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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa Abram Woyd's

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Speaker 1: along with Tom Keane and Jonathan Farrell, join us each

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Speaker 1: day for insight from the best in economics, geopolitics, finance

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Speaker 1: and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 1: Spotify and anywhere you get your podcasts, and always on

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Speaker 1: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 1: One thing we do know, yeah, exactly nobody knows. Bill

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Speaker 1: Dundley might know it. Johns us Now, the former New

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Speaker 1: York Fed President and Bloomberg opinion columnist Bill Let's go there,

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Speaker 1: Goldman says, pause, pause, because of stress in the banking system. Bill,

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Speaker 1: your best guess right now? What would it be here

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Speaker 1: depends on where we are on Wednesday. I think we

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Speaker 1: know they're not going to raise fifty we think I

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Speaker 1: think we know they're not going to cut rates. The

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Speaker 1: real questions zero or twenty five. The case for zero

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Speaker 1: is do no harm. We know that banking systems under stress.

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Speaker 1: So while you continue to raise rates when the banking

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Speaker 1: systems under stress. The case for twenty five basis points

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Speaker 1: is to say, look, we still have an inflation problem.

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Speaker 1: We can do both. We can use our liquidity facilities

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Speaker 1: to show up the confidence in the banking system, and

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Speaker 1: we use monetary policy to bring down inflation. You know,

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Speaker 1: if I had if I was sitting there, I guess

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Speaker 1: I would probably recommend just taking a pause. But you

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Speaker 1: have to do it in a way that doesn't alarm people.

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Speaker 1: One of the problems of pausing is people are going

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Speaker 1: to say, geez, why is the FED pausing? Things must

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Speaker 1: be worse in the banking system than we think. I

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Speaker 1: think this is a very different situation than the Great

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Speaker 1: Financial Crisis in the sense that the banks. This is

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Speaker 1: a question of confidence in banks due to uninsured deposits

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Speaker 1: and mark to market losses. It's not about the economy

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Speaker 1: that's collapsing. In the last recession. During a great financial crisis,

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Speaker 1: we were in recession beginning in December two thousand and seven.

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Speaker 1: We're not in recession now. The economy is actually doing

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Speaker 1: pretty well, and the banks that we're talking about that

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Speaker 1: are underspressed in the United States very small share of

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Speaker 1: the total banking system. So I think it's important to

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Speaker 1: recognize that this isn't the Great Financial Crisis all over again.

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Speaker 1: It's a lack of confidence in banks, because especially those

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Speaker 1: banks with the high proportion of unsured depositors and marketo

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Speaker 1: market losses on their portfolios. All that said, Bill, do

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Speaker 1: you still think that this FED should bring a monetary policy,

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Speaker 1: should bring their terminal rate to six percent or possibly

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Speaker 1: above that based on the inflationary pressures? If there is

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Speaker 1: this ongoing tightening that people expect from smaller and mid

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Speaker 1: sized banks, that's really the sixty four thousand dollars question.

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Speaker 1: How much is this stress that we're seeing today going

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Speaker 1: to result in tighter credit conditions. They're going to change

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Speaker 1: the trajectory of economic growth. I don't think the problem

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Speaker 1: is the credit conditions right now. I think the problem

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Speaker 1: is market market losses in the portfolio and unsured deposits.

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Speaker 1: It's very different than the Great Financial Crisis, when we

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Speaker 1: had this housing boom and bust, and it was the

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Speaker 1: bust that really took down fundamental values in the banking

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Speaker 1: book and also damage households enormously because households had used

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Speaker 1: the rise at home prices to pull money out to

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Speaker 1: support their spending. The US economy is fundamental in better

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Speaker 1: shape today. Household and business balance sheets are strong, so

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Speaker 1: this is I think more about confidence in the banking system.

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Speaker 1: One reason why we're having more problems this time though

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Speaker 1: last time there were big banks that we're willing to

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Speaker 1: ride to the rescue and by the banks that were

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Speaker 1: under distressed. They're much less willing to do that this

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Speaker 1: time because last time when they did this, they assumed

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Speaker 1: a huge legal liabilities that they hadn't anticipated. A second

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Speaker 1: reason why big banks don't want to ride to the

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Speaker 1: rescue of this time is if I buy a bank

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Speaker 1: and get bigger, I could be pushed into a higher

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Speaker 1: what's called the Siffy search arge bucket, you know, with

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Speaker 1: the higher caper requartment based on my size and complexity,

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Speaker 1: which would which would apply to my entire book of business,

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Speaker 1: not just the new book part that I just just acquired.

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Speaker 1: So you don't have the you know, people that come

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Speaker 1: in to buy the banks are under stressed like you

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Speaker 1: did last time. Given that you don't see this as

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Speaker 1: a two thousand and eight reducts, maybe you don't get

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Speaker 1: the White Knights coming in to bail out these banks

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Speaker 1: with an equi acquisition, as you point out. But other

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Speaker 1: people are writing in demand saying you live under a

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Speaker 1: rock of bearishness, and you don't understand the momentum that

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Speaker 1: you're seeing throughout the world and throughout a lot of

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Speaker 1: communities in the United States. Given that there is this

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Speaker 1: sort of momentum, do you think that it's folly for

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Speaker 1: people to be pricing in significant rate cuts, more than

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Speaker 1: one hundred basis points of rate cuts from now until

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Speaker 1: the end of next year or until the end of

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Speaker 1: January next year. I should say, yeah, that seems very

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Speaker 1: premature to me. I mean that means that the FED

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Speaker 1: is basically sail in terms of providing a credible liquirity backstop.

