WEBVTT - Surveillance: Expect Higher Rates, Bianco Says 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.600 and of course on the Bloomberg terminal. We try to 0:00:29.640 --> 0:00:32.560 summarize all this and of course the summary as well. 0:00:32.560 --> 0:00:35.919 Wrapped around sixty six pages from James Diamond. Right now, 0:00:36.040 --> 0:00:39.360 Jim Bianco joins us with Bianco Research in Chicago with 0:00:39.520 --> 0:00:42.440 a wonderful overview on the market. Jim, I assume you 0:00:42.440 --> 0:00:46.760 haven't read the sixty six pages of uh of Mr Diamond. 0:00:46.760 --> 0:00:49.400 It's wide ranging as you would imagine. Let's look right 0:00:49.400 --> 0:00:52.000 now at one of the quotes from Jamie Diamond. Let's 0:00:52.040 --> 0:00:55.360 zoom in on a quote on Zoom. Jim Bianco's lived 0:00:55.400 --> 0:00:58.760 with Zoom. Lisa Bramowitz has lived with Zoom. I am 0:00:58.920 --> 0:01:02.520 zoom free. I'm really please to say that, but let's 0:01:02.520 --> 0:01:06.160 look at Jamie Diamond on Zoo. Most professionals learn their 0:01:06.240 --> 0:01:09.720 job through an apprenticeship model, which is almost impossible to 0:01:09.800 --> 0:01:13.720 replicate in the Zoom world. Over time, this drawback could 0:01:13.800 --> 0:01:20.000 dramatically undermine character and culture. Remote work virtually eliminates spontaneous 0:01:20.120 --> 0:01:24.720 learning and creativity because you don't run into Jim Bianco 0:01:24.840 --> 0:01:28.480 at the coffee machine. I mean there it is old school, Uh, 0:01:28.560 --> 0:01:31.240 Jim Bianco. Do you think we returned to our offices 0:01:31.280 --> 0:01:35.679 of old Uh? Sort of. I'm gonna push back on 0:01:35.720 --> 0:01:39.880 that quote a little bit. I'm gonna say, yes, um, 0:01:39.920 --> 0:01:43.280 it is. You know, human interaction. Human contact is important, 0:01:43.840 --> 0:01:45.800 but not I don't think in the form that Jamie 0:01:45.840 --> 0:01:49.280 Diamond is suggesting that, you know, ten hours a day 0:01:49.440 --> 0:01:52.520 in an office, sitting in a little room by yourself, 0:01:52.640 --> 0:01:55.440 working at a computer in a service sector job. I 0:01:55.480 --> 0:01:58.160 think that we're gonna have to rethink what the office 0:01:58.360 --> 0:02:01.520 is and rethink I we go to the office we've 0:02:01.560 --> 0:02:04.320 just shown as an economy over the last year, we 0:02:04.440 --> 0:02:09.080 can produce the economy just fine, all working remotely, and 0:02:09.160 --> 0:02:11.679 I agree we need more human contact. Look, I want 0:02:11.800 --> 0:02:14.320 nothing more than to go to a weekly field game again. 0:02:14.800 --> 0:02:17.520 But I also recognize that maybe I don't need to 0:02:17.560 --> 0:02:20.359 go to one of those gigantic buildings in the center 0:02:20.360 --> 0:02:23.760 of a major city and spend forty fifty hours a 0:02:23.800 --> 0:02:26.359 week there as well too, there's going to have to 0:02:26.400 --> 0:02:29.079 be a rethink is to what exactly does the office mean? 0:02:29.560 --> 0:02:32.520 And it sounds like some people are not there yet 0:02:32.520 --> 0:02:35.840 as far as having that conversation, what does the bianco 0:02:36.040 --> 0:02:39.720 creative destruction then? And how do you prosper from it? 0:02:40.000 --> 0:02:44.760 What is your investment strategy given what this pandemic has wrought? 0:02:44.760 --> 0:02:48.760 And in the boom economy recovery, I think the biggest 0:02:48.800 --> 0:02:52.440 thing with the boom economy has been all of this stimulus. Uh, 0:02:52.639 --> 0:02:55.200 you know, the mailing of checks that we've had. We've 0:02:55.240 --> 0:02:58.679 got the savings rate at a sixty year high. We've 0:02:58.720 --> 0:03:01.480 got everybody itching to get out. That's what everybody says 0:03:01.600 --> 0:03:04.079 right now, and I think it's very true. And when 0:03:04.120 --> 0:03:06.799 they do, I think we're going to start to see 0:03:06.919 --> 0:03:10.360 spending go. That's what everybody says, and then we'll have 0:03:10.440 --> 0:03:13.760 to have a real conversation about inflation. It's too early 0:03:13.840 --> 0:03:17.280 to have that conversation about inflation. The base effect of 0:03:17.720 --> 0:03:20.280 dropping off March and April of last year and seeing 0:03:20.280 --> 0:03:22.360 the year over year numbers go up a lot is 0:03:22.440 --> 0:03:25.960 literally going to start next week. And the checks that 0:03:26.000 --> 0:03:28.640 we just recently mailed out have only been a couple 0:03:28.639 --> 0:03:31.600 of weeks old. So I think as we move forward, 0:03:31.639 --> 0:03:34.640 we're going to have a conversation about inflation and whether 0:03:34.720 --> 0:03:36.480 or not we see it. If we see it, it's 0:03:36.520 --> 0:03:39.240 going to have to accelerate the FED. If we don't 0:03:39.280 --> 0:03:42.960 see inflation, it's going to open the conversation to modern 0:03:43.000 --> 0:03:46.840 monetary theory and more money being spent at a higher 0:03:46.920 --> 0:03:48.800 rate than we're already doing it right now, what's the 0:03:48.880 --> 0:03:51.600 nature of the pickup in inflation that you're looking for? 0:03:51.760 --> 0:03:54.280 And this is important because we've seen inflation of certain 0:03:54.360 --> 0:03:57.760 key goods. But what is the important increase in inflation 0:03:57.760 --> 0:04:00.480 that you need to see to say this the sign 0:04:00.560 --> 0:04:04.520 of something different. I think it's probably going to be 0:04:04.680 --> 0:04:07.880 that companies are going to raise their prices. Look, we've 0:04:07.920 --> 0:04:10.280 known now for the last twenty five years. If you're 0:04:10.320 --> 0:04:13.440 a manager of a real company, not a Wall Street company, 0:04:13.520 --> 0:04:16.719 let's define those two uh and you raise your price. 0:04:16.800 --> 0:04:18.680 You raise your price for washing machines, or you raise 0:04:18.720 --> 0:04:20.880 your price for sweaters. You're on the second page of 0:04:20.880 --> 0:04:22.960 a Google search on lowest the highest price. You don't 0:04:22.960 --> 0:04:25.960 sell anything, you lose market share. Everybody has been droned 0:04:25.960 --> 0:04:29.960 into don't ever raise your price because of that, uh consequence, 0:04:30.360 --> 0:04:32.679 If we get to the point where there's a demand 0:04:32.760 --> 0:04:36.039 pull that so many people are wanting stuff that we 0:04:36.120 --> 0:04:39.200 start seeing prices start to reraise, then in FED speak, 0:04:39.560 --> 0:04:43.000 we've unanchored inflation and we could then start to talk 0:04:43.000 --> 0:04:45.800 about whether or not it is actually here for the 0:04:45.800 --> 0:04:48.159 first time in a quarter century. I think that's a 0:04:48.240 --> 0:04:51.120 real possibility as we move forward, that we could see 0:04:51.120 --> 0:04:54.479 that unanchoring of inflation. So we're seeing tenure yields today 0:04:54.520 --> 0:04:58.880 go down there, well down their recent highs, which raises 0:04:58.920 --> 0:05:01.960 a question a whether they are under pricing this reality 0:05:02.000 --> 0:05:04.799 that you're talking about. Where could tend your treasury yields 0:05:04.800 --> 0:05:08.520 conceivably go if you see those inflationary pressures that you're 0:05:08.520 --> 0:05:11.760 talking about, Well, I think they could go higher now. 0:05:11.839 --> 0:05:14.560 I'm not surprised that they're falling right now because they've 0:05:14.560 --> 0:05:16.640 had a relentless rise for the last several months and 0:05:16.640 --> 0:05:19.680 have been you know, over sold in terms of prices, 0:05:19.680 --> 0:05:22.480 and that we're seeing a correction in there. But I 0:05:22.520 --> 0:05:26.120 also would argue that when interest rates go up, it's 0:05:26.120 --> 0:05:28.840 neither bullish or bearsh for the stock market. It depends 0:05:28.839 --> 0:05:32.479 on why if they're going up, because the nartive right 0:05:32.480 --> 0:05:36.200 now is we're reopening, We're gonna have massive real growth, 0:05:36.240 --> 0:05:39.039 We're gonna have more earnings. That's fine. Interest rates could 0:05:39.040 --> 0:05:41.279 go up and it won't bother the economy or the 0:05:41.279 --> 0:05:43.680 financial or the stock market, if you will. But if 0:05:43.720 --> 0:05:46.840 interest rates are going up because of inflation, and that's 0:05:46.880 --> 0:05:49.480 a loss of purchasing power, your dollar buys less than 0:05:49.520 --> 0:05:52.560 a year than it buys, now, that's a problem for 0:05:52.600 --> 0:05:55.080 the economy and for the stock market. And we're going 0:05:55.120 --> 0:05:57.520 to continue to have that debate. The meantime, I think 0:05:57.640 --> 0:06:00.920 rates are gonna go higher like they have over the 0:06:00.960 --> 0:06:03.440 next several months, like they like they have over the 0:06:03.480 --> 0:06:05.520 previous several months, and we're going to continue have this 0:06:05.600 --> 0:06:08.520 debate whether it's reflation or real growth or inflation. I mean, 0:06:08.560 --> 0:06:11.160 I hate to say it to James Diamond, Jim Bianco, 0:06:11.279 --> 0:06:13.960 but the read of the morning is Brian Schapatta Bloomberg, 0:06:14.000 --> 0:06:17.400 not Jamie Diamond and JP Morgan. Where Chapatta tears apart 0:06:17.480 --> 0:06:20.120 the idea of wages aren't going up? Are you seeing 0:06:20.120 --> 0:06:23.880 wage inflation in Chicago? And to the point, is that 0:06:23.960 --> 0:06:26.720 really what's gonna happen here? A surprise into the end 0:06:26.720 --> 0:06:29.960 of the year, finally wage inflation gets back to three 0:06:30.040 --> 0:06:34.120 is percent. Yeah, you know, it's hard to say whether 0:06:34.200 --> 0:06:36.359 or not you're seeing it right now, but that's gonna be. 0:06:36.400 --> 0:06:38.880 The question is whether or not you do see wage 0:06:38.880 --> 0:06:41.920 inflation as we move forward. If you do, then you 0:06:42.040 --> 0:06:45.280 might see a bigger robust job market because a lot 0:06:45.320 --> 0:06:47.800 of people are sitting on the sidelines. They don't need 0:06:47.839 --> 0:06:50.080 to go back to work. They are being they've been 0:06:50.400 --> 0:06:53.480 given stimulus checks, they've been given an extra kicker in 0:06:53.600 --> 0:06:57.680 unemployment insurance, so they're sitting around waiting until all of 0:06:57.720 --> 0:07:01.720 that runs out. If we do see wage inflation, I 0:07:01.760 --> 0:07:04.320 think then, like I said, it would would fast forward 0:07:04.360 --> 0:07:07.000 everything like the FED and the thinking in the market. 0:07:07.560 --> 0:07:09.360 But right now it's too early to say that we've 0:07:09.400 --> 0:07:11.480 seen it. But I think that's gonna be the second 0:07:11.520 --> 0:07:14.400 half of the year question. Jim Biako, thanks so much. 0:07:14.440 --> 0:07:22.600 Go cubs Bianco Research in Chicago. We planned on doing 0:07:22.640 --> 0:07:24.640 this and we didn't understand that it would be a 0:07:24.640 --> 0:07:27.960 sixty six page letter by Mr Diamond. Certainly a tour 0:07:28.040 --> 0:07:30.280 de force, but you need the right guest at the 0:07:30.400 --> 0:07:33.040 right time, and that can always be Robert Albertson on 0:07:33.160 --> 0:07:37.360 banking with Piper Sandler his leadership at Goldman Sachs decades ago, 0:07:37.560 --> 0:07:40.720 and Bank Research out of Carnegie Mellon and Harvard. Were 0:07:40.800 --> 0:07:44.440 honored that Robert Albertson could join us this morning. Robert Albertson, 0:07:44.800 --> 0:07:46.720 you and I used to look at M D n 0:07:46.800 --> 0:07:48.840 A and it was a good way to fall asleep. 0:07:49.320 --> 0:07:52.000 Where did we go from Robert Williams of M and 0:07:52.000 --> 0:07:56.240 T Bank to a sixty six page missive from James Diamond? 0:07:56.440 --> 0:08:00.680 How did we get to these long letters? I think it, Uh, 0:08:00.760 --> 0:08:04.520 it's a personality. Partly. He is a very analytical person, 0:08:05.040 --> 0:08:07.320 and yet he has a way with words, and he 0:08:07.440 --> 0:08:12.960 recognizes analysis towards limits and the possibility of analysis paralysis 0:08:13.160 --> 0:08:15.520 if I would suggest it. But he is a tune 0:08:15.560 --> 0:08:19.440 to so many different things and has pretty reasonable comments 0:08:19.480 --> 0:08:22.280 about all of them. Within the comments you mentioned to 0:08:22.400 --> 0:08:25.440 us before this conversation, you were zeroing in on his 0:08:25.560 --> 0:08:29.080 view back to the nineties seventies. Why is now for 0:08:29.240 --> 0:08:33.600 James Diamond like the nineteen seventies. Well, he's it's sort 0:08:33.600 --> 0:08:36.360 of unlike the nineteen seventies. He's basically saying we had 0:08:36.400 --> 0:08:41.439 a recovery out of the seventies recessions. Without quantitative easy 0:08:42.160 --> 0:08:45.320 and uh, we've had quantitative easying this time around her 0:08:45.360 --> 0:08:47.880 and hasn't done much. So I think he's pointed to 0:08:48.080 --> 0:08:52.240 the wash with liquidity mistake in terms of monetary policy. 0:08:52.760 --> 0:08:55.560 There also is a question here of what his political 0:08:55.559 --> 0:08:58.480 ambitions are given the tone of this letter. He is 0:08:58.520 --> 0:09:01.440 talking about dysfunction. He said, Americans know that something has 0:09:01.440 --> 0:09:04.640 gone terribly wrong, and they blame this country's leadership, the elite, 0:09:04.679 --> 0:09:08.200 the powerful, the decision makers. This is completely appropriate for 0:09:08.200 --> 0:09:09.840 who else to blame? A lot of people have looked 0:09:09.880 --> 0:09:12.640 to the financial sector. Is this just a defense of 0:09:12.720 --> 0:09:16.119 the banking industry or is this something more an engagement 0:09:16.160 --> 0:09:19.440 that goes beyond just from the c suite into government. 0:09:20.960 --> 0:09:22.720 I think you have two ways to look at it. 0:09:22.800 --> 0:09:25.480 First of all, I would not be surprised to see 0:09:25.559 --> 0:09:28.600 him turn up somewhere in government in a high roll, 0:09:28.679 --> 0:09:30.880 and I think he would be excellent at it. The 0:09:30.960 --> 0:09:33.120 second point is he is from banking, which has been 0:09:33.160 --> 0:09:36.160 the most criticized sector I can think of, and and 0:09:36.200 --> 0:09:39.720 we have just gone through the most shocking recession in memory, 0:09:40.120 --> 0:09:44.200 and the banking industry has shown no credit problems. Uh. 0:09:44.200 --> 0:09:46.840 It is it is remarkable. Uh, that the underwriting of 0:09:46.840 --> 0:09:48.400 this business has gotten to where it is and the 0:09:48.480 --> 0:09:51.800 risk control. So he's proven something in a very tough area. 0:09:51.880 --> 0:09:53.240 I think he'd like to prove it in a more 0:09:53.240 --> 0:09:56.360 public policy way. He also talked about his Fortress balance 0:09:56.400 --> 0:09:58.840 sheet to your point about how it emerged very much 0:09:58.880 --> 0:10:01.960 as a stalwart during this pandemic. There's a question also 0:10:02.040 --> 0:10:04.320 of what's next. And he made a big point about fintech. 0:10:04.400 --> 0:10:06.960 How about is the big competitor going forward? And he 0:10:07.000 --> 0:10:10.800 actually talked about potential acquisitions in that space. What kind 0:10:10.840 --> 0:10:12.920 of tie up could you see with JP Morgan? What 0:10:13.040 --> 0:10:16.320 kind of fintech company? Well, frankly, it's a little hard 0:10:16.360 --> 0:10:18.040 to come up with that because they have their own 0:10:18.040 --> 0:10:23.960 budget on their own syntech operation, which which is pretty powerful. Um, 0:10:24.200 --> 0:10:26.720 they're also a complex organization and a lot of what 0:10:27.120 --> 0:10:30.839 without eric fintech isn't really appropriate for JP Morgan. Having 0:10:30.880 --> 0:10:34.160 said that, uh, I think he's very focused on what 0:10:34.200 --> 0:10:37.440 it can do in retail banking number one, UH, and 0:10:37.480 --> 0:10:39.160 I think that's kind of obvious to all of us, 0:10:39.400 --> 0:10:41.440 but also number two in terms of what what what 0:10:41.520 --> 0:10:45.040 can be done with artificial intelligence. Mr Diamond making clear 0:10:45.080 --> 0:10:47.600 he's not a fan of Zoom meetings is Robert Albertson 0:10:47.720 --> 0:10:51.000 is not a fan of zoom meetings. Robert Albertson, let's 0:10:51.000 --> 0:10:54.280 go there right now. As Mr Diamond talks about fortitude. 0:10:54.640 --> 0:10:58.200 This is a scathing statement, folks. On leadership. It goes 0:10:58.240 --> 0:11:01.560 on for two pages. For order to this attribute often 0:11:01.679 --> 0:11:04.040 is missing in leaders. They need to have a fierce 0:11:04.080 --> 0:11:08.319 resolve to act. It means driving change, fighting bureaucracy and politics, 0:11:08.600 --> 0:11:11.960 and taking ownership and responsibility. Mr Diamond goes on to 0:11:12.040 --> 0:11:16.040 say ability to face facts in a cold blooded, honest way. 0:11:16.120 --> 0:11:20.240 Leaders emphasize and negatives at management meetings and focus on 0:11:20.240 --> 0:11:24.360 what can be approved. That Robert Albertson sounds like best 0:11:24.400 --> 0:11:28.440 practices for every leadership out there right now. How do 0:11:28.480 --> 0:11:31.200 you move forward with that negative statement? How do you 0:11:31.240 --> 0:11:36.280 go into a bank management meeting with negative analysis to 0:11:36.400 --> 0:11:41.199 come to a positive outcome? That's a good question. Um, 0:11:41.240 --> 0:11:43.680 I think, uh, I think the real answer is embedded 0:11:43.720 --> 0:11:46.440 in what he's done and what he's achieved and why 0:11:46.520 --> 0:11:49.720 he's achieved it. And uh, if you look at the 0:11:49.760 --> 0:11:54.360 importance of analysis and facts in almost any industry, they 0:11:54.360 --> 0:11:57.240 are critically important. We all know that they seem to 0:11:57.240 --> 0:12:04.240 be absolutely uh devoid in the political sector. Uh, taking positions, 0:12:04.679 --> 0:12:09.360 making arguments that are financially wrong. Uh. You almost need 0:12:09.360 --> 0:12:12.840 a pop out there to control what the politicians are 0:12:12.840 --> 0:12:16.000 allowed to say. Robert elbertson a two part question, how 0:12:16.040 --> 0:12:19.959 does banking respond to James Diamond? How does American banking 0:12:20.040 --> 0:12:24.960 respond to this juggernaut, and very importantly, how does European 0:12:25.080 --> 0:12:29.880 banking respond to James Diamond. I'm not sure the European 0:12:29.920 --> 0:12:34.080 banking system will ever respond to the American banking system successes. 0:12:34.480 --> 0:12:36.480 They seem to be mired in their own history and 0:12:36.559 --> 0:12:38.120 legacy and they don't seem to be able to get 0:12:38.120 --> 0:12:40.560 out of it. But having said that, in terms of 0:12:40.600 --> 0:12:42.719 the U. S. Banking system, I think most people look 0:12:42.800 --> 0:12:45.200 up to him. Uh. They know they're not him in 0:12:45.280 --> 0:12:48.520 terms of their vehicle, but they recognize what he says 0:12:48.679 --> 0:12:50.880 is critical. And if you if you want to talk 0:12:50.880 --> 0:12:53.440 about being a good corporate citizen, all you have to 0:12:53.480 --> 0:12:55.720 do is go into some small community bank and see 0:12:55.720 --> 0:12:58.560 what they're really doing in that market that is community 0:12:58.559 --> 0:13:01.520 oriented to recognize their they're pretty much singing the same 0:13:01.559 --> 0:13:04.800 songs he is. In terms of giving back, there's a 0:13:04.880 --> 0:13:07.680 question of whether banks are going to take more risk 0:13:07.840 --> 0:13:10.240 right now given their fortress balance sheets and given the 0:13:10.360 --> 0:13:13.360 robust economic outlook, or whether they'll pare it back to 0:13:13.440 --> 0:13:16.720 avoid getting ahead of the economic cycle. And this really 0:13:16.800 --> 0:13:19.240 seems to be attention beneath Jamie Diamond's letter as well, 0:13:19.280 --> 0:13:22.080 because he talks about the dynamism of the economy, the 0:13:22.120 --> 0:13:25.360 economic boom pop possibly lasting till the end of three 0:13:25.400 --> 0:13:28.600 with all the spending and q E, but also talking 0:13:28.640 --> 0:13:31.680 about pockets of froth that he didn't specify. Can you 0:13:31.720 --> 0:13:34.360 talk about how banks are handling this, How high is 0:13:34.400 --> 0:13:37.360 the pressure to push further into risk to get returns 0:13:37.400 --> 0:13:40.520 at a time of economic dynamism a norm as high 0:13:40.520 --> 0:13:42.800 as you would think. They are very proud of coming 0:13:42.800 --> 0:13:45.640 out of what we went through in one piece, and 0:13:45.720 --> 0:13:47.560 I don't think they wanted to spoil that. I don't 0:13:47.559 --> 0:13:50.640 think underwriting standards are going to change. They are starved 0:13:50.640 --> 0:13:53.520 for long growth. The key here is if we have 0:13:53.559 --> 0:13:57.079 an infrastructure package that plus the last bill we have, 0:13:57.520 --> 0:14:00.080 we have enough trillions in the economy to dry have 0:14:00.160 --> 0:14:04.800 a huge capital expenditure cycle, investment cycle. Everything so far 0:14:04.840 --> 0:14:07.719 has been on the consumer side, UH, and the stimulus 0:14:07.720 --> 0:14:10.080 has been aimed at that. Now we're shifting it to 0:14:10.200 --> 0:14:13.800 the commercial side that has great power that could really 0:14:13.840 --> 0:14:19.320 make even better year than most people. Don't look look 0:14:19.360 --> 0:14:21.680 that far and see that yet. But if we get 0:14:21.680 --> 0:14:24.760 this infrastructure package, Uh, it's it's right, It's right up 0:14:24.880 --> 0:14:28.160 Jamie's alley of fiscal spending. It could really, it could 0:14:28.200 --> 0:14:30.160 really knock the cover off the ball. Could drive our 0:14:30.160 --> 0:14:32.800 economy into the eight or nine percent range. It could 0:14:32.880 --> 0:14:37.360 drive rates up for sure, and inflation all understood and accepted. 0:14:37.880 --> 0:14:39.680 Can you talk about where rates would have to go 0:14:39.720 --> 0:14:41.920 to make this as lucrative as you expect for banks? 0:14:41.960 --> 0:14:44.200 Because this is something Jamie Diamond has been very clear about. 0:14:44.440 --> 0:14:47.480 He sees benchmark ten year treasury yields going a lot higher. 0:14:47.600 --> 0:14:50.480 He's been wrong year after year. What's your view in 0:14:50.560 --> 0:14:52.800 terms of how high they have to go to make 0:14:52.800 --> 0:14:56.760 this equation makes sense? Well, I'm wrong with him and 0:14:56.800 --> 0:14:59.720 have been wrong for years. Uh. The history of the 0:15:00.080 --> 0:15:02.760 long term interest rate cycle is that it averages about 0:15:02.800 --> 0:15:06.240 what nominal GDP growth is. And if we got six 0:15:06.320 --> 0:15:10.640 or seven percent GDP growth and two or three percent inflation, Uh, 0:15:10.840 --> 0:15:12.840 you come up with a crazy number for the tenure. 0:15:13.320 --> 0:15:15.240 I would argue that it's going to get to at 0:15:15.320 --> 0:15:18.080 least a three percent level UH in fairly short order. 0:15:18.480 --> 0:15:21.120 The banks really care more about what happens to the 0:15:21.160 --> 0:15:23.560 short end of the spectrum. They need the FED funds 0:15:23.640 --> 0:15:28.240 rate to get moving UH and and not stay at zero. 0:15:28.800 --> 0:15:31.200 And I think that's actually going to occur this year, 0:15:31.280 --> 0:15:33.160 not next year. A lot of people think it won't happen. 0:15:33.880 --> 0:15:35.920 And I don't blame him, because that's what the sharing 0:15:36.440 --> 0:15:39.680 that keeps saying. Robert Albertson, thank you so much, Good 0:15:39.720 --> 0:15:41.960 health to you. With Piper Sandler, of course on this 0:15:42.080 --> 0:15:44.560 day of Mr Diamond's letter, wonderful to get decades of 0:15:44.640 --> 0:15:54.120 perspective from uh. Mr Albertson, Right now we reset and 0:15:54.200 --> 0:15:56.680 we can do that with Christen Bitterly of City Group 0:15:56.680 --> 0:16:00.240 Private Bank, someone who has to explain to people to 0:16:00.360 --> 0:16:03.440 find the courage. Kristin, thank you so much for joining. 0:16:03.520 --> 0:16:06.000 I really want to go right away to a wonderful 0:16:06.080 --> 0:16:10.160 phrase you have, which is the du that cash is punitive, 0:16:10.880 --> 0:16:14.320 and yet I know cash is punitive. I don't want 0:16:14.360 --> 0:16:17.640 to be in it, but I'm afraid to go. How 0:16:17.680 --> 0:16:20.440 do you move from this wall of cash and the 0:16:20.480 --> 0:16:23.000 fear of missing out to get into the market. What's 0:16:23.040 --> 0:16:25.760 the first step. It's so hard. So I think the 0:16:25.800 --> 0:16:28.200 first step is actually looking at the data. The reason 0:16:28.280 --> 0:16:31.760 that we have this association that cash is safe and 0:16:31.760 --> 0:16:33.440 and cash is where I go when I don't know 0:16:33.440 --> 0:16:36.480 what to do, kind of predates the global financial crisis, right, 0:16:36.520 --> 0:16:39.160 So if you look at pre global financial crisis, if 0:16:39.160 --> 0:16:42.120 you were sitting in cash on a post inflationary basis, 0:16:42.120 --> 0:16:45.000 you were earning about three percent per anum, not knocking 0:16:45.000 --> 0:16:47.200 it out of the park, but that's all right. Post 0:16:47.200 --> 0:16:52.240 global financial crisis, you're basically losing one per annum. And 0:16:52.280 --> 0:16:55.400 that's where we're at right now. So holding onto cash 0:16:55.600 --> 0:17:00.000 is basically guaranteed to lose value over the next twelve months. 0:17:00.280 --> 0:17:02.200 So do you assume do you assume on a real 0:17:02.320 --> 0:17:06.440 yield analysis that other asset classes are inflated? I mean, 0:17:06.480 --> 0:17:09.080 do you carry it right over to say not so 0:17:09.160 --> 0:17:11.000 much that you know, I don't want to be inflammatory. 0:17:11.000 --> 0:17:14.520 There's an equity bubble, but elements of the equity market 0:17:14.520 --> 0:17:18.080 are bubblelicious because I can't get a real yield in 0:17:18.160 --> 0:17:21.320 punitive cash. I think there's so I think if you 0:17:21.359 --> 0:17:24.359 look at the overall levels of equity markets, it doesn't 0:17:24.400 --> 0:17:26.600 really tell the full story. So when we're talking about 0:17:27.040 --> 0:17:29.280 the level of the SMP five dred being north of 0:17:29.480 --> 0:17:32.000 four thousand, which seems pretty incredible given the year that 0:17:32.040 --> 0:17:34.720 we've had, it doesn't tell you what's going on beneath 0:17:34.760 --> 0:17:37.240 the surface. And this is pretty intuitive, but one of 0:17:37.280 --> 0:17:40.000 the induseries that we track at City is called Pure Value. 0:17:40.040 --> 0:17:42.119 So it's one of our indicaes that what it does, 0:17:42.160 --> 0:17:44.520 in a very simple sense, is it takes the stocks 0:17:44.520 --> 0:17:46.760 that are in the SNP five hundred and it basically 0:17:46.840 --> 0:17:50.600 ranks them according to their exposure to value as a factor. 0:17:50.880 --> 0:17:53.359 It's long the top fifty percent of those stocks, short 0:17:53.359 --> 0:17:56.600 the bottom fifty. So it's a it's a basic outperformance 0:17:56.680 --> 0:17:59.320 in terms of value. And so what we saw in 0:17:59.400 --> 0:18:02.520 March was that was the strongest performance It was north 0:18:02.560 --> 0:18:05.439 of six percent that we've seen since second quarter of 0:18:05.480 --> 0:18:08.960 two thousand nine. So that to me is when you're 0:18:09.000 --> 0:18:12.240 looking at what's going on under the surface, is very 0:18:12.280 --> 0:18:15.240 different in terms of opportunities to put capital to work 0:18:15.440 --> 0:18:18.440 and delineating between those winners and losers in this environment. 0:18:18.520 --> 0:18:21.280 So Christian, you're not just saying that cash is more 0:18:21.280 --> 0:18:24.280 punitive than game stop shares. You're saying that people need 0:18:24.359 --> 0:18:27.639 to be investing in equities on an active level. This 0:18:27.720 --> 0:18:29.480 is everybody coming on and saying this is the year 0:18:29.480 --> 0:18:34.119 of active investment. Okay, great, but when you talk about allocations, 0:18:34.240 --> 0:18:37.720 what are you recommending. So there's a couple of things 0:18:37.720 --> 0:18:39.239 that I think we need to keep in mind this 0:18:39.320 --> 0:18:42.240 battle between as I was just saying value and growth. 0:18:42.480 --> 0:18:44.720 There's two trends that are driving the market right now. 0:18:44.840 --> 0:18:47.000 One is the mean reversion, right, so this is that 0:18:47.119 --> 0:18:50.200 catch up trade, that idea that you had COVID defensives 0:18:50.200 --> 0:18:53.760 COVID cyclicals, and basically the COVID cyclicals are catching up 0:18:53.800 --> 0:18:56.800 because of this reopening of the economy. The question there, 0:18:56.800 --> 0:19:00.240 which is why earnings are super important, is how much 0:19:00.280 --> 0:19:02.440 further can they go? So looking at some of these 0:19:02.440 --> 0:19:05.640 factors in value in these COVID cyclicals that have had 0:19:05.720 --> 0:19:08.960 tremendous performance, how much higher can they go? So an 0:19:08.960 --> 0:19:12.359 area that we like there is actually global healthcare. So 0:19:12.440 --> 0:19:15.400 global healthcare is one of those sectors. And it's ironic, right, 0:19:15.440 --> 0:19:19.880 it's underperformed the past twelve months from a PE standpoint, 0:19:20.040 --> 0:19:23.480 It's basically at its lowest levels on a relative basis 0:19:23.520 --> 0:19:26.280 to global equities and over ten years, it has an 0:19:26.280 --> 0:19:30.040 attractive dividend yield. So that's an area that we like. Um, 0:19:30.040 --> 0:19:32.000 But I think what's going to happen going into earnings 0:19:32.000 --> 0:19:34.919 is people are really going to pay attention to fundamental factors. 0:19:34.920 --> 0:19:37.800 They're going to pay attention to has inflation actually creeped 0:19:37.840 --> 0:19:40.320 into any of these earnings? So I think we could 0:19:40.320 --> 0:19:43.720 get some surprises which would create some buying opportunities. Okay, 0:19:43.760 --> 0:19:45.720 next couple of weeks. So in other words, you're saying, 0:19:45.840 --> 0:19:49.080 wait for the pullbacks and their potentially be some opportunities 0:19:49.200 --> 0:19:52.680 to get some potential returns that are bigger. I'm wondering 0:19:52.760 --> 0:19:55.359 on credit, we're looking right now at credit spreads that 0:19:55.400 --> 0:19:57.800 are the tightest they've been since two thousand and seven, 0:19:57.880 --> 0:20:00.640 certainly in the high yield space. And when you start 0:20:00.680 --> 0:20:03.480 talking talk about petitive cash, do you start to talk 0:20:03.520 --> 0:20:06.760 about people taking perhaps more risk than they're getting banged 0:20:06.760 --> 0:20:09.080 for their buck? Are you recommending that people follow this 0:20:09.160 --> 0:20:12.399 trade or pull back and go perhaps they're into equities 0:20:12.520 --> 0:20:16.240 or into treasuries and nothing in between. And so yeah, 0:20:16.320 --> 0:20:19.360 so that that three hundred basis points spread right kind 0:20:19.359 --> 0:20:22.200 of going through that was something that that is is 0:20:22.240 --> 0:20:25.160 pretty symbolic and significant. I think a lot of people 0:20:25.160 --> 0:20:27.880 are looking at this in terms of comparing it overall 0:20:27.960 --> 0:20:30.760 high yield to equities and saying, well, if we're looking 0:20:30.760 --> 0:20:33.360 at on a relative basis, there could be an additional 0:20:33.440 --> 0:20:36.280 fifty basis points, are a hundred basis points. We're not 0:20:36.400 --> 0:20:39.200 quite there yet. We're definitely delineating in terms of the 0:20:39.520 --> 0:20:43.800 sector analysis within high yield. But another area, just talking 0:20:43.840 --> 0:20:47.880 about equities again, so UK equities is another area that's 0:20:47.880 --> 0:20:51.080 been largely ignored. We're looking outside the US in terms 0:20:51.119 --> 0:20:53.440 of trying to create some of this yield where you 0:20:53.480 --> 0:20:55.920 can get three and a half percent there. And again, 0:20:56.000 --> 0:20:59.320 valuations look very attractive, Christen, enough that you and Lisa 0:20:59.359 --> 0:21:01.679 would know this. But the longer you're going far away. 0:21:01.720 --> 0:21:04.359 You bought Dominion of Richmond, Virginia. You bought it, you 0:21:04.520 --> 0:21:06.560 held it, you never sold it, and it's been a 0:21:06.600 --> 0:21:10.679 solid thirty ten year high single digit return. I just 0:21:10.800 --> 0:21:16.160 request Dominion Energy of Richmond, seventeen thousand employees, big three 0:21:16.160 --> 0:21:19.920 percent dividend yield, not with much dividend growth, and it's 0:21:20.000 --> 0:21:23.399