1 00:00:05,080 --> 00:00:08,280 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa A. 2 00:00:08,320 --> 00:00:11,640 Speaker 2: Bromwoyds, along with Tom Keane and Jonathan Farrow. Join us 3 00:00:11,680 --> 00:00:15,280 Speaker 2: each day for insight from the best in economics, geopolitics, 4 00:00:15,320 --> 00:00:19,480 Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 5 00:00:19,600 --> 00:00:22,840 Speaker 2: Spotify and anywhere you get your podcasts, and always on 6 00:00:22,880 --> 00:00:26,440 Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 7 00:00:26,680 --> 00:00:29,120 Speaker 2: Right now, I am so pleased to say my colleague 8 00:00:29,280 --> 00:00:32,720 Speaker 2: David Weston joined over with Bank of America Chair and 9 00:00:32,840 --> 00:00:34,040 Speaker 2: CEO Brian Moinihan. 10 00:00:34,200 --> 00:00:35,400 Speaker 1: David, we are. 11 00:00:35,400 --> 00:00:38,000 Speaker 3: Joined now by Brian moynean. He is sharing CEO of 12 00:00:38,120 --> 00:00:40,080 Speaker 3: Bank of America. Brian, thank you so much for joining 13 00:00:40,159 --> 00:00:41,320 Speaker 3: us here at the end of the year. 14 00:00:41,880 --> 00:00:44,080 Speaker 4: David, it's great to have you here in happy holidays, 15 00:00:44,080 --> 00:00:46,320 Speaker 4: and you can see our teammates out there working away 16 00:00:46,360 --> 00:00:47,920 Speaker 4: on the trading floor here at one Brian Park. 17 00:00:48,000 --> 00:00:49,240 Speaker 3: Yeah, and we're going to go back to the trading 18 00:00:49,240 --> 00:00:50,960 Speaker 3: floor because you had quite a year in trading. But 19 00:00:51,000 --> 00:00:52,960 Speaker 3: first talk about the year overall. There have been a 20 00:00:53,000 --> 00:00:55,680 Speaker 3: fair number of surprises given what some people expect at 21 00:00:55,680 --> 00:00:57,520 Speaker 3: the beginning of the year. Certainly, stock Mark has done 22 00:00:57,600 --> 00:00:59,920 Speaker 3: very very well. We had more interest rate hikes than 23 00:00:59,920 --> 00:01:03,240 Speaker 3: we thought we would have. Unemployment has really held down 24 00:01:03,360 --> 00:01:05,480 Speaker 3: pretty well, and we didn't have that recession so many 25 00:01:05,520 --> 00:01:07,280 Speaker 3: people thought we would. Now, I must say, when I 26 00:01:07,280 --> 00:01:08,800 Speaker 3: talked to you throughout the year, you kept saying it 27 00:01:08,920 --> 00:01:11,520 Speaker 3: kind of looks pretty strong. Some of your compatriots were saying, oh, no, 28 00:01:11,640 --> 00:01:14,360 Speaker 3: hurricanes and tornadoes and things like that. So how'd you 29 00:01:14,400 --> 00:01:14,840 Speaker 3: get it right? 30 00:01:15,400 --> 00:01:17,760 Speaker 4: Well, we just we just try to follow the data, 31 00:01:17,800 --> 00:01:20,679 Speaker 4: and I think there were unexpected events. They're unexpected events 32 00:01:20,680 --> 00:01:22,840 Speaker 4: in every year, you know, And so whether it's the 33 00:01:22,840 --> 00:01:25,479 Speaker 4: regional banking crisis early on in the year, or whether 34 00:01:25,520 --> 00:01:30,000 Speaker 4: it was another Hamas attack on Israel and October seventh, 35 00:01:30,000 --> 00:01:33,520 Speaker 4: whether it was escalation and continuation Ukraine, whether it's attentions 36 00:01:33,520 --> 00:01:35,160 Speaker 4: in China. These are all things that happen and they 37 00:01:35,160 --> 00:01:37,080 Speaker 4: go on all the time. But what we look at 38 00:01:37,160 --> 00:01:39,000 Speaker 4: is what goes on in our core customer base, and 39 00:01:39,000 --> 00:01:41,040 Speaker 4: we try to talk about what is going on as 40 00:01:41,080 --> 00:01:43,080 Speaker 4: opposed to what could go on and plan for what 41 00:01:43,120 --> 00:01:45,720 Speaker 4: could go on. And you know, that's been relatively strong 42 00:01:45,760 --> 00:01:48,120 Speaker 4: and our team, you know, the spending continues even today. 43 00:01:48,120 --> 00:01:49,760 Speaker 5: At about four to five percent over. 44 00:01:49,640 --> 00:01:53,080 Speaker 4: Last year, half the growth rate of twenty two to 45 00:01:53,080 --> 00:01:56,240 Speaker 4: twenty one, showing the consumer has slowed down, consistent with 46 00:01:56,320 --> 00:02:01,000 Speaker 4: inflation getting under control, consistent with you know, the using 47 00:02:01,080 --> 00:02:03,840 Speaker 4: the rate structure to choke off some of the activity. 48 00:02:03,880 --> 00:02:04,640 Speaker 5: And it's happened. 49 00:02:04,880 --> 00:02:07,600 Speaker 4: But overall it's been a decent year and the economy's grown, 50 00:02:07,720 --> 00:02:10,000 Speaker 4: unemployment stayed low, and the bank's done very well. 51 00:02:10,040 --> 00:02:12,800 Speaker 3: Let's talk about the consumer. You are the largest consumer 52 00:02:12,840 --> 00:02:15,640 Speaker 3: banking operation in the country. We are in the middle 53 00:02:16,000 --> 00:02:17,919 Speaker 3: towards the end now the holiay season. What are you 54 00:02:17,960 --> 00:02:19,720 Speaker 3: seeing there? I knew until now I was holding up 55 00:02:19,720 --> 00:02:21,440 Speaker 3: pretty well. Where is it right now the consumer as 56 00:02:21,440 --> 00:02:21,840 Speaker 3: of today? 57 00:02:21,960 --> 00:02:22,160 Speaker 5: Sure? 58 00:02:22,440 --> 00:02:24,560 Speaker 4: So, if you looked at it November of twenty three 59 00:02:24,680 --> 00:02:26,920 Speaker 4: over November of twenty two, and this is across about 60 00:02:26,919 --> 00:02:29,200 Speaker 4: three or four hundred billion dollars a month of activity 61 00:02:29,400 --> 00:02:31,720 Speaker 4: customer spending money out of their accounts, that was up 62 00:02:31,760 --> 00:02:35,200 Speaker 4: about four and a half percent. So far in December 63 00:02:35,200 --> 00:02:37,519 Speaker 4: it's holding about the same and again that's about half 64 00:02:37,520 --> 00:02:39,160 Speaker 4: the rate it was growing at last year at this 65 00:02:39,240 --> 00:02:42,320 Speaker 4: time versus the year prior. And that's because the overactivity 66 00:02:42,360 --> 00:02:44,840 Speaker 4: is slowing down what's been interesting is this broaden out 67 00:02:44,880 --> 00:02:48,000 Speaker 4: to all things. There were these periodic things since the pandemic. 68 00:02:48,000 --> 00:02:49,920 Speaker 4: First people hold up and bought stuff with their house. 69 00:02:49,960 --> 00:02:51,960 Speaker 4: Then they started to go out and travel some. Then 70 00:02:52,000 --> 00:02:55,640 Speaker 4: they went to restaurants. Then they had another set of travel, 71 00:02:55,680 --> 00:02:57,840 Speaker 4: different kind of travel, international travel, and then they got 72 00:02:57,840 --> 00:03:00,320 Speaker 4: to concerts and things. That's all through The system is 73 00:03:00,400 --> 00:03:04,000 Speaker 4: spending kind of evenly across. Retail stores are doing fine. 74 00:03:04,040 --> 00:03:06,880 Speaker 4: Online sales are strong. You know, they're all two three 75 00:03:06,919 --> 00:03:09,440 Speaker 4: percent flatish two four percent, depending on what it is. 76 00:03:09,480 --> 00:03:11,639 Speaker 4: So everything's kind of normalized for the US consumer and 77 00:03:11,639 --> 00:03:14,160 Speaker 4: how they're spending money. They are in very good shape. 78 00:03:14,440 --> 00:03:16,880 Speaker 4: They have money in and accounts, they're employed, and the 79 00:03:16,880 --> 00:03:19,560 Speaker 4: wages are growing. It doesn't mean inflation didn't affect certain 80 00:03:19,600 --> 00:03:25,679 Speaker 4: parts of the American public hard, but in general, when 81 00:03:26,440 --> 00:03:29,520 Speaker 4: unemployment rate's still in the mid threes to mid upper threes, 82 00:03:29,560 --> 00:03:31,680 Speaker 4: that is a very strong place for the consumer. 