WEBVTT - Jay Powell, Credit Suisse, and the China Balloon (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.320 at Bloomberg dot com slash podcast. The Mannheim Index used 0:00:22.360 --> 0:00:25.079 car prices rising and this was one of the big 0:00:25.520 --> 0:00:29.040 upward pressures on inflation over the last year. We thought 0:00:29.040 --> 0:00:31.280 it had subsided, and maybe it has. This could be 0:00:31.320 --> 0:00:34.040 a head fake, of course, but still worth talking about 0:00:34.040 --> 0:00:37.320 with Anna Wong. She's our chief US economists from Bloomberg 0:00:37.360 --> 0:00:40.360 Economics UM, and she joins us ahead of, of course, 0:00:40.400 --> 0:00:42.720 the all important interview with your own Palace afternoon. To 0:00:42.720 --> 0:00:45.680 believe that's a twelve thirty this afternoon. We'll carry it 0:00:45.680 --> 0:00:48.720 on Bloomberg Radio on Bloomberg Television. Anna, thanks for joining us. 0:00:49.000 --> 0:00:53.040 What do you think about this slight revival and used 0:00:53.040 --> 0:00:57.320 car prices? Is its seasonal? Um? Could it be just 0:00:57.360 --> 0:00:59.920 an anomaly in the data, because we've had some pretty 0:01:00.480 --> 0:01:06.960 crazy anomalies thus far with new jobs at it on Friday? Yeah, 0:01:07.000 --> 0:01:10.120 So Um, you know, we we had slags before that. 0:01:10.280 --> 0:01:15.680 The disinflation in particularly cars category might not be a 0:01:15.800 --> 0:01:19.240 very sustainable one because if you look at the inventory 0:01:19.280 --> 0:01:23.880 to sales ratios to cars, it's still substantially below the 0:01:23.920 --> 0:01:27.720 pre pandemic level, which means that the supply, even though 0:01:27.760 --> 0:01:31.000 the supply demand conditions are you know, getting better, it's 0:01:31.040 --> 0:01:36.320 still the very very tight. So I I always thought that, um, 0:01:36.640 --> 0:01:40.200 you know, it's not gonna last. The sharp decline in prices. 0:01:40.840 --> 0:01:45.200 What matters more today? Anna, is it the what Chairman 0:01:45.240 --> 0:01:48.160 Powell may or may not say or deviate from his messaging? 0:01:48.360 --> 0:01:50.080 Where is it the State of the Union speech? I'm 0:01:50.080 --> 0:01:55.440 wondering how much of geopolitics needs to be factored in here? Yeah, 0:01:55.480 --> 0:01:59.360 I think so. Notice that Jerome Power Power that barely 0:01:59.480 --> 0:02:03.240 talked about China and his press conference last week. So 0:02:03.520 --> 0:02:05.960 I think he is not going to talk too much 0:02:06.000 --> 0:02:11.000 about geopolitics or even Ukraine. I mean, um, you know, so, 0:02:11.280 --> 0:02:13.840 I think he's going to focus his message on the 0:02:13.960 --> 0:02:17.200 US labor market because that is the number one driving 0:02:17.240 --> 0:02:21.080 force of inflation in the US right now, and he's 0:02:21.120 --> 0:02:25.920 going to you know, perhaps try to, um, you know, 0:02:26.000 --> 0:02:28.640 be more focused on his message that the FED still 0:02:28.680 --> 0:02:30.560 has a long way to go, But he said that 0:02:30.680 --> 0:02:34.200 last week. It's just that it's the conviction in his tone. 0:02:34.240 --> 0:02:37.519 It's the tone, not the substance that needs to change. 0:02:37.960 --> 0:02:40.480 But I doubt that the tone can be changed that 0:02:40.560 --> 0:02:43.560 much because I think the non farm paywall report last 0:02:43.600 --> 0:02:47.960 Friday really put a lot more confusion in in the 0:02:48.000 --> 0:02:51.239 picture of the economy. And you know, and the market 0:02:51.280 --> 0:02:54.040 is not Verry does not do very well with nulence 0:02:54.120 --> 0:02:56.720 in the message. And right now, what Powell wants to 0:02:56.720 --> 0:03:02.240 convey is the nw olence and uncertainty and the economy. So, um, 0:03:02.360 --> 0:03:05.000 can you convey that without the market thinking is too devish? 