WEBVTT - Earnings, Fed Decision and Recession in View 0:00:01.360 --> 0:00:05.680 This is Bloomberg Business Wait inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business, finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:19.000 Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio. 0:00:20.040 --> 0:00:22.960 All right, let's talk about the markets. What are the champions, 0:00:22.960 --> 0:00:26.319 what are the nots? What are not maybe in this 0:00:26.360 --> 0:00:28.160 week's trade. I feel like there's a lot coming up 0:00:28.200 --> 0:00:31.080 next week, Matt. We've got the FMC meeting, We've got 0:00:31.120 --> 0:00:33.360 several Central banks meeting, and then of course you've got 0:00:33.400 --> 0:00:34.000 some big. 0:00:34.240 --> 0:00:35.280 Tech earnings next week. 0:00:35.320 --> 0:00:36.760 So I feel like there's going to be a lot 0:00:36.800 --> 0:00:38.960 that can shape the trade absolutely. 0:00:39.120 --> 0:00:42.680 And we still have you know, it's not all about earnings. 0:00:42.720 --> 0:00:45.200 We still have economic data that's going to keep pouring 0:00:45.240 --> 0:00:48.680 out from the pmis that are going to be key 0:00:48.760 --> 0:00:52.279 next week to more housing data. So there's a lot 0:00:52.320 --> 0:00:53.040 to follow along with. 0:00:53.080 --> 0:00:54.720 All right, so let's get to it. And you mentioned 0:00:54.760 --> 0:00:57.400 strategists who are continuing to kick up their s and 0:00:57.440 --> 0:01:00.880 P forecasts. Bloomberg News Economics editor Molly Smith is with 0:01:01.000 --> 0:01:03.360 us on the phone in New York City. Bloomberg Intelligence 0:01:03.480 --> 0:01:06.039 Chief Equity strategies. Gina Martin Adams with us on Zoom 0:01:06.120 --> 0:01:08.000 in New Jersey. Gina, I do kind of want to 0:01:08.480 --> 0:01:12.040 start with you though, in terms of the earnings flow, 0:01:12.480 --> 0:01:15.119 how that's playing out, and what you're seeing in terms 0:01:15.120 --> 0:01:16.520 of the equity trade reaction. 0:01:17.800 --> 0:01:20.399 Yeah, it's been a really interesting earning season so far. 0:01:20.520 --> 0:01:23.480 Only about a fifth of companies have reported in the index. 0:01:23.560 --> 0:01:25.440 Most of those are financials. We're about a third of 0:01:25.440 --> 0:01:29.319 the way through the financials reporting season. The net results 0:01:29.360 --> 0:01:31.920 of every of the reports so far as that earnings 0:01:31.959 --> 0:01:34.720 are largely tracking a bit better than expected. Instead of 0:01:34.760 --> 0:01:36.560 down about nine percent, they're down about eight and a 0:01:36.600 --> 0:01:39.360 half year over year, and that is including all the 0:01:39.400 --> 0:01:41.800 companies that have reported, as well as those companies that 0:01:41.880 --> 0:01:43.000 have yet to report. 0:01:43.280 --> 0:01:45.440 So we're down but not as bad as but not 0:01:45.520 --> 0:01:47.000 as down as much as everyone says. 0:01:47.120 --> 0:01:50.120 Yeah, it's very early, and the price reactions, Dana frankly, 0:01:50.280 --> 0:01:52.880 is really bizarre. When you look at the average price reaction, 0:01:53.000 --> 0:01:56.640 it's much worse than the average across the board to 0:01:56.680 --> 0:01:58.840 a beat, to a miss, to whatever it is, which 0:01:58.840 --> 0:02:00.880 would suggest it's just too early to draw a ton 0:02:00.920 --> 0:02:03.920 of conclusions. And the companies that missed on both the 0:02:03.920 --> 0:02:07.120 Bottoman top line were actually up more than the market, 0:02:07.280 --> 0:02:10.639 so it's there's just a lot of confusion so far. 0:02:10.680 --> 0:02:12.200 I think it's just too early to draw a ton 0:02:12.240 --> 0:02:13.160 of conclusions. 