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Speaker 1: And I think the FED can succeed in providing a

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Speaker 1: credible lilquarery backside. In fact, the stuff they've already taken it,

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Speaker 1: I think go a long way towards that. I think

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Speaker 1: the FED if I were sitting at the federes or

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Speaker 1: right now, I'd be asking myself the question, how can

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Speaker 1: I do more on the liquidity front so I can

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Speaker 1: free up more flexibility on the montery policy side, because

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Speaker 1: if we can restore confidence in the banking system, then

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Speaker 1: the FAT can use montery policy to bring down inflation.

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Speaker 1: Do you live under a rock of parishness. Is that

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Speaker 1: what someone sets you? People we have any more? They

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Speaker 1: say other things like you're a pessimistic, horrible human who

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Speaker 1: doesn't ever think positive things. But I do. It's just

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Speaker 1: that I worry a lot of people, you know. They

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Speaker 1: it's love you. Well, that's sweet, but it's okay. I

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Speaker 1: can deal with it because I'm prepared, because I'm duly perished.

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Speaker 1: But I'm not. It's just realistic. It's trying to understand

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Speaker 1: the unknown looking around. Thank you, But a couple more

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Speaker 1: questions if I can. I got this one over the

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Speaker 1: Bloomberg moment ago and someone watching wants to know whether

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Speaker 1: you think the gap between FED funds and bank deposit

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Speaker 1: rates Matt to hair, has that contributed to the problem.

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Speaker 1: I think banks have been slow to raise their deposit

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Speaker 1: rates because they've been a wash with deposits. I mean,

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Speaker 1: what happened when the FED was doing quantitative easing was

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Speaker 1: a buying securities and US and that cash from those

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Speaker 1: securities purchases was actually flowing into the banking system. So

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Speaker 1: banks have actually been pretty slow to raise their deposit rates.

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Speaker 1: You know, when people look at the mark and mark

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Speaker 1: delosses on their securities portfoil on their loan book. That

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Speaker 1: is to be all set by the fact that banks

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Speaker 1: are actually doing quite well in terms of the deposit base.

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Speaker 1: The value of a retail bank network today, a branch

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Speaker 1: network today is much greater than it was when interest

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Speaker 1: rates were at zero. So when you're looking at the

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Speaker 1: banking you know, as a liability mix, you also have

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Speaker 1: to count the value of those deposits, which is rarely

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Speaker 1: really quite so high right now. For most banks, net

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Speaker 1: interest margins have actually been expanding. Silicon Valley Bank was

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Speaker 1: a very important exception. But I just want to weigh

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Speaker 1: in as well on the balance sheet. I'd love your

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Speaker 1: thoughts on that. As we know there's been a rush

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Speaker 1: to use the discount window. The new facility that was

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Speaker 1: opened by the Federal Reserve just last weekend will encourage

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Speaker 1: perhaps more or the same. Can you tell me whether

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Speaker 1: just because the balance sheet is expanded again, whether that

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Speaker 1: means it's the end of QT. How do you think

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Speaker 1: about these things? I think this is about exceptional liquidity,

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Speaker 1: lender of last resort provision to support the banking system.

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Speaker 1: I think quantitative tightening, the runoff of the Treasury portfolio

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Speaker 1: and the agency mortgage bank Security PORTFOILO is going to

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Speaker 1: continue unabated. I see these tools is very separate and different.

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Speaker 1: So I expect that the quantity of plating will conto you,

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Speaker 1: but one for to get your thoughts, as always, both

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Speaker 1: down to there A former New York Fed president and

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Speaker 1: Bloomberg opinion columnist John Gasnais Max can the chief multi

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Speaker 1: assets strategist over at HSBC. Max have asked this question

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Speaker 1: a few times in the last twenty four hours. It's

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Speaker 1: your turn. You're feeling more or less confident after that

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Speaker 1: tie up yesterday? I feel probably more confident. I feel

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Speaker 1: also more confident after what's happened last week. I would

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Speaker 1: feel much much more concerned if, indeed, when if we

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Speaker 1: had perhaps sentiment and positioning much much less really down beat.

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Speaker 1: Now you know we've been I've been listening to your

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Speaker 1: show for the last eight eight minutes and there's not

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Speaker 1: been a lot of positives yet, right, And I think

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Speaker 1: that's a fair under statement if I say that, And

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Speaker 1: that's the good thing. The good thing is when we

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Speaker 1: look at sovey based sentiment, that's pretty depressed already. If

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Speaker 1: we look at technicals, right, so like relative strength across

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Speaker 1: risk assets already very depressed big term structure sort of

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Speaker 1: down to load the ten percentel already, right when we

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Speaker 1: look at equity beaters of multi asset funds down right,

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Speaker 1: when we look at pot care rats not only in

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Speaker 1: equities but across the asset classes, spending clear clear bearish

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Speaker 1: risk sentiment signals. So the good thing is right with

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Speaker 1: all what's been happening, not only in the last twenty

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Speaker 1: four hours but really over the last last week, is

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Speaker 1: that sentiment has gone and it's de rated sufficiently really

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Speaker 1: to bearish levels that I'd be very very careful to

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Speaker 1: throw in the towel on constructive views now, right, So

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Speaker 1: we've just put out an one and said, look, we're

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Speaker 1: still holding onto that constructive view because in deeper sentiment

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Speaker 1: positioning really across the board looks much much more negative now,

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Speaker 1: which is a contrarian positive signal. Max. Let's put a

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Speaker 1: bit more specifics around this. Are you saying right now

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Speaker 1: you're going out there and buying European banks to move

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Speaker 1: counter to the zeit guys that we see out there, Yeah,

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Speaker 1: I think so. I think banks are more and more

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Speaker 1: looking actually attractive if we look at you know, if

