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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moving news.

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Speaker 1: Find the Bloomberg Markets Podcast called Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: Let's bring in some smart people who do this stuff

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Speaker 1: for a living. We'll kind of see if you can

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Speaker 1: break it down a little bit. Chris Whalen, founder of

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Speaker 1: Whale and Global Advisors, joins us here and Hugh Henry

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Speaker 1: have Aklectica Asset Management. They joined for an extended round

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Speaker 1: table on what we might be seeing in these markets. Hugh,

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Speaker 1: thanks so much for joining us here in our studio here.

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Speaker 1: What do you make of the past few days that

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Speaker 1: fed the ECB. We've got some banks kind of I

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Speaker 1: don't know if it's crisis or not. That's debatable, but

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Speaker 1: there's a lot going on out there. What do you

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Speaker 1: make of it?

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Speaker 3: I don't think it's debatable. Okay, you know this is

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Speaker 3: and we went over the clip, but I mean, seriously,

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Speaker 3: this this is real, right. I think the FED will

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Speaker 3: stand charged with the greatest FED folly in a very

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Speaker 3: long time.

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Speaker 2: And in terms of raising rates too fast or what

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Speaker 2: so or too late.

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Speaker 3: So it is a fact that they raise rates fast, yeah,

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Speaker 3: in terms of the timeline and the magnitude. And typically

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Speaker 3: the FED doesn't do that. And there's a reason for

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Speaker 3: that because your bank is effectively like a hedge fund.

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Speaker 3: Yeah it has it gets the money from deposits, right,

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Speaker 3: but there's no gate. Yeah, you can take like with

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Speaker 3: a hedge fund, they insist. I mean, if you're in

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Speaker 3: like one of those big hedge funds, try getting your

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Speaker 3: money out. It takes you to like, you know, it

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Speaker 3: takes you two years with that with the iPhone. With

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Speaker 3: the banks, so the gate issue, right, But the other

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Speaker 3: issue is that the assets are loans and it takes

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Speaker 3: kind of like two years to reprice your loan book

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Speaker 3: so that you can raise your CDs without destroying your

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Speaker 3: net interest margin like with our going into losses. So

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Speaker 3: the FED is cognizant of that, right, and it takes

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Speaker 3: its time. This was an impatient Fed, okay, And then

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Speaker 3: what we've discovered.

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Speaker 2: Well, first two patient, right, and then impatient.

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Speaker 3: Well, I think the world of economicists has changed profoundly.

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Speaker 3: But we may come back to that. But yeah, and

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Speaker 3: then impatient. But it's the deposit flight revealed. There's always

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Speaker 3: a revelation in markets, and the revelation has been the

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Speaker 3: conceit and the arrogance of a whole to maturity bond portfolio.

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Speaker 3: And that was fine, okay when rates were stable, but

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Speaker 3: when you aggressively hid them. And then with this technology jump,

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Speaker 3: with the iPhone and with the deposit flight, suddenly you

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Speaker 3: had to mark because deposits were fleeing, You had to

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Speaker 3: reduce the HTM portfolio, and suddenly you discover that you've

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Speaker 3: wiped out your shareholder funds. There was a FED report

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Speaker 3: back I think to the twenty third of March, which revealed,

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Speaker 3: as we know that total bank assets in the US

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Speaker 3: twenty three trillion dollars. What does that give? Give us

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Speaker 3: a reference? That's one time's GDP. Yeah, and you had

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Speaker 3: about twenty three billion of shareholder funds in fractional reserves

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Speaker 3: and we're kind of leveraged entities. But the marked market

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Speaker 3: or the unmarked loss was two point three trillion dollars. Okay, Right,

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Speaker 3: so we're talking about your metaphorically the kind of notion

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Speaker 3: of the dead people walking the banking sector, and that's

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Speaker 3: kind of I'm afraid that's on the Federal reserve. We

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Speaker 3: are staring at a scenartio which is very similar to

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Speaker 3: nineteen thirty where we had the widespread failure of the

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Speaker 3: US banking community.

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Speaker 2: Chris Whalen, what do you think about that? I want

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Speaker 2: to bring you in here because you're one of the

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Speaker 2: foremost bank analysts in the country. What do you think

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Speaker 2: about Hugh's point that the FED really kind of has

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Speaker 2: blood on its hands.

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Speaker 4: Well, I think I totally agree with Hugh in the

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Speaker 4: nineteen thirty metaphor is the correct one, because you know,

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Speaker 4: this isn't the two thousand and eight which was basically

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Speaker 4: just a bit of a tantrum around private mortgages. This

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Speaker 4: is solvency. This is a FED induced you know, panic

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Speaker 4: that looks a lot like the eighties. By the way,

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Speaker 4: with Paul Volker, the last time we had benchmarks four

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Speaker 4: or five points about bank deposit rates, it was back

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Speaker 4: in the eighties. We destroyed the snls, but the snls

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Speaker 4: didn't matter. These banks matter. That's the difference. And I

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Speaker 4: think that the FED is badly miss you know, they

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Speaker 4: panicked in twenty eighteen with the money market crisis in December.

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Speaker 4: They started dumping reserves into the system the next year,

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Speaker 4: a year before COVID. You can see it on the

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Speaker 4: Bloomberg look at the index for Ginny May duration. Wonderful

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Speaker 4: chart you guys have on the turbinil. It tells the story.

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Speaker 4: So by the time we get to COVID, the duration

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Speaker 4: on two point two trillion dollars in Giny MA securities

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Speaker 4: is one, which is almost impossible.

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Speaker 1: But Chris, I mean we we've heard from some analysts

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Speaker 1: that most or a lot of these I would say

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Speaker 1: most of these banks they have enough capital.

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Speaker 2: And let's talk specifically about pac West. I had our

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Speaker 2: regional banks analyst in here, Herman Chan. He said they

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Speaker 2: have one hundred and eighty eight percent assets to deposits.

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Speaker 4: I know, but it doesn't matter. These are going concerns.

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Speaker 4: When the stock price gets two point three times buck,

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Speaker 4: that tells you that the bank's going out of business.

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Speaker 4: It's like the politicians. They get voted on every day

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Speaker 4: in the stock market. Right, we're voting on pack West

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Speaker 4: this morning.

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Speaker 2: And you explains to me like I'm five, okay, if

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Speaker 2: every if every deposit goes into pack West and says

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Speaker 2: I want my money out. They can have it out

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Speaker 2: as far as I understand it right now.

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Speaker 4: No, you're thinking of this like it's a wonderful life. No,

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Speaker 4: that's not the way financial markets work. They want to

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Speaker 4: know that that bank is a going concern, and when

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Speaker 4: the stock price gets as low, the business counterparties back away,

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Speaker 4: and the formula and the bloomberg by the way that

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Speaker 4: generates probability of default is geared off of the equity price.

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Speaker 4: Uh huh, okay, what do you think the hedge funds use?

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Speaker 4: That's how it works.

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Speaker 2: So I'm typing it in right now, Jack W Equity DRSK.

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Speaker 4: What is it like four hundred basis points?

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Speaker 2: So yeah.

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Speaker 4: So my point is there's a lot of banks behind

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Speaker 4: this flat and you know I own Western Alliance. I

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Speaker 4: love that bank Ato point seven times book. I think

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Speaker 4: they'll be fine. They had already traded off because the

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Speaker 4: mortgage market had come off. That was one of the

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Speaker 4: best performing banks in the country in twenty twenty one.

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Speaker 4: So you know what's happened is the FED wants to

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Speaker 4: pretend that they can have a traditional anti inflation scenario

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Speaker 4: raising target rates, but they're ignoring the manipulation of the

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Speaker 4: bond market that came with quantitative es.

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Speaker 2: Let me get you in here, because the securities. You

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Speaker 2: made your money and your name by figuring out how

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Speaker 2: this kind of thing is going to play out? Right,

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Speaker 2: how does how does this look to you right now?

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Speaker 2: I mean we've had a few days of this sixty,

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Speaker 2: you know, fifty percent drops in these bank prices, and

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Speaker 2: yet the FED came out yesterday and said, you know,

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Speaker 2: the US banking system is sound and resilient.

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Speaker 3: Yeah, lyyer puns on fire. So you know, I mean,

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Speaker 3: I'm now really representing acid capitalism. You know, the eclectica

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Speaker 3: is no more. This is the world of us at capitalism.

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Speaker 3: There are occasional ripples through risk assets when people kind

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Speaker 3: of get excited with this notion that the Treasury might

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Speaker 3: come in and ensure old deposits. I want to tell

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Speaker 3: you that we are past the point of relevancy for

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Speaker 3: that procedure, my fear, and I do not say this lightly.

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Speaker 3: I've given it great consideration given the peril present peril

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Speaker 3: with regard to the magnitude of losses on security portfolios

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Speaker 3: held within predominantly the regional banks. Okay, you have to

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Speaker 3: cast your mind back to nineteen thirty four and the

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Speaker 3: Gold Reserve Act back then, as everyone knows, the US

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Speaker 3: citizens in their gold was confiscated. I can actually conceive

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Speaker 3: of a federal or Treasury rule coming in and saying

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Speaker 3: for the next one hundred and eighty days, you can't

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Speaker 3: pull your money out of the banking sector.

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Speaker 2: That would be terrified.

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Speaker 3: That would be terrified. But let me tell you that

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Speaker 3: the issue people are the deposit flight today is not

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Speaker 3: people fearing uninsured deposits. It's people saying I'm getting paid

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Speaker 3: ten basis points on a CD I need five hundred.

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Speaker 3: And what was castraphic about yesterday was the FED raised

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Speaker 3: hate hiked again. It went, hey, why don't we just

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Speaker 3: encourage more deposit flight. They are do gooders, but they're

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Speaker 3: incompetent and they're not seeing the picture. We are on

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Speaker 3: the verge of a catastrophe which will rival two thousand

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Speaker 3: and eight.

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Speaker 2: They keep trying to separate. You know, every FED speaker

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Speaker 2: you've heard the last couple of weeks says they want

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Speaker 2: to separate monetary policy on the one side with financial

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Speaker 2: stability on the other, and they don't want to mix

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Speaker 2: the two. Right and and the FED fundraid is a

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Speaker 2: monetary policy tool. Chris, what do you think because I've

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Speaker 2: asked a lot of people, you know, who do you

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Speaker 2: blame for the collapse of SBB, Who do you blame

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Speaker 2: for the collapse of signature? And now a first Republic?

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Speaker 2: Is it possibly?

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Speaker 5: You know?

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Speaker 2: The FED raising rates five hundred basis points in a

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Speaker 2: year and two a man. Until today, everyone has said no, Well.

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Speaker 4: Look, these banks did stupid things. I've written about the

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Speaker 4: Silicon Valley particularly, But the key thing is that the

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Speaker 4: FED is in a very and dantic sort of way.

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Speaker 4: And I love what your guest has been saying. By

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Speaker 4: the way, I totally agree, but they want to continue

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Speaker 4: to think they can separate monetary policy from financial policy

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Speaker 4: when we execute monetary policy in the bond market. For

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Speaker 4: Christ's sake, it's not credible for the chairman of the

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Speaker 4: FED to get up and tell us yesterday that the

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Speaker 4: banking system is fine when the FDIC has already published

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Speaker 4: numbers to show that it's insolvent. Okay, the two agencies

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Speaker 4: need to talk to one another, and I've spoken to

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Speaker 4: governors about this in the past. You know, I worked

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Speaker 4: at the FED in New York. They don't talk to

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Speaker 4: the Bank supervision people, and when they were on the hill,

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Speaker 4: you saw a vice chairman Barr. He was asked, did

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Speaker 4: you talk to the bank supervisory staff about your monetary policy,

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Speaker 4: about quantitative easing? And the answer is numb. So I

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Speaker 4: think we should make economists where ankle bracelets are really do.

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Speaker 4: These are the most dangerous people in our society right now,

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Speaker 4: and they are going to crash the system. It is very,

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Speaker 4: very close to nineteen thirty three months.

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Speaker 1: Yeah, yeah, you we had it. Seems like a lot

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Speaker 1: of folks are saying we had JP Morgan come in

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Speaker 1: and buy First Republic, but Jamie Diamond he can't be

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Speaker 1: literally JP Morgan and go out and support the system.

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Speaker 1: You have a solution. Do you feel like our regulators

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Speaker 1: need to do something now? And if so, what would

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Speaker 1: that be.

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Speaker 3: Yeah, it's called zup, It's called we gotta be humble

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Speaker 3: and we gotta say we kind of got this wrong.

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Speaker 6: My point.

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Speaker 3: Hey, listen, we've got debt which is approximately four times

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Speaker 3: the economy. Okay, We've got interest rates which are five percent. Okay,

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Speaker 3: if we make the comparison with Jay's idle, mister Volka,

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Speaker 3: in the seventies, we had twenty percent interest rates, and

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Speaker 3: we had debt which was one time's GDP. We've gone

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Speaker 3: back to the future. Effectively, we're at the point where

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Speaker 3: the FED was at twenty percent interest rates and it

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Speaker 3: was breaking everything in nineteen eighty two.

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Speaker 2: Say in nineteen eighty two we had twenty percent rates

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Speaker 2: and what was debt to one time?

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Speaker 3: Well, one times twenty is twenty, right, and now we're

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Speaker 3: at four times debt and we're five five and a quarter, right,

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Speaker 3: So we've actually surpassed right where we're all So, Jay,

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Speaker 3: you did it? Okay, Now get your ass and get

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Speaker 3: those rates down to zero. Other thing's gonna blow up.

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Speaker 2: Where do you get four hundred times? Do you four

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Speaker 2: hundred percent GDP?

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Speaker 7: Where are you?

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Speaker 3: Okay? I'm We're like three point six seven or something, right,

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Speaker 3: and I'm running up to the neatest destiny point. But

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Speaker 3: if you add government debt, household debt, financial debt, industrial dead, you.

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Speaker 1: Get yeah, just real quickly, guys come across a Bloomberg terminal,

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Speaker 1: another red headline. Western Alliance Moll's options including a potential sale.

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Speaker 1: So here we go. Yeah, it's a Financial Times. You

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Speaker 1: want to credit the Financial Times.

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Speaker 4: I think if we have another major bank failure. J

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Speaker 4: Powells can have to his sign and this system cannot

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Speaker 4: tolerate that kind of uh, you know, coming to Jesus

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Speaker 4: if you will, on the part of an agency like

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Speaker 4: the FED, because we depend on them to get it right,

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Speaker 4: and when they don't get it right, you know, to

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Speaker 4: the earlier comment, what should they have done? They should

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Speaker 4: have gotten FED funds up to three and a half

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Speaker 4: or four and sold assets. That was the astute thing

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Speaker 4: to do given their past policy moves. But instead they're

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Speaker 4: pretending it's twenty years ago and they could just raise

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Speaker 4: you know, target rates as fast as they want to

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Speaker 4: reclaim their credibility, because that's what's really driving this. I

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Speaker 4: want a panic of Powell. And then you had the

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Speaker 4: fact that they were caught out on inflation and they

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Speaker 4: were so embarrassed as an agency that now they've tried

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Speaker 4: to regain their credibility in what eighteen.

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Speaker 2: Months, right, I want to reset this. Just so listeners understand,

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Speaker 2: we're talking to Hugh Henry, who was the founder of Eclectica.

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Speaker 2: Now he's a surfer and a hotelier.

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Speaker 3: I tweet I'm the Acid and he's.

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Speaker 2: On Twitter, and then we're and then we're talking about

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Speaker 2: to Chris Whalen, I'm going to say, for me at

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Speaker 2: least one of the foremost banking analysts in the country,

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Speaker 2: and of course he's also the chairman of Whaling Global Advisors.

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Speaker 2: We had yesterday pack West saying they're gonna look at

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Speaker 2: strategic options, including the possibility of a sale. Their shares

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Speaker 2: now are down more than fifty or fifty percent. Western

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Speaker 2: Alliance now is saying it's smalling options, including a potential

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Speaker 2: sit sale, and their shares are down about thirty percent.

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Speaker 1: Haulted there for Western Alliance.

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Speaker 2: I'm I'm good getting goosebumps to some extent because this

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Speaker 2: is so scary and so dramatic. But I don't know

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Speaker 2: if I'm just not smart enough to push back against

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Speaker 2: these two geniuses. Here we have a listener writing in

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Speaker 2: and asks of Hugh, do you think any of this

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Speaker 2: is imminent? And then he's got a list of three things,

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Speaker 2: government intervention, deposit guarantees, or a ban on short sailing.

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Speaker 3: Oh Heaven's buns on short selling. Let's bond the truth.

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Speaker 2: Let's pretend. I mean, I think is are we in

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Speaker 2: a real crisis here? That's about snowball.

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Speaker 3: This is wild Coyoto we've gone over the cliff. THEO

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Speaker 3: what happened yesterday. The FOMC is no longer relevant. Right,

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Speaker 3: policy's too tight. Policy will be like I say, my

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Speaker 3: one fear if you're talking about government regulation, government intervention,

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Speaker 3: and I don't say it lightly, but I fear that

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Speaker 3: they may have to get the deposit base of the

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Speaker 3: US within the banking sector.

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Speaker 1: I agree, that's Chris.

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Speaker 2: Do you really think that that regulators are going to

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Speaker 2: put up gates? I mean, that would cause the biggest

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Speaker 2: bank run since the nineteen thirties.

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Speaker 4: I imagine that's what happens when the central bank injects

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Speaker 4: volatility into this system. That's what they have done. You know,

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Speaker 4: to Hugh's earlier point, right, you can't move interest rates

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Speaker 4: this much when the average coupon in the mortgage space

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Speaker 4: is three percent. Everyone listen, solve it, just do the math, right,

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Speaker 4: But unfortunately these PhDs that the FED can't do math.

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Speaker 1: So but I guess, just my again, I'm not you

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Speaker 1: guys are the experts, but their focus, or one of

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Speaker 1: their key focus, is to fight inflation. So if the

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Speaker 1: only tool they have or one of the main tools

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Speaker 1: they have, is raising interest rates, do you suggest that

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Speaker 1: they should have stopped at three percent or something like that,

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Speaker 1: or they just go to best.