0:02:13.639 --> 0:02:16.079 So when are we going to know? What are the 0:02:16.120 --> 0:02:18.560 sort of bell Weather reports that you're looking forward to? 0:02:19.320 --> 0:02:21.280 Yeah, well, next week you get forty percent of the 0:02:21.280 --> 0:02:23.200 market cup of the index reporting, so by the end 0:02:23.240 --> 0:02:25.480 of next week we'll go from twenty percent having reported 0:02:25.520 --> 0:02:27.799 to sixty percent, so we'll get a ton of context 0:02:28.000 --> 0:02:32.280 next week. Obviously, the highest expectations are in the market 0:02:32.440 --> 0:02:35.680 are for the largest stocks in the market, as well 0:02:35.720 --> 0:02:37.560 as tech, and we get a lot of those next week, 0:02:37.600 --> 0:02:41.079 including Microsoft and Google, which I think will be two 0:02:41.080 --> 0:02:44.560 of the most interesting companies to watch. Sorry, Alphabet, I'm 0:02:44.600 --> 0:02:48.520 showing my teams there. Nonetheless, nonetheless, I think those will 0:02:48.520 --> 0:02:50.800 be two of the most interesting companies to report your 0:02:50.880 --> 0:02:54.240 Microsoft in particular, strading out a really big premium, has 0:02:54.240 --> 0:02:56.760 a potential dollar tailwind that not a lot of people 0:02:56.800 --> 0:02:59.440 are talking about, but also has a lot of AI 0:02:59.560 --> 0:03:03.320 risk and lot of optimist and optimistic sort of sentiment 0:03:03.400 --> 0:03:05.680 imbedded in that price, So we'll see how they can 0:03:05.720 --> 0:03:07.400 contend with those expectations. 0:03:07.520 --> 0:03:09.320 Yeah, we've got a guest coming up before the close 0:03:09.360 --> 0:03:11.560 that is keeping his eye on the dollar and thinks 0:03:11.600 --> 0:03:14.120 that is certainly important, especially when it comes to kind 0:03:14.120 --> 0:03:18.280 of earnings in those companies at US, companies that sell overseas. 0:03:18.480 --> 0:03:22.680 Molly Smith come on in FOMC meeting July twenty six. 0:03:22.800 --> 0:03:25.240 Pretty much a done deal in terms of a quarter 0:03:25.280 --> 0:03:26.440 point hike. 0:03:27.440 --> 0:03:30.959 That's the expectation, Carol. Yeah, I can't really imagine anything 0:03:30.960 --> 0:03:34.200 that would happened between now and then that would derail that. 0:03:34.480 --> 0:03:37.360 Of course, famous last words there, but really it would 0:03:37.360 --> 0:03:40.400 be the shock of the century if something through that 0:03:40.480 --> 0:03:42.960 off date. So we does get a little bit more 0:03:43.000 --> 0:03:47.400 interesting data wise after Wednesday, when the Fed meets, we'll 0:03:47.400 --> 0:03:50.880 get a first look at second quarter GDP, and then 0:03:51.040 --> 0:03:54.600 on Friday, one of the Fed's favorite wage measures comes out, 0:03:54.600 --> 0:03:58.280 that Employment Cost Index also for the second quarter, and 0:03:58.360 --> 0:04:01.720 we'll get a look at Said's favorite inflation measures, a 0:04:01.960 --> 0:04:05.160 PCE index. So a lot of exciting things Wednesday through 0:04:05.160 --> 0:04:06.320 Friday coming up next week. 0:04:06.680 --> 0:04:09.080 But they're still on track. I mean, the dot plot 0:04:09.080 --> 0:04:11.560 shows they need to raise two more times and more 0:04:11.600 --> 0:04:15.160 and more. In the markets, we're hearing investors and strategies 0:04:15.200 --> 0:04:18.640 say they only expect one more hike. We don't get 0:04:18.640 --> 0:04:21.000 a new dot plot until the end of the year, right. 0:04:21.920 --> 0:04:25.240 We'll get another one in September. They come out every quarter. 0:04:25.480 --> 0:04:29.359 So I mean, yeah, that especially after we saw that 0:04:29.480 --> 0:04:32.800 CPI report. Was that last week already? I think, yeah, 0:04:33.360 --> 0:04:35.800 last week when the time f live here, you know, 0:04:37.040 --> 0:04:40.039 it was when we saw the headline inflation number coming 0:04:40.040 --> 0:04:42.680 in around three percent, and you know, some slowing in 0:04:42.720 --> 0:04:45.359 the core measure too. I think that really started to 0:04:45.480 --> 0:04:49.920 ramp up the calls for just July to be one 0:04:50.000 --> 0:04:52.280 and done as far as the raid hikes go. So 0:04:52.720 --> 0:04:55.800 still TBD or right, Matt, that the dot plood does 0:04:55.880 --> 0:04:58.680 call for two more of this year, but we'll see how. 0:04:58.920 --> 0:05:02.120 I think Powell's pressed conference will be very informative as 0:05:02.160 --> 0:05:05.400 to how the committee sees the policy pathform here. 0:05:05.320 --> 0:05:07.360 All right, guys, So I'm looking at a tenure right 0:05:07.400 --> 0:05:11.480 now with it's at three point eight. Among our most 0:05:11.520 --> 0:05:14.280 read on the Bloomberg has to do with Bill Gross right, 0:05:14.400 --> 0:05:18.800 formerly a PIMCO, and he is saying that the on 0:05:18.880 --> 0:05:21.680 bull market isn't in the cards, and he says ten 0:05:21.720 --> 0:05:24.520 yure rates to top three point five percent for a long, 0:05:24.760 --> 0:05:26.720 long time, Gine. I want to go back to you, 0:05:28.160 --> 0:05:33.000 how how do you project where you think treasuries ultimately 0:05:33.160 --> 0:05:35.720 land right, which you and I talk a lot about. 0:05:35.760 --> 0:05:40.960 And then in terms of what that means for acid valuations. 0:05:39.520 --> 0:05:43.640 I don't the first starts. I rely on Irid Jersey 0:05:43.680 --> 0:05:46.599 and his forecast for where treasuries are headed. He actually 0:05:46.640 --> 0:05:48.400 thinks that rates are going to fall over the course 0:05:48.400 --> 0:05:50.960 of the next year, in line with what the consensus thinks. 0:05:51.000 --> 0:05:54.160 But maybe we we are past, frankly, the lows of 0:05:54.200 --> 0:05:56.520 the lows. It's really difficult to imagine we go back 0:05:56.560 --> 0:05:59.559 to the twenty twenty levels, twenty twenty twenty one levels 0:05:59.560 --> 0:06:04.119 on treasure I do think that has complications, or has consequences, 0:06:04.160 --> 0:06:06.960 at the very least for equities, because it does suggest 0:06:07.640 --> 0:06:11.440 that sort of your core valuation expectations have to be 0:06:11.520 --> 0:06:14.840 somewhat restrained. In an environment where rates are higher, you 0:06:14.880 --> 0:06:17.280 would anticipate the valuations that you're willing to pay for 0:06:17.400 --> 0:06:20.720 equities across the border generally lower, and we are seeing that, 0:06:21.240 --> 0:06:23.720 but not across the board. I mean, what you're seeing 0:06:23.720 --> 0:06:25.360 in the S and P. Five hundred is a really 0:06:25.400 --> 0:06:27.479 big divergence between the haves and the have nots. In 0:06:27.560 --> 0:06:30.680 terms of valuations. The equal weight to index still trading 0:06:30.680 --> 0:06:34.360 well below pre pandemic averages, would maybe you would argue, 0:06:34.360 --> 0:06:37.960 would reflect higher for longer interest rates. Whereas the top 0:06:38.000 --> 0:06:40.359 five stocks, tops seven stocks in the index and the 0:06:40.360 --> 0:06:42.800 tech sector at large is trading at back at record 0:06:42.839 --> 0:06:46.120 premiums to the rest of the index, and certainly, you know, 0:06:46.200 --> 0:06:50.440 nowhere near looks to be reflecting higher for longer interest rates. 0:06:51.040 --> 0:06:53.400 We've got to see then. The consequences of that are 0:06:53.440 --> 0:06:56.240 you've got to see much much stronger earnings growth to 0:06:56.320 --> 0:06:59.919 justify those current valuations, as tech stocks can grow into 0:07:00.080 --> 0:07:04.440 those expectations via an earnings recovery. But it does create 0:07:04.480 --> 0:07:08.599 a little bit of volatility or expected volatility around earning seasons, 0:07:09.040 --> 0:07:11.520 and certainly at the very least some nervousness around whether 0:07:11.600 --> 0:07:14.240 or not these ducks can satisfy those high expectations. 0:07:14.800 --> 0:07:19.040 Molly, what's your take on the treasury debate? You know, 0:07:19.840 --> 0:07:24.200 Ira Jersey and Morgan Stanley are looking for lower yields. 