WEBVTT - Surveillance: Rising Prices with Weinberg 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:30.440 the Bloomberg Terminal, and the Bloomberg Business App. A wide 0:00:30.520 --> 0:00:32.879 ranging conversation. Now with a little bit of red on 0:00:32.920 --> 0:00:36.400 the screen. Here features at negative four Carl Weinberg Joints. 0:00:36.440 --> 0:00:40.160 He's chief economists Aday Frequency Economics and Carl, you had 0:00:40.159 --> 0:00:43.120 such a stunning note and it's off our radar. We 0:00:43.159 --> 0:00:47.680 have not mentioned Japan today, but for our American viewers 0:00:47.680 --> 0:00:51.000 and listeners maybe not schooled in this, guys like you say, 0:00:51.120 --> 0:00:55.960 Japan is really really important and the tension point is 0:00:56.000 --> 0:01:00.160 not yield curve control. In their experiment out to ten years, 0:01:00.520 --> 0:01:03.840 it's a dead out past ten years and that is 0:01:03.920 --> 0:01:08.640 deteriorated priced down and dramatic yield up. What does that 0:01:08.800 --> 0:01:12.760 part tend for Japan? Hi, Good morning, Tom, So the 0:01:12.800 --> 0:01:14.640 Bank of Japan has work to do, the end of 0:01:14.680 --> 0:01:17.240 the fiscal year is now just a few weeks away 0:01:17.319 --> 0:01:21.040 March thirty first, and there are substantial capital losses on 0:01:21.080 --> 0:01:24.080 what I'll call the ultralong segment of the JGD market, 0:01:24.280 --> 0:01:26.319 the part where they haven't been trying to control the 0:01:26.360 --> 0:01:29.680 yiel curve. So those yields are up about seventy basis 0:01:29.720 --> 0:01:31.560 points compared to where they were at the end of 0:01:31.600 --> 0:01:36.640 the last fiscal year, and that implies oh between thirty 0:01:36.720 --> 0:01:40.000 and sixty trillion yen worth of capital losses, which are 0:01:40.040 --> 0:01:41.959 big enough to wipe out the balance sheets of a 0:01:41.959 --> 0:01:44.720 lot of the institutions. So the Bank of Japan and 0:01:44.720 --> 0:01:46.720 the Finance Ministry are going to be out there in 0:01:46.880 --> 0:01:50.080 size over the next few weeks buying up this asset. 0:01:50.200 --> 0:01:53.560 Encouraging by the asset, they're going to move the market lower. 0:01:53.800 --> 0:01:56.160 They'll do it, but it'll be quite a challenge for them. 0:01:56.200 --> 0:01:58.800 How close are they, and I don't mean to an 0:01:58.800 --> 0:02:05.240 absolute the bond market, but on a trendline or a 0:02:05.240 --> 0:02:08.960 glide path to owning the bond market. Where is the 0:02:09.000 --> 0:02:12.160 Bank of Japan? Maybe use a baseball analogy. Are they 0:02:12.160 --> 0:02:15.520 in the third inning or the eighth inning of buying 0:02:15.680 --> 0:02:19.680 every bond that's issued in Japan. Well, at the short 0:02:19.800 --> 0:02:22.160 end of the Yale curve between out to ten years, 0:02:22.240 --> 0:02:25.240 they own I think the number is about sixty five 0:02:25.400 --> 0:02:27.800 to seventy percent of the market. And then at the 0:02:27.880 --> 0:02:31.080 ultralong end they own a lot less because their target 0:02:31.120 --> 0:02:34.280 has been to control yields from overnight out to ten years, 0:02:34.520 --> 0:02:36.680 so they still have scope to buy at the ultralong 0:02:36.800 --> 0:02:39.560 end of the market. But yes, you're right, and Bank 0:02:39.600 --> 0:02:43.600 of Japan Governor designatet Uleta said this in testimony the 0:02:43.639 --> 0:02:46.920 other day. The boj can't buy bonds forever and some 0:02:47.000 --> 0:02:49.560 point this has to come to an end. When it does, 0:02:49.639 --> 0:02:52.440 there will be capital losses in the bond market, and yes, 0:02:52.560 --> 0:02:57.960 I think that will imply that will generate some institutional risk. 0:02:58.280 --> 0:03:00.959 The odd monetary experiment of Japan aside, the rest of 0:03:01.000 --> 0:03:04.200 the world is grappling with deeply entrenched inflation, at least 0:03:04.200 --> 0:03:06.320 by all accounts, and what we saw this morning out 0:03:06.320 --> 0:03:09.400 of Europe with respect to Germans nine point three percent 0:03:09.480 --> 0:03:13.000 February