0:03:05.040 --> 0:03:07.519 Can you convey that without the market pricing and rate cuts? 0:03:07.560 --> 0:03:11.079 Because you know, he at the last press conference that 0:03:11.440 --> 0:03:14.520 financial conditions are getting tighter, And I guess if you 0:03:14.560 --> 0:03:17.880 pick any point in time with which to compare today 0:03:17.919 --> 0:03:21.040 to uh you could make that argument. But most everyone 0:03:21.040 --> 0:03:24.240 agrees financial conditions are really loose right now. For a 0:03:24.280 --> 0:03:26.639 FED that's trying to fight you know, four or five 0:03:26.680 --> 0:03:31.480 percent inflation, well, you know, the set is looking at 0:03:31.480 --> 0:03:36.480 a different financial conditions, not an index, but certain variables. 0:03:36.560 --> 0:03:40.280 Right if you look at the credit officers survey, it 0:03:40.600 --> 0:03:44.080 shows that the kind of like the landing standards have 0:03:44.240 --> 0:03:47.600 been tightening, and that is something that that really cares about. 0:03:47.640 --> 0:03:49.960 If you know, if it's harder for people to borrow, 0:03:50.080 --> 0:03:53.960 that is clearly, you know, a more hardening of financial conditions. 0:03:53.960 --> 0:03:56.200 That also, the feed is looking at the yield curve, 0:03:56.280 --> 0:03:59.640 the real rates along the yield curve, and with inflation 0:03:59.680 --> 0:04:02.360 falling so fast in the last couple of months, it 0:04:02.440 --> 0:04:05.680 means that the real yields happened staying at kind of 0:04:05.720 --> 0:04:07.840 what that level has been a couple of months ago. 0:04:08.280 --> 0:04:10.440 But are they trying to fight inflation through a housing 0:04:10.480 --> 0:04:13.120 crash or I thought they were trying to affect the 0:04:13.200 --> 0:04:16.520 jobs market and they clearly haven't done that yet. Well, 0:04:16.960 --> 0:04:19.440 you know, most of the economy is driven by consumption, 0:04:19.560 --> 0:04:23.200 and when consumption slows, then job growth is slow and 0:04:23.480 --> 0:04:26.640 consumption if you look at the lending standards, That's why 0:04:26.839 --> 0:04:30.919 I mentioned the lending standards. Uh, it's it's it's hard. 0:04:31.120 --> 0:04:34.240 It's getting harder for people to qualify for auto loans, 0:04:34.320 --> 0:04:37.800 it's hard for people to get harder for people to 0:04:37.880 --> 0:04:42.360 qualify for housing loans or credit cards loans. So so 0:04:42.360 --> 0:04:44.839 so I think that that's that's what the FEAT is 0:04:44.880 --> 0:04:48.719 talking about when they are looking about tightening financial conditions. 0:04:49.640 --> 0:04:51.359 You know, what does that then mean when it comes 0:04:51.400 --> 0:04:55.359 to something like the debt ceiling. I don't quite understand 0:04:55.480 --> 0:04:59.000 how this is even factored in when you're looking at 0:04:59.120 --> 0:05:04.200 a a period of significant tightening from the federal reserve, 0:05:04.240 --> 0:05:06.880 and then you have things like expanded TV credits as well, 0:05:07.240 --> 0:05:11.680 At what points fiscal policy really factor in here? Well, 0:05:11.720 --> 0:05:16.839 there's two types of fiscal policy um UM, the federal 0:05:16.920 --> 0:05:20.120 level and also the state and local level. And at 0:05:20.160 --> 0:05:24.760 the federal level it's UM, it's actually working towards what 0:05:24.920 --> 0:05:28.520 the Fed wants things to write. Of course, the depth 0:05:28.560 --> 0:05:34.480 ceiling default would be catastrophic. However, at the federal level, UM, 0:05:34.520 --> 0:05:37.880 you know, if they got a negotiation for UM fiscal 0:05:37.960 --> 0:05:42.400 cuts as a result of UM, you know, uh, avoiding 0:05:42.440 --> 0:05:46.520 this death feeling default, then it's actually working towards uh 0:05:46.839 --> 0:05:51.680 the fat's inflation takes. But however, the states responsibility, right, 0:05:52.160 --> 0:05:54.120 it would be nice if we just didn't spend willy 0:05:54.240 --> 0:05:58.320 nilly with with no end in sight constantly, you know, yes, 0:05:58.520 --> 0:06:02.159 and and and the infrastruct Sure Bill. The inflationary impact 0:06:02.200 --> 0:06:04.480 of the Infrastructure Bill is going to kick in this 0:06:04.560 --> 0:06:07.159 year as well. So, but at the state on local level, 0:06:07.200 --> 0:06:10.240 and this is something that Powell has said several