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Speaker 1: we look at the rilative performance perhaps of banks over

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Speaker 1: the broader market. Look at the performance of banks over

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Speaker 1: tech for example, that is back to the COVID highest, right,

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Speaker 1: that's back to where we were at sort of the

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Speaker 1: dizzy heights in twenty twenty, when you know, real rates

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Speaker 1: went down to almost record record negative levels. Where we

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Speaker 1: look at the broader banks performance not only in Europe

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Speaker 1: but also in the US, when we look at that

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Speaker 1: against you know, US treasure yields, if we look at

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Speaker 1: that against financial conditions, and particularly it's priced right now

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Speaker 1: for the second biggest, second sharpest deterioration in financial conditions already, right,

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Speaker 1: So there is an awful lot in the price, particularly

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Speaker 1: from a from a relative perspective already. Right, So I

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Speaker 1: wouldn't say, oh, nothing's happened yet, and you know there's

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Speaker 1: much much more deeper pain to come. We're getting pretty

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Speaker 1: close to pretty attractive entry levels. I think let's talk

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Speaker 1: monastry policy. But Michael sat in that chair yesterday evening

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Speaker 1: from JP Morgan. He said, first comes in September. Andrew

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Speaker 1: Holland host a city published this morning. He said, you

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Speaker 1: get a hike at that meeting. In a couple of days,

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Speaker 1: he said, in the SCP the projections they offer for

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Speaker 1: the dot plot the medium dot for twenty three He

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Speaker 1: thinks five twenty five to five fifty max. What are

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Speaker 1: you looking for this Wednesday? I think you know what, John.

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Speaker 1: I think there's one rule right now. Don't overdo things right,

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Speaker 1: don't talk too much, don't change too much. What you'd

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Speaker 1: read now right now, particularly from policymakers, it's steady hand,

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Speaker 1: steady ship. Right, what you really want is basically at

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Speaker 1: twenty five basis point hike. I agree with what Lisa

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Speaker 1: said before. Has anyone really looked at the projections from

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Speaker 1: the ECB last week? Not really right, because they've been

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Speaker 1: only marginally changed. Really, that's what you need from the

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Speaker 1: FED as well. Right, you don't need overaction, right, you

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Speaker 1: don't need too much. What I would do is what

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Speaker 1: I'm really waiting for, is at twenty five basis point hike.

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Speaker 1: Not too much change, not too much flip flopping around

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Speaker 1: in projections or opinions, or hiking or lowering the dots,

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Speaker 1: but really steady hands, steady ships saying, look, we've managed

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Speaker 1: to contain it so far. We can press ahead with

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Speaker 1: the inflation fide. We don't need to be as aggressive

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Speaker 1: anymore as we've been a couple of months ago. Let's

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Speaker 1: see this through. I think that is if we think

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Speaker 1: about it and we talk about restoring confidence. The number

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Speaker 1: one rule in restoring confidence is steady hand, steady ship,

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Speaker 1: don't overdo it. And Max Wader for to get your

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Speaker 1: thoughts as always to kick off the week, Max certain

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Speaker 1: there of HSBC joining us now, I'm please to say

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Speaker 1: Mara Rodriguez Valadaris, managing principal at MRV Associates, Mara, thank

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Speaker 1: you for being on the program with us. Last weekend

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Speaker 1: it was Signature, it was SVB. This weekend it was

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Speaker 1: Credit Suis. What are you expecting next weekend? Right, that's

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Speaker 1: really the question. I'm afraid that the regional banks in

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Speaker 1: the US, of course, are still very very sensitive to

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Speaker 1: this crisis and confidence frankly, but the eyes of DUIs

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Speaker 1: is very very different. And unfortunately I heard some Swiss

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Speaker 1: regulators and government officials blaming the US banking chaos for

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Speaker 1: the demise, and this one cannot be pinned on the

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Speaker 1: American banking sector. Unfortunately, klepto, cracks and crooks have long

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Speaker 1: been banking, as it has decades long unfortunately history of

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Speaker 1: many many scandals, So if anything, I would really be

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Speaker 1: worried about those really big banks that have weak operational risk.

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Speaker 1: That's what we really need to be looking at. We

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Speaker 1: just had Bill Dudley, the former president of the New

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Speaker 1: York Federal Reserve, and he was talking about how the

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Speaker 1: one difference now or one of the main differences now

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Speaker 1: from twenty years ago, is that big banks don't want

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Speaker 1: to acquire other banks so quickly, the litigation risks, the

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Speaker 1: regulatory risks that a company that are significant and opaque.

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Speaker 1: What do you make of that in terms of how

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Speaker 1: many provisions to be put around the UBS acquisition of

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Speaker 1: Credit Suis and what that means for distress that we're

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Speaker 1: seeing in certain pockets of the US. He's actually right,

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Speaker 1: because the big banks have a lot of interconnections. There's

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Speaker 1: just a tremendous amount of opacity that investors don't know.

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Speaker 1: And I think that that's what we really should be

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Speaker 1: focusing in the coming days because right now everybody's trying

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Speaker 1: to go through all the fine print of the memorandum

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Speaker 1: of the UBS memorandum of the takeover Credit Suis, But

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Speaker 1: imagine all the opaqueness in the banks, especially in Credit

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Speaker 1: Suis there's a lot of duplication. There's going to be

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Speaker 1: unfortunately thousands of people who will be fired all over

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Speaker 1: the globe because of course UBS will get a says

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Speaker 1: to who gets to say you have shared facilities in

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Speaker 1: terms of liquidity. You also have a lot of systems

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Speaker 1: at both banks, many which are legacy systems, and so

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Speaker 1: UBS is going to have to be combing through this

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Speaker 1: all very very carefully. Are there hidden liabilities at Credit

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Speaker 1: Suite that UBS hasn't had a chance to find out?