CPI read year over year. Carl, you've ascribed to 0:03:13.040 --> 0:03:15.880 this idea that we will see inflation rollover, perhaps at 0:03:15.880 --> 0:03:18.640 prices stabilize at a higher rate. How do you hold 0:03:18.760 --> 0:03:22.200 that conviction if we're just not seeing it in the data. 0:03:22.320 --> 0:03:24.320 You know, let me let me frame my handswer in 0:03:24.400 --> 0:03:27.960 terms of the interview that you just a broadcast with 0:03:28.200 --> 0:03:30.399 mister Noggle. All right, I was so glad to see 0:03:30.480 --> 0:03:34.920 him talk about quantitative tightening. All Right, the inflation adjusted 0:03:35.000 --> 0:03:37.600 money supply in Europe is still four and a half 0:03:37.640 --> 0:03:40.120 percent higher than it ought to be given the current 0:03:40.200 --> 0:03:42.960 level of output in recent trends. So sure, there's too 0:03:43.080 --> 0:03:46.160 much money chasing too few goods, and that's pushing up prices. 0:03:46.600 --> 0:03:49.120 I view this as a price adjustment that will run 0:03:49.160 --> 0:03:52.360 its course when real money supply is deflated back to 0:03:52.360 --> 0:03:55.640 where it should be by a combination of quantitative tightening 0:03:55.880 --> 0:03:58.440 and by rising prices. So we still have more price 0:03:58.520 --> 0:04:01.400 increases to go, but there is an end insight to 0:04:01.480 --> 0:04:04.600 this process. This is not the spiraling inflation that we 0:04:04.600 --> 0:04:07.280 saw in the seventies. I don't think interest rates matter 0:04:07.400 --> 0:04:09.720 nearly as much to the ECB and to the course 0:04:09.720 --> 0:04:13.920 of inflation in Europe as quantitative tightening does. So aside 0:04:13.960 --> 0:04:15.920 from just to understanding the quantitative tightening, which I do 0:04:15.960 --> 0:04:17.800 want to get into, since that is something that's being 0:04:17.880 --> 0:04:20.680 raised by the German Central banker, how much are we 0:04:20.720 --> 0:04:23.800 looking at what you view as an overreaction by central 0:04:23.839 --> 0:04:27.719 banks to something that is perhaps stickier but not inevitably 0:04:27.839 --> 0:04:32.279 protracted and spiraling. Well, I think that they're chasing the 0:04:32.320 --> 0:04:34.880 wrong thing with higher interest rates, which is not to 0:04:34.920 --> 0:04:37.280 say that I don't think this rise in interest rates 0:04:37.360 --> 0:04:39.600 isn't a good thing in the longer run. We've had 0:04:39.720 --> 0:04:43.200 negative real interest rates in Europe since the financial crisis, 0:04:43.320 --> 0:04:45.720 and it's time to straighten that out so that investment 0:04:45.760 --> 0:04:48.520 doesn't get misallocated and so the economy can grow in 0:04:48.560 --> 0:04:51.159 a healthy way. That's a good outcome here. But as 0:04:51.160 --> 0:04:54.480 they move much beyond two hundred basis points or three 0:04:54.560 --> 0:04:58.560 hundred basis points above inflation expectations, it'll become restrictive and 0:04:58.600 --> 0:05:01.520 they'll start to make recession that are already going on 0:05:01.760 --> 0:05:03.920 even worse. Carl, You know, and I could go for 0:05:03.960 --> 0:05:08.000 two hours this morning on your wonderful heritage of Latin America, 0:05:08.040 --> 0:05:10.839 which is falling apart, Argentine pay so, but I really 0:05:10.839 --> 0:05:13.400 got to stay on Europe. Here. A lot of people 0:05:13.440 --> 0:05:17.000 publishing right now and cooling commerce banking modelity to Bono 0:05:17.160 --> 0:05:21.440 over at Pantheon, and Carl, the basic idea is, Look, 0:05:21.600 --> 0:05:25.360 there's EU inflation, and I know our listeners and viewers 0:05:25.360 --> 0:05:28.960 are saying, do we import that what happened? Do we 0:05:29.080 --> 0:05:33.480 bring their inflation at the margin over to give us 0:05:33.520 --> 0:05:38.159 a lesser disinflation? Well, I mean, surely at the margin. 