times already, 0:06:10.279 --> 0:06:13.320 that they're still flushed with cash. We did a study 0:06:13.440 --> 0:06:15.359 last year and found that the state and local government 0:06:15.360 --> 0:06:20.040 have about seven billion in excess net savings UM and 0:06:20.080 --> 0:06:22.279 that's why you saw a whole bunch of states giving 0:06:22.279 --> 0:06:25.800 out the text credit late last year. And that's why 0:06:26.279 --> 0:06:30.480 some households income growth of so robuff heading into late 0:06:30.560 --> 0:06:33.719 last year partly, and I think that could explain why 0:06:34.080 --> 0:06:38.760 consumption could actually be still rather solid in the first quarter, 0:06:38.960 --> 0:06:41.800 just because there was heading to towards the end of 0:06:41.839 --> 0:06:44.119 last year. There's just a lot of fiscal spending income 0:06:44.279 --> 0:06:47.680 coming from the state. Yeah, because I guess the fiscal 0:06:47.760 --> 0:06:49.280 spending that we saw over the last few years had 0:06:49.279 --> 0:06:52.320 long and variable lags as well. Did you hear, by 0:06:52.360 --> 0:06:55.760 the way, did you hear Danny blanche Flower? Uh? He 0:06:55.800 --> 0:06:58.120 was kind of ripping on the Bank of England. But 0:06:58.279 --> 0:07:01.159 his argument makes sense when apply to the Fed as well, 0:07:01.200 --> 0:07:06.799 that these um this monetary tightening doesn't hit the economy 0:07:06.880 --> 0:07:10.200 until I think he's had eighteen months to two years later. 0:07:10.320 --> 0:07:11.920 That's what he was looking at when he was on 0:07:11.960 --> 0:07:16.720 the Bank of England Monetary Policy Committee. So, um, he's 0:07:16.720 --> 0:07:19.840 saying they should already have paused. And I'm sure he 0:07:19.880 --> 0:07:23.720 believes the same thing about the US because his concern 0:07:23.800 --> 0:07:26.440 is that a deep recession is worse than you know, 0:07:26.560 --> 0:07:31.680 the abating inflation picture. Yeah. So um, the eighteen to 0:07:31.760 --> 0:07:35.280 twenty four months monetary lag is kind of the standard 0:07:35.400 --> 0:07:39.080 good old textbook lags, right, but it's estimated based on 0:07:39.480 --> 0:07:42.480 the last one, you know, twenty thirty years of data. 0:07:42.920 --> 0:07:45.400 And I think at the FED right now there's a 0:07:45.440 --> 0:07:48.680 heated debate on how, how, how how much shorter is 0:07:48.720 --> 0:07:52.080 the lack And it's likely because of the the FED 0:07:52.240 --> 0:07:56.440 communication style now with the press conference and you know 0:07:56.560 --> 0:08:02.640 immediately uh doing hand only like using for guidance to 0:08:02.680 --> 0:08:05.320 guide the market and changing the shape of the yield curve. 0:08:05.680 --> 0:08:09.720 That's how that's why the lacks of monetary policy would 0:08:09.760 --> 0:08:12.119 be much shorter than you know, back in the days 0:08:12.160 --> 0:08:15.840 when most of the lending and credit conditions in in 0:08:15.960 --> 0:08:19.240 the in the in the economy is influenced by you 0:08:19.320 --> 0:08:25.120 know actual uh uh, by by the long lags of 0:08:25.720 --> 0:08:28.320 when when interest rate would finally rise. So I think 0:08:28.360 --> 0:08:30.920 I think the lags are much shorter today, and your 0:08:30.960 --> 0:08:35.800 model had previously predicted a chance of recession which is 0:08:35.800 --> 0:08:39.360 pretty high um this year. Do you still see that 0:08:39.400 --> 0:08:42.480 when you look at your model, Well, the model is 0:08:42.559 --> 0:08:48.320 showing slightly lower probability of recessions. But our assessment has 0:08:48.360 --> 0:08:53.000 always been that's not one. But now I would say 0:08:53.080 --> 0:08:56.080 on the whole it's it's you know, if you ask 0:08:56.160 --> 0:09:00.600 me what's the probability of twenty four months ahead probability recession, 0:09:00.640 --> 0:09:03.160 I will still say it's very high, because the SUD 0:09:03.400 --> 0:09:06.199 gets to determine whether there's a recession here. If the 0:09:06.240 --> 0:09:09.280 said think the economy is growing too fast, they will 0:09:09.360 --> 0:09:12.079 