0:07:24.200 --> 0:07:26.200 I know Matthew Hornback said two to three percent in 0:07:26.240 --> 0:07:29.000 a recent report. But Bill Dudley, who worked at Goldman 0:07:29.040 --> 0:07:31.680 Sachs for twenty years finishing as the chief Economists before 0:07:31.720 --> 0:07:33.920 going on to run the New York Fed, wrote in 0:07:33.920 --> 0:07:37.080 a Bloomberg opinion column last month that he thinks it's 0:07:37.120 --> 0:07:38.560 going to four and a half percent. 0:07:40.040 --> 0:07:43.200 Yeah, there's definitely a lot of different calls out there, 0:07:43.320 --> 0:07:46.960 higher for lower, longer, lower for longer. I mean, at 0:07:47.040 --> 0:07:49.680 least just from the Fed's perspective, it looks like we're 0:07:49.680 --> 0:07:52.240 going to see that Fed funds rate stay at that 0:07:52.840 --> 0:07:56.280 terminal rate probably through the rest of this year. We 0:07:56.400 --> 0:07:58.720 just took a survey of economists as to where they 0:07:58.840 --> 0:08:03.720 see the Fed, among other economic indicators landing over the 0:08:03.760 --> 0:08:07.960 next couple of years, and looks like the economists are 0:08:07.960 --> 0:08:12.280 now expecting fewer rate cuts next year from the Fed 0:08:12.360 --> 0:08:16.040 than they did last month. So it's it's still very 0:08:16.120 --> 0:08:18.600 much a tossup as to where that longer run rate 0:08:18.680 --> 0:08:19.120 is going to be. 0:08:21.240 --> 0:08:26.760 So, Mollie, what are you listening for from j Powell 0:08:26.840 --> 0:08:27.320 next week? 0:08:27.360 --> 0:08:28.840 What's going to be key? In your view? 0:08:30.080 --> 0:08:33.360 I think it's definitely going to be the as much 0:08:33.440 --> 0:08:37.000 forward guidance as he really can give, which is tough 0:08:37.040 --> 0:08:39.280 when you know the officials have stressed so much how 0:08:39.360 --> 0:08:42.439 data dependent they are, but a lot of people are 0:08:42.559 --> 0:08:45.600 I'm sure going to be looking for. Is that second 0:08:45.720 --> 0:08:49.080 rate hike really a done deal or not? And where 0:08:49.120 --> 0:08:53.760 are the where's the committee's thoughts at present of if 0:08:53.800 --> 0:08:55.120 it's going to be necessary? 0:08:55.600 --> 0:08:57.800 And GM A, I guess you're going to be focused 0:08:57.800 --> 0:09:00.920 on earnings. I mean, I don't expect how Kl's not 0:09:00.960 --> 0:09:03.480 going to change his tune one bit, right, so he's 0:09:03.520 --> 0:09:07.000 gonna be a broken record. Is earnings your focus? 0:09:07.760 --> 0:09:08.000 Yeah? 0:09:08.040 --> 0:09:10.360 I mean earning earnings are going to overwhelm everything in 0:09:10.400 --> 0:09:13.040 the equity market. I suspect just given the great you know, 0:09:13.080 --> 0:09:15.920 the large swath of companies and how the size of 0:09:15.920 --> 0:09:18.240 the companies that are reporting. I would say, with respect 0:09:18.280 --> 0:09:20.640 to the FED, the market now the equity market, in 0:09:20.679 --> 0:09:24.360 my opinion, is now more focused on liquidity conditions and 0:09:24.440 --> 0:09:26.600 what's going on with the lending facility, what's going on 0:09:26.640 --> 0:09:29.120 with the balance sheet? You know, where is M two 0:09:29.200 --> 0:09:31.000 going to head over the course of the next year 0:09:31.160 --> 0:09:34.720 or so sort of. The rate discussion is increasingly taking 0:09:34.760 --> 0:09:38.839 a backseat to those conversations right now. So anything with 0:09:38.880 --> 0:09:40.920 respect to what are they doing with the balance sheet 0:09:40.960 --> 0:09:42.800 and what does that really mean for liquidity I think 0:09:42.880 --> 0:09:44.560 could trigger an equity market reaction. 0:09:44.840 --> 0:09:47.040 Carol kicked off the show talking about the Dow Jones 0:09:47.120 --> 0:09:50.600 Industrial Average and Pana Martin Adams is talking about M 0:09:50.640 --> 0:09:52.920 two money supply. What year is it? 0:09:53.160 --> 0:09:55.280 I don't know. I don't know. Remember when we used 0:09:55.280 --> 0:09:56.920 to tract money flows. 