WEBVTT - Surveillance: Fed's Next Move with Dudley 0:00:05.040 --> 0:00:08.880 This is the Bloomberg Surveillance Podcast. I'm Lisa Abram Woyd's 0:00:08.880 --> 0:00:11.879 along with Tom Keane and Jonathan Farrell, join us each 0:00:11.920 --> 0:00:15.720 day for insight from the best in economics, geopolitics, finance 0:00:15.760 --> 0:00:19.480 and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:19.560 --> 0:00:22.759 Spotify and anywhere you get your podcasts, and always on 0:00:22.840 --> 0:00:26.319 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.400 --> 0:00:28.880 One thing we do know, yeah, exactly nobody knows. Bill 0:00:28.960 --> 0:00:30.880 Dundley might know it. Johns us Now, the former New 0:00:30.920 --> 0:00:34.400 York Fed President and Bloomberg opinion columnist Bill Let's go there, 0:00:34.479 --> 0:00:38.400 Goldman says, pause, pause, because of stress in the banking system. Bill, 0:00:38.440 --> 0:00:41.400 your best guess right now? What would it be here 0:00:41.520 --> 0:00:43.479 depends on where we are on Wednesday. I think we 0:00:43.680 --> 0:00:45.559 know they're not going to raise fifty we think I 0:00:45.560 --> 0:00:47.320 think we know they're not going to cut rates. The 0:00:47.400 --> 0:00:50.640 real questions zero or twenty five. The case for zero 0:00:50.800 --> 0:00:53.680 is do no harm. We know that banking systems under stress. 0:00:54.000 --> 0:00:56.520 So while you continue to raise rates when the banking 0:00:56.520 --> 0:00:59.560 systems under stress. The case for twenty five basis points 0:00:59.600 --> 0:01:01.680 is to say, look, we still have an inflation problem. 0:01:02.200 --> 0:01:04.600 We can do both. We can use our liquidity facilities 0:01:04.600 --> 0:01:06.679 to show up the confidence in the banking system, and 0:01:06.720 --> 0:01:10.480 we use monetary policy to bring down inflation. You know, 0:01:10.520 --> 0:01:12.360 if I had if I was sitting there, I guess 0:01:12.360 --> 0:01:14.720 I would probably recommend just taking a pause. But you 0:01:14.720 --> 0:01:16.559 have to do it in a way that doesn't alarm people. 0:01:17.000 --> 0:01:18.920 One of the problems of pausing is people are going 0:01:18.959 --> 0:01:21.440 to say, geez, why is the FED pausing? Things must 0:01:21.480 --> 0:01:23.600 be worse in the banking system than we think. I 0:01:23.600 --> 0:01:25.679 think this is a very different situation than the Great 0:01:25.760 --> 0:01:28.920 Financial Crisis in the sense that the banks. This is 0:01:29.160 --> 0:01:32.479 a question of confidence in banks due to uninsured deposits 0:01:32.480 --> 0:01:34.800 and mark to market losses. It's not about the economy 0:01:35.160 --> 0:01:40.040 that's collapsing. In the last recession. During a great financial crisis, 0:01:40.040 --> 0:01:43.120 we were in recession beginning in December two thousand and seven. 0:01:43.400 --> 0:01:45.920 We're not in recession now. The economy is actually doing 0:01:45.959 --> 0:01:48.320 pretty well, and the banks that we're talking about that 0:01:48.360 --> 0:01:51.320 are underspressed in the United States very small share of 0:01:51.320 --> 0:01:53.800 the total banking system. So I think it's important to 0:01:53.840 --> 0:01:57.040 recognize that this isn't the Great Financial Crisis all over again. 0:01:57.320 --> 0:02:00.640 It's a lack of confidence in banks, because especially those 0:02:00.680 --> 0:02:04.240 banks with the high proportion of unsured depositors and marketo 0:02:04.320 --> 0:02:08.000 market losses on their portfolios. All that said, Bill, do 0:02:08.040 --> 0:02:11.560 you still think that this FED should bring a monetary policy, 0:02:11.600 --> 0:02:15.000 should bring their terminal rate to six percent or possibly 0:02:15.160 --> 0:02:19.000 above that based on the inflationary pressures? If there is 0:02:19.040 --> 0:02:21.640 this ongoing tightening that people expect from smaller and mid 0:02:21.720 --> 0:02:25.520 sized banks, that's really the sixty four thousand dollars question. 