raise rates such the economy will have to fall into 0:09:12.120 --> 0:09:15.120 the recession. All right, Anna Wong, thank you so much 0:09:15.160 --> 0:09:18.880 for joining us, Bloomberg's chief US Bloomberg Economics chief US 0:09:19.200 --> 0:09:22.880 Economists talking to us about really what to expect from 0:09:22.920 --> 0:09:30.600 Jerome Powell this afternoon. Let's get back though to the 0:09:30.640 --> 0:09:34.080 equity markets. UH and fixed income focus on the cross 0:09:34.120 --> 0:09:38.400 asset UMU the assets. I guess I should say that 0:09:38.400 --> 0:09:41.160 that we focus on most with Mike Green, he's portfolio 0:09:41.200 --> 0:09:45.480 manager and chief strategists that simplify asset management and they 0:09:45.520 --> 0:09:48.320 have UM a suite of e t F s. Mike 0:09:48.320 --> 0:09:50.360 talked to us about simplify first and tell us about 0:09:50.400 --> 0:09:54.840 your products. Sure, so Simplified was launched in September to 0:09:54.840 --> 0:09:57.840 take advantage of a rule change the facilitated the introduction 0:09:57.840 --> 0:10:01.080 of derivatives within the et F structures. That creates the 0:10:01.120 --> 0:10:04.200 opportunity for us to offer products that would offer a 0:10:04.200 --> 0:10:06.920 core exposure, for example, to a ten year bond or 0:10:07.000 --> 0:10:11.360 to an smp US large cape equities and then modify 0:10:11.480 --> 0:10:15.240 that payout by incorporating a derivative overlay associated with it. 0:10:15.400 --> 0:10:18.839 That was very difficult to do prior to September, and 0:10:18.960 --> 0:10:21.960 since September has become much easier. It's allowed us to 0:10:22.120 --> 0:10:24.520 offer products that we think you're unique and offer benefits 0:10:24.520 --> 0:10:27.920 to into individual investor portfolios, into the r R a 0:10:28.160 --> 0:10:31.200 community that services them. So what you've done in E 0:10:31.320 --> 0:10:32.880 t f s and what others have done over the 0:10:32.880 --> 0:10:37.719 past few years has really changed the investment landscape UM 0:10:37.760 --> 0:10:42.760 in a way that makes I think active management more 0:10:42.840 --> 0:10:45.240 possible with E t s and it ever has been before. 0:10:45.280 --> 0:10:49.120 How do you see the passive versus active UM argument 0:10:49.200 --> 0:10:55.080 right now? Well, so that's a really complicated question. But um, well, 0:10:55.120 --> 0:10:57.640 because for a long time, right, you know, after this 0:10:57.720 --> 0:11:00.000 sort of Jack Bogel revolution, and of course that's mute 0:11:00.000 --> 0:11:02.880 tool funds really and not ets, but everybody was looking 0:11:02.920 --> 0:11:06.439 to index and keep costs low. And I think e 0:11:06.559 --> 0:11:08.600 t f s in a way kind of sprang out 0:11:08.600 --> 0:11:12.960 of that in the late eighties early nineties. But um, 0:11:13.000 --> 0:11:16.480 now we've seen a lot more nuanced products that aren't 0:11:16.480 --> 0:11:19.120 as straightforward as those early e t f s, like 0:11:19.200 --> 0:11:22.440 the ones from Simplify. Yeah, I think that's I think 0:11:22.480 --> 0:11:24.560 that's true. And so this is part of the growing 0:11:24.679 --> 0:11:28.800 ranks of active management e t s UM. The challenge 0:11:28.880 --> 0:11:30.800 that the industry really faces this is that it has 0:11:30.800 --> 0:11:35.079 been bifurcated and effectively blackguard, black rock Vanguard and the rest. 0:11:35.520 --> 0:11:40.240 And the real challenge exists in the form of obtaining distribution, 0:11:40.440 --> 0:11:45.200 obtaining shelf space effectively within the retail universe when it 0:11:45.320 --> 0:11:48.680 is so dominated by the players a black rock vanguard, 0:11:48.679 --> 0:11:51.840 who through a combination of scale, a combination of lobbying, etcetera, 0:11:51.960 --> 0:11:54.679 get themselves into a position where any product that they 0:11:54.760 --> 0:11:59.720 launched can immediately go to scale, immediately become a viable product, etcetera. 