0:09:56.559 --> 0:10:01.679 To Oh my god, everything old is new again, all right, Gma, 0:10:02.040 --> 0:10:05.719 And of course Ms Molly Smith Gena Martin Adams Bloomberg 0:10:05.760 --> 0:10:08.480 part of our Bloomberg team here Gene of course with 0:10:08.480 --> 0:10:13.320 Bloomberg Intelligence, and Molly is Bloomberg News Economics editor, Gene 0:10:13.360 --> 0:10:14.720 of course, chief equity strategist. 0:10:15.200 --> 0:10:18.760 You're listening to the Bloomberg Business Week Podcast. Catch us 0:10:18.800 --> 0:10:22.120 live weekday afternoons from three to six Eastern Listen on 0:10:22.200 --> 0:10:26.240 Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, 0:10:26.520 --> 0:10:28.840 or watch us live on YouTube. 0:10:29.679 --> 0:10:29.880 Well. 0:10:30.000 --> 0:10:31.920 US bank stocks have been on a tear this week 0:10:31.960 --> 0:10:32.320 at their. 0:10:32.240 --> 0:10:36.440 Delusion better than feared earnings reports really bringing investors back 0:10:36.840 --> 0:10:38.839 to these shares that have really been beaten to. 0:10:38.960 --> 0:10:42.280 Better than feared. You know, I saw that expression and 0:10:42.360 --> 0:10:45.520 I love it. It's true, right, better than feared? Yeah, 0:10:45.520 --> 0:10:47.960 I just think it was a nice turn of phrase. 0:10:48.160 --> 0:10:51.920 Better than feared. It happens we're talking about Zion's key Corp. 0:10:52.559 --> 0:10:54.960 The KBW Bank Index I think up about seven percent 0:10:55.040 --> 0:10:57.680 this week. So let's get into it with more in 0:10:57.720 --> 0:10:59.520 the group on the public banks from really the growing 0:10:59.559 --> 0:11:03.880 role of lenders, which I truly feel this is the story. 0:11:03.920 --> 0:11:04.959 I think you do two. 0:11:04.920 --> 0:11:07.120 Of the next five to ten years and we'll see 0:11:07.120 --> 0:11:10.240 how it plays out with us and really back with 0:11:10.280 --> 0:11:12.920 Matt who talked with her yesterday on TV as Anna Ursov. 0:11:13.120 --> 0:11:14.360 She's co head of Global. 0:11:14.080 --> 0:11:16.559 Banking of her Moodies on Zoom in New York City. Ana, 0:11:16.640 --> 0:11:18.320 thank you for coming back with us. 0:11:19.360 --> 0:11:21.400 I will say sometimes I have a guest who's so 0:11:21.600 --> 0:11:23.880 good and insightful that I'm like, we need to get 0:11:23.880 --> 0:11:26.280 her on again, and this is the case with Anna. 0:11:26.440 --> 0:11:28.200 So in less than twenty thank you for coming back. 0:11:28.280 --> 0:11:30.079 Yeah, thank you for having me. It's my pleasure. 0:11:30.280 --> 0:11:33.040 Well, well, let me let me throw to you Matt first, 0:11:33.080 --> 0:11:35.160 because what was it that stood out for you that 0:11:35.200 --> 0:11:37.040 you were like, we got to continue this conversation. 0:11:37.280 --> 0:11:39.320 Well, I mean, I thought she just had great insight 0:11:39.320 --> 0:11:41.920 across the board. But one of the things that really 0:11:41.920 --> 0:11:44.839 got to me was, you know, Carol and I talk 0:11:44.880 --> 0:11:47.679 about private credits so much and we're starting to hear 0:11:47.800 --> 0:11:50.440 more and more about it from bankers who say, this 0:11:50.520 --> 0:11:52.559 is a business, this is kind of getting away from us. 0:11:52.679 --> 0:11:55.840 Yeah, you know the Jamie right, Jamie Diamond, you got 0:11:55.840 --> 0:11:57.400 a little sit about that private. 0:11:57.160 --> 0:12:01.680 Absolutely, so tell us about the breakdown on it right now. 0:12:01.800 --> 0:12:05.240 I mean, it's a juicy business that the big six 0:12:05.320 --> 0:12:08.040 Wall Street banks are getting less and less of. 0:12:09.400 --> 0:12:13.320 Yeah, I mean, I think it's it's very topical now, 0:12:13.720 --> 0:12:17.280 I think for the markets, particularly post March when the 0:12:17.320 --> 0:12:22.679 bank distress started, and of course folks turned towards the 0:12:22.679 --> 0:12:25.360 alternative ast managers who have been active in this market, 0:12:26.160 --> 0:12:26.480 you know. 0:12:26.559 --> 0:12:29.360 Quite since probably even before the financial crisis, but I 0:12:29.440 --> 0:12:33.040 was accelerated post twenty fifteen. And there's a reason for that. 0:12:33.120 --> 0:12:36.040 I mean, we'll have to remember something called leverage a 0:12:36.080 --> 0:12:39.760 loan guidelines that was implemented by the US regulators and 0:12:39.840 --> 0:12:43.520 really tightening that arbitraged by the FED implementationenty fifteen that 0:12:43.600 --> 0:12:45.920 captured even the foreign banks that were very big in 0:12:45.960 --> 0:12:49.079 this market, like Broature Bank and Credit Sueeze, et cetera. 