WEBVTT - Surveillance: Bank Earnings with Leon 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.840 the Bloomberg Terminal and the Bloomberg Business app. 0:00:30.160 --> 0:00:32.480 Look on I'm this morning, but our lead story JP 0:00:32.600 --> 0:00:35.320 Morgan in the pre market up by two point eight percent. 0:00:35.440 --> 0:00:38.919 Ken Leon, the director of equity research at CFI right, 0:00:39.159 --> 0:00:41.320 joins us now for more. Can should I be focused 0:00:41.320 --> 0:00:44.600 on the beat, the race or the provisions for credit losses? 0:00:45.400 --> 0:00:46.120 I think you can. 0:00:46.000 --> 0:00:48.800 Focus on the economy and the strength of the resulting 0:00:49.040 --> 0:00:52.360 and performance. And what this means is, you know, that's 0:00:52.360 --> 0:00:55.640 her kind of Coquillier. You build reserves mostly for loan 0:00:55.720 --> 0:01:00.520 losses and also looking ahead to perhaps a weaker per performance. 0:01:01.040 --> 0:01:04.440 Sometimes you have long loss reversals. We had that a 0:01:04.560 --> 0:01:07.280 year ago. So what's likely now is if we have 0:01:07.319 --> 0:01:10.440 a soft landing, not a recession second half of this year, 0:01:11.000 --> 0:01:14.720 the likelihood as these provisions begin to slow down and 0:01:14.800 --> 0:01:18.280 possibly the reserves may be too high in twenty twenty 0:01:18.319 --> 0:01:21.800 four when you have an ability to beat much better 0:01:21.880 --> 0:01:23.520 comparisons to twenty three. 0:01:23.760 --> 0:01:24.800 This was a good quarter. 0:01:24.920 --> 0:01:27.440 We thought this would be the trough of the investment 0:01:27.480 --> 0:01:31.480 backing cycle and we are seeing green shoots. But the 0:01:31.520 --> 0:01:36.880 strength of the consumer and commercial loan activity is very promising. 0:01:37.120 --> 0:01:40.080 And size matters here, and that's been your discussion in 0:01:40.120 --> 0:01:40.960 the last half. 0:01:40.840 --> 0:01:41.560 Hours, Ken Leon. 0:01:41.600 --> 0:01:43.320 It's where every wanted to go in size it matter. 0:01:43.360 --> 0:01:45.080 I'm going to give you two buried in a PowerPoint, 0:01:45.160 --> 0:01:46.920 Ken Leon, and I know you know this and probably 0:01:47.000 --> 0:01:51.360 knew it already. Thirty five percent pre tax margin on 0:01:51.480 --> 0:01:56.280 JP Morgan Asset and Wealth management thirty five percent on 0:01:56.400 --> 0:01:59.720 the dollar, folks. That's that's almost like just not in 0:01:59.760 --> 0:02:02.920 the books, is how I'd put that. And what's so 0:02:03.000 --> 0:02:06.200 important to me, Ken, The return on equity with the 0:02:06.200 --> 0:02:10.640 Marinero's system leaps from a twenty five blend system up 0:02:10.720 --> 0:02:14.840 to thirty four percent. Roe, have you ever seen a 0:02:15.000 --> 0:02:17.280 big profit machine like that? 0:02:17.480 --> 0:02:20.040 And asset and wealth management. 0:02:20.560 --> 0:02:23.320 You know what's amazing, Thomas JP Morgan has done this, 0:02:23.639 --> 0:02:27.480 you know, with less fanfare than others such as James 0:02:27.480 --> 0:02:30.240 Gorman and Morgan Stanley. I took it from twelve to 0:02:30.280 --> 0:02:32.520 twenty five percent and probably thirty. 0:02:32.880 --> 0:02:36.360 These are phenomenal numbers and it speaks to making the 0:02:36.440 --> 0:02:40.639 right strategic decision to expand an asset and wealth management. 0:02:41.000 --> 0:02:43.560 That's what Goldman Sachs unfortunately will have to talk about 0:02:43.680 --> 0:02:46.480 next week, where they made the wrong turn and they're 0:02:46.520 --> 0:02:49.839 trying to play catch up in these amazing areas. 