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Speaker 3: I want to let me take that one. Let me

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Speaker 3: take one, because what we are seeing here is we

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Speaker 3: are seeing the crucifixion of the common man on the

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Speaker 3: cross of the vanity of JPOW. In twenty twenty, Jpower

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Speaker 3: went on US prime television, daytime television and he said, folks,

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Speaker 3: we got this. We are we at the Federal Reserve.

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Speaker 3: We're printing money. I was like, J, don'll send you

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Speaker 3: to prison. You're not allowed. You have no federal sanction

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Speaker 3: to print money. What are you doing. But again, the

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Speaker 3: Fed business is in the business of camouflage. To see,

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Speaker 3: it's in the business of aura. We are all powerful.

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Speaker 3: And so it made that comment. And then you get

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Speaker 3: this profound supply shop which was COVID right, and prices

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Speaker 3: get elevated, and people go, hey, J, you're printing money.

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Speaker 3: And now prices are like running double digit and J

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Speaker 3: went in to meltdown in terms of the institution and

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Speaker 3: the repidity of the rate hikes was to protect and

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Speaker 3: safeguard and pull back that comment that they had printed money.

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Speaker 3: Inflation I believe is transitory. I'm now with bad deflationary

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Speaker 3: money running through the banking sector. I would anticipate that

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Speaker 3: we're going to see prices that, hey, this in ninety days.

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Speaker 3: CPI is going to be running at three and a

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Speaker 3: half percent. By the end of the year, then we're

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Speaker 3: going to be close to zero again. We're going to

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Speaker 3: be low the Fed's target.

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Speaker 2: Chris is terrifying.

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Speaker 4: What do you think, Well, no, but to his point,

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Speaker 4: if you're a banker right now and you're trying to survive,

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Speaker 4: what have you done? You told your loan officers to

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Speaker 4: step back and turn it down. So you know, this

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Speaker 4: economy is going to slow down because the supplier credit

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Speaker 4: from the banking system, from the bond market is going

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Speaker 4: to be greatly reduced. Because everybody who's got this problem

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Speaker 4: we've been talking about with interest rates, it's got to

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Speaker 4: raise cash. Everything is for sale.

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Speaker 5: So J.

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Speaker 4: Powell has basically put the whole banking industry, and I

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Speaker 4: mean big and small banks. Don't think the big guys

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Speaker 4: are immune here. They're all for sale now. They're all

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Speaker 4: in liquidation mode. And I think the FED is going

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Speaker 4: to come out of this greatly weakened. I think you're

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Speaker 4: going to see Powell force to resign and then I think, yell,

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Speaker 4: and I'll be following them out the door because you.

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Speaker 2: Know, Chris, do you believe that's.

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Speaker 4: Ceiling this week?

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Speaker 8: Right?

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Speaker 4: Yeah?

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Speaker 2: Well, now we have a tsunami. Before the tsunami, do

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Speaker 2: you believe that the that regulators could put up gates

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Speaker 2: to deposits?

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Speaker 4: Yes, it's inevitable. It's very third world, But here we are.

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Speaker 4: You know, we've got to start practicing, practicing our Portuguese.

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Speaker 4: I really think, you know, I worked in the emerging

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Speaker 4: markets years ago, and it is scary to me watching

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Speaker 4: this because it's like deja voo. And it's not just

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Speaker 4: Wiley coyote. I think that's very clear. But it is

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Speaker 4: the hubris and the personal convenience of J. Powell and

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Speaker 4: the other members of the FED board that we're seeing.

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Speaker 4: They're not acting in the public interest right now. They're

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Speaker 4: covering their ass because they don't want to admit they

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Speaker 4: made a mistake.

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Speaker 1: But let me ask a question, Chris, me just go

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Speaker 1: to your real quickly. The money comes out of the banks,

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Speaker 1: don't I just put it into money market funds? Isn't

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Speaker 1: the cash still in the system.

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Speaker 4: Because in the T bills at five percent?

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Speaker 1: Right, So it's still there. It's not like I put

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Speaker 1: it under my mattress.

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Speaker 3: Yeah, but is in there?

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Speaker 6: Right?

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Speaker 3: You know, you have to let me take this, Chris.

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Speaker 3: The you when you pooh the deposits out of the

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Speaker 3: banking sector, they've then got to sell assets, right, What

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Speaker 3: are their assets? Well, their assets are loans to the bank.

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Speaker 1: Accounting thing is very difficult.

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Speaker 3: Money. Money is complicated. It is easy to spend, difficult

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Speaker 3: to decipher.

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Speaker 1: All right, Chris, what are what are some of the

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Speaker 1: next steps you're looking for in the evolution of what

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Speaker 1: we're seeing out there or what should we be on

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Speaker 1: the lookout for.

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Speaker 4: I think the FED needs to come forward and offer

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Speaker 4: to finance all of these legacy assets that the banks

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Speaker 4: have a problem with at par at whatever the coup

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Speaker 4: pund rate is. So, if I have a gy may two,

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Speaker 4: defense should charge me two indefinitely until rates fall. That's

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Speaker 4: how you take this off the table.

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Speaker 1: All right. So, but but we've had some of the

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Speaker 1: bank's regional banks report and most of them are saying

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Speaker 1: don't worry.

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Speaker 2: I mean, well they have to say that, right, but

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Speaker 2: they can't say freak out. But there's everyone panic.

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Speaker 1: Look at our balance sheet, look at our stuff work okay, hughe,

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Speaker 1: I mean, do we not take them at their word?

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Speaker 3: I guess?

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Speaker 1: Or is it or is the problem too big for

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Speaker 1: an individual bank per se?

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Speaker 2: But do you have any bank deposits in the US?

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Speaker 3: Hugh, No, I don't. I'm in a very fortunate position.

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Speaker 3: But I owe the banks a lot of money. I

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Speaker 3: recommend that, in fact, to everyone, I'd recommend your panic.

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Speaker 3: I mean, this is a good time to panic.

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Speaker 2: Do you recommend gold? Do you like bitcoin? I?

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Speaker 3: So gold has a logic, okay, But when we look

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Speaker 3: at that kind of Bell curve of distribution of where

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Speaker 3: we are on distribution of returns, like gold presently is

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Speaker 3: a little bit too far on the right axis in

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Speaker 3: terms of like it's kind of rich, it could be richer.

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Speaker 2: Yeah, twenty fifty four, we're almost at the all time

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Speaker 2: You know what I like?

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Speaker 3: Well, I like the Bell curve. I like when it's

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Speaker 3: hitting the x axes at zero on the left hand side,

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Speaker 3: which is to say, you're like two three standard deviations

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Speaker 3: below the price norm over the last forty years.

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Speaker 6: Right.

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Speaker 3: Welcome to the world of the ultra long treasury, the

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Speaker 3: most despised security because we got the ballgame ount of

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Speaker 3: inflation right. So the TLT, the ETF has halfed right,

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Speaker 3: one hundred and eighty to ninety today it's one hundred.

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Speaker 3: I think that's an easy moonshot back to one hundred

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Speaker 3: and forty hundred and fifty.

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Speaker 1: Wow.

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Speaker 2: Wow, take a long long duration treasuries TLT. Chris, what

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Speaker 2: do you think, I mean, where would you put your

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Speaker 2: money right now?

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Speaker 5: Well?

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Speaker 4: I think you is right. It's hard to argue with

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Speaker 4: the treasury. I mean, my god, why wouldn't you be.

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Speaker 2: Everybody's at the short end of the curve, right, I mean,

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Speaker 2: hence the price. Yeah, but the head.

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Speaker 3: It's a function of let like so it's like with duration.

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Speaker 3: So if you've got a drug dealer storry I meant

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Speaker 3: to say, is their contract with a prime broker?

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Speaker 9: Right?

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Speaker 3: Then you get but mountains of leverage and you can

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Speaker 3: own two year. But if you've got an ny view

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Speaker 3: of a billion dollars, you might have one hundred billion

438
00:22:12,760 --> 00:22:15,320
Speaker 3: dollars in the two year and you'll make money. When

439
00:22:15,480 --> 00:22:18,640
Speaker 3: in the ordinary world we own the t LT, you've

440
00:22:18,640 --> 00:22:21,639
Speaker 3: got to own duration to get the to sup up

441
00:22:21,640 --> 00:22:23,760
Speaker 3: your returns for the retail invest So that's how that

442
00:22:23,760 --> 00:22:24,760
Speaker 3: that equation works.

443
00:22:25,119 --> 00:22:26,879
Speaker 1: All right, We're gonna let Hugh gosse you have some

444
00:22:26,960 --> 00:22:30,320
Speaker 1: TV coming up, so well you appreciate the time with Hugh.

445
00:22:30,359 --> 00:22:31,399
Speaker 1: We're gonna kick you out now.

446
00:22:31,440 --> 00:22:33,360
Speaker 2: I just want to quickly ask, I see at Hugh

447
00:22:33,720 --> 00:22:37,320
Speaker 2: under at Henry Underscore Hugh for your for your Twitter darling,

448
00:22:37,359 --> 00:22:40,359
Speaker 2: I love you, Yeah, okay. At Henry Underscore Hugh is

449
00:22:40,400 --> 00:22:45,520
Speaker 2: where you find Hugh Henry of course the founder of Eclectica.

450
00:22:46,119 --> 00:22:51,479
Speaker 2: And as I said, uh, surfer, Chris Whalen, what what

451
00:22:51,480 --> 00:22:52,879
Speaker 2: what do you think? What do you think we need

452
00:22:52,920 --> 00:22:56,120
Speaker 2: to be watching today? What where should I be faced

453
00:22:56,359 --> 00:23:00,760
Speaker 2: at kr E? Should I be looking at you know, rates?

454
00:23:00,800 --> 00:23:03,560
Speaker 2: Should I be looking at stocks? What's the most important

455
00:23:03,560 --> 00:23:04,359
Speaker 2: thing to follow?

456
00:23:05,359 --> 00:23:07,359
Speaker 4: Well, I think you're looking at long rates for the

457
00:23:07,440 --> 00:23:10,879
Speaker 4: flight to quality. I also think that there's gonna be

458
00:23:11,040 --> 00:23:14,320
Speaker 4: enormous pressure on short term rates in terms of buyers

459
00:23:14,640 --> 00:23:16,960
Speaker 4: because they're going to be running out of risk assets.

460
00:23:18,560 --> 00:23:21,800
Speaker 4: You know, the US is playing with fire. I think

461
00:23:21,800 --> 00:23:24,760
Speaker 4: we're going to see dollar swaps flip back to a

462
00:23:24,800 --> 00:23:28,520
Speaker 4: positive premium. They've been negative since it's a great financial crisis.

463
00:23:29,000 --> 00:23:30,600
Speaker 4: And then I think this is going to start to

464
00:23:30,640 --> 00:23:33,040
Speaker 4: weigh on the dollar and on the US financial system.

465
00:23:33,280 --> 00:23:35,959
Speaker 4: Because we're demonstrating the people that we don't know what

466
00:23:36,000 --> 00:23:39,560
Speaker 4: we're doing. You know, when the Fed chairman tells everybody

467
00:23:39,560 --> 00:23:42,040
Speaker 4: banks are fine and then you see the market going

468
00:23:42,080 --> 00:23:45,399
Speaker 4: the other way, that's not a good picture. And I

469
00:23:45,440 --> 00:23:49,080
Speaker 4: think it raises questions of credibility to go to the

470
00:23:49,080 --> 00:23:51,120
Speaker 4: top of the government. So you know, the president has

471
00:23:51,119 --> 00:23:53,640
Speaker 4: a problem. I think he needs to make some changes

472
00:23:53,680 --> 00:23:54,959
Speaker 4: in his team very quickly.

473
00:23:55,280 --> 00:23:57,000
Speaker 1: Well, that's right where I was going to go, Chris.

474
00:23:57,400 --> 00:24:01,520
Speaker 1: This has not made the pages of the local papers.

475
00:24:01,600 --> 00:24:03,440
Speaker 1: I mean, unless you're happen to be in a town

476
00:24:03,480 --> 00:24:08,640
Speaker 1: with and I've heard nothing from Washington really, from Congress

477
00:24:08,680 --> 00:24:11,760
Speaker 1: or the administration really about this issue.

478
00:24:12,280 --> 00:24:15,959
Speaker 4: Well, I've been hearing from career staff. Okay not the

479
00:24:15,960 --> 00:24:18,880
Speaker 4: political staff, but the career people. And most of these

480
00:24:18,920 --> 00:24:23,240
Speaker 4: agencies are deeply concerned and they're moving, but there's only

481
00:24:23,280 --> 00:24:26,760
Speaker 4: so much they can do. They execute government policy, they

482
00:24:26,840 --> 00:24:30,560
Speaker 4: don't make policy. So you know, right now, the government,

483
00:24:30,760 --> 00:24:33,440
Speaker 4: I think, unfortunately, is a very we can't I work

484
00:24:33,480 --> 00:24:36,000
Speaker 4: in the mortgage business. I deal with most of these

485
00:24:36,040 --> 00:24:39,639
Speaker 4: agencies in Washington, and they really don't have people that

486
00:24:39,760 --> 00:24:45,920
Speaker 4: are financial professionals. They have politicians mostly, so I think

487
00:24:45,960 --> 00:24:50,160
Speaker 4: we have an issue. You know, Washington wants to continue

488
00:24:50,200 --> 00:24:53,879
Speaker 4: to pretend that we can just fight inflation in a

489
00:24:53,960 --> 00:24:58,120
Speaker 4: very traditional sort of way without the implications for financial

490
00:24:58,160 --> 00:25:00,000
Speaker 4: stability that are clearly in our face.

491
00:25:00,240 --> 00:25:02,679
Speaker 2: Well, Hughes says we're headed for deflation by you know,

492
00:25:02,800 --> 00:25:03,240
Speaker 2: a year end.

493
00:25:03,320 --> 00:25:06,359
Speaker 4: I agree with him. I agree with him because look again,

494
00:25:06,760 --> 00:25:10,040
Speaker 4: if the bankers are stepping back to raise cash, what

495
00:25:10,080 --> 00:25:12,399
Speaker 4: does that mean. That means they're going to cut people

496
00:25:12,440 --> 00:25:15,520
Speaker 4: off from credit and that leads to default. I think

497
00:25:15,600 --> 00:25:18,120
Speaker 4: by third quarter, credit is going to be the headline, Matt,

498
00:25:18,720 --> 00:25:20,240
Speaker 4: you and I are going to be sitting here talking

499
00:25:20,240 --> 00:25:20,840
Speaker 4: about credit.

500
00:25:21,200 --> 00:25:23,240
Speaker 1: All right, All right, Chris, thank you so much for

501
00:25:23,320 --> 00:25:25,800
Speaker 1: joining us. Really appreciate getting some of your time and

502
00:25:25,800 --> 00:25:29,920
Speaker 1: getting your formed opinion. Chris Whalen, chairman of Whalen Global Advisors,

503
00:25:30,320 --> 00:25:33,880
Speaker 1: along with Hugh Henry from Eclectica Asset Management. What an

504
00:25:34,000 --> 00:25:38,200
Speaker 1: incredible roundtable, Matt, of just getting these quite frankly very

505
00:25:38,280 --> 00:25:40,480
Speaker 1: dire views of kind of some of the risks in

506
00:25:40,520 --> 00:25:41,160
Speaker 1: the financial sys.

507
00:25:41,160 --> 00:25:42,920
Speaker 2: It's really freaking me out. I think we need to

508
00:25:42,920 --> 00:25:46,320
Speaker 2: talk to some optimistic bolts. I know, because I'm terriff.

509
00:25:46,400 --> 00:25:48,560
Speaker 2: I'm running home, right now sell the house, sell the car,

510
00:25:48,640 --> 00:25:50,000
Speaker 2: sell the kids, and yep, we'll see.

511
00:25:50,000 --> 00:25:51,200
Speaker 1: All right, let's say down to Washington.

512
00:25:54,119 --> 00:25:57,480
Speaker 6: You're listening to the team Ken's Are Live program, Bloomberg

513
00:25:57,560 --> 00:26:00,959
Speaker 6: Markets weekdays at ten am East Darren con Burg dot Com,

514
00:26:01,000 --> 00:26:04,160
Speaker 6: the iHeartRadio app and the Blowberg Business app, or listen

515
00:26:04,240 --> 00:26:06,320
Speaker 6: on demand wherever you get your podcasts.

516
00:26:08,200 --> 00:26:10,040
Speaker 1: All right, let's flip it. Maybe we can get a

517
00:26:10,080 --> 00:26:13,040
Speaker 1: different perspective. I'm not sure, but we've certainly got somebody

518
00:26:13,040 --> 00:26:16,080
Speaker 1: here who has a learned perspective, Doctor Richard Portus. He's

519
00:26:16,119 --> 00:26:18,120
Speaker 1: a professor at the London Business School, but that does

520
00:26:18,160 --> 00:26:22,920
Speaker 1: not begin to explain kind of his background, his experience,

521
00:26:22,920 --> 00:26:24,760
Speaker 1: because the CV just goes on and on and on,

522
00:26:25,000 --> 00:26:27,679
Speaker 1: undergraduate of elphd at Oxford, all the other kind of

523
00:26:27,720 --> 00:26:30,199
Speaker 1: stuff that goes on there. I'm looking for perspective, and

524
00:26:30,200 --> 00:26:32,280
Speaker 1: that's why we asked doctor Porters to join us here.

525
00:26:32,600 --> 00:26:34,320
Speaker 1: He's based in London, buddy, joining us here in our

526
00:26:34,320 --> 00:26:38,400
Speaker 1: Bloomberg studio here. So we appreciate that, Doctor Porters, thanks

527
00:26:38,400 --> 00:26:41,840
Speaker 1: so much for coming in. How concerned should investors be

528
00:26:42,080 --> 00:26:43,919
Speaker 1: about the US banking system?