0:12:00.640 --> 0:12:03.200 That's making it very difficult for everybody else in the 0:12:03.240 --> 0:12:06.760 industry to to to be straightforward. That's the reason why 0:12:08.280 --> 0:12:11.520 in this uh, in this case, really it do apply 0:12:11.679 --> 0:12:14.120 in a sense, right, Well, it's yeah, So it's actually 0:12:14.200 --> 0:12:16.840 important that you recognize that there is that characteristic that 0:12:16.880 --> 0:12:20.640 this is an oligopalistic industry that we've seen increasing concentration 0:12:20.720 --> 0:12:23.960 to the point that candidly, most of my work in 0:12:24.000 --> 0:12:26.280 the space around active passive and if you google my 0:12:26.400 --> 0:12:28.400 name or you google any of my work on this, 0:12:28.400 --> 0:12:30.680 there's plenty of speeches out there talking about this component. 0:12:31.160 --> 0:12:33.920 It is actually tangibly beginning to change the structure of 0:12:33.920 --> 0:12:38.520 the market. Market behavior that we're seeing is increasingly reminiscent 0:12:38.640 --> 0:12:41.480 of the kind of low float, extreme behaviors that we 0:12:41.480 --> 0:12:44.160 saw in the ninety nineties associated with the dot com cycle. 0:12:45.040 --> 0:12:47.160 We largely put that not at the feet of the FED, 0:12:47.200 --> 0:12:49.679 which is a convenient scapeboad for this, but actually the 0:12:49.760 --> 0:12:52.600 changing market structure that's caused by the concentration of assets 0:12:52.600 --> 0:12:55.640 and those two players, Well, can you elaborate on that 0:12:55.679 --> 0:13:00.360 the changing market structure? What exactly is changing here? So 0:13:00.480 --> 0:13:03.280 what's happening is is that you're creating giant pools of 0:13:03.320 --> 0:13:06.840 capital that only face the market when there is a 0:13:06.920 --> 0:13:09.760 net order flow. Right. So, if you're a client of Vanguard, 0:13:09.840 --> 0:13:12.840 and I'm a client of Vanguard within their index mutual funds, 0:13:13.360 --> 0:13:16.040 you buy I sell that actually never hits the market. 0:13:16.080 --> 0:13:18.840 It's simply crossed at N A V at the UM 0:13:19.040 --> 0:13:20.760 at the end of the day, Right, So that's not 0:13:20.800 --> 0:13:23.280 actually liquidity. That is how they demanded or required of 0:13:23.360 --> 0:13:27.560 the market when they are gaining share. It means that 0:13:27.679 --> 0:13:30.800 every order that they're placing effectively shows up as a buy. 0:13:30.840 --> 0:13:33.600 It's very few days in history in which Vanguard has 0:13:33.600 --> 0:13:36.240 been a net seller, for example. That means they're continually 0:13:36.280 --> 0:13:40.120 providing liquidity. They're continually creating demand for securities. That's contributing 0:13:40.160 --> 0:13:42.640 to the general rise and valuation that we've seen over 0:13:42.640 --> 0:13:46.880 the last forty years. Um. The problem, of course, emerges 0:13:47.320 --> 0:13:50.439 as they become larger and larger. Those net flows when 0:13:50.440 --> 0:13:54.400 there's an imbalance have becomes so large now that that 0:13:54.440 --> 0:13:58.679 can meaningfully impact market behavior. One of the most terrifying 0:13:58.720 --> 0:14:03.120 statistics that came out of COVID pandemic was Vanguard quite 0:14:03.120 --> 0:14:06.160 proudly announcing that less than one percent of their clients 0:14:06.160 --> 0:14:10.280 had tried to transact in that environment. My reaction to 0:14:10.320 --> 0:14:12.040 that is, oh, my god, what if it had been 0:14:12.080 --> 0:14:17.600 too because that would be such a huge number. It's 0:14:17.640 --> 0:14:20.440 such a huge number. It's an unfathomably large number for 0:14:20.480 --> 0:14:23.120 a market that is really incapable of meeting some very 0:14:23.120 --> 0:14:25.920 basic liquidity needs already. Mike, you've been talking about this 0:14:26.000 --> 0:14:29.680 for some time. As you said, Um, is there any 0:14:30.120 --> 0:14:33.520 possibility that regulators take action as we start to see 0:14:33.560 --> 0:14:36.560 that kind of thing come back? Right? Um, the d 0:14:36.680 --> 0:14:38.720 o J trying to break up a big company in 0:14:38.800 --> 0:14:42.080 Google for the first time since mob el Um has 0:14:42.080 --> 0:14:47.360 has anybody at the sec UM or um in any 0:14:47.400 --> 0:14:53.880 other part of the regulatory environment stated concerns about the 0:14:53.920 --> 0:14:57.520 bigness if I can trumpify it of of Vanguard and 0:14:57.560 --> 0:15:01.240 black Rock. So I think you're facing similar characteristics and 0:15:01.280 --> 0:15:03.880 similar challenges that you see in the companies like Google. Right. 