1: be forced to cut interest rates. I think there's some
Speaker 1: problems with the math behind that, but the general observation
Speaker 1: was that the Fed would be done. And that's obviously
Speaker 1: contrast to the message that the Federal Reserves trying to send.
Speaker 1: They want to indicate that they want the economy to
Speaker 1: slow more than it has. It's been complicated, and that's
Speaker 1: obviously a bad choice of words. It's been complicated by
Speaker 1: things like falling oil prices or gasoline prices, which have
Speaker 1: put additional dollars into the pockets that the American consumer
Speaker 1: allowed the economy to re accelerate a little bit in
Speaker 1: the second half of last year. You know, we're now
Speaker 1: hearing a lot of languages as things like easing financial conditions.
Speaker 1: I just think it's important for listeners to understand that
Speaker 1: easing financial conditions just means markets are going up. Mark, Mike,
Speaker 1: thanks so much. Love to have you back on. Mike
Speaker 1: Green there from Simplify Asset Management. So it's a real vodeshift,
Speaker 1: all right, the vibe shift. I think if you added
Speaker 1: up the ages of all three of you, it still
Speaker 1: wouldn't equal me. But it's a pleasure talking to you
Speaker 1: know the less. Uh. Just so the listeners know, we
Speaker 1: don't get to a hundred adding up the ages of
Speaker 1: all three of you. Pretty close. Uh, Jess Meant and
Speaker 1: Katie Greifeld, thank you so much for joining us. Crety Goute,
Speaker 1: You're gonna stick with me. I want to get to
Speaker 1: Alison Williams right now from Bloomberg Intelligence, because we had
Speaker 1: if you work at Credit Sweets and you, I mean,
Speaker 1: like anyone in the whole world are planning, uh, you know,
Speaker 1: all of your spending on your bonus season and you
Speaker 1: got the meeting today. Last night you get a message, Oops,
Speaker 1: meeting canceled. That's got to make you feel like, you know,
Speaker 1: like you work at Deutsche Bank, Allison. Are they gonna
Speaker 1: lose every single person who can find a job anywhere
Speaker 1: else in banking? Well, my guess is that the delay
Speaker 1: might only be a matter of days. Uh. You may
Speaker 1: have also seen the headline that Apollos and talks um
Speaker 1: to take a spake and steak in the spinoff. Um,
Speaker 1: so there is a question, you know, does sort of
Speaker 1: the delay in paying out the bankers have something to
Speaker 1: do with what might be in the works in terms
Speaker 1: of the structure the future structure of the first Boston spinoff. Now, um,
Speaker 1: we we have seen from the other global of US
Speaker 1: and banks that it is a competitive war for talent
Speaker 1: even you know, when things for the bank are going well. Um,
Speaker 1: so we expect that plays out of credit suite, and
Speaker 1: we expect that if this is a venture that's that's
Speaker 1: going forward, that's that's going to be top of mind.
Speaker 1: But you know, perhaps there could be something in terms
Speaker 1: of the future incentives or the structuring of those payments, um,
Speaker 1: related to someone who is going to take a size
Speaker 1: of mistake. Is I guess my my best guests, Well, Alison,
Speaker 1: this is something that we've kind of seen having across
Speaker 1: Wall Street as well, and I want to say across
Speaker 1: some of the European banks. What is the timeline where
Speaker 1: we get back to some sort of normal when it
Speaker 1: comes to kind of the big bank bonuses that were
Speaker 1: used to so define normal, well, we were not worried
Speaker 1: about salary cuts and a lot of talent. I think
Speaker 1: that UM, you know, if we're talking about Credit Suite specifically,
Speaker 1: I think it's you know, when a bank is going
Speaker 1: through a tougher time, they're obviously going to have to UM,
Speaker 1: be creative and you know, a lot a bank always
Speaker 1: wants to align the incentives UM with long term success.