0:05:38.360 --> 0:05:40.720 You know, what happens in Europe does transmit to us 0:05:40.720 --> 0:05:43.680 through trade prices and other forms of arbitrage. But it's 0:05:43.720 --> 0:05:46.919 really quite at the margin. The price increases we're seeing 0:05:46.920 --> 0:05:50.200 in the United States are coming about, in my opinion, 0:05:50.279 --> 0:05:54.159 because we've got excessive cash balances in the United States. Also, 0:05:54.520 --> 0:05:57.600 cash balances are over two trillion dollars higher than where 0:05:57.640 --> 0:05:59.640 they ought to be given trends in the growth of 0:05:59.640 --> 0:06:03.800 the and and until that gets sorted out by a 0:06:03.920 --> 0:06:07.400 one time rise in prices and or by quantitative tightening, 0:06:07.520 --> 0:06:09.720 we're still going to see prices going up here. That's 0:06:09.920 --> 0:06:12.640 that's the main event. That's the show. Tom, Carl, thank 0:06:12.640 --> 0:06:21.720 you so much. Carl Weinberg have frequency economics, senior investment 0:06:21.760 --> 0:06:25.480 strategist at Edward Giants. Let's start with this equity market. 0:06:25.520 --> 0:06:30.120 You like quality growth? What is quality growth? Yeah? Hi, John, 0:06:30.160 --> 0:06:32.960 thanks so much. You know, look, I think we started 0:06:33.000 --> 0:06:36.000 this year looking at a market that was driven by 0:06:36.080 --> 0:06:39.440 better than expected economic data. We saw strong January jobs 0:06:39.480 --> 0:06:42.120 or poor we saw better than expected retail sales, and 0:06:42.160 --> 0:06:45.320 we certainly saw inflation at least towards the back half 0:06:45.320 --> 0:06:48.160 of last year's starting to move lower. But I think 0:06:48.320 --> 0:06:51.680 the trade into what we'd call more cyclical parts of 0:06:51.680 --> 0:06:54.680 the market probably happened too fast, too soon earlier on 0:06:54.760 --> 0:06:57.920 this year. So to your question, as we get through 0:06:57.960 --> 0:06:59.600 this year, we need to see a couple of things 0:06:59.600 --> 0:07:03.200 before we can kind of revisit that recovery playbook or 0:07:03.200 --> 0:07:05.560 that cyclical playbook. We would still need to see one, 0:07:05.600 --> 0:07:08.440 of course, inflation move meaningfully lower. Two, we'd like to 0:07:08.440 --> 0:07:11.160 see the Fed actually step to the sidelines at some point, 0:07:11.240 --> 0:07:14.080 probably middle of this year. And then three, we are 0:07:14.120 --> 0:07:17.080 starting to see earnings being revised meaningfully lower. At this 0:07:17.080 --> 0:07:19.960 point for twenty twenty three, we haven't seen that bottom yet. 0:07:20.120 --> 0:07:23.000 So until those conditions are in place, we'd say probably 0:07:23.000 --> 0:07:25.239 the market is going to take a more defensive tilt. 0:07:25.280 --> 0:07:28.160 We could see continued volatility, but at some point when 0:07:28.200 --> 0:07:30.720 those conditions are met, maybe towards the back half of 0:07:30.720 --> 0:07:33.960 this year, we do think that investors should think about 0:07:34.000 --> 0:07:37.400 diversifying into those more recovery parts of the market. That 0:07:37.440 --> 0:07:41.680 includes quality growth that means growth that is not negative 0:07:41.720 --> 0:07:45.440 earnings yielding, probably not as speculative parts of the market. 0:07:45.800 --> 0:07:48.480 And then of course areas like cyclicals, even parts of 0:07:48.520 --> 0:07:51.800 small caps international interesting as well. So all part of 0:07:51.800 --> 0:07:54.800 a recovery playbook that could happen down the road. Money. 0:07:54.800 --> 0:07:57.720 You've got a wonderful single sentence in your note which 0:07:57.760 --> 0:08:01.240 I totally agree with, which extrap lation right now is 0:08:01.320 --> 0:08:05.640 very dangerous to your net worth if it's an extrapolate 0:08:05.800 --> 0:08:09.320 free two thousand and three, if you have a faith 0:08:09.440 --> 0:08:13.000 to be in the market, how far are you reaching 0:08:13.200 --> 0:08:16.160 over to the next horizon? Are you looking out a year? 0:08:16.720 --> 0:08:20.240 Or dare I say, is the new extrapolation out to 0:08:20.400 --> 0:08:24.680 three years? That's interesting? John and Tom? Sorry, and to 0:08:24.720 --> 0:08:27.040 your point, you can call me Lisa as well. That's happen. 