00:00:00 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube. 00:00:27 Speaker 2: What we'd love to do is, particularly at a shop like the Royal Bank of Canada, when we get too aligned and too highly competent, to say the least, it's fun to get them both in the studio just to get a window into the day to day grind. I mean, Paul, I mean you look at Lori Kelvasina, you look at Amy Wos Silverman. They're talking to two different audiences. 00:00:49 Speaker 3: And if I'm a salesman at RBC Capitol, I'm making bank off. 00:00:52 Speaker 2: It's a gift. 00:00:53 Speaker 3: It's a gift anytime. 00:00:54 Speaker 2: Joining us now for the first time ever, Amy was Silverman Lori Kelvasina of the Royal Bank of Canada. Let me just get this out of the way. Are the two of you on speaking terms? 00:01:04 Speaker 4: Well, we talk all the time. 00:01:05 Speaker 5: It's my work wife. 00:01:06 Speaker 2: When you talk about work from the quant area of Amy wou over to your incredible power points showing the texture of the market. What's the number one talking point. 00:01:17 Speaker 6: I think we've been talking a lot about tech lately. I mean it's it's just the conversation you can't get away from. And by that, I mean, you know, sort of the you know, the hyperscalers are mostly in a different sector, to be honest, but the you know, sort of semis and the momentum trade, I think is what we've been largely talking about, and what our work is showing on the semis is that you've hit the average valuation levels if you look at sort of a five or thirty five year average. We had been hearing a lot of clients saying they thought the momentum wine was late innings close to done. It's gone on a little bit longer, frankly than I would have thought. But I would say that's really the genesis of a lot of the conversations of late amy. 00:01:53 Speaker 3: When you for your clients, are they it's a big week for earnings, a big tech week for earnings. How are your clients in need futures and options? Are they leaning into these earnings? Are they saying, like as Laurie said, maybe that a menta thing is kind of coming to an end. 00:02:07 Speaker 7: It's so interesting because ahead of this week, you know, Big four reporting huge concentration. Tom's favorite word, skew. You know, it's pretty flat, meaning people are not really deciding to hedge in front of any of these stocks, which actually fairly sanguine. 00:02:23 Speaker 3: Look. 00:02:23 Speaker 7: Part of that is we already had a big move in sympathy with Alphabet last week, so some of that's taken it off the table. But to give you an example, meta, you know it's implied move on earnings days about seven percent. This thing moves plus or minus ten percent the last four quarters. So the fact that it's an inexpensive move is pretty shocking. 00:02:41 Speaker 2: The magic of you two as your worker bees, I mean, you're out there hugely seeing clients. Do clients have a bet lori on the market right now? Are they placing a bet out into twenty twenty seven? 00:02:52 Speaker 6: You know what's really interesting Tom, and this has gone back a couple of months now, is you know, I go into the meeting and I have my price target and the methodology and five models and YadA YadA YadA, and people do want to talk about the valuation earnings model because that's fairly unique in our process. But by a large time, people don't want to talk about market direction. They want to talk about, let's look at all the sectors, where's their opportunity. There's been this view, I would say, the last couple months, I've had plenty of AI, I've had plenty of tech, I've had plenty of semis. 00:03:20 Speaker 4: What else should I be looking at? 00:03:21 Speaker 6: And frankly, a lot of the choices haven't been that interesting to people. So you get kind of stuck in those. 00:03:26 Speaker 2: Cots over your world. And let's say it's more alternative, more hedge funds, more leverage bets using mathematics. Do they have the same feeling of us? So let's go yes and no. 00:03:37 Speaker 7: There's a little bit of nervousness. For instance, you know last week what we talked about is this whole levered ETF sphere. There's a lot of you know what, tail will wag the dog because we've had you know, my favorite term, the paddling duck on the surface. But you've had these huge multi standard dvtion drawdowns and momentum factor. You have a lot of leverage piled onto these ETFs that are accumulating, and then if you get a burst of correlation. What does that mean to the market. It's a little bit of nervousness, But when you look at the hyperskiller specifically option sentiments, pretty sanguine, Laurie. 00:04:10 Speaker 3: These earnings we've been having over the last several quarters, including this quarter, have been just extraordinary. I mean, it's almost August here. I think I need to start thinking about twenty twenty seven. Are comps going to be like really brutally tough. 00:04:23 Speaker 6: Well, I think in terms of, you know, kind of two Q versus two Q, there's going to be some walkiness. 