0:02:49.880 --> 0:02:52.080 Lisa, that's exactly where I wanted to go. This is 0:02:52.120 --> 0:02:53.160 not about I've. 0:02:53.000 --> 0:02:55.680 Never seen this before from JP Morgan and what the 0:02:55.680 --> 0:02:58.800 improvement was at Gorman coming ages ago. 0:02:59.080 --> 0:03:00.440 This is about the one that. 0:03:00.600 --> 0:03:03.240 Aren't doing it, and we're going to look to that 0:03:03.360 --> 0:03:06.520 next week. In particular, Ken, I'm curious your take on 0:03:06.560 --> 0:03:10.640 the net interest income coming in so strong, upgrading that 0:03:10.760 --> 0:03:12.400 for the full year at a time when a lot 0:03:12.400 --> 0:03:14.200 of people are critical of the big banks for not 0:03:14.280 --> 0:03:18.800 passing along those extra profits to depositors more quickly, akin 0:03:18.840 --> 0:03:20.840 to what we're seeing over in the regionals. 0:03:21.200 --> 0:03:24.360 Yeah, that's right, and we have a beautiful chart somewhere, 0:03:24.440 --> 0:03:27.120 but basically it's two points. You have one lever, which 0:03:27.200 --> 0:03:30.200 is rates, and rates might have peaked, but if you 0:03:30.240 --> 0:03:34.440 have increased loan activity that will spur net interest margins 0:03:34.440 --> 0:03:38.520 and maybe keep the earnings asset yields at decent spreads, 0:03:38.800 --> 0:03:42.800 even though we have this disintermediation where depositors are looking 0:03:42.840 --> 0:03:46.880 for five percent or so. This is really promising for 0:03:46.960 --> 0:03:49.680 the larger banks. It's about fifty to fifty five percent 0:03:49.720 --> 0:03:52.560 a total net revenue. As to your point, Lisa, you 0:03:52.600 --> 0:03:55.840 get a little bit more downstream, it's sixty five percent 0:03:55.920 --> 0:03:56.320 or more. 0:03:56.560 --> 0:03:59.320 So that might help the smaller banks. And we're going 0:03:59.360 --> 0:04:00.720 to be watching that at CFRO. 0:04:01.240 --> 0:04:03.920 What are we seeing ken with respect depositors getting sick 0:04:03.960 --> 0:04:06.600 of earning nothing on what they are parking at these 0:04:06.640 --> 0:04:11.240 banks and moving and actually shifting into CDs into income 0:04:11.320 --> 0:04:14.480 producing instruments. Is this causing any kind of pressure or 0:04:14.480 --> 0:04:17.400 have we seen a surprising stickiness of these deposits that 0:04:17.440 --> 0:04:20.880 will allow this type of net interest income to continue. 0:04:21.400 --> 0:04:22.520 Yeah, so that continues. 0:04:22.600 --> 0:04:26.520 That's far the biggest macro trend is this pivot to 0:04:26.600 --> 0:04:33.240 getting higher yield. And additionally there's course non interestparing deposits 0:04:33.279 --> 0:04:36.520 and deposits that are there because you're a small business 0:04:36.560 --> 0:04:40.080 doing business like with Bank of America and you have relationships, 0:04:40.440 --> 0:04:44.240 so you know, I think that will continue. But if 0:04:44.279 --> 0:04:48.440 we reach next week where we've reached the FED finishing 0:04:48.480 --> 0:04:52.080 its rate rise regime and pause and then perhaps cut 0:04:52.160 --> 0:04:54.799 next year, this will be less of a factor. 0:04:55.000 --> 0:04:55.160 Ken. 0:04:55.200 --> 0:04:58.120 Can we just finish on regulatory over hank bit a pushback? 0:04:58.120 --> 0:05:01.200 I think then in the statement this morning, JP Morgan, 0:05:01.320 --> 0:05:02.920 I just wonder how much of an overhang that's going 0:05:02.960 --> 0:05:05.120 to be on the whole group of stocks in a 0:05:05.160 --> 0:05:07.720 bank and sector one hundred. 0:05:07.480 --> 0:05:09.880 Percent, And that's where I would have started this conversation 0:05:10.040 --> 0:05:14.760 with Michael Barr's holistic capital approach that we studied rigorously, 0:05:15.120 --> 0:05:18.800 that talks about the interplay of liquidity and capital risk 0:05:19.160 --> 0:05:21.560 and taking two dollars for every one hundred dollars for 0:05:21.680 --> 0:05:22.920 risk weighted assets. 0:05:23.279 --> 0:05:25.120 But you know capital will increase. 