83 00:03:31,960 --> 00:03:33,040 Speaker 5: But it has slowed down. 84 00:03:33,360 --> 00:03:34,600 Speaker 3: You say they're in good shape. That's why I was 85 00:03:34,600 --> 00:03:36,520 Speaker 3: going to ask you, they're spending money, can they afford it? 86 00:03:36,560 --> 00:03:38,400 Speaker 3: What are you seeing in terms of their bank balances? 87 00:03:38,560 --> 00:03:40,960 Speaker 3: I believe those have come down some how, fast are 88 00:03:40,960 --> 00:03:41,480 Speaker 3: they coming down. 89 00:03:41,680 --> 00:03:44,240 Speaker 4: So it's a little bit of two different types of customers. 90 00:03:44,240 --> 00:03:47,000 Speaker 4: For consumers that had a lot of access cash, of course, 91 00:03:47,000 --> 00:03:48,720 Speaker 4: when the rate they could get on that cash one 92 00:03:48,760 --> 00:03:51,920 Speaker 4: from twenty five basis points to five percent plus, guess 93 00:03:51,960 --> 00:03:52,240 Speaker 4: what it did. 94 00:03:52,280 --> 00:03:53,040 Speaker 5: It moved the market. 95 00:03:53,120 --> 00:03:55,320 Speaker 4: So the very upper balances of consumer and our wealth 96 00:03:55,360 --> 00:03:57,320 Speaker 4: manager customers move the market. But if you look at 97 00:03:57,360 --> 00:03:59,400 Speaker 4: the consumers that the accounts are more than money come 98 00:03:59,440 --> 00:04:01,520 Speaker 4: in and out, they're still sitting with multiples of what 99 00:04:01,520 --> 00:04:04,240 Speaker 4: they had pre pandemic. So a cohort of consumers I 100 00:04:04,280 --> 00:04:06,720 Speaker 4: had between two and five thousand dollars in their account's 101 00:04:06,880 --> 00:04:09,600 Speaker 4: pre pandemic average about thirty two to thirty four hundred. 102 00:04:09,800 --> 00:04:12,240 Speaker 4: They're now still sitting with about thirteen thousand accounts. It 103 00:04:12,240 --> 00:04:14,520 Speaker 4: has come down from a peak of thirteen four down 104 00:04:14,520 --> 00:04:16,600 Speaker 4: to about twelve eight, so it's come down a bit, 105 00:04:16,800 --> 00:04:19,680 Speaker 4: but still much higher than it was before. That's due 106 00:04:19,680 --> 00:04:22,080 Speaker 4: to all the stimulus and stuff, and then holding on 107 00:04:22,120 --> 00:04:23,919 Speaker 4: to that. Where they go next is going to be 108 00:04:23,960 --> 00:04:26,479 Speaker 4: launching question. They've slowed down their spending because things got 109 00:04:26,480 --> 00:04:28,600 Speaker 4: more expensive. They slow down their spending because they got 110 00:04:28,640 --> 00:04:30,600 Speaker 4: worried a little bit worried about their job. They slowed 111 00:04:30,600 --> 00:04:32,920 Speaker 4: down their spending because the rates on car loans or 112 00:04:32,960 --> 00:04:36,200 Speaker 4: all the things became more expensive. But they're still spending 113 00:04:36,200 --> 00:04:38,679 Speaker 4: more than they did last year. And that's a decent 114 00:04:38,720 --> 00:04:39,719 Speaker 4: setup for a soft landing. 115 00:04:39,839 --> 00:04:42,240 Speaker 3: Are you seeing any softness and consumer credit? I mean, 116 00:04:42,320 --> 00:04:44,599 Speaker 3: are you seeing bounces go up, delinquencies go up? 117 00:04:44,920 --> 00:04:47,320 Speaker 4: Well, bounce has gone up in credit cards back to 118 00:04:47,320 --> 00:04:49,839 Speaker 4: where they were pre pandemic for us in the industry, 119 00:04:50,000 --> 00:04:52,120 Speaker 4: and people are like, oh my gosh, up above that 120 00:04:52,240 --> 00:04:54,520 Speaker 4: even that, But if adjusted for the size of the economy, 121 00:04:54,520 --> 00:04:57,600 Speaker 4: they're actually still down, and so the consumer capacity bar 122 00:04:57,680 --> 00:04:58,039 Speaker 4: is strong. 123 00:04:58,200 --> 00:05:01,400 Speaker 5: Mortgaged mortgages are all locked in low rates that the 124 00:05:02,200 --> 00:05:04,320 Speaker 5: best asset for a lot of households is actually their 125 00:05:04,400 --> 00:05:05,719 Speaker 5: low interest cost liability. 126 00:05:05,720 --> 00:05:08,680 Speaker 4: It's mixing two different things on a balance sheet, but 127 00:05:08,960 --> 00:05:10,960 Speaker 4: the reality is is a three percent mortgage is an 128 00:05:10,960 --> 00:05:12,680 Speaker 4: asset for people right now because it means they are 129 00:05:12,720 --> 00:05:13,880 Speaker 4: payments to have it moved. 130 00:05:14,000 --> 00:05:14,720 Speaker 5: So that's good news. 131 00:05:14,800 --> 00:05:17,160 Speaker 4: The home equity borrowings are down for US from thirty 132 00:05:17,160 --> 00:05:19,520 Speaker 4: billion to twenty some billion. That means that they're not 133 00:05:19,640 --> 00:05:21,479 Speaker 4: using that equin in your house enters more equity in 134 00:05:21,480 --> 00:05:24,120 Speaker 4: your house. On the credit cards, the delinquencies are really 135 00:05:24,120 --> 00:05:26,520 Speaker 4: consistent within nineteen and everybody says, well, it's back to 136 00:05:27,400 --> 00:05:29,120 Speaker 4: nineteen was one of the best credit years in the 137 00:05:29,120 --> 00:05:32,400 Speaker 4: company's history, in the industry's credit history. So that's a 138 00:05:32,560 --> 00:05:35,560 Speaker 4: very strong place, and so we feel good about. 139 00:05:35,360 --> 00:05:37,560 Speaker 5: Consumer credit as long as the employment levels stay there. 140 00:05:37,560 --> 00:05:39,000 Speaker 4: It's a little hard to believe that you'd have it 141 00:05:39,040 --> 00:05:41,320 Speaker 4: now lower FICO scores. You hear people talk about a 142 00:05:41,320 --> 00:05:44,440 Speaker 4: little more noise, but the general consumer is basically a 143 00:05:44,520 --> 00:05:46,320 Speaker 4: prime borrower and they're doing fine. 144 00:05:46,400 --> 00:05:49,200 Speaker 3: What about the commercial side, You're very big in middle market, 145 00:05:49,279 --> 00:05:51,840 Speaker 3: smaller and medium sized enterprises. Is there loan and demand? 146 00:05:51,880 --> 00:05:52,920 Speaker 3: What's the sentiment there? 147 00:05:53,200 --> 00:05:55,400 Speaker 4: So, you know, if you think about the consumer, we 148 00:05:55,480 --> 00:05:58,040 Speaker 4: keep growing customers, keep growing house or keep growing this company. 149 00:05:58,080 --> 00:06:00,000 Speaker 4: If you think about in the commercial we keep growing customers. 150 00:06:00,000 --> 00:06:03,840 Speaker 4: There is more logos as that our teammates called, you know, 151 00:06:03,920 --> 00:06:06,599 Speaker 4: companies that we do business with a record number this year. 152 00:06:07,120 --> 00:06:08,760 Speaker 4: The thing about it is they're not using their lines 153 00:06:08,800 --> 00:06:11,080 Speaker 4: as much. So the loan balance growth on a commercial 154 00:06:11,080 --> 00:06:12,200 Speaker 4: side has been a. 155 00:06:12,160 --> 00:06:13,679 Speaker 5: Little bit sluggish, little bit flatish. 156 00:06:13,960 --> 00:06:17,119 Speaker 4: Looks like it a bounced around on low single DIGITSUS quarter. 157 00:06:17,440 --> 00:06:18,440 Speaker 5: Now, why is that happening? 158 00:06:18,760 --> 00:06:21,839 Speaker 4: Line usage before the pandemic for middle market clients was 159 00:06:21,880 --> 00:06:24,520 Speaker 4: forty percent, dropped to thirty percent, got back up to 160 00:06:24,520 --> 00:06:26,880 Speaker 4: thirty six percent, and then fell a cup hundred basin points. 