WEBVTT - Coinbase Provides Credible Way To Hold Crypto: Ritholtz 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.599 at Bloomberg dot com slash podcast. Let's talk a little 0:00:22.640 --> 0:00:27.360 crypto now, Matt, looking at Bitcoin. It's up about a 0:00:27.360 --> 0:00:29.680 half of one percent today to sixty two thousand, let's 0:00:29.680 --> 0:00:33.360 call it seven d two thousand, seven hundred. Coin based Global, 0:00:33.920 --> 0:00:37.240 the big initial offering yesterday via a director listing. It 0:00:37.320 --> 0:00:40.080 is up two percent today after a wild day of 0:00:40.360 --> 0:00:43.720 trading yesterday. But it's up two percent today. What we 0:00:43.760 --> 0:00:46.479 need here is a little perspective on all things crypto. 0:00:46.640 --> 0:00:48.800 To do that, we turned to Barry Ridhold's founder RD 0:00:48.840 --> 0:00:52.000 Holt's Wealth Management. He's a Bloomberg Opinion calmness and host 0:00:52.400 --> 0:00:56.000 of Masters in Business on Bloomberg. Really like fantastic podcast. 0:00:56.160 --> 0:00:59.400 All right, Barry, coin Base yesterday, A lot of folks 0:00:59.400 --> 0:01:02.440 are out there with a narrative that coin base, uh 0:01:02.800 --> 0:01:06.440 was a validation point for the crypto market. Is that 0:01:06.560 --> 0:01:10.039 how you viewed it. I was more intrigued by the 0:01:10.080 --> 0:01:12.760 fact that it was a direct listing by passing the 0:01:12.840 --> 0:01:17.040 usual I P O process. And you have folks, especially 0:01:17.040 --> 0:01:20.560 out in Silicon Valley, people like Bill Gurley of Benchmark Capital, 0:01:20.840 --> 0:01:26.200 who have been saying, hey, why are we having big 0:01:26.319 --> 0:01:30.880 brokerage firms and Wall Street capturing or miss pricing so 0:01:31.000 --> 0:01:34.200 much of the value of these new companies. Hold that aside. 0:01:34.200 --> 0:01:38.640 Maybe that's a little too inside baseball, but but the 0:01:40.560 --> 0:01:44.280 what what coin base validates is that there is now 0:01:44.319 --> 0:01:49.600 a credible way uh to deal on an institutional basis 0:01:49.640 --> 0:01:52.760 with holding crypto. So some of the studies have shown 0:01:53.960 --> 0:01:59.840 maybe even of all mind coins have either been law 0:02:00.480 --> 0:02:05.480 or are locked in password protected Matt Mill where can 0:02:05.640 --> 0:02:08.919 access it? And and you know, imagine if a third 0:02:08.960 --> 0:02:12.760 of brokerage accounts, sorry you, your money is gone. You're 0:02:12.800 --> 0:02:16.640 purposely rubbing salt in my wounds. Here, Berry, how much? 0:02:16.720 --> 0:02:19.600 How much bitcoin have you lost somewhere? How many? Nine eleven? 0:02:19.760 --> 0:02:22.720 I don't know, And even if I knew, I couldn't 0:02:22.760 --> 0:02:25.120 tell you because my wife already wants to kill me. 0:02:25.560 --> 0:02:27.320 So whenever she asked me like how much is it, 0:02:27.320 --> 0:02:30.200 I'm like, it's a very small amount. Don't worry. The 0:02:30.280 --> 0:02:33.799 g T three fully mocked up for the track for you. 0:02:33.800 --> 0:02:41.280 You definitely definitely that it's definitely regular password by blockchain wallet. 0:02:41.480 --> 0:02:44.120 And uh, I promptly forgot about it. You know, it 0:02:44.200 --> 0:02:48.040 was two thousand twelve. What what did I know? So 0:02:48.200 --> 0:02:55.200 coin base is what solves theoretically anyway solves that problem 0:02:55.240 --> 0:02:58.480 because you don't have to I mean, I've heard stories 0:02:58.520 --> 0:03:03.120 about people etching past words on on metal bars and 0:03:03.120 --> 0:03:07.560 then sticking that into a into a bank vault, and 0:03:07.960 --> 0:03:11.080 then you have to worry is the melting point of 0:03:11.080 --> 0:03:14.000 that steel high enough in case the bank burns down? 0:03:14.280 --> 0:03:17.920 I mean, think about how crazy that is. Dude, Matthew 0:03:17.919 --> 0:03:20.240 Mellen used to do. He Matthew Mellen used to put 0:03:20.280 --> 0:03:22.560 it on He used to go and buy laptops and 0:03:22.600 --> 0:03:24.919 then put it on them in cold storage and then 0:03:24.960 --> 0:03:27.840 go and buy safe and bring them to friends houses 0:03:27.840 --> 0:03:29.480 and then put it in the safe in a friend's house. 