0:02:25.680 --> 0:02:28.240 How much is this stress that we're seeing today going 0:02:28.280 --> 0:02:31.560 to result in tighter credit conditions. They're going to change 0:02:31.600 --> 0:02:35.280 the trajectory of economic growth. I don't think the problem 0:02:35.360 --> 0:02:37.840 is the credit conditions right now. I think the problem 0:02:37.919 --> 0:02:41.120 is market market losses in the portfolio and unsured deposits. 0:02:41.600 --> 0:02:43.960 It's very different than the Great Financial Crisis, when we 0:02:44.000 --> 0:02:46.280 had this housing boom and bust, and it was the 0:02:46.320 --> 0:02:49.080 bust that really took down fundamental values in the banking 0:02:49.120 --> 0:02:54.200 book and also damage households enormously because households had used 0:02:54.240 --> 0:02:57.000 the rise at home prices to pull money out to 0:02:57.040 --> 0:03:00.480 support their spending. The US economy is fundamental in better 0:03:00.480 --> 0:03:03.960 shape today. Household and business balance sheets are strong, so 0:03:04.000 --> 0:03:06.560 this is I think more about confidence in the banking system. 0:03:06.800 --> 0:03:09.120 One reason why we're having more problems this time though 0:03:09.480 --> 0:03:11.360 last time there were big banks that we're willing to 0:03:11.680 --> 0:03:14.720 ride to the rescue and by the banks that were 0:03:14.800 --> 0:03:17.320 under distressed. They're much less willing to do that this 0:03:17.360 --> 0:03:20.040 time because last time when they did this, they assumed 0:03:20.320 --> 0:03:24.200 a huge legal liabilities that they hadn't anticipated. A second 0:03:24.200 --> 0:03:25.880 reason why big banks don't want to ride to the 0:03:25.919 --> 0:03:27.760 rescue of this time is if I buy a bank 0:03:27.800 --> 0:03:30.320 and get bigger, I could be pushed into a higher 0:03:30.919 --> 0:03:33.239 what's called the Siffy search arge bucket, you know, with 0:03:33.360 --> 0:03:36.120 the higher caper requartment based on my size and complexity, 0:03:36.720 --> 0:03:39.840 which would which would apply to my entire book of business, 0:03:39.920 --> 0:03:43.240 not just the new book part that I just just acquired. 0:03:43.520 --> 0:03:46.320 So you don't have the you know, people that come 0:03:46.360 --> 0:03:49.200 in to buy the banks are under stressed like you 0:03:49.240 --> 0:03:51.480 did last time. Given that you don't see this as 0:03:51.480 --> 0:03:53.360 a two thousand and eight reducts, maybe you don't get 0:03:53.640 --> 0:03:56.560 the White Knights coming in to bail out these banks 0:03:56.560 --> 0:04:00.160 with an equi acquisition, as you point out. But other 0:04:00.200 --> 0:04:02.040 people are writing in demand saying you live under a 0:04:02.120 --> 0:04:04.600 rock of bearishness, and you don't understand the momentum that 0:04:04.600 --> 0:04:06.920 you're seeing throughout the world and throughout a lot of 0:04:06.960 --> 0:04:09.800 communities in the United States. Given that there is this 0:04:09.880 --> 0:04:12.840 sort of momentum, do you think that it's folly for 0:04:12.880 --> 0:04:15.720 people to be pricing in significant rate cuts, more than 0:04:15.760 --> 0:04:19.000 one hundred basis points of rate cuts from now until 0:04:19.040 --> 0:04:20.880 the end of next year or until the end of 0:04:20.960 --> 0:04:24.160 January next year. I should say, yeah, that seems very 0:04:24.160 --> 0:04:25.880 premature to me. I mean that means that the FED 0:04:26.040 --> 0:04:30.240 is basically sail in terms of providing a credible liquirity backstop. 0:04:30.279 --> 0:04:32.359 And I think the FED can succeed in providing a 0:04:32.400 --> 0:04:35.000 credible lilquarery backside. In fact, the stuff they've already taken it, 0:04:35.120 --> 0:04:37.440 I think go a long way towards that. I think 0:04:37.680 --> 0:04:39.600 the FED if I were sitting at the federes or 0:04:39.720 --> 0:04:41.880 right now, I'd be asking myself the question, how can 0:04:41.920 --> 0:04:45.240 I do more on the liquidity front so I can 0:04:45.279 --> 0:04:49.239 free up more flexibility on the montery policy side, because 0:04:49.240 --> 0:04:51.760 if we can restore confidence in the banking system, then 0:04:51.800 --> 0:04:55.160 the FAT can use montery policy to bring down inflation. 