00:04:28 Speaker 4: But I think the reality is. 00:04:30 Speaker 6: That companies, you know, have done a beautiful job of managing through all the challenges we've you knows, as a society have thrown at them so far. That doesn't always last. And so one thing we've been highlighting to people is that sort of a risk we see in the coming months is at some point you may need to pull down twenty twenty seven earnings forecasts. 00:04:48 Speaker 4: And that's not so much about the comps. 00:04:50 Speaker 6: But it is the idea that you look at the Iran war, for example, the buffers, the inventories, the hedges, those things that are kind of getting you through the next couple quarters where you're going to have to reset those, you're going to have to replenish those. We even heard last week one rail talking about how plastics inventories were starting to be rebuilt. Those are going to be done at higher prices. So I think that you know, kind of the idea of what you were able to manage through this year. If you have lingering impact, next year might just not be so easy. 00:05:16 Speaker 2: Across America this morning and in Canada as well, Amy was Silverman Laurie Kelvisena together from RBC Capital America's Paul Sweeney with the ladies who they lunch the dinner they're in airplane terminals a lot. 00:05:35 Speaker 3: Yep, yep, exactly right. I remember those those days. Amy. Are you surprised that we're not seeing more hedging in your world? I would think on margin we hear about the Wall of Warrior, I would think, we have had a pretty good year here. Earnings can't get any better than this, can they? 00:05:52 Speaker 1: Really? 00:05:53 Speaker 3: Are you surprised? But maybe you're not seeing more hedging at all in your world? 00:05:56 Speaker 7: You know? I try to talk my book and to talk about how hedging is still relative inexpensive. I think there's this element here of people still remember back to April second, they still remember back to Liberation Day. They know there's this kind of cohort of retail who likes to step in, they like to buy the dip. It's changed a lot of relationships in our market. This idea of spot goes up and. 00:06:16 Speaker 4: Volatilely goes up. 00:06:17 Speaker 7: You know, that's a little mind blowing for someone like me who's been in the market when that's not true. But there is that hesitancy. I do think as we kind of cross out of earnings, maybe into mid terms, you start getting more overall correlation and pick up risk, maybe some more geopolitics. That does start to change. 00:06:34 Speaker 3: So I don't know. I mean, I'm thinking about this loric. Are there sectors here? I got to get away from the AI trade at some point? Where do I go? I mean, do I buy financials? Healthcare? Well? 00:06:46 Speaker 6: Look, increasingly, right, AI is penetrating everything you know. Back at our energy conference in June, I went to one day of it and heard a lot about how the energy companies are powering data centers. I mean, but look, I do think that if you look at outside of tech, we've been overweight financials for quite some time. We've been sticking with that, reiterating that the valuations still look reasonable. I wouldn't say they're cheap. Earnings revisions are very strong. And look last week, you know, I was sort of responsible on the team for reading the financials companies, and I was just really struck by all the innovation that's coming out of certain companies, not necessarily just the big banks, you know, but seeing companies talk about things like prediction markets and how that appeals to their client bases. Seeing the retail brokerages talk about this new retail investor and how we've really changed who's participating in the market. There's a lot of really interesting stuff going on in financials besides AI right now. 00:07:39 Speaker 2: Naming the people that you talk to like they're all. The difference here is they all drag maseratis, you know, and fancy cars like that. Laurie's talking to people they got you know, they get the range rope. There's difference here in terms of cars, the fancy people you talk to, like Coop, you know, who's on your Friends and Neighbors on TV? Are they in the market now? Are they cruising through the summer? What's the intensity right now? 00:08:06 Speaker 7: I would say, you know, prior to maybe two weeks ago, there was kind of a positioning clean out, and a lot of people felt like that shakeout was good coming into earnings because it gave people clean slate. Now, I would say, when you look at the flows, people are fairly involved. And I guess one warning signal for me is that both credit, both fixed income, both rates. You know, they haven't been flagging the same awesomeness that you've seen in equity. You really see that in CDs spreads against equity exactly, you know, and that always makes me nervous as an ex fixed income person. I don't know, Tom, you decide who's smarter, but the signals in the market they're currently not telling you the same things. But people are fairly all in on it. 00:08:46 Speaker 2: Now. I totally take that. So this leverage pulled back because they're starting to see whispers in the fixed income market. 