0:12:49.480 --> 0:12:52.880 And if you look at when that puotal moment for 0:12:53.120 --> 0:12:55.679 private credit was, it was exactly a year or so 0:12:55.800 --> 0:13:00.360 after implementation of those leverage Manians guidelines. Why is that 0:13:00.480 --> 0:13:03.040 the case? Because simply the large banks couldn't put this 0:13:03.280 --> 0:13:05.839 you know, six seven times very hairy deals in their 0:13:05.840 --> 0:13:09.600 balanceshept and what happened that talent folks who actually ran 0:13:09.800 --> 0:13:12.920 the businesses and Goldman it just credit sweet end up 0:13:12.920 --> 0:13:15.040 going to the private equity shops and said we can 0:13:15.120 --> 0:13:17.400 do this business here and maybe it's a better way 0:13:17.440 --> 0:13:19.000 to do this business outside of the banks. 0:13:19.320 --> 0:13:22.400 So better way or have we just transferred the risk? 0:13:23.679 --> 0:13:25.880 Well, this is the key question. We wrote a number 0:13:25.880 --> 0:13:28.679 of research in questioning the systematic cresk here, and I 0:13:28.720 --> 0:13:32.080 want to be very balanced about this issue. Look, there 0:13:32.200 --> 0:13:36.880 is a you know, the concerning is why these loans 0:13:36.880 --> 0:13:38.720 which are kind of what would argue one of the 0:13:38.720 --> 0:13:42.320 weakest quality loans that would be out there in the system, 0:13:42.400 --> 0:13:46.000 you know, highly levered companies with lots of hair kind 0:13:46.040 --> 0:13:48.599 of it's kind of companies that are very levered, but 0:13:48.640 --> 0:13:52.080 a lot of in this technology sector as well. You know, 0:13:52.120 --> 0:13:53.959 why they shouldn't be on banks balance sheet and why 0:13:54.000 --> 0:13:56.800 the benefits of being on banks balance sheets versus not. Well, 0:13:57.000 --> 0:13:59.360 let me kind of break that from banks balanceship at 0:13:59.400 --> 0:14:02.640 least we will know, we will not transparently what are 0:14:02.640 --> 0:14:05.040 they underwriting. This will be part of the bank reporting, 0:14:05.200 --> 0:14:07.600 We're part of the consolidy data for the banking system, 0:14:07.640 --> 0:14:09.959 and we'll have a little better sense how those are fairing, 0:14:10.200 --> 0:14:13.040 and it will be valued under the shared National survey, 0:14:13.120 --> 0:14:16.160 so we will know actually how those banks are performing, 0:14:16.280 --> 0:14:19.720 and transparency is pretty much uniform. On the other hand, 0:14:19.840 --> 0:14:22.200 we don't have that with a private credit lander, so 0:14:22.240 --> 0:14:25.520 we you know their secret sauces that we will basically 0:14:25.560 --> 0:14:28.520 take these loans. We have a permanent capital to underwrite it. 0:14:28.840 --> 0:14:30.440 And we can see a lot of the founders of 0:14:30.480 --> 0:14:34.280 these businesses over the last couple of months, particularly post 0:14:34.400 --> 0:14:39.720 the bank crisis, they've been talking about we have permanent capital. 0:14:40.120 --> 0:14:43.400 We do not depend on overnight deposit and overnight funding. 0:14:43.760 --> 0:14:46.400 So this is a better form to hold a high 0:14:46.440 --> 0:14:47.040 risk asset. 0:14:47.200 --> 0:14:49.120 Yeah, it makes a lot more sense than the duration 0:14:49.320 --> 0:14:53.920 mismatch problems that we saw up end a couple of banks. 0:14:53.920 --> 0:14:57.600 Speaking of that, on a I've heard more and more 0:14:57.640 --> 0:15:01.000 analysts say the banking crisis is behindh us. It's truly 0:15:01.600 --> 0:15:03.440 well and done. Do you agree? 