0:04:56.200 --> 0:04:58.160 Do you live under a rock of parishness. Is that 0:04:58.200 --> 0:05:01.600 what someone sets you? People we have any more? They 0:05:01.600 --> 0:05:04.120 say other things like you're a pessimistic, horrible human who 0:05:04.160 --> 0:05:06.200 doesn't ever think positive things. But I do. It's just 0:05:06.200 --> 0:05:08.560 that I worry a lot of people, you know. They 0:05:09.440 --> 0:05:11.840 it's love you. Well, that's sweet, but it's okay. I 0:05:12.160 --> 0:05:14.760 can deal with it because I'm prepared, because I'm duly perished. 0:05:14.800 --> 0:05:17.359 But I'm not. It's just realistic. It's trying to understand 0:05:17.440 --> 0:05:20.640 the unknown looking around. Thank you, But a couple more 0:05:20.680 --> 0:05:23.000 questions if I can. I got this one over the 0:05:23.000 --> 0:05:26.600 Bloomberg moment ago and someone watching wants to know whether 0:05:26.640 --> 0:05:28.760 you think the gap between FED funds and bank deposit 0:05:28.920 --> 0:05:31.720 rates Matt to hair, has that contributed to the problem. 0:05:33.320 --> 0:05:35.560 I think banks have been slow to raise their deposit 0:05:35.680 --> 0:05:38.200 rates because they've been a wash with deposits. I mean, 0:05:38.240 --> 0:05:41.200 what happened when the FED was doing quantitative easing was 0:05:41.200 --> 0:05:44.000 a buying securities and US and that cash from those 0:05:44.040 --> 0:05:47.279 securities purchases was actually flowing into the banking system. So 0:05:47.360 --> 0:05:50.040 banks have actually been pretty slow to raise their deposit rates. 0:05:50.320 --> 0:05:51.840 You know, when people look at the mark and mark 0:05:51.920 --> 0:05:54.600 delosses on their securities portfoil on their loan book. That 0:05:54.839 --> 0:05:56.480 is to be all set by the fact that banks 0:05:56.480 --> 0:06:00.280 are actually doing quite well in terms of the deposit base. 0:06:00.600 --> 0:06:03.400 The value of a retail bank network today, a branch 0:06:03.440 --> 0:06:05.600 network today is much greater than it was when interest 0:06:05.680 --> 0:06:07.599 rates were at zero. So when you're looking at the 0:06:07.600 --> 0:06:10.120 banking you know, as a liability mix, you also have 0:06:10.120 --> 0:06:12.480 to count the value of those deposits, which is rarely 0:06:12.640 --> 0:06:15.480 really quite so high right now. For most banks, net 0:06:15.480 --> 0:06:19.359 interest margins have actually been expanding. Silicon Valley Bank was 0:06:19.400 --> 0:06:22.440 a very important exception. But I just want to weigh 0:06:22.440 --> 0:06:24.080 in as well on the balance sheet. I'd love your 0:06:24.080 --> 0:06:26.800 thoughts on that. As we know there's been a rush 0:06:26.800 --> 0:06:29.400 to use the discount window. The new facility that was 0:06:29.440 --> 0:06:32.520 opened by the Federal Reserve just last weekend will encourage 0:06:32.520 --> 0:06:35.279 perhaps more or the same. Can you tell me whether 0:06:35.839 --> 0:06:38.560 just because the balance sheet is expanded again, whether that 0:06:38.600 --> 0:06:40.360 means it's the end of QT. How do you think 0:06:40.400 --> 0:06:45.039 about these things? I think this is about exceptional liquidity, 0:06:45.120 --> 0:06:48.080 lender of last resort provision to support the banking system. 0:06:48.279 --> 0:06:51.920 I think quantitative tightening, the runoff of the Treasury portfolio 0:06:52.080 --> 0:06:54.839 and the agency mortgage bank Security PORTFOILO is going to 0:06:54.880 --> 0:06:59.400 continue unabated. I see these tools is very separate and different. 0:06:59.600 --> 0:07:02.520 So I expect that the quantity of plating will conto you, 0:07:03.000 --> 0:07:05.080 but one for to get your thoughts, as always, both 0:07:05.120 --> 0:07:07.039 down to there A former New York Fed president and 0:07:07.120 --> 0:07:14.320 Bloomberg opinion columnist John Gasnais Max can the chief multi 0:07:14.360 --> 0:07:17.520 assets strategist over at HSBC. Max have asked this question 0:07:17.520 --> 0:07:19.200 a few times in the last twenty four hours. It's 0:07:19.200 --> 0:07:21.840 your turn. You're feeling more or less confident after that 0:07:21.920 --> 0:07:25.360 tie up yesterday? I feel probably more confident. I feel 0:07:25.400 --> 0:07:29.440 also more confident after what's happened last week. I would 0:07:29.520 --> 0:07:33.400 feel much much more concerned if, indeed, when if we 0:07:33.480 --> 0:07:37.640 had perhaps sentiment and positioning much much less really down beat. 0:07:37.800 --> 0:07:40.120 Now you know we've been I've been listening to your 0:07:40.160 --> 0:07:42.880 show for the last eight eight minutes and there's not 0:07:42.960 --> 0:07:44.840 been a lot of positives yet, right, And I think 0:07:44.880 --> 0:07:47.400 that's a fair under statement if I say that, And 0:07:47.480 --> 0:07:49.080 that's the good thing. The good thing is when we 0:07:49.080 --> 0:07:52.320 look at sovey based sentiment, that's pretty depressed already. If 0:07:52.320 --> 0:07:55.280 we look at technicals, right, so like relative strength across 0:07:55.400 --> 0:07:58.960 risk assets already very depressed big term structure sort of 0:07:59.000 --> 0:08:02.080 down to load the ten percentel already, right when we 0:08:02.080 --> 0:08:04.600 look at equity beaters of multi asset funds down right, 0:08:04.600 --> 0:08:06.960 when we look at pot care rats not only in 0:08:07.000 --> 0:08:11.200 equities but across the asset classes, spending clear clear bearish 0:08:11.400 --> 0:08:14.080 risk sentiment signals. So the good thing is right with 0:08:14.200 --> 0:08:16.560 all what's been happening, not only in the last twenty 0:08:16.560 --> 0:08:18.880 four hours but really over the last last week, is 0:08:19.120 --> 0:08:22.440 that sentiment has gone and it's de rated sufficiently really 0:08:22.440 --> 0:08:25.320 to bearish levels that I'd be very very careful to 0:08:25.440 --> 0:08:28.120 throw in the towel on constructive views now, right, So 0:08:28.120 --> 0:08:29.960 we've just put out an one and said, look, we're 0:08:30.080 --> 0:08:34.679 still holding onto that constructive view because in deeper sentiment 0:08:34.760 --> 0:08:38.319 positioning really across the board looks much much more negative now, 0:08:38.960 --> 0:08:42.800 which is a contrarian positive signal. Max. Let's put a 0:08:42.800 --> 0:08:45.760 bit more specifics around this. Are you saying right now 0:08:45.960 --> 0:08:48.800 you're going out there and buying European banks to move 0:08:48.880 --> 0:08:51.880 counter to the zeit guys that we see out there, Yeah, 0:08:52.000 --> 0:08:53.800 I think so. I think banks are more and more 0:08:53.840 --> 0:08:56.720 looking actually attractive if we look at you know, if 0:08:56.720 --> 0:08:59.640 we look at the rilative performance perhaps of banks over 0:08:59.840 --> 0:09:03.080 the broader market. Look at the performance of banks over 0:09:03.200 --> 0:09:07.360 tech for example, that is back to the COVID highest, right, 0:09:07.360 --> 0:09:09.160 that's back to where we were at sort of the 0:09:09.240 --> 0:09:12.520 dizzy heights in twenty twenty, when you know, real rates 0:09:12.520 --> 0:09:17.640 went down to almost record record negative levels. Where we 0:09:17.640 --> 0:09:20.160 look at the broader banks performance not only in Europe 0:09:20.200 --> 0:09:22.400 but also in the US, when we look at that 0:09:22.960 --> 0:09:25.240 against you know, US treasure yields, if we look at 0:09:25.280 --> 0:09:29.079 that against financial conditions, and particularly it's priced right now 0:09:29.400 --> 0:09:35.400 for the second biggest, second sharpest deterioration in financial conditions already, right, 0:09:35.400 --> 0:09:38.640 So there is an awful lot in the price, particularly 0:09:38.640 --> 0:09:41.280 from a from a relative perspective already. Right, So I 0:09:41.320 --> 0:09:44.280 wouldn't say, oh, nothing's happened yet, and you know there's 0:09:44.360 --> 0:09:47.360 much much more deeper pain to come. We're getting pretty 0:09:47.440 --> 0:09:50.880 close to pretty attractive entry levels. I think let's talk 0:09:50.920 --> 0:09:54.160 monastry policy. But Michael sat in that chair yesterday evening 0:09:54.480 --> 0:09:57.920 from JP Morgan. He said, first comes in September. Andrew 0:09:57.920 --> 0:10:00.280 Holland host a city published this morning. He said, you 0:10:00.360 --> 0:10:02.480 get a hike at that meeting. In a couple of days, 0:10:02.480 --> 0:10:05.520 he said, in the SCP the projections they offer for 0:10:05.559 --> 0:10:08.040 the dot plot the medium dot for twenty three He 0:10:08.120 --> 0:10:10.360 thinks five twenty five to five fifty max. What are 0:10:10.360 --> 0:10:13.600 you looking for this Wednesday? I think you know what, John. 0:10:13.720 --> 0:10:17.679 I think there's one rule right now. Don't overdo things right, 0:10:17.760 --> 0:10:20.240 don't talk too much, don't change too much. What you'd 0:10:20.280 --> 0:10:24.199 read now right now, particularly from policymakers, it's steady hand, 0:10:24.440 --> 0:10:27.520 steady ship. Right, what you really want is basically at 0:10:27.559 --> 0:10:29.880 twenty five basis point hike. I agree with what Lisa 0:10:29.960 --> 0:10:33.080 said before. Has anyone really looked at the projections from 0:10:33.080 --> 0:10:36.040 the ECB last week? Not really right, because they've been 0:10:36.120 --> 0:10:39.000 only marginally changed. Really, that's what you need from the 0:10:39.000 --> 0:10:41.560 FED as well. Right, you don't need overaction, right, you 0:10:41.600 --> 0:10:43.520 don't need too much. What I would do is what 0:10:43.559 --> 0:10:46.720 I'm really waiting for, is at twenty five basis point hike. 0:10:47.200 --> 0:10:50.320 Not too much change, not too much flip flopping around 0:10:50.360 --> 0:10:54.720 in projections or opinions, or hiking or lowering the dots, 0:10:54.760 --> 0:10:58.440 but really steady hands, steady ships saying, look, we've managed 0:10:58.440 --> 0:11:00.640 to contain it so far. We can press ahead with 0:11:00.679 --> 0:11:03.199 the inflation fide. We don't need to be as aggressive 0:11:03.240 --> 0:11:06.000 anymore as we've been a couple of months ago. Let's 0:11:06.040 --> 0:11:08.840 see this through. I think that is if we think 0:11:08.880 --> 0:11:12.280 about it and we talk about restoring confidence. The number 0:11:12.400 --> 0:11:16.520 one rule in restoring confidence is steady hand, steady ship, 0:11:16.840 --> 0:11:19.000 don't overdo it. And Max Wader for to get your 0:11:19.040 --> 0:11:20.880 thoughts as always to kick off the week, Max certain 0:11:21.000 --> 0:11:33.920 there of HSBC joining us now, I'm please to say 0:11:34.000 --> 0:11:38.920 Mara Rodriguez Valadaris, managing principal at MRV Associates, Mara, thank 0:11:38.920 --> 0:11:41.200 you for being on the program with us. Last weekend 0:11:41.200 --> 0:11:44.560 it was Signature, it was SVB. This weekend it was 0:11:44.600 --> 0:11:49.600 Credit Suis. What are you expecting next weekend? Right, that's 0:11:49.640 --> 0:11:52.120 really the question. I'm afraid that the regional banks in 0:11:52.160 --> 0:11:55.240 the US, of course, are still very very sensitive to 0:11:55.480 --> 0:12:01.240 this crisis and confidence frankly, but the eyes of DUIs 0:12:01.559 --> 0:12:05.360 is very very different. And unfortunately I heard some Swiss 0:12:05.360 --> 0:12:10.800 regulators and government officials blaming the US banking chaos for 0:12:11.040 --> 0:12:15.960 the demise, and this one cannot be pinned on the 0:12:16.000 --> 0:12:21.120 American banking sector. Unfortunately, klepto, cracks and crooks have long 0:12:21.320 --> 0:12:27.840 been banking, as it has decades long unfortunately history of 0:12:27.960 --> 0:12:30.320 many many scandals, So if anything, I would really be 0:12:30.400 --> 0:12:34.160 worried about those really big banks that have weak operational risk. 0:12:34.240 --> 0:12:36.000 That's what we really need to be looking at. We 0:12:36.120 --> 0:12:38.600 just had Bill Dudley, the former president of the New 0:12:38.679 --> 0:12:41.640 York Federal Reserve, and he was talking about how the 0:12:41.800 --> 0:12:44.439 one difference now or one of the main differences now 0:12:44.920 --> 0:12:48.040 from twenty years ago, is that big banks don't want 0:12:48.040 --> 0:12:51.360 to acquire other banks so quickly, the litigation risks, the 0:12:51.600 --> 0:12:56.240 regulatory risks that a company that are significant and opaque. 