00:08:53 Speaker 7: Yeah, I mean, I would say they're not even whispers. They've been fairly loud for quite a long time. You know, people in fixed them are not happy about the denshuents. You see that in the widening CDA spreads. You see that in the change in rates, volatility and obviously Wednesday, we got a big one in terms of what worsh will say even if nothing occurs. So I think that might reprice a few things. 00:09:13 Speaker 3: Tom. Your SpaceX has got a one ten bid premarket. 00:09:17 Speaker 2: Tom. 00:09:17 Speaker 3: So yeah, you're not happy about. 00:09:19 Speaker 2: That, Laura, say to me. She called me up. She said, don't take the eight thousand shares, Laurie. 00:09:25 Speaker 3: What's the market? Just generally speak, when you see a big monster deal like SpaceX come out, trade up initially A boy, it's been really heavy since then. I mean, we got Anthropic presumably going to come public in the fall. As a strategist, what's it tell you about just the new issue marketing? What that doess aboutening? 00:09:42 Speaker 6: So look, I would say for me, you know, I sort of relate this question to market frost and when I think about you know, and unfortunately I just can't really get into the IPO dynamics. But if you go and look at like a lot of different gauges, we see some evidence that the retail investor has looked a little bit frothy if you look at the conference board data on stock market optimism. 00:10:01 Speaker 4: But if you look at things like AAII, if you look. 00:10:04 Speaker 6: At things like CFTC futures positioning. We're not seeing those same signals. So I understand the concerns people have, but I'm not seeing reason to panic across a wide variety of indicators. 00:10:15 Speaker 2: Lerid kevilseen and Amy was silver with us a special treat in the studio together. I mean, you know, they have to you know, I think uh President mister Carney of ottawas involved as well. They can't be in the same room together. A pretty cool treat. Amy. 00:10:32 Speaker 3: We've got a lot of people that have been telling me for a long time that election years, Dicey, you got to be careful here. Are you seeing people maybe? Do you think you're gonna see on your desk people trying to buy some hedge and going into these elections? Is that typically what you see? Or not so much? 00:10:49 Speaker 7: I would say yes this year, I'll tell you we have Laurie and I have been doing quite a few marketing sessions together, and one thing that has been coming up in terms of sentiment change is especially those that midterms isn't going to be about gas prices. It's not necessarily going to be about inflation. It's going to be about anti AI. I remember in one meeting. We step in and the first thing the client asks is, you know, what do you think of this data center moratorium? What does that mean? And so the point I'm trying to make is, look, what if anti AI sentiment becomes more than just an election story becomes a market story. That's something to me that can really reflate correlation in the market because it touches all aspects in the markets. The search protector plugged into itself, right like, we know a lot of these these things have tentacles, and that's something that we're watching quite closely. 00:11:35 Speaker 2: So talk to Laurie now and our audience worldwide amy with Silverman, what do the left and right tell tales? Tell you? Right now? It redound over to Laurie's world of long term investment. 00:11:48 Speaker 7: So one of my favorite Lori charts in the whole world is her four tiers of Fear. And I can tell you that the left tails. 00:11:55 Speaker 2: Let the children to go to bed. 00:11:57 Speaker 4: Yeah yeah, yeah, well that too. 00:11:59 Speaker 7: But you know, we're not pricing in tiers of fear on that left tail, and we're still pricing in kind of exuberance on the right hill. In particular, when you look at some of not semi specifically, but when you look at the hyperscalers that haven't changed that much, and to me, it's interesting when you see that start to flag, then I think that sentimentially, so Laurie is very. 00:12:20 Speaker 2: I concrete would call it the financialization of the system, the amy Will Silverman slice and dice tranches and all that the foundation is still America's nominal GDP over to inflation, and that when you talk to the derivative crews, what do you tell them about the foundation of hers? 00:12:41 Speaker 6: So we do kind of go to this Tiers of Fear page and it's basically Tier one is five to ten percent garden variety, pullback, Tier two, growth scare, Tier three recession, interest rate shock, Tier four. 00:12:51 Speaker 4: We don't talk about those. We all know what those are. 00:12:53 Speaker 6: And you know, we saw this back in March. We did a round of marketing together and we put putting that table in front of people and I said, look, if you don't think recession is on the table, you're