Speaker 1: We turn our attention to the markets this week, USCPI endeavors,
Speaker 1: reinforcing concerns about inflation. The financial stories that sheep are
Speaker 1: worth a really different reaction to Mark. It's more indications
Speaker 1: of just how hot the US economy really.
Speaker 2: Is rude the eyes of the most influential voicing.
Speaker 1: Katherine Keating, CEO of b and Y Moan, Ryan Winningham,
Speaker 1: a Bank of America, Sam Zell Charman and founder of
Speaker 1: Equity Group Investment Bloomberg.
Speaker 2: Wall Street with David Weston from Bloomberg Radio.
Speaker 1: Testing the economy, more bank tremors, more FED rate hikes,
Speaker 1: and the unimaginable prospect of a US default. This is
Speaker 1: Bloomberg Wall Street Week. I'm David Weston. This week Stephen
Speaker 1: Ross of Related Companies on Wall Street moving to Miami.
Speaker 3: Miami is probably the most dynamic city in the country today, and.
Speaker 1: Melissa Karney of the University of Maryland on thousands of
Speaker 1: college students gone missing.
Speaker 4: The decline in the Rollman is not an encouraging trend.
Speaker 1: Global Wall Street had plenty to focus on this week.
Speaker 1: As we began the week breathing a sigh of relief
Speaker 1: over resolution of last week's banking crisis over First Republic.
Speaker 1: We are all very pleased to get the major source
Speaker 1: of uncertainty that was remaining from the recent bank term
Speaker 1: all addressed, and that that is a good thing. But
Speaker 1: then Treasury Sector A. Yellen told us that we may
Speaker 1: have less time than we thought to deal with that
Speaker 1: debt ceiling problem. Well, it would be absolutely disastrous for
Speaker 1: me to be completely blunted. And by Tuesday we were
Speaker 1: back to worrying about the banks again, as each day
Speaker 1: seemed to bring news of another regional bank seeking a
Speaker 1: new path.
Speaker 5: It's tumbling right now.
Speaker 4: By forty two, after seeing it's winging strategic options.
Speaker 6: A TD bank has agreed with First Horizon to terminate
Speaker 6: the previously announced merger, which had been agreed upon let's
Speaker 6: be honest before all this turmoil in the banks.
Speaker 1: But despite the problems with the banks and concerns over
Speaker 1: the dead ceiling, the Fed on Wednesday went ahead with
Speaker 1: the twenty five basis point rate hike. It had to telegraphs,
Speaker 1: which here Powell opening the door to a pause, but
Speaker 1: saying that inflation is still with us for now. Inflation
Speaker 1: remains well above our longer run goal of two percent.
Speaker 1: Then on Thursday, the European Central Bank followed suit, but
Speaker 1: said it does not plan to pause.
Speaker 7: In light of the ongoing high inflation pressures. The Governing
Speaker 7: Council today decided to raise the three key ECB interest
Speaker 7: rates by twenty five basis points.
Speaker 1: And if all that weren't enough. On Friday, the US
Speaker 1: jobs numbers came in much stronger than expected, adding another
Speaker 1: two hundred and fifty three thousand jobs last month, though
Speaker 1: they took away some from the month before, and as important,
Speaker 1: the unemployment rate went back down to their record three
Speaker 1: point four percent level and wages increased at a brisk
Speaker 1: pace of five ten percent month over months. Equity markets
Speaker 1: on Friday reversed all or most of all of their
Speaker 1: losses from the rest of the week, with the S
Speaker 1: and P five hundred ending the week off a mere
Speaker 1: eight tenths of a percent, while the NASDAG gained less
Speaker 1: than one tenth of a percent, and the yield in
Speaker 1: the ten year went all the way up to three
Speaker 1: point six percent and then all the way down to
Speaker 1: under three point three percent to end the week just
Speaker 1: about where it started at three point four to three percent.
Speaker 1: To take us through the week, in the markets and
Speaker 1: the economy, welcome back now, Ellen Lee, she's portfolio manager
Speaker 1: at Causeway Capital, and Savita Supermanian she's Bank of America
Speaker 1: ahead of US Equity and Quantitative Strategy. So welcome to
Speaker 1: both you. Great to have you here. Let me start
Speaker 1: with you, Ellen, if I could, Given what we saw
Speaker 1: from the FED, but then from the jobs numbers, what
Speaker 1: do we make of the economy right now and where's headed?
Speaker 6: Well?
Speaker 8: Clearly inflation is still high and FED still has concerns
Speaker 8: around that, and the latest job numbers still indicate that
Speaker 8: there is more slowing down to do. However, what's happening
Speaker 8: with the regional banking devices. I think that will help
Speaker 8: in this effort, but there's still more world to be done,
Speaker 8: as inflation is not quite there, and also the slowdown
Speaker 8: is not at a pace that we would want it
Speaker 8: to be in the current environment.
Speaker 1: So what about you, Savina. We heard about a possible
Speaker 1: pause maybe on Wednesday. Is that still viable after the
Speaker 1: jobs nurbs who saw on Friday?
Speaker 9: I mean, look, I think we're in a data dependent
Speaker 9: environment and the data so far is suggesting we're probably
Speaker 9: not going to see that rate cut that everybody is
Speaker 9: hoping for by the end of the you know, in
Speaker 9: the next couple of quarters. I mean, our view is
Speaker 9: that inflation might remain stickier and higher for the rest
Speaker 9: of the year. I mean, if you look at jobs,
Speaker 9: a big part of the tight labor market is just
Speaker 9: a great resignation during COVID and those folks haven't come
Speaker 9: back yet, so you know, I think it remains tight
Speaker 9: in certain parts of the economy.
Speaker 1: So, Savita, let's talk about the equity markets. You are
Speaker 1: one of our twenty four l's. I'm glad to say
Speaker 1: thank you for being here, and you're so live in
Speaker 1: the middle of the pack. Four hundred dollars on the
Speaker 1: EPs and and four thousand on the SB bus. Yes,
Speaker 1: are you inclined to change that at all? Given what
Speaker 1: we saw this.
Speaker 9: Week, I'm right in the middle of the consensus.
Speaker 5: Elf.
Speaker 9: I guess well, I think we're a little lower than
Speaker 9: consensus on earnings, and I think, if anything, I would
Speaker 9: be inclined to move that higher after what we've heard
Speaker 9: over the last few weeks. I mean, what really impresses
Speaker 9: me about earning season is that guidance has been very
Speaker 9: positive despite every reason that companies have to guide down
Speaker 9: on this year's earnings or next year's earnings, they're actually
Speaker 9: guiding above what consensus is expecting, so I was surprised
Speaker 9: by that optimism. We're also seeing beats across the board,
Speaker 9: not just in you know, technology stocks, but also in
Speaker 9: financials and healthcare. So it's been a very healthy earning
Speaker 9: season relative to what what folks were expecting coming into it.
Speaker 9: I think on the market itself, what I wore about
Speaker 9: is that it's still very tech top heavy, and that's
Speaker 9: the part of the market that I'm actually more concerned
Speaker 9: about from a rate risk perspective.
Speaker 1: Allan what about tech? Tech had been a leader for
Speaker 1: a long time, then it sort of gave up leadership.
Speaker 1: Who's going to lead down?
Speaker 8: I mean, we believe in the next cycle, with you know,
Speaker 8: themes like energy transition and more automation and energy infrastructure
Speaker 8: built and on shoring, we think industrials will be more
Speaker 8: at the head of market leadership, as we are hearing
Speaker 8: not only in the US but also in Europe of
Speaker 8: continuous capex plans because of the change that's needed to
Speaker 8: get us to the next era. And again with interest
Speaker 8: rates where they are, you know, if we believe the
Speaker 8: zero rate con interest rates are not bad, the biggest
Speaker 8: beneficiarias of that actually reside in the tech sector, and
Speaker 8: we don't think that we'll come back, and therefore we
Speaker 8: believe in which was like industrials and energy will lead
Speaker 8: the next valley.
Speaker 1: So what Savita. As you look at equities, are there
Speaker 1: some idiotocratic areas, particularly when it comes to credit, they're
Speaker 1: getting hit worse than others. I mean, everybody's interest rates
Speaker 1: are going up, but it may hit some companies differently
Speaker 1: from others.
Speaker 10: Yeah.
Speaker 9: Absolutely, So, you know, one of the big surprises to
Speaker 9: me is when you look at some of these so
Speaker 9: called defensive areas of the market, like healthcare or telecom,
Speaker 9: the credit risk is actually higher than you would expect,
Speaker 9: whereas energy, materials, commodities, which are typically you know, kind
Speaker 9: of at the epicenter of most credit downturns, are in
Speaker 9: a much better position. They've been deprived of capital for many,
Speaker 9: many years. They've become very disciplined about cash return and
Speaker 9: balance sheets and capital allocation, Whereas the companies that have
Speaker 9: gotten more easy money might not be in as great
Speaker 9: a position to handle this market increase in interest rates. So,
Speaker 9: you know, healthcare was I think it's the fourth highest
Speaker 9: industry in terms of floating rate risk sitting on balance sheets,
Speaker 9: which means they're going to face that move and that
Speaker 9: a lot faster than other sectoris did not.
Speaker 1: Know that quickly here at the n L. And you
Speaker 1: like Europe when it comes to securities. Why is that?
Speaker 8: Well, first of all, europe valuation is much more attractive
Speaker 8: versus us. Secondly in terms of a higher rate, higher
Speaker 8: interest rate environment, that should be advantageous. And thirdly, think
Speaker 8: about the energy crisis that Europe is going through right now,
Speaker 8: and they have to shift their energy infrastructure, which is
Speaker 8: a very strategic element of an economy, so that spending
Speaker 8: is going to continue, and not only that, they are
Speaker 8: leading the efforts on decarbonization, and again that will act
Speaker 8: as a fiscal stimulus for the growth of the economy.
Speaker 8: And again Europe has had very little spending and infrastructure
Speaker 8: the last thirty years. So we think this again will
Speaker 8: work in the favor of companies that are in energy
Speaker 8: and industrials to fuel economic growth in the next decade.
Speaker 1: It's fascinating and I did not know that actually a
Speaker 1: healthcare It's a fascinating voice. Savida, Thank you for bringing
Speaker 1: it to us. Thanks so much to Sevida Supermanian and
Speaker 1: Bank of America, and also Ellen Lee of Causeway Capital.
Speaker 1: It's time now for our weekly look at Wall Street
Speaker 1: Week past. Back in April of nineteen ninety one, the
Speaker 1: number one movie in the US was out for Justice,
Speaker 1: starring Steven Sagau. The number one song was You're in
Speaker 1: Love by Wilson Phillips. And as now, people were worried
Speaker 1: about the banks, with Lewis Rockgeiser to give us taking
Speaker 1: us through the problem as he saw it back then.
Speaker 1: Coming up, where have all the college students gone? We
Speaker 1: talked with Professor Melissa Carney of the University of Maryland
Speaker 1: about the drop off and high school students headed to
Speaker 1: college and what they are missing out.
Speaker 4: That wage premium that college graduates are getting an economy
Speaker 4: is still really high.
Speaker 1: That's next on Wall Street Glee on Bloomberg.
Speaker 2: This is Bloomberg Well Street Week with David Weston from
Speaker 2: Bloomberg Radio College.
Speaker 1: It's been the dream of American students and their parents
Speaker 1: for decades, the proven pathway to better jobs, higher pay,
Speaker 1: and social mobility, and not incidentally, a crucial source for
Speaker 1: the highly skilled workers we need for the next generation.
Speaker 6: And we're talking about what do we have to do
Speaker 6: in order to get our economy going, to make sure
Speaker 6: that we are a twenty first century education system that's
Speaker 6: preparing our children how not just to be employees, but
Speaker 6: how to be employers.
Speaker 1: But the risks and rewards of getting that college degree
Speaker 1: are coming under fresh scrutiny as the cost of getting
Speaker 1: the degree have been rising much faster than inflation for
Speaker 1: both public and private colleges and universities, and the burden
Speaker 1: of barring to pay those costs has been so crippling
Speaker 1: that the Biden administration is trying to forgive a fair
Speaker 1: amount of it.
Speaker 3: Entire generation is now sattled with unsustained death the exchange
Speaker 3: for an attempt at least to a college degree.
Speaker 1: Even a Speaker McCarthy's new budget proposal would cut back
Speaker 1: on pelgrants, which provide financial aid to the most needy.
Speaker 1: The Department of Education shared how the Speakers bill would
Speaker 1: remove up to sixty thousand teachers from classrooms.
Speaker 6: Eliminate student debt relief for more.
Speaker 4: Than forty million Americans, and make college more expensive by
Speaker 4: reducing pelgrants for millions.
Speaker 1: And if all that weren't enough, the COVID pandemic hit
Speaker 1: college students particularly hard, as far fewer high school students
Speaker 1: enroll in college today than before the pandemic, leaving us
Speaker 1: with a critical question whether college is still worth it
Speaker 1: and to take us through whether in fact a college
Speaker 1: degree is still worth it, we welcome now back to
Speaker 1: Wall Street Week Melissa Karney. She is professor of economics
Speaker 1: at Universe and Maryland as well as director of the
Speaker 1: Aspen Economic Strategy Group. So Melissa, great to have you
Speaker 1: back with us. First of all, start with the basic
Speaker 1: question about enrollment. Is enrollment down, If so, how much?
Speaker 1: And is it because of the pandemic or did it
Speaker 1: start before the pandemic?
Speaker 4: Yeah, recent numbers on enrollment rates suggest that enrollment is down.
Speaker 4: This is the sixth year that enrollment is down, so
Speaker 4: it was starting to decline before the pandemic took hold.
Speaker 4: But the pandemic knocked a lot of high schoolers and
Speaker 4: young adults off their college going plans. So we hear
Speaker 4: a lot, David about the learning loss in elementary schools
Speaker 4: and high schools. I think another thing we really have
Speaker 4: to be focused on is how many graduating seniors would
Speaker 4: have otherwise enrolled in college who haven't and they haven't
Speaker 4: come back yet. So this is concerning and how much
Speaker 4: it's the.
Speaker 1: Cost of the whole thing, Because you saw that Wall
Speaker 1: Street Journal poll that said something like fifty six percent
Speaker 1: of Americans don't believe a college degree is worth the price.
Speaker 4: Yeah, that I found those polling numbers really quite troubling. So,
Speaker 4: as you mentioned, a majority, a small majority, but a majority.
Speaker 4: None of the last of American adults now doubt that
Speaker 4: a college degree is worth it, and that is that's
Speaker 4: just emphatically not true. So in general, people who graduate
Speaker 4: with a four year college degree will make back the
Speaker 4: amount of money that, if they made good decisions, that
Speaker 4: they would have paid to get that degree. So a
Speaker 4: college degree is still an excellent investment in one's economic future.
Speaker 4: We know that college degree holders, four year college degree
Speaker 4: holders in particular, have an easier time finding work. They
Speaker 4: command much higher earnings when they do work, even in
Speaker 4: today's tight labor market. But as you mentioned, the price
Speaker 4: is really it's hard to figure out, and so a
Speaker 4: lot of people actually think getting a college degree would
Speaker 4: be more expensive than it would be for them.
Speaker 1: In particular, Melissa, you mentioned the relative lack of transparency
Speaker 1: and exactly knowing what the cost is. It's hard to
Speaker 1: do a cost benefit analysis. So if you want what
Speaker 1: the cost side is, whatever the benefit side is, why
Speaker 1: is it so opaque.
Speaker 4: They have their sticker price, their tuition prices, they're all
Speaker 4: in price. What they charge people who can pay full price.
Speaker 4: That's also what they charge the government for people who
Speaker 4: are paying on behalf of others. But that's not what
Speaker 4: an individual student pays. So about three quarters of students
Speaker 4: at for Your institutions are getting some form of aid,
Speaker 4: and so it's just really hard for students to figure
Speaker 4: out until they've gone through the whole process of applying
Speaker 4: for financial aid, filling out the FACA how much any
Speaker 4: individual school will take. There are a lot of efforts
Speaker 4: underway to make that pricing more transparent so students can
Speaker 4: figure out earlier in the process. But I think the
Speaker 4: real message that needs to get out is that students
Speaker 4: should not be discouraged from applying to flagship schools, selective
Speaker 4: for Your schools because they think they can't afford it.
Speaker 4: They should go through the process. Students who go to
Speaker 4: selective schools, who go to four year degrees seeking, you know,
Speaker 4: degree granting schools, they tend to have better outcomes. Those
Speaker 4: schools often have more resources and are better able to
Speaker 4: serve their students. So students should not be discouraged from applying,
Speaker 4: and they should take advantage of information that's out there
Speaker 4: net cross calculators, information on student on school websites to
Speaker 4: figure out what, on average is a typical student paying
Speaker 4: to attend this school. And by the way, people should
Speaker 4: make smart choices, like public schools charge a lot less
Speaker 4: than private schools. So getting back to why a lot
Speaker 4: of people don't think a school is worth it or
Speaker 4: pursuing a college degree is worth it, you know, you
Speaker 4: could get a lot of really good deals if you're
Speaker 4: looking at public four year institutions as opposed to private,
Speaker 4: especially if you're looking at in state tuition, those net
Speaker 4: prices are much lower for typical students, and people should
Speaker 4: take that into account when they decide where to go.
Speaker 1: So typically in economics, as I understand it, and you
Speaker 1: understand it much better than I do, and supply and demand,
Speaker 1: if the supply stars come down, it might put some
Speaker 1: pressure on the system if in fact we're getting the
Speaker 1: less enrollment. Do you see any indication some of these
Speaker 1: institutions of higher learning are saying, you know, we've got
Speaker 1: to get our act together. We got to be for example,
Speaker 1: more transparent, more direct, and by the way, even give
Speaker 1: a sense over the four years what's going to happen
Speaker 1: in the years, because one issue is how much you're
Speaker 1: going to raise it once I get.
Speaker 4: In unambiguously, the decline in the enrollment is not an
Speaker 4: encouraging trend. Whatever pressures it might put on some schools
Speaker 4: that are losing students, I think the decline in enrollment
Speaker 4: is really troubling because, as we said, a college degree
Speaker 4: really does grant an earnings premium to students who attend
Speaker 4: and complete a four year degree. So the earnings premium
Speaker 4: going to college workers was rising tremendously in the nineteen
Speaker 4: eighties and nineteen nineties when demand for college level skills
Speaker 4: really took off, and the supply of college educated workers
Speaker 4: didn't keep up. Since two thousand, that we premium has stalled,
Speaker 4: but importantly it is still tremendously high. So in a
Speaker 4: typical year, you know, let's just take twenty nineteen before
Speaker 4: the pandemic, you know, someone with a four year college degree,
Speaker 4: on average would make about eighty eight percent more a
Speaker 4: year than a full time, full year worker with just
Speaker 4: a high school degree.
Speaker 1: When you talk about the earnings premium, it surely must
Speaker 1: depend in part upon what you study and what the
Speaker 1: line of work you go into, right, I mean, I
Speaker 1: can just imagine, for example, what the demands are right
Speaker 1: now for technology, and some of the expertise and technology
Speaker 1: are very different from what they were thirty years ago.
Speaker 4: Absolutely, and this is a really important point. So in general,
Speaker 4: even though I'm really emphasizing that a college degree is
Speaker 4: a good investment in one's future, the fact of the
Speaker 4: matter is not all institutions and not all majors deliver
Speaker 4: large earnings premiums. And that again is something that students
Speaker 4: have to take into account and have to make good
Speaker 4: decisions about where they're studying and what they're studying. And
Speaker 4: that information too is now much more readily available than
Speaker 4: it used to be in the past. Students can look
Speaker 4: up what is the typical earning path for someone who
Speaker 4: pursues this major, who attends this institution, and again make
Speaker 4: smart choices.
Speaker 1: So well, as you look at the decline in enrollment,
Speaker 1: what about the demographics of it? Is it affecting some
Speaker 1: people more than others?
Speaker 4: Yeah, the decline enrollment has been much larger among men.
Speaker 4: Than women, which is, you know, women are doing better
Speaker 4: overall when it comes to young women getting college degrees,
Speaker 4: and so this is worrisome. And the pandemic related decline
Speaker 4: was especially pronounced among non white men. Again, this is
Speaker 4: another you know, this is another reason why these trends
Speaker 4: are particularly worrisome. We think a college degree is a
Speaker 4: great engine of upward mobility, and we worry if kids
Speaker 4: from lower income homes, from non white families in particular,
Speaker 4: are the ones who disproportionately had their college going plans
Speaker 4: knocked off track.
Speaker 1: Okay, Melissa, thank you so much for being back with
Speaker 1: us on Wall Streeve. That's Melissa Carney. She's professor of
Speaker 1: economics at the University of Maryland. Coming up, The FED
Speaker 1: told us this week it might just pause, but with
Speaker 1: the jobs numbers, let it pause, We asked Stephanie Flanders,
Speaker 1: she's senior executive editor for Economics and Government on Bloomberg.
Speaker 5: That does tell you something about the underlying strength of
Speaker 5: this economy, and certainly in the labor market, which has
Speaker 5: continued to confound the Fed.
Speaker 1: This is Wall Street Week on Bloomberg.
Speaker 2: This is Bloomberg Well Street Week with David Weston from
Speaker 2: Bloomberg Radio.
Speaker 1: This is Wall Streek. I'm David Weston. It was a
Speaker 1: week full of economic news as well as actions by
Speaker 1: central banks, and to take us through it all, we
Speaker 1: welcome now Stephanie Flanders. She is Bloomberg Senior Executive editor
Speaker 1: for Economics and Government and also the host of Stephanomic.
Speaker 1: So Stephanie, thank you so much for being here. Everything's
Speaker 1: connected to everything else as far as I can tell.
Speaker 1: But let's start with the Federal Reserve decision on Wednesday,
Speaker 1: raising twenty five basis points, not exactly saying what comes next,
Speaker 1: but at least opening the door to pausing. Is it
Speaker 1: justified the idea of a possible pause given where we
Speaker 1: are with the economy in the United States, Well, of course.
Speaker 5: We've ended the week with a really strong employment report.
Speaker 5: You know, we've had ten interest rate increases in a row,
Speaker 5: but now thirteen payrolls numbers that exceeded expectations. And you know, David,
Speaker 5: economists have we expect them to be wrong where they're
Speaker 5: not usually wrong in the same direction every month for
Speaker 5: over a year. So that does tell you something about
Speaker 5: the underlying strength of this economy and certainly of the
Speaker 5: labor market, which has continued to confound the FED and
Speaker 5: made it still quite difficult in trying to balance that tightening,
Speaker 5: that historic degree of tightening in the last year, against
Speaker 5: the sort of justified fears of creeping credit crunch problems
Speaker 5: for regional banks, and you know, still inflation above target.
Speaker 1: Well, let's talk about inflation just for a moment. The
Speaker 1: connection between the strong labor market and by the way,
Speaker 1: including those jobs numbers, were some pretty robust wage gains
Speaker 1: month over month. So as a practical matter, have we
Speaker 1: really got our arms around inflation? Do we have any
Speaker 1: reason to believe that the monetary politis thud a reserve
Speaker 1: thus far is having a material effect, It's having some effects,
Speaker 1: a material effect on inflation.
Speaker 5: Well, I think it is one of those things that
Speaker 5: has the policy makers in the FED wondering, you know,
Speaker 5: has the transmission mechanism that takes these rate increases out
Speaker 5: of the broader economy? Has that broken down? Has it
Speaker 5: become slower than in the past, or is there something
Speaker 5: that's something specific in the sort of post covid Us
Speaker 5: labor market that's causing a delay but not an end
Speaker 5: to that transmission of tighter policies. I think what has
Speaker 5: changed is you have in these problems in the regional
Speaker 5: banking system, which I know we'll probably talk about, you know,
Speaker 5: the failure of yet another bank that is telling you
Speaker 5: that there's something that is very tangible that is going
Speaker 5: to quite shortly has to have an impact on hiring,
Speaker 5: and that's the squeeze in small business lending. You know,
Speaker 5: you mentioned my podcast Stephonomics, and we heard in this
Speaker 5: week's episode actually about somebody who wants to invest in
Speaker 5: a pickleball slash restaurant having trouble getting a loan, a
Speaker 5: small business having trouble getting alone. Now, you know, pickleball
Speaker 5: is a massive phenomenon at the moment. If you can't
Speaker 5: get money for that, I think we know that lending
Speaker 5: conditions are tightening, and that is if small businesses are
Speaker 5: the ones most affected by that kind of lending squeezing out.
Speaker 5: It's tightening up, drying up, and it's small businesses that
Speaker 5: are the source of most job growth. So it may
Speaker 5: not happen this month, it may not happen next month,
Speaker 5: but we do now know that this labor market is
Speaker 5: going to cool and we have to assume that's going
Speaker 5: to bring down inflation, might also cause a recession.
Speaker 1: It's good to the of the original banks and the
Speaker 1: pressure we've seen. We had a Silicon Valley Bank, and
Speaker 1: then you had Signature Bank, and every time we would
Speaker 1: come up, we say, oh, it's really idiosyncratic. It was
Speaker 1: some special failure of the management there. And then we
Speaker 1: had First Republicle that's a different sort of secrecy. This
Speaker 1: week we saw pack West, we saw a Western Alliance.
Speaker 1: It seems like every time we look around there's another
Speaker 1: idiosyncrasy popping up. At what point does it become systemic
Speaker 1: rather than in astocratic?
Speaker 5: Yeah, And I think we're starting to say idiosyncratic is
Speaker 5: if you're a bank that's not one of the big
Speaker 5: four banks in the US at the moment, that's starting
Speaker 5: to feel like the divide because almost every other bank
Speaker 5: at one point or another has been under pressure, and
Speaker 5: almost every other bank in the US may not be
Speaker 5: in the kind of difficulties that we saw, the kind
Speaker 5: of extreme business model, extreme disregard of risk that we
Speaker 5: saw in some of those other cases, but is certainly
Speaker 5: facing a kind of fundamental issue. Inverted yeeal curve makes
Speaker 5: it very severely Inverted yeal curve in the key key
Speaker 5: part of the market between you know, three months and ten,
Speaker 5: you know, that making it hard to make money, and
Speaker 5: this long riding of expectation that you can make profits
Speaker 5: by not passing on short term policy rates at the
Speaker 5: time the time when short term policy rates arising, well,
Speaker 5: that's harder.
Speaker 4: And harder in a world way.
Speaker 5: We know we can have these digital instantaneous massive falls
Speaker 5: falls in deposits.
Speaker 4: And bank runts.
Speaker 5: You know, I think there are questions about quite a
Speaker 5: lot of banks in the US right now, not that
Speaker 5: they're going to survive, but certainly that it's going to
Speaker 5: be quite hard for them to make money in the
Speaker 5: near future.
Speaker 1: Except for the very big ones, as you suggest, they
Speaker 1: seem to be doing very well, Thank you, ma'am. Does
Speaker 1: the FED reserve face a form of a zero sum
Speaker 1: game here where either it goes after inflation with increasing
Speaker 1: rates or it helps the banks by not increasing rates
Speaker 1: or even cutting rates, because part of the problem here
Speaker 1: obviously is an interest rate risk issue that was created
Speaker 1: maybe intentionally, maybe it's a good thing by the rapid
Speaker 1: increase in the rates.
Speaker 5: Well that is, you know, that's how the policy is
Speaker 5: supposed to work in many ways, at least it's not
Speaker 5: aimed at reducing the bank's ability to make money. You're
Speaker 5: challenging its business model, but it certainly aimed at tightening
Speaker 5: credit conditions, reducing lending, and reducing economic activity. As a
Speaker 5: result of that, I think we've got to a point though,
Speaker 5: where the Fed and indeed other central banks are so
Speaker 5: keen to persuade us that they're not going soft on
Speaker 5: inflation as a result in response to these concerns around
Speaker 5: the banks, that there's almost a risk of going the
Speaker 5: other way. You could see that with Jaypowe this week.
Speaker 5: There was absolute determination of that separation principle that we
Speaker 5: are going to continue in our battle against inflation and
Speaker 5: where we have other tools, we're thinking in a separate
Speaker 5: way about the banks, but they obviously can't be completely separated, so.
Speaker 1: Everything you've just discussed would be plenty. But on top
Speaker 1: of that, we had Janet Yell on the Treasury Secretory
Speaker 1: this week saying, by the way, that's so called X
Speaker 1: state when the government will really run out of money
Speaker 1: and not be able to pay its debt, maybe as
Speaker 1: early as June one. We have meetings coming up next
Speaker 1: week of the President with leadership and Congress give us
Speaker 1: a sense of how the debt sealing crisis may play
Speaker 1: across the issues we've been discussing well.
Speaker 5: When we talk about the US economy dodging recession. So
Speaker 5: we're basically saying that it's going to drug off the
Speaker 5: effect of the credit crunch and the smaller lenders that
Speaker 5: I was talking about earlier, but also that we won't
Speaker 5: have some default moment or a big increase in financial
Speaker 5: tension around fears of the default in the next month
Speaker 5: or two. And we think, you know, if that actually
Speaker 5: came to a head, that could have a very significant
Speaker 5: effect on the economy because you know, if you think
Speaker 5: about it, it means overnight the federal government has to balance
Speaker 5: its book, balance its books, and that means very significant
Speaker 5: reductions in spending there and then we don't think it
Speaker 5: will come to that, but the kind of tensions around that,
Speaker 5: I think, you know, do give Janet Yellen and the
Speaker 5: broader banking community. I was in at the Milk And
Speaker 5: Institute earlier this week in LA you know, quite a
Speaker 5: lot of concern under the surface about how this debt
Speaker 5: ceiling issue is going to play out, and some phone
Speaker 5: calls being made to Congress, but no real sense that
Speaker 5: people are getting a hand on it and.
Speaker 1: Finally, Stephan, let's not leave Europe out of it. We
Speaker 1: heard also from the European Central Bank this week, who
Speaker 1: hiked as well, twenty five basis points like the FED,
Speaker 1: but unlike the FED said, you know what, we're going
Speaker 1: to keep going, Madam mcguard was. I thought very clear
Speaker 1: about that. What's the difference between the two economies? And
Speaker 1: can the ECB take such a different route from the
Speaker 1: Fed if the Fed effect does pause, well.
Speaker 5: Of course the European Central Bank started later. It's in
Speaker 5: a very different kind of situation. I think we tend
Speaker 5: to maybe certainly if you talk to people in Frankfort,
Speaker 5: they say we overplay the amounts of which they're watching
Speaker 5: every move of the FED and thinking about their move
Speaker 5: and relation to that. But I mean, I think it
Speaker 5: is the case that that interest rate rise from the
Speaker 5: FED and the talk of possible pause from the Fed,
Speaker 5: you know, it did give some cover to Christine Legard
Speaker 5: and her colleagues at the European Central Bank to reduce
Speaker 5: the amount of increase that they had. So we just
Speaker 5: saw that quarter point. They're slowing the path of interest
Speaker 5: rate rises. She did talk about another two. We think
Speaker 5: it's more likely to be another one that you will
Speaker 5: see a pause in the summer because they have other
Speaker 5: that they're allowing their balance sheet to run off after June,
Speaker 5: so that's a continued form of tightening that they can
Speaker 5: rely on. But you're right that ultimately, if the market's right,
Speaker 5: for example, that the Fed's going to start cutting rates
Speaker 5: the end of this year, that could prove very difficult
Speaker 5: for the European Central Bank because there's certainly a long
Speaker 5: way from cutting.
Speaker 1: Is there a prospect in Europe of having similar difficulties
Speaker 1: with the banks to what we've seen in the United States,
Speaker 1: And given the fact that the UCP has been raising.
Speaker 5: Rates, well, it's interesting, I mean, we haven't got quite
Speaker 5: the same dynamic playing out. You certainly you don't have
Speaker 5: the same inverted yield curve and that kind of pressure
Speaker 5: on profitability of the banks. But on the other hand,
Speaker 5: you have the fact that bank the broader economy is
Speaker 5: much more dependent on bank lending. So a smaller problem,
Speaker 5: a smaller squeeze on the European banking system could have
Speaker 5: actually as large or even a larger effect on the economy.
Speaker 5: So you know, it is something that the European Central
Speaker 5: Bank has to look at we are seeing credit conduct
Speaker 5: conditions sharpened Titan dramatically in the last few months. I
Speaker 5: think that'll be another factor that will cause the European
Speaker 5: Central Bank to pause in the summer.
Speaker 1: Stephanie, thank you so much for being a Wall shery.
Speaker 1: That's Stephanie Flanders. She is Senior executive editor for Economics
Speaker 1: and Government at Bloomberg.
Speaker 10: Let's see why frightened Americans looking at the financial scandals
Speaker 10: of recent years have begun to ask is it safer
Speaker 10: under the matpress. In the past four years alone, more
Speaker 10: than seven hundred and fifty US banks with deposits of
Speaker 10: seventy billion dollars have closed. So far this year, there
Speaker 10: have been twenty two more bank failures, representing assets of
Speaker 10: another twenty five billion. The Federal Deposit Insurance Corporation's Fund,
Speaker 10: which guarantees that depositors won't be left in the lurch,
Speaker 10: has steadily dwindled in recent years. In nineteen eighty five,
Speaker 10: the fund had a dollar nineteen to cover every one
Speaker 10: hundred dollars of deposits. Today it has only seventeen cents
Speaker 10: for one hundred dollars.
Speaker 1: This is Wall Street Week on Bloomberg. This is Wall
Speaker 1: Street Week. I'm David Weston. We've all been talking about it,
Speaker 1: the leaving of major financial firms New York City and
Speaker 1: for them that are from Chicago to go south to Miami.
Speaker 1: Some people who are been calling it Wall Street South
Speaker 1: these days. Well, one person who is ahead of the
Speaker 1: times on this really down there developing particularly commercial real estate,
Speaker 1: is Stephen Ross. He is the founder and chairman of
Speaker 1: Related Companies. So, Stephen, thank you so much for joining us.
Speaker 1: You've got a big new advance in your strategy of
Speaker 1: about commercial real estate down there. Talk to us about
Speaker 1: one Brickle City Center.
Speaker 3: Well, we're very excited, you know, to be here in Miami.
Speaker 3: Miami is probably the most dynamic city in the country today.
Speaker 3: You know, when you look at statistics of where growth
Speaker 3: is occurring, Miami leads the way, or South Florida leads
Speaker 3: the way. And so being able to develop, well, we
Speaker 3: believe to be the biggest building in Miami at a
Speaker 3: location that's Maine and Maine with all the technology and
Speaker 3: all the things that Related puts in their buildings, and
Speaker 3: I think, you know, people were looking to be a
Speaker 3: tenant in a Related building today is evidenced by our
Speaker 3: success in New York and Hudson Yards, which really continues
Speaker 3: to grow as well.
Speaker 1: Now, obviously you're a very big in West Palm Beach.
Speaker 1: This is Miami we're talking about. Now, how does it
Speaker 1: fit into your long term strategy? What comes next?
Speaker 3: Well, I mean, you know right now, I mean, we're
Speaker 3: continuing to build in New York, and we're very excited
Speaker 3: about New York. But Florida is really the growth you know,
Speaker 3: part of the country today and where there's need for
Speaker 3: a class A office space it really needs. And it's
Speaker 3: more than just delivering office space, it's really you know,
Speaker 3: building communities, building cities and making sure that those cities
Speaker 3: have the hospitals, bringing schools and all the amenities that
Speaker 3: new tenants want in relocating to Florida.
Speaker 1: Stephen, thank you so much, really great to have you back.
Speaker 1: That is Stephen Rossy, of course, is the founder and
Speaker 1: chairman of related Companies. Finally, one more thought heavy lies
Speaker 1: the head that wears the crown, and as of this week,
Speaker 1: King Charles the third of Great Britain knows just how heavy,
Speaker 1: like five pounds heavy, but with nearly twenty nine hundred
Speaker 1: diamonds embedded in it. And that's after they cut it
Speaker 1: back for the coronation of George the Fifth and nineteen eleven.
Speaker 1: Before that, the crown was so heavy that no one
Speaker 1: could wear it, so they just carried it around in
Speaker 1: the procession. The British monarchy goes back to at least
Speaker 1: ten sixty six, and its history and tradition are a
Speaker 1: good part of what keeps it going after nearly one
Speaker 1: thousand years. But there are also some very modern aspects
Speaker 1: of this coronation. Take for example, the effects of inflation.
Speaker 1: It is hitting us all.
Speaker 10: Inflation is still too high.
Speaker 4: It's sticky, it's not coming down fast enough.
Speaker 1: And that apparently includes the monarchy, which is cutting back
Speaker 1: in the number of days and the number of people,
Speaker 1: though it is still estimated to cause upwards of one
Speaker 1: hundred million pounds.
Speaker 5: I mean a cost of living crisis. The king has
Speaker 5: asked for the service to beat good value, but with
Speaker 5: a reported one hundred million pound price tag, it's double
Speaker 5: the cost of his mother's.
Speaker 1: King Charles rides in not one but two royal coaches
Speaker 1: for the coronation, the oldest working coach in the world,
Speaker 1: for heading back to Buckingham Palace from the cathedral after
Speaker 1: his crowned. That is the gold State Coach, dating back
Speaker 1: to seventeen sixty. It was first using a coronation in
Speaker 1: the eighteen thirties, but to get to the cathedral, it's
Speaker 1: the much newer, air condition and much more comfortable Diamond
Speaker 1: Jubilee State Coach that Queen Elizabeth had made after she
Speaker 1: found the ride in the old one unbearable back at
Speaker 1: her coronation in nineteen fifty three.
Speaker 5: This coach, beside me, will be a key part of
Speaker 5: the procession going from Buckingham Palace to Westminster Abbey.
Speaker 1: But for all the ancient customs and traditions surrounding the
Speaker 1: British monarchy, the US has some more recent parallels, and Biden,
Speaker 1: for example, has his own sort of state coach. It's
Speaker 1: called the Beasts, made by Cadillac, dating back only to
Speaker 1: twenty eighteen. And we had our own sort of modern
Speaker 1: coronation in New York just this week, not of the
Speaker 1: King of England, but of King Jamie, the first of
Speaker 1: all of US banking, as JP Morgan stepped in to
Speaker 1: rescue what was left the first Republic Bank, making the
Speaker 1: biggest bank in the US even bigger.
Speaker 8: We support and want community banks and regional banks.
Speaker 1: You need big banks too. And finally, King Charles shares
Speaker 1: with another president some of the difficulties in getting whom
Speaker 1: he wants to perform at his celebration, with reports that
Speaker 1: the new King was turned down by Elton John as
Speaker 1: was President Trump back in twenty sixteen morulery he would
Speaker 1: never ordinarry him, But not so. The Italian tenor as
Speaker 1: Andrew Buchelli, declined to perform for the forty fifth president
Speaker 1: of the United States, but answered the call from the new
Speaker 1: King this week because of reportedly his special relationship. But
Speaker 1: then again, King Charles does not have to face an
Speaker 1: election in four years to keep his new job. That
Speaker 1: does it for this edition of Bloomberg Wall Street Week.
Speaker 1: If you missed any part of today's program, you can
Speaker 1: listen on demand with our Wall Street Week podcast. Find
Speaker 1: that on Apple, Spotify, or anywhere else you get your podcasts.
Speaker 1: I'm David Weston. Stay with us. Today's top stories and
Speaker 1: global business headlines are coming up right now.