0:12:56.480 --> 0:12:59.080 What do you make of that in terms of how 0:12:59.120 --> 0:13:01.880 many provisions to be put around the UBS acquisition of 0:13:02.160 --> 0:13:04.920 Credit Suis and what that means for distress that we're 0:13:04.920 --> 0:13:08.480 seeing in certain pockets of the US. He's actually right, 0:13:08.640 --> 0:13:12.680 because the big banks have a lot of interconnections. There's 0:13:12.679 --> 0:13:15.600 just a tremendous amount of opacity that investors don't know. 0:13:15.720 --> 0:13:18.520 And I think that that's what we really should be 0:13:18.600 --> 0:13:22.120 focusing in the coming days because right now everybody's trying 0:13:22.200 --> 0:13:25.520 to go through all the fine print of the memorandum 0:13:25.559 --> 0:13:28.920 of the UBS memorandum of the takeover Credit Suis, But 0:13:29.080 --> 0:13:34.320 imagine all the opaqueness in the banks, especially in Credit 0:13:34.320 --> 0:13:37.160 Suis there's a lot of duplication. There's going to be 0:13:37.240 --> 0:13:41.160 unfortunately thousands of people who will be fired all over 0:13:41.200 --> 0:13:44.680 the globe because of course UBS will get a says 0:13:44.720 --> 0:13:49.120 to who gets to say you have shared facilities in 0:13:49.200 --> 0:13:52.120 terms of liquidity. You also have a lot of systems 0:13:52.160 --> 0:13:55.480 at both banks, many which are legacy systems, and so 0:13:55.679 --> 0:13:57.840 UBS is going to have to be combing through this 0:13:58.000 --> 0:14:02.960 all very very carefully. Are there hidden liabilities at Credit 0:14:03.040 --> 0:14:06.480 Suite that UBS hasn't had a chance to find out? 0:14:06.520 --> 0:14:08.600 There is no way that they were able to do 0:14:08.679 --> 0:14:12.400 all this level of in depth due diligence to be 0:14:12.480 --> 0:14:16.040 able to do this deal. And so that's really what UBS, 0:14:16.120 --> 0:14:18.520 in any big bank would be worried about in terms 0:14:18.559 --> 0:14:20.480 of trying to buy out another one. There are two 0:14:20.520 --> 0:14:22.120 issues here, or there are a lot of issues here. 0:14:22.160 --> 0:14:24.640 But there's what's going on with Credit Suites and UBS, 0:14:24.680 --> 0:14:26.880 and there's what's going on over in the US and 0:14:27.000 --> 0:14:29.840 some of the regional banks. The interlinkage perhaps is a 0:14:29.840 --> 0:14:33.760 confidence story, but the stories are separate in what is 0:14:33.800 --> 0:14:36.600 going on and why? And I want to just go 0:14:36.680 --> 0:14:38.920 to the US story for a second. Myra and this 0:14:39.000 --> 0:14:41.920 question of supervision of the federal reserve and the role 0:14:42.000 --> 0:14:45.680 of people to identify problems and adequately prevent against them 0:14:45.680 --> 0:14:49.120 spiraling out of control. What is your concern level in 0:14:49.200 --> 0:14:51.440 the inability to do that with Silicon Valley Bank and 0:14:51.480 --> 0:14:54.880 some of the others that have drawn scrutiny recently. Yes, 0:14:54.960 --> 0:14:57.920 I'm glad you said the words supervision, because that's really 0:14:57.960 --> 0:15:03.240 we need more supervision, not necessarily regulation. However, having said that, 0:15:03.960 --> 0:15:08.080 if big banks were required to be called systemically important, 0:15:08.080 --> 0:15:13.560 which is exactly what the Trump law deregulated, then those 0:15:13.760 --> 0:15:17.200 banks the size of Silicon Valley would actually be disclosing 0:15:17.280 --> 0:15:21.720 more about their liquidity, the composition of their deposits. And 0:15:21.880 --> 0:15:24.920 in the US we have a very complex regulatory and 0:15:25.000 --> 0:15:29.320 supervisory framework. You have the state regulator. So state regulators 0:15:29.440 --> 0:15:33.000 often do not have the money, they don't have the resources, 0:15:33.000 --> 0:15:35.360 and they're the ones that are right there on the ground. 