sticking to tier one. If you think it's a recession near miss. This was, you know, when the Iran war was still escalating and markets were still falling. I was like, look, if you think it's a growth scare, and we're going to fear recession but not actually have one. 00:13:13 Speaker 4: You go to tier two. 00:13:14 Speaker 6: If you think it's actually a recession, you go to tier three. And the hedge ones kept pointing to tier two and saying, I think at worst it's going to get to this, but we're probably in tier one. And that was probably the most valuable thing we learned in March was that people were nervous, they were watching the market fall, but the fast money was not looking to bake in recession, and that helped us, you know, sort of really understand when the pivot happened that it was really the pivot. 00:13:38 Speaker 3: I don't know either of you two are both are hedge ones net long today or they net short? 00:13:43 Speaker 2: Do you think? So? 00:13:45 Speaker 7: I would say there was this clean out prior maybe like a week and a half two weeks ago, and then I think in terms of flows, most folks have gotten back in and there's a little bit of tentativeness right now because we have a big concentration week. But there was sort of a clean out I would say a week and a half ago where people had taken a lot of risk off the book. 00:14:03 Speaker 6: Really, I think in my world, right, you know, the long only space, you're always invested, right, it's a question of. 00:14:09 Speaker 4: Whether you're up quality or down quality. 00:14:12 Speaker 6: I think it's very funny because I do think, you know, as I've been out on the road talking to the long only is everybody's kind of talking their books. So the people who need rotation to work are in the pro rotation argument, and the growth funds, who are really more all in on the AI trade, you know, are more sort of talking about that's going to bottom out pretty soon. Sound a little bit more like the hedge funds. But I do think, you know, kind of going back to the midterm conversation earlier, It's just coming up in more and more meetings, and I'm not getting a sense of what trades people want to do yet, but they are starting to want to talk about it after a year of not wanting to talk about stuff like that. 00:14:43 Speaker 2: I hope we can do this again. I'm seeing like post Labor Day, this would be fabulous. Lord kelvisena Amy was silverman together from the Royal Bank of Canada. Stay with us. More from Bloomberg Surveillance coming up after this. 00:15:04 Speaker 1: You're listening to the Bloomberg surveillance podcast. Catch US live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch US live on YouTube. 00:15:16 Speaker 3: One of the many reasons why we like our next guest because it's not mince words. See, it's not full punches, particularly when it comes to the Federal Reserve. Take this sentence as an example. It would be incredibly stupid for the FED to raise Rach this year. That's our friend Jay Hatfield, CEO FEDER and portfolio manager Infrastructure Capital Partners. So I guess Jay, tomorrow, you're not expecting to Fed to raise Rachel. You don't think they should? And why or why not? 00:15:42 Speaker 8: Thanks for having me back fall on Tom, Well, what we have right now is essentially the polar opposite of what we had in early twenty twenty one. So then the intra sensitive sectors were exploding with inflation twenty percent year of a year increases, rents up ten reported numbers too, because they're massively flawed, and the FED did nothing and claimed it his transitory. Here we have the situation where rents are flat, housing prices are flat. The thirty year treasuries at six' eighty. There's no inflation coming from the intersensitive sectors, and we just have solely inflation coming from energy, and we completely one hundred percent reject the expectations theory of inflation. Really expectations are deflationary because they raise long term rates and tighten financial conditions. So we think the FED is living in the past at least those supporting increases. 00:16:47 Speaker 2: Yeah, the first paragraph I've seen that actually think these task forces can go. First of all, we're surprised. J Hatfield isn't not a task Yes, start with that expect but you're suggesting that they can actually change the the FED interprets inflation. There's a lot of people that don't agree with that state. 