161 00:06:27,160 --> 00:06:29,679 Speaker 4: Why would companies borrow less at this point? They're worried 162 00:06:29,680 --> 00:06:32,400 Speaker 4: about final demand. It's also a lot more expensive, So 163 00:06:32,800 --> 00:06:34,719 Speaker 4: the FED is having the impact, which is a loan 164 00:06:34,760 --> 00:06:37,680 Speaker 4: that was like three percent four percent is now seven 165 00:06:37,680 --> 00:06:40,160 Speaker 4: to eight you know, seven to eight percent people think 166 00:06:40,160 --> 00:06:42,160 Speaker 4: about using it. So the line uses is down, meaning 167 00:06:42,160 --> 00:06:44,960 Speaker 4: that not beings aggressive buying equipment or hiring people or 168 00:06:45,160 --> 00:06:48,160 Speaker 4: extending inventories, mostly because they're worried about. 169 00:06:47,920 --> 00:06:48,800 Speaker 5: Economy sawing down. 170 00:06:48,839 --> 00:06:51,000 Speaker 4: And when we say a soft landing, it doesn't mean 171 00:06:51,520 --> 00:06:53,039 Speaker 4: the economy goes into recession. 172 00:06:53,040 --> 00:06:53,520 Speaker 5: It says no. 173 00:06:53,560 --> 00:06:56,039 Speaker 4: But what our team is saying Cannabis browning plot and 174 00:06:56,080 --> 00:06:58,880 Speaker 4: researching is that we're slowing from almost a four to 175 00:06:58,920 --> 00:07:01,640 Speaker 4: five percent growth rate to one percent growth rate is 176 00:07:01,680 --> 00:07:04,480 Speaker 4: still a major slowdown, and the business community is wrestling 177 00:07:04,480 --> 00:07:06,160 Speaker 4: with that right now, trying to get that balance right. 178 00:07:07,240 --> 00:07:09,040 Speaker 3: One of the big surprises this year came toward the 179 00:07:09,080 --> 00:07:11,840 Speaker 3: end of the year with the FED decision and then 180 00:07:11,880 --> 00:07:14,520 Speaker 3: the news conference with Jpile that really signaled, at least 181 00:07:14,600 --> 00:07:17,000 Speaker 3: to most of us, Yeah, they're really seriously considering rate cuts. 182 00:07:17,000 --> 00:07:19,400 Speaker 3: It looks like they're coming next year. Were you surprising? 183 00:07:19,480 --> 00:07:20,680 Speaker 3: Why do you think they did it? Do you think 184 00:07:20,720 --> 00:07:23,200 Speaker 3: they're seeing data about the economy that is slowing faster 185 00:07:23,240 --> 00:07:24,000 Speaker 3: than we appreciate. 186 00:07:24,440 --> 00:07:27,720 Speaker 4: Yeah, so let's talk about our economics. Tell me and 187 00:07:27,800 --> 00:07:30,480 Speaker 4: we feed in. We have the number one research team 188 00:07:30,480 --> 00:07:32,520 Speaker 4: in the business, and Kansas and the team do a 189 00:07:32,520 --> 00:07:36,600 Speaker 4: great job. Basically, they just shifted yesterday literally and they 190 00:07:36,680 --> 00:07:38,360 Speaker 4: moved to more rate cuts. 191 00:07:38,080 --> 00:07:38,760 Speaker 5: In twenty four. 192 00:07:39,240 --> 00:07:40,920 Speaker 4: But the real key was what do they see in 193 00:07:40,920 --> 00:07:43,560 Speaker 4: the economy, And they basically have moved from a half 194 00:07:43,560 --> 00:07:46,360 Speaker 4: a percent growth rate annualized for the first three quarters 195 00:07:46,440 --> 00:07:50,520 Speaker 4: next year up above one percent. They've softened their soft landing, 196 00:07:50,600 --> 00:07:52,880 Speaker 4: let's just say that. And by doing that, they've said 197 00:07:53,040 --> 00:07:55,760 Speaker 4: when the FED is seeing inflation slow as fast as 198 00:07:55,800 --> 00:07:57,560 Speaker 4: it is, they basically think we get down to the 199 00:07:57,600 --> 00:08:00,000 Speaker 4: low twos inflation by the year and next year twenty five, 200 00:08:00,440 --> 00:08:02,680 Speaker 4: and it carries into twenty five. The FED needs to 201 00:08:02,680 --> 00:08:05,840 Speaker 4: bring the rate structure down. They're saying, basically two hundred 202 00:08:05,840 --> 00:08:07,800 Speaker 4: basis points of rate cuts one hundred next year and 203 00:08:07,840 --> 00:08:10,120 Speaker 4: one hundred and twenty five, which still leaves you at 204 00:08:10,120 --> 00:08:11,400 Speaker 4: three and a quarter to three and a half. Now, 205 00:08:11,440 --> 00:08:13,760 Speaker 4: the last time we were fundamentally at that rate structure 206 00:08:14,080 --> 00:08:17,000 Speaker 4: was almost was eighteen years ago by time we get there, 207 00:08:17,120 --> 00:08:20,040 Speaker 4: so we've had a long stretch of very low rates 208 00:08:20,080 --> 00:08:23,040 Speaker 4: except for what happened very recently, and so that fueled 209 00:08:23,040 --> 00:08:24,840 Speaker 4: a lot of activity, and now the rate structure can 210 00:08:24,840 --> 00:08:27,440 Speaker 4: be fundamentally higher. It's more structurally sound, and the Fed 211 00:08:27,480 --> 00:08:29,400 Speaker 4: is pivot is it's not really pivot to say we 212 00:08:29,480 --> 00:08:31,520 Speaker 4: got to normalize this because we're seeing the economy and 213 00:08:31,520 --> 00:08:34,560 Speaker 4: the inflation come in. Not done yet, but all indications 214 00:08:34,600 --> 00:08:36,400 Speaker 4: are doing there and everything we can see that consumer 215 00:08:36,440 --> 00:08:39,760 Speaker 4: spending is consistent with a two percent inflation economy. That 216 00:08:39,880 --> 00:08:42,080 Speaker 4: level of spending growth in our customers was where it 217 00:08:42,120 --> 00:08:44,600 Speaker 4: was in seventeen eighteen nineteen when the FED raised rates 218 00:08:44,679 --> 00:08:46,120 Speaker 4: to bring the economy back and sink. 219 00:08:46,840 --> 00:08:48,760 Speaker 3: So the stock market did pretty well this year up 220 00:08:48,880 --> 00:08:51,800 Speaker 3: until that Fed decision, and then it's off to the races. 221 00:08:51,880 --> 00:08:52,360 Speaker 5: Since then. 222 00:08:53,040 --> 00:08:55,839 Speaker 3: Your trading desk has done particularly well this year to 223 00:08:55,840 --> 00:08:57,280 Speaker 3: give us a sense of where it is. Right now, 224 00:08:57,320 --> 00:08:59,240 Speaker 3: Are you going to finish the year as strongly as 225 00:08:59,280 --> 00:09:00,800 Speaker 3: you have been going the quarter so far? 226 00:09:01,040 --> 00:09:03,400 Speaker 4: Well, you can from your lips to their ears. So 227 00:09:03,720 --> 00:09:05,560 Speaker 4: they've got a few weeks left now. They're doing fine. 228 00:09:05,600 --> 00:09:08,280 Speaker 4: We said that they be up up year every year, 229 00:09:08,280 --> 00:09:10,160 Speaker 4: which is kind of countered the trend in the market. 230 00:09:10,200 --> 00:09:12,160 Speaker 5: They Jimmy DeMar and the team have done a great job. 231 00:09:12,520 --> 00:09:15,280 Speaker 4: And what's interesting, it's rounded out and it's fixed income, 232 00:09:15,320 --> 00:09:19,319 Speaker 4: its equities, and it's much more consistent. They've I'm not 233 00:09:19,480 --> 00:09:21,480 Speaker 4: quite sure it's exactly true, but basically have made money 234 00:09:21,480 --> 00:09:24,520 Speaker 4: every single trading day this year. And so there's been volatility, 235 00:09:24,720 --> 00:09:27,160 Speaker 4: there's been news, there's been this, and they and that's 236 00:09:27,200 --> 00:09:28,720 Speaker 4: because they have a balance in the business in a 237 00:09:28,760 --> 00:09:31,240 Speaker 4: way that goes through We increase the size of the 238 00:09:31,640 --> 00:09:34,560 Speaker 4: business three or four years ago under Tom Montag's leadership 239 00:09:34,559 --> 00:09:37,800 Speaker 4: and Jimmy's leadership, and that's born fruit and they are 240 00:09:37,840 --> 00:09:39,520 Speaker 4: keep gaining market share and they're doing a great job. 241 00:09:39,559 --> 00:09:41,199 Speaker 3: So I'm glad you raised because three or four years ago 242 00:09:41,240 --> 00:09:42,640 Speaker 3: I was here with you at Back of America and 243 00:09:42,720 --> 00:09:43,839 Speaker 3: you said, you know what, you're going to have to 244 00:09:43,840 --> 00:09:46,679 Speaker 3: devote more capital, more people into that business. You did it, 245 00:09:46,800 --> 00:09:49,360 Speaker 3: you seem to you having success going forward. Is there 246 00:09:49,440 --> 00:09:51,959 Speaker 3: yet more capital that you're going to allocate into trading. 