0:08:27.960 --> 0:08:30.600 I love all three of you. So I do think 0:08:31.240 --> 0:08:35.599 January data it's very dangerous, as you noted, to extrapolate 0:08:35.640 --> 0:08:38.520 the strength we saw, certainly in the labor market, certainly 0:08:39.000 --> 0:08:41.320 in the consumer to the rest of the year. You know, 0:08:41.440 --> 0:08:43.920 keep in mind the labor market does tend to be 0:08:44.440 --> 0:08:47.120 one of the lagging indicators. You know, we have leading indicators, 0:08:47.120 --> 0:08:50.000 we have coincident indicators, then we have lagging indicators, and 0:08:50.040 --> 0:08:52.200 the labor market tends not to usually be the first 0:08:52.320 --> 0:08:55.320 shoe to drop, perhaps towards one of the last shoes 0:08:55.360 --> 0:08:58.240 to drop. But to your question on time horizon, we 0:08:58.320 --> 0:09:01.920 do still think a twelve month time horizon, although we've 0:09:01.960 --> 0:09:04.280 been talking about twelve to twenty four months because that's 0:09:04.280 --> 0:09:07.120 really when we can see this cycle go through a 0:09:07.120 --> 0:09:09.760 bottoming process and then markets can then start looking towards 0:09:09.800 --> 0:09:13.840 a recovery process. And we do think, you know, investors 0:09:13.880 --> 0:09:17.240 have a very unique opportunity in the twelve months ahead, 0:09:17.280 --> 0:09:19.640 and that you know, we know beer markets don't happen 0:09:19.679 --> 0:09:23.320 all that often, one every four to five years. But 0:09:23.559 --> 0:09:26.079 in history, the good news is every beer market has 0:09:26.200 --> 0:09:28.880 ended in every beer market has been followed by a 0:09:28.960 --> 0:09:31.760 potential bull market. So we look out twelve to twenty 0:09:31.760 --> 0:09:34.840 four months, we do think investors are position for better 0:09:34.840 --> 0:09:37.760 opportunities ahead. What's the leadership going to be in that 0:09:37.840 --> 0:09:41.560 next bull market? Yeah, it's a great question. And look, 0:09:41.640 --> 0:09:44.439 I think when we look the last ten years or so, 0:09:44.679 --> 0:09:47.880 the ten years after the financial crisis, that was an 0:09:47.960 --> 0:09:51.280 environment that was characterized by bed funds rate towards the 0:09:51.360 --> 0:09:55.160 zero bound. Growth outperformed value for much of that period 0:09:55.200 --> 0:09:58.400 because investors were pushed out the risk spectrum. We think 0:09:58.400 --> 0:10:02.239 about the next ten year curator, so we don't necessarily 0:10:02.320 --> 0:10:05.240 see yields back at the zero pound. Certainly the Fed 0:10:05.280 --> 0:10:07.040 funds rate could go from this five five and a 0:10:07.040 --> 0:10:11.760 half percent back to more neutral territory. But in that environment, 0:10:11.800 --> 0:10:14.560 we do think investors have to consider a balance between 0:10:14.640 --> 0:10:19.600 value and growth and think about a more diversified picture 0:10:19.679 --> 0:10:23.200 and leadership going forward. So that's interesting for the next 0:10:23.320 --> 0:10:26.240 longer term period. I do think over the next twelve 0:10:26.280 --> 0:10:28.520 to twenty four months or so, we think we'll go 0:10:28.559 --> 0:10:32.120 from a more defensively oriented tilts from more offensively oriented tilt. 0:10:32.160 --> 0:10:34.680 As we noted earlier, that recovery playbook does come into 0:10:34.720 --> 0:10:38.080 play when we use this word defense. I discussed this yesterday. 0:10:38.120 --> 0:10:40.640 I'd love your insight on it be hugely valuable. To me. 0:10:41.400 --> 0:10:43.880 Defense is usually just what works when things are bad. 0:10:44.640 --> 0:10:47.560 And last year defense was energy because that's what works 0:10:47.640 --> 0:10:52.319 when things were bad. What is defense in twenty twenty three. Yeah, 0:10:52.720 --> 0:10:54.920 And it's a great point because the energy is not 0:10:55.080 --> 0:10:57.319 usually always the defensive part of the market, but we 0:10:57.440 --> 0:11:02.719 think more traditional defensive sectors healthcare staples in particular, if 0:11:02.760 --> 0:11:05.440 we do go into any sort of economic downturn, slow 0:11:05.480 --> 0:11:09.040 down those sectors which have underperformed thus far this year, 0:11:09.559 --> 0:11:13.160 we may see some you know, some interests and some 0:11:13.240 --> 0:11:16.640 more leadership come out of that more traditional recession proof 0:11:16.800 --> 0:11:19.400 and even to some extent inflation proof part of the market. 