0:05:25.880 --> 0:05:29.480 If I'm an investor, I'm looking at total return. This 0:05:29.560 --> 0:05:33.279 might put some kind of ceiling on buybacks that none 0:05:33.279 --> 0:05:36.680 of the banks did. Those in the dot Crank stress 0:05:36.760 --> 0:05:39.160 tests were allowed to do, but they had dived. An 0:05:39.160 --> 0:05:43.200 increase capital and return of capital is what Jamie Diamond's 0:05:43.240 --> 0:05:46.919 most worried about, because a sophisticated investor may say, I 0:05:47.000 --> 0:05:47.520 may go. 0:05:47.400 --> 0:05:50.880 Elsewhere, Ken, Thank you, sir, Ken, Leon F. CFO eight. 0:05:54.680 --> 0:05:57.920 Megan Swiber joins US right now, director of US Rates 0:05:58.120 --> 0:05:59.839 Strategy at Bank of America. 0:06:00.120 --> 0:06:02.320 This is a brutal job. Does moynehint call you up 0:06:02.360 --> 0:06:03.360 to get briefing? 0:06:03.600 --> 0:06:07.640 Pharaoh's big on this like Brian's like wicked, wicked informed 0:06:08.279 --> 0:06:11.520 from his research staff. He harasses Ethan Harris at home 0:06:11.920 --> 0:06:13.599 on a weekend. Does he call you up to say, 0:06:13.600 --> 0:06:14.599 what's a terminal rate? 0:06:14.839 --> 0:06:15.039 You know? 0:06:15.160 --> 0:06:18.479 Occasionally here and there, but you know, I would say 0:06:18.480 --> 0:06:22.680 that that's just been really the focus of markets more broadly, 0:06:22.839 --> 0:06:25.159 right is Ultimately what it's going to come down to 0:06:25.360 --> 0:06:27.200 is what is the FED going to do at the 0:06:27.240 --> 0:06:30.400 next meeting? Where does neutral sit? And that's been very 0:06:30.400 --> 0:06:32.480 important for the bond market. But of course, as we 0:06:32.480 --> 0:06:35.640 were just talking about the equity market and okay, but Mark. 0:06:35.480 --> 0:06:37.560 You did your fobosi and there's got to be a 0:06:37.600 --> 0:06:40.320 mathematics that you go out to a place. We're back 0:06:40.360 --> 0:06:43.080 to a normal environment for fossils like me that we 0:06:43.120 --> 0:06:46.480 haven't seen in sixteen years. What's the new you know, 0:06:46.600 --> 0:06:51.080 in terms of terminal uncertainty, what's the new terminal rate 0:06:51.120 --> 0:06:51.840 you're working with? 0:06:52.240 --> 0:06:54.400 So, Tom, what it comes down to right now is 0:06:54.440 --> 0:06:57.040 the inflation picture. And part of the reason why we've 0:06:57.040 --> 0:07:00.120 been able to see rates rally so much this week 0:07:00.520 --> 0:07:01.800 is at the end of the day, we got a 0:07:01.839 --> 0:07:06.479 pretty promising CPI report, and when you're looking at inflation 0:07:06.600 --> 0:07:09.880 being able to moderate, you know, when we dive into 0:07:09.880 --> 0:07:13.760 the details terminal rate, what it does to the terminal 0:07:13.840 --> 0:07:16.400 rate is it reduces how much more we think the 0:07:16.440 --> 0:07:19.480 Fed will have to go if we listen to the 0:07:19.480 --> 0:07:22.840 more of the hawks and the Committee needing them suggesting 0:07:22.840 --> 0:07:24.760 that there's still more room for the Fed to hike. 0:07:25.240 --> 0:07:27.640 What it comes down to is whether or not inflation 0:07:27.840 --> 0:07:31.760 is persistent or not. This core services x housing component 0:07:31.800 --> 0:07:34.800 that Powell's really anchored the market on printed at zero 0:07:34.920 --> 0:07:37.080 percent month over a month in the most recent reading. 0:07:37.400 --> 0:07:39.560 So it takes a little bit of the wind out 0:07:39.560 --> 0:07:41.800 of out of the sales of the more hawkish camp. 0:07:41.880 --> 0:07:42.040 Here. 0:07:42.120 --> 0:07:43.800 One thing I can get hooks and Stuffs to agree 0:07:43.800 --> 0:07:46.239 on right now is this soft summer patch for inflation. 0:07:46.360 --> 0:07:47.080 Yes, exactly. 0:07:47.120 --> 0:07:49.120 Then there's this divide that starts to merch lights this 0:07:49.200 --> 0:07:52.120 year as you know about the potential to reaccelerate, where 0:07:52.160 --> 0:07:52.960 we evening the team on that. 0:07:53.720 --> 0:07:56.120 So we are of the view that in the long run, 0:07:56.160 --> 0:07:58.600 inflation will be able to settle back to two percent, 0:07:58.800 --> 0:08:00.800 and I think that that's right. There is really this 0:08:00.880 --> 0:08:03.800 divergence between are we going to settle now closer to 0:08:03.880 --> 0:08:05.440 three percent by the end of the year, or is 0:08:05.480 --> 0:08:08.080 that going to be closer to two and a half percent. 0:08:08.720 --> 0:08:10.400 What I'll say right now is that we're a little 0:08:10.440 --> 0:08:14.320 bit more so in the stickier inflation near term camp 0:08:14.640 --> 0:08:16.640 when I look at what the market's pricing. Though you 0:08:16.680 --> 0:08:19.559 look at one year inflation swaps sitting below two point 0:08:19.600 --> 0:08:23.800 two percent this morning, even with our house view for 0:08:23.880 --> 0:08:26.520 a mild recession starting in the first half of next year, 0:08:26.760 --> 0:08:30.200 that's still about forty basis points or so below where 0:08:30.200 --> 0:08:32.679 we're expecting. So I will say the market seems to 0:08:32.679 --> 0:08:36.480 be very overly optimistic around where inflation's going to settle, 0:08:36.520 --> 0:08:39.840 even over the near term. And I think what it 0:08:39.880 --> 0:08:42.360 will come down to about this question of how quickly 0:08:42.360 --> 0:08:44.800 they're going to be able to see inflation moderate down 0:08:44.800 --> 0:08:46.760 to the target. It's going to be a matter of 0:08:47.160 --> 0:08:50.200 how strong the US economy will will continue to be, 0:08:51.240 --> 0:08:53.760 and a lot of that economic resilience to skew the 0:08:53.840 --> 0:08:57.280 risks I think near term towards towards more persistent prints. 0:08:57.360 --> 0:08:59.679 Then do you think that it's too early to get 0:08:59.720 --> 0:09:03.840 both on longer term bonds at a time when perhaps 0:09:03.880 --> 0:09:07.760 the market is overpricing the idea of this soft landing 0:09:08.080 --> 0:09:13.360 that yields low inflation, robust growth, and everything can chug along. 0:09:13.720 --> 0:09:16.040 So I think, Lisa, what this presents for us right 0:09:16.080 --> 0:09:18.920 now is the is when we look at what the 0:09:18.920 --> 0:09:21.640 market's pricing across the curve, I think it's too early 0:09:21.800 --> 0:09:23.760 to get bullish on the front end of the curve. 0:09:24.280 --> 0:09:26.720 And as as was just highlighted, right we've seen really 0:09:26.800 --> 0:09:29.520 that very notable rally in the two year rate. I 0:09:29.559 --> 0:09:32.000 think what makes more sense right now from the investor 0:09:32.080 --> 0:09:35.120 perspective is going along further out the curve, actually closer 0:09:35.160 --> 0:09:37.800 to the tenure point. And that's because when we look 0:09:37.800 --> 0:09:40.640 at prior hiking cycles, right when you look at how 0:09:40.679 --> 0:09:43.839 the market performs twelve months after the Fed delivers that 0:09:43.920 --> 0:09:48.040 final hike, you usually see tens rally on average about 0:09:48.040 --> 0:09:51.959 one hundred basis points over that twelve month period. The 0:09:52.000 --> 0:09:54.800 ability for the front end to really calm down is 0:09:54.840 --> 0:09:57.160 going to be a question more so about when does 0:09:57.200 --> 0:09:58.640 the Fed deliver deliver. 0:09:58.480 --> 0:10:01.840 These cuts You talk about basically a real deepening in 0:10:01.840 --> 0:10:05.040 the yield curve inversion, and this would be a resteeping 0:10:05.120 --> 0:10:08.959 or reinversion down to near record loads or at least 0:10:08.960 --> 0:10:11.520 post nine to eighty one. What does that mean in 0:10:11.600 --> 0:10:14.280 terms of some of the dynamics that we're talking about 0:10:14.320 --> 0:10:17.280 this morning with banks and whether that increases the risk 0:10:17.800 --> 0:10:22.760 of this shallow recession becoming something a little bit more Yeah. 0:10:22.559 --> 0:10:25.679 So deeper inversion we'll put more pressure on banks, for sure. 0:10:26.400 --> 0:10:28.920 But what I think the curve inversion is really telling 0:10:29.000 --> 0:10:32.640 us right now, it's not so much so reflecting recession 0:10:32.679 --> 0:10:35.600 concerns as some of these recession probability models will tell us. 0:10:36.000 --> 0:10:39.000 What it's reflecting is expectations for the FED to cut, 0:10:39.280 --> 0:10:42.679 and the FED cutting alongside inflation that's able to moderate 0:10:42.800 --> 0:10:45.960 back down to its target makes sense. The FED thinks 0:10:46.000 --> 0:10:49.960 about setting interest rates through the real rate, So a 0:10:50.080 --> 0:10:53.560 five percent FED funds rate is different when inflation's running 0:10:53.559 --> 0:10:56.040 at four percent than it is when inflation's running at 0:10:56.040 --> 0:10:59.320 three percent. So what we see the market pricing, and 0:10:59.480 --> 0:11:02.400 part of the real reason behind that yield curve inversion 0:11:03.040 --> 0:11:05.920 is this strong confidence in the market that the Fed's 0:11:05.960 --> 0:11:07.720 going to be able to get this back down to 0:11:07.720 --> 0:11:08.280 two persons. 0:11:09.040 --> 0:11:11.200 It's amazing, it's always. 0:11:10.320 --> 0:11:14.840 It's beautifully spoken, because John, that's the absolute underlying belief 0:11:14.920 --> 0:11:15.760 structure that. 0:11:15.679 --> 0:11:18.720 We have hasn't been shattered, hasn't been shattered. 0:11:18.840 --> 0:11:21.320 You look at five year, five year break evens, they've 0:11:21.360 --> 0:11:24.560 been pretty consistently priced at the Fed's target throughout this 0:11:24.679 --> 0:11:26.520 whole inflationary episode. 0:11:26.559 --> 0:11:28.880 That's the credibility test for chem and pound. In fact, 0:11:28.960 --> 0:11:31.600 he's basically so, oh yeah, a few times. Can we 0:11:31.600 --> 0:11:33.840 finish on the global backdrop? We haven't discussed that much. 0:11:34.280 --> 0:11:37.199 Does it matter to your call that China is experiencing 0:11:37.240 --> 0:11:41.120 what some people might refer to as deflation disinflation? The 0:11:41.200 --> 0:11:44.600 UK has got problems with inflation, Europe inflation, it's all 0:11:44.600 --> 0:11:47.439 this tension abroad and some major trading partners. How important 0:11:47.480 --> 0:11:47.599 is that? 0:11:48.200 --> 0:11:48.320 So? 0:11:48.400 --> 0:11:50.839 I think it's definitely important, John, And when we think 0:11:50.880 --> 0:11:53.800 about the China story right with that will probably weigh 0:11:53.840 --> 0:11:56.000 more so. And when we're thinking about what our inflation 0:11:56.080 --> 0:11:59.320 forecasts are to the commodity story right and we've been 0:11:59.360 --> 0:12:01.640 able to see and that's a major reason why year 0:12:01.679 --> 0:12:03.760 over year inflation has been able to fall so much 0:12:04.280 --> 0:12:06.840 because commodity prices have fallen from where we were sitting 0:12:06.840 --> 0:12:09.480 this time last year. So the fact that we're seeing 0:12:09.520 --> 0:12:13.400 more of this weaker China story really does, I think, 0:12:13.480 --> 0:12:15.720 endorse the fact that the market's been able to price 0:12:15.720 --> 0:12:18.040 inflation down so much. When you're talking about how the 0:12:18.080 --> 0:12:21.160 market price is inflation, it's very, very highly correlated to 0:12:21.160 --> 0:12:24.360 the commodity story. So that in and of itself really 0:12:24.360 --> 0:12:28.480 does help support lower inflation compensation priced across the curve. 