247 00:09:51,920 --> 00:09:53,880 Speaker 4: Yeah, as long as they can get the returns. You know, 248 00:09:54,080 --> 00:09:56,680 Speaker 4: at the end of the day, our return on equities 249 00:09:56,679 --> 00:09:59,280 Speaker 4: you have fifteen percent of the company this business because 250 00:09:59,280 --> 00:10:02,160 Speaker 4: all of regularly in the capital is a little lower 251 00:10:02,200 --> 00:10:04,840 Speaker 4: in that but is well bubber cost of capital. As 252 00:10:04,840 --> 00:10:06,920 Speaker 4: long as they can keep deployment, We'll keep pushing capital 253 00:10:07,000 --> 00:10:08,920 Speaker 4: because it's a great business in great format, and we're 254 00:10:08,920 --> 00:10:11,480 Speaker 4: gaining market share honestly across the world, and it's a 255 00:10:11,520 --> 00:10:14,160 Speaker 4: global business so it can access much deeper client base. 256 00:10:14,200 --> 00:10:16,040 Speaker 4: And team's done a great job, so they'll keep getting 257 00:10:16,080 --> 00:10:18,520 Speaker 4: more commitments consistent with them being able to get the 258 00:10:18,559 --> 00:10:19,199 Speaker 4: returns on them. 259 00:10:19,200 --> 00:10:20,880 Speaker 3: One last one, Brian, are you concerned at all of 260 00:10:20,920 --> 00:10:23,400 Speaker 3: the markets maybe overreacting to what they heard from shairpo. 261 00:10:24,240 --> 00:10:27,000 Speaker 4: I think he's got this challenge that you know he was, 262 00:10:27,280 --> 00:10:28,839 Speaker 4: you know, the Fed in our own mission it was 263 00:10:28,920 --> 00:10:30,240 Speaker 4: late to cutting off inflation. 264 00:10:30,320 --> 00:10:31,439 Speaker 5: Now he's been a careful. 265 00:10:31,160 --> 00:10:33,280 Speaker 4: Not to be late to stop cutting off inflation, and 266 00:10:33,640 --> 00:10:34,920 Speaker 4: the market's going to have and flow. 267 00:10:35,000 --> 00:10:36,839 Speaker 5: But I think people have to be a little careful. 268 00:10:36,880 --> 00:10:37,600 Speaker 5: This is trading talk. 269 00:10:37,640 --> 00:10:39,600 Speaker 4: This is you know, the ten year moving around between 270 00:10:39,960 --> 00:10:43,320 Speaker 4: you know, three ninety and four fifty four seventy. It's 271 00:10:43,360 --> 00:10:45,520 Speaker 4: not the real kind. Real economy is still heavily impacted 272 00:10:45,520 --> 00:10:47,839 Speaker 4: by the overall rate level is very restrictive, and it's 273 00:10:47,840 --> 00:10:49,880 Speaker 4: still coming through the system. Against that, we still have 274 00:10:49,920 --> 00:10:51,679 Speaker 4: a lot of stimulus coming through the system, you know, 275 00:10:52,000 --> 00:10:53,920 Speaker 4: the infrastructure, build a chipsack to IRA. 276 00:10:54,080 --> 00:10:55,480 Speaker 5: Those are all still coming through the system. 277 00:10:55,559 --> 00:10:57,920 Speaker 4: So that's a tuggle where he's up against it, but 278 00:10:58,040 --> 00:11:01,840 Speaker 4: overall we believe he's engineer soft landing through the interest 279 00:11:01,880 --> 00:11:02,439 Speaker 4: rate environment. 280 00:11:02,480 --> 00:11:04,800 Speaker 3: Brian, thank you so much. As Brian moynahan, he's chair 281 00:11:04,840 --> 00:11:15,400 Speaker 3: and CEO of Bank of America. 282 00:11:17,280 --> 00:11:20,200 Speaker 2: This is a conversation that to me caps off one 283 00:11:20,280 --> 00:11:23,440 Speaker 2: of the most fascinating periods of FED history and economic 284 00:11:23,520 --> 00:11:26,120 Speaker 2: history that I've ever seen. Rich Clarida, a former FED 285 00:11:26,200 --> 00:11:29,760 Speaker 2: Vice chair, as well as Columbia University professor and PIMCO 286 00:11:30,000 --> 00:11:34,000 Speaker 2: Global Economic Advisor, as well as renowned singer. Rich Clarida, 287 00:11:34,040 --> 00:11:36,120 Speaker 2: thank you so much for being here in person. I 288 00:11:36,120 --> 00:11:37,920 Speaker 2: just want to start with what you make of the 289 00:11:37,960 --> 00:11:41,000 Speaker 2: past week FED Chair Powell's comments and the market's reaction. 290 00:11:41,840 --> 00:11:47,640 Speaker 6: Well, the chairs comments took me by surprise, and he 291 00:11:47,720 --> 00:11:50,880 Speaker 6: had a difficult mission because it's the last meeting of 292 00:11:50,920 --> 00:11:55,079 Speaker 6: the year, natural to look ahead. But yes, I thought 293 00:11:55,080 --> 00:11:58,439 Speaker 6: both the press conference and the FMC statement were more 294 00:11:58,480 --> 00:12:01,720 Speaker 6: dubvish than I expected. You know, there is a soft 295 00:12:01,760 --> 00:12:04,960 Speaker 6: landing base case. We're all hoping for it, and I 296 00:12:04,960 --> 00:12:07,839 Speaker 6: think the markets are really focused on that. He didn't 297 00:12:07,840 --> 00:12:10,840 Speaker 6: say mission accomplished. I'm not sure if he thinks mission accomplished, 298 00:12:10,840 --> 00:12:14,280 Speaker 6: but that's being interpreted that way. And of course, as 299 00:12:14,280 --> 00:12:16,120 Speaker 6: you've mentioned on air, we've had a little bit of 300 00:12:16,160 --> 00:12:20,560 Speaker 6: pushback recently, so we're all now trying to assess, you know, 301 00:12:20,880 --> 00:12:22,440 Speaker 6: what message they would like to deliver. 302 00:12:22,520 --> 00:12:24,160 Speaker 2: Well, that's exactly what I wanted to ask you. What 303 00:12:24,200 --> 00:12:25,280 Speaker 2: do you make of the pushback? 304 00:12:27,120 --> 00:12:29,600 Speaker 6: Well, I think the delicate challenge, and we've discussed this 305 00:12:29,679 --> 00:12:32,560 Speaker 6: on the show in the past, is a tug of 306 00:12:32,559 --> 00:12:35,560 Speaker 6: war between their guidance and market pricing. You know, part 307 00:12:35,600 --> 00:12:38,200 Speaker 6: of the reason LISA inflation is expected to come down 308 00:12:38,200 --> 00:12:42,479 Speaker 6: next year to two points something is because financial conditions 309 00:12:42,480 --> 00:12:45,800 Speaker 6: have tightened. Well as the markets think mission accomplished. In 310 00:12:45,880 --> 00:12:49,000 Speaker 6: rate cuts, six cuts are coming in next year devil 311 00:12:49,080 --> 00:12:52,400 Speaker 6: ease conditions. That makes it less likely that inflation comes down. 312 00:12:52,520 --> 00:12:55,200 Speaker 6: So it's a tricky point right now for the FED. 313 00:12:55,360 --> 00:12:58,000 Speaker 1: Do you think that Fed Shair Powell made a mistake. 314 00:12:58,920 --> 00:13:00,960 Speaker 6: I don't think so. I think I think he was 315 00:13:01,040 --> 00:13:05,679 Speaker 6: reflecting his committee, and I think in the press conference 316 00:13:05,679 --> 00:13:08,680 Speaker 6: sometimes chairs concerted distance themselves, and I think he was 317 00:13:08,760 --> 00:13:12,160 Speaker 6: embracing the baseline view. But there is a risk case 318 00:13:12,360 --> 00:13:15,240 Speaker 6: as well, and I think perhaps some of the pushback 319 00:13:15,320 --> 00:13:17,720 Speaker 6: is to remind folks about those other scenarios. 