00:17:05 Speaker 8: Well, I would be an extraordinarily bad bureaucrat. So that's a good reason I'm not on those task forces. But the main thing that needs to be done is to reform these horrible, horrible indicies that get put out that are complete fantasy. They believe that portfolio management inflation is twenty two percent year over year. That is just completely okay. 00:17:30 Speaker 2: So the review of this, folks, it's all happened in nineteen forty seven, was codified across the fifties in the sixties, and we're living forty years on to your point, and you want to see very present sensitive inflation statistics right, which you can easily get. 00:17:45 Speaker 8: There's other services that do we put out just adjusting for the complete nonsense, and that's really low. It was too and now it's a little bit above two. But there's even ones that come from pure internet data that are absolutely real time. There's no re and to do surveys that are six months delayed, it's completely incompetent. It's as if you gave market updates that were six months old. 00:18:09 Speaker 2: I mean, how long we do be careful now we do it. 00:18:13 Speaker 3: So your S and P target, you've got a range between eight thousand and nine thousand. What's driving that differential there? 00:18:19 Speaker 8: It's very simple and it's it's all in the numbers, so earning's estimate and you can I get them on the terminal, and you should get them on the terminal because that's consensus. That's the defined consensus have gone up fifteen percent since the beginning of the year. So we seem like we've been inconsistent because we started with an eight thousand target. We raised it to nine. But I remember now I got a C plus and Iranian studies, so I didn't realize the IRGC would fire missiles at the ships right after the Piece agreement. I thought we would kick the count down the road and not agree on the nuclear side. And so that's why we normally don't have two targets. But we're at eight thousand, which is a twenty month multiple, and consistent with treasuries being sort of here like four to seventy five. Every twenty five basis points from a theoretical perspective increases or it decreases the theoretical multiple, so you're twenty three times nine thousan twenty times eight thousand roughly it's actually twenty two and a half now, But so you kind of pick your poison. But earning's estimates are continuing to rise. They're very robust, and so it is a good market. But because of the war, right now, we're just rotating instead of rallying. 00:19:31 Speaker 2: Jay Hatfield with its infrastructure, capital and management here around presumed economic data reped around a FED meeting tomorrow, rept around an earning season as well. I mean, as you know, inventory's advanced because I guess I don't care. Case Schiller will be out here at nine am. What Paul Sweeny will have conference board data at ten am. But you know, Jay, I'm looking at all this and the answer is there's still stimulus one, stimulus two. Olivia Blanchard and others call it the Biden stimulus on the back end, and then further stimulus that we've seen with President Trump in company. Does that end? Does it? 00:20:10 Speaker 8: Ebbel Way, Yeah, I wouldn't really call it stimulus because we believe in unlike Keynesians and crowding out, so it doesn't actually help economic growth. But there's going to be consistent fiscal irresponsibility. We have a track record of that since Bill Clinton was president. He was not, but since then, and so we assume five percent deficits on ongoing basis. 00:20:33 Speaker 2: Do you assume a four percent nominal GDB plus The answer is yes, yes. 00:20:37 Speaker 8: If we get rates down to the neutral rate, which is seventy five basis points lower, should be able to grow at four percent of year. 00:20:44 Speaker 3: In previous life, you had a lot of experience and energy. What's your energy call? These days, we have. 00:20:50 Speaker 8: Been correctly bearish about oil prices. In fact, our target right now is eighty to one hundred, assuming the Strait is closed, and it's like really closed right now, it's completely closed. 00:21:03 Speaker 2: But we're at the bottom of the range. 00:21:05 Speaker 8: And we had been, unlike most others, saying that if Straight reopened, we would rapidly rebuild inventories and we can all re see from the market moves like Straight was open for five days and we got the sixty eight dollars, so we could get the fifty if the Straight reopens, And that is super bullish for more than nine thousand target and the eight thousand target, because then gates start dropping to four, start to pricing rate cuts, and then you get flows into the market. It's kind of a frustrating market because one day it's chips, the other day it's the hyperscaler is the third day it's everything else, and nothing ever really happens to the overall average. 00:21:43 Speaker 3: I got to ask you because it's in your notes and Tom and I are fascinating SpaceX. What do you make of it? I mean, you've been on the banking side, You've taken a. 00:21:52 Speaker 2: Ton of structure. 00:21:54 Speaker 3: Yeah, I'm throwing it at you. What do you make of a company like SpaceX? The fact that it priced it trade and where we're trading today. 00:22:01 Speaker 8: Well, the key insight is guess how you win IPOs? Okay, you pitch really high valuations and then you jam them onto Wall Street. 00:22:11 Speaker 3: It's the former back and then if you're really. 