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Speaker 1: There is no way that they were able to do

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Speaker 1: all this level of in depth due diligence to be

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Speaker 1: able to do this deal. And so that's really what UBS,

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Speaker 1: in any big bank would be worried about in terms

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Speaker 1: of trying to buy out another one. There are two

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Speaker 1: issues here, or there are a lot of issues here.

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Speaker 1: But there's what's going on with Credit Suites and UBS,

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Speaker 1: and there's what's going on over in the US and

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Speaker 1: some of the regional banks. The interlinkage perhaps is a

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Speaker 1: confidence story, but the stories are separate in what is

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Speaker 1: going on and why? And I want to just go

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Speaker 1: to the US story for a second. Myra and this

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Speaker 1: question of supervision of the federal reserve and the role

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Speaker 1: of people to identify problems and adequately prevent against them

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Speaker 1: spiraling out of control. What is your concern level in

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Speaker 1: the inability to do that with Silicon Valley Bank and

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Speaker 1: some of the others that have drawn scrutiny recently. Yes,

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Speaker 1: I'm glad you said the words supervision, because that's really

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Speaker 1: we need more supervision, not necessarily regulation. However, having said that,

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Speaker 1: if big banks were required to be called systemically important,

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Speaker 1: which is exactly what the Trump law deregulated, then those

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Speaker 1: banks the size of Silicon Valley would actually be disclosing

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Speaker 1: more about their liquidity, the composition of their deposits. And

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Speaker 1: in the US we have a very complex regulatory and

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Speaker 1: supervisory framework. You have the state regulator. So state regulators

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Speaker 1: often do not have the money, they don't have the resources,

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Speaker 1: and they're the ones that are right there on the ground.

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Speaker 1: So the state regulators are the ones that have to

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Speaker 1: be empowered, and the banks should be required to disclose

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Speaker 1: more about their liquidity, their capital. There other kinds of risks,

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Speaker 1: such as leverage, the concentration. If investors had that information

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Speaker 1: more often than just once a quarter, they would be

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Speaker 1: able to discipline the banks. You cannot count on regulators

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Speaker 1: or rating agencies to discipline the banks. But the banks

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Speaker 1: are opaque, and they should really be disclosing a lot

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Speaker 1: more about their concentration and liquidity risks. Mara. Bank failures,

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Speaker 1: as you know, go back centuries, and I wonder if

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Speaker 1: our biggest problem right now is the fact that banks fail,

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Speaker 1: or the fact that seemingly we can't tolerate failure anymore.

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Speaker 1: That's exactly it. You have to let banks fail. The problem,

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Speaker 1: of course, is that the people who are going to

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Speaker 1: get hurt are the junior level employees, the ones that

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Speaker 1: aren't getting the big bonuses. All the restaurants and hotels

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Speaker 1: anywhere that had any business with those banks are the

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Speaker 1: ones that get hurt. And we're no longer really a

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Speaker 1: capitalist society. We are constantly letting these bank executives socialize

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Speaker 1: the losses, and that's the problem. They should be allowed

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Speaker 1: to fail. There should be clawbacks for bonuses, and you

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Speaker 1: have to discipline rogue professionals at these banks. Otherwise we're

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Speaker 1: constantly doing this and it's always the taxpayers that are

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Speaker 1: bailing people out, bailing out the banks, I should say.

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Speaker 1: And it's a problem for all the different kinds of

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Speaker 1: central banks. The Fed now is probably not going to

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Speaker 1: be able to raise rates, but it's not just because

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Speaker 1: of what's going on in the US. I mean, do

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Speaker 1: you think that Switzerland right now is good raise rates

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Speaker 1: or the European Central Bank? We have global inflation, but

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Speaker 1: now come all of these problem banks, and so it

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Speaker 1: is really going to be quite a channenge for all

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Speaker 1: of these different central banks as well, of course, as

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Speaker 1: the bank regulators globally. Does this not just an American problem?

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Speaker 1: Let's kinshap soon. I appreciate your time this morning. Thank you.

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Speaker 1: Mario Rodriguez Volataris of m Anti Associates Beyond Cooperman chairman

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Speaker 1: and CEO of Omega Family Office joining us now and Leona,

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Speaker 1: I just want to first start with what's your impression

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Speaker 1: of everything that we've seen over the past I would

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Speaker 1: say week last weekend with what happened with Silicon Valley

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Speaker 1: Bank and just now with UBS taking over Credit Suet.

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Speaker 1: We are being overly simplistic to me, It's kind of

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Speaker 1: like textbook. We've degenerated into a system of leadership at

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Speaker 1: a crisis. We have a self induced crisis by irresponsible

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Speaker 1: fiscal monetary policy. The last decade. I did not forecast

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Speaker 1: a silicon bank issue, but I didn't have a view

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Speaker 1: that we were heading to a crisis of some kind.

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Speaker 1: And we're seeing it and we're getting a predictable response

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Speaker 1: by government, and so I think it's sad, you know,

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Speaker 1: what's going on in the country, But what they're doing

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Speaker 1: is what is necessary to be done. I have to

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Speaker 1: preserve the system. So I'm assuming that the Fed goes

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Speaker 1: twenty five BIPs on Wednesday. They're twenty five and done.

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Speaker 1: They can accept a higher level of inflation and that

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Speaker 1: they would like to accept because of the stress and

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Speaker 1: the financial system. They have to stabilize the treasury market.

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Speaker 1: The volatility of bond is so great that that's destabilizing

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Speaker 1: the equities. Well, I want to Leon, I want to

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Speaker 1: pick up on that, because we've been talking about that.