0:15:35.760 --> 0:15:38.200 So the state regulators are the ones that have to 0:15:38.200 --> 0:15:41.560 be empowered, and the banks should be required to disclose 0:15:41.760 --> 0:15:46.840 more about their liquidity, their capital. There other kinds of risks, 0:15:46.920 --> 0:15:51.800 such as leverage, the concentration. If investors had that information 0:15:51.960 --> 0:15:55.320 more often than just once a quarter, they would be 0:15:55.360 --> 0:15:59.360 able to discipline the banks. You cannot count on regulators 0:15:59.440 --> 0:16:03.280 or rating agencies to discipline the banks. But the banks 0:16:03.400 --> 0:16:06.200 are opaque, and they should really be disclosing a lot 0:16:06.240 --> 0:16:10.200 more about their concentration and liquidity risks. Mara. Bank failures, 0:16:10.200 --> 0:16:13.840 as you know, go back centuries, and I wonder if 0:16:13.840 --> 0:16:16.520 our biggest problem right now is the fact that banks fail, 0:16:17.120 --> 0:16:20.800 or the fact that seemingly we can't tolerate failure anymore. 0:16:21.960 --> 0:16:25.680 That's exactly it. You have to let banks fail. The problem, 0:16:25.760 --> 0:16:28.040 of course, is that the people who are going to 0:16:28.200 --> 0:16:31.800 get hurt are the junior level employees, the ones that 0:16:31.840 --> 0:16:35.360 aren't getting the big bonuses. All the restaurants and hotels 0:16:35.440 --> 0:16:39.440 anywhere that had any business with those banks are the 0:16:39.440 --> 0:16:42.400 ones that get hurt. And we're no longer really a 0:16:42.480 --> 0:16:48.120 capitalist society. We are constantly letting these bank executives socialize 0:16:48.160 --> 0:16:50.600 the losses, and that's the problem. They should be allowed 0:16:50.600 --> 0:16:54.000 to fail. There should be clawbacks for bonuses, and you 0:16:54.160 --> 0:16:58.880 have to discipline rogue professionals at these banks. Otherwise we're 0:16:58.920 --> 0:17:03.480 constantly doing this and it's always the taxpayers that are 0:17:03.480 --> 0:17:06.040 bailing people out, bailing out the banks, I should say. 0:17:06.840 --> 0:17:09.679 And it's a problem for all the different kinds of 0:17:09.720 --> 0:17:12.840 central banks. The Fed now is probably not going to 0:17:12.880 --> 0:17:15.280 be able to raise rates, but it's not just because 0:17:15.280 --> 0:17:16.800 of what's going on in the US. I mean, do 0:17:16.840 --> 0:17:19.520 you think that Switzerland right now is good raise rates 0:17:19.640 --> 0:17:23.199 or the European Central Bank? We have global inflation, but 0:17:23.640 --> 0:17:26.560 now come all of these problem banks, and so it 0:17:26.680 --> 0:17:28.639 is really going to be quite a channenge for all 0:17:28.680 --> 0:17:31.320 of these different central banks as well, of course, as 0:17:31.359 --> 0:17:34.840 the bank regulators globally. Does this not just an American problem? 0:17:35.119 --> 0:17:37.840 Let's kinshap soon. I appreciate your time this morning. Thank you. 0:17:37.960 --> 0:17:46.879 Mario Rodriguez Volataris of m Anti Associates Beyond Cooperman chairman 0:17:46.920 --> 0:17:51.040 and CEO of Omega Family Office joining us now and Leona, 0:17:51.240 --> 0:17:53.760 I just want to first start with what's your impression 0:17:54.040 --> 0:17:56.200 of everything that we've seen over the past I would 0:17:56.200 --> 0:17:59.720 say week last weekend with what happened with Silicon Valley 0:17:59.720 --> 0:18:02.640 Bank and just now with UBS taking over Credit Suet. 0:18:03.280 --> 0:18:06.320 We are being overly simplistic to me, It's kind of 0:18:06.359 --> 0:18:10.199 like textbook. We've degenerated into a system of leadership at 0:18:10.200 --> 0:18:14.280 a crisis. We have a self induced crisis by irresponsible 0:18:14.280 --> 0:18:19.720 fiscal monetary policy. The last decade. I did not forecast 0:18:19.760 --> 0:18:23.280 a silicon bank issue, but I didn't have a view 0:18:23.400 --> 0:18:25.359 that we were heading to a crisis of some kind. 0:18:25.920 --> 0:18:29.600 And we're seeing it and we're getting a predictable response 0:18:29.640 --> 0:18:35.520 by government, and so I think it's sad, you know, 0:18:35.520 --> 0:18:38.440 what's going on in the country, But what they're doing 0:18:38.520 --> 0:18:41.320 is what is necessary to be done. I have to 0:18:41.320 --> 0:18:44.400 preserve the system. So I'm assuming that the Fed goes 0:18:44.440 --> 0:18:47.800 twenty five BIPs on Wednesday. They're twenty five and done. 0:18:48.359 --> 0:18:52.840 They can accept a higher level of inflation and that 0:18:52.920 --> 0:18:55.720 they would like to accept because of the stress and 0:18:55.720 --> 0:18:58.679 the financial system. They have to stabilize the treasury market. 