320 00:13:18,000 --> 00:13:22,440 Speaker 2: Mary Daily, in a Wall Street Journal discussion yesterday, came 321 00:13:22,480 --> 00:13:24,600 Speaker 2: out and said, even if the FED cuts rates by 322 00:13:24,679 --> 00:13:28,800 Speaker 2: three times next year, the Fed's benchmark rate will still 323 00:13:28,840 --> 00:13:31,960 Speaker 2: be quite restrictive. Even if in that scenario, And then 324 00:13:32,000 --> 00:13:34,480 Speaker 2: you want to say, we have to be forward looking 325 00:13:34,679 --> 00:13:37,280 Speaker 2: and make sure that we don't give people price stability 326 00:13:37,520 --> 00:13:38,640 Speaker 2: but take away jobs. 327 00:13:39,000 --> 00:13:40,880 Speaker 1: Is this a new emphasis for the Fed? 328 00:13:41,240 --> 00:13:44,880 Speaker 6: Well, Lisa, I think at the margin it is because 329 00:13:44,960 --> 00:13:47,840 Speaker 6: I think inflation was so high for so long. I 330 00:13:47,840 --> 00:13:50,040 Speaker 6: think the FED effectively had a single mandate for a 331 00:13:50,080 --> 00:13:52,640 Speaker 6: couple of years. We got to get inflation lower. The 332 00:13:52,679 --> 00:13:57,160 Speaker 6: federal course has a dual mandate. But I do think 333 00:13:57,520 --> 00:13:59,319 Speaker 6: and I, of course work closely with Mary. I'm a 334 00:13:59,360 --> 00:14:02,240 Speaker 6: big fan of her. I do think the issue is 335 00:14:02,280 --> 00:14:06,080 Speaker 6: here is that the Committee itself emphasizes financial conditions. Indeed, 336 00:14:06,080 --> 00:14:09,600 Speaker 6: financial conditions made an appearance in the November statement and 337 00:14:09,640 --> 00:14:14,040 Speaker 6: reappeared in December. It is true that one element is 338 00:14:14,080 --> 00:14:17,320 Speaker 6: the real funds rate, but other financial conditions are easy, which, 339 00:14:17,320 --> 00:14:21,000 Speaker 6: as we said, makes it less likely that inflation does come. 340 00:14:20,800 --> 00:14:23,880 Speaker 2: Down, which raises this question about whether you are right 341 00:14:24,280 --> 00:14:27,360 Speaker 2: the two point something kind of view of inflation is 342 00:14:27,440 --> 00:14:29,960 Speaker 2: kind of what the FED is embracing right now in 343 00:14:30,080 --> 00:14:31,960 Speaker 2: order not to jeopardize the labor market. 344 00:14:32,000 --> 00:14:35,080 Speaker 7: Is that what your sense is, Well, I've always thought 345 00:14:35,720 --> 00:14:38,400 Speaker 7: that two points something would be the point at which 346 00:14:38,400 --> 00:14:40,840 Speaker 7: they start to think about cutting, So that is playing 347 00:14:40,880 --> 00:14:43,240 Speaker 7: out in their projection. 348 00:14:43,720 --> 00:14:46,160 Speaker 6: I do believe down to the individual there are nineteen 349 00:14:46,200 --> 00:14:48,200 Speaker 6: of them. They all want inflation to get to two, 350 00:14:49,240 --> 00:14:51,040 Speaker 6: and I do agree with them that if they hold 351 00:14:51,080 --> 00:14:53,880 Speaker 6: off cutting rates at all until inflation gets to two, 352 00:14:54,160 --> 00:14:58,400 Speaker 6: they're probably going to overshoot. But the timing is delicate, 353 00:14:58,840 --> 00:15:00,560 Speaker 6: and I think there is a you know, there's a 354 00:15:00,640 --> 00:15:04,240 Speaker 6: risk case on both sides. But I do think they 355 00:15:04,280 --> 00:15:07,440 Speaker 6: are emphasizing now the dual mandate more than they have been. 356 00:15:07,840 --> 00:15:10,320 Speaker 2: Do you think it's because they're seeing something that other 357 00:15:10,360 --> 00:15:12,960 Speaker 2: people aren't, or they're at least emphasizing in their own 358 00:15:13,040 --> 00:15:16,720 Speaker 2: data some of the weakness that maybe is overlooked by 359 00:15:16,760 --> 00:15:18,320 Speaker 2: people who are piling into the market. 360 00:15:20,160 --> 00:15:22,400 Speaker 6: I'm not really sure of that. I think it's important 361 00:15:22,400 --> 00:15:25,960 Speaker 6: for them. You know, the FED was criticized a lot 362 00:15:25,960 --> 00:15:28,160 Speaker 6: in twenty twenty one and twenty twenty two for being 363 00:15:28,200 --> 00:15:31,320 Speaker 6: behind the curve. I think it's appropriate to step back 364 00:15:31,360 --> 00:15:35,480 Speaker 6: and acknowledge the progress and disinflation, and I think they're 365 00:15:35,520 --> 00:15:39,120 Speaker 6: seeing that, but I think there's still still a ways 366 00:15:39,160 --> 00:15:42,120 Speaker 6: to go, and I think in particular, the labor market 367 00:15:42,160 --> 00:15:45,360 Speaker 6: may require more adjustment than they're factoring in. 368 00:15:45,600 --> 00:15:47,920 Speaker 1: Sorry, no, it's all right. I'll let you get breath. 369 00:15:48,880 --> 00:15:51,480 Speaker 2: It's a confusing moment for all of us, and I'm 370 00:15:51,520 --> 00:15:54,120 Speaker 2: wondering if you think it helps or hurts the cause 371 00:15:54,600 --> 00:15:56,800 Speaker 2: to see the FED come out feed show j Powell 372 00:15:56,880 --> 00:16:00,720 Speaker 2: with one message and then Austin Goolsby saying, you guys, 373 00:16:00,800 --> 00:16:03,840 Speaker 2: I'm surprised by a reaction and hearing from John william 374 00:16:03,880 --> 00:16:06,040 Speaker 2: saying we're not really talking about rate cuts. 375 00:16:07,840 --> 00:16:10,640 Speaker 6: That's you know, that's not that's not something you'd like 376 00:16:10,720 --> 00:16:13,840 Speaker 6: to see coming out of a of a meeting. I 377 00:16:14,560 --> 00:16:19,040 Speaker 6: think the market reaction easing financial conditions is something that 378 00:16:19,080 --> 00:16:21,080 Speaker 6: they are trying to push back against. I don't know 379 00:16:21,080 --> 00:16:23,480 Speaker 6: how successful that they they can be. 380 00:16:23,640 --> 00:16:28,200 Speaker 2: However, do you think that easing and financial conditions does 381 00:16:28,320 --> 00:16:31,120 Speaker 2: have ultimately an inflationary impact? 382 00:16:31,240 --> 00:16:31,960 Speaker 1: Right now? 383 00:16:32,440 --> 00:16:35,680 Speaker 6: Well, to the to the to the same extent that 384 00:16:35,680 --> 00:16:39,040 Speaker 6: if you titan financial conditions, it lowers inflation if they're 385 00:16:39,160 --> 00:16:42,000 Speaker 6: if they're eased on a sustainable basis, credit spreads are 386 00:16:42,040 --> 00:16:45,880 Speaker 6: type borrowing cost or lower valuations are up at the margin. 387 00:16:46,000 --> 00:16:48,160 Speaker 6: It supports demand and if you think there's a demand 388 00:16:48,200 --> 00:16:50,480 Speaker 6: piece to inflation, then yes, So. 389 00:16:50,520 --> 00:16:53,240 Speaker 2: Right now, do you think that it is potentially concerning 390 00:16:53,320 --> 00:16:56,640 Speaker 2: encounter to what the FED is looking for? Given the 391 00:16:56,720 --> 00:16:59,360 Speaker 2: all in feeling and frankly, I mean we just heard 392 00:16:59,360 --> 00:17:02,320 Speaker 2: this morning the FED shot the bears. The FED wants 393 00:17:02,360 --> 00:17:03,400 Speaker 2: to make people happy. 394 00:17:03,640 --> 00:17:05,720 Speaker 1: I was bearished, but now I'm really bullish. I mean, 395 00:17:05,800 --> 00:17:06,840 Speaker 1: is this a positive thing? 