529
00:26:44,119 --> 00:26:46,680
Speaker 5: I think very concerned. I certainly wouldn't want to be

530
00:26:46,720 --> 00:26:50,520
Speaker 5: holding shares in any of the mid sized banks, any

531
00:26:50,600 --> 00:26:52,840
Speaker 5: of the midsize banks, but certainly not those that have

532
00:26:53,440 --> 00:26:59,760
Speaker 5: profiles that look anything like First Republic or Silicon Valley

533
00:26:59,840 --> 00:27:04,879
Speaker 5: or whatever that is to say, specialized, specialized, clontel I

534
00:27:05,040 --> 00:27:08,680
Speaker 5: net Worth maybe whatever. Okay, you just don't want to

535
00:27:08,720 --> 00:27:11,040
Speaker 5: be concentrated in that way, and you don't want to

536
00:27:11,040 --> 00:27:15,080
Speaker 5: be sensitive to deposit runs. That's what we call the

537
00:27:15,080 --> 00:27:20,000
Speaker 5: deposit beta, right, Okay, how much how much deposits will

538
00:27:20,000 --> 00:27:22,920
Speaker 5: move out in response to an interest rate differential that

539
00:27:22,960 --> 00:27:27,040
Speaker 5: you can get elsewhere, And what we saw with what

540
00:27:27,040 --> 00:27:29,080
Speaker 5: we've seen in a number of these cases is precisely that.

541
00:27:30,119 --> 00:27:33,240
Speaker 2: So what is the answer to stop this? You know,

542
00:27:33,280 --> 00:27:35,360
Speaker 2: it seemed like we had it in the rear view

543
00:27:35,400 --> 00:27:37,840
Speaker 2: mirror when Jamie Diamond and JP Morgan came in and

544
00:27:37,880 --> 00:27:41,080
Speaker 2: bought First Republic, or at least that was you know,

545
00:27:41,119 --> 00:27:44,280
Speaker 2: at the Milken conference, that was the general feeling that

546
00:27:44,800 --> 00:27:48,880
Speaker 2: fears had been calmed. Now, you know, the concerns are

547
00:27:48,920 --> 00:27:53,159
Speaker 2: front and center again, and the Federal Reserve grays rates

548
00:27:53,240 --> 00:27:56,440
Speaker 2: even further, which seems to be the crux of the problem.

549
00:27:56,840 --> 00:27:58,879
Speaker 5: It is the crux of the problem, but that's because

550
00:27:59,040 --> 00:28:02,200
Speaker 5: rates were nominal rates were low for a very long

551
00:28:02,240 --> 00:28:05,080
Speaker 5: period of time. People took risks they shouldn't have taken.

552
00:28:05,119 --> 00:28:10,320
Speaker 5: They accumulated portfolios that were very long duration, and that's

553
00:28:10,400 --> 00:28:15,080
Speaker 5: coming home to roost. So it's very straightforward and it

554
00:28:15,119 --> 00:28:19,560
Speaker 5: should have been expected. Supervisors should have been much more

555
00:28:20,240 --> 00:28:24,640
Speaker 5: vigorous in their investigations of the various of these banks.

556
00:28:25,119 --> 00:28:28,240
Speaker 5: But where we are, where we are, and you know,

557
00:28:29,640 --> 00:28:33,000
Speaker 5: it made me think today. The Westpac story made me

558
00:28:33,080 --> 00:28:35,159
Speaker 5: think of the of the line about you know, how

559
00:28:35,240 --> 00:28:38,800
Speaker 5: does a bank stock come down by ninety percent? The

560
00:28:38,880 --> 00:28:41,040
Speaker 5: answer is that comes down by eighty percent the first

561
00:28:41,080 --> 00:28:42,440
Speaker 5: day and fifty percent the next day.

562
00:28:42,520 --> 00:28:43,160
Speaker 1: Oh good point.

563
00:28:43,240 --> 00:28:44,880
Speaker 2: Right, that's the myth and.

564
00:28:45,480 --> 00:28:50,680
Speaker 5: That's what's happening. And they can't survive like that. So

565
00:28:51,760 --> 00:28:55,400
Speaker 5: we will see more failures whatever you want to have

566
00:28:55,400 --> 00:28:55,880
Speaker 5: to call them.

567
00:28:55,920 --> 00:28:57,680
Speaker 1: But I had my foot of reserve yesterday. Tell me

568
00:28:57,680 --> 00:29:00,720
Speaker 1: there's not a problem with the banking system sound and resilient.

569
00:29:00,920 --> 00:29:05,080
Speaker 5: Yeah, you know, I've heard that one, that resilient line before.

570
00:29:05,200 --> 00:29:09,040
Speaker 5: When the chair of the Financial Stability Board in twenty seventeen,

571
00:29:09,400 --> 00:29:11,560
Speaker 5: Mark Kinnie, then the Governor of the Bank of England,

572
00:29:11,880 --> 00:29:15,440
Speaker 5: said we've now created a market based financial system that

573
00:29:15,600 --> 00:29:20,840
Speaker 5: is resilient. Right three years later March twenty twenty wasn't

574
00:29:20,840 --> 00:29:26,200
Speaker 5: resilient at all. And the answer is that that there

575
00:29:26,200 --> 00:29:29,400
Speaker 5: are some contingencies you can't provide for yep. But also

576
00:29:29,840 --> 00:29:33,880
Speaker 5: there are structural structural weaknesses, and you have to you

577
00:29:33,960 --> 00:29:34,560
Speaker 5: have to try.

578
00:29:34,440 --> 00:29:37,560
Speaker 2: To deal with those in the short term. How do

579
00:29:37,640 --> 00:29:39,520
Speaker 2: they deal with that? Do we see some kind of

580
00:29:39,600 --> 00:29:43,800
Speaker 2: government or regulatory intervention. Do we see deposit guarantees? Do

581
00:29:43,840 --> 00:29:47,920
Speaker 2: we see a ban on short selling? It seems archaic,

582
00:29:47,960 --> 00:29:49,040
Speaker 2: but you know, the.

583
00:29:49,160 --> 00:29:54,200
Speaker 5: Ban on short selling won't do you much good. The

584
00:29:54,240 --> 00:29:58,200
Speaker 5: suggestion that you might stop deposits from running. That won't do.

585
00:29:58,880 --> 00:29:59,600
Speaker 5: That just won't pass.

586
00:29:59,640 --> 00:30:01,760
Speaker 2: Putting up gates is what our last two guys said

587
00:30:01,800 --> 00:30:03,400
Speaker 2: was a possibility that will pass politically.

588
00:30:03,440 --> 00:30:05,719
Speaker 5: It's completely out of the question. I mean, you can

589
00:30:05,760 --> 00:30:08,640
Speaker 5: put up gates on a real estate an open end

590
00:30:08,680 --> 00:30:11,240
Speaker 5: real estate fund if there starts to be a run

591
00:30:11,280 --> 00:30:13,880
Speaker 5: on that, that makes sense, okay, And they can then

592
00:30:13,920 --> 00:30:16,640
Speaker 5: consolidate their position, liquidate some of their assets, and so

593
00:30:16,680 --> 00:30:19,640
Speaker 5: forth in a reasonable time. But you can't put a

594
00:30:19,720 --> 00:30:21,600
Speaker 5: gate on the positives. Come on, give me a break.

595
00:30:22,120 --> 00:30:23,880
Speaker 5: It's not gonna it's not gonna happen.

596
00:30:23,840 --> 00:30:25,200
Speaker 1: Right, Okay, that's the political stage.

597
00:30:25,280 --> 00:30:27,080
Speaker 2: They did, it would be the last thing they ever did.

598
00:30:27,120 --> 00:30:30,360
Speaker 5: If they did, it would be the last time anybody

599
00:30:30,400 --> 00:30:31,360
Speaker 5: put their money in a bank.

600
00:30:31,560 --> 00:30:34,880
Speaker 1: Yeah, yeah, that's right. Doctor Portershyer based in London at

601
00:30:34,880 --> 00:30:37,760
Speaker 1: the London School of Business. We heard from the ECB

602
00:30:37,960 --> 00:30:41,640
Speaker 1: today raising rates again. What's your view on the ECB

603
00:30:41,840 --> 00:30:43,440
Speaker 1: and kind of what they're trying to do with the

604
00:30:43,480 --> 00:30:44,480
Speaker 1: economy in Europe.

605
00:30:44,800 --> 00:30:47,320
Speaker 5: I think the general mood of the ECB is this

606
00:30:47,480 --> 00:30:51,680
Speaker 5: was a hawkish twenty five b raises point rise in

607
00:30:51,760 --> 00:30:55,240
Speaker 5: the sense that the President announced that she didn't expect

608
00:30:55,240 --> 00:30:57,240
Speaker 5: this to be the end, and I think that's probably

609
00:30:57,240 --> 00:31:00,600
Speaker 5: what we're going to see. Unless something thrown out happens,

610
00:31:01,160 --> 00:31:04,320
Speaker 5: We're going to see more twenty five basis point rises

611
00:31:04,880 --> 00:31:08,760
Speaker 5: up until the autumn. Probably my view they'll peak at

612
00:31:08,800 --> 00:31:14,280
Speaker 5: four four percent, but that's a sort of consensus few

613
00:31:14,280 --> 00:31:18,880
Speaker 5: there's no news there. I think they're wrong in the

614
00:31:18,920 --> 00:31:22,200
Speaker 5: sense that I think they should have paused. There is

615
00:31:22,240 --> 00:31:25,400
Speaker 5: a credit crunch developing as it is here, by the way,

616
00:31:25,760 --> 00:31:28,000
Speaker 5: for small and medium sized enterprises, it's going to be

617
00:31:28,160 --> 00:31:32,760
Speaker 5: very tough with the consumers, and yeah, and consumers too, absolutely,

618
00:31:33,840 --> 00:31:37,760
Speaker 5: but I'm worried about I'm worried about firms that won't

619
00:31:37,800 --> 00:31:40,600
Speaker 5: have access to credit. They and that's just you know,

620
00:31:41,120 --> 00:31:45,000
Speaker 5: that is a big thing in Europe. You know, the system,

621
00:31:45,600 --> 00:31:49,600
Speaker 5: the system is much more bank dependent in Europe than

622
00:31:49,600 --> 00:31:53,560
Speaker 5: it is in the United States, and that's where financing

623
00:31:53,600 --> 00:31:56,200
Speaker 5: comes from for the most part, and it's not going

624
00:31:56,280 --> 00:31:57,360
Speaker 5: to come. It's not coming.

625
00:31:57,880 --> 00:31:59,760
Speaker 2: I just had to jump in here with a quick

626
00:31:59,800 --> 00:32:03,360
Speaker 2: head line because we told our listeners earlier that Western

627
00:32:03,360 --> 00:32:08,160
Speaker 2: Alliance is mauling options, strategic options, including a potential sale

628
00:32:08,240 --> 00:32:12,320
Speaker 2: that came from the Financial Times. Western Alliance itself comes

629
00:32:12,360 --> 00:32:16,160
Speaker 2: out and says the report of deal talks is absolutely.

630
00:32:16,920 --> 00:32:17,320
Speaker 1: False.

631
00:32:17,840 --> 00:32:22,080
Speaker 2: So you know, this is the Financial Times reporting, Western

632
00:32:22,080 --> 00:32:26,880
Speaker 2: Alliance is denying it. Nonetheless, we do see shares of

633
00:32:26,960 --> 00:32:32,560
Speaker 2: Western Alliance down right now sixty one percent, so and

634
00:32:32,600 --> 00:32:35,760
Speaker 2: then of course they're halted, so you know, this is

635
00:32:36,040 --> 00:32:39,120
Speaker 2: absolute free fall. They've already done the eighty percent drop

636
00:32:39,160 --> 00:32:41,120
Speaker 2: that you talked about in the fifty percent drop.

637
00:32:40,920 --> 00:32:41,000
Speaker 9: And.

638
00:32:43,240 --> 00:32:48,360
Speaker 2: They have come down. Western Alliance shares have well eighty

639
00:32:48,440 --> 00:32:51,040
Speaker 2: one percent so far this year to date. But we're watching.

640
00:32:51,080 --> 00:32:54,480
Speaker 2: Of course. Pack West as well reports yesterday that pack

641
00:32:54,560 --> 00:32:58,640
Speaker 2: West is looking for strategic options. They're down eighty eight

642
00:32:58,680 --> 00:32:59,600
Speaker 2: percent year to date.

643
00:33:00,080 --> 00:33:03,920
Speaker 5: Outfits are dead men walking, Oh right, all right, and

644
00:33:04,680 --> 00:33:07,160
Speaker 5: that's there are going to be several of them. I

645
00:33:07,160 --> 00:33:10,760
Speaker 5: would not want to count, right, but that's where we.

646
00:33:10,720 --> 00:33:13,000
Speaker 1: Are, all right. Doctor Richard Porters, thank you so much

647
00:33:13,040 --> 00:33:14,960
Speaker 1: for joining us. We really appreciate you taking the time

648
00:33:15,120 --> 00:33:18,160
Speaker 1: coming into our students studio, Doctor Richard Porters. He's a

649
00:33:18,160 --> 00:33:21,160
Speaker 1: professor at the London Business School, giving us some of

650
00:33:21,200 --> 00:33:23,280
Speaker 1: his perspective and wisdom on kind of what we're seeing

651
00:33:23,280 --> 00:33:24,400
Speaker 1: out there in the economy.

652
00:33:24,720 --> 00:33:27,840
Speaker 6: You're listening to the tape Cat's are live program Bloomberg

653
00:33:27,880 --> 00:33:31,480
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

654
00:33:31,560 --> 00:33:34,760
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

655
00:33:34,800 --> 00:33:37,640
Speaker 6: You can also listen live on Amazon Alexa from our

656
00:33:37,640 --> 00:33:42,720
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

657
00:33:44,440 --> 00:33:47,000
Speaker 1: This segment's called Don't Fight the Fit. Barry Ridols, founder

658
00:33:47,000 --> 00:33:49,760
Speaker 1: of Bertholts Wealth Management and host of Masters in Business,

659
00:33:50,560 --> 00:33:53,040
Speaker 1: joins us here on the access line, and Danielle di

660
00:33:53,200 --> 00:33:57,400
Speaker 1: Martino Booth CEO and chief strategists at QI joins us

661
00:33:57,440 --> 00:33:59,520
Speaker 1: in studio. We're gonna have an extended kind of couple

662
00:33:59,560 --> 00:34:02,520
Speaker 1: blocks toscussion with these two very smart people. And Daniel,

663
00:34:02,560 --> 00:34:05,040
Speaker 1: let's start with you here. Matt and I just had

664
00:34:05,240 --> 00:34:07,960
Speaker 1: you know, we were scared to death about it. Forty

665
00:34:08,000 --> 00:34:09,839
Speaker 1: five minutes ago. We had it a panel of folks

666
00:34:09,880 --> 00:34:13,840
Speaker 1: saying this banking crisis is bad. It's like nineteen thirty.

667
00:34:14,000 --> 00:34:16,040
Speaker 2: Surely you met Hugh Henry in the green room, because

668
00:34:16,040 --> 00:34:17,160
Speaker 2: I saw you were both in there.

669
00:34:17,280 --> 00:34:22,080
Speaker 10: Yes, I did recently yesterday I think he postponed an

670
00:34:22,120 --> 00:34:23,800
Speaker 10: interview with me. He said, I think I need another

671
00:34:23,840 --> 00:34:24,440
Speaker 10: week to prepare.

672
00:34:24,719 --> 00:34:28,480
Speaker 1: Okay, So what's your feeling here just about the banking

673
00:34:28,520 --> 00:34:31,440
Speaker 1: system out there? And is a FED contributing to some

674
00:34:31,480 --> 00:34:34,480
Speaker 1: of this stress there? How all importance to you?

675
00:34:34,640 --> 00:34:36,840
Speaker 10: So I certainly think that the FED, that the Fed's

676
00:34:36,840 --> 00:34:41,080
Speaker 10: aggressive policies have obviously made quite the mark, if not,

677
00:34:41,239 --> 00:34:44,520
Speaker 10: if not a scar. But that being said, you know,

678
00:34:44,640 --> 00:34:47,040
Speaker 10: I was looking back at FED rate hikes, but by

679
00:34:47,080 --> 00:34:49,640
Speaker 10: the time we got to June July twenty twenty two,

680
00:34:50,200 --> 00:34:52,560
Speaker 10: I think the market should have ordered the banks at

681
00:34:52,600 --> 00:34:54,320
Speaker 10: least should have figured out that j.

682
00:34:54,480 --> 00:34:55,400
Speaker 11: Powell was serious.

683
00:34:56,360 --> 00:34:57,920
Speaker 10: You know, the day that he was confirmed by the

684
00:34:58,000 --> 00:35:01,720
Speaker 10: US Senate May the twelfth, twenty two, after being basically

685
00:35:01,760 --> 00:35:05,160
Speaker 10: an a holding puner for six months. After being renominated,

686
00:35:05,200 --> 00:35:08,160
Speaker 10: he went on NPR's marketplace and he did an interview

687
00:35:08,200 --> 00:35:10,480
Speaker 10: and he said, inflation is now my number one target.

688
00:35:10,480 --> 00:35:12,520
Speaker 10: We have to get it down to two percent period.

689
00:35:12,520 --> 00:35:16,000
Speaker 10: And he changed his tune that day. He has not

690
00:35:16,320 --> 00:35:20,399
Speaker 10: deviated and it's been almost a full year. So there's

691
00:35:20,440 --> 00:35:22,880
Speaker 10: an argument to be made that there was time to

692
00:35:22,960 --> 00:35:25,839
Speaker 10: prepare because by then he was lobbing out seventy five

693
00:35:25,840 --> 00:35:26,880
Speaker 10: basis point rate hikes.

694
00:35:27,160 --> 00:35:31,560
Speaker 2: Fair enough, they should have prepared. But in the absence

695
00:35:31,640 --> 00:35:35,880
Speaker 2: of action from bank managers, don't they have regulators that

696
00:35:35,960 --> 00:35:38,680
Speaker 2: are there to force them. I mean, what was Mary

697
00:35:38,760 --> 00:35:40,120
Speaker 2: Daily doing all this time?

698
00:35:40,239 --> 00:35:40,399
Speaker 5: Well?

699
00:35:40,400 --> 00:35:43,160
Speaker 11: What was Janet Yellen doing when New Century went down?

700
00:35:43,719 --> 00:35:46,239
Speaker 10: I mean, and in fact, you know, the very last

701
00:35:46,280 --> 00:35:50,160
Speaker 10: chapter of fed Up argues that we needed fewer banking

702
00:35:50,239 --> 00:35:51,600
Speaker 10: districts than we have today.

703
00:35:51,760 --> 00:35:54,520
Speaker 2: Fed Up is Danielle di Martino Booth's book, Yes High.

704
00:35:54,600 --> 00:35:56,960
Speaker 11: Riders take on why the Federal Reserve is bad for America.

705
00:35:57,239 --> 00:36:00,120
Speaker 2: It really subtles up. I think Hugh Henry agrees with you.

706
00:36:00,960 --> 00:36:04,400
Speaker 11: Yeah, but better place.

707
00:36:05,040 --> 00:36:07,680
Speaker 10: I really do think that he's got noble Aames. Listen

708
00:36:07,719 --> 00:36:09,720
Speaker 10: to what's coming out of the Milking conference this week.

709
00:36:10,440 --> 00:36:12,880
Speaker 10: There's a lot of fear running through the private credit

710
00:36:12,960 --> 00:36:15,880
Speaker 10: markets right now that something is going to give, and

711
00:36:16,000 --> 00:36:18,160
Speaker 10: yet private credit makes the rules.

712
00:36:18,800 --> 00:36:20,800
Speaker 11: They dictate monetary policy.

713
00:36:21,080 --> 00:36:23,640
Speaker 10: They have for years, ever since Dodd, Frank and all

714
00:36:23,719 --> 00:36:26,680
Speaker 10: of the talent went bleeding out of the conventional banking system.

715
00:36:26,760 --> 00:36:28,960
Speaker 10: They're like, wait a minute, we can't make egregious amounts

716
00:36:28,960 --> 00:36:31,080
Speaker 10: of profits. Fine, We'll just leave and set up our

717
00:36:31,080 --> 00:36:33,320
Speaker 10: own little non banking system that's bigger than the conventional

718
00:36:33,360 --> 00:36:33,920
Speaker 10: banking system.

719
00:36:34,000 --> 00:36:36,879
Speaker 1: Hey, Barry, want to bring you in here again. Matt

720
00:36:36,920 --> 00:36:41,000
Speaker 1: and I we kind of got, you know, freaked out

721
00:36:41,000 --> 00:36:43,800
Speaker 1: by some of our previous guests talking about the banking situation.

722
00:36:44,200 --> 00:36:46,359
Speaker 1: I kind of feel like, just from my personal view,

723
00:36:46,680 --> 00:36:49,120
Speaker 1: I've kind of term it now a crisis where a

724
00:36:49,120 --> 00:36:51,719
Speaker 1: few days ago I wasn't there. How are you viewing

725
00:36:51,760 --> 00:36:54,319
Speaker 1: what's going on out there in the banking world, you

726
00:36:54,360 --> 00:36:54,640
Speaker 1: know what?

727
00:36:54,840 --> 00:36:57,520
Speaker 7: I look, I have a slightly different view than than

728
00:36:57,640 --> 00:37:00,959
Speaker 7: Daniel does about the impact of the FED and why

729
00:37:01,040 --> 00:37:03,759
Speaker 7: you don't want to unilaterally disarm and not have a

730
00:37:03,840 --> 00:37:09,080
Speaker 7: central bank. But that said, the FED was very belated

731
00:37:09,239 --> 00:37:12,960
Speaker 7: in recognizing inflation. Some people have made the claim it

732
00:37:13,200 --> 00:37:17,800
Speaker 7: was because Chairman Powell was in that holding pattern, waiting

733
00:37:17,840 --> 00:37:20,400
Speaker 7: to be confirmed that the FED was sitting on their hands.

734
00:37:20,680 --> 00:37:23,319
Speaker 7: They didn't want to be seen raising rates. I don't

735
00:37:23,360 --> 00:37:26,239
Speaker 7: know how true that is, but it's pretty clear that

736
00:37:26,280 --> 00:37:31,719
Speaker 7: the fastest rising rate environment of the modern era has

737
00:37:31,760 --> 00:37:35,200
Speaker 7: broken things. You can't take rates from zero to five

738
00:37:35,320 --> 00:37:39,080
Speaker 7: hundred bases points in twelve months and not cause some

739
00:37:39,120 --> 00:37:44,560
Speaker 7: sort of damage. So some of this is the Fed's responsibility. Now,

740
00:37:44,719 --> 00:37:48,200
Speaker 7: some of this is responsibility of the private sector bankers

741
00:37:48,560 --> 00:37:51,560
Speaker 7: who don't seem to understand duration risk in a rising

742
00:37:51,600 --> 00:37:54,680
Speaker 7: rate environment. That's pretty obvious. Even when we look at

743
00:37:54,760 --> 00:37:59,440
Speaker 7: Silicon Valley Bank. People forget those geniuses actually put a

744
00:37:59,520 --> 00:38:02,520
Speaker 7: hedge on on and were fine in their whole to

745
00:38:02,640 --> 00:38:06,799
Speaker 7: maturity book. They just realized how valuable that hedge was

746
00:38:06,880 --> 00:38:09,160
Speaker 7: and said, hey, if we sell this hedge, we can

747
00:38:09,200 --> 00:38:13,440
Speaker 7: all give ourselves bigger bonuses, not realizing but we're taking

748
00:38:13,480 --> 00:38:17,160
Speaker 7: our hedge off and putting our portfolios at risk. So

749
00:38:17,160 --> 00:38:22,640
Speaker 7: so I'm less inclined to blame fed supervision of all

750
00:38:22,680 --> 00:38:25,520
Speaker 7: the banks under them for not they were doing what

751
00:38:25,600 --> 00:38:27,960
Speaker 7: the banks were supposed to do, which is manage their

752
00:38:27,960 --> 00:38:28,439
Speaker 7: own risk.

753
00:38:28,680 --> 00:38:29,000
Speaker 11: Barry.

754
00:38:29,080 --> 00:38:32,520
Speaker 10: There there were red flags at Silicon Valley Bank, and

755
00:38:32,600 --> 00:38:35,120
Speaker 10: the regulators knew it, and the regulators did nothing about it.

756
00:38:35,120 --> 00:38:38,359
Speaker 10: And this was a presentation made in February of last year.

757
00:38:39,040 --> 00:38:42,960
Speaker 2: Yeah, yeah, they probably should have done something in February

758
00:38:42,960 --> 00:38:43,680
Speaker 2: of last year.

759
00:38:43,840 --> 00:38:48,400
Speaker 7: It wasn't nearly as catastrophic as it became.

760
00:38:48,120 --> 00:38:50,879
Speaker 2: But they were wive hundred bats later. They knew about

761
00:38:50,880 --> 00:38:54,160
Speaker 2: the whole to maturity portfolio. By the way, what, Danielle,

762
00:38:54,200 --> 00:38:56,880
Speaker 2: why don't they mark that stuff to market like weekly?

763
00:38:57,440 --> 00:39:00,680
Speaker 2: Why why are they allowed to just because we know

764
00:39:00,800 --> 00:39:04,759
Speaker 2: that then the valuations are insanely detached from reality. If

765
00:39:04,760 --> 00:39:07,200
Speaker 2: they only have to they never have to market, or.

766
00:39:07,239 --> 00:39:10,120
Speaker 10: Have an entire generation of banking regulators that are effectively

767
00:39:10,200 --> 00:39:12,840
Speaker 10: used to operating at the zero bound. I mean, but

768
00:39:13,280 --> 00:39:17,320
Speaker 10: that being said, Okay, the rules have changed, change your methodology,

769
00:39:17,800 --> 00:39:20,960
Speaker 10: change your approach. And if you've got all these red

770
00:39:20,960 --> 00:39:23,520
Speaker 10: flags on these banks and you know that they're making

771
00:39:23,560 --> 00:39:26,640
Speaker 10: insane commercial real estate loans, or that they've got a

772
00:39:26,719 --> 00:39:30,120
Speaker 10: highly concentrated book or that they're only banking to the

773
00:39:30,200 --> 00:39:31,440
Speaker 10: venture capital industry.

774
00:39:31,480 --> 00:39:33,279
Speaker 11: Then, for heaven's sake, factor that in.

775
00:39:33,960 --> 00:39:35,920
Speaker 2: I just don't barry. What do you think is the

776
00:39:35,920 --> 00:39:38,600
Speaker 2: bond market? Two? Opaque? Is it? Do we not have

777
00:39:38,680 --> 00:39:42,960
Speaker 2: the technology? Should we create a machine a terminal so

778
00:39:43,040 --> 00:39:46,719
Speaker 2: to speak? Could that allows GPT? Can AI help in

779
00:39:46,800 --> 00:39:49,160
Speaker 2: terms of why don't they mark their Why didn't First

780
00:39:49,200 --> 00:39:52,680
Speaker 2: Republic mark their mortgages on a regular basis? Is it

781
00:39:52,719 --> 00:39:53,360
Speaker 2: not possible?

782
00:39:54,320 --> 00:39:56,960
Speaker 7: Sure? All that stuff is possible. Keep in mind there

783
00:39:56,960 --> 00:40:00,560
Speaker 7: were some rules that required more aggressive disclosure and more

784
00:40:00,560 --> 00:40:04,560
Speaker 7: aggressive marks that the banking industry lobbied and actually got

785
00:40:04,560 --> 00:40:08,239
Speaker 7: approved a couple of years ago, which arguably certainly would

786
00:40:08,239 --> 00:40:10,280
Speaker 7: have helped. Singing that your bank probably would have helped

787
00:40:10,440 --> 00:40:13,160
Speaker 7: Silicon Valley Bank. You know, every time we go through

788
00:40:13,200 --> 00:40:17,759
Speaker 7: this cyclical from too much regulation to too little regulation,

789
00:40:18,239 --> 00:40:22,680
Speaker 7: it seems that banks demanding less oversight have a tendency

790
00:40:22,719 --> 00:40:25,160
Speaker 7: to blow themselves up.

791
00:40:25,200 --> 00:40:29,160
Speaker 10: But it was Silicon Valley Banks CEO Greg Becker himself

792
00:40:29,160 --> 00:40:31,440
Speaker 10: who sat on the San Francisco Board of Directors and

793
00:40:31,520 --> 00:40:37,680
Speaker 10: who personally successfully lobbied Congress to loosen the regulation. And

794
00:40:38,440 --> 00:40:42,160
Speaker 10: I mean clearly Chair Powell has now somebody's had their.

795
00:40:43,239 --> 00:40:44,359
Speaker 11: Behind handed to them.

796
00:40:44,640 --> 00:40:47,000
Speaker 10: I thought that I had to stop myself there. But

797
00:40:47,040 --> 00:40:49,400
Speaker 10: somebody's had their behind to hand it to them. And

798
00:40:49,440 --> 00:40:53,240
Speaker 10: now we know that we need to be stress testing

799
00:40:53,280 --> 00:40:57,400
Speaker 10: banks of a certain size and with bigger stress the

800
00:40:57,440 --> 00:41:00,920
Speaker 10: small community banks. However, that was a complete regulatory fumble

801
00:41:00,960 --> 00:41:04,120
Speaker 10: with Dodd Frank to target banks with ten billion dollars

802
00:41:04,160 --> 00:41:06,759
Speaker 10: of assets, and then they went out and made up

803
00:41:06,800 --> 00:41:09,520
Speaker 10: for having to cover the cost of compliance by making

804
00:41:09,560 --> 00:41:11,120
Speaker 10: go go commercial real estate loans.

805
00:41:11,440 --> 00:41:14,200
Speaker 1: So, Barry, are we going to see or do you

806
00:41:14,239 --> 00:41:15,920
Speaker 1: believe we will get to the point where the government

807
00:41:16,000 --> 00:41:18,320
Speaker 1: needs to step in somehow, whether it's the FDIC or

808
00:41:18,320 --> 00:41:20,280
Speaker 1: the FED and prop up this banking.

809
00:41:20,400 --> 00:41:22,000
Speaker 2: By the way, Barry, we should point out that we

810
00:41:22,040 --> 00:41:25,280
Speaker 2: had a Chris whalen on and Hugh henry on earlier

811
00:41:25,400 --> 00:41:29,600
Speaker 2: and they made some pretty extreme forecasts. They said that

812
00:41:29,640 --> 00:41:31,160
Speaker 2: regulators are going to have to come in and put

813
00:41:31,200 --> 00:41:36,000
Speaker 2: down deposit gates for US banks. I feel like, if

814
00:41:36,000 --> 00:41:38,720
Speaker 2: that's the case, that's the last thing that the government

815
00:41:38,719 --> 00:41:39,239
Speaker 2: will ever do.

816
00:41:39,719 --> 00:41:41,880
Speaker 7: Yeah, what are they? Hedge funds are in private equity.

817
00:41:41,880 --> 00:41:44,400
Speaker 7: They're allowed to not have people leave that. That doesn't

818
00:41:44,440 --> 00:41:48,839
Speaker 7: make any sense. I think what the real key is

819
00:41:51,480 --> 00:41:56,759
Speaker 7: that we need to have much more robust approach to oversight,

820
00:41:56,960 --> 00:42:02,359
Speaker 7: and that allowing banks this mad lobbying approach to say

821
00:42:02,400 --> 00:42:07,239
Speaker 7: we want less oversight, less regulation, less capital reserves required

822
00:42:09,000 --> 00:42:12,520
Speaker 7: is really problematic. But here's the key thing I think

823
00:42:12,560 --> 00:42:16,719
Speaker 7: we should focus on. When when we had the financial crisis,

824
00:42:17,200 --> 00:42:21,440
Speaker 7: everybody had eaten at the same poisoned buffet, and so

825
00:42:21,560 --> 00:42:25,440
Speaker 7: you had this systemic problem of every bank, every broker,

826
00:42:25,600 --> 00:42:30,000
Speaker 7: every non regulated bank all had consumed the same toxic

827
00:42:30,960 --> 00:42:33,799
Speaker 7: things which they either securitized or subsequently bought, and so

828
00:42:33,880 --> 00:42:37,160
Speaker 7: the whole system was put at risk. Yeah, the FED

829
00:42:37,200 --> 00:42:40,680
Speaker 7: has raise rates too quickly and they've broken things. It

830
00:42:40,719 --> 00:42:45,680
Speaker 7: doesn't appear that the entire system is at risk just yet.

831
00:42:46,080 --> 00:42:48,759
Speaker 7: If the FED keeps raising if they if they keep

832
00:42:48,800 --> 00:42:53,160
Speaker 7: breaking things, then we could have other issues. Maybe these

833
00:42:53,200 --> 00:42:56,719
Speaker 7: banks should be holding their long term treasuries in hold

834
00:42:56,760 --> 00:43:01,000
Speaker 7: to maturity instead of assets that could be sold. Maybe

835
00:43:01,000 --> 00:43:04,720
Speaker 7: that's one solution. This all comes back to, you're less

836
00:43:04,760 --> 00:43:08,960
Speaker 7: profitable if you have more capital on the books. Maybe

837
00:43:09,000 --> 00:43:12,320
Speaker 7: you need to think of yourselves as a sleepy utility

838
00:43:12,400 --> 00:43:16,160
Speaker 7: in bank and accept lower profit margin in order to

839
00:43:16,160 --> 00:43:17,080
Speaker 7: increase stability.

840
00:43:17,120 --> 00:43:19,320
Speaker 1: We've had a couple of days of central bank speak.

841
00:43:19,760 --> 00:43:22,840
Speaker 1: They fed yesterday, the ECB today, they seem to be

842
00:43:22,880 --> 00:43:25,439
Speaker 1: in sync. Anything kind of jump out of you from

843
00:43:25,480 --> 00:43:26,320
Speaker 1: either bank.

844
00:43:27,120 --> 00:43:30,720
Speaker 7: Yeah, I continue to be struck by how both central

845
00:43:30,760 --> 00:43:36,000
Speaker 7: banks seem to be far far behind the data about

846
00:43:36,239 --> 00:43:38,719
Speaker 7: when inflation peaked and how much further it's going to

847
00:43:38,760 --> 00:43:42,560
Speaker 7: come down. And I know the phrase transitory has gotten

848
00:43:43,040 --> 00:43:47,360
Speaker 7: a bad rap, but transitory seems to have taken longer

849
00:43:47,360 --> 00:43:53,400
Speaker 7: than expected by most measures. Goods peaked June twenty twenty

850
00:43:53,400 --> 00:43:56,640
Speaker 7: two and have come appreciably down. I heard you guys

851
00:43:56,640 --> 00:44:00,680
Speaker 7: call talking earlier this morning about oil at sixty seven dollars.

852
00:44:00,719 --> 00:44:04,120
Speaker 7: Wherever we look at the things that were really prime

853
00:44:04,200 --> 00:44:09,360
Speaker 7: drivers of inflation over the past couple of years, lumber prices, medals,

854
00:44:10,280 --> 00:44:14,280
Speaker 7: car prices, shipping containers, even just the course of costs

855
00:44:14,320 --> 00:44:18,960
Speaker 7: of transport, they've all come down appreciably. In some cases,

856
00:44:19,000 --> 00:44:23,080
Speaker 7: like lumber, they're below where they were when the pandemic started.

857
00:44:23,280 --> 00:44:28,000
Speaker 7: And so yes, services remain elevated. But the largest part

858
00:44:28,120 --> 00:44:33,560
Speaker 7: of services is owner's equivalent rent, and that's driven in

859
00:44:33,719 --> 00:44:37,000
Speaker 7: large part by where mortgage rates are. And guess who's

860
00:44:37,040 --> 00:44:40,640
Speaker 7: driven mortgage rates higher in the United States. It's the FED.

861
00:44:40,760 --> 00:44:44,440
Speaker 7: Europe is a little different set of circumstances. They are

862
00:44:44,600 --> 00:44:49,279
Speaker 7: behind us both in terms of the economic recovery and inflation,

863
00:44:50,560 --> 00:44:53,800
Speaker 7: but it always seems like they're late to the party

864
00:44:54,000 --> 00:44:55,520
Speaker 7: and fighting the previous lies.

865
00:44:55,560 --> 00:44:59,520
Speaker 2: So is inflation coming down rapidly? Do you think because

866
00:44:59,560 --> 00:45:03,840
Speaker 2: Powells seem to think yesterday Danielle that inflation could still

867
00:45:03,880 --> 00:45:06,480
Speaker 2: rear its ugly head. He's very careful and has been

868
00:45:06,520 --> 00:45:10,440
Speaker 2: about this. He doesn't want to repeat Arthur Burns. What

869
00:45:10,480 --> 00:45:11,040
Speaker 2: do you think?

870
00:45:11,200 --> 00:45:13,279
Speaker 10: So I have a little bit of a different view

871
00:45:13,320 --> 00:45:16,480
Speaker 10: on this. I believe, and we were talking about this

872
00:45:16,600 --> 00:45:17,200
Speaker 10: during the break.

873
00:45:17,239 --> 00:45:18,080
Speaker 11: I believe that j.

874
00:45:18,280 --> 00:45:22,839
Speaker 10: Powell wants for monetary policy to actually affect the non

875
00:45:22,960 --> 00:45:26,400
Speaker 10: banking sector. So it's he's not dim. He knows that

876
00:45:26,440 --> 00:45:30,839
Speaker 10: inflation's coming down. He knows that Barry and I are mutual friend,

877
00:45:30,840 --> 00:45:33,840
Speaker 10: Peter book bar He knows that there's at least a

878
00:45:33,840 --> 00:45:37,160
Speaker 10: half a percentage point of additional tightening as of First Republic.

879
00:45:37,440 --> 00:45:39,240
Speaker 10: Now we might have one hundred basis points of additional

880
00:45:39,239 --> 00:45:41,279
Speaker 10: tightening in the form of the credit credit crunch that

881
00:45:41,280 --> 00:45:41,800
Speaker 10: we're seeing.

882
00:45:42,080 --> 00:45:44,080
Speaker 2: Peter book far from Miller tayback.

883
00:45:43,760 --> 00:45:46,080
Speaker 11: And back in the day now, is it blately?

884
00:45:46,160 --> 00:45:49,520
Speaker 2: Yeah, the book report, the book report boosk.

885
00:45:50,440 --> 00:45:54,279
Speaker 10: But the fact is, I think J. Powell knows this,

886
00:45:54,920 --> 00:45:58,640
Speaker 10: and I think J. Powell wants to continue with quantitative tightening.

887
00:45:58,680 --> 00:46:00,799
Speaker 10: He wants to continue that in the back background, and

888
00:46:00,840 --> 00:46:03,759
Speaker 10: he's got to have something to hide behind, for lack

889
00:46:03,800 --> 00:46:05,560
Speaker 10: of a better word, in order.

890
00:46:05,360 --> 00:46:09,879
Speaker 11: To keep this going, keep what going, keep quantitative tightening going,

891
00:46:09,960 --> 00:46:11,280
Speaker 11: keep shrinking the balance sheet.

892
00:46:11,600 --> 00:46:14,000
Speaker 7: Yeah, but that can happen gradually, and the.

893
00:46:14,000 --> 00:46:16,680
Speaker 2: Problem is exaggerary gradual already. Yeah.

894
00:46:16,560 --> 00:46:20,520
Speaker 7: The problem isn't the actual absolute level of rates, it's

895
00:46:20,560 --> 00:46:24,920
Speaker 7: how quickly we've gotten here by historic measures. FED funds

896
00:46:25,000 --> 00:46:28,759
Speaker 7: rate and even mortgage rates are not crazy, they're just

897
00:46:28,840 --> 00:46:31,480
Speaker 7: crazy relative to the past. Doesn't the acute level hurt

898
00:46:31,520 --> 00:46:34,880
Speaker 7: as well? I mean, this is Hugh Henry was making that,

899
00:46:35,000 --> 00:46:39,720
Speaker 7: you know, twenty percent in nineteen eighty when total debt

900
00:46:39,920 --> 00:46:43,719
Speaker 7: was you know, one time's GDP, it's just as bad

901
00:46:43,719 --> 00:46:46,680
Speaker 7: as five percent now when total debt to GDP is

902
00:46:47,000 --> 00:46:49,759
Speaker 7: four times. I don't really buy that. I've been hearing

903
00:46:49,800 --> 00:46:52,600
Speaker 7: my entire adult life that you know, if we keep

904
00:46:52,680 --> 00:46:55,919
Speaker 7: running debt and deficits. You know, no one will lend

905
00:46:55,960 --> 00:46:58,800
Speaker 7: to Uncle Sam. The economy will crash and the dollar

906
00:46:58,880 --> 00:47:00,160
Speaker 7: will collas.

907
00:46:59,680 --> 00:47:01,640
Speaker 2: Just that the caring costs are very high.

908
00:47:01,760 --> 00:47:03,600
Speaker 7: Yeah, they're going to continue to be caught high. But

909
00:47:03,880 --> 00:47:07,279
Speaker 7: you know, look at Japan, they're double our GDP to

910
00:47:07,360 --> 00:47:10,480
Speaker 7: debt ratio. It hasn't affected their ability to borrow it

911
00:47:10,600 --> 00:47:14,000
Speaker 7: practically zero or for their GDP to continue chugging along.

912
00:47:14,239 --> 00:47:19,000
Speaker 7: They have other demographic concerns, but I worry much less

913
00:47:19,120 --> 00:47:22,640
Speaker 7: about the actual level of debt. Would it be better

914
00:47:22,680 --> 00:47:25,600
Speaker 7: if rates were a little lower, Sure, but I don't

915
00:47:25,600 --> 00:47:28,040
Speaker 7: think a couple of percentage points are going to make

916
00:47:28,360 --> 00:47:32,080
Speaker 7: a big difference to something like seeing that your bank

917
00:47:32,200 --> 00:47:35,520
Speaker 7: or Silicon Valley Bank or First Republic or any of

918
00:47:35,560 --> 00:47:39,400
Speaker 7: the other banks that ran into trouble for very specific

919
00:47:39,719 --> 00:47:43,759
Speaker 7: managerial errors that were exacerbated by the rapidity of the

920
00:47:43,800 --> 00:47:44,760
Speaker 7: Fed race.

921
00:47:45,040 --> 00:47:48,320
Speaker 11: So think about think about this for just a second.

922
00:47:48,400 --> 00:47:52,360
Speaker 10: Remember Standard Impoorsy, we were there in Maine. Standard impor

923
00:47:52,400 --> 00:47:55,040
Speaker 10: Is downgraded the debt of the United States August the fifth,

924
00:47:55,040 --> 00:47:58,520
Speaker 10: twenty eleven because there had been no reforms done during

925
00:47:58,560 --> 00:48:01,520
Speaker 10: the debt ceiling kerfuffle. What if this moment of higher

926
00:48:01,600 --> 00:48:04,920
Speaker 10: interest rates actually brings a serious discussion to the table

927
00:48:04,960 --> 00:48:07,520
Speaker 10: about some of the reforms that are desperately needed with

928
00:48:07,600 --> 00:48:09,759
Speaker 10: our fiscal spending. And I'm not necessarily talking about the

929
00:48:09,840 --> 00:48:13,120
Speaker 10: level of debt and or deficits, but being rational about

930
00:48:13,160 --> 00:48:16,160
Speaker 10: the trajectory of the growth and going to the table

931
00:48:16,160 --> 00:48:18,600
Speaker 10: and seriously taking this debt situation serious.

932
00:48:18,680 --> 00:48:21,600
Speaker 2: So, Berry, I'm sure you read that a couple of

933
00:48:21,680 --> 00:48:24,360
Speaker 2: days ago, Stan Druckenmiller was speaking I think it was

934
00:48:24,520 --> 00:48:28,560
Speaker 2: USC at the USC School of Business, and he said

935
00:48:28,960 --> 00:48:31,959
Speaker 2: that we're all sitting here worried about a thirty foot

936
00:48:32,360 --> 00:48:34,799
Speaker 2: wave in the form of the debt sealing problem, when

937
00:48:34,800 --> 00:48:37,080
Speaker 2: we should be worried about the two hundred foot tsunami

938
00:48:37,200 --> 00:48:39,919
Speaker 2: just ten miles out in the form of the total debt.

939
00:48:40,239 --> 00:48:43,600
Speaker 7: So so first, let me just remind everybody that shortly

940
00:48:43,680 --> 00:48:46,480
Speaker 7: after the S and P five hundred I'm sorry, shortainly

941
00:48:46,520 --> 00:48:50,440
Speaker 7: after the SMP as a ratings agency lowered the US

942
00:48:50,719 --> 00:48:52,640
Speaker 7: credit worthiness.

943
00:48:52,040 --> 00:48:53,560
Speaker 2: I guess what happened to treasuries?

944
00:48:53,760 --> 00:48:57,040
Speaker 7: Rates went lower, went lower, Right, It's like, oh, hold

945
00:48:57,040 --> 00:49:00,319
Speaker 7: my beer, watch this. And so if we if the

946
00:49:00,320 --> 00:49:05,280
Speaker 7: financial crisis didn't teach us that the least valuable entity

947
00:49:05,480 --> 00:49:09,160
Speaker 7: in the entire known universe are the credit rating agencies.

948
00:49:09,200 --> 00:49:12,920
Speaker 7: Then you weren't paying attention, there were worthless. Then they're worthless.

949
00:49:12,960 --> 00:49:17,040
Speaker 7: Now they'll be worthless in the future. Nobody should care about.

950
00:49:16,760 --> 00:49:19,080
Speaker 11: It, So fade the credit rating agencies.

951
00:49:19,120 --> 00:49:21,520
Speaker 10: Isn't it still nice to think that we could, actually,

952
00:49:21,920 --> 00:49:25,560
Speaker 10: like adults, approach fiscal reform again?

953
00:49:25,640 --> 00:49:27,719
Speaker 7: If you if you look at what the market is

954
00:49:27,760 --> 00:49:30,880
Speaker 7: telling us, it doesn't matter all thatch Are you a

955
00:49:30,920 --> 00:49:33,040
Speaker 7: mathematic say that again?

956
00:49:33,120 --> 00:49:36,360
Speaker 2: Are you a magic money tree guy? No, I'm you know,

957
00:49:37,200 --> 00:49:38,279
Speaker 2: I'm a hemmingway guy.

958
00:49:38,440 --> 00:49:42,399
Speaker 7: That it's very gradual until all at once, and right

959
00:49:42,440 --> 00:49:45,800
Speaker 7: now it's still very gradual. And when we look at Japan,

960
00:49:46,520 --> 00:49:49,600
Speaker 7: they're much further down the debt rabbit hole than we are,

961
00:49:50,120 --> 00:49:54,680
Speaker 7: and they're still in that gradual process. At some point

962
00:49:54,800 --> 00:49:58,000
Speaker 7: in the future, all of this debt will matter, but

963
00:49:58,400 --> 00:50:01,799
Speaker 7: it's going to be the way people go bankrupt gradually

964
00:50:01,840 --> 00:50:03,719
Speaker 7: and then all at once, and we're still in the

965
00:50:03,760 --> 00:50:04,440
Speaker 7: gradual thing.

966
00:50:04,600 --> 00:50:05,160
Speaker 11: I would too.

967
00:50:05,239 --> 00:50:08,480
Speaker 10: I've got kids, and they'll have kids, and we should

968
00:50:08,480 --> 00:50:11,200
Speaker 10: be thinking about future generations and not necessarily.

969
00:50:10,800 --> 00:50:12,440
Speaker 2: What we're trying to do is rip them off to

970
00:50:12,480 --> 00:50:13,440
Speaker 2: pay for our retirement.

971
00:50:13,640 --> 00:50:15,319
Speaker 10: Yeah, but that's been going on for that's been going

972
00:50:15,360 --> 00:50:17,480
Speaker 10: on right forever, forever, exactly.

973
00:50:17,480 --> 00:50:19,560
Speaker 7: All right, at a certain point when to keep it

974
00:50:19,600 --> 00:50:22,359
Speaker 7: going the boy who cried wolf. At a certain point,

975
00:50:22,440 --> 00:50:23,799
Speaker 7: nobody pays attention, And all.

976
00:50:23,800 --> 00:50:25,279
Speaker 1: Right, we guys, we got to cut off there. Thank

977
00:50:25,320 --> 00:50:26,399
Speaker 1: you for the extended stay.

978
00:50:26,440 --> 00:50:27,000
Speaker 2: We appreciate it.

979
00:50:27,080 --> 00:50:30,320
Speaker 1: Barry Ridolts, founder of Ridolts Wealth Management, and Danielle Di Martino,

980
00:50:30,360 --> 00:50:34,239
Speaker 1: Booth CEO and chief strategists at QI helping us kind

981
00:50:34,239 --> 00:50:36,279
Speaker 1: of frame out what's going on in these markets. Well

982
00:50:36,320 --> 00:50:38,200
Speaker 1: more coming up. This is Bloomberg.

983
00:50:40,120 --> 00:50:43,520
Speaker 6: You're listening to the teenth Ken's Are Live program Bloomberg

984
00:50:43,600 --> 00:50:46,960
Speaker 6: Markets weekdays at ten am eastering on Bloomberg dot com,

985
00:50:47,040 --> 00:50:50,160
Speaker 6: the iHeartRadio app and the Bloomberg Business App, or listen

986
00:50:50,239 --> 00:50:52,359
Speaker 6: on demand wherever you get your podcasts.

987
00:50:54,440 --> 00:50:56,480
Speaker 1: All right, let's get right back to the discussion here.

988
00:50:56,480 --> 00:50:58,040
Speaker 1: We're going to bring in our next guest. We really

989
00:50:58,120 --> 00:51:00,799
Speaker 1: always appreciate getting a few minutes of ret I'm Claudia Sam,

990
00:51:01,280 --> 00:51:06,600
Speaker 1: founder and independent economists at Some Consulting. Claudia, We've had

991
00:51:06,640 --> 00:51:11,120
Speaker 1: a lot of Federal Central Bank discussion and moving over

992
00:51:11,120 --> 00:51:12,560
Speaker 1: the past couple of days, but it seems to be

993
00:51:12,560 --> 00:51:14,839
Speaker 1: pushed a little bit to the background by what's going

994
00:51:14,840 --> 00:51:18,160
Speaker 1: on with the US regional banks. How are you viewing

995
00:51:18,200 --> 00:51:20,600
Speaker 1: what's happening out there with the banks? How concerned are

996
00:51:20,640 --> 00:51:23,920
Speaker 1: you about how this may be maybe more systemic than

997
00:51:23,960 --> 00:51:24,520
Speaker 1: others think?

998
00:51:25,800 --> 00:51:28,239
Speaker 12: Right this week has really been a competition for the

999
00:51:28,280 --> 00:51:30,480
Speaker 12: worst thing happening in the US economy. I mean, it's

1000
00:51:30,480 --> 00:51:33,680
Speaker 12: pretty amazing to have the dead ceiling eclipsed. In addition,

1001
00:51:34,600 --> 00:51:38,439
Speaker 12: I absolutely think that there should be concern about what's

1002
00:51:38,440 --> 00:51:42,520
Speaker 12: happening with the regional banks. Would chair Pow said yesterday

1003
00:51:42,600 --> 00:51:46,359
Speaker 12: the banking system is resilient in sound. That is a

1004
00:51:46,400 --> 00:51:51,440
Speaker 12: true statement, and yet fundamentals are not enough to bring

1005
00:51:51,960 --> 00:51:55,800
Speaker 12: contagion and this kind of downward spiral that we're seeing

1006
00:51:55,920 --> 00:52:01,319
Speaker 12: under control. So it's really disconcerting that this is continued

1007
00:52:01,840 --> 00:52:06,239
Speaker 12: and it's not clear how this ends, whether we really

1008
00:52:06,320 --> 00:52:08,919
Speaker 12: are seeing the end of it. It doesn't appear that way.

1009
00:52:10,120 --> 00:52:13,319
Speaker 2: Are you concerned about I mean, it doesn't seem like

1010
00:52:13,360 --> 00:52:18,640
Speaker 2: regulators did much in terms of stopping this collapse of

1011
00:52:18,760 --> 00:52:22,120
Speaker 2: SVB or First Republic. Are they gonna Is there something

1012
00:52:22,120 --> 00:52:24,520
Speaker 2: they can do now? Claudia that that you can think of.

1013
00:52:25,760 --> 00:52:28,239
Speaker 12: They're in a difficult position. In the beginning, they were

1014
00:52:28,280 --> 00:52:32,720
Speaker 12: just flat footed, right, Silicon Valley Bank came out of nowhere.

1015
00:52:32,880 --> 00:52:34,719
Speaker 2: I mean it should but they've known for They've known

1016
00:52:34,760 --> 00:52:35,239
Speaker 2: for a year.

1017
00:52:36,080 --> 00:52:36,959
Speaker 11: Yeah, no, they.

1018
00:52:36,920 --> 00:52:40,120
Speaker 12: Knew, but I mean it's it's different between knowing something

1019
00:52:40,160 --> 00:52:43,359
Speaker 12: and acting in a serious way, and they acted in

1020
00:52:43,400 --> 00:52:46,040
Speaker 12: a serious way. They're at a point now and the

1021
00:52:46,120 --> 00:52:50,040
Speaker 12: FDI see like this is they're doing the playbook. Now

1022
00:52:50,200 --> 00:52:52,640
Speaker 12: banks are in trouble and then they you know, find

1023
00:52:52,640 --> 00:52:54,839
Speaker 12: a buyer and so things are in more of that

1024
00:52:55,000 --> 00:52:59,520
Speaker 12: state of now quote unquote business as usual when you

1025
00:52:59,520 --> 00:53:03,880
Speaker 12: have banks understrain. And yet the piece that is really

1026
00:53:03,920 --> 00:53:06,320
Speaker 12: hard for policy makers, and this is why the genie

1027
00:53:06,320 --> 00:53:09,279
Speaker 12: out of the bottle was such a big problem, is

1028
00:53:09,320 --> 00:53:13,200
Speaker 12: you have this psychology. J Pal can tell people all

1029
00:53:13,239 --> 00:53:16,640
Speaker 12: he wants the banking system resilient, nothing to see here,

1030
00:53:17,239 --> 00:53:20,279
Speaker 12: and they are not believing it right. And so this

1031
00:53:20,400 --> 00:53:23,359
Speaker 12: is the tricky part. And honestly, I don't know how

1032
00:53:23,400 --> 00:53:27,120
Speaker 12: the policy makers pull this back in because you say

1033
00:53:27,120 --> 00:53:31,080
Speaker 12: the wrong word like pac West said last night about

1034
00:53:31,080 --> 00:53:33,759
Speaker 12: their you know, strategic looking for a buyer, and things

1035
00:53:33,800 --> 00:53:35,160
Speaker 12: can really go south. Quickly.

1036
00:53:35,680 --> 00:53:39,839
Speaker 1: So, Claudia, how concerned are you that you know this

1037
00:53:39,920 --> 00:53:42,839
Speaker 1: banking crisis that many people are calling and I think

1038
00:53:42,840 --> 00:53:45,160
Speaker 1: I might be in that camp now, will in fact

1039
00:53:45,200 --> 00:53:49,280
Speaker 1: have a material impact on the availability and the affordability

1040
00:53:49,320 --> 00:53:51,600
Speaker 1: of credits such that it really will have a big

1041
00:53:51,800 --> 00:53:53,120
Speaker 1: impact on this economy.

1042
00:53:54,520 --> 00:53:57,840
Speaker 12: You will absolutely have a big impact on small businesses

1043
00:53:57,880 --> 00:54:01,000
Speaker 12: that do a lot of their business with smaller and

1044
00:54:01,280 --> 00:54:04,640
Speaker 12: regional banks. It will have an impact, though it may

1045
00:54:04,680 --> 00:54:07,959
Speaker 12: be slow moving, and impact on commercial real estate, which

1046
00:54:07,960 --> 00:54:13,520
Speaker 12: again does a lot of business with regional banks. It's

1047
00:54:14,000 --> 00:54:15,960
Speaker 12: and we're going to see this not just in the

1048
00:54:16,080 --> 00:54:19,040
Speaker 12: interest rates, right the Federal Reserve continues to raise interest

1049
00:54:19,120 --> 00:54:21,840
Speaker 12: rates though there's a lot going on in the markets.

1050
00:54:22,080 --> 00:54:23,759
Speaker 12: What we are seeing, and I think we're going to

1051
00:54:23,880 --> 00:54:26,479
Speaker 12: absolutely see next week when we get the Senior Loan

1052
00:54:26,520 --> 00:54:30,719
Speaker 12: Officer and Opinion survey, is that we see standards tightening.

1053
00:54:31,040 --> 00:54:35,080
Speaker 12: So this is about the supply of credit getting harder,

1054
00:54:35,160 --> 00:54:38,000
Speaker 12: and that you know, it's one thing to just say, hey,

1055
00:54:38,080 --> 00:54:40,560
Speaker 12: i'm a business, I'll pay more for the credit. It's

1056
00:54:40,600 --> 00:54:43,319
Speaker 12: another thing to say I just can't get it right.

1057
00:54:43,360 --> 00:54:46,480
Speaker 12: And that does limit the kind of opportunities that they

1058
00:54:46,520 --> 00:54:51,200
Speaker 12: have to grow and expand and have keep their workers right.

1059
00:54:51,239 --> 00:54:53,279
Speaker 12: So it can have a lot of effects, and it

1060
00:54:53,320 --> 00:54:56,960
Speaker 12: will have effects in these local, more localized communities. It's

1061
00:54:56,960 --> 00:54:59,359
Speaker 12: an open question as to how much it spills over

1062
00:55:00,200 --> 00:55:03,200
Speaker 12: like in aggregate, But the longer this goes on, the

1063
00:55:03,320 --> 00:55:04,600
Speaker 12: higher those chances go.

1064
00:55:05,160 --> 00:55:08,160
Speaker 2: And I think that this conversation then dovetails nicely with

1065
00:55:08,320 --> 00:55:11,239
Speaker 2: your column, with the column that you put on the

1066
00:55:11,280 --> 00:55:15,279
Speaker 2: Bloomberg Terminal about labor market tightness and the issue of yes,

1067
00:55:15,320 --> 00:55:18,880
Speaker 2: we're at a nationally a record low for unemployment, but

1068
00:55:18,920 --> 00:55:22,160
Speaker 2: if you look in pockets, you know, big important states

1069
00:55:22,200 --> 00:55:25,360
Speaker 2: like New York and Ohio, we still don't have employment

1070
00:55:25,440 --> 00:55:29,239
Speaker 2: levels back up to where they were pre pandemic. I

1071
00:55:29,320 --> 00:55:33,000
Speaker 2: was listening to Diane Swank talk yesterday on our FED

1072
00:55:33,040 --> 00:55:35,480
Speaker 2: special and she pointed out the importance of small and

1073
00:55:35,560 --> 00:55:40,320
Speaker 2: medium sized companies as employers, and these are the companies

1074
00:55:40,320 --> 00:55:42,360
Speaker 2: that are going to be directly affected by a regional

1075
00:55:42,400 --> 00:55:47,160
Speaker 2: banking credit crunch. Does that, you know, does this exacerbate

1076
00:55:47,200 --> 00:55:50,920
Speaker 2: the problems that you know, these these localities and especially

1077
00:55:52,239 --> 00:55:56,280
Speaker 2: you know, underfunded, underbanked communities have in terms of getting

1078
00:55:56,360 --> 00:55:56,919
Speaker 2: jobs back.

1079
00:55:58,000 --> 00:56:02,799
Speaker 12: Absolutely, Diana's right, The small businesses or the heartbeat of

1080
00:56:02,920 --> 00:56:06,439
Speaker 12: the employment that we have in the country, and they're

1081
00:56:06,480 --> 00:56:09,320
Speaker 12: the ones that are going to have difficulty accessing credit.

1082
00:56:11,480 --> 00:56:13,759
Speaker 12: In the column I was talking about today, where like

1083
00:56:14,000 --> 00:56:16,560
Speaker 12: we should be careful on Safe Jobs Day tomorrow when

1084
00:56:16,600 --> 00:56:19,480
Speaker 12: we get the aggregate numbers and we have Chair Powles

1085
00:56:19,480 --> 00:56:22,560
Speaker 12: saying we have a very tight labor market, we need

1086
00:56:22,600 --> 00:56:25,680
Speaker 12: to be careful. There's a lot of variation across the country.

1087
00:56:26,320 --> 00:56:30,720
Speaker 12: Right now, about forty percent of the US states haven't

1088
00:56:31,120 --> 00:56:35,239
Speaker 12: achieved their pre pandemic employment levels, and then you've got

1089
00:56:35,280 --> 00:56:38,239
Speaker 12: another twenty percent that are well above it. So we

1090
00:56:39,520 --> 00:56:42,440
Speaker 12: don't have a tight labor market in every labor market

1091
00:56:42,520 --> 00:56:44,239
Speaker 12: we have kind of when you add it all up,

1092
00:56:44,280 --> 00:56:47,600
Speaker 12: it looks like, you know, there's a shortage of workers.

1093
00:56:47,600 --> 00:56:50,680
Speaker 12: That's not the case. The Federal Reserve and by letting

1094
00:56:50,719 --> 00:56:54,520
Speaker 12: them dominate the conversation about the economy, their tools are

1095
00:56:54,680 --> 00:56:58,600
Speaker 12: very blonde, their mandates are national. But we have so

1096
00:56:58,680 --> 00:57:02,520
Speaker 12: many other policy makers that can be much more targeted.

1097
00:57:02,560 --> 00:57:05,239
Speaker 12: But we have to actually, you know, admit that there's

1098
00:57:05,280 --> 00:57:08,840
Speaker 12: this diversity and then think about how how to address it.

1099
00:57:08,960 --> 00:57:11,240
Speaker 2: So how do we I saw one of the lines

1100
00:57:11,760 --> 00:57:15,400
Speaker 2: in your in your column, geographic realignment could help address

1101
00:57:15,440 --> 00:57:17,959
Speaker 2: some of the national labor shortages, and I was trying

1102
00:57:17,960 --> 00:57:20,080
Speaker 2: to think of, you know, how the FED could be

1103
00:57:20,320 --> 00:57:23,280
Speaker 2: involved in geographic realignment. But as you point out, their

1104
00:57:23,280 --> 00:57:27,200
Speaker 2: tools are blunt, which regulators need to be you need

1105
00:57:27,560 --> 00:57:29,000
Speaker 2: to be brought in and what do they need to do.

1106
00:57:30,520 --> 00:57:33,400
Speaker 12: Well when that, you know, we have a potentially looming

1107
00:57:33,840 --> 00:57:36,680
Speaker 12: recession that we should be preparing for. You know, hope

1108
00:57:36,680 --> 00:57:39,560
Speaker 12: for the best, but prepare for the worst. And one

1109
00:57:39,640 --> 00:57:42,640
Speaker 12: thing that we can do, and we're putting policies in place,

1110
00:57:43,320 --> 00:57:46,520
Speaker 12: is to target and particularly when the policies phase out,

1111
00:57:46,600 --> 00:57:50,480
Speaker 12: to the local labor market conditions. So the unemployment insurance

1112
00:57:50,560 --> 00:57:53,680
Speaker 12: ought to phase out is that state's unemployment rate gets

1113
00:57:53,720 --> 00:57:56,960
Speaker 12: back to normal. We saw a lot of problems with

1114
00:57:57,080 --> 00:57:59,479
Speaker 12: the politics of it when we had just a date

1115
00:58:00,160 --> 00:58:02,240
Speaker 12: in the last you know, in the last recession where

1116
00:58:02,240 --> 00:58:05,000
Speaker 12: it turned off, and they just didn't take into account

1117
00:58:05,000 --> 00:58:07,040
Speaker 12: that some states it took a lot longer for them

1118
00:58:07,040 --> 00:58:10,960
Speaker 12: to recover, they're still recovering, and others really came back strong.

1119
00:58:11,360 --> 00:58:14,200
Speaker 12: So if you want to use money effectively and equitably,

1120
00:58:14,520 --> 00:58:17,760
Speaker 12: then you know, look at the reality of what's going

1121
00:58:17,760 --> 00:58:21,480
Speaker 12: on in terms of now to build resilience because a

1122
00:58:21,520 --> 00:58:25,880
Speaker 12: lot of our communities that were struggling before COVID, they

1123
00:58:25,920 --> 00:58:29,160
Speaker 12: got hit really hard and they're still struggling. And we

1124
00:58:29,200 --> 00:58:34,000
Speaker 12: have large programs like CHIPS infrastructure that you could say,

1125
00:58:34,320 --> 00:58:37,760
Speaker 12: let's give some priority to communities that haven't recovered yet.

1126
00:58:38,040 --> 00:58:42,760
Speaker 2: So a question came up in my head reading your column.

1127
00:58:42,760 --> 00:58:45,600
Speaker 2: And I want to preface this by saying, I'm a

1128
00:58:45,680 --> 00:58:50,520
Speaker 2: total idiot when it comes to economics, and so don't

1129
00:58:50,840 --> 00:58:54,200
Speaker 2: get angry if this is a bad question. Is there

1130
00:58:54,400 --> 00:58:58,320
Speaker 2: some kind of mobility program that we could put out

1131
00:58:58,320 --> 00:59:00,880
Speaker 2: there which would which would help the realignment? I mean,

1132
00:59:01,520 --> 00:59:03,360
Speaker 2: I guess if you're looking for a job in New

1133
00:59:03,440 --> 00:59:05,800
Speaker 2: York and you can't find one, you're probably not in

1134
00:59:05,800 --> 00:59:07,360
Speaker 2: a position to relocate to Florida.

1135
00:59:07,440 --> 00:59:07,640
Speaker 1: Right.

1136
00:59:08,120 --> 00:59:10,040
Speaker 2: Is there is there any way that we could help

1137
00:59:10,120 --> 00:59:13,040
Speaker 2: that relocation that mobility Would that be a good solution.

1138
00:59:14,320 --> 00:59:18,040
Speaker 12: For a long time, economists had been big proponents of

1139
00:59:18,160 --> 00:59:21,840
Speaker 12: moving people to prosperity, right, So moving people from the

1140
00:59:21,880 --> 00:59:25,040
Speaker 12: heartland to the New York cities, the Bay areas, you

1141
00:59:25,040 --> 00:59:27,680
Speaker 12: know that had a lot of jobs, and you know,

1142
00:59:27,760 --> 00:59:29,720
Speaker 12: I grew up in the Midwest. The last thing my

1143
00:59:29,800 --> 00:59:31,840
Speaker 12: family wants to do in Indiana is moved to New

1144
00:59:31,920 --> 00:59:35,400
Speaker 12: York City, right, Like, that's just it's a non starter.

1145
00:59:35,560 --> 00:59:37,800
Speaker 2: Yeah, but what about Orlando. New York's not a great

1146
00:59:37,800 --> 00:59:40,160
Speaker 2: place right now? If the sun Dell's a good place to.

1147
00:59:40,080 --> 00:59:44,800
Speaker 12: Go, It's true, and it right like the communities now,

1148
00:59:44,840 --> 00:59:48,520
Speaker 12: I think where we've come around to is we must

1149
00:59:48,560 --> 00:59:52,320
Speaker 12: figure out a way to invest in the communities. There's

1150
00:59:52,360 --> 00:59:54,480
Speaker 12: a lot of you know, Atlanta took a lot of

1151
00:59:54,520 --> 00:59:57,520
Speaker 12: effort after the Great Recession. They really struggled with some

1152
00:59:57,600 --> 00:59:59,800
Speaker 12: of the comeback in jobs as a lot of the

1153
01:00:00,760 --> 01:00:05,080
Speaker 12: and they really built up their workforce development networks. That's

1154
01:00:05,280 --> 01:00:07,120
Speaker 12: one of those are hard to build up. But when

1155
01:00:07,160 --> 01:00:09,040
Speaker 12: you take the view that you've got to make it

1156
01:00:09,080 --> 01:00:12,080
Speaker 12: better on the ground, as opposed to telling people, well,

1157
01:00:12,120 --> 01:00:13,840
Speaker 12: you know, you can stick around, but really you ought

1158
01:00:13,920 --> 01:00:16,040
Speaker 12: to go to ship out right.

1159
01:00:15,960 --> 01:00:18,480
Speaker 1: Exactly, all right, Claudia, thank you so much for joining us.

1160
01:00:18,480 --> 01:00:19,240
Speaker 1: Really appreciate it.

1161
01:00:19,280 --> 01:00:21,680
Speaker 2: I wish I wish we had more time about you know,

1162
01:00:21,720 --> 01:00:24,000
Speaker 2: I grew up at Grandville right Brandall, Ohio. I know,

1163
01:00:24,320 --> 01:00:26,600
Speaker 2: I know Claudia went.

1164
01:00:26,480 --> 01:00:28,720
Speaker 1: To Dennis Dennison. That's right. That makes it all come

1165
01:00:28,760 --> 01:00:32,360
Speaker 1: home Claudia Soom, founder in independent e commerce for some consulting.

1166
01:00:32,560 --> 01:00:35,680
Speaker 6: You're listening to the tape Cat's are Live program Bloomberg

1167
01:00:35,760 --> 01:00:39,320
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

1168
01:00:39,400 --> 01:00:42,640
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

1169
01:00:42,680 --> 01:00:45,480
Speaker 6: You can also listen live on Amazon Alexa from our

1170
01:00:45,480 --> 01:00:51,520
Speaker 6: flagship New York station Just Say Alexa play Bloomberg eleven thirty.

1171
01:00:51,720 --> 01:00:56,240
Speaker 1: Talking about central banks this week raising rates, the FED

1172
01:00:56,280 --> 01:00:59,919
Speaker 1: and the ECB each raising by twenty five bases point.

1173
01:01:00,480 --> 01:01:03,080
Speaker 1: And obviously that's been just maybe the end of what

1174
01:01:03,120 --> 01:01:08,200
Speaker 1: has been an unbelievably stark increase in rates across the world,

1175
01:01:08,200 --> 01:01:10,320
Speaker 1: including here, most notably here in the US. And what

1176
01:01:10,360 --> 01:01:13,720
Speaker 1: does that mean for the real estate business. Well, we're

1177
01:01:13,720 --> 01:01:15,280
Speaker 1: going to check in with Brad case. He's the chief

1178
01:01:15,280 --> 01:01:19,520
Speaker 1: economist and director of research at middle Bird middle Bird Communities. Brad,

1179
01:01:19,520 --> 01:01:21,600
Speaker 1: thanks so much for joining us here. I mean, I

1180
01:01:21,640 --> 01:01:23,960
Speaker 1: don't know, I just took out a mortgage for a property,

1181
01:01:24,000 --> 01:01:26,400
Speaker 1: but I kind of feel like I'm the exception rather

1182
01:01:26,440 --> 01:01:28,760
Speaker 1: than the rule. And oh, by the way, I fully

1183
01:01:28,760 --> 01:01:31,040
Speaker 1: plan on refinancing that bad boy in twelve to eighteen

1184
01:01:31,040 --> 01:01:32,720
Speaker 1: months at materially lower rates.

1185
01:01:32,720 --> 01:01:34,160
Speaker 2: But talk to us.

1186
01:01:34,120 --> 01:01:37,400
Speaker 1: About kind of good luck, talk to us about kind

1187
01:01:37,400 --> 01:01:39,120
Speaker 1: of what you're seeing in your business. Bread.

1188
01:01:40,320 --> 01:01:43,120
Speaker 8: Well, what we're seeing in the commercial part of the

1189
01:01:43,120 --> 01:01:46,520
Speaker 8: real estate market is is that financing is still available,

1190
01:01:46,560 --> 01:01:49,240
Speaker 8: but it is a little bit harder to access. And

1191
01:01:49,280 --> 01:01:54,480
Speaker 8: that's and that's not really a problem. You know, if

1192
01:01:54,640 --> 01:02:00,000
Speaker 8: when there's concern about the banking system, when something makes

1193
01:02:00,120 --> 01:02:02,880
Speaker 8: borrowing more difficult, whether it's the rise of interest rates,

1194
01:02:03,000 --> 01:02:06,680
Speaker 8: or whether it's the concern about about the regional banks

1195
01:02:06,680 --> 01:02:09,560
Speaker 8: that have that have gotten in trouble recently, you know

1196
01:02:09,800 --> 01:02:12,240
Speaker 8: when when when that makes it harder to borrow money,

1197
01:02:12,360 --> 01:02:15,280
Speaker 8: it's not everybody who fails who you know who has

1198
01:02:15,360 --> 01:02:19,520
Speaker 8: difficulty accessing capital. It's the weakest projects. And so that's

1199
01:02:19,560 --> 01:02:22,160
Speaker 8: that's why it doesn't really doesn't really bother me. It

1200
01:02:22,200 --> 01:02:25,320
Speaker 8: makes us work harder to get financing for the projects

1201
01:02:25,360 --> 01:02:27,360
Speaker 8: that we have that are really good projects. If you've

1202
01:02:27,400 --> 01:02:30,480
Speaker 8: got a if you've got a development project, for example,

1203
01:02:30,560 --> 01:02:33,680
Speaker 8: that makes sense only because the capital is easy to get,

1204
01:02:34,080 --> 01:02:36,280
Speaker 8: then it doesn't really make sense. You don't really want

1205
01:02:36,320 --> 01:02:39,120
Speaker 8: projects like that happening, as you know, on an economy

1206
01:02:39,160 --> 01:02:42,480
Speaker 8: wide basis. So yes, it's harder to get financing, and

1207
01:02:42,560 --> 01:02:43,960
Speaker 8: that's not really a problem.

1208
01:02:44,320 --> 01:02:46,600
Speaker 2: So and the other thing is refinancing.

1209
01:02:47,120 --> 01:02:47,240
Speaker 4: Uh.

1210
01:02:47,520 --> 01:02:49,480
Speaker 2: You know, I think a lot of people hear what

1211
01:02:49,520 --> 01:02:53,600
Speaker 2: you're saying and visualize a project getting started. But there

1212
01:02:53,640 --> 01:02:56,240
Speaker 2: are a lot of refiles that need to happen out there,

1213
01:02:56,880 --> 01:03:02,880
Speaker 2: and if they don't, asset values will dropped dramatically, won't they.

1214
01:03:03,000 --> 01:03:06,280
Speaker 8: Oh yes, And I mean asset values have dropped already

1215
01:03:06,280 --> 01:03:08,720
Speaker 8: over the past year, and I expect that there is

1216
01:03:08,800 --> 01:03:12,280
Speaker 8: more to come. However, again, it's not that that all

1217
01:03:12,320 --> 01:03:16,120
Speaker 8: asset values drop, It's that it's that average asset value drop,

1218
01:03:16,120 --> 01:03:18,920
Speaker 8: which is to say, some projects that that you know

1219
01:03:19,360 --> 01:03:21,600
Speaker 8: you've got to you've got a retail project where no

1220
01:03:21,600 --> 01:03:23,640
Speaker 8: one really wants to shop, or you've got an office

1221
01:03:23,640 --> 01:03:27,080
Speaker 8: project in a place where where there's not a lot

1222
01:03:27,080 --> 01:03:32,160
Speaker 8: of office employment. It's going to be difficult to convince

1223
01:03:33,200 --> 01:03:35,720
Speaker 8: your source of capital that they should that they should

1224
01:03:35,760 --> 01:03:38,280
Speaker 8: refinance a loan that's coming due when you don't really

1225
01:03:38,280 --> 01:03:42,800
Speaker 8: have the fundamentals to support continuing to pay make payments

1226
01:03:42,840 --> 01:03:46,720
Speaker 8: on that debt. So so, uh, the pain of something

1227
01:03:46,720 --> 01:03:49,960
Speaker 8: like that is not spread evenly at all. It's uh,

1228
01:03:50,000 --> 01:03:52,040
Speaker 8: you know, other parts of the real estate market that

1229
01:03:52,080 --> 01:03:54,840
Speaker 8: are just doing just fine. They are not going to

1230
01:03:54,880 --> 01:03:58,960
Speaker 8: have have difficulty getting new financing to replace their existing loans.

1231
01:03:59,800 --> 01:04:04,640
Speaker 1: Right, We're experiencing a lot of turmoil in the regional

1232
01:04:04,680 --> 01:04:06,880
Speaker 1: banking space over the last four or five six weeks,

1233
01:04:06,880 --> 01:04:09,160
Speaker 1: and it's really picked up steam again over the last

1234
01:04:09,400 --> 01:04:11,920
Speaker 1: several days with some of these names really being taken

1235
01:04:11,920 --> 01:04:14,600
Speaker 1: to the woodshed in terms of their stock price. From

1236
01:04:14,640 --> 01:04:17,600
Speaker 1: your perspective, from your business perspective, how are you viewing

1237
01:04:17,640 --> 01:04:18,240
Speaker 1: this development?

1238
01:04:19,440 --> 01:04:21,920
Speaker 8: Well, it's a concern. But you know, if if you

1239
01:04:22,280 --> 01:04:24,920
Speaker 8: if you use a lot of if you use debt frequently,

1240
01:04:25,520 --> 01:04:28,480
Speaker 8: then what you have been doing is setting up a

1241
01:04:28,600 --> 01:04:33,160
Speaker 8: range of options because for any any particular use of debt,

1242
01:04:33,920 --> 01:04:36,480
Speaker 8: it may be that, you know, one source of capital

1243
01:04:36,560 --> 01:04:39,080
Speaker 8: is just not looking to fund that kind of a

1244
01:04:39,320 --> 01:04:41,920
Speaker 8: kind of a project or an acquisition or whatever it is.

1245
01:04:42,320 --> 01:04:45,280
Speaker 8: And so you're lining up several sources of capital so

1246
01:04:45,320 --> 01:04:47,040
Speaker 8: that when one one of them says, now we have

1247
01:04:47,080 --> 01:04:50,200
Speaker 8: too much of that sort of work. Uh, then you

1248
01:04:50,240 --> 01:04:52,840
Speaker 8: go to somebody else who says who says, yeah, we're

1249
01:04:52,840 --> 01:04:55,480
Speaker 8: ready to ready to finance that, and so you know,

1250
01:04:55,520 --> 01:04:58,840
Speaker 8: that's a that's a normal way of doing business. So

1251
01:04:58,840 --> 01:05:04,200
Speaker 8: so there aren't there shouldn't be a situation where the

1252
01:05:04,280 --> 01:05:08,160
Speaker 8: regional banks that are you know, that are having difficulty

1253
01:05:08,280 --> 01:05:11,960
Speaker 8: are your only sources of capital. So so going forward,

1254
01:05:12,000 --> 01:05:15,160
Speaker 8: we will see other sources of capital picking up the slack.

1255
01:05:15,920 --> 01:05:18,040
Speaker 2: Did you. I mean, one thing I've been thinking about

1256
01:05:18,160 --> 01:05:22,720
Speaker 2: is anyone who needs financing, Ay should have taken care

1257
01:05:22,760 --> 01:05:26,320
Speaker 2: of it as he saw rates rising, you know.

1258
01:05:26,720 --> 01:05:28,720
Speaker 1: But the Jersey is sure a state did not come

1259
01:05:28,760 --> 01:05:29,680
Speaker 1: on the market when we're.

1260
01:05:29,640 --> 01:05:32,440
Speaker 2: Okay, I'm not talking about you. I'm talking about Brad's business.

1261
01:05:32,520 --> 01:05:37,400
Speaker 2: You know, people developing, you know, big businesses or you know,

1262
01:05:37,640 --> 01:05:40,400
Speaker 2: even medium sized businesses should already have gone out there

1263
01:05:40,560 --> 01:05:42,680
Speaker 2: or should be getting out there now. Brad, have you

1264
01:05:42,720 --> 01:05:45,280
Speaker 2: have you at Middleburg community has already taken care of

1265
01:05:45,320 --> 01:05:48,040
Speaker 2: your financing needs as you see, as you saw rates

1266
01:05:48,040 --> 01:05:49,000
Speaker 2: coming higher and higher.

1267
01:05:49,800 --> 01:05:53,360
Speaker 8: Well, there's always this process of looking at our pipeline

1268
01:05:53,400 --> 01:05:55,160
Speaker 8: and making sure that we have the financing, the right

1269
01:05:55,200 --> 01:05:58,160
Speaker 8: financing in place for all of the projects in the pipeline.

1270
01:05:58,280 --> 01:06:01,120
Speaker 8: But yeah, it's very important to be looking forward and

1271
01:06:01,200 --> 01:06:04,840
Speaker 8: anticipating issues like this. You can't you can't do it perfectly.

1272
01:06:05,320 --> 01:06:08,160
Speaker 8: But if you look at what happened back back before

1273
01:06:08,200 --> 01:06:10,640
Speaker 8: the liquidity crisis of two thousand and eight and two

1274
01:06:10,640 --> 01:06:14,200
Speaker 8: thousand and nine, there were companies that anticipated that things

1275
01:06:14,200 --> 01:06:16,200
Speaker 8: were going to be tighter. It doesn't mean they anticipated

1276
01:06:16,400 --> 01:06:19,040
Speaker 8: a crisis, but they anticipated that things were going to

1277
01:06:19,200 --> 01:06:23,160
Speaker 8: get more difficult, and they addressed that. You know, maybe

1278
01:06:23,200 --> 01:06:28,560
Speaker 8: they refinanced some some borrowing before they had to, but

1279
01:06:28,720 --> 01:06:31,200
Speaker 8: because they were concerned that they might be more difficult

1280
01:06:31,240 --> 01:06:33,680
Speaker 8: going forward. And if you were one of the people

1281
01:06:33,760 --> 01:06:36,920
Speaker 8: who who you know, looked forward, made it, made a guess,

1282
01:06:36,960 --> 01:06:40,080
Speaker 8: made a pretty good guess, and acted on it, then

1283
01:06:40,160 --> 01:06:43,640
Speaker 8: you came out of that crisis much more solid than

1284
01:06:43,800 --> 01:06:46,200
Speaker 8: companies that, you know, just sort of let the market

1285
01:06:46,280 --> 01:06:48,760
Speaker 8: happen to them. So, you know, what what we tried

1286
01:06:48,800 --> 01:06:50,280
Speaker 8: to do is we try to do a better job

1287
01:06:50,320 --> 01:06:54,600
Speaker 8: of than other than our competitors, of anticipating that kind

1288
01:06:54,640 --> 01:06:57,400
Speaker 8: of development in the market and responding to it in

1289
01:06:57,480 --> 01:07:00,800
Speaker 8: terms of when we're raising capital, how much raising capital,

1290
01:07:00,840 --> 01:07:02,360
Speaker 8: and who we're raising it from.

1291
01:07:02,480 --> 01:07:05,320
Speaker 1: And Brad, in terms of deploying that capital, are you

1292
01:07:05,400 --> 01:07:08,200
Speaker 1: just building stuff down in Florida and Texas where everybody

1293
01:07:08,200 --> 01:07:10,760
Speaker 1: seems to be going, Where where are you guys seeing

1294
01:07:10,800 --> 01:07:12,560
Speaker 1: the opportunities you look several years ahead.

1295
01:07:13,600 --> 01:07:17,000
Speaker 8: So we were so our our our area is basically

1296
01:07:17,040 --> 01:07:22,200
Speaker 8: from Virginia to Texas, and yes, it includes includes Florida, Georgia,

1297
01:07:22,200 --> 01:07:24,960
Speaker 8: and North Carolina, South Carolina, Alabama, Tennessee. You know, so

1298
01:07:25,000 --> 01:07:27,400
Speaker 8: those are very good markets. But one of the things

1299
01:07:27,400 --> 01:07:29,640
Speaker 8: that we pay very close attention to, of course, is

1300
01:07:29,680 --> 01:07:31,600
Speaker 8: what other people are doing, because we don't want to

1301
01:07:31,600 --> 01:07:34,440
Speaker 8: be building a new, a new rental housing community in

1302
01:07:34,480 --> 01:07:37,440
Speaker 8: a place where there is too much construction. And fortunately

1303
01:07:37,480 --> 01:07:38,880
Speaker 8: in that part of the market, you know, there is

1304
01:07:38,920 --> 01:07:44,000
Speaker 8: still so much unmad demand. But we look market by

1305
01:07:44,040 --> 01:07:47,640
Speaker 8: market and we say, we may say, all right, here's

1306
01:07:47,640 --> 01:07:50,360
Speaker 8: a particular city that that you know, it looks terrific,

1307
01:07:50,560 --> 01:07:53,720
Speaker 8: but look how much new supply is coming on online.

1308
01:07:54,160 --> 01:07:57,240
Speaker 8: We don't want to be locked into a big development

1309
01:07:57,680 --> 01:07:59,640
Speaker 8: that's coming online in the middle of you know, what

1310
01:07:59,760 --> 01:08:02,120
Speaker 8: may be a softening of rent growth or or an

1311
01:08:02,120 --> 01:08:04,840
Speaker 8: increase in vacancy, or it's because there's too much supply

1312
01:08:04,920 --> 01:08:08,439
Speaker 8: coming along online. So yeah, we we we pay close

1313
01:08:08,480 --> 01:08:11,120
Speaker 8: attention to it. And and again our goal is to

1314
01:08:11,160 --> 01:08:13,000
Speaker 8: be a little bit better than our community, than our

1315
01:08:13,040 --> 01:08:17,240
Speaker 8: competitors in terms of anticipating how much new supply there's

1316
01:08:17,240 --> 01:08:19,120
Speaker 8: going to be, how much new demand there's going to be,

1317
01:08:19,520 --> 01:08:22,360
Speaker 8: not just nationwide, but but in particular markets.

1318
01:08:22,640 --> 01:08:25,280
Speaker 1: Yeah, it just seems like the regional aspect that I

1319
01:08:25,280 --> 01:08:28,439
Speaker 1: guess it's pretty straightforward, and of the markets you're in,

1320
01:08:29,680 --> 01:08:31,439
Speaker 1: I seem to be some of the higher growth areas.

1321
01:08:31,600 --> 01:08:33,080
Speaker 1: What do you think about when you if you when

1322
01:08:33,080 --> 01:08:35,880
Speaker 1: you think about going into uh A, is it who

1323
01:08:35,920 --> 01:08:38,400
Speaker 1: are like, who are your competitors? Are there other builders

1324
01:08:38,439 --> 01:08:41,799
Speaker 1: you're competing against, or are there other modes of living

1325
01:08:41,800 --> 01:08:43,360
Speaker 1: that you kind of look at, or is it just

1326
01:08:43,360 --> 01:08:45,960
Speaker 1: simply oh boy, our big competitor cross the street is

1327
01:08:45,960 --> 01:08:48,400
Speaker 1: building a big property in this market. Let's let's stay

1328
01:08:48,400 --> 01:08:50,040
Speaker 1: away from it now.

1329
01:08:50,280 --> 01:08:52,240
Speaker 8: You know, we we are a full service company, so

1330
01:08:52,320 --> 01:08:57,280
Speaker 8: we we we we build rental housing communities, we buy them,

1331
01:08:57,880 --> 01:09:01,040
Speaker 8: we manage them, including sometimes manage for other people. So

1332
01:09:01,080 --> 01:09:04,000
Speaker 8: we're looking at competitors on a whole range of the

1333
01:09:04,360 --> 01:09:08,439
Speaker 8: uh you know, of parts of the business. But so

1334
01:09:08,439 --> 01:09:10,240
Speaker 8: so part of what we're trying to do is to say,

1335
01:09:10,240 --> 01:09:11,840
Speaker 8: all right, you know, right now it looks like a

1336
01:09:11,840 --> 01:09:14,240
Speaker 8: really good time to develop. Let's, you know, let's make

1337
01:09:14,240 --> 01:09:16,240
Speaker 8: sure that we have a good development pipeline, or at

1338
01:09:16,280 --> 01:09:18,240
Speaker 8: a different time we may be saying, all right, development

1339
01:09:18,320 --> 01:09:21,439
Speaker 8: is really not the best, you know, best place to

1340
01:09:21,479 --> 01:09:25,560
Speaker 8: focus our efforts. You know, let's be thinking about acquiring properties.

1341
01:09:25,600 --> 01:09:27,600
Speaker 8: And it has to do and there's a lot of

1342
01:09:27,640 --> 01:09:31,960
Speaker 8: differences both by market and by segment of the rental

1343
01:09:31,960 --> 01:09:35,200
Speaker 8: housing market. So, for example, we were among the earliest

1344
01:09:35,200 --> 01:09:40,200
Speaker 8: in terms of the you know, building single family rental

1345
01:09:40,240 --> 01:09:44,120
Speaker 8: housing communities. Uh, you know, because you know, the the

1346
01:09:44,160 --> 01:09:47,519
Speaker 8: some of the single family rental housing is scattered site

1347
01:09:47,560 --> 01:09:50,960
Speaker 8: and what we work on is a community with amenities

1348
01:09:51,000 --> 01:09:55,840
Speaker 8: and it's sort of a professionally managed place to live

1349
01:09:56,600 --> 01:09:59,280
Speaker 8: where instead of sharing a wall with your neighbor, you've

1350
01:09:59,280 --> 01:10:02,200
Speaker 8: got your own four So we were a little bit

1351
01:10:02,200 --> 01:10:05,160
Speaker 8: earlier than many of our competitors in terms of figuring

1352
01:10:05,200 --> 01:10:06,960
Speaker 8: out that that's what a lot of people were gonna

1353
01:10:07,000 --> 01:10:09,439
Speaker 8: want and what kind of house would work well for them.

1354
01:10:09,560 --> 01:10:11,519
Speaker 1: All right, good stuff, Brad, thanks so much for taking

1355
01:10:11,520 --> 01:10:14,040
Speaker 1: the time. We really appreciate talking about the real estate

1356
01:10:14,080 --> 01:10:17,000
Speaker 1: biz and the economics of the real estate business. Brad

1357
01:10:17,040 --> 01:10:19,720
Speaker 1: Case he's a chief economist and director of research at

1358
01:10:19,880 --> 01:10:22,439
Speaker 1: Middelburg Community talking about kind of some of the real

1359
01:10:22,520 --> 01:10:24,759
Speaker 1: estate opportunities around the country.

1360
01:10:25,040 --> 01:10:28,160
Speaker 6: You're listening to the tape cans Are live program Bloomberg

1361
01:10:28,200 --> 01:10:31,800
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

1362
01:10:31,840 --> 01:10:35,080
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

1363
01:10:35,120 --> 01:10:37,960
Speaker 6: You can also listen live on Amazon Alexa from our

1364
01:10:37,960 --> 01:10:42,360
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

1365
01:10:43,920 --> 01:10:47,479
Speaker 1: We'll talk about cross currents. We got earnings coming at

1366
01:10:47,560 --> 01:10:50,519
Speaker 1: us seemingly left right and center this week. It's been

1367
01:10:50,520 --> 01:10:52,799
Speaker 1: a busy week. We've got the FED and the ECB

1368
01:10:53,200 --> 01:10:55,799
Speaker 1: raising rates, maybe gonna pause, we have to pay attention

1369
01:10:55,840 --> 01:10:58,840
Speaker 1: to that. We've got some uncertain yet of Washington over

1370
01:10:58,880 --> 01:11:01,680
Speaker 1: this whole debt ceiling thing. And then if that's not enough,

1371
01:11:01,720 --> 01:11:05,280
Speaker 1: throw in some real concerns brewing in this marketplace about

1372
01:11:05,400 --> 01:11:07,439
Speaker 1: some of the banks in the United States. So how's

1373
01:11:07,479 --> 01:11:10,559
Speaker 1: a professional suppost to deal with that? Well, fortunately, we

1374
01:11:10,600 --> 01:11:12,160
Speaker 1: have one that has a lot of perspective, a lot

1375
01:11:12,160 --> 01:11:15,759
Speaker 1: of experience. Margy Pateel, Senior portfolio manage at all Spring

1376
01:11:15,880 --> 01:11:18,759
Speaker 1: Global Investments, joins us. Margy, I'd like to to start

1377
01:11:18,800 --> 01:11:21,400
Speaker 1: with kind of what we've been experiencing really over the

1378
01:11:21,479 --> 01:11:22,880
Speaker 1: last couple of days, but over the last four or

1379
01:11:22,880 --> 01:11:26,280
Speaker 1: five weeks with some of these regional banks. How concerned

1380
01:11:26,320 --> 01:11:28,880
Speaker 1: are you that this is something systemic that could be

1381
01:11:28,880 --> 01:11:29,959
Speaker 1: a problem for the economy.

1382
01:11:30,880 --> 01:11:34,320
Speaker 9: Well, it definitely is, and I would say in almost

1383
01:11:34,400 --> 01:11:38,200
Speaker 9: all cases, the banks really weren't doing anything wrong. They

1384
01:11:38,240 --> 01:11:42,080
Speaker 9: simply structured their balance sheets according to zero rates and

1385
01:11:42,120 --> 01:11:45,599
Speaker 9: simply couldn't adjust for a five point increase in short

1386
01:11:45,680 --> 01:11:48,800
Speaker 9: rates in a year. So I think that the fragility

1387
01:11:48,800 --> 01:11:51,800
Speaker 9: that we're seeing is really caused by FED actions, and

1388
01:11:51,840 --> 01:11:55,479
Speaker 9: the FED scenes rather immune to the damage they're causing.

1389
01:11:55,680 --> 01:11:57,640
Speaker 1: And we haven't heard that in the comments from Jay

1390
01:11:57,720 --> 01:12:00,960
Speaker 1: Powell yesterday that whereas the banking system, his estimation is

1391
01:12:01,000 --> 01:12:03,600
Speaker 1: pretty sound. Where do you think we are with this

1392
01:12:03,640 --> 01:12:06,679
Speaker 1: Federal Reserve? And do you think that they are pausing

1393
01:12:06,760 --> 01:12:08,920
Speaker 1: to risk or is there a chance that they may

1394
01:12:08,960 --> 01:12:11,200
Speaker 1: be cut in the face of what could be some

1395
01:12:11,680 --> 01:12:14,120
Speaker 1: challenges in economy stemming apart from the banks.

1396
01:12:14,600 --> 01:12:16,800
Speaker 9: Well, it seems to me they are so focused on

1397
01:12:16,880 --> 01:12:21,000
Speaker 9: bringing down the inflation rate that they're really losing track

1398
01:12:21,040 --> 01:12:23,680
Speaker 9: of what's going on in the real economy, particularly in

1399
01:12:23,680 --> 01:12:26,559
Speaker 9: the financial sector. We're we're seeing lots of stress, again

1400
01:12:26,680 --> 01:12:30,040
Speaker 9: precipitated by Fred actions and really looking at his comments,

1401
01:12:30,040 --> 01:12:33,479
Speaker 9: he was really rather high handed about what happens to banks,

1402
01:12:33,520 --> 01:12:35,559
Speaker 9: and oh, well, if we have a number of banks

1403
01:12:35,600 --> 01:12:38,639
Speaker 9: continue to shrink, then that's just the way it goes,

1404
01:12:39,080 --> 01:12:41,800
Speaker 9: rather than looking at how much of that is really

1405
01:12:41,960 --> 01:12:44,800
Speaker 9: due to what the Fed has done to limit them.

1406
01:12:44,840 --> 01:12:46,919
Speaker 9: So we think that there is something to be concerned

1407
01:12:46,960 --> 01:12:49,800
Speaker 9: about because the Fed, just the FED doesn't seem very

1408
01:12:49,840 --> 01:12:53,080
Speaker 9: concerned about the financial system. They're looking at the inflation

1409
01:12:53,240 --> 01:12:56,040
Speaker 9: rate and so that's why they think the course is

1410
01:12:56,080 --> 01:12:58,519
Speaker 9: still steady and they're missing the bigger picture.

1411
01:12:58,960 --> 01:13:02,240
Speaker 1: Yeah, is that comes back to bite them In terms

1412
01:13:02,280 --> 01:13:05,400
Speaker 1: of earnings, Margie, we're about eighty percent through I guess

1413
01:13:05,400 --> 01:13:07,800
Speaker 1: the S and P five hundred reporting, and the good

1414
01:13:07,840 --> 01:13:10,160
Speaker 1: news is there was some revenue growth close to four percent,

1415
01:13:10,200 --> 01:13:12,920
Speaker 1: but the earnings growth a negative three percent, indicating some

1416
01:13:12,960 --> 01:13:16,400
Speaker 1: real margin pressure out there. What's your takeaway from this

1417
01:13:16,439 --> 01:13:19,040
Speaker 1: earning season so far and maybe what that means to

1418
01:13:19,520 --> 01:13:20,520
Speaker 1: your sense of evaluation.

1419
01:13:21,600 --> 01:13:25,759
Speaker 9: Well, just like the fourth quarter surprised by better results

1420
01:13:25,800 --> 01:13:28,759
Speaker 9: than we expected, the first quarter has actually been better

1421
01:13:28,800 --> 01:13:31,639
Speaker 9: than the market expected. It's true we're starting to see

1422
01:13:31,680 --> 01:13:34,960
Speaker 9: some pressure on revenue growth, and we're also seeing some

1423
01:13:35,080 --> 01:13:38,759
Speaker 9: pressure on earnings, but it's been less than the market expected,

1424
01:13:38,800 --> 01:13:42,280
Speaker 9: and it shows companies so far have held up pretty well. However,

1425
01:13:42,720 --> 01:13:45,439
Speaker 9: I think the question is what we're seeing in some

1426
01:13:45,520 --> 01:13:48,720
Speaker 9: of the companies that are disappointing is really telegraphing that

1427
01:13:48,760 --> 01:13:51,720
Speaker 9: we may see a much more sharp deterioration as we

1428
01:13:51,800 --> 01:13:53,799
Speaker 9: go into the next few quarters.

1429
01:13:54,439 --> 01:13:56,840
Speaker 1: So are you are you baking into your outlook an

1430
01:13:56,840 --> 01:13:59,439
Speaker 1: outright recession and if so, kind of what duration.

1431
01:14:01,479 --> 01:14:04,080
Speaker 9: I'd like to think we could avoid a recession. But honestly,

1432
01:14:04,120 --> 01:14:07,000
Speaker 9: when you look at the signs that we're seeing bank

1433
01:14:07,080 --> 01:14:12,519
Speaker 9: lending officers becoming more conservative, we've seen hiring statistics really

1434
01:14:12,640 --> 01:14:16,719
Speaker 9: roll over, and we've seen signs that consumers are starting

1435
01:14:16,720 --> 01:14:20,000
Speaker 9: to feel a little stressed, especially in the lower chier consumers.

1436
01:14:20,280 --> 01:14:23,280
Speaker 9: So we think that we rather suddenly are seeing some

1437
01:14:23,320 --> 01:14:26,719
Speaker 9: pressure on the economy. Plus a lot of the things

1438
01:14:26,720 --> 01:14:29,280
Speaker 9: that make the economy look good are going to go away.

1439
01:14:29,320 --> 01:14:31,720
Speaker 9: For example, if student loans come back to start to

1440
01:14:31,720 --> 01:14:34,360
Speaker 9: take a bite out of income. And also many state

1441
01:14:34,400 --> 01:14:37,040
Speaker 9: and local governments have been spending their COVID money. That's

1442
01:14:37,040 --> 01:14:41,679
Speaker 9: why construction by public entities has hauled up so well,

1443
01:14:41,960 --> 01:14:43,479
Speaker 9: so that's going to come to an end. So we

1444
01:14:43,520 --> 01:14:46,559
Speaker 9: may sort of go off more of a cliff than

1445
01:14:46,560 --> 01:14:48,120
Speaker 9: we see right here in the first quarter.

1446
01:14:48,439 --> 01:14:51,519
Speaker 1: All right, given all those cross currents, if you will,

1447
01:14:51,560 --> 01:14:54,160
Speaker 1: and maybe even some headways out there, what are some

1448
01:14:54,200 --> 01:14:57,479
Speaker 1: of the sectors that you guys are still find attractive.

1449
01:14:57,520 --> 01:14:58,639
Speaker 1: You might be doing some work.

1450
01:14:58,479 --> 01:15:02,679
Speaker 9: In well thinking and that basically everybody over the next

1451
01:15:02,680 --> 01:15:06,439
Speaker 9: few quarters is going to have disappointing earnings compared to

1452
01:15:06,479 --> 01:15:09,519
Speaker 9: what we're seeing today. We still like the technology sector,

1453
01:15:09,880 --> 01:15:13,559
Speaker 9: especially semiconductors. We think they're working through their inventory issues.

1454
01:15:14,000 --> 01:15:17,800
Speaker 9: They're well understood the inventory, and we expect to see

1455
01:15:17,840 --> 01:15:21,120
Speaker 9: long term growth there. We like the industrial sectors because

1456
01:15:21,120 --> 01:15:25,120
Speaker 9: we do believe that the reshoring and the increased capital

1457
01:15:25,160 --> 01:15:28,840
Speaker 9: expenditure is going to increase. And selectively, we like part

1458
01:15:28,880 --> 01:15:31,600
Speaker 9: of healthcare. We think that companies that can innovate and

1459
01:15:31,680 --> 01:15:36,200
Speaker 9: avoid some of the price pressures of the drugs coming

1460
01:15:36,240 --> 01:15:38,920
Speaker 9: off patent will still have a sustainable growth path, and

1461
01:15:38,960 --> 01:15:40,920
Speaker 9: companies that have good balance sheets in case we do

1462
01:15:40,960 --> 01:15:42,200
Speaker 9: have real financial stress.

1463
01:15:42,600 --> 01:15:45,439
Speaker 1: Yeah, it's interesting on the tech side. You know, I

1464
01:15:45,479 --> 01:15:47,320
Speaker 1: don't know, I guess all I know are what I

1465
01:15:47,360 --> 01:15:49,400
Speaker 1: really know about that the chip business is Boy, it's

1466
01:15:49,479 --> 01:15:52,719
Speaker 1: long cycle, and you better really get the cycle right.

1467
01:15:53,840 --> 01:15:57,120
Speaker 1: So do you see demand picking up for chips in

1468
01:15:57,120 --> 01:15:58,040
Speaker 1: the back half of this year?

1469
01:15:58,840 --> 01:16:00,679
Speaker 9: Well, we're thinking in the back half of the year

1470
01:16:00,720 --> 01:16:04,519
Speaker 9: that we should see the excess inventory be largely worked

1471
01:16:04,560 --> 01:16:08,120
Speaker 9: off and then looking for a pickup and demand as

1472
01:16:08,160 --> 01:16:11,000
Speaker 9: we get in the second half. And if we see

1473
01:16:11,000 --> 01:16:13,320
Speaker 9: more pressure on the economy, we may have to push

1474
01:16:13,360 --> 01:16:15,840
Speaker 9: that out a bit. But at this point that's our thinking.

1475
01:16:16,200 --> 01:16:19,320
Speaker 1: And on this the restoring issue that was certainly a

1476
01:16:19,479 --> 01:16:22,000
Speaker 1: very really hot topic during the beginning of the pandemic

1477
01:16:22,000 --> 01:16:25,040
Speaker 1: when some of these supply chain issues became really apparent,

1478
01:16:25,120 --> 01:16:27,599
Speaker 1: including chips, and you know, we say, boy, we got

1479
01:16:27,600 --> 01:16:29,640
Speaker 1: to start restoring some of the stuff, and I know

1480
01:16:29,720 --> 01:16:32,400
Speaker 1: the rhetoric was hot and heavy at the time. Have

1481
01:16:32,479 --> 01:16:36,720
Speaker 1: we actually seen businesses across you know, sectors really start

1482
01:16:36,840 --> 01:16:38,080
Speaker 1: to reshore some of this stuff.

1483
01:16:38,720 --> 01:16:40,960
Speaker 9: Yes, we have, of course at the margin, it's still

1484
01:16:41,000 --> 01:16:44,560
Speaker 9: a small part of the economy. We've also seen companies

1485
01:16:44,680 --> 01:16:47,280
Speaker 9: move to, if not in the United States, close to

1486
01:16:47,360 --> 01:16:50,280
Speaker 9: the United States, save Mexico for an example.

1487
01:16:50,000 --> 01:16:52,080
Speaker 1: Right, friendshuring, I guess is what they tell about.

1488
01:16:52,400 --> 01:16:56,120
Speaker 9: Yes, to make those but we think that's a permanent change,

1489
01:16:56,160 --> 01:16:59,640
Speaker 9: a permanent swing away from particularly sourcing from China. We

1490
01:16:59,640 --> 01:17:01,120
Speaker 9: don't think that's going to be reversed.

1491
01:17:01,840 --> 01:17:04,360
Speaker 1: And it's interesting in the healthcare space, you know, we've

1492
01:17:04,360 --> 01:17:07,360
Speaker 1: seen some deals happening and that always seems to be

1493
01:17:07,439 --> 01:17:10,320
Speaker 1: kind of a merger Monday on the pharmacy space, and

1494
01:17:10,400 --> 01:17:13,760
Speaker 1: is that when you invest in healthcare do you try

1495
01:17:13,800 --> 01:17:16,160
Speaker 1: to keep that in mind? Do you ignore that or

1496
01:17:16,160 --> 01:17:17,960
Speaker 1: do you just stay with some of the bigger names

1497
01:17:18,000 --> 01:17:21,040
Speaker 1: that kind of give you a broad diversification diversification in

1498
01:17:21,080 --> 01:17:21,479
Speaker 1: the space.

1499
01:17:21,760 --> 01:17:23,960
Speaker 9: Yes, we try to stay with the larger names that

1500
01:17:24,080 --> 01:17:28,040
Speaker 9: have good cash flow, that are diversified said that won't

1501
01:17:28,080 --> 01:17:32,200
Speaker 9: be hurt by fall off in anyone product. And rather

1502
01:17:32,240 --> 01:17:35,559
Speaker 9: than looking for companies that might be acquired, we think

1503
01:17:35,600 --> 01:17:38,599
Speaker 9: good companies or the companies that eventually get acquired, and

1504
01:17:38,640 --> 01:17:41,479
Speaker 9: so we're looking for companies that can have sustainable cash

1505
01:17:41,479 --> 01:17:43,559
Speaker 9: flow through what might turn out to be a more

1506
01:17:43,640 --> 01:17:45,400
Speaker 9: difficult period than we're thinking right now.

1507
01:17:45,680 --> 01:17:48,080
Speaker 1: Right yep, absolutely, all right, Margie, thank you so much.

1508
01:17:48,280 --> 01:17:51,800
Speaker 1: We appreciate getting your time as always. Argy Btel, she's

1509
01:17:51,800 --> 01:17:55,600
Speaker 1: a senior portfolio manager, Offspring Global Investments.

1510
01:17:58,960 --> 01:18:02,040
Speaker 2: Thanks for listening to the bloom Markets podcasts. You can

1511
01:18:02,080 --> 01:18:05,839
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

1512
01:18:05,920 --> 01:18:09,639
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

1513
01:18:09,880 --> 01:18:11,800
Speaker 2: at Matt Miller nineteen seventy three.

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Speaker 1: And I'm Faull Sweeney. I'm on Twitter at pt Sweeney.

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Speaker 1: Before the podcast, you can always catch us worldwide at

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Speaker 1: Bloomberg Radio