0:15:05.120 --> 0:15:06.960 And I think as we said is yesterday I repeated 0:15:06.960 --> 0:15:11.480 again for your audience. What happened in March was very idiosyncratic, 0:15:13.040 --> 0:15:17.120 exposing vulnerabilities which I think stem from some lack of 0:15:17.160 --> 0:15:21.280 consistent regulation in the banking system of banks who simply 0:15:21.560 --> 0:15:25.000 had a serious mismatch between us has and liabilities. And 0:15:25.040 --> 0:15:27.120 when you think about what happened with the speed of 0:15:27.200 --> 0:15:31.160 quantity tightening, some were just cut short. Is the banking 0:15:31.320 --> 0:15:34.960 system outside of that, you know, a couple of outfliers. 0:15:35.760 --> 0:15:37.720 You know solid, Yes, we have a solid and strong 0:15:37.760 --> 0:15:40.080 banking system. However, doesn't mean that we are outside of 0:15:40.080 --> 0:15:43.600 the woods. First and foremost. I think this is the 0:15:43.640 --> 0:15:46.160 best probably quarter we'll see in the wild for the originals, 0:15:46.440 --> 0:15:48.640 you know. And why is that the case? Well, what 0:15:48.720 --> 0:15:52.360 we noticed across the board higher deposit cost Yes, there 0:15:52.440 --> 0:15:55.680 was the posit stability which everybody feared, but that came 0:15:55.720 --> 0:15:58.920 at a much higher cost. And we calculated today is 0:15:59.200 --> 0:16:01.720 for the banks that were quoted so far, roughly thirty 0:16:01.760 --> 0:16:05.080 basis points higher deposit costs is quarter for that stability. 0:16:06.160 --> 0:16:09.840 So when you look at the banking sector, the big banks, 0:16:09.880 --> 0:16:12.720 you feel pretty confident about their situation. And then with 0:16:12.840 --> 0:16:15.440 regionals you feel like, what would be the adjective to 0:16:15.480 --> 0:16:16.520 describe them. 0:16:17.280 --> 0:16:19.840 Look what I think it's going to be an interesting 0:16:20.000 --> 0:16:23.920 year two ahead. We have a system that's very unusual 0:16:24.120 --> 0:16:28.880 on a global comparisonal level. You know, four thousand plus banks. 0:16:29.040 --> 0:16:32.120 But is it too many? Is it too many? 0:16:32.520 --> 0:16:37.080 Look, one can argue where it's all about the ability 0:16:37.120 --> 0:16:41.000 to provide a customer depreciation. Community banks do something that's 0:16:41.040 --> 0:16:44.480 very special for the communities, and likely one can argue 0:16:44.520 --> 0:16:47.320 maybe community bank should not be as regulated as little 0:16:47.360 --> 0:16:50.680 complex banks. But what happened was that with the regulation 0:16:50.920 --> 0:16:54.320 and with the tailoring of twenty nineteen really went beyond 0:16:54.320 --> 0:16:56.640 a definition of what a community bank hits community bank 0:16:56.720 --> 0:16:59.000 is roughly, you know, bank less than ten to fifteen 0:16:59.040 --> 0:17:03.960 billion dollars. The regulation affected banks Swore and fifty billion. 0:17:04.240 --> 0:17:06.800 Silicon Valley Bank is not a community bank and did 0:17:06.800 --> 0:17:09.720 not and basically did not have the same capital standards 0:17:09.760 --> 0:17:11.720 or else. He has standards as some of the larger banks, 0:17:11.760 --> 0:17:15.200 and one can argue had its own complexity. So it 0:17:15.960 --> 0:17:19.520 is the system right for consolidation. I think that will 0:17:19.560 --> 0:17:23.600 become more obvious as we see pressures on profitability. Now 0:17:23.640 --> 0:17:26.159 we're seeing it from higher to posit funding, but we 0:17:26.200 --> 0:17:28.560 will see it now from credit costs coming in due time, 0:17:28.960 --> 0:17:30.959 so I think consolidation is eminent. 