396 00:17:07,960 --> 00:17:11,680 Speaker 6: Well, look, I'm very convinced that the power FED will 397 00:17:11,720 --> 00:17:15,320 Speaker 6: do what it takes. I think that the communications challenges, 398 00:17:15,400 --> 00:17:19,000 Speaker 6: which were substantial in twenty twenty three maybe even more 399 00:17:19,040 --> 00:17:21,120 Speaker 6: substantial in twenty twenty four. 400 00:17:21,560 --> 00:17:24,840 Speaker 2: There's been speculation from a number of guests that there 401 00:17:24,920 --> 00:17:28,399 Speaker 2: is a political element to this, that the calendar is tricky. Yeah, 402 00:17:28,400 --> 00:17:31,800 Speaker 2: for the Federal Reserve, considering that heading into November everything 403 00:17:31,840 --> 00:17:34,560 Speaker 2: is going to be really politicized. Do you buy any 404 00:17:34,600 --> 00:17:36,720 Speaker 2: of that argument that would encourage them to make a 405 00:17:36,760 --> 00:17:37,800 Speaker 2: move earlier in the year. 406 00:17:39,720 --> 00:17:42,679 Speaker 6: Look, the history shows, in fact, I checked before I 407 00:17:42,720 --> 00:17:46,159 Speaker 6: came on ear the FED has actually adjusted rates in 408 00:17:46,240 --> 00:17:49,679 Speaker 6: most presidential election years. In fact, they cut rates in 409 00:17:49,760 --> 00:17:52,800 Speaker 6: ninety two and cut rates in eight although for other reasons, 410 00:17:52,840 --> 00:17:55,720 Speaker 6: and they've hiked rates as well in election years. So historically, 411 00:17:55,800 --> 00:17:58,800 Speaker 6: the FED doesn't let the political calendar dictate the outcome 412 00:17:59,200 --> 00:18:02,040 Speaker 6: at the margin. Could it influence timing, say between a 413 00:18:02,160 --> 00:18:05,399 Speaker 6: June move and a September move, I'm not sure, but 414 00:18:05,480 --> 00:18:07,640 Speaker 6: I think that the number of rate adjustments we get 415 00:18:07,760 --> 00:18:11,120 Speaker 6: next year will be the adjustments that the Committee thinks 416 00:18:11,160 --> 00:18:12,679 Speaker 6: is appropriate given the economy. 417 00:18:13,320 --> 00:18:17,800 Speaker 2: Given that we are talking about the politicization, do you 418 00:18:17,880 --> 00:18:21,399 Speaker 2: think that this jeopardizes some of the credibility of the FED, 419 00:18:21,600 --> 00:18:24,120 Speaker 2: given that so many people have come on here and speculated, 420 00:18:24,520 --> 00:18:27,840 Speaker 2: and we don't have any ability to basically know or 421 00:18:27,880 --> 00:18:31,119 Speaker 2: not know. But is there some other consequence of just 422 00:18:31,160 --> 00:18:31,919 Speaker 2: that speculation. 423 00:18:32,680 --> 00:18:34,560 Speaker 6: I really don't think so, Lisa. In the end, the 424 00:18:34,560 --> 00:18:38,080 Speaker 6: FED will be judged by returning to price stability and 425 00:18:38,240 --> 00:18:41,760 Speaker 6: ideally doing so at minimal cost to the labor market. 426 00:18:41,840 --> 00:18:43,960 Speaker 6: And so I think the fedes credibility and the animal 427 00:18:44,080 --> 00:18:46,280 Speaker 6: rise and fall with delivering price stability. 428 00:18:46,680 --> 00:18:49,800 Speaker 2: When you talk about the potential for a reacceleration of 429 00:18:49,800 --> 00:18:54,280 Speaker 2: inflation and a stickiness, do you see that coming through 430 00:18:54,280 --> 00:18:57,119 Speaker 2: the services sector in a material way? Which areas of 431 00:18:57,119 --> 00:19:00,719 Speaker 2: the economy could we see a more material reignition? 432 00:19:01,240 --> 00:19:04,280 Speaker 6: Yeah, so I think, I think exactly so. I think 433 00:19:04,320 --> 00:19:07,119 Speaker 6: goods goods prices are now falling, so we've had goods 434 00:19:07,119 --> 00:19:11,880 Speaker 6: disinflation deflation. The service sector typically lags behind. I would 435 00:19:11,880 --> 00:19:14,119 Speaker 6: also say, I think the real where the rubber will 436 00:19:14,160 --> 00:19:16,800 Speaker 6: hit the road, Lisa, is in the labor market. So 437 00:19:16,840 --> 00:19:19,720 Speaker 6: we've had a substantial adjustment in the labor market without 438 00:19:19,760 --> 00:19:20,840 Speaker 6: any rise in unemployment. 439 00:19:20,840 --> 00:19:21,560 Speaker 1: And that is great. 440 00:19:21,600 --> 00:19:24,320 Speaker 6: I will say. My good friend and former colleague Chris 441 00:19:24,320 --> 00:19:27,400 Speaker 6: Waller nailed that back in the summer of twenty twenty two, 442 00:19:27,880 --> 00:19:31,679 Speaker 6: so that's wonderful. I do think however, that you cannot 443 00:19:31,800 --> 00:19:35,240 Speaker 6: have two percent price inflation target if wages are going 444 00:19:35,320 --> 00:19:37,880 Speaker 6: up four or five percent, which is where we are now. 445 00:19:37,960 --> 00:19:39,480 Speaker 6: So I think I would be if I were there, 446 00:19:39,520 --> 00:19:42,080 Speaker 6: I'd be looking at the labor market adjustment as well 447 00:19:42,080 --> 00:19:45,119 Speaker 6: as the services sector as well. You know, one of 448 00:19:45,119 --> 00:19:48,720 Speaker 6: the measures, which is core services x housing, has basically 449 00:19:48,760 --> 00:19:51,520 Speaker 6: not adjusted at all in the last several months, so 450 00:19:51,600 --> 00:19:52,440 Speaker 6: still elevated. 451 00:19:52,840 --> 00:19:54,679 Speaker 2: A lot of people are talking about how the economic 452 00:19:54,760 --> 00:19:56,760 Speaker 2: data has been really positive, and how the FED has 453 00:19:56,800 --> 00:19:59,400 Speaker 2: been doing a good job, and how we have seen 454 00:19:59,480 --> 00:20:03,520 Speaker 2: unemployment stay low even with inflation coming down. 455 00:20:04,160 --> 00:20:05,720 Speaker 1: Why do you think people feel so bad? 456 00:20:07,640 --> 00:20:10,760 Speaker 6: Well, I think there's a distinction, and it's certainly one 457 00:20:10,800 --> 00:20:15,080 Speaker 6: I've thought about and written about. Economists tend to focus 458 00:20:15,080 --> 00:20:18,960 Speaker 6: on inflation, that's the change in prices, but individuals in 459 00:20:19,040 --> 00:20:21,600 Speaker 6: the economy tend to think about the level of prices. 460 00:20:21,640 --> 00:20:24,960 Speaker 6: So even if inflation returns to two percent, the level 461 00:20:25,000 --> 00:20:27,760 Speaker 6: of things going to the grocery store, going to the movies, 462 00:20:29,400 --> 00:20:31,880 Speaker 6: rent on your apartment, those numbers are all, you know, 463 00:20:32,080 --> 00:20:34,320 Speaker 6: a lot higher than they were four four years ago. 464 00:20:34,440 --> 00:20:37,240 Speaker 6: So I think when inflation's low and stable, we tend 465 00:20:37,320 --> 00:20:39,080 Speaker 6: to ignore that but when we've had a big move 466 00:20:39,080 --> 00:20:41,400 Speaker 6: in the level of prices, I think it does create 467 00:20:42,200 --> 00:20:46,000 Speaker 6: more concern among households than you may infer just by 468 00:20:46,000 --> 00:20:47,440 Speaker 6: looking at the inflation data. 469 00:20:47,560 --> 00:20:49,680 Speaker 2: I want to ask you though, also about the housing marketing. 470 00:20:49,680 --> 00:20:52,240 Speaker 2: You mentioned rents being higher. We just got housing starts 471 00:20:52,240 --> 00:20:54,200 Speaker 2: and building permits come in higher than expected. 472 00:20:54,240 --> 00:20:55,200 Speaker 1: We do see some of the. 473 00:20:55,840 --> 00:20:59,400 Speaker 2: Treasury rally pair back, which is what you would expect. 474 00:21:00,320 --> 00:21:03,199 Speaker 2: Does the high price of homes, in addition to the 475 00:21:03,280 --> 00:21:07,440 Speaker 2: lack of any volumes, also create some sort of real 476 00:21:07,520 --> 00:21:11,240 Speaker 2: dampening effect sentiment? Well. 477 00:21:11,720 --> 00:21:14,720 Speaker 6: I think the high valuation for homes obviously makes the 478 00:21:14,720 --> 00:21:18,080 Speaker 6: people who own homes happier, but there's a distributional consequence, 479 00:21:18,160 --> 00:21:22,520 Speaker 6: especially for younger parts of the population, Folks in their 480 00:21:22,560 --> 00:21:25,360 Speaker 6: twenties and thirties who have not yet acquired that first home, 481 00:21:25,400 --> 00:21:28,919 Speaker 6: and whatever they thought about the cost of ownership three 482 00:21:28,960 --> 00:21:30,760 Speaker 6: or four years ago, it's a lot higher. But there's 483 00:21:30,760 --> 00:21:33,400 Speaker 6: a huge wealth effect, positive wealth effect for folks who 484 00:21:33,400 --> 00:21:35,720 Speaker 6: own homes. Presumably they're happy about that. 485 00:21:35,760 --> 00:21:38,280 Speaker 2: Well, but it raises this question about what this does 486 00:21:38,440 --> 00:21:42,200 Speaker 2: longer term to the inflation dynamic, but also to sentiment, 487 00:21:42,280 --> 00:21:45,640 Speaker 2: particularly for younger individuals who haven't gotten in. 488 00:21:45,840 --> 00:21:49,879 Speaker 6: Yeah, well it does. And I think that this is 489 00:21:49,920 --> 00:21:53,600 Speaker 6: an unusual period, Lisa, in the sense that because so 490 00:21:53,680 --> 00:21:57,320 Speaker 6: many folks refinanced into low rate mortgages in the prior decade, 491 00:21:57,920 --> 00:21:59,760 Speaker 6: the FED, including when I was there, it was doing 492 00:22:00,520 --> 00:22:04,760 Speaker 6: to support the mortgage market, and because these are fifteen 493 00:22:04,760 --> 00:22:07,280 Speaker 6: and thirty or fixed rate mortgages, it is having this 494 00:22:07,320 --> 00:22:09,919 Speaker 6: effect on supply that may be with us for a while. 495 00:22:10,400 --> 00:22:15,080 Speaker 2: We're we're here with Richard Clarita of PIMCO, formerly FED 496 00:22:15,280 --> 00:22:18,280 Speaker 2: Vice chair. We are going to be having a conversation 497 00:22:18,560 --> 00:22:21,520 Speaker 2: with my colleague David Weston with Brian moynihan of Bank 498 00:22:21,520 --> 00:22:23,960 Speaker 2: of America, and I do want to get your take, 499 00:22:24,400 --> 00:22:28,160 Speaker 2: rich on whether you are seeing the stability in banks 500 00:22:28,320 --> 00:22:32,080 Speaker 2: as one reason why a soft landing can materialize. Right, 501 00:22:32,280 --> 00:22:36,600 Speaker 2: that's sort of one tailwist tailwind to a lot. 502 00:22:36,480 --> 00:22:38,080 Speaker 1: Of this rally that was not there. 503 00:22:38,119 --> 00:22:42,480 Speaker 6: Say in March, Lisa, absolutely, you know, the global financial 504 00:22:42,600 --> 00:22:45,760 Speaker 6: crisis triggered a major rethink of the way that we 505 00:22:46,320 --> 00:22:49,240 Speaker 6: regulate and supervised banks in the US as a whole. 506 00:22:49,240 --> 00:22:51,000 Speaker 6: If you look at all the banks, they have lots 507 00:22:51,040 --> 00:22:54,720 Speaker 6: of capital, lots of liquidity, and Indeed, in twenty twenty, 508 00:22:54,720 --> 00:22:56,760 Speaker 6: when we were going through the dark days of the pandemic, 509 00:22:56,840 --> 00:23:00,880 Speaker 6: you know, banks were a source of stability and increasing lending. Absolutely, 510 00:23:01,119 --> 00:23:04,439 Speaker 6: I do think it's an important reason to think of 511 00:23:04,480 --> 00:23:08,120 Speaker 6: the banking system as supporting the economy and not being 512 00:23:08,119 --> 00:23:08,760 Speaker 6: a headwind. 513 00:23:09,160 --> 00:23:11,040 Speaker 2: Rich Clarida, thank you so much for taking the time, 514 00:23:11,119 --> 00:23:13,040 Speaker 2: as always be wonderful to get your insights. 515 00:23:17,320 --> 00:23:20,520 Speaker 8: Chris Heisei joins US now chief Investment Officer and Maryland 516 00:23:20,560 --> 00:23:23,840 Speaker 8: Bank of America Private Bank. Chris, let's start here with 517 00:23:23,960 --> 00:23:26,280 Speaker 8: the dream, the story for next year, if you will. 518 00:23:26,320 --> 00:23:29,080 Speaker 8: This is the story. So inflation's going to keep coming down, 519 00:23:29,160 --> 00:23:30,800 Speaker 8: growth is going to be okay, the Federal Reserve is 520 00:23:30,800 --> 00:23:32,639 Speaker 8: going to cut interest rates, and the equity market's going 521 00:23:32,640 --> 00:23:35,080 Speaker 8: to keep it exploding higher. So that's the story. Can 522 00:23:35,119 --> 00:23:38,320 Speaker 8: you tell us how expensive is that story now for 523 00:23:38,400 --> 00:23:40,760 Speaker 8: next year given them rany we've had in the last 524 00:23:40,760 --> 00:23:41,320 Speaker 8: two months. 525 00:23:43,040 --> 00:23:46,320 Speaker 9: Well, it appears expensive because how fast it's been priced in, 526 00:23:46,560 --> 00:23:48,720 Speaker 9: But we have a long way to go. There's still 527 00:23:48,760 --> 00:23:50,640 Speaker 9: a lot of cash on the sidelines, not just from 528 00:23:50,640 --> 00:23:54,560 Speaker 9: an investor perspective, institutional and private client, but also the 529 00:23:54,640 --> 00:23:57,879 Speaker 9: corporate cash still earning a very healthy return at the 530 00:23:57,880 --> 00:23:58,760 Speaker 9: short end of the curve. 531 00:23:59,240 --> 00:24:00,760 Speaker 10: That's keeping more margins wide. 532 00:24:01,200 --> 00:24:04,720 Speaker 9: And with the debt structure in the corporate markets right now, overall, 533 00:24:04,840 --> 00:24:08,320 Speaker 9: their liabilities are still low, so we can chunk out 534 00:24:08,400 --> 00:24:12,120 Speaker 9: some very solid earnings here. And Lisa was talking about 535 00:24:12,119 --> 00:24:14,840 Speaker 9: this echo of inflation. I think that's the perfect way 536 00:24:14,840 --> 00:24:15,600 Speaker 9: to think about it. 537 00:24:15,800 --> 00:24:17,719 Speaker 10: There are echoes. There's going to be a lot of 538 00:24:17,760 --> 00:24:21,000 Speaker 10: echoes about are we having us offt landing. 539 00:24:21,040 --> 00:24:24,080 Speaker 9: There will be pockets of bumpiness and that'll keep investors 540 00:24:24,080 --> 00:24:26,280 Speaker 9: a little bit still concerned. Right now, the wall of worry, 541 00:24:26,840 --> 00:24:29,080 Speaker 9: you know, maybe a little bit lower than normal, but 542 00:24:29,119 --> 00:24:32,480 Speaker 9: that wall doesn't go away. That wall ends up rising 543 00:24:32,520 --> 00:24:34,400 Speaker 9: a little bit as we get into next year. 544 00:24:34,480 --> 00:24:36,280 Speaker 8: There's like five bricks left in it. Chris, I'm not 545 00:24:36,280 --> 00:24:37,960 Speaker 8: sure what you're talking about. What bears are left. 546 00:24:39,600 --> 00:24:40,639 Speaker 10: Well, there's a lot of bears. 547 00:24:40,800 --> 00:24:42,399 Speaker 9: They'll come out of the cuvered again and out of 548 00:24:42,400 --> 00:24:44,560 Speaker 9: the cave as soon as you see one bad number 549 00:24:44,560 --> 00:24:47,280 Speaker 9: either on the earnings front, in the inflation front, or 550 00:24:47,320 --> 00:24:50,760 Speaker 9: something like that, and that will actually cause some second guessing. 551 00:24:50,840 --> 00:24:53,040 Speaker 9: But we think there's a lot of room to go here. 552 00:24:53,800 --> 00:24:55,359 Speaker 9: We're out out of the woods. And we have a 553 00:24:55,400 --> 00:24:57,800 Speaker 9: lot of work to do, but we're not fully priced in. 554 00:24:58,880 --> 00:25:00,840 Speaker 2: So Chris, you're saying that the the Bears still exist, 555 00:25:00,880 --> 00:25:03,080 Speaker 2: You're just not one of them. After hearing from Jason 556 00:25:03,080 --> 00:25:05,040 Speaker 2: Trent at the FED shot the Bears and from Avy 557 00:25:05,040 --> 00:25:08,399 Speaker 2: Sheffeld that Palace press conference reminded us that the Fed's 558 00:25:08,440 --> 00:25:10,879 Speaker 2: ultimate goal is not price stability and full employment, but 559 00:25:11,040 --> 00:25:11,400 Speaker 2: rather to. 560 00:25:11,359 --> 00:25:12,320 Speaker 1: Make people happy. 561 00:25:12,560 --> 00:25:15,560 Speaker 2: So, in other words, how much can people remain bearish 562 00:25:15,680 --> 00:25:18,280 Speaker 2: with a Fed that essentially has a big put and 563 00:25:18,280 --> 00:25:19,200 Speaker 2: they're putting it in. 564 00:25:20,760 --> 00:25:23,640 Speaker 9: Well, I think the bears got very frustrated this past year, 565 00:25:23,880 --> 00:25:24,679 Speaker 9: and rightfully so. 566 00:25:24,840 --> 00:25:28,320 Speaker 10: They expected hertings to decline. They expected stickiness on inflation. 