0:15:03.920 --> 0:15:06.480 So Google would argue that they don't have particularly high 0:15:06.560 --> 0:15:09.040 market share, that they actually compete, you know, with all 0:15:09.200 --> 0:15:12.880 forms of information gathering, right, whether it's newspapers, etcetera, or 0:15:12.920 --> 0:15:17.280 all forms of advertising. Those are really disingenuous arguments, as 0:15:17.280 --> 0:15:19.560 we all kind of know. Um. You know, Peter Thiel 0:15:19.600 --> 0:15:22.080 has a book called Zero to One, in which he 0:15:22.160 --> 0:15:24.560 makes a very clear statement that monopolies lie in order 0:15:24.560 --> 0:15:27.440 to protect their monopoly. I'd argue the same thing is 0:15:27.520 --> 0:15:30.480 true within the Vanguard black Rock framework, where you know, 0:15:30.520 --> 0:15:34.200 ostensibly the market share of Vanguard of black Rock combined 0:15:34.280 --> 0:15:37.240 is hovering somewhere in the fifteen percent range. That doesn't 0:15:37.240 --> 0:15:41.760 appear to trigger the traditional dynamics of antitrust. But within 0:15:41.880 --> 0:15:44.760 segments of the industry, particularly within things like four oh 0:15:44.760 --> 0:15:48.120 one case for example, or within target dat funds, which 0:15:48.120 --> 0:15:52.240 are the fastest growing form of retirement vehicle, those market 0:15:52.240 --> 0:15:55.240 shairs are dramatically higher. So, for example, most evidence which 0:15:55.240 --> 0:15:58.160 suggests that Vanguard's marginal market share in other words, the 0:15:58.200 --> 0:16:02.720 percentage of each incremental retirement aller is now approaching. Those 0:16:02.760 --> 0:16:06.360 are just astonishingly large numbers and financial markets and candidly 0:16:06.560 --> 0:16:09.160 numbers that should be pursued by the FCC in the 0:16:09.160 --> 0:16:11.600 same way that they're going after Google. Well, speaking of 0:16:11.600 --> 0:16:14.040 the financial markets, let's talk about today's trade. Specifically, you 0:16:14.080 --> 0:16:16.800 are seeing equities off by about two tons of one percent. 0:16:16.920 --> 0:16:20.600 The bond market again um yields only lower well flat 0:16:20.640 --> 0:16:22.480 actually right now, when you're looking at the ten uere 0:16:22.520 --> 0:16:26.040 Yield talk to us a little bit about what the 0:16:26.120 --> 0:16:29.960 trade is today when we hear from Chairman Powell at twelve, 0:16:30.000 --> 0:16:34.760 I believe so the real question is how much he's 0:16:34.760 --> 0:16:38.000 going to push back against the pricing that was correct 0:16:38.040 --> 0:16:41.680 in large part yesterday, right. So, Um, there's generally been 0:16:42.000 --> 0:16:45.320 a perception that the bond market is trying to price 0:16:45.360 --> 0:16:48.520 in a FED pivot in three, that the Fed will 0:16:48.520 --> 0:16:51.360 be forced to cut interest rates. I think there's some 0:16:51.480 --> 0:16:54.440 problems with the math behind that, but the general observation 0:16:54.640 --> 0:16:57.520 was that the Fed would be done. And that's obviously 0:16:57.720 --> 0:17:00.760 contrast to the message that the Federal Reserves trying to send. 0:17:00.840 --> 0:17:02.960 They want to indicate that they want the economy to 0:17:03.000 --> 0:17:06.159 slow more than it has. It's been complicated, and that's 0:17:06.160 --> 0:17:09.760 obviously a bad choice of words. It's been complicated by 0:17:09.760 --> 0:17:12.879 things like falling oil prices or gasoline prices, which have 0:17:12.920 --> 0:17:15.840 put additional dollars into the pockets that the American consumer 0:17:15.880 --> 0:17:18.240 allowed the economy to re accelerate a little bit in 0:17:18.240 --> 0:17:21.400 the second half of last year. You know, we're now 0:17:21.440 --> 0:17:24.760 hearing a lot of languages as things like easing financial conditions. 