00:22:14 Speaker 8: Smart, you get convinced to NASDAC to include it before the lockups come out. We add a lot of value in our qball ETF because we didn't include SpaceX. So you should have a managed QQQ because they don't have a requirement for a possibility. But so it's going to be Actually, they have great technology, unlike Tesla, which has sort of generic technology, and they are going to be a valuable company. We have one hundred dollars aggressive target and you have a catalyst, which is this lockup. Like that's a ton of stock. Like it's one thing to get the deal done, it's another to absorb the one point five trillion of stock that's come back. 00:22:51 Speaker 2: To Jaffield with a CEO infrastructure with eight nine thousand on spis really appreciated. Stay with us. More from Bloomberg Surveillance coming up after this. 00:23:08 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live weekday afternoons from seven to ten am Eastern. Listen on Apple Karplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube. 00:23:21 Speaker 2: Loor Mayfield with us right now we talk about granular m h. I mean, this is folks. It's like Econobabbel blah blah blah. Her notes are exquisite value perception is between choosing dining and Chili's rather than door dash Chipotle, or getting water instead of a baja a Baja blast mountain dew to wash down those one dollar and currito's at Taco Bell. How about that research. 00:23:53 Speaker 5: You did, Let us free in curritos. 00:23:56 Speaker 2: Let us free in curritos. Are the kids asking for water? Doubt it? They want the baja, the the Baja blast. 00:24:02 Speaker 9: I was going to bring you a Vaja Blast freeze, but the machine wasn't running yet. 00:24:06 Speaker 2: That's okay, We're putting them into the food court here. I mean, the granularity you do is second to none. What does it tell you about the American consumer? 00:24:16 Speaker 9: I think you have to have a granular look at the consumer when you're trying to understand what's happening. The aggregate data just doesn't tell the full picture. There are so many disparate storylines within the aggregate data. You have consumers overall they are seeking value, but that means a very different thing to high income, middle income, low income borrow or low income consumers. 00:24:38 Speaker 5: And it doesn't mean they're not spending. 00:24:40 Speaker 9: We see in the data they are continuing to spend, but that first for value in this in this environment, it looks very different across the income spectrum. 00:24:50 Speaker 3: How are people at the lower end. We talk so much about the case shaped economy, and the lower end of the case seems to be more and more pronounced. How are they funding the data day? Is it just paycheck? The ay check? Is a credit card's not? Are they're doing that? 00:25:01 Speaker 5: I think it's all of the above. 00:25:03 Speaker 9: We're seeing a very scrappy, resilient consumer, as they always are, and they're using all available tools. We've seen an increase in adoption of buy now, pay later options, which by the way, are a great payment method for consumers. 00:25:18 Speaker 5: They don't charge interest. 00:25:19 Speaker 9: The merchant or retailer covers the cost of that, so in some ways it's a favorable alternative to credit cards for consumers. We're also seeing them, i think, use delinquency as a cash flow management tool. 00:25:32 Speaker 5: We're seeing a lot of borrowers, subprime borrowers. 00:25:35 Speaker 9: In the auto loan space fall delinquent, but then live in that state of link delinquency. They can't afford to catch back up the current, but they're also not flowing through to charge off. So I think we're seeing a very scrappy, resilient consumer that's in problem solving mode. 00:25:51 Speaker 2: We are guilty pause, I'm guilty of this. I'm guilty of only talking Lotti DA. You're talking about an America within the phrase flat on their back? What percentage of America is micromanaging the boneless meal deal for two at wing and stop. 00:26:10 Speaker 5: I think it's probably more than you might expect. 00:26:12 Speaker 2: I agree strongly with that half of America. 00:26:16 Speaker 4: Maybe. 00:26:17 Speaker 9: I think when you look at the increase and energy costs, when you look at the Bloomberg's got this great data series on very granular real time consumer spending, and when you look at weeks where gasoline spending has increased just because of the volatility in prices, there you see a direct impact on other categories that are going down, whether that's clothing sometimes even grocery spending. I've seen offset the increase in gasoline spending. I think the consumer, a lot of the consumer is they're they're doing okay, but they're they're really trouble. 00:26:52 Speaker 5: They're problem solving on a day to day basis. 00:26:55 Speaker 3: So in your world of asset BAC securities, where do you see that. 00:26:59 Speaker 5: We see it a cross. 00:27:00 Speaker 9: You know, there are prime consumer receivables in our market, there are subprime consumer receivables in our market. 