Speaker 1: But that might be UM you know, perhaps even more
Speaker 1: important UM at credit suite in terms of the fact
Speaker 1: that you know, when revenue is down significantly, shareholders and
Speaker 1: other stakeholders such as regulators are going to expect that
Speaker 1: the expenses reflect that UM. But when there is such
Speaker 1: a significant decline due to you know, perhaps top of
Speaker 1: the house and not individual performance, the bank has to
Speaker 1: find a way to reward those individuals UM. And I
Speaker 1: think in fact that that is one of the reasons
Speaker 1: why they are perhaps looking to ju This s been
Speaker 1: out because some of the top bankers may be frustrated
Speaker 1: with UM, you know, paying for some of the UH
Speaker 1: it's called the missteps, bad risk management, UM, what have you.
Speaker 1: But some of the bigger costs incurred in other areas
Speaker 1: of the firms, such as the trading death. Well, but
Speaker 1: I mean my initial question still stands, Allison, has anyone
Speaker 1: who has a decent resume and good credentials, um, you know,
Speaker 1: and any mobility at all remained at the bank or
Speaker 1: have they already lost all of the best talent because
Speaker 1: starting with green Sill and Archagos and through COVID missteps
Speaker 1: and management reshuffles and you know, all of these different
Speaker 1: controversies that they've had in Zurich, hasn't everyone already looked
Speaker 1: somewhere else and tried to get a job. I mean
Speaker 1: it's like musical chairs. The music has stopped and is
Speaker 1: no more chair. Right. Well, you could have said the
Speaker 1: same thing, I suppose about Deutsche Bank a few years ago.
Speaker 1: Definitely that I think in general, UM, you know, obviously
Speaker 1: there the recruiting benefit, if you will, UM, you know,
Speaker 1: goes to those outside of the firm. But um, you know,
Speaker 1: to to the extent that the bank can you know,
Speaker 1: key in on sort of what they're key talent, and
Speaker 1: UM seek to at least reward those that they believe
Speaker 1: will stay with the firm for the long term. UM.
Speaker 1: People like all different kinds of challenges in their positions,
Speaker 1: And I think there's also the question of UM, you know,
Speaker 1: compensation to reflect that just both of both the current
Speaker 1: challenges and the future opportunities. To the extent that this
Speaker 1: UM you know, bankers are looking ahead and looking forward
Speaker 1: to this potential entity. You know, could you join an
Speaker 1: entity that gives you award like something like a Molus
Speaker 1: or lots of these other little spinouts UM that we've
Speaker 1: had over the years. Could you go to work for
Speaker 1: an entity where you could be UM rewarded, tied more
Speaker 1: directly to your deals, but have the backing of a
Speaker 1: big bang. I think that that's that's something that one
Speaker 1: could argue as a unique value proposition for some of
Speaker 1: these bankers. Alison, there's a story from the Wall Street
Speaker 1: Journal that Apollo is in talks for Credit Suite First Boston,
Speaker 1: which we have just been discussing UM. As you mentioned,
Speaker 1: I gotta admit I did you zone out for a
Speaker 1: second to deal with something else. But Alison, I want
Speaker 1: to ask what kind of precedent that sends for a
Speaker 1: lot of these larger asset management PE companies to kind
Speaker 1: of acquire some of these spun off assets. I think,
Speaker 1: you know, we're gonna have to see exactly, you know,
Speaker 1: what type of the investment is and what type of
Speaker 1: role they're going UM to play. UM you know, in
Speaker 1: terms of the prior SPG structure, product groups spent out
Speaker 1: where they were spending out UM some of the assets
Speaker 1: and operations. I think that's that's a little bit different
Speaker 1: than what we're looking at here. And so there's there's
Speaker 1: a few questions in terms of is this unit going
Speaker 1: to absorb part of the you know, private investment unit
Speaker 1: that is part of currently part of asset management and
Speaker 1: will Apollo UM be somehow involved in that? Seems uh,
Speaker 1: you know, not totally likely unless um Apollo is going
Speaker 1: to come in and sort of take over those operations.
Speaker 1: But certainly they have their their own business, their own
Speaker 1: UM fundraising efforts. They don't necessarily need uh credit squeez
Speaker 1: from that respect. UM. So I think I think it's
Speaker 1: gonna it'll just be interesting to see what exactly the
Speaker 1: role Apollo is going to play in terms of will
Speaker 1: they be sourcing any business from this venture? Is it
Speaker 1: just a private investment? All right? Allison, thanks very much.