0:17:31.760 --> 0:17:34.480 What do you think about the valuations that we're looking 0:17:34.520 --> 0:17:38.119 at for these banks? I mean in terms of price 0:17:38.240 --> 0:17:42.320 to book, you know, one point one at Goldman Sachs, 0:17:42.440 --> 0:17:46.159 one point six at JP Morgan, Morgan Stanley's looking at 0:17:46.200 --> 0:17:50.400 one point seven. Do these make sense? Because Mike Mayo 0:17:50.520 --> 0:17:53.360 was on the other day and he was so enthusiastic 0:17:53.440 --> 0:17:55.960 about the fact that he thought the big banks, you know, 0:17:56.359 --> 0:17:59.720 as a block, were undervalued more than he's ever seen them. 0:18:00.840 --> 0:18:04.480 Yeah, I mean, I'm coming from a fixedinger perspective, but nevertheless, 0:18:04.480 --> 0:18:07.119 we look at relations of banks from a more of 0:18:07.119 --> 0:18:09.159 a definition of the value of the franchise, which is 0:18:09.240 --> 0:18:11.919 very important to the creators of these banks. And you 0:18:12.080 --> 0:18:14.880 have to admit that GP Morgan is just if there 0:18:14.920 --> 0:18:19.080 was one positive, absolutely clean quarter, that was GP Morgan 0:18:19.440 --> 0:18:22.359 the bank. It's a machine on every in every franchise, 0:18:22.920 --> 0:18:25.600 and one can argue, what is that you know, what 0:18:25.680 --> 0:18:29.000 valuation is appropriate on a relative scale. A Morgan Stanley 0:18:29.040 --> 0:18:32.680 similarly has a great franchise. I mean, they cut costs significantly, 0:18:32.760 --> 0:18:35.280 they could create some opening leverage. Although the capital markets, 0:18:35.320 --> 0:18:38.320 investment banking earnings were low, and they it's again on 0:18:38.359 --> 0:18:41.080 a very good strategic focus for more than a decade 0:18:41.119 --> 0:18:43.960 when they decided to buy the former jewel of City Group, 0:18:44.480 --> 0:18:47.760 so Goldman does not have that. Unfortunately, Goldman went into 0:18:48.200 --> 0:18:51.760 a little bit of experimental focus into consumer that they're 0:18:51.840 --> 0:18:55.200 retracing back. But Goldman has an amazing asset management business 0:18:55.600 --> 0:18:58.399 and focus on alternatives, and they reported that that fundraising 0:18:58.480 --> 0:19:02.000 and focused alternatives actually paying pretty You've got good premium 0:19:02.040 --> 0:19:05.240 so far. And they're trying to restructure their co investment portfolio, 0:19:05.280 --> 0:19:07.159 so they will be a little bit painful until they 0:19:07.160 --> 0:19:09.320 get to their targets the next year in terms of 0:19:09.280 --> 0:19:13.639 the ministment business and tweaking that balance usage. But Coleman 0:19:13.680 --> 0:19:18.840 has a phenomenal franchise of course all popital markets investment banking. 0:19:18.960 --> 0:19:21.200 So again I would leave that to equity analyst in 0:19:21.240 --> 0:19:23.640 terms of relations. But all of those banks are doing 0:19:23.720 --> 0:19:24.080 very well. 0:19:24.400 --> 0:19:24.560 Well. 0:19:24.720 --> 0:19:25.879 Super cool to talk with you. 0:19:26.000 --> 0:19:26.960 I wish we had more time. 0:19:27.040 --> 0:19:31.199 Yeah, come back soon. That was right, rockstar like. It 0:19:31.240 --> 0:19:34.680 was just really interesting in terms of what we covered. Anna, 0:19:34.760 --> 0:19:36.760 thank you so much of a great weekend. Anna ourself. 0:19:36.880 --> 0:19:39.359 She's co head of Global Banking over at Moody's on 0:19:39.520 --> 0:19:40.440 zoom in New York City. 0:19:40.480 --> 0:19:45.400 Man, you're listening to the Bloomberg Business Week podcast. Catch 0:19:45.480 --> 0:19:48.639 us live weekday afternoons from three to six Easter on 0:19:48.760 --> 0:19:52.520 Bloomberg Radio, the Bloomberg Business App, and YouTube. You can 0:19:52.520 --> 0:19:55.760 also listen live on Amazon Alexa from our flagship New 0:19:55.840 --> 0:20:00.480 York station Just Say Alexa playing Bloomberg eleven thirty. 0:20:01.520 --> 0:20:02.680 I've been looking at bitcoin. 0:20:02.840 --> 0:20:08.600 They they mister bitcoin, those people over at bitcoin. It 0:20:08.680 --> 0:20:11.400 did reach a fresh high for the year earlier this month, 0:20:11.440 --> 0:20:14.800 but we've seen maybe it kind of settle into a 0:20:14.920 --> 0:20:16.800