0:11:19.600 --> 0:11:22.440 What's interesting, I think this time around, defense is also 0:11:22.760 --> 0:11:27.280 your shorter duration CD one to two year treasury bond 0:11:27.920 --> 0:11:31.200 space as well. Of course, what's notably different this cycle 0:11:31.400 --> 0:11:35.440 is that cash and cash like instruments are yielding anywhere 0:11:35.480 --> 0:11:38.679 from four to five percent plus, and that is an 0:11:38.760 --> 0:11:41.640 environment where, you know, if investors do want to hang out, 0:11:42.200 --> 0:11:45.760 think about a recovery playbook, but in the meanwhile put 0:11:45.760 --> 0:11:49.680 their money in very attractively yielding assets. That is a 0:11:49.720 --> 0:11:51.520 place that we're seeing a lot of defense right now. 0:11:52.120 --> 0:11:56.200 This was great as always. Manahajan of Edward johnsna Mahajan 0:11:56.320 --> 0:12:10.920 on defense and basically, Kesh, let's get to this right now, 0:12:10.960 --> 0:12:13.720 and it's perfect time. He's been digesting this. German Data 0:12:13.760 --> 0:12:17.000 Global Head of macro Strategy, Wells Fargo, Michael Schumacher joins 0:12:17.080 --> 0:12:21.880 us this morning, Mike is well, forget about transitory, but 0:12:21.960 --> 0:12:24.840 are we get are we moving away from disinflation to 0:12:25.000 --> 0:12:32.080 actual price stability or outright inflation very sticky inflation time. 0:12:32.080 --> 0:12:33.839 And I think that's really the challenge. I think the 0:12:34.160 --> 0:12:38.080 point about Germany and core Europe reacting viscerally to inflation 0:12:38.160 --> 0:12:41.160 is excellent talking to clients over many, many years. That's 0:12:41.200 --> 0:12:45.040 always been the big fear in Germany for obvious historical reasons. 0:12:45.080 --> 0:12:47.640 So this just doesn't work. It doesn't fly, whether it's sticky, 0:12:47.720 --> 0:12:51.000 whether it's accelerating, it's just simply too high. Mike. When 0:12:51.000 --> 0:12:52.839 you look at what's taking place in a bond market 0:12:52.880 --> 0:12:55.440 off the back of this, it's been orderly so far 0:12:55.760 --> 0:12:58.920 in places like Italy, and Mike, Lisa, Tom and myself 0:12:58.960 --> 0:13:01.840 we all talked about this moments ago. If you told 0:13:01.920 --> 0:13:03.920 us that this ECB was going to go to four, 0:13:03.960 --> 0:13:06.520 I think we would all have said, the Italian bondmark 0:13:06.640 --> 0:13:08.040 is not going to survive that. Mike, We're going to 0:13:08.080 --> 0:13:10.320 have real trouble. Mike. Have you've been surprised by the 0:13:10.320 --> 0:13:12.520 stability on the periphery and are we getting to a 0:13:12.559 --> 0:13:15.000 point in your mind where things could become a little 0:13:15.000 --> 0:13:18.760 bit more troublesome. It has been surprising John, and I 0:13:18.840 --> 0:13:21.880 think the comments about fragmentation, about the periphery, we haven't 0:13:21.920 --> 0:13:24.000 heard much about them in the last month or two, 0:13:24.480 --> 0:13:26.760 and I think now it's because the ECB has the 0:13:26.800 --> 0:13:28.920 main challenge right in front of it. It simply has 0:13:28.920 --> 0:13:31.000 to get inflation down. It's going to have to tolerate 0:13:31.080 --> 0:13:34.400 some volatility and peripheral spreads. It's a little bit surprising 0:13:34.480 --> 0:13:36.400 as and come up previously, but I think that's why 0:13:36.400 --> 0:13:38.960 it's not There is a larger issue though, Mike. We 0:13:38.960 --> 0:13:42.000 were talking for years about how we couldn't really exit 0:13:42.320 --> 0:13:45.480 the zero rate regime, this negative rate regime without more ripples, 0:13:45.520 --> 0:13:48.320 without more consequences in financial markets. Now we're talking about 0:13:48.360 --> 0:13:50.480 a four or five six percent regime, depending on which 0:13:50.520 --> 0:13:53.040 nation you