0:03:29.520 --> 0:03:32.799 You know, So like, uh, some people get very That's 0:03:32.800 --> 0:03:37.560 why I like the equity traded product that coin Shares does. 0:03:37.760 --> 0:03:40.640 You can buy bitcoin through them and they just hold 0:03:40.680 --> 0:03:43.480 it in custody for you. As someone who has had 0:03:44.240 --> 0:03:49.520 computers and laptops. Going back to my Mac Classic, I 0:03:49.560 --> 0:03:52.000 wouldn't want to put a billion dollars of value on 0:03:52.160 --> 0:03:57.320 something as completely unreliable as a laptop in cold storage. 0:03:57.400 --> 0:04:02.440 Talk about a recipe for disaster, No hard pass, Barry. 0:04:02.440 --> 0:04:04.440 I want to get to UM. You know, I've been 0:04:04.480 --> 0:04:10.480 working here at Bloomberg since January of two thousand and UM. 0:04:10.640 --> 0:04:13.400 I think I started paying attention like six or seven 0:04:13.440 --> 0:04:20.000 years later. I remember distinctly hearing arguments for the continued 0:04:20.080 --> 0:04:23.240 market run up in two thousands six seven that there 0:04:23.320 --> 0:04:25.839 was so much cash on the sidelines, and I was 0:04:26.800 --> 0:04:31.240 totally uh, you know, sold hook line and sinker on this. Man, 0:04:31.279 --> 0:04:34.080 If there's two trillion dollars in cash on the sidelines, 0:04:34.120 --> 0:04:36.680 then this market has a lot further to run. I've 0:04:36.720 --> 0:04:39.080 never heard the end of that argument. No matter what, 0:04:39.279 --> 0:04:42.520 there's always so much cash on the sidelines. What is 0:04:42.560 --> 0:04:46.320 this coming from. Well, it's one of those tropes that 0:04:46.640 --> 0:04:51.920 live brokers used to talk people into buying or trading stocks. Look, 0:04:52.000 --> 0:04:55.279 there's always cash on the sidelines, number one. That doesn't 0:04:55.320 --> 0:04:58.799 go away. And if you want to talk about cash 0:04:59.040 --> 0:05:03.360 that matters, you're either talking about the velocity of money 0:05:03.400 --> 0:05:07.040 how fast cash is moving through the economy. And as 0:05:07.080 --> 0:05:11.200 we've seen in the velocity of money was very low 0:05:11.960 --> 0:05:15.360 even as the market rocketed up to new highs. So 0:05:15.400 --> 0:05:17.880 it can't be that. And and then there are other 0:05:17.960 --> 0:05:22.240 things to look at. Um. The AII does a study 0:05:22.640 --> 0:05:26.400 on a monthly basis of how much cash is allocated 0:05:26.520 --> 0:05:31.080 within individual portfolios to stocks versus cash, and at peace 0:05:31.200 --> 0:05:34.120 it's too much stock, and and at lows it's too 0:05:34.200 --> 0:05:36.560 much cash. But you know, you get a signal from 0:05:36.560 --> 0:05:39.040 that once every five or ten years. It's nothing that's 0:05:39.080 --> 0:05:43.880 that's reliable. The one simple way to think about this is, 0:05:44.560 --> 0:05:47.000 all right, so all that cash on the sidelines, what's 0:05:47.000 --> 0:05:49.320 going to happen with that? Well, Matt, if I'm going 0:05:49.360 --> 0:05:53.120 to buy a thousand shares of Amazon from you, I 0:05:53.200 --> 0:05:57.000 have cash, you have stocked. We engage in that transaction 0:05:57.160 --> 0:06:00.680 through through our robin Hood account. Now, how I have 0:06:00.800 --> 0:06:04.719 a thousand shares of Amazon and you have six thousand 0:06:04.800 --> 0:06:08.080 dollars in cash. The same exact amount of money is 0:06:08.120 --> 0:06:12.880 still on the sidelines. For every buyer of stock. There 0:06:12.960 --> 0:06:16.600 is a seller um who gets the cash, and so 0:06:16.760 --> 0:06:21.039 the cash on the sidelines never changes. It's just ownership 0:06:21.080 --> 0:06:25.280 of the cash and the equity swaps hands it. By 0:06:23.520 --> 0:06:28.120 the way, does the dry powder article our argument for 0:06:28.160 --> 0:06:31.880 private equity hold up for you? Is that a different story. UM, 0:06:32.000 --> 0:06:35.400 So if you're talking about either private