0:18:58.680 --> 0:19:02.800 The volatility of bond is so great that that's destabilizing 0:19:02.840 --> 0:19:05.480 the equities. Well, I want to Leon, I want to 0:19:05.480 --> 0:19:07.600 pick up on that, because we've been talking about that. 0:19:07.640 --> 0:19:12.560 We've seen unbelievable fluctuations in the basic most liquid instruments 0:19:12.560 --> 0:19:15.440 in the world, right treasuries. What's the read through a 0:19:15.600 --> 0:19:19.200 fact of just even that volatility on other risk assets 0:19:19.359 --> 0:19:21.199 and how much further does it have to take that 0:19:21.240 --> 0:19:25.560 out in terms of volatility pressuring equity valuations. That's not 0:19:25.680 --> 0:19:29.040 my area of expertise, but I would say that this 0:19:29.240 --> 0:19:31.480 is a response to the debt build up in the country. 0:19:31.800 --> 0:19:35.800 You know, in twenty seventeen we had twenty trillion dollars 0:19:35.880 --> 0:19:39.280 of national debt, and today we're not going to do 0:19:39.359 --> 0:19:42.560 a thirty two trillion five years later, five or six 0:19:42.640 --> 0:19:44.880 years later because a growth rate in debt for an 0:19:44.920 --> 0:19:47.720 excess to the growth rate of the economy, which is 0:19:47.760 --> 0:19:50.080 going to create issues. You know, who is the buyer 0:19:50.520 --> 0:19:52.720 buy The banks are not the buyer of bonds anymore. 0:19:53.240 --> 0:19:57.480 So you're relying upon the kindness of strangers and they're 0:19:57.520 --> 0:20:01.400 probably not imbued with their financial policy when they look 0:20:01.400 --> 0:20:04.160 at the politics of the country. It's also very depressing. 0:20:04.760 --> 0:20:06.639 You know, we have a country that I think is 0:20:06.720 --> 0:20:09.880 largely centrist to nature. It's been taken over by two 0:20:09.920 --> 0:20:14.840 political parties, with the radicals radical right radical left ruling 0:20:14.840 --> 0:20:17.920 the day. We don't need this, well, Leon, Leon. We're 0:20:17.920 --> 0:20:20.640 dealing with a situation where the political overlay is raising 0:20:20.720 --> 0:20:22.840 questions about the debt ceiling debate, and we can get 0:20:22.840 --> 0:20:25.080 into that and people are trying to figure out what 0:20:25.160 --> 0:20:29.879 that means economically and for the market. Your expertise is 0:20:29.960 --> 0:20:33.119 in the SMP in the market and market calls and 0:20:33.160 --> 0:20:35.919 you've been warning about a recession for a long time. 0:20:36.080 --> 0:20:39.320 You've been saying that this is a self induced error 0:20:39.400 --> 0:20:43.600 of monetary policy and woes. And I'm curious, first of all, 0:20:43.800 --> 0:20:47.040 whether you're getting more optimistic about returns because of the 0:20:47.040 --> 0:20:50.000 declines that we're seeing and because of perhaps people waking 0:20:50.080 --> 0:20:52.320 up to the reality of the potential for recession as 0:20:52.359 --> 0:20:58.440 you've been saying it. Well, my view has been as follows. 0:20:58.800 --> 0:21:01.560 I tell the story about at the Faraoh. I told 0:21:01.600 --> 0:21:05.159 us almost a year ago on TV The Farrell excuse me, 0:21:05.200 --> 0:21:08.359 had a dream. The dream was interpreted by Joseph. It 0:21:08.480 --> 0:21:11.160 was in the Bible. His dreams were heading for seven 0:21:11.240 --> 0:21:15.000 lean years after seven fat years. And that is my view. 0:21:15.160 --> 0:21:18.080 I think the forty eight hundred SMP will be high, 0:21:18.080 --> 0:21:20.399 that will stand for quite some time. And then I 0:21:20.600 --> 0:21:23.359 kind of analogized that to my own career. I got 0:21:23.359 --> 0:21:26.040 my MBA from Columbia Business School on January thirty first 0:21:26.040 --> 0:21:29.240 of nineteen sixty seven at a six month old trial 0:21:29.280 --> 0:21:31.640 at the time. Now he's a healthy fifty six year old. 0:21:32.520 --> 0:21:34.879 I had no money in the bank at a student 0:21:34.920 --> 0:21:37.200 loan to repay. They were not for giving student loans, 0:21:37.680 --> 0:21:40.000