00:27:06 Speaker 5: We see it a lot in the subprime data. 00:27:08 Speaker 9: We see servicing practices have an outside impact on loan performance across pools. Some of the higher touch consumers require more servicing to get that cash flow to come through because those borrowers, they're choosing which bills to pay and which ones to let slide past the due date. 00:27:25 Speaker 2: Laura Mayfield with this just exquisite here at Port Washington Investment Advisors, granular research like nothing I've seen the phrase paycheck to paycheck. There's like the way we perceive it, and there's even paycheck to paycheck of people making six figures discuss the emotion of paycheck to paycheck. 00:27:47 Speaker 9: Yeah, I think again it comes back to consumers trying to solve for the priority of payments, which I think has evolved over the years. If you remember back to the GFC, we saw consumers prioritize car payments over home payments, and the notion was, you can live in your car, you can't drive your house to work. But I think you know, with the increased cost of living across the board, whether that's housing affordability, rent increases, car expenses, you know, childcare, every category just about has has raised the threshold of what it means to live on a paycheck to paycheck basis. 00:28:26 Speaker 3: The labor market, I guess if we're fully employed economy, so I mean that's a big part of consumer behavior, consumer spending. I guess that's the good news out there as it relates to. 00:28:38 Speaker 9: The consumer, absolutely, and I think that's the critical piece that has helped encourage the consumer to continue spending and aggregate that Conference Board data, which is more a labor force metric, has been stronger relative to the University of Michigan conference. 00:28:53 Speaker 2: I doing ten other questions. You got to come back soon Soonilar Mayfield, Thank you so much. Stay with us more from Bloomberg to coming up after this. 00:29:09 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern. Listen on Apple Karplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube. 00:29:21 Speaker 2: Meredith Whitney with us right now. We're thrilled to have her in here, and I should say shockingly well timed as well. Meredith. I'm going to go back. This is you were in school back then, two thousand and eight. But I look at Visa here and I'm sorry, people don't understand. Back almost eighteen years is up twenty one point six percent per year, and I remember you and your you standing up on a cable screaming by Visa. What is the Visa history and management now where they say we got to lay off seven percent of the people because the rules have changed. 00:29:56 Speaker 10: Well, I mean Visa has been a great demutualization story, right, So the banks owned it, they spun it off. There was a lot of there's a lot of operating leverage achieve and it's just the whole process of cash to to to plastic conversion. But like any large company, you've got to right size. And I think a lot of companies that had that hadn't right size, that had over hired during COVID have to face the reckoning that you know, the only way to achieve operating leverage now is to is to get rid of it, is to downsize. And I think you've seen everybody do it. The banks haven't really done it, but every tech company has done it. That's certainly the they're not They're not an outlier on that. 00:30:42 Speaker 3: I remember the early days of fintech maybe wasuse somebuddy, tell me you want to play fintech, just by v SE, MasterCard. I mean, all the stuff's got a ride on those platforms at some point. 00:30:50 Speaker 10: They were the ogs of fintech way back when. 00:30:52 Speaker 3: Exactly I'm looking at JP Morgan all time high today, I mean, what are these banks and all their stocks have been ripped. I'm looking at the year to date and it's what trailing twelve month performance. Stocks have had great runs. What did bank stocks do? What do banks do when their stocks are trading at are near all time high school? Do they turn cash? Do they buy stuff? 00:31:12 Speaker 2: What do they do? Usually? 00:31:14 Speaker 10: Historically pre Great Financial Crisis, remember the nineties two thousands, when bank stocks valuations were trading at all time highs, they would do transformational deals. There was massive m and a massive consolidation this cycle. Since the crisis, they well, once they got out of you know, effectively regulatory prison, they started buying back shares. They increased dividends to a certain extents, but their favored route was buying back shares. And you would think that makes sense in low the stocks are trading with low valuations, but the banks have still bought back shares at high valuations close to three times. And it's not as if you know, the brokers used to you remember the days they used to buy back shares to offset their stock compensation. They've done that at exponential levels to their stock compensation. So historically you'd think, well, at all time high, all time high valuations, priced to tangible book, they would do some type of M and A, and I say they're just pussy putting around with buy backs and divide increases. I think the one outlier, the one bank stock that has the one bank and one ceo that has the temerity actually do a deal is none other than Jamie Dinald frame. 