look at, and we're not seeing the ripples 0:13:53.040 --> 0:13:57.560 in terms of difficulty and borrowing questions around the validity 0:13:57.559 --> 0:14:01.240 of stock valuations in any kind of existential level. What's 0:14:01.280 --> 0:14:03.960 going to cause this to change at a time when 0:14:04.040 --> 0:14:06.440 people seem to be just resetting their understandings of the 0:14:06.480 --> 0:14:11.640 interest rate sensitivity of this global economy. I think it's 0:14:11.640 --> 0:14:13.720 going to happen les says a couple of things. Number 0:14:13.720 --> 0:14:16.600 one is governments are going to have some difficulty over time, 0:14:16.640 --> 0:14:20.320 but not yet. And secondly, when you think about corporate borrowers, 0:14:20.720 --> 0:14:22.920 there's a bit of a leg function. Probably takes a 0:14:22.960 --> 0:14:25.960 couple of quarters for corporate to fall rates to go 0:14:26.000 --> 0:14:28.160 up meaningfully, but it's very likely going to happen here 0:14:28.200 --> 0:14:30.040 in the US. You probably look at something like a 0:14:30.080 --> 0:14:32.280 seven percent to fall ready, for instance, in high yeal 0:14:32.360 --> 0:14:34.680 this year. That's material, but it takes a while to 0:14:34.680 --> 0:14:37.480 get through the system. We've been talking about how difficult 0:14:37.480 --> 0:14:40.120 it is to really game out the macro data and 0:14:40.120 --> 0:14:43.080 then to understand what the market's reaction would be to 0:14:43.120 --> 0:14:46.320 set macro data. When you take a look at inflation 0:14:46.400 --> 0:14:50.000 coming in hotter than expected on consecutive days France, Spain 0:14:50.120 --> 0:14:52.720 and now Germany, what do you do with that information? 0:14:52.840 --> 0:14:55.080 How much does that shift your view or your trades 0:14:55.120 --> 0:14:59.240 that you're recommending. Yeah, for us, one thing we've been 0:14:59.240 --> 0:15:00.880 looking at quite a bit, as you can imagine, is 0:15:00.960 --> 0:15:03.800 relative pricing for the various central banks, So for instance 0:15:03.840 --> 0:15:08.000 ECB versus FED, and usually we'd fade the ECB, and 0:15:08.160 --> 0:15:10.840 right now you just can't do it. So I've been 0:15:10.840 --> 0:15:12.960 more in the camp the ECB would not deliver. But 0:15:13.080 --> 0:15:15.840 after seeing this parade of very nasty inflation prints, I 0:15:15.840 --> 0:15:18.560 think you've got a lean towards the ECB. Going fifty 0:15:18.640 --> 0:15:20.800 this month is virtually a lock, and fifty next month 0:15:20.840 --> 0:15:23.520 looks more and more likely, So very tough to fade 0:15:23.480 --> 0:15:25.640 Thec'd be very tough to fade the euro. Right now. 0:15:25.800 --> 0:15:28.000 Let's take that further. Do you think there's more chance 0:15:28.040 --> 0:15:31.240 the ECB gets the four than the Fed getting to six? 0:15:33.640 --> 0:15:35.720 Tough call. I'd give the Fed the edge there, John, 0:15:35.880 --> 0:15:37.800 So if you look at market pricing now it's called 0:15:37.840 --> 0:15:40.360 a twenty percent probability. Look at an option pricing the 0:15:40.360 --> 0:15:41.760 FED as it six at the end of the year, 0:15:41.880 --> 0:15:44.040 so a little bit higher than that in terms of 0:15:44.160 --> 0:15:47.280 terminal rate. I'd leaned slightly toward the Fed. But it's 0:15:47.280 --> 0:15:49.400 a tough call right now. Wow, the fact that that's 0:15:49.440 --> 0:15:53.000 even a tough call, just that conversation, not even sitting listen. 0:15:53.520 --> 0:15:56.920 Four is ridiculous. Six is nuts. But ra actually taking 0:15:57.000 --> 0:15:59.120 that seriously just tells you where we are. My shoemaker 0:15:59.120 --> 0:16:06.000 of Weils FACA, thank you, Mike. As alwaysa we speak 0:16:06.040 --> 0:16:10.200 with jam Securities. Devin Ryan with years of following the 0:16:10.240 --> 0:16:13.480 travails of Wall Street, Devin, I know you memorized all 0:16:13.480 --> 0:16:15.840 one hundred and eighteen pages. You know what I did. 0:16:15.880 --> 0:16:19.120 I went to the money chart. It's on page sixty eight. 0:16:19.880 --> 0:16:24.400 Enterprise Partnerships, disciplined growth, and the Hope and a Prayer 0:16:24.560 --> 0:16:28.760 out two years is on the consumer area. The net 0:16:28.800 --> 0:16:33.760 revenue goes up and the change in net reserves comes down. 0:16:33.840 --> 0:16:36.560 The Hope and a Prayer is a two year path 0:16:36.760 --> 0:16:40.280 to a better consumer bank. Were you sold on that? 0:16:40.480 --> 0:16:46.800 Were you convinced yesterday? Eight morning? Tom? So? Yeah, it's 0:16:46.840 --> 0:16:50.080 a it's a it's a road here that it's gonna 0:16:50.080 --> 0:16:52.320 be a little bit complicated on consumer. But you know, 0:16:52.440 --> 0:16:54.200 I think you have to give them some credit. You know, 0:16:54.200 --> 0:16:57.560 they had their first yesterday three years ago. They hit 0:16:57.600 --> 0:17:00.320 all their targets they laid out there, you know, least 0:17:00.320 --> 0:17:05.400 in terms of ROE and efficiency ratios and the key drivers. 0:17:05.440 --> 0:17:07.760 I know we're talking about consumer here, but the key 0:17:07.840 --> 0:17:09.960 drivers are what they're doing in the investment bank and 0:17:10.040 --> 0:17:14.040 asset management, and consumer is one piece. It looks like 0:17:14.080 --> 0:17:16.840 they're gonna look at some strategic alternatives there and maybe 0:17:16.920 --> 0:17:20.000 even look to sell some of those assets. But Yeah, 0:17:20.000 --> 0:17:21.840 we think they're going to hate their targets as they 0:17:21.840 --> 0:17:24.560 did over the last three years. So I feel pretty 0:17:24.600 --> 0:17:27.760 good about that. Is there an Eaton Vans out there 0:17:27.800 --> 0:17:34.160 to buy? How do they jump start this olive fortress? Gorman? Yeah, so, yeah, 0:17:34.240 --> 0:17:37.080 they've been doing some small talking asset manager acquisitions. You know, 0:17:37.119 --> 0:17:39.960 really the big focus in asset management is in alternatives, 0:17:40.600 --> 0:17:43.160 and you know, they've already raised you know, pushing two 0:17:43.240 --> 0:17:45.800 hundred billion dollars of the last a few years here. 0:17:45.800 --> 0:17:48.960 They're going to raise another fifty billion or so over 0:17:49.000 --> 0:17:51.760 the next two and so they're seeing you know, thirteen 0:17:51.800 --> 0:17:57.280 percent revenue growth KAGER on their asset management fees and 0:17:57.440 --> 0:17:59.240 I think that's going to continue here. So they've made 0:17:59.240 --> 0:18:01.919 a really credible pitched there. I don't think they need 0:18:01.960 --> 0:18:04.879 to do inorganic things, but yeah, I think they're going 0:18:04.960 --> 0:18:06.879 to look opportunistically. That is an area where I think 0:18:06.880 --> 0:18:08.159 they could look to do some M and A and 0:18:08.240 --> 0:18:10.919 Tevin at times he was described as getting flustered. You 0:18:10.960 --> 0:18:15.160 were there, How would you describe his performance? Yeah? I think, well, 0:18:15.200 --> 0:18:17.159 first off, you know, the stocks up one hundred and 0:18:17.160 --> 0:18:20.320 ten percent since the beginning of twenty nineteen. You know, 0:18:20.359 --> 0:18:22.520 he took over in twenty eighteen, so they've they have 0:18:22.520 --> 0:18:24.440 two x the SMP, so I think I've got to 0:18:24.440 --> 0:18:25.840 give him a little bit of a passer, and they've 0:18:25.880 --> 0:18:28.520 hit their targets over the last three years. I think 0:18:28.520 --> 0:18:31.399 he's frustrated with some of the narrative in the market, 0:18:31.440 --> 0:18:33.720 and I think the company's sharing more than I've ever 0:18:33.720 --> 0:18:36.600 given before. And you know, they're not hating everything, and 0:18:36.640 --> 0:18:39.719 I think they're they're clear that you know, there's been 0:18:39.760 --> 0:18:42.880 some missteps here, and I think that's frustrating the pushback 0:18:42.920 --> 0:18:46.680 that they're getting. But he did mention that their partner headcount, 0:18:47.080 --> 0:18:49.640 you know, the turnover there is it a low since 0:18:49.680 --> 0:18:53.240 twenty fourteen, and their employee turnover is it a five 0:18:53.280 --> 0:18:55.240 year low. So they're not seeing a mass exodus in 0:18:55.280 --> 0:18:58.000 