equity or venture 0:06:35.440 --> 0:06:39.200 capital or or anything's like that, you're really talking about 0:06:39.279 --> 0:06:44.080 a very different asset class that is attracting capital because 0:06:44.160 --> 0:06:47.480 it's successful. Lets use venture capital is even better example, 0:06:47.800 --> 0:06:50.920 because private equity is kind of hard to determine what's 0:06:50.920 --> 0:06:55.280 private equity and what's UM traditional syndication and M and 0:06:55.360 --> 0:06:58.400 A and other stuff like that. Venture capital started out 0:06:58.440 --> 0:07:01.360 in the sixties and seventies as a way to, hey, 0:07:01.400 --> 0:07:04.280 how can we work with the Defense Department and others 0:07:04.640 --> 0:07:08.240 to steer money to these important technologies where if you 0:07:08.320 --> 0:07:11.920 remember or have read about spot nick Us Island, Russia. 0:07:12.440 --> 0:07:15.360 And as as these companies became more and more successful, 0:07:15.960 --> 0:07:20.480 remember semiconductors and integrated circuits is something that was produced 0:07:20.520 --> 0:07:23.920 by UM the Apollo program and the Defense Department and 0:07:24.320 --> 0:07:28.040 at the same with the Internet. So as as more 0:07:28.080 --> 0:07:31.280 and more of these products scenes attracted more successful returns, 0:07:31.880 --> 0:07:36.200 more money flowed to that sector. Alright, fascinating conversation which 0:07:36.200 --> 0:07:38.680 we will have to continue. We've got to kick off 0:07:38.720 --> 0:07:41.160 our car show too. You mentioned the g T three. 0:07:41.480 --> 0:07:48.160 I really want one, UM, really excited for naturally aspirated 0:07:48.200 --> 0:07:53.480 boxer still in Porsche's lineup. Now, I want to bring 0:07:53.520 --> 0:07:57.920 in former senior advisor of the US Treasury Department, Dan Katz. 0:07:57.960 --> 0:08:01.880 He is also a Bloomberg opinion contributor, and he's written 0:08:01.880 --> 0:08:07.440 a story about airlines um who have which have already 0:08:07.480 --> 0:08:13.320 received so many tens of billions of dollars in taxpayer 0:08:13.400 --> 0:08:17.360 help that maybe it's um, it's already too much. They 0:08:17.400 --> 0:08:20.440 don't need anymore, Dan Um. In your in your piece, 0:08:20.480 --> 0:08:23.280 you point out that US airlines got a fifty billion 0:08:23.640 --> 0:08:28.240 dollar lifeline um last year last March, and then another 0:08:28.400 --> 0:08:32.960 twenty billion dollars through the bipartisan year end relief package 0:08:33.120 --> 0:08:36.559 and President biden stimulus plan. At this point, shouldn't the 0:08:36.640 --> 0:08:42.000 US government own the US airlines outright? Uh? Well, it's 0:08:42.240 --> 0:08:45.040 it's great to be with you, Matt and uh. And 0:08:45.280 --> 0:08:48.120 you know, when I think about the amount of support 0:08:48.160 --> 0:08:52.200 that's been provided to the airline, I think you really 0:08:52.280 --> 0:08:55.560 have to break it up into what was done during 0:08:55.640 --> 0:08:58.800 the heart of the panic, and then what was done 0:08:59.120 --> 0:09:03.400 at at more recent times, and so in the context 0:09:03.480 --> 0:09:07.839 of the original uh, the original intervention in March, Now, 0:09:08.040 --> 0:09:12.560 the industry was really in an unprecedented free fall, you know, 0:09:12.600 --> 0:09:15.800 just to take Delta, which reported this morning, you know, 0:09:15.840 --> 0:09:18.800 they reported this morning that they were actually cash positive 0:09:18.800 --> 0:09:21.760 in March and had access to about sixteen billion dollars 0:09:21.760 --> 0:09:26.720 of liquidity. But in March, in their same morning report, 0:09:26.840 --> 0:09:29.760 they were burning a hundred million dollars a day and 0:09:29.840 --> 0:09:32.760 only had access to six million dollars of liquidity. And 0:09:32.880 --> 0:09:37.199 deltas you know, widely acknowledged as one of the stronger 0:09:37.240 --> 0:09:40.320 carriers in terms of the financial position amongst the large 0:09:40.360 --> 0:09:43.960 carriers out there. So we really faced what could potentially 0:09:44.000 --> 0:09:49.480 be a collapse of the industry or widespread, hugely widespread 0:09:49.520 --> 0:09:52.000 layoffs that would have come at the worst possible time, 0:09:52.120 --> 0:09:54.800 both for the labor market and also for our ability 0:09:54.800 --> 0:09:57.480 to respond to the pandemic. So what we did in 0:09:57.880 --> 0:10:00.760 at the end of March, you know, under the leadership 0:10:00.840 --> 0:10:04.679 of of Secretary Minution, who was who's really uh, you know, 0:10:04.760 --> 0:10:07.680 extraordinary in this period, I think is clearly going to 0:10:07.720 --> 0:10:10.840 be remembered as one of the great Treasury secretaries in history. 0:10:11.480 --> 0:10:15.319 As we put together a package that stabilized the airlines 0:10:15.400 --> 0:10:19.120 in the short term by offering UH some payroll support 0:10:19.559 --> 0:10:23.319 and also provided them access to loans, which had an 0:10:23.320 --> 0:10:27.720 extremely helpful effect in allowing them to gain access to 0:10:27.800 --> 0:10:32.680 credit markets where they've borrowed very very successfully over the 0:10:32.800 --> 0:10:35.199 last year. And the result of that has been that 0:10:35.240 --> 0:10:37.600 we've kept the airline that we kept the airline industry 0:10:37.640 --> 0:10:42.480 together during the hardest part of the pandemic and UH 0:10:42.679 --> 0:10:46.680 and and gotten them through to the other side. UH. 0:10:46.760 --> 0:10:51.880 The question now is what should taxpayers do visa v 0:10:52.000 --> 0:10:55.760 airlines UH in the near term? And you know, I 0:10:55.800 --> 0:11:00.199 think I think there's little argument, based on the financial 0:11:00.240 --> 0:11:02.840 metrics that we're seeing from the carriers today that they 0:11:02.880 --> 0:11:07.080 needed another fourteen billion dollars in March. And then there's 0:11:07.120 --> 0:11:10.560 going to be another fight, probably in September when the 0:11:10.600 --> 0:11:15.800 protections associated with the March UH taxpayer funds expire, over 0:11:15.840 --> 0:11:20.080 whether they should receive further support. And I think any 0:11:20.160 --> 0:11:23.960 reasonable observer would say it's time for the government to 0:11:24.000 --> 0:11:27.360 step back and allow the industry to stand on it. So, so, Dan, 0:11:27.400 --> 0:11:29.920 do you think do you think the industry is out 0:11:29.920 --> 0:11:34.360 of the woods now? Look, I'm not really in a 0:11:34.400 --> 0:11:39.959 position to accurately forecast what the return of airline demand 0:11:40.040 --> 0:11:42.560 is going to be like. Uh, you know, certainly there 0:11:42.559 --> 0:11:46.520 are big issues associated with international travel and also with 0:11:46.720 --> 0:11:50.480 business travel, which is so important to these carriers strategy. Um. 0:11:50.520 --> 0:11:53.200 But what I will say is that they're all in 0:11:53.600 --> 0:11:56.719 a very strong financial propression. Most of them are in 0:11:56.760 --> 0:12:00.480 a very strong financial position, and so manage of teams 0:12:00.520 --> 0:12:03.920 employees are in a position to navigate that future demand 0:12:04.000 --> 0:12:06.440 purf uh, and it's time for them to do that 0:12:06.640 --> 0:12:09.920 in the absence of taxpayer support. I just want to 0:12:09.920 --> 0:12:12.959 get something you said earlier about Steve Manuchin. You think 0:12:12.960 --> 0:12:14.600 he's going to go down as one of the great 0:12:15.640 --> 0:12:21.199 Treasury secretaries in history um owing to his actions during 0:12:21.240 --> 0:12:27.400 the pandemic bailout. The Paycheck Protection Program has so often 0:12:27.440 --> 0:12:32.400 been derided as inefficient and and inept at the hands 0:12:32.520 --> 0:12:37.120 of Steve Manuchin. Um, what do you think he did 0:12:37.840 --> 0:12:42.280 that that merits putting him up along the grates in 0:12:42.320 --> 0:12:48.920 the in the Hall of fame for Treasury secretaries. Well, look, 0:12:48.960 --> 0:12:51.439 you know, just just quickly to respond to your point 0:12:51.600 --> 0:12:55.440 on the p p P, I think a lot of 0:12:55.480 --> 0:13:00.520 the