Speaker 1: Alison Williams there Bloomberg Intelligence head of bank research. He's
Speaker 1: on top of our bank research globally as well as
Speaker 1: b I. You can type BI dot com to get
Speaker 1: all their elephant UH launch pads from your Bloomberg terminal.
Speaker 1: A lot of our markets talk has been derailed over
Speaker 1: the last few days by a balloon. UM. If you
Speaker 1: don't live in a cave, then you will have noticed
Speaker 1: last week when we started to see UM what is
Speaker 1: alleged to be a surveillance balloon floating over Montana. Eventually
Speaker 1: it got to the coast of South Carolina, where an
Speaker 1: F twenty two raptor shot it down. The Chinese have
Speaker 1: said it's a weather balloon from a private company went astray.
Speaker 1: The US says it's a spy balloon that was trying
Speaker 1: to look at our stuff, especially the nuclear silos that
Speaker 1: are all housed around UH there in Montana. Let's bring
Speaker 1: in McK mulroy right now is the co founder of
Speaker 1: the Lobo Institute. He's a senior fellow at the Middle
Speaker 1: East Institute. But he's also the former Deputy Assistant Secretary
Speaker 1: for Defense for the Middle East and a former paramilitary
Speaker 1: operations officer at the CIA. Mick, this is I think
Speaker 1: such an interesting story. Because it's so weird, like who
Speaker 1: sends up a spy balloon when they already have satellites
Speaker 1: staring at the exact same stuff, And why should we care?
Speaker 1: I mean, the Department of Defense UM itself said it's
Speaker 1: not a threat to our physical infrastructure, and they're not
Speaker 1: getting any super top secret intelligence they wouldn't already have gotten,
Speaker 1: So what's the deal. So that's something that is in
Speaker 1: my mind to be determined. Yes, they have satellites all
Speaker 1: over the world over actually, and probably most of them
Speaker 1: focused on the United States. But there's a reason why
Speaker 1: the Chinese were doing this, and it probably is that
Speaker 1: this can collect uh and stay in areas longer than
Speaker 1: satellites can. So I think we really need to exploit
Speaker 1: the debris that we're getting out of the ocean right
Speaker 1: now and find out if that's in fact true. And
Speaker 1: we really need to figure out how we can detect
Speaker 1: these things earlier so that we can interdict them before
Speaker 1: they're hovering over you know our I C B M
Speaker 1: silos in Montana. But wasn't the reporting. I believe that
Speaker 1: this has been in play for years now, and internationally
Speaker 1: as well. I believe there's been balloons detected in Latin America.
Speaker 1: I think over Bolivia as well. Why is this moment
Speaker 1: so crucial when it comes to they're everywhere allegedly right, Well,
Speaker 1: sometimes they might have to go they're going to travel
Speaker 1: from one place to another, so they might cross over
Speaker 1: places that aren't significant to get the places that are.
Speaker 1: And I think from our perspective, you know, this has
Speaker 1: to your point, it's happened over multiple years and multiple
Speaker 1: administration and now it looks like we didn't even know
Speaker 1: that they happened before. It's probably that we're going back
Speaker 1: and looking for a signature that we weren't aware of
Speaker 1: and actually finding them. These balloons might have fit the
Speaker 1: perfect gap instead of the military is calling it. You know,
Speaker 1: our Dwayne domain aware in this gap. So it was
Speaker 1: something that we had a hard time detect. Hopefully, now
Speaker 1: that we tracked this thing across the entirety of the
Speaker 1: United States almost we have now figured out the signature
Speaker 1: so we can re uh compute, if you will, our
Speaker 1: radars in our early detection systems so that they will
Speaker 1: pick these up quicker and we'll be able to say,
Speaker 1: next time interdicted off the coast of Alaska instead of
Speaker 1: watching it go all the way across the United States
Speaker 1: and down they got off the coasts. That's going on.
Speaker 1: So I don't want to put you on the spot here, Mick,
Speaker 1: but we have UM talked to, for example of professor
Speaker 1: at Johns Hopkins who said, well, he was talking about
Speaker 1: the technology that we use in ours five balloons, so
Speaker 1: do we have them too. So to to my knowledge,
Speaker 1: and you know, I'm just talking about what I know.
Speaker 1: I'm the open source, not something I knew from my past,
Speaker 1: we do have all sorts of h collection platforms to
Speaker 1: include balloons. So there has to be something that these
Speaker 1: balloons do. And they're steerable, as we talked about, or
Speaker 1: as the Pentagon has said, this is a starable. They
Speaker 1: can put it right over a location that's obviously closer
Speaker 1: than the satellite and do things like collect not only
Speaker 1: imagery but signals intelligence so everything that emanates from it.
Speaker 1: So I'm sure that if we're doing it, there's some
Speaker 1: value added. That's in addition to spy satellites and obviously
Speaker 1: human collection on the ground, so that both both countries
Speaker 1: of China and the United States like intelligence shot. The
Speaker 1: reason I ask is that so many UM senators and
Speaker 1: congressmen went went went on air saying that they were
Speaker 1: outraged about this, but aren't we doing the exact same thing.
Speaker 1: So that's that's my point. I mean, countries collect intelligence
Speaker 1: on their adversaries, and we try to protect our own
Speaker 1: secrets from our adversaries collecting on it. So I think
Speaker 1: we need to do a much better job. I don't
Speaker 1: know that we need to be outraged, but we certainly
Speaker 1: do need to protect ourselves in the future from this
Speaker 1: ever happening. Again, there's an additional factor on this one.
Speaker 1: In Almo US looks like it was made to embarrass
Speaker 1: the United States, and it is so visible. It just
Speaker 1: loggered over population areas. Perhaps we could be I'm not
Speaker 1: much into be an outrage, but certainly that was intended
Speaker 1: to make us at least angry. It looks like uh
Speaker 1: and and it obviously caused Secretary Blincoln to postpone his
Speaker 1: script evasion. So they got what they asked. So what
Speaker 1: does this mean in terms of the tools that we
Speaker 1: use for surveillance here? Does this then amp up surveillance
Speaker 1: from both sides or kind of wind it down? Well?
Speaker 1: And are we amping up their surveillance? Right? Are they
Speaker 1: are what we want to know is are are they
Speaker 1: using our gear to spy on us? So unfortunately, a
Speaker 1: lot I mean, as we know, uh, a lot of
Speaker 1: the advanced technological equipment around the world comes to the
Speaker 1: United States, so they use that. I don't know if
Speaker 1: there's a way to prevent them from doing that, but
Speaker 1: it's certainly something we should look into. And as far
Speaker 1: as the question is that we're gonna amp up surveillance, absolutely,
Speaker 1: they're gonna take everything they learned for this, are going
Speaker 1: to try to never let it happen again. Something we
Speaker 1: should be concerned about is our pilots that are flying
Speaker 1: near China in their air space but near China are
Speaker 1: likely going to start getting her asked on the Chinese
Speaker 1: Air Force. That happened in the past, it probably will
Speaker 1: happen again. We need to retain our course. We have
Speaker 1: all the right in the world of the international air space,
Speaker 1: and we need to make sure that those those aircraft
Speaker 1: are protected fighter aircraft from us. This is in the
Speaker 1: context of military drills already taking place on both sides
Speaker 1: when it comes to South China. See how much worse
Speaker 1: can things get before we kind of get to the
Speaker 1: ultimate outcome, which is kind of direct combat. So as first,
Speaker 1: I think we should do everything we can to avoid that.
Speaker 1: I think the United States will be successful. I'm obviously biased,
Speaker 1: but it's not going to be in either either countries.
Speaker 1: All the world's injury to see a conflict between two superpowers.
Speaker 1: We already have confidence going off around the world, that
Speaker 1: would just be devastating. So we need to do everything
Speaker 1: we can to get back on the diplomatic side and
Speaker 1: a ray from any on a conflict. But I do
Speaker 1: think this is gonna heat up the tension when it
Speaker 1: comes to these kind of gray area uh these these
Speaker 1: kind of uh intelligence collection wars, if you will, and
Speaker 1: they will try to start making sure that we can't
Speaker 1: do what they just did to us. And so that's
Speaker 1: going to be something that's continuous. But we do need
Speaker 1: to make sure that ultimately diplomacy wins. Today, by the way,
Speaker 1: I saw a memo, um I think NBC News had
Speaker 1: reported that an Air Force General, Mike Minahan, who's the
Speaker 1: head of Air Mobility Command, set out a memo to
Speaker 1: his troops saying, I hope I'm wrong, but my gut
Speaker 1: tells me we'll fight in that We're actually going to
Speaker 1: go to war with China, and then he says, you know,
Speaker 1: be ready, don't be distracted. UM, you know, make sure
Speaker 1: you're doing all your training and implementing every every plane
Speaker 1: you can. Is this just, you think, um, a memo
Speaker 1: to keep people on their toes or do you think
Speaker 1: he actually does expect this air Force general a war
Speaker 1: with China? So I think probably and I don't know,
Speaker 1: but I think it's probably more likely to make sure
Speaker 1: that his his troops, if you will, are taking it
Speaker 1: serious and they will be ready for a conflict whether
Speaker 1: it happens, if it does happen. That's what the U. S.
Speaker 1: Military should be doing. They should they should act as
Speaker 1: if we're going to have a conflict. They should want
Speaker 1: a conflict. They obviously don't make the policy decisions to
Speaker 1: have a conflict, but they have to be prepared. And
Speaker 1: I think, I don't know, but I think that's what
Speaker 1: he was he was ultimately doing. The Pentagon has came
Speaker 1: out into that's not the position of the Pentagon. It's
Speaker 1: just this one particular general. But it is something that
Speaker 1: the military should Our military should always be ready to do.
Speaker 1: That's their job. So let's let's all hope that he
Speaker 1: is wrong, including him but that is something that US
Speaker 1: military should be prepared to do. That's what we expect.
Speaker 1: Let me finally ask you for a status update on
Speaker 1: Russia's war in Ukraine. How does that look to you
Speaker 1: right now? Because we hear that, you know, the the
Speaker 1: Ukrainians have made some advances, then they lost some ground,
Speaker 1: but we've shipped over some tanks or they're in the
Speaker 1: process of learning how to use those. What what's what's
Speaker 1: it look like to you? So on the big picture,
Speaker 1: it looks like there's gonna be a substantial new offensive
Speaker 1: by the Russians. They have called up to describe many
Speaker 1: more people into their military and that is something that
Speaker 1: the Ukrainians are bracing for. Up to two hundred thousand
Speaker 1: additional Russian soldiers coming into this light and now they're
Speaker 1: gonna be equipped. I don't know why they waited until
Speaker 1: now with some of their most modern wequipies they have,
Speaker 1: including tanks. So these tanks at your reference, are going
Speaker 1: to be incredibly important. The Ukrainians can't beat them in numbers,
Speaker 1: so they're gonna have to beat them on skills. They're
Speaker 1: gonna have to beat them on smarts, and that's what
Speaker 1: they've been doing. So far, but these new tanks, the
Speaker 1: challengers coming from the UK, the Leopards coming from Germany,
Speaker 1: and then of course r M on Abrams. They need
Speaker 1: to get there as fast as possible. There will be
Speaker 1: absolutely key to defending Ukrainians haritial and also taken back
Speaker 1: territory the pro Russians from the occupied All right, Nick,
Speaker 1: great talking to you. Thank you so much for joining us.
Speaker 1: Always appreciate getting some time with you. McK mulroy there
Speaker 1: is the co founder of the Lobo Institute. We're gonna
Speaker 1: talk a little corporate finance right now from the perspective
Speaker 1: of a fintech that's trying to make the world a
Speaker 1: better place. A j Amati joins us. He's head of
Speaker 1: corporate financing there over at Atomic Financial So Atomic Financial
Speaker 1: UM is an infrastructure for connecting apps and services to
Speaker 1: payroll accounts and A j it's great to have you
Speaker 1: on the program. You're talking about the delta between what
Speaker 1: companies can earn on deposits if they have their money
Speaker 1: at say Chase or Wells Fargo UM, as opposed to
Speaker 1: what they can earn on a one year treasury and
Speaker 1: it's massive right now. If you get nothing, if you
Speaker 1: put your money in a bank, then a one year
Speaker 1: Treasury is paying more than four and a half percent.
Speaker 1: That's right, Thanks for having me on the program that UM,
Speaker 1: and I think that's the issue that we're trying to solve.
Speaker 1: The fed UM continues to hike rates so as that
Speaker 1: the yield curve continues to move up, and so that
Speaker 1: provides an opportunity Banks continue to pay low interest rates
Speaker 1: for depositors, so that provides an opportunity for fintech such
Speaker 1: as Atomic and others to provide accessibility to higher yielding products.
Speaker 1: So is this something you're doing only for corporate clients?
Speaker 1: And how much of that difference can you make up?
Speaker 1: I mean, if you're if I'm a small business and
Speaker 1: I haven't a half million dollars sitting with Bank America
Speaker 1: earning nothing, can you can you give me closer to
Speaker 1: treasury rates on that and let me maintain the kind
Speaker 1: of liquidity i'd need as a small business. That's exactly right.
Speaker 1: So if you're a UM small samme, or if you're
Speaker 1: a corporate or even an individual UM depositor, you're likely
Speaker 1: to earn just a few basis points when you're checking count,
Speaker 1: maybe slightly more on your savings account. What we do
Speaker 1: is offer a suite of products, and we don't offer
Speaker 1: these direct consumers. But what we do is we provide
Speaker 1: a white and label investing services, and we connect with banks,
Speaker 1: fin techs, and credit unions so that they can connect
Speaker 1: with us and then provide these services to their end customers. UM.
Speaker 1: The yields that we are able to provide UM are
Speaker 1: very close and sometimes in excess of US T bills.
Speaker 1: So right now, you know, anywhere on the curve that
Speaker 1: you look at up to one year, it's it's roughly
Speaker 1: four and a half to five percent now and continues
Speaker 1: to move up. And so we are able to build
Speaker 1: structures either through money market funds, through T build ladders,
Speaker 1: or other such instruments and reach four and a half
Speaker 1: and five yields. So this is really a function of
Speaker 1: the Federal Reserve. It's a relatively new phenomenon um in
Speaker 1: the last couple of months or so at a time
Speaker 1: when we're talking about when the Fed will go back
Speaker 1: to quote unquote normal, how long is this dynamic gonna last?
Speaker 1: It's a good question, I think. Um, there's there's a
Speaker 1: few ways of looking at it. I think, first of all,
Speaker 1: the current economic context, most analysts would say, is a
Speaker 1: tough and challenging economic climate. But what we're doing by
Speaker 1: offering such corporate investing products is UM. What we hear
Speaker 1: from clients is that it's very attractive UM, and it
Speaker 1: shows that these kind of offerings can continue to grow
Speaker 1: even in a down cycle. Now, when the FED begins
Speaker 1: to normalize UM, and it's increasingly look like looking like
Speaker 1: that's going to be pushed out further further given the
Speaker 1: very high jobs number that came out last week. But
Speaker 1: you know, eventually when they begin to normalize, I think
Speaker 1: there's a few things to consider. I think one is
Speaker 1: that it's very unlikely that they'll go back to a
Speaker 1: zero interest rate environment, as has been the case over
Speaker 1: the past decade, and so even at a FED funds
Speaker 1: rate of two to three percent, I think this kind
Speaker 1: of product would continue to be attractive. And I think
Speaker 1: second is UH, it's a countercyclical product. So ATOMIC also
Speaker 1: provides offerings in the equity space. We're looking at providing
Speaker 1: offerings in alternative assets, and so as clients shift from
Speaker 1: perhaps this product to an equity product a few years
Speaker 1: down the line, we will be there. We have the
Speaker 1: offerings to switch between these type of products. UM. One
Speaker 1: of the benefits of putting your money in a bank
Speaker 1: is it's f d I c ensured. You know, businesses
Speaker 1: often have a lot more than the maximum limit of two,
Speaker 1: but consumers maybe don't. UM, so is this product just
Speaker 1: as safe? Is it safe or even do you manage
Speaker 1: to structure it so that it's just as safe as
Speaker 1: the treasuries that you're investing in. That's right. So, depending
Speaker 1: on the exact product which a client would invest in, UM,
Speaker 1: it comes with different types of structure. So for example,
Speaker 1: we have a sweet product that is FDI ensured UH
Speaker 1: in more than the typical FDI insurance amount we have.
Speaker 1: We provide access to t build ladder structures and of
Speaker 1: course UM those are fully guaranteed and considered safe by
Speaker 1: the market. UM. We also offer other products that enhanced
Speaker 1: field but provide less protection, and so we work with
Speaker 1: our clients to understand the risk tolerance, to understand their
Speaker 1: liquidity needs and based on that constructor of product that
Speaker 1: would UM I think UM provide the safety if they required,
Speaker 1: or additional yield if that's what they're looking for. So
Speaker 1: where if you know, consumers listening to this right now
Speaker 1: and thinking I would love to have instantly accessible money
Speaker 1: in a an account that earns four and a half percent.
Speaker 1: Where can they get that? You say, you don't go
Speaker 1: to direct consumer, You're a white label UM service that
Speaker 1: allows I guess other banks and fin techs to do that.
Speaker 1: What are what are some of your big clients then, UM,
Speaker 1: I think it's I think rather than name the specific clients,
Speaker 1: what I could say is you can the clients could
Speaker 1: our individuals can contact Atomic and we can put you
Speaker 1: in touch with some of our partner banks, syntexts, UM
Speaker 1: and and credit unions that we partner with. UM. Alternatively,
Speaker 1: they can request this from from their institution that they
Speaker 1: usually partner with, and then UM their institution can reach
Speaker 1: out to us so that we can form a partnership
Speaker 1: with them. It sounds like a pretty interesting product. I
Speaker 1: kind of want to use it myself. Yeah, I mean,
Speaker 1: my financial advisor is always telling us, you've got to
Speaker 1: have rainy day cash enough that you could cover your
Speaker 1: bills for six months in the event you get fired
Speaker 1: or whatever, you know, and UM, I'd rather have that sitting.
Speaker 1: I'd rather have that earning four and a half percent
Speaker 1: and easily be able to pull it out, and I
Speaker 1: guess this is the idea, right A J. That's exactly right. Um.
Speaker 1: Both for individuals you need a rady day fund, you
Speaker 1: want access to it. But for example, we could structure
Speaker 1: that in a t buil ladder so that you get
Speaker 1: liquidity on a monthly basis um. And if you needed
Speaker 1: the entire amount um, we could also provide that to
Speaker 1: you as well. Um. There might be a small principle hit,
Speaker 1: but it's largely available. So the liquidity characteristics of this
Speaker 1: product is excellent. And again, if you are parked at
Speaker 1: a bank where you're only earning hand to twenty basis
Speaker 1: points um, this is a very attractive offering. And that's
Speaker 1: I think why our partners sound really excited. You know,
Speaker 1: we're talking to clients both in the US and even abroad, um,
Speaker 1: and we haven't touched on the international arena, but we
Speaker 1: have clients and partner institutions abroad who are gaining access
Speaker 1: to US both equity and six income markets for the
Speaker 1: first time, and that's very exciting for them, all right,
Speaker 1: A J. Thanks so much for joining us. A j
Speaker 1: Amati there. He is the head of corporate Financing at
Speaker 1: Atimic financially. He's also a senior fellow at Harvard. You
Speaker 1: may have heard of it talking fam talking to us
Speaker 1: about a product. I think a lot of people are
Speaker 1: find interesting since bank UH savings accounts rates have gotten
Speaker 1: so far away from the Fed funds rate um and
Speaker 1: the question is will they really ever get back there again?
Speaker 1: Who knows? As Katie Greyfield says, you have to work
Speaker 1: at Hindsight Capital to have that kind of intelligence. Thanks
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
Speaker 1: Matt Miller three. Pet Ball Sweeney I'm on Twitter at
Speaker 1: pt Sweeney. Before the podcast, you can always catch us
Speaker 1: worldwide at Bloomberg Radio