any way. And you know, again, their book values grown 0:18:58.200 --> 0:19:00.680 what was forty percent since their last invest today, and 0:19:00.720 --> 0:19:03.720 the stock has outperformed the SMP by more than two 0:19:03.840 --> 0:19:06.159 x since that day. So I think they deserve a 0:19:06.200 --> 0:19:08.000 little bit of a past year. And I do think 0:19:08.040 --> 0:19:10.480 they're executing, just not hitting on all cylinders. It's just 0:19:10.560 --> 0:19:12.639 in the problem is that they're not Morgan Stanley, and 0:19:12.720 --> 0:19:16.640 he's not James Coleman. Yeah, well, listen, I mean Morgan Stanley. 0:19:17.080 --> 0:19:21.080 You know, there's only one Smith Barney, Morgan Stanley. It 0:19:21.240 --> 0:19:23.440 did that deal, and that's been kind of a transformational 0:19:23.480 --> 0:19:26.399 opportunity for them, and they've made some good decisions and 0:19:26.440 --> 0:19:29.200 so yeah, Morgan Stanley is outperformed in some areas. I think, 0:19:29.320 --> 0:19:31.399 you know, Goldman Sachs is saying, listen, we've outperformed in 0:19:31.440 --> 0:19:34.280 a lot of other areas, and so, you know, I 0:19:34.320 --> 0:19:37.400 think it's a slightly different business mix, and the last 0:19:37.400 --> 0:19:40.240 few years, the business mix has definitely been towards Morgan 0:19:40.280 --> 0:19:43.200 Stanley's favor. But the Goldman Sachs, you know, they had 0:19:43.200 --> 0:19:46.040 a phenomenal outperformance in twenty twenty one, did better than 0:19:46.080 --> 0:19:48.399 anyone else in the industry. Twenty twenty two, you know, 0:19:48.400 --> 0:19:50.760 we're talking about the most recent year. Twenty twenty two 0:19:51.320 --> 0:19:54.440 was a really tough and I would argue abnormally difficult 0:19:54.480 --> 0:19:56.920 backdrop and we get some mean reversion. I think Goldman 0:19:56.920 --> 0:19:59.200 Sachs will be right back in the in the running 0:19:59.240 --> 0:20:02.040 and people probably stop giving David Saloman a hard time. 0:20:02.320 --> 0:20:05.439 There have been a lot of discussions about repairing some 0:20:05.480 --> 0:20:07.840 of the mistakes that Goldman Sachs is perceived to have 0:20:07.960 --> 0:20:10.640 been made and this is really focusing on the consumer 0:20:10.840 --> 0:20:14.440 banking unit. There was a discussion yesterday about finding strategic 0:20:14.560 --> 0:20:17.960 alternatives for a number of different units, including green Sky, 0:20:18.040 --> 0:20:20.880 the specialty lender, as well as the credit card partnerships 0:20:20.880 --> 0:20:23.880 with Apple and others. Do you think that this is 0:20:23.920 --> 0:20:26.120 a good move on their part. Do you think that 0:20:26.320 --> 0:20:29.560 trying to offload big parts of that consumer credit business 0:20:29.960 --> 0:20:32.560 is the way to go? You know, I think that 0:20:32.720 --> 0:20:36.080 based on new directive and consumer which is to be 0:20:36.280 --> 0:20:40.240 more profitable and more targeted, it makes sense. Obviously you 0:20:40.320 --> 0:20:42.560 have to have the right buyer and right transaction if 0:20:42.560 --> 0:20:44.600 that's what they're going to do. Yeah, but I think 0:20:44.600 --> 0:20:47.560 Goldman in their ethos came up yesterday. But you know, 0:20:47.560 --> 0:20:49.680 when they have a bad trade, they normally don't sit 0:20:49.760 --> 0:20:51.879 on it. And I think this is a situation where, 0:20:52.240 --> 0:20:54.280 you know, they get a little bit of mode by 0:20:55.119 --> 0:20:57.320 making a mistake in this one area, but they need 0:20:57.359 --> 0:20:59.840 to move on and get themselves in the best position. 0:21:00.000 --> 0:21:01.560 And this is a small part of the story in 0:21:01.840 --> 0:21:05.240 our thesis. But I do think that, you know, potentially 0:21:05.320 --> 0:21:08.000 looking to exit some of those businesses could make sense 0:21:08.080 --> 0:21:09.960 at the right price, and it will just kind of 0:21:10.000 --> 0:21:12.880 take away also some of this I think overhang that's 0:21:12.880 --> 0:21:15.719 getting more attention than you probably deserves, but that they 0:21:15.720 --> 0:21:18.080