news coverage, unsurprisingly has focused on uh some of uh, 0:13:00.559 --> 0:13:05.240 you know, less desirable outcomes as we implemented the program 0:13:05.440 --> 0:13:09.520 very very quickly. But what it hasn't focused on is 0:13:09.720 --> 0:13:14.320 the overwhelming speed and success of the vast, vast majority 0:13:14.320 --> 0:13:17.240 of the program. That that in and out itself, right, 0:13:17.320 --> 0:13:20.160 the simplicity of getting it out there, speed of getting 0:13:20.160 --> 0:13:22.640 it out there, which which is always going to involve 0:13:22.800 --> 0:13:27.439 some execution risk, that that was hugely helpful to stabilize 0:13:27.440 --> 0:13:31.920 in the economy and keeping workers attached to attached to 0:13:31.920 --> 0:13:35.000 their healthcare and their and their employers, and also saving 0:13:35.240 --> 0:13:39.120 you know, many many millions of jobs at small businesses 0:13:39.160 --> 0:13:41.480 across the country. So I don't I don't think that's 0:13:41.480 --> 0:13:43.560 really a fair critique of the p p P and 0:13:43.559 --> 0:13:47.040 in terms of the broader legacy. But but but wait, 0:13:47.080 --> 0:13:49.320 so you think the p p P was an efficiently 0:13:49.440 --> 0:13:53.000 used program. All that money um went to you're saying, 0:13:53.360 --> 0:13:59.160 save jobs and keep employee healthcare, and and that's documented. Well, 0:13:59.200 --> 0:14:03.840 I think that, uh you can if unipick find uh, 0:14:03.880 --> 0:14:07.160 you know, relatively small in relation to the entire scale 0:14:07.200 --> 0:14:12.079 of the program issues to include fraud access by public companies. 0:14:12.480 --> 0:14:15.280 We're all familiar with the stories out there, but you know, 0:14:15.440 --> 0:14:18.760 some of my colleagues, Mike Falkoner and Steve Myron have 0:14:18.880 --> 0:14:20.520 looked at in the paper they put out at the 0:14:20.560 --> 0:14:23.800 end of last year, the program on the whole was 0:14:24.000 --> 0:14:27.960 hugely successful in saving tens of millions of jobs. And 0:14:28.040 --> 0:14:30.520 so I don't think it's fair to say because there 0:14:30.560 --> 0:14:32.720 was one news story about shake Shack, or there were 0:14:32.760 --> 0:14:35.480 a few instance to the fraud, that the whole program 0:14:35.600 --> 0:14:38.000 is hard. I think if you look at the complete record, 0:14:38.000 --> 0:14:40.840 there's no question that this program was hugely important in 0:14:40.880 --> 0:14:44.280 protecting the economy through the worst of the pandemic. Dan, 0:14:44.320 --> 0:14:46.960 thanks so much for joining us. We appreciate it. Dan Katz, 0:14:47.000 --> 0:14:49.600 he's a former senior advisor at the U. S. Treasury 0:14:49.600 --> 0:14:55.520 Department from one. He's also a Bloomberg opinion contributor. Dan 0:14:55.640 --> 0:14:58.960 cats looking at the market here, Matt continued strength in 0:14:59.240 --> 0:15:01.560 this market. Continue to see green on the screen. It's 0:15:01.560 --> 0:15:05.240 a positive economic data and some decent earnings. Yeah. Absolutely, 0:15:05.320 --> 0:15:08.080 the bank earnings picture, although I guess, um, you and 0:15:08.160 --> 0:15:09.920 Dave Wilson need to sit down over a beer and 0:15:09.960 --> 0:15:14.000 discuss that. Maybe you can meet in Montclair and figure 0:15:14.000 --> 0:15:16.360 out whether these bank earnings look good or bad. They 0:15:16.400 --> 0:15:20.440 are definitely they have definitely beaten by a large margin um. 0:15:20.480 --> 0:15:24.360 Certainly JP Morgan yesterday and Goldman Sachs, but even today 0:15:24.400 --> 0:15:26.520 Bank America I thought was really pretty good when they 0:15:26.560 --> 0:15:29.360 came out with earnings a little bit early. We'll continue 0:15:29.360 --> 0:15:33.440 to watch reaction. This is Bloomberg. Let's get a look 0:15:33.440 --> 0:15:36.200 at this market holistical way. We do that with Chris 0:15:36.240 --> 0:15:40.360 Wolfe's the chief investment officer for First Republic Private Wealth Management. 0:15:40.400 --> 0:15:43.880 They have about two and twenty billion dollars in assets 0:15:43.960 --> 0:15:46.080 under management. So christ Matt and I were just talking 0:15:46.080 --> 0:15:47.880 about this market, and we're saying, hey, even when you 0:15:47.960 --> 0:15:50.800 got a big company like a city like a Bank 0:15:50.800 --> 0:15:53.960 of American, report some really strong numbers, the stock doesn't 0:15:54.000 --> 0:15:58.280 necessarily move higher. Does that signal maybe a risk for 0:15:58.320 --> 0:16:03.120 this market that, uh, the market's really discounting just extraordinary 0:16:03.120 --> 0:16:06.760 earnings and if you don't deliver, you're not gonna get paid. Yeah. 0:16:06.760 --> 0:16:09.480 I think there's a syentim here, which is what's going 0:16:09.520 --> 0:16:11.320 on in the first quarter. And I think a lot 0:16:11.320 --> 0:16:14.480 of expectations for investors were built up to a pretty 0:16:14.560 --> 0:16:17.120 high level. So what they're really looking for, I think 0:16:17.240 --> 0:16:19.600 is the guidance about the second half of the remainder 0:16:19.640 --> 0:16:21.880 part of this year. And that guidance has turned out 0:16:21.920 --> 0:16:23.760 to be just a little bit tepid. It makes sense 0:16:23.800 --> 0:16:26.760 for folks to offer guidance that's not super bullish right now. 0:16:26.840 --> 0:16:29.440 So I think investors just built up an expectation that 0:16:29.520 --> 0:16:32.560 the guidance for the remainder of the year and particularly financials, 0:16:32.800 --> 0:16:35.200 you know, loan volume and other things, would be very strong, 0:16:35.280 --> 0:16:37.800 and it's just come in a little bit less than expected. 0:16:37.880 --> 0:16:40.080 I don't I don't read a lot into today's trading 0:16:40.120 --> 0:16:42.760 that there's a huge risk here. I think what's behind 0:16:42.760 --> 0:16:44.680 all of it in terms of the economic data is 0:16:44.720 --> 0:16:47.720 still very strong that we're going to get into an 0:16:47.800 --> 0:16:50.440 earning season, not just for first quarter, which would be good, 0:16:50.560 --> 0:16:52.240 but I think it'll be carried through the second and 0:16:52.280 --> 0:16:56.040 third quarter. Does loan growth have to be strong for 0:16:56.160 --> 0:17:01.000 you to really expect seven, you know, eight percent growth 0:17:01.200 --> 0:17:03.160 this year for you to really expect to pop in. 0:17:04.240 --> 0:17:06.520 Do people need to be running out and borrowing money 0:17:06.560 --> 0:17:08.760 for businesses if the economy is going to be growing 0:17:08.760 --> 0:17:12.639 that that quickly? You know? I think, Look, we wrote 0:17:12.640 --> 0:17:14.360 a piece a couple of months ago called the Year 0:17:14.440 --> 0:17:17.119 two Bridges. We thought one was gonna have required to 0:17:17.119 --> 0:17:19.160 get through it a healthcare bridge and a stimulus bridge 0:17:19.200 --> 0:17:21.479 and BOYD and we're getting that in spades. I do 0:17:21.560 --> 0:17:24.520 think there's some learnering concerns though about kind of the 0:17:24.600 --> 0:17:28.240 variants in COVID, and ultimately the Johnson Johnson vaccine news 0:17:28.280 --> 0:17:30.920 has been to think a little bit challenging. So um, 0:17:30.960 --> 0:17:33.760 I think that healthcare bridge is mostly built, but it's 0:17:33.800 --> 0:17:35.760 got a ways to go, and the stimulus bridge is 0:17:35.840 --> 0:17:38.239 just you know, being built as fast as possible. So 0:17:38.600 --> 0:17:40.919 why would we use this as an example because I 0:17:40.960 --> 0:17:43.440 think when you're talking about the second, third, and fourth quarter, 0:17:43.920 --> 0:17:46.920 there's a little bit of caution now, But as sentiment improves, 0:17:46.960 --> 0:17:49.359 the COVID bridge gets finalized and we get into a 0:17:49.359 --> 0:17:52.840 place where there's more infrastructure spending, I think sentiment improves 0:17:52.840 --> 0:17:55.359 a little bit more and that releases some of the 0:17:55.400 --> 0:17:57.520 savings to get you to the seven, eight, nine. And 0:17:57.560 --> 0:17:59.720 by the way, there's even an outside chance on GDP 0:18:00.119 --> 0:18:02.800 that you print a nine or ten handle uh in 0:18:03.840 --> 0:18:06.679 one because of all the stimulus that hasn't been spent yet, 0:18:06.720 --> 0:18:09.199 a lot of it's been saved. So to the extent 0:18:09.240 --> 0:18:11.960 companies looking to run out and borrow money, I think 0:18:12.000 --> 0:18:14.119 what they're gonna be is a little bit cautious and 0:18:14.200 --> 0:18:16.520 kind of use the first quarter and use the kind 0:18:16.520 --> 0:18:18.840 of spending story that consumers are going to put up 0:18:18.840 --> 0:18:21.760 there as sentiments improves as a way to respond to that. 0:18:21.880 --> 0:18:23.560 But you know, all things told, banks are in a 0:18:23.600 --> 0:18:25.919 pretty good shape to capture that, you know, potential loan 0:18:25.960 --> 0:18:28.320 growth later this year. All right, Chris, we look at 0:18:28.320 --> 0:18:32.359 these equity markets here charging charging to ever higher highs. 0:18:32.800 --> 0:18:36.120 What's the biggest risks to the equity call right here? 0:18:38.080 --> 0:18:40.240 You know that. I think the biggest is really two 0:18:40.280 --> 0:18:42.560 of them. One is the bridges we just talked about 0:18:42.640 --> 0:18:45.560 fail for some reason. There's a variant mutation in the 0:18:46.040 --> 0:18:49.000 uh COVID story that we just don't understand yet. Science 0:18:49.040 --> 0:18:51.520 suggests that mutations are picking up outside the rest of 0:18:51.520 --> 0:18:54.199 the world, and that's kind of a tale to that 0:18:54.280 --> 0:18:57.080 story as well. The big surprise has been how weak 0:18:57.440 --> 0:19:00.000 the vaccine response has been in Europe and other areas 0:19:00.000 --> 0:19:02.360 of the world. The US, despite all of our challenges, 0:19:02.359 --> 0:19:05.200 is actually leading in this regard. So the risks of 0:19:05.359 --> 0:19:07.800 the rest of the world just ends up with lots 0:19:07.800 --> 0:19:09.520 of variants running around and we end up in a 0:19:09.560 --> 0:19:13.159 reinfection pattern. And that's a meaningful one with respect to 0:19:13.280 --> 0:19:16.960 consumption sentiment and ultimately market multiples. UM. You know, I 0:19:17.000 --> 0:19:19.200 think the second piece is more strategic, and it's really 0:19:19.240 --> 0:19:22.600 what's the relationship between US and China right now? It's 0:19:22.840 --> 0:19:25.840 you know, fairly challenged. There's a lot of things that 0:19:26.080 --> 0:19:28.640 look like China wants to be equal with the US. 0:19:28.680 --> 0:19:30.720 In many ways they are, But the reality is, I 0:19:30.720 --> 0:19:35.359 think economically, things like digital currencies, for example, changing payment 0:19:35.400 --> 0:19:38.880 systems represents structural changes that I'm not sure how they're 0:19:38.880 --> 0:19:41.280 all going to play out, And I think for most investors, 0:19:41.520 --> 0:19:43.600 I'm not sure they're all bad, but they may represent 0:19:43.680 --> 0:19:45.719 a change and a big change to the way they 0:19:45.720 --> 0:19:50.200 think about investing in one and beyond. So what are 0:19:50.200 --> 0:19:53.639 you saying that China maybe as a command economy UM 0:19:53.760 --> 0:19:55.639 has a little bit of a lead here in the 0:19:55.760 --> 0:19:58.800 in the short and near term. But with respect to 0:19:58.880 --> 0:20:01.320 blockchain technology all the way back to the you know, 0:20:01.440 --> 0:20:04.919 mine is tracking people with COVID. I mean, there's no 0:20:05.000 --> 0:20:10.119 privacy issues there. They run everything that that is absolutely true, 0:20:10.119 --> 0:20:12.240 but that's their model, and their their model works to 0:20:12.240 --> 0:20:14.879 put up GDP numbers, you know, fairly consistently. You can 0:20:14.920 --> 0:20:17.240 believe them or not but the reality is that's where 0:20:17.280 --> 0:20:20.480 they are. The relationship US has what China is important though, 0:20:20.920 --> 0:20:22.840 key though. All right, Chris, thanks so much for joining us. 0:20:22.920 --> 0:20:25.920 Chris Wolf, their chief investment officer of First Republic Private 0:20:25.920 --> 0:20:29.080 Wealth Management, talking to us about the state of the 0:20:29.080 --> 0:20:32.120 economy as we're in the heart of bank earnings. This 0:20:32.880 --> 0:20:37.920 is Bloomberg I want to bring in right now. Can Leon, 0:20:37.960 --> 0:20:42.520 he's a global director of UH Industry and Equity Research 0:20:42.600 --> 0:20:47.800 at cf are A Research, talking to us about what 0:20:47.840 --> 0:20:51.080 we saw this morning and yesterday, Um, in terms of 0:20:51.080 --> 0:20:55.160 bank earnings and what we can expect tomorrow. Can first off, UM, 0:20:55.280 --> 0:20:57.879 talk to me about Bank America earnings. They came out early, 0:20:58.640 --> 0:21:00.919 very early. In fact, it was the first time I 0:21:00.920 --> 0:21:04.160 can remember coming out in the five am hour Bank 0:21:04.200 --> 0:21:08.720 America earnings. They looked good. Um, initially not you know, 0:21:08.840 --> 0:21:12.040 JP Morgan, Goldman Sacks good, but still pretty good. And 0:21:12.119 --> 0:21:15.280 yet the stock is off. Why are investors selling it? 0:21:17.000 --> 0:21:20.439 So Bank of America is more of a commercial bank 0:21:20.760 --> 0:21:25.399 than a capital markets driven back JP Morgan also is 0:21:25.480 --> 0:21:28.480 kind of a hybrid. Of course, Goldman, Sachs and Morgan 0:21:28.560 --> 0:21:32.120 Stanley are all feed in with the capital markets, which 0:21:32.119 --> 0:21:34.919 we like a lot Bank of America. Then when you 0:21:34.960 --> 0:21:37.840 look at the mechanics of how it drives growth and 0:21:37.920 --> 0:21:43.320 the high investor expectations ahead has to drive higher net 0:21:43.400 --> 0:21:48.240 interest income, which means a steepening yield curve, and then 0:21:48.400 --> 0:21:51.800 it's the US economy. Can we get the consumer and 0:21:52.080 --> 0:21:58.920 commercial businesses to increase lown activity. Those measures were negative 0:21:59.280 --> 0:22:02.520 in the quarter, and that's why the stock is trading down. 0:22:02.960 --> 0:22:07.240 And the expectations is from the CFO of Bank America's 0:22:07.480 --> 0:22:10.920 maybe with a rising yield curve, you know, we can 0:22:10.960 --> 0:22:14.560 bring back a billion dollars of net interest income that's 0:22:14.600 --> 0:22:18.200 not there today. So it's a very different profile than 0:22:18.240 --> 0:22:20.320 a JP Morgan, which is a little bit more like 0:22:20.400 --> 0:22:24.000 an investment bank, or the ones we really liked with 0:22:24.119 --> 0:22:29.439 strong buys, Goldman Sachs and Morgan Stanley. So that's interesting, Ken, 0:22:29.480 --> 0:22:31.680 because yesterday we had Chris Whale and on, chairman of 0:22:31.720 --> 0:22:34.159 Will and Global Advisors, and he was making the argument 0:22:34.240 --> 0:22:36.240 that you know, when you strip out some of the 0:22:36.600 --> 0:22:42.040 reserve reversals UH and some of the capital markets business, 0:22:42.080 --> 0:22:44.800 the underlying banking business, he thinks by YearIn is going 0:22:44.840 --> 0:22:47.600 to be in a world of trouble. Is that too 0:22:47.600 --> 0:22:50.600 bearish from your perspective, it isn't. But most of the 0:22:50.640 --> 0:22:54.520 bank analysts, so I am a bank analyst, but you 0:22:54.560 --> 0:22:57.920 know they're siloed and and they they're just seeing, we're 0:22:57.920 --> 0:23:00.320 going to model out of higher net interesting home this 0:23:00.440 --> 0:23:03.840 year and next year. And you know what's interesting here 0:23:03.880 --> 0:23:07.800 is when you look at traditional commercial banks, JP Morgan 0:23:07.920 --> 0:23:10.800 is the only one that has shown positive growth in 0:23:10.840 --> 0:23:14.560 this category since two thousand and fifteen, not Wills far Ago, 0:23:14.720 --> 0:23:18.720 Knock Bank of America, perhaps not some of the regional banks. 0:23:18.800 --> 0:23:24.119 So it is tough, but the overall environment works two ways. 0:23:24.720 --> 0:23:26.880 We have recovery, but you've got to see that pull 0:23:27.000 --> 0:23:30.960 through into the bank metrics I mentioned. And secondly, the 0:23:31.160 --> 0:23:37.520 risk related to UH credit risk exposure and loan reserves 0:23:38.119 --> 0:23:40.360