0:17:24.880 --> 0:17:27.600 I just think it's important for listeners to understand that 0:17:27.640 --> 0:17:31.080 easing financial conditions just means markets are going up. Mark, Mike, 0:17:31.200 --> 0:17:33.080 thanks so much. Love to have you back on. Mike 0:17:33.119 --> 0:17:39.920 Green there from Simplify Asset Management. So it's a real vodeshift, 0:17:40.560 --> 0:17:44.359 all right, the vibe shift. I think if you added 0:17:44.440 --> 0:17:45.840 up the ages of all three of you, it still 0:17:45.840 --> 0:17:48.399 wouldn't equal me. But it's a pleasure talking to you 0:17:48.440 --> 0:17:54.480 know the less. Uh. Just so the listeners know, we 0:17:54.520 --> 0:17:56.720 don't get to a hundred adding up the ages of 0:17:56.760 --> 0:18:00.080 all three of you. Pretty close. Uh, Jess Meant and 0:18:00.240 --> 0:18:03.480 Katie Greifeld, thank you so much for joining us. Crety Goute, 0:18:03.520 --> 0:18:05.359 You're gonna stick with me. I want to get to 0:18:05.560 --> 0:18:08.640 Alison Williams right now from Bloomberg Intelligence, because we had 0:18:09.200 --> 0:18:11.760 if you work at Credit Sweets and you, I mean, 0:18:12.000 --> 0:18:15.919 like anyone in the whole world are planning, uh, you know, 0:18:16.440 --> 0:18:19.280 all of your spending on your bonus season and you 0:18:19.400 --> 0:18:22.400 got the meeting today. Last night you get a message, Oops, 0:18:22.560 --> 0:18:25.879 meeting canceled. That's got to make you feel like, you know, 0:18:26.920 --> 0:18:29.760 like you work at Deutsche Bank, Allison. Are they gonna 0:18:29.840 --> 0:18:35.000 lose every single person who can find a job anywhere 0:18:35.000 --> 0:18:40.480 else in banking? Well, my guess is that the delay 0:18:41.080 --> 0:18:45.400 might only be a matter of days. Uh. You may 0:18:45.400 --> 0:18:49.040 have also seen the headline that Apollos and talks um 0:18:49.080 --> 0:18:52.080 to take a spake and steak in the spinoff. Um, 0:18:52.160 --> 0:18:55.520 so there is a question, you know, does sort of 0:18:55.520 --> 0:18:58.520 the delay in paying out the bankers have something to 0:18:58.640 --> 0:19:01.680 do with what might be in the works in terms 0:19:01.680 --> 0:19:06.640 of the structure the future structure of the first Boston spinoff. Now, um, 0:19:06.760 --> 0:19:10.520 we we have seen from the other global of US 0:19:10.520 --> 0:19:13.119 and banks that it is a competitive war for talent 0:19:13.280 --> 0:19:16.720 even you know, when things for the bank are going well. Um, 0:19:16.760 --> 0:19:18.760 so we expect that plays out of credit suite, and 0:19:18.760 --> 0:19:21.880 we expect that if this is a venture that's that's 0:19:21.920 --> 0:19:24.120 going forward, that's that's going to be top of mind. 0:19:24.200 --> 0:19:26.800 But you know, perhaps there could be something in terms 0:19:26.800 --> 0:19:32.639 of the future incentives or the structuring of those payments, um, 0:19:32.680 --> 0:19:37.240 related to someone who is going to take a size 0:19:37.240 --> 0:19:41.240 of mistake. Is I guess my my best guests, Well, Alison, 0:19:41.320 --> 0:19:44.040 this is something that we've kind of seen having across 0:19:44.080 --> 0:19:45.879 Wall Street as well, and I want to say across 0:19:45.880 --> 0:19:48.560 some of the European banks. What is the timeline where 0:19:48.560 --> 0:19:51.080 we get back to some sort of normal when it 0:19:51.119 --> 0:19:53.800 comes to kind of the big bank bonuses that were 0:19:53.840 --> 0:19:59.560 used to so define normal, well, we were not worried 0:19:59.560 --> 0:20:03.160 about salary cuts and a lot of talent. I think 0:20:03.160 --> 0:20:07.520 that UM, you know, if we're talking about Credit Suite specifically, 0:20:07.560 --> 0:20:09.920 I think it's you know, when a bank is going 0:20:09.920 --> 0:20:14.160 through a tougher time, they're obviously going to have to UM, 0:20:14.400 --> 0:20:18.919 be creative and you know, a lot a bank always 0:20:19.000 --> 0:20:25.200 wants to align the incentives UM with long term success. 0:20:25.280 --> 0:20:28.080 But that might be UM you know, perhaps even more 0:20:28.119 --> 0:20:31.560 important UM at credit suite in terms of the fact 0:20:31.600 --> 0:20:36.119 that you know, when revenue is down significantly, shareholders and 0:20:36.400 --> 0:20:40.439 other stakeholders such as regulators are going to expect that 0:20:40.520 --> 0:20:44.880 the expenses reflect that UM. But when there is such 0:20:44.920 --> 0:20:48.600 a significant decline due to you know, perhaps top of 0:20:48.600 --> 0:20:51.919 the house and not individual performance, the bank has to 0:20:51.960 --> 0:20:57.479 find a way to reward those individuals UM. And I 0:20:57.560 --> 0:20:59.720 think in fact that that is one of the reasons 0:20:59.720 --> 0:21:04.920 why they are perhaps looking to ju This s been 0:21:04.960 --> 0:21:09.080 out because some of the top bankers may be frustrated 0:21:09.520 --> 0:21:13.680 with UM, you know, paying for some of the UH 0:21:13.760 --> 0:21:17.919 it's called the missteps, bad risk management, UM, what have you. 0:21:18.000 --> 0:21:20.879 But some of the bigger costs incurred in other areas 0:21:20.920 --> 0:21:22.840 of the firms, such as the trading death. Well, but 0:21:22.920 --> 0:21:27.040 I mean my initial question still stands, Allison, has anyone 0:21:28.119 --> 0:21:34.199 who has a decent resume and good credentials, um, you know, 0:21:34.280 --> 0:21:37.520 and any mobility at all remained at the bank or 0:21:37.560 --> 0:21:40.280 have they already lost all of the best talent because 0:21:40.960 --> 0:21:46.399 starting with green Sill and Archagos and through COVID missteps 0:21:46.440 --> 0:21:50.959 and management reshuffles and you know, all of these different 0:21:50.960 --> 0:21:55.320 controversies that they've had in Zurich, hasn't everyone already looked 0:21:55.359 --> 0:21:57.240 somewhere else and tried to get a job. I mean 0:21:57.240 --> 0:22:00.119 it's like musical chairs. The music has stopped and is 0:22:00.160 --> 0:22:03.600 no more chair. Right. Well, you could have said the 0:22:03.640 --> 0:22:06.560 same thing, I suppose about Deutsche Bank a few years ago. 0:22:07.200 --> 0:22:12.600 Definitely that I think in general, UM, you know, obviously 0:22:12.640 --> 0:22:17.520 there the recruiting benefit, if you will, UM, you know, 0:22:17.760 --> 0:22:21.960 goes to those outside of the firm. But um, you know, 0:22:22.040 --> 0:22:26.560 to to the extent that the bank can you know, 0:22:27.040 --> 0:22:29.600 key in on sort of what they're key talent, and 0:22:30.440 --> 0:22:35.840 UM seek to at least reward those that they believe 0:22:35.920 --> 0:22:39.439 will stay with the firm for the long term. UM. 0:22:39.480 --> 0:22:42.800 People like all different kinds of challenges in their positions, 0:22:42.920 --> 0:22:47.119 And I think there's also the question of UM, you know, 0:22:48.320 --> 0:22:52.000 compensation to reflect that just both of both the current 0:22:52.080 --> 0:22:56.800 challenges and the future opportunities. To the extent that this 0:22:57.280 --> 0:23:00.680 UM you know, bankers are looking ahead and looking forward 0:23:00.720 --> 0:23:03.560 to this potential entity. You know, could you join an 0:23:03.680 --> 0:23:06.719 entity that gives you award like something like a Molus 0:23:06.840 --> 0:23:10.000 or lots of these other little spinouts UM that we've 0:23:10.040 --> 0:23:12.199 had over the years. Could you go to work for 0:23:12.240 --> 0:23:15.720 an entity where you could be UM rewarded, tied more 0:23:15.760 --> 0:23:17.720 directly to your deals, but have the backing of a 0:23:17.760 --> 0:23:20.720 big bang. I think that that's that's something that one 0:23:20.800 --> 0:23:23.600 could argue as a unique value proposition for some of 0:23:23.640 --> 0:23:27.440 these bankers. Alison, there's a story from the Wall Street 0:23:27.480 --> 0:23:31.800 Journal that Apollo is in talks for Credit Suite First Boston, 0:23:32.800 --> 0:23:36.919 which we have just been discussing UM. As you mentioned, 0:23:36.920 --> 0:23:38.480 I gotta admit I did you zone out for a 0:23:38.520 --> 0:23:42.000