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Speaker 1: We've seen unbelievable fluctuations in the basic most liquid instruments

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Speaker 1: in the world, right treasuries. What's the read through a

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Speaker 1: fact of just even that volatility on other risk assets

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Speaker 1: and how much further does it have to take that

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Speaker 1: out in terms of volatility pressuring equity valuations. That's not

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Speaker 1: my area of expertise, but I would say that this

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Speaker 1: is a response to the debt build up in the country.

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Speaker 1: You know, in twenty seventeen we had twenty trillion dollars

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Speaker 1: of national debt, and today we're not going to do

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Speaker 1: a thirty two trillion five years later, five or six

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Speaker 1: years later because a growth rate in debt for an

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Speaker 1: excess to the growth rate of the economy, which is

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Speaker 1: going to create issues. You know, who is the buyer

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Speaker 1: buy The banks are not the buyer of bonds anymore.

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Speaker 1: So you're relying upon the kindness of strangers and they're

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Speaker 1: probably not imbued with their financial policy when they look

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Speaker 1: at the politics of the country. It's also very depressing.

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Speaker 1: You know, we have a country that I think is

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Speaker 1: largely centrist to nature. It's been taken over by two

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Speaker 1: political parties, with the radicals radical right radical left ruling

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Speaker 1: the day. We don't need this, well, Leon, Leon. We're

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Speaker 1: dealing with a situation where the political overlay is raising

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Speaker 1: questions about the debt ceiling debate, and we can get

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Speaker 1: into that and people are trying to figure out what

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Speaker 1: that means economically and for the market. Your expertise is

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Speaker 1: in the SMP in the market and market calls and

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Speaker 1: you've been warning about a recession for a long time.

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Speaker 1: You've been saying that this is a self induced error

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Speaker 1: of monetary policy and woes. And I'm curious, first of all,

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Speaker 1: whether you're getting more optimistic about returns because of the

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Speaker 1: declines that we're seeing and because of perhaps people waking

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Speaker 1: up to the reality of the potential for recession as

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Speaker 1: you've been saying it. Well, my view has been as follows.

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Speaker 1: I tell the story about at the Faraoh. I told

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Speaker 1: us almost a year ago on TV The Farrell excuse me,

390
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Speaker 1: had a dream. The dream was interpreted by Joseph. It

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Speaker 1: was in the Bible. His dreams were heading for seven

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Speaker 1: lean years after seven fat years. And that is my view.

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Speaker 1: I think the forty eight hundred SMP will be high,

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Speaker 1: that will stand for quite some time. And then I

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Speaker 1: kind of analogized that to my own career. I got

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Speaker 1: my MBA from Columbia Business School on January thirty first

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Speaker 1: of nineteen sixty seven at a six month old trial

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Speaker 1: at the time. Now he's a healthy fifty six year old.

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Speaker 1: I had no money in the bank at a student

400
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Speaker 1: loan to repay. They were not for giving student loans,

401
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Speaker 1: and I couldn't a fortification. I went to work the

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Speaker 1: very next day. I joined Gome and Sacks. To my

403
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Speaker 1: twenty five year career, from February first to sixty seven,

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Speaker 1: that was a thousand and nineteen eighty two was one

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Speaker 1: thousand and So I made my money picking stocks. You know,

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Speaker 1: I'm not selling eightying anybody because I'm a retired money

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Speaker 1: manager and I'm turning eighty years old in a few weeks.

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Speaker 1: But I would say that I think we're in a

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Speaker 1: stock pickers environment. I expect the returns to the SMP

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Speaker 1: to be very pedestrian. I think what's going on in

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Speaker 1: the world is negative a price ratios. And I want

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Speaker 1: to make this point. If the government is looked upon

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Speaker 1: to monerate the downside risk, the government has every right

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Speaker 1: to monerate the upside return. Okay, we this Chips Act.

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Speaker 1: You know, I think Intel, since it a balanced you

416
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Speaker 1: to fifty billion dollars, they don't need the government to

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Speaker 1: build plans for them. They could do it themselves. I'm

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Speaker 1: in favor of private sector solutions, and the extent that

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Speaker 1: the political system is getting corrupted, that's negative for capitalism

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Speaker 1: long term. So Leon, from your perspective, you have major

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Speaker 1: career in picking single stocks. Where are you putting your

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Speaker 1: money now? Given that you still are investing, if perhaps

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Speaker 1: for yourself and for others, where do you go? I'm

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Speaker 1: like a one off kind of guy. I'm looking at

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Speaker 1: a couple of these mortgage routes that are yielding fourteen

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Speaker 1: to sixteen percent discount to book value, where they're buying back,

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Speaker 1: they're on stock whenever it's they have you achieved? But

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Speaker 1: you know those are one off. My biggest exposure has

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Speaker 1: been energy, and that's cost me some money this year.

430
00:23:12,040 --> 00:23:17,720
Speaker 1: I'm generally of the view that world travel will come back,

431
00:23:18,240 --> 00:23:21,359
Speaker 1: which will be a plus for energy demand. China coming

432
00:23:21,800 --> 00:23:23,959
Speaker 1: out of lockdown will be a plus for energy demand.

433
00:23:24,680 --> 00:23:27,760
Speaker 1: We're getting no longer complete the strategic Petoleum reserve. We

434
00:23:27,880 --> 00:23:32,600
Speaker 1: have to rebuild it, and we're not replacing reserves the

435
00:23:32,680 --> 00:23:36,480
Speaker 1: extent that we are we should be in terms of

436
00:23:36,520 --> 00:23:39,400
Speaker 1: where we're producing. Yeah, I have a bunch of oil

437
00:23:39,440 --> 00:23:42,359
Speaker 1: stocks my portfolio that have current yields of five or

438
00:23:42,359 --> 00:23:48,080
Speaker 1: ten percent, production costs well below current prices. They're largely

439
00:23:48,160 --> 00:23:51,200
Speaker 1: debt free in their position to buy back on the

440
00:23:51,280 --> 00:23:55,879
Speaker 1: bad stock. My favorite is Paramount Resource Stup in Canada,

441
00:23:55,920 --> 00:23:59,200
Speaker 1: pou You know, they produce well for thirty one dollars

442
00:23:59,200 --> 00:24:03,080
Speaker 1: a barrel. They're growing production at fifteen percent. The stock

443
00:24:03,160 --> 00:24:07,639
Speaker 1: yields over five percent. Yeah, Leon, bobbing up against the

444
00:24:07,640 --> 00:24:11,320
Speaker 1: clock thirty seconds. Do you agree with Elizabeth Warren that

445
00:24:11,600 --> 00:24:14,000
Speaker 1: there should be insurance for deposits it's more than two

446
00:24:14,080 --> 00:24:16,200
Speaker 1: hundred and fifty thousand dollars and that banks should have

447
00:24:16,240 --> 00:24:20,639
Speaker 1: to pay for that. There's very little that Lizard Warren

448
00:24:20,680 --> 00:24:26,199
Speaker 1: says that I agree with. But uh, you know, I

449
00:24:26,280 --> 00:24:27,919
Speaker 1: think we have to do whatever we have to do

450
00:24:27,960 --> 00:24:30,560
Speaker 1: to stabilize the system, and we will do it. But

451
00:24:30,720 --> 00:24:34,239
Speaker 1: I think I'm focusing a long term implications of what

452
00:24:34,280 --> 00:24:38,639
Speaker 1: they're doing, So I think that yes, they should do

453
00:24:38,680 --> 00:24:40,720
Speaker 1: whatever they got to do to stabilize the system. It's

454
00:24:40,720 --> 00:24:42,880
Speaker 1: a damn shame that we have to do what we're doing,

455
00:24:43,240 --> 00:24:45,600
Speaker 1: that we none it should have been this problem, you know,

456
00:24:46,840 --> 00:24:52,000
Speaker 1: mister Powell. You know the Fed head said that the

457
00:24:52,040 --> 00:24:54,840
Speaker 1: stock market wasn't overvalued. This is a few years ago.

458
00:24:55,320 --> 00:24:57,280
Speaker 1: Because if we're interest race were it never by the

459
00:24:57,280 --> 00:24:59,880
Speaker 1: time people interest race didn't belong where they were, Leon,

460
00:25:00,119 --> 00:25:01,480
Speaker 1: remember're gonna have to leave it there. Thank you so

461
00:25:01,600 --> 00:25:04,880
Speaker 1: much for joining us Leon Cooperman of Omega Family Office.

462
00:25:04,920 --> 00:25:18,600
Speaker 1: We really appreciate your time. Michael Arrakeetzi joins US now

463
00:25:18,640 --> 00:25:22,640
Speaker 1: co founder and CEO Heiress Management. Michael, wonderful to catch

464
00:25:22,720 --> 00:25:24,120
Speaker 1: up with you, sir. I think we need to talk

465
00:25:24,160 --> 00:25:27,879
Speaker 1: about speed, just how quickly this is moving. What do

466
00:25:27,880 --> 00:25:30,520
Speaker 1: you make of it all? I think you hit on

467
00:25:30,560 --> 00:25:35,360
Speaker 1: a big challenge in today's mark environment relative to past cycles.

468
00:25:35,400 --> 00:25:38,280
Speaker 1: I think with the speed with which money can move

469
00:25:38,320 --> 00:25:41,640
Speaker 1: through the system, the speed with which information is coming

470
00:25:41,680 --> 00:25:44,960
Speaker 1: at us, it's getting harder and harder to distill the

471
00:25:45,080 --> 00:25:49,960
Speaker 1: signal through the noise. So we're talking with you, Michael

472
00:25:50,160 --> 00:25:52,600
Speaker 1: at a time when people are wondering who will take

473
00:25:52,640 --> 00:25:55,360
Speaker 1: over some of the institutions that are seeing some distress,

474
00:25:55,560 --> 00:25:57,400
Speaker 1: who will come to the rescue. And we were talking

475
00:25:57,400 --> 00:25:59,840
Speaker 1: with Bill Dudley about how big banks learn their lessons

476
00:26:00,119 --> 00:26:03,520
Speaker 1: the financial crisis and are concerned about litigation risks. From

477
00:26:03,520 --> 00:26:06,639
Speaker 1: your vantage point, given the arias overseas three hundred and

478
00:26:06,680 --> 00:26:09,040
Speaker 1: fifty two billion dollars of assets, including more than two

479
00:26:09,080 --> 00:26:11,840
Speaker 1: hundred billion dollars of credit, what's your view on that?

480
00:26:12,000 --> 00:26:16,200
Speaker 1: Where is your role? It's interesting? I think the private

481
00:26:16,359 --> 00:26:18,600
Speaker 1: credit markets have been playing a little bit of a

482
00:26:18,720 --> 00:26:22,600
Speaker 1: stabilizing role here over the last couple of weeks and months,

483
00:26:23,160 --> 00:26:26,040
Speaker 1: as liquidity in the traded markets is not what it

484
00:26:26,119 --> 00:26:29,600
Speaker 1: used to be. I think folks like Arias are coming

485
00:26:29,640 --> 00:26:33,360
Speaker 1: in and really providing liquidity in certain markets where liquidity

486
00:26:33,400 --> 00:26:36,560
Speaker 1: has gotten been. One thing I think about now is

487
00:26:36,600 --> 00:26:39,800
Speaker 1: one of the larger private credit managers is We don't

488
00:26:39,800 --> 00:26:41,840
Speaker 1: know exactly how this all will unfold, but I can

489
00:26:41,880 --> 00:26:45,040
Speaker 1: tell you one thing. We will see more regulation of banks,

490
00:26:45,119 --> 00:26:48,679
Speaker 1: both mid sized and large. We will likely see a

491
00:26:48,800 --> 00:26:51,840
Speaker 1: change to bank capp or regulatory framework here in the

492
00:26:51,960 --> 00:26:56,239
Speaker 1: US and abroad, and that capital contraction will make it

493
00:26:56,240 --> 00:26:58,639
Speaker 1: ever more important than private credit plays a role in

494
00:26:58,760 --> 00:27:01,440
Speaker 1: funding real economy. So at what point and I want

495
00:27:01,440 --> 00:27:03,280
Speaker 1: to go to the funding the real economy in a second,

496
00:27:03,359 --> 00:27:06,119
Speaker 1: But just in terms of the here and now, is

497
00:27:06,200 --> 00:27:09,080
Speaker 1: aries going in and picking up bank bonds. Is aries

498
00:27:09,160 --> 00:27:13,040
Speaker 1: coming in and discussing how to finance banks that perhaps

499
00:27:13,119 --> 00:27:18,879
Speaker 1: are threatened with deposit outflows. I remind you, Lisa, we

500
00:27:19,280 --> 00:27:22,239
Speaker 1: play strictly in the private market, so we do have

501
00:27:22,280 --> 00:27:26,240
Speaker 1: certain pockets of capital within our opportunistic credit and distress

502
00:27:26,240 --> 00:27:30,040
Speaker 1: businesses that will dabble in the public market. Opportunity gets

503
00:27:30,040 --> 00:27:33,240
Speaker 1: created here, but the opportunity is set for aries and

504
00:27:33,320 --> 00:27:35,240
Speaker 1: those that look like us really is to come in

505
00:27:35,320 --> 00:27:38,520
Speaker 1: and be a liquidity provider to the small companies that

506
00:27:38,640 --> 00:27:41,040
Speaker 1: may be challenged to get liquidity from mid size and

507
00:27:41,080 --> 00:27:43,960
Speaker 1: regional banks. And it could be as a real good

508
00:27:44,000 --> 00:27:47,120
Speaker 1: counterparty to the bank on right PAP grades that they

509
00:27:47,160 --> 00:27:50,120
Speaker 1: try to revisit the liquidity are on their own Balanteam.

510
00:27:50,280 --> 00:27:53,640
Speaker 1: You talked about the broader capital sphere that we're watching

511
00:27:53,680 --> 00:27:57,320
Speaker 1: and this concern about whether commercial real estate operators as

512
00:27:57,359 --> 00:28:00,000
Speaker 1: well as individuals and small businesses can get the loans

513
00:28:00,080 --> 00:28:02,840
Speaker 1: that regional banks used to provide to them. Michael, private

514
00:28:03,000 --> 00:28:05,720
Speaker 1: credit might step in, but how much more expensive will

515
00:28:05,720 --> 00:28:08,080
Speaker 1: it be to get it from a private equity company

516
00:28:08,200 --> 00:28:12,560
Speaker 1: or a private debt firm than from a regional bank. Look,

517
00:28:12,600 --> 00:28:15,919
Speaker 1: I think historically the private credit markets have been more expensive.

518
00:28:16,480 --> 00:28:20,080
Speaker 1: That's largely because they tend to provide a level of

519
00:28:20,240 --> 00:28:25,440
Speaker 1: creativity or innovation, or frankly, more leverage or structural flexibility

520
00:28:25,480 --> 00:28:28,480
Speaker 1: than a bank solution could. So I think the market

521
00:28:28,560 --> 00:28:31,120
Speaker 1: is pretty well attuned to a higher cost of capital.

522
00:28:31,600 --> 00:28:34,119
Speaker 1: I think you raise an important point though here is

523
00:28:34,200 --> 00:28:38,160
Speaker 1: what we're dealing with now is liquidity and duration, not credit.

524
00:28:38,280 --> 00:28:41,880
Speaker 1: We're already seeing the impact that cost of capital is

525
00:28:41,920 --> 00:28:45,160
Speaker 1: having as rates from moving up so quickly. I think

526
00:28:45,160 --> 00:28:46,920
Speaker 1: we first need to get to a point where the

527
00:28:47,040 --> 00:28:52,240
Speaker 1: equity valuation environment adjusts in the new realities that people

528
00:28:52,280 --> 00:28:55,800
Speaker 1: can actually afford a higher cost of capital. If that's

529
00:28:55,800 --> 00:28:58,200
Speaker 1: where this takes the Michael. One issue that's come up

530
00:28:58,240 --> 00:29:01,560
Speaker 1: repeatedly over the last week, it's this idea that ultimately

531
00:29:01,600 --> 00:29:03,880
Speaker 1: now will end up we're tighter lending standards, tight to

532
00:29:03,960 --> 00:29:06,760
Speaker 1: financial conditions. Think a lot of people are lining up

533
00:29:06,800 --> 00:29:08,960
Speaker 1: to give us the stats about how dependent certain parts

534
00:29:08,960 --> 00:29:11,440
Speaker 1: of this economy are on the financing from small and

535
00:29:11,520 --> 00:29:14,840
Speaker 1: medium sized banks. We're thinking about real estate a whole

536
00:29:14,840 --> 00:29:17,520
Speaker 1: lot more. Michael, how are you thinking about the ripples

537
00:29:17,560 --> 00:29:19,479
Speaker 1: from what's developed in the last couple of weeks from

538
00:29:19,520 --> 00:29:21,760
Speaker 1: these banks and what regionals are going through, and what

539
00:29:21,800 --> 00:29:23,840
Speaker 1: it means for an asset class that I imagine you're

540
00:29:23,840 --> 00:29:28,560
Speaker 1: exposed to look. I think it could be very challenging.

541
00:29:28,640 --> 00:29:31,440
Speaker 1: I think that the FED is doing everything it's supposed

542
00:29:31,480 --> 00:29:34,520
Speaker 1: to do to step in and provide confidence. I was

543
00:29:34,640 --> 00:29:38,080
Speaker 1: pleased to see the larger banks in the market step

544
00:29:38,160 --> 00:29:41,719
Speaker 1: in to provide support to First Republic. I think at

545
00:29:41,720 --> 00:29:44,160
Speaker 1: the end of the day, again, this is duration lookquid

546
00:29:44,200 --> 00:29:47,480
Speaker 1: to be and confidence not credit. So I would hope

547
00:29:47,480 --> 00:29:51,120
Speaker 1: that folks calm down again to see the signal through

548
00:29:51,160 --> 00:29:54,520
Speaker 1: the noise and get back to lending. But it is

549
00:29:54,560 --> 00:29:57,760
Speaker 1: a real risk obviously, the extent that people continue to

550
00:29:57,800 --> 00:30:01,600
Speaker 1: lose confidence have it leaves that part of the banking

551
00:30:01,640 --> 00:30:03,600
Speaker 1: sector and it is going to make it harder for

552
00:30:03,680 --> 00:30:06,160
Speaker 1: people to act as capital. For sure, it feels like

553
00:30:06,200 --> 00:30:08,440
Speaker 1: a year ago. But last week Larry Fink of Blackrock

554
00:30:08,680 --> 00:30:10,080
Speaker 1: said that there are a number of shoes that are

555
00:30:10,080 --> 00:30:12,240
Speaker 1: going to drop. First it was Silicon Valley Bank, then

556
00:30:12,240 --> 00:30:14,960
Speaker 1: it was other smaller and red medium sized banks, and

557
00:30:15,040 --> 00:30:17,320
Speaker 1: next it would be the private credit and private equity

558
00:30:17,360 --> 00:30:20,880
Speaker 1: and venture capital markets that wouldn't get that credit. Do

559
00:30:20,920 --> 00:30:24,800
Speaker 1: you agree with that. I think one thing that is

560
00:30:24,800 --> 00:30:27,720
Speaker 1: probably most missed understood about the private markets, which is

561
00:30:27,760 --> 00:30:29,560
Speaker 1: why you know, it's always been this view that the

562
00:30:30,240 --> 00:30:32,480
Speaker 1: canary in the coal mine, and yet every time we

563
00:30:32,560 --> 00:30:36,800
Speaker 1: have a crisis or a mini crisis, private markets tend

564
00:30:36,880 --> 00:30:41,280
Speaker 1: to emerge fairly unscathed. And I think the big difference

565
00:30:41,320 --> 00:30:44,240
Speaker 1: that folks don't really appreciate is one. Most private credit

566
00:30:44,400 --> 00:30:48,240
Speaker 1: assets are held unlevered to the extent their lever they're

567
00:30:48,240 --> 00:30:53,040
Speaker 1: modesty leverage with matt duration and match funding. Duxtapose that

568
00:30:53,120 --> 00:30:55,880
Speaker 1: with a bank that is ten to fifteen times lever

569
00:30:56,000 --> 00:30:59,240
Speaker 1: and you get obviously a much different outcome. And markets

570
00:30:59,280 --> 00:31:03,280
Speaker 1: like this. Similarly, on the equity side, they are operating

571
00:31:03,280 --> 00:31:08,280
Speaker 1: out of funds with end to twelve year life cycles,

572
00:31:08,280 --> 00:31:12,080
Speaker 1: and so most private owners of assets that are institutionally

573
00:31:12,120 --> 00:31:16,440
Speaker 1: backed are neither force sellers or forced buyers in any market,

574
00:31:16,440 --> 00:31:18,880
Speaker 1: and that provides a level of stability that I think

575
00:31:18,920 --> 00:31:21,360
Speaker 1: people may underappreciate when we go through markets like when

576
00:31:21,400 --> 00:31:23,800
Speaker 1: we're in right now. That's a constructive point. Michael, gotta

577
00:31:23,880 --> 00:31:25,720
Speaker 1: leave it there. It's wonderful to hear your thoughts. Thank you,

578
00:31:26,040 --> 00:31:29,880
Speaker 1: Michael Arrogetti, the of Ari's management. Subscribe to the Bloomberg

579
00:31:29,920 --> 00:31:33,120
Speaker 1: Surveillance podcast on Apple, Spotify and anywhere else you get

580
00:31:33,160 --> 00:31:37,040
Speaker 1: your podcasts. Listen live every weekday starting at seven am Eastern,

581
00:31:37,120 --> 00:31:40,280
Speaker 1: on Bloomberg dot Com, the iHeartRadio app tune In, and

582
00:31:40,520 --> 00:31:43,280
Speaker 1: the Bloomberg Business app. You can watch us live on

583
00:31:43,360 --> 00:31:47,520
Speaker 1: Bloomberg Television and always on the Bloomberg terminal. Thanks for listening.

584
00:31:47,560 --> 00:31:49,880
Speaker 1: I'm Lisa Abramowitz, and this is Bloomberg