00:32:34 Speaker 2: An example deal, an what example deal? 00:32:37 Speaker 10: I think when people thought that Jamie Diamond would retire with their new headquarters, that time came and went. He's he wants to do something big, and by big, I don't mean State Street Northern Trust. I think he does something fintech, but major fintech, which is over one hundred and fifteen billion dollar valuation of Revolute. 00:33:00 Speaker 2: Okay, of Revolute is an example. Okay, what you do, folks? So way we rock on YouTube. You can see this when Meredith Whitney walks in the studio. I use the HP twelve c. Apple just hit five trillion dollars. I went back to the beginning of the boom after you know the jobs and all that, just the long tim cook log boom. Of course, from Meredith Whitney, I went logarithmic in even one standard deviation below the long term trend. In June of twenty twenty eight, it hits six trillion. We don't extrapolate like that, do we. We don't. We're so wrapped up in the day to day go to cash and all that. We just don't do simple extrapolations of Visa or Apple. 00:33:42 Speaker 10: Dewey No or the all time greatest stock is Microsoft, right in terms of the all time greatest compounder, which is Microsoft. I mean, I think that we're all so short term and the short term. I mean I took a long term view of the banks. I took over the last few weeks to see what their real earnings power was and how they were growing or how they weren't growing tangible book and most of the earnings growth has been through share buybacks. So if you look at City for example, their tangible equity is below what it was before the Great Financial Crisis, so they've just been buying back shares. Otherwise they would have negative earnings growth. WELLS Fargo has barely grown so ten percent in terms of tangible equity. You know, JP Morgan again an outlier. These guys aren't growing. You know, the outliers are by comparison to a Microsoft or an Apple that have genuine, real earnings growth. The banks just haven't haven't had it, and so they can get it through some transformational deals. But you're sitting in. 00:34:52 Speaker 2: Predicting basically, is that the roll up continues. 00:34:55 Speaker 10: Well, I'm thinking that the other banks don't have will I will be a lady here. They don't have the hood spot to actually lead and do a deal. Whereas I think JP Morgan is the only bank followed by probably P and C that has the real confidence and confidence of the board to lead doing deals, and then others may follow. 00:35:19 Speaker 3: Where are the banks in terms of getting out of the doghouse that they found themselves in after the Great Financial Crisis? Are they completely out? Are they are we back to kind of pre financial crisis in terms of their ability to return capital, make acquisitions just from regular persons. Yeah. 00:35:35 Speaker 10: I think that this is a whole new world. This administration is a whole new world. So JP Morgan and Goldman Sachs got out of the doghouse in twenty ten and started buying back. They were the first, and then Bank America City Wells that was twenty fifteen. But they've been slow and I think, you know, Wells just got over it just got out from under its asset cap. So I think they're out, But I think they've got PTSD. I mean the M and A that occurred during during the financial crisis and right after that financial crisis left a lot of the banks with PTSD. So you look at Washington Mutual and bear Stearns, traumatic for JP Morgan, countrywide, traumatic for Bank of America, and green Sky just an egg on face for Goldman Sacks. So, and you know, Morgan Stanley Great E Trade acquisition, but it's still digesting. 00:36:28 Speaker 2: With the bank were read to go here. But Meredith, within the Meredith Whitney five years or even ten years, do the banks have the profit in free cash flow to still raise dividends and deploy cash to shareholders? 00:36:43 Speaker 10: I think if they did the right thing, I mean, I think that if JP Morgan is an outside, an outlier, but it can. It can if it does something big, which I think it will do absolutely. 00:36:54 Speaker 2: Well, the government constrain them. 00:36:57 Speaker 10: It's up to the E. I think it's more the EU allowing that deal to go inter then the I don't think the US government's going to constrain them. And by the way, this administration with just barely two years, you know, just over two years left, the time is now we. 00:37:10 Speaker 2: Got to run. This has been fabulous Meredith Whitney, thank you so much for joining us today. Meredith Whitney at group here, really really interesting on the banks always and a major shout out to her call on visa literally a decade and a half ago that has been a juggernaut winner for here. 00:37:27 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Easter and on bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal