WEBVTT - Bank Stress, Student Loans, Markets, and Carnival (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.720 Every business day, we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.640 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.040 --> 0:00:23.319 Right now, let's go to the banks. Alison Williams joins us, 0:00:23.360 --> 0:00:26.080 Hermit Chan joins us as well. Alison covers the big banks, 0:00:26.200 --> 0:00:29.000 Herman Chan the regional banks. We had some stress tests 0:00:29.040 --> 0:00:31.560 and they do that for bloom Bloomberg Intelligence. Allison, let's 0:00:31.600 --> 0:00:33.440 let's start with you. What did we learn from the 0:00:33.440 --> 0:00:35.800 stress test results yesterday and what does it mean for 0:00:35.840 --> 0:00:36.600 some of the big banks? 0:00:37.920 --> 0:00:40.600 I mean, really, what we learned from these tests are 0:00:41.120 --> 0:00:45.080 what the firm's capital requirements and their flexibility are for 0:00:45.159 --> 0:00:48.800 the coming year and so these it's sort of interesting 0:00:48.880 --> 0:00:53.199 because last year, based on the result, capital requirements went 0:00:53.280 --> 0:00:56.000 up eighty two one hundred basis points for Bank America 0:00:56.120 --> 0:00:58.680 JP Morgan City. That was very unexpected. They had to 0:00:59.160 --> 0:01:03.040 manage their round sheet to get to those levels. And 0:01:03.080 --> 0:01:05.800 this year we still started the reverse for JP, Morgan, 0:01:05.800 --> 0:01:11.000 Bank America and Goldman Sacks. So really those three banks 0:01:11.360 --> 0:01:14.360 the big winners, if you will, in terms of capital flexibility. 0:01:14.760 --> 0:01:19.360 Their capital requirements are likely coming down of the three 0:01:19.760 --> 0:01:22.720 when we take into account what's happening in early twenty 0:01:22.800 --> 0:01:26.600 twenty four. Goldman looks best, but I think the best 0:01:26.680 --> 0:01:30.039 news that we got was for JP, Morgan, Wells, Fargo, 0:01:30.400 --> 0:01:34.839 Morgan Stanley also a little bit more flexible on capital. 0:01:34.480 --> 0:01:36.080 Whereas City looks worse. 0:01:36.120 --> 0:01:39.160 And the reason why I'm using the term capital flexibility 0:01:39.200 --> 0:01:42.679 and not buybacks is because we still have two a 0:01:42.720 --> 0:01:46.280 couple of things coming. So Basil three endgame is certainly 0:01:46.319 --> 0:01:49.800 one of those, and we think that that as well 0:01:49.800 --> 0:01:52.520 as the uncertainty the economy, which is the other factor, 0:01:52.960 --> 0:01:55.080 is going to keep the banks a little bit conservative 0:01:55.080 --> 0:01:55.720 on buybacks. 0:01:55.760 --> 0:01:57.160 So they have the flexibility. 0:01:57.600 --> 0:02:00.280 We're probably going to see some good deviden increase is 0:02:01.240 --> 0:02:04.760 you know, for everyone except for perhaps City on Friday. 0:02:06.040 --> 0:02:07.720 But the good news is it gives them a little 0:02:07.760 --> 0:02:08.760 bit more flexibility. 0:02:09.000 --> 0:02:11.200 Herman, I want to bring you into this conversation because 0:02:11.240 --> 0:02:14.440 you particularly focused on the regional banks. What did you 0:02:14.480 --> 0:02:15.200 take away from this? 0:02:15.360 --> 0:02:18.440 That's right, So it's pretty much of a different story 0:02:18.440 --> 0:02:22.160 than what Alison just articulated. The regionals are already pausing 0:02:22.160 --> 0:02:27.160 buybacks because of expected tougher regulations on the regionals after 0:02:27.280 --> 0:02:30.520 the fallout from the failures of SVB and Signature and 0:02:30.560 --> 0:02:34.000 First Republic. So the banks are already not buying back 0:02:34.080 --> 0:02:38.560 any stocks on the regional bank side, so they're already pausing. 0:02:39.200 --> 0:02:41.680 So it's a bit of a different story. I would 0:02:41.680 --> 0:02:44.200 say that in terms of the winners and losers for 0:02:44.280 --> 0:02:47.280 the regionals, citizens looks a bit weaker and surprised with 0:02:47.680 --> 0:02:52.120 weaker performance with the higher capital requirements, and M and 0:02:52.160 --> 0:02:55.160 C would be on the positive side with a bit 0:02:55.520 --> 0:02:57.359 better result versus the last year. 0:02:57.560 --> 0:03:01.000 So do we have potentially tougher ahead when it comes 0:03:01.040 --> 0:03:01.840 to the regionals. 0:03:01.960 --> 0:03:02.400 That's right. 0:03:02.480 --> 0:03:05.880 So you would expect higher capital requirements, you would expect 0:03:05.960 --> 0:03:10.120 higher liquidier requirements, and so this is the stressed US 0:03:10.240 --> 0:03:13.919 was really just the first step in a series of 0:03:14.000 --> 0:03:16.120 tougher capital rules that are coming down the pike for 0:03:16.480 --> 0:03:21.720 the regional So it's the outcome of the stressed US. 0:03:21.720 --> 0:03:26.040 This year for the regions was less of a news story, 0:03:26.200 --> 0:03:29.680 but more of the regions are already pulling back, and 0:03:29.960 --> 0:03:32.960 this will just sort of reinforce that fact. 0:03:33.639 --> 0:03:36.240 Allison. What's next for these big banks is they think 0:03:36.240 --> 0:03:39.800 about their capital return strategies going forward. What do they 0:03:39.840 --> 0:03:41.880 need to do and what can they do? 0:03:43.840 --> 0:03:45.840 So I guess, you know, sort of the next event 0:03:45.880 --> 0:03:48.360 will be Friday when some of the banks do announced 0:03:48.400 --> 0:03:53.080 dividend increases. As I said, probably will still conservative on 0:03:53.120 --> 0:03:55.840 buybacks because the next thing, from a regulatory point of 0:03:55.920 --> 0:04:00.440 view is Buzzle three endgame. This is something we've been 0:04:00.480 --> 0:04:05.240 waiting for. We think it probably could come any time now. 0:04:05.800 --> 0:04:10.760 There's been various reports and actually in some testimony of 0:04:10.800 --> 0:04:17.320 how did confirm that the endgame could potentially raise capital 0:04:17.360 --> 0:04:21.160 requirements by twenty percent for these banks. And so keep 0:04:21.200 --> 0:04:23.280 in mind that this the changes will take place over 0:04:23.400 --> 0:04:26.480 they'll be faced in over time. The banks have again 0:04:26.720 --> 0:04:29.440 bigger capital cushions for everybody except for a city. 0:04:29.480 --> 0:04:32.520 Based on the numbers today and. 0:04:34.120 --> 0:04:37.679 With earnings, it's completely manageable. 0:04:39.279 --> 0:04:42.720 Up in here. I mean it just haven't they Aren't 0:04:42.760 --> 0:04:46.080 they over regulated? Aren't they over capitalized? If I'm Jamie Diamond, 0:04:46.160 --> 0:04:49.840 don't just push back and say, all right, great financial 0:04:49.839 --> 0:04:52.480 crisis was a long time ago. Guys, We're much better positioned. 0:04:52.560 --> 0:04:56.560 Just stop, I think Jamie, I mean, he has definitely 0:04:56.640 --> 0:04:58.839 been pushing back, and I think you know, one of 0:04:58.839 --> 0:05:01.320 the things he brought up an Investor Day is something 0:05:01.360 --> 0:05:05.960 I alluded to earlier. Capital requirement is something so critical 0:05:06.000 --> 0:05:08.159 for the banks, and yet it's changing every year. So 0:05:08.279 --> 0:05:12.039 imagine running your business with with sort of a key 0:05:12.160 --> 0:05:15.240 metric of health changing every year. You know, one year 0:05:15.240 --> 0:05:17.080 it's up one hundred basis points, it's down one hundred 0:05:17.080 --> 0:05:17.600 basis points. 0:05:17.600 --> 0:05:21.080 That shows that that the stress test is sort of flawed. 0:05:21.640 --> 0:05:23.600 And then you know several other things that people are 0:05:23.640 --> 0:05:27.400 pointing out in terms of you know, what the test 0:05:27.440 --> 0:05:30.000 measures and what actually happened in March, what the real 0:05:30.040 --> 0:05:34.279 results are. So really the test has only come to 0:05:34.360 --> 0:05:36.880 mean you know, what's the requirement year to year for 0:05:36.920 --> 0:05:39.040 the banks, and you know, maybe there is a better 0:05:39.080 --> 0:05:42.839 way to have sort of a permanent hurdle. And to 0:05:42.880 --> 0:05:46.680 your point, Jamie pushes pushes back on some of the regulation. 0:05:46.960 --> 0:05:49.240 It's just can we have clarity and consistency? 0:05:49.520 --> 0:05:49.840 All right? 0:05:49.880 --> 0:05:53.720 Alison Herman chan Allison Williams, both from Bloomberg Intelligence, giving 0:05:53.800 --> 0:05:55.320 us some a few minutes of their time on this 0:05:55.400 --> 0:05:57.719 important time for the banks, whether the stress test. We 0:05:57.720 --> 0:05:59.839 think forgetting a few minutes for you folks. 0:06:01.400 --> 0:06:04.839 You're listening to the tape. Can's our live program, Bloomberg 0:06:04.880 --> 0:06:08.280 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:06:08.320 --> 0:06:11.479 the iHeartRadio app and the Bloomberg Business App, or listen 0:06:11.520 --> 0:06:13.640 on demand wherever you get your podcasts. 0:06:15.680 --> 0:06:18.640 Jess Mitten and Paul Sweeney Here in the Interactive Broker Studio, 0:06:18.680 --> 0:06:21.160 I want to get straight to our next guest, Jackie Bow, 0:06:21.200 --> 0:06:25.880 who's managing partner at Chatham Financial, joining us on Zoom. Jackie, 0:06:25.960 --> 0:06:28.640 I want to pick your brain about We've obviously had 0:06:28.680 --> 0:06:31.320 a ton of central bankers speaking this week, but we've 0:06:31.320 --> 0:06:34.640 seen continued divergence when we're looking at the inflation numbers. 0:06:34.760 --> 0:06:37.200 When we're looking at the US versus say, what's been 0:06:37.240 --> 0:06:39.640 happening in the UK? Why is there such a stark 0:06:39.640 --> 0:06:40.320 difference there? 0:06:42.360 --> 0:06:44.960 Hi, very good morning. As I think in the UK 0:06:45.200 --> 0:06:48.040 there certainly seems to be an issue with a bit 0:06:48.080 --> 0:06:52.120 more persistent inflation than we've seen in the US, and 0:06:52.200 --> 0:06:54.839 parts of the reason for that is we are nice 0:06:54.880 --> 0:06:57.880 seeing here in the UK evidence of what we call 0:06:58.440 --> 0:07:02.479 a price wage spiral, where those higher inflation numbers that 0:07:02.520 --> 0:07:06.960 we've seen all year are becoming firmly embedded into wages. 0:07:07.560 --> 0:07:09.440 And the data that we had last week in the 0:07:09.520 --> 0:07:12.520 UK and confirmed that, you know, with the service sectored 0:07:12.560 --> 0:07:16.040 inflation in particular, which is much more related to the 0:07:16.080 --> 0:07:19.840 cost of labor, really pushing up the overall inflation numbers. 0:07:20.320 --> 0:07:23.760 So the expectation that inflation would start to come down 0:07:23.800 --> 0:07:26.840 this year that's where Central Bank was forecasting, now looks 0:07:26.840 --> 0:07:28.440 to be overly optimistic. 0:07:29.680 --> 0:07:31.440 All right, So we actually had I'm just looking at 0:07:31.480 --> 0:07:33.440 some of the some of your notes here. The core 0:07:33.480 --> 0:07:35.680 inflation rose from six point eight percent in April to 0:07:36.160 --> 0:07:38.600 seven point one percent in May. That's the highest level 0:07:38.640 --> 0:07:41.840 since nineteen ninety two. What's really driving it for our 0:07:41.840 --> 0:07:42.520 good friends. 0:07:42.280 --> 0:07:46.040 In the UK, Well, I think what the headlines would 0:07:46.120 --> 0:07:48.640 would direct he too, is actually what we're seeing in 0:07:48.760 --> 0:07:51.600 terms of food price inflation. But I think that's a 0:07:51.680 --> 0:07:55.560 bit of a diversion because in fact food, well it's 0:07:55.600 --> 0:07:58.880 food and non alcoholic beverages is the category within the 0:07:58.920 --> 0:08:02.320 index only really makes up about twelve percent of the basket. 0:08:02.840 --> 0:08:06.400 So again that's where all the headline is coming from. 0:08:06.440 --> 0:08:09.120 Food inflation in the UK is high. It's like eighteen percent, 0:08:09.720 --> 0:08:12.280 but that isn't really what's driving it. As I say, 0:08:12.320 --> 0:08:15.520 it's much more becoming embedded through the wages. And if 0:08:15.560 --> 0:08:19.400 you look at where average earnings have been going on 0:08:19.440 --> 0:08:22.200 the wages cycle, that's where we're seeing the more persistent 0:08:22.240 --> 0:08:23.160 impact of inflation. 0:08:23.560 --> 0:08:25.800 So Jackie, does this mean we could actually see even 0:08:25.880 --> 0:08:28.720 higher rates when we're looking at the UK versus other 0:08:28.760 --> 0:08:30.600 major central banks across the world. 0:08:32.280 --> 0:08:34.600 Yeah, for sure. And I think you know the Bank 0:08:34.640 --> 0:08:38.280 of England mood fifty basis points last week, and right 0:08:38.360 --> 0:08:41.400 up until probably two days before the meeting, there was 0:08:41.400 --> 0:08:44.440 an expectation they would raise twenty five and then we 0:08:44.559 --> 0:08:47.760 head back to back that wage data and then ultimately 0:08:47.840 --> 0:08:51.000 that CPI data that you referred to, and they decided 0:08:51.000 --> 0:08:54.160 to move fifty and they certainly have got room to go. 0:08:54.760 --> 0:08:58.000 The market is looking at rates in the UK, you know, 0:08:58.640 --> 0:09:01.800 above six percent, maybe even up to six twenty five, 0:09:02.559 --> 0:09:07.160 and as the Bank of England continue to change when 0:09:07.480 --> 0:09:10.000 we are expecting to get inflation back to targets so 0:09:10.080 --> 0:09:13.400 back to that two percent, the market is becoming less 0:09:13.440 --> 0:09:17.880 convinced that the Bank of England's industry increases or having 0:09:17.880 --> 0:09:19.640 the effect that they need to have on inflation. 0:09:20.120 --> 0:09:23.439 So is there any evidence, Jackie, is there any talk 0:09:24.160 --> 0:09:27.160 within the City of London that maybe Brexit is having 0:09:27.200 --> 0:09:29.760 some impact here on the UK economy that may be 0:09:29.880 --> 0:09:32.240 exacerbating some of the challenges. 0:09:33.559 --> 0:09:36.600 Again, some of the headlines might direct you towards that 0:09:36.720 --> 0:09:39.320 as a reason, but when you dig into the data 0:09:39.360 --> 0:09:43.440 in a bit more detailed, there's really little evidence of that. 0:09:43.480 --> 0:09:46.760 The increased costs at the border, shall we say, is 0:09:47.240 --> 0:09:50.559 adding a small amount to UK goods, both intermedia and 0:09:51.440 --> 0:09:54.040 final goods, but in the grand scheme of where those 0:09:54.040 --> 0:09:56.840 inflation numbers are, it's actually quite minuscule. 0:09:57.760 --> 0:10:00.559 One thing I've been curious about, whether we're talking about 0:10:00.559 --> 0:10:03.199 the Bank of England or the Federal Reserve, is when 0:10:03.200 --> 0:10:05.960 we're looking at these terminal rates, is there a particular 0:10:06.480 --> 0:10:09.160 level where it would get to to where it could 0:10:09.200 --> 0:10:12.080 potentially break the economy lead to a recession or is 0:10:12.120 --> 0:10:15.320 it a particular threshold of leaving it at a particular 0:10:15.400 --> 0:10:17.839 terminal rate for a significant amount of time. That could 0:10:17.880 --> 0:10:20.640 then turn that issue to what could that mean for 0:10:20.920 --> 0:10:24.760 global growth and that particular economy in that point. 0:10:25.760 --> 0:10:29.040 Yeah, and that's an interesting question because I think the 0:10:29.120 --> 0:10:33.120 impact of the higher interest rates across those different markets. 0:10:33.760 --> 0:10:36.720 Is the mechanism by which they feed through to the 0:10:36.760 --> 0:10:40.480 real economy is very different, and part of that is 0:10:40.559 --> 0:10:44.720 the complete structured differences in our mortgage market. So here 0:10:44.760 --> 0:10:47.559 in the UK we basically have what I call an 0:10:47.559 --> 0:10:52.439 adjustable rate mortgage markets, in that people either choose variable 0:10:52.559 --> 0:10:55.440 rates or they choose fixed strates, but for very short 0:10:55.480 --> 0:10:58.520 periods of time, so maybe three, four or five years. 0:10:59.120 --> 0:11:02.360 So as those in rates increase, you have this kind 0:11:02.400 --> 0:11:06.640 of lag effect as households have to refinance their mortgages 0:11:06.960 --> 0:11:10.040 at much higher rates. And that's when you start to 0:11:10.160 --> 0:11:13.080 really get the tightening in terms of consumer budgets and 0:11:13.200 --> 0:11:17.280 discretionary spend every month. And we haven't seen that yet, 0:11:17.800 --> 0:11:21.560 so you know, there's still consumer confidence is still quite high, 0:11:22.120 --> 0:11:25.000 and that's partly related to the strength of the labor market. 0:11:25.400 --> 0:11:28.400 But as those interest rate increases start to really feed 0:11:28.480 --> 0:11:31.880 through into the mortgage market and consumer spending through the 0:11:31.960 --> 0:11:35.000 end of twenty twenty three, then I think the risk 0:11:35.040 --> 0:11:37.080 of recession becomes very real for the UK. 0:11:37.840 --> 0:11:42.320 All right, Jackie, let's jump across the English Channel get 0:11:42.320 --> 0:11:45.000 onto the continent here. What did you hear from ECB 0:11:45.600 --> 0:11:49.960 Central Banker Christine Legard from Portugal this week stand it 0:11:50.160 --> 0:11:52.880 again pretty adamant that there's more work to do there. 0:11:54.200 --> 0:11:56.920 Yeah, I mean, the ECB have absolutely left the door 0:11:56.920 --> 0:12:01.719 wide open for further rate increases. In fact, their guidance, 0:12:02.280 --> 0:12:06.760 I believe has been pretty clear, and part of the 0:12:06.840 --> 0:12:10.160 question about the credibility of central banks and whether the 0:12:10.240 --> 0:12:14.720 markets believe them is really around that guidance that they give. 0:12:15.280 --> 0:12:19.480 So the ECB certainly have more room to go in 0:12:19.559 --> 0:12:23.520 terms of rate increases. Back to your earlier points, where 0:12:23.559 --> 0:12:27.080 that terminal rate peaks out currently looks to be quite 0:12:27.080 --> 0:12:30.640 substantially below where the UK rates will be. You know, 0:12:30.679 --> 0:12:32.320 if you think again, if you go back to that 0:12:32.520 --> 0:12:35.720 six to six twenty five, for the UK euro rates 0:12:35.720 --> 0:12:38.240 are not expected to really go above four percent. 0:12:38.840 --> 0:12:42.560 So can the US economy remain more insulated from what 0:12:42.600 --> 0:12:45.480 we're seeing with these other inflationary factors when we're looking 0:12:46.000 --> 0:12:49.320 beyond the pond? Or is the global economy just so 0:12:49.600 --> 0:12:54.040 interconnected that eventually that could also potentially hurt the US? 0:12:55.559 --> 0:12:57.760 Yeah, I mean, the comments I was making about the 0:12:57.760 --> 0:13:00.960 structure of the mortgage market is quite imported, and obviously 0:13:01.040 --> 0:13:04.160 the US being you know that the agency has been 0:13:04.240 --> 0:13:06.800 such a big part of the mortgage market with people 0:13:06.840 --> 0:13:10.920 taking very long dated fixed strates, that doesn't impact consumer 0:13:11.000 --> 0:13:14.120 spending quite so much. And you know, we've seen inflation 0:13:14.280 --> 0:13:17.480 in the US literally ticked down every single month as 0:13:17.520 --> 0:13:20.200 you you know, you start, it's been very stark that 0:13:20.280 --> 0:13:22.800 the difference between the US and other markets. 0:13:23.360 --> 0:13:24.040 I think for the. 0:13:24.080 --> 0:13:27.200 US in terms of growth and potential risks to the 0:13:27.200 --> 0:13:30.160 growth in the future maybe comes down to a bit 0:13:30.200 --> 0:13:34.800 more about those sort of global relations with China. You know, 0:13:34.920 --> 0:13:38.840 the supply chain that comes from China globally is still 0:13:38.960 --> 0:13:42.360 huge in terms of intermedia and final goods, and if 0:13:42.880 --> 0:13:48.480 those relationships continue to deteriorate and that those products that 0:13:48.520 --> 0:13:51.200 come out into the global market are cut off for 0:13:51.240 --> 0:13:55.880 whatever reason, then you will see issues across global growth 0:13:55.920 --> 0:13:57.520 in the US will suffer from that too. 0:13:57.960 --> 0:13:58.240 All right. 0:13:58.280 --> 0:14:02.040 You put all that together, Jackie, and your responsibility is 0:14:02.080 --> 0:14:05.599 you're Middle East in Africa. Where are you suggesting or 0:14:05.640 --> 0:14:08.240 some of the more attractive opportunities here. 0:14:10.679 --> 0:14:14.040 So I think there's still a price adjustment process happening 0:14:14.160 --> 0:14:17.079 across both the public markets as well as the private 0:14:17.120 --> 0:14:20.520 real asset markets, which is where I'm focused. So a 0:14:20.560 --> 0:14:23.600 lot of the work we do is within commercial, real estate, 0:14:23.760 --> 0:14:27.160 private equity, and it still feels that it we're in 0:14:27.240 --> 0:14:31.440 a risk off situation that there's not a lot of 0:14:32.560 --> 0:14:35.400 not a lot of excitement for new investments, and I 0:14:35.440 --> 0:14:38.720 think that will continue through twenty twenty three. So in 0:14:38.760 --> 0:14:42.080 a risk off situation, of course, that's more positive for 0:14:42.680 --> 0:14:46.600 risk free assets and public bond markets. I do think 0:14:46.680 --> 0:14:50.880 there are some glimmers within other markets where it looks 0:14:50.920 --> 0:14:55.000 like assets are getting undervalued because there's this more sort 0:14:55.040 --> 0:14:57.560 of gloomy outlook, and it might be a case of 0:14:57.880 --> 0:15:00.160 just trying to pick through that debris to find the 0:15:00.200 --> 0:15:02.880 ones that have been unfairly punished. But I think in 0:15:02.920 --> 0:15:05.120 general it will continue to be a risk of few 0:15:05.160 --> 0:15:06.080 for the rest of this year. 0:15:06.480 --> 0:15:09.520 All Right, Jackie Bowie, thank you so much for joining 0:15:09.560 --> 0:15:13.360 us managing partner at chatt and Financial. Bringing it down, Paul, 0:15:13.360 --> 0:15:15.320 As you know, we've gotten so many updates this week 0:15:15.320 --> 0:15:17.760 from these central bankers when we're talking about the Bank 0:15:17.760 --> 0:15:20.120 of England to the Federal Reserve, obviously the Bank of 0:15:20.200 --> 0:15:22.360 Japan as well, So it's going to be really interesting 0:15:22.360 --> 0:15:24.520 because we were just talking about that update to the 0:15:24.560 --> 0:15:25.840 first quarter GDP numbers. 0:15:26.200 --> 0:15:29.320 You're listening to the tape. Can's our live program Bloomberg 0:15:29.360 --> 0:15:32.960 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:15:33.000 --> 0:15:34.960 tune in app, Bloomberg dot Com, and. 0:15:34.920 --> 0:15:36.240 The Bloomberg Business App. 0:15:36.280 --> 0:15:39.120 You can also listen live on Amazon Alexa from our 0:15:39.120 --> 0:15:43.520 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:15:45.400 --> 0:15:47.520 All right, to our next guest, Chris Whalen. He's a 0:15:47.560 --> 0:15:51.240 chairman of Whalen Global Advisors. Chris, You've had a lot 0:15:51.240 --> 0:15:54.560 of experience on the street, worked all over the street. 0:15:54.600 --> 0:15:58.320 You've been, you know, just kind of out there and 0:15:58.400 --> 0:16:01.280 with some really strong opinions. I'd love to get your 0:16:01.280 --> 0:16:04.840 thoughts just kind of what we heard from the central 0:16:04.880 --> 0:16:07.320 bankers this week. It was a week of just central 0:16:07.320 --> 0:16:10.000 bankers speak. We had a big conference over in Portugal 0:16:10.000 --> 0:16:12.720 with the some of the big central bankers here. What's 0:16:12.760 --> 0:16:15.360 your takeaway what we're hearing from again the central bankers 0:16:15.400 --> 0:16:16.040 around the world. 0:16:17.400 --> 0:16:19.440 Well, I think two things they're trying to get back 0:16:19.440 --> 0:16:23.680 on message. The message was central bankers are managing the 0:16:23.760 --> 0:16:28.120 process well and they are hoping and I mean hoping 0:16:28.680 --> 0:16:33.760 that another event does not occur that shakes confidence, because 0:16:33.760 --> 0:16:36.600 that's really what they're about, that's their stock in trade, 0:16:36.680 --> 0:16:40.000 is keeping the public confident that there is a hand 0:16:40.320 --> 0:16:42.480 on the tiller and that we are going in the 0:16:42.560 --> 0:16:46.120 right direction. So I think, you know, for all of them, 0:16:46.200 --> 0:16:49.200 the tough part is there's so much to your conversation 0:16:49.360 --> 0:16:53.720 right liquidity in the system, that the economies aren't really 0:16:53.720 --> 0:16:56.840 slowing down. I mean, look at housing. We're at seven 0:16:56.880 --> 0:17:01.720 percent mortgages and we're still right mortgages mostly purchased. But 0:17:01.800 --> 0:17:05.359 that's okay. You know the world has not ended. 0:17:06.920 --> 0:17:11.040 So then how are you advising your clients to position? 0:17:12.600 --> 0:17:15.520 Well, honestly, I think we are seeing the end of 0:17:15.640 --> 0:17:19.560 the rate increased trade. It's very hard for the FED 0:17:19.600 --> 0:17:22.040 to get rates to go much higher if they're not 0:17:22.080 --> 0:17:26.879 going to sell bonds. It's just technically impossible. So I 0:17:26.920 --> 0:17:30.120 think they are trying to convince everybody that they can 0:17:30.320 --> 0:17:34.000 still raise rates further to address inflation. But I think 0:17:34.080 --> 0:17:38.720 the inflation is largely from non monetary factors. I mean, 0:17:38.760 --> 0:17:41.159 other than the metic cash they dumped into the system, 0:17:41.200 --> 0:17:43.840 which is an issue. And you see the FED being 0:17:43.880 --> 0:17:47.800 criticized by the BIS by a number of people in 0:17:47.840 --> 0:17:51.600 Europe for going big because that's the issue. How do 0:17:51.640 --> 0:17:55.160 you control inflation when you still have trillions of dollars 0:17:55.800 --> 0:17:58.920 in pent up demand and also the cash to meet 0:17:58.960 --> 0:18:01.920 that demand. That, to me is the issue. You don't 0:18:01.960 --> 0:18:04.439 hear people talking about it. Also, a lot of the 0:18:04.520 --> 0:18:08.840 cash slashing around the system is just refinancing of existing debt. 0:18:09.480 --> 0:18:12.199 It does not necessarily drive growth and employment. 0:18:13.280 --> 0:18:15.520 Hey, Chris, you know after the year we all had 0:18:15.560 --> 0:18:18.040 in twenty twenty two where there was just no place 0:18:18.080 --> 0:18:20.800 to hide equities fixed in time, you got crush kind 0:18:20.800 --> 0:18:24.040 of no matter where you were. I can sit into 0:18:24.160 --> 0:18:28.400 your treasury note here four point eighty five percent. Why 0:18:28.400 --> 0:18:30.399 don't I just do that? There's no shame in doing that. 0:18:30.440 --> 0:18:32.160 I can go to the beach play off. What's wrong 0:18:32.200 --> 0:18:32.399 with that? 0:18:33.720 --> 0:18:33.800 No? 0:18:33.960 --> 0:18:36.720 And I did that myself. I took a huge gain 0:18:36.800 --> 0:18:40.240 in video I had gotten in, you know, when it 0:18:40.320 --> 0:18:43.919 was down hundreds of dollars, and I stepped out just 0:18:43.960 --> 0:18:47.200 below four hundred. I had to. It was too big 0:18:47.240 --> 0:18:50.479 in my portfolio. And I still have some exposure. But 0:18:50.840 --> 0:18:54.240 it's a gift. The Fed has given people gifts through 0:18:54.280 --> 0:18:57.400 monetary policy. And to me, you know, to your question 0:18:57.480 --> 0:19:00.199 about what I tell my clients, I'm getting ready to 0:19:00.240 --> 0:19:03.760 shift to the long duration trade last couple of years. 0:19:03.840 --> 0:19:07.080 Who made the money people that were short duration, people 0:19:07.160 --> 0:19:10.560 who bought mortgage servicing, for example. But I think it's 0:19:10.600 --> 0:19:12.080 time to be selling those assets. 0:19:12.160 --> 0:19:18.200 I really do longer duration. What about tech gross stocks, Well, 0:19:18.320 --> 0:19:18.720 I don't know. 0:19:18.760 --> 0:19:20.600 Should I step back into Nvidio for you? 0:19:23.920 --> 0:19:24.119 You know? 0:19:24.160 --> 0:19:26.159 And I love that stock, don't get me wrong, But 0:19:26.200 --> 0:19:28.840 I think as a trader, and it's an investor when 0:19:28.880 --> 0:19:32.840 you're staring at one hundred and sixty percent game to 0:19:32.880 --> 0:19:35.399 your point, right, and I dumped it into T bills. 0:19:36.119 --> 0:19:39.399 I own a lot of bank preferms. I am buying 0:19:39.480 --> 0:19:43.880 at bs now because when rates fall, if you buy 0:19:43.880 --> 0:19:47.359 a ginmy may at seventy five and you start getting 0:19:47.359 --> 0:19:51.280 pre payments at par, that's a beautiful thing, you know. 0:19:51.920 --> 0:19:53.840 So there are some trades out there that I think 0:19:53.880 --> 0:19:56.520 are staring us in the face. But to your earlier 0:19:56.520 --> 0:20:00.960 point about risk in twenty twenty two being a difficult year, yes, 0:20:01.119 --> 0:20:03.879 it was a difficult year because people are so focused 0:20:03.920 --> 0:20:06.959 on short term and they're not looking at the big picture. 0:20:07.520 --> 0:20:10.520 They're not saying where should we be next? So let 0:20:10.520 --> 0:20:12.800 me give you an example. People are getting ready for 0:20:12.880 --> 0:20:18.000 the non performing loan trade again, both in commercial and residential. 0:20:18.359 --> 0:20:20.879 But there's some other interesting things going on in the 0:20:20.920 --> 0:20:24.399 background that I think are very interesting for investors. My 0:20:24.520 --> 0:20:27.879 clients are institutional. I talked to banks, I talked to 0:20:27.960 --> 0:20:32.320 mortgage issuers and reads. So that's my work, and what 0:20:32.359 --> 0:20:35.840 I'm telling them is it's time to position for falling rates, 0:20:36.320 --> 0:20:39.960 higher volumes, but also you know, to be careful of 0:20:40.040 --> 0:20:43.840 things like mortgage servicing. It six times annual cash flow, 0:20:44.160 --> 0:20:48.920 that's a little high. Those assets are more like four. Okay, 0:20:49.200 --> 0:20:51.320 So the Fed has ejected a lot of fluff into 0:20:51.359 --> 0:20:54.240 these markets. JP at one and a half times book, 0:20:54.920 --> 0:20:57.399 is that at a distressed price? No, of course not. 0:20:57.760 --> 0:21:00.800 We just did a piece on Comerica's nothing wrong with 0:21:00.800 --> 0:21:04.320 this bank except for j. Powell. That's the only problem 0:21:04.359 --> 0:21:07.800 with co America, you know, And you have this market 0:21:07.840 --> 0:21:13.320 that's a washing debt. Janet Yellen, we really I think 0:21:13.960 --> 0:21:16.879 in strange times, it's like we wound the clock back 0:21:16.920 --> 0:21:21.040 one hundred years and it's nineteen twenty three and we're 0:21:21.040 --> 0:21:25.040 going through the deflation of the Underworld War One and 0:21:25.280 --> 0:21:29.320 all sorts of speculative craziness around the country. 0:21:29.320 --> 0:21:32.880 As we just got off of the bank stress test results. 0:21:33.200 --> 0:21:35.400 Back in March, we were talking about how New York 0:21:35.440 --> 0:21:38.320 Community Bank was a great stock to own. Do you 0:21:38.320 --> 0:21:39.000 still feel that way? 0:21:39.880 --> 0:21:41.480 Oh yeah, I've been buying more. 0:21:42.359 --> 0:21:42.560 Yeah. 0:21:42.640 --> 0:21:44.600 Baby, it's a great story. 0:21:45.119 --> 0:21:45.320 You know. 0:21:45.560 --> 0:21:48.280 It was a sleepy New York bank that was mostly 0:21:48.400 --> 0:21:52.080