0:12:28.640 --> 0:12:30.960 Megan, thank you, big fan of your work together with Marcavana, 0:12:31.080 --> 0:12:32.960 just pretty in thank you, Thank you very much. 0:12:33.000 --> 0:12:33.360 Thank you. 0:12:33.720 --> 0:12:36.760 Megan Swambite of Bank for America on race strategy and 0:12:36.800 --> 0:12:38.000 this inflation backdrop. 0:12:48.880 --> 0:12:51.480 We're trying to get perspective here, and we've heard a 0:12:51.559 --> 0:12:56.559 lot from bears vacillating, readjusting up. Anastasia m Rosso, chief 0:12:56.600 --> 0:13:00.920 investment strategist at I Capital, she doesn't have to vamp 0:13:00.920 --> 0:13:03.640 it up it all. She nailed it the market up. 0:13:03.679 --> 0:13:06.400 Let's go back in history. What did you see in October? 0:13:06.440 --> 0:13:09.800 What did you see that was enthusiasm for the market. 0:13:10.040 --> 0:13:13.160 Back in October? What we saw were valuations that we're 0:13:13.160 --> 0:13:15.280 discounting a lot. I mean, if you looked across the 0:13:15.280 --> 0:13:18.040 equity markets. You've had the SMP that was trading I 0:13:18.040 --> 0:13:20.360 think at the time in the fortieth percentile. Over the 0:13:20.440 --> 0:13:23.240 last fifteen years, if you look at investment grade and 0:13:23.440 --> 0:13:25.560 high yield bonds that were trading, you know, in the 0:13:25.679 --> 0:13:28.920 nines or tenth percentile of their respective ranges. So we 0:13:28.920 --> 0:13:31.720 were discounting a lot and then positioning. I mean, Tom, 0:13:31.720 --> 0:13:34.880 could you get anybody to invest in any risk asset 0:13:34.920 --> 0:13:37.400 in October of last year? The answer is no. And 0:13:37.440 --> 0:13:40.600 then ultimately the catalyst. You always need a catalyst. What 0:13:40.640 --> 0:13:43.040 we saw was that by the middle of this year 0:13:43.080 --> 0:13:45.520 there was likely to be this gap that was going 0:13:45.559 --> 0:13:47.920 to open up between what the level of FED funds 0:13:48.000 --> 0:13:50.440 rate is and where inflation was going to be, and 0:13:50.480 --> 0:13:52.600 that gap was going to be positive, meaning FET funds 0:13:52.640 --> 0:13:55.400 rate is above the rate of core inflation. And that's 0:13:55.440 --> 0:13:57.880 sort of what we are today. And I think that's 0:13:57.880 --> 0:14:00.359 what's been happening in the last six months. We've incrementally 0:14:00.400 --> 0:14:03.439 been getting closer and closer to that pivot point. But 0:14:03.600 --> 0:14:05.959 as you know, markets priced in advance. 0:14:05.840 --> 0:14:08.120 So what next, I guess the question. You know, you've 0:14:08.160 --> 0:14:10.320 wrote this equity market ballmark, if you want to call 0:14:10.400 --> 0:14:11.960 it that, Yet today. What are you doing now? 0:14:12.559 --> 0:14:14.000 I mean, you stick with it, You stick with. 0:14:14.040 --> 0:14:15.960 It, and you know, for now, I think we are 0:14:16.000 --> 0:14:18.000 on track for a soft landing. And I know, you know, 0:14:18.080 --> 0:14:20.920 the bearish camp would say, well, you look at positioning 0:14:21.040 --> 0:14:23.720 and it's getting very exuberant, you know, by some metrics 0:14:23.840 --> 0:14:26.080 you look at, you know, whether it's touch funds, whether 0:14:26.080 --> 0:14:29.640 it's CTAs, all of those investors have you know, very quickly, 0:14:29.840 --> 0:14:33.600 very bullishly positioned. So you know that leaves you susceptible 0:14:33.720 --> 0:14:36.280 to a negative catalyst. But can you name a negative 0:14:36.280 --> 0:14:38.360 catalyst right now? You know, we've got if we've got 0:14:38.400 --> 0:14:41.680 inflation that is easy, We've got the FED that is pausing. 0:14:42.120 --> 0:14:44.160 And you know, Lisa, you talk about this all the time. 0:14:44.240 --> 0:14:46.280 If you've got the consumer that is strong and is 0:14:46.360 --> 0:14:49.240 not going anywhere, you know, then where's the secuity market 0:14:49.320 --> 0:14:49.680 going to go? 0:14:50.080 --> 0:14:50.200 You know? 0:14:50.320 --> 0:14:52.720 So for now, I think when I score the valuations, 0:14:52.760 --> 0:14:55.400 which is supported around these levels, and when I score 0:14:55.480 --> 0:14:58.000 that with twenty twenty four earnings, which by the way, 0:14:58.080 --> 0:15:00.560 have been derisked a lot, that we have zoo close 0:15:00.560 --> 0:15:01.920 to forty eight hundred on the SMP. 0:15:02.240 --> 0:15:04.160 And just to let you know, I could give you 0:15:04.240 --> 0:15:08.480 a numerous catastrophic situations that could potentially happen to Curtaila, 0:15:08.560 --> 0:15:10.960 but that doesn't look likely. And that is the underscored 0:15:11.320 --> 0:15:14.240 point here that we are seeing less headwinds to this 0:15:14.440 --> 0:15:17.520 rally continuing, which raises a question of leadership. How much 0:15:17.600 --> 0:15:20.120 do you shift away from what's done best so far 0:15:20.600 --> 0:15:24.160 to some of the small cap areas the financials after 0:15:24.240 --> 0:15:26.680 seeing the results that we've seen just this morning. 0:15:26.840 --> 0:15:28.920 Yeah, well, I think you stick with tech because tech, 0:15:29.000 --> 0:15:30.760 of course is where the growth is and is going 0:15:30.800 --> 0:15:32.640 to continue to be. And I am a big fan 0:15:32.680 --> 0:15:35.360 of artificial intelligence. I think that's a huge trend that 0:15:35.520 --> 0:15:39.240 is adding to earnings of companies starting today. So you 0:15:39.360 --> 0:15:42.040 stick with tech. But at the same time, Lisa, I'm 0:15:42.200 --> 0:15:44.880 really coming around on financials, and you know, if you 0:15:44.960 --> 0:15:47.680 look at the earnings results this morning, there's not much 0:15:47.760 --> 0:15:50.640 to be disappointed about. You know, yes, we know deposit 0:15:50.720 --> 0:15:52.960 betas are going to rise, but guess what that's priced in. 0:15:53.360 --> 0:15:55.400 You know, yes, we know lending is going to be slower, 0:15:55.480 --> 0:15:57.960 but that's also baked into the cake. And what I'm 0:15:57.960 --> 0:16:00.960 actually encouraged about for financials two things that I don't 0:16:00.960 --> 0:16:03.240 think are yet priced in. The First one is the 0:16:03.320 --> 0:16:06.480 possibility of a steeper Yel curve if we are, in fact, 0:16:06.560 --> 0:16:08.880 in a soft landing scenario that at some point the 0:16:08.960 --> 0:16:11.800 FED is going to pause and maybe even ease if 0:16:11.880 --> 0:16:14.720 inflation really comes down, and if the economy is still 0:16:14.760 --> 0:16:16.760 on track, then the back part of the curve should 0:16:16.760 --> 0:16:17.440 actually hold up. 0:16:17.640 --> 0:16:19.680 The only thing that someone could say if they're a 0:16:19.760 --> 0:16:22.120 bearish and Tom would grunt and he would say, oh, 0:16:22.200 --> 0:16:26.040 come on, I can't stand this. The concept of regulatory overhang. 0:16:26.120 --> 0:16:26.160 It. 0:16:26.240 --> 0:16:29.240 Yeah, if perhaps these banks do too well and suddenly 0:16:29.760 --> 0:16:33.280 the supervisors and congress members decry that and try to 0:16:33.280 --> 0:16:36.000 put more constraints on them, is that something you're watching. 0:16:36.560 --> 0:16:38.600 Yeah, it does need to be baked into the models 0:16:38.640 --> 0:16:40.880 for sure, But I would say it's a one time risk. 0:16:41.040 --> 0:16:43.520 That's a one time adjustment that would be that would 0:16:43.520 --> 0:16:45.440 have to be made. And guess what. It's also being 0:16:45.520 --> 0:16:48.520 talked about in the research for pots. But the other thing, 0:16:48.640 --> 0:16:51.320 again that I don't think is yet baked in possibility 0:16:51.320 --> 0:16:53.760 of step a Yel curve, but also the possibility of 0:16:53.880 --> 0:16:56.400 deal activity picking up. I know that in some of 0:16:56.440 --> 0:16:58.560 the results that we're seeing today, you know, there's not 0:16:58.680 --> 0:17:01.720 much to write home about when to IPO volumes. 0:17:01.560 --> 0:17:02.000 Or m and A. 0:17:02.240 --> 0:17:04.560 But I think conditions are starting to be in place 0:17:04.640 --> 0:17:07.600 for capital markets to really open up in the back 0:17:07.680 --> 0:17:10.160 half of the year. So that means more IPO volumes, 0:17:10.320 --> 0:17:12.640 more announced m ANDA deals, which by the way, picked 0:17:12.720 --> 0:17:15.680 up this quarter, more of them getting done, and that's 0:17:15.760 --> 0:17:18.720 positive for banks, it's positive for alternative asset managers, for 0:17:18.760 --> 0:17:21.560 all the PE companies, private equity companies that will have 0:17:21.760 --> 0:17:23.320 the exit opportunities they haven't had. 0:17:23.560 --> 0:17:26.639 Let's get concise. Do you see a second leg of 0:17:26.800 --> 0:17:29.760 the of a bullmarket to a fossil like me, that's 0:17:29.840 --> 0:17:34.200 early nineteen seventy six, and what's an SPX called. Don't 0:17:34.240 --> 0:17:36.640 give me this ninety day garbage that you do give 0:17:36.720 --> 0:17:38.880 me like a one year, two year, three year view. 0:17:39.400 --> 0:17:42.920 I'm scared stiff, I've missed this. I need to participate. 0:17:43.200 --> 0:17:45.359 Do I have a luxury of a second leg of 0:17:45.359 --> 0:17:46.000 a bullmarket? 0:17:46.520 --> 0:17:48.720 I'll give you a six month view of that. 0:17:48.800 --> 0:17:50.760 That's just really reaching out sixtears. 0:17:50.760 --> 0:17:52.600 You know, it's somewhere between the ninety day and the 0:17:52.680 --> 0:17:55.159 one year, But the six month view, I think we 0:17:55.280 --> 0:17:58.760 do push higher towards forty eight hundred on the S 0:17:58.880 --> 0:18:01.280 and P and a little bit more cautious going to 0:18:01.359 --> 0:18:04.040 twenty twenty four, because you know, if we are at 0:18:04.040 --> 0:18:07.320 a point where the real rates do become restrictive, you know, 0:18:07.400 --> 0:18:09.480 at some point we may actually have a downturn in 0:18:09.520 --> 0:18:11.800 the economy. So I don't want to pretrade that. So 0:18:11.920 --> 0:18:13.880 that's why I'm sticking with it. But at some point 0:18:13.960 --> 0:18:16.200 in twenty twenty four we might have to have a 0:18:16.240 --> 0:18:16.960 different conversation. 0:18:17.040 --> 0:18:19.240 It's been a great coach I found this year. Congratulations 0:18:19.320 --> 0:18:21.200 and a stays around myrsite if on capital. 0:18:25.560 --> 0:18:29.320 What we need now is a reset on the American economy. 0:18:29.400 --> 0:18:31.920 She's expert with this, with the acuity out of London 0:18:32.000 --> 0:18:34.960 School of Economics Poosia shir I'm joins just now a 0:18:35.040 --> 0:18:38.120 US economist at Barclays. You got to write a weekend note, 0:18:38.240 --> 0:18:41.200 my deepest sympathies. What's going to be the theme of 0:18:41.280 --> 0:18:47.080 the weekend note? Across the algebra of real GDP, consumer investment, 0:18:47.200 --> 0:18:49.560 government in this oddity of trade. 0:18:50.320 --> 0:18:53.320 Yeah, that's that's a that's a good point. So you know, 0:18:53.440 --> 0:18:58.560 we've we've been seeing very strong consumption spending since the 0:18:58.600 --> 0:18:59.400 beginning of this year. 0:18:59.480 --> 0:18:59.640 Lake. 0:19:00.000 --> 0:19:02.359 You know, Lisa pointed out there's there are signs that 0:19:02.480 --> 0:19:05.440 perhaps the momentum is slowing, but we're still you know, 0:19:05.560 --> 0:19:08.320 fairly high. So just to give you a sense of 0:19:08.359 --> 0:19:12.200 the numbers, you know, we're tracking GDP in the second quarter, 0:19:12.560 --> 0:19:15.040 it's still one point five percent, comes to one point 0:19:15.080 --> 0:19:18.600