567 00:25:28,400 --> 00:25:30,840 Speaker 9: The number one surprise for most people was that inflation 568 00:25:30,960 --> 00:25:33,600 Speaker 9: came down as sharp as it already has. That really 569 00:25:33,600 --> 00:25:36,560 Speaker 9: shouldn't have been a surprise when you had quantitative tightening 570 00:25:36,560 --> 00:25:39,199 Speaker 9: plus all the hikes that went through. Now, granted, the 571 00:25:39,240 --> 00:25:41,480 Speaker 9: FED did add a lot of liquidity to the program, 572 00:25:41,720 --> 00:25:45,080 Speaker 9: to the markets itself that helped grease the train tracks, 573 00:25:45,400 --> 00:25:49,840 Speaker 9: But overall, what we've noticed is this, the bears ultimately 574 00:25:49,880 --> 00:25:52,240 Speaker 9: go away for a while. They come back after you 575 00:25:52,320 --> 00:25:55,080 Speaker 9: start to see some of consternation in some of the 576 00:25:55,119 --> 00:25:55,920 Speaker 9: economic data. 577 00:25:56,280 --> 00:25:58,560 Speaker 10: Europe could surprise to the downside. 578 00:25:58,680 --> 00:26:00,520 Speaker 9: We don't know what China's growth it's going to be, 579 00:26:00,760 --> 00:26:02,840 Speaker 9: and that could be exported to the United States. 580 00:26:02,880 --> 00:26:03,720 Speaker 10: So we're still going to. 581 00:26:03,640 --> 00:26:07,240 Speaker 9: Grow below trend and everyone's happy right now and the 582 00:26:07,320 --> 00:26:09,800 Speaker 9: drum beat of soft landing is there. But as soon 583 00:26:09,840 --> 00:26:12,199 Speaker 9: as you get some bumpiness, the market will pull back 584 00:26:12,240 --> 00:26:13,560 Speaker 9: a little bit, probably. 585 00:26:13,160 --> 00:26:15,560 Speaker 10: Late January early February, and we. 586 00:26:15,600 --> 00:26:18,560 Speaker 9: Think that that is a buying opportunity because it's all 587 00:26:18,600 --> 00:26:19,800 Speaker 9: about earnings next year. 588 00:26:20,040 --> 00:26:21,399 Speaker 2: Chris, I got to say, I knew what you were 589 00:26:21,400 --> 00:26:23,119 Speaker 2: going to say before you said it, because that's what 590 00:26:23,160 --> 00:26:25,359 Speaker 2: everyone's saying in January. Were going to get turbulence and 591 00:26:25,400 --> 00:26:27,320 Speaker 2: buy the dip. And so at a certain point, this 592 00:26:27,440 --> 00:26:29,520 Speaker 2: really is exact same setup that we had this year, 593 00:26:29,520 --> 00:26:31,960 Speaker 2: which was when you get a decline by the dip. 594 00:26:32,040 --> 00:26:33,280 Speaker 1: We didn't really get a decline. 595 00:26:33,320 --> 00:26:35,920 Speaker 2: We did a little bit and people just came in gangbusters. 596 00:26:36,359 --> 00:26:38,240 Speaker 2: Is this by the dip going to be the broadening 597 00:26:38,280 --> 00:26:40,680 Speaker 2: out that we see now? Is this basically the playbook 598 00:26:40,920 --> 00:26:41,560 Speaker 2: for next year? 599 00:26:41,680 --> 00:26:42,879 Speaker 1: Just a little bit premature? 600 00:26:44,080 --> 00:26:47,080 Speaker 9: Yeah, So the bulls are beating the drum on the 601 00:26:47,160 --> 00:26:51,880 Speaker 9: megatech still in some cases that makes sense because that's 602 00:26:51,880 --> 00:26:55,639 Speaker 9: the area of healthiest balance sheets, high quality. But the 603 00:26:55,720 --> 00:26:58,040 Speaker 9: question is going to become how much can they surprise 604 00:26:58,240 --> 00:27:01,639 Speaker 9: about the earnings expectations. But the broadening out of the 605 00:27:01,680 --> 00:27:04,679 Speaker 9: market is the one area that some are now starting 606 00:27:04,720 --> 00:27:07,800 Speaker 9: to warm up to. They've been left for dead much 607 00:27:07,800 --> 00:27:10,320 Speaker 9: of the rest of the market, particularly small caps and 608 00:27:10,400 --> 00:27:14,760 Speaker 9: value overall, we think the next story, beginning already this 609 00:27:14,800 --> 00:27:17,760 Speaker 9: past month, carrying into next year, for the next five years, 610 00:27:17,800 --> 00:27:22,880 Speaker 9: the leadership are those areas predominantly because of their underpriced 611 00:27:22,920 --> 00:27:26,840 Speaker 9: movement versus the large quality, high quality area of the market, 612 00:27:27,040 --> 00:27:29,320 Speaker 9: not just this past year, but over the past quite 613 00:27:29,359 --> 00:27:31,360 Speaker 9: a few number of years last. But not at least 614 00:27:31,400 --> 00:27:34,600 Speaker 9: I'd say this, Lisa, those bears in terms of what 615 00:27:34,640 --> 00:27:37,399 Speaker 9: they're looking at right now, they're looking at the what 616 00:27:37,640 --> 00:27:41,760 Speaker 9: could be versus the what is, and the ultimately when 617 00:27:41,760 --> 00:27:45,240 Speaker 9: that conclusion doesn't come through, about what could be stickiness 618 00:27:45,400 --> 00:27:49,199 Speaker 9: or resumption. 619 00:27:47,520 --> 00:27:50,160 Speaker 10: Of inflation or much lower maybe. 620 00:27:49,960 --> 00:27:54,480 Speaker 9: The negative leading economic indicators indicate lower growth, negative growth, 621 00:27:54,680 --> 00:27:57,639 Speaker 9: that's what could be versus what is and what the 622 00:27:57,680 --> 00:27:58,480 Speaker 9: data is telling us. 623 00:27:58,720 --> 00:28:00,960 Speaker 8: Chris, you mentioned a small camps. We've started to see 624 00:28:00,960 --> 00:28:03,720 Speaker 8: that participation. In the last few months, smo caps started 625 00:28:03,760 --> 00:28:06,200 Speaker 8: to do Wow. The banks have absolutely ripped. There's one 626 00:28:06,240 --> 00:28:09,000 Speaker 8: area of the stock market that hasn't participated. It's been 627 00:28:09,080 --> 00:28:12,359 Speaker 8: left for debt. It's been the energy stocks, the energy names. 628 00:28:12,400 --> 00:28:14,880 Speaker 8: As we've seen this Randy play out double digit percentage 629 00:28:14,880 --> 00:28:17,280 Speaker 8: point gains on the S and P five hundred. Energy 630 00:28:17,320 --> 00:28:20,600 Speaker 8: is negative on the SMP. Chris, what's behind that and 631 00:28:20,600 --> 00:28:23,440 Speaker 8: what changes that story if it's all into next year. 632 00:28:24,680 --> 00:28:27,200 Speaker 9: Yeah, Jonathan, And this was in the face of basically 633 00:28:27,240 --> 00:28:29,639 Speaker 9: a year's worth of gain in a month and a half. 634 00:28:30,000 --> 00:28:32,760 Speaker 9: You really think about the broad market itself, small caps, 635 00:28:32,800 --> 00:28:35,800 Speaker 9: the rest of the market outside the Magnificent seven rallied 636 00:28:36,359 --> 00:28:40,840 Speaker 9: over twelve thirteen percent from the Flatlin level and they've 637 00:28:40,880 --> 00:28:44,640 Speaker 9: actually outperformed. But the one sector, as you said, energy 638 00:28:44,960 --> 00:28:48,080 Speaker 9: high free cash flow, actually better balancing. Some people think, 639 00:28:48,760 --> 00:28:52,800 Speaker 9: I think there's a growth worry there for the energy sector. 640 00:28:53,000 --> 00:28:56,000 Speaker 10: We've been overweight. The energy sector has not worked this year. 641 00:28:56,160 --> 00:29:00,400 Speaker 9: We expect that angle in terms of investor is looking 642 00:29:00,440 --> 00:29:02,560 Speaker 9: for free cash flow again to start to come in. 643 00:29:03,080 --> 00:29:05,120 Speaker 9: But it's all about the oil price right now. It's 644 00:29:05,160 --> 00:29:08,120 Speaker 9: weakness in Europe it's the below trend growth in the US. 645 00:29:08,280 --> 00:29:11,040 Speaker 9: It's a lot of stories of a cloud hanging over 646 00:29:11,080 --> 00:29:13,760 Speaker 9: what traditionally would be an area that you would hunt 647 00:29:13,800 --> 00:29:17,240 Speaker 9: for is particularly when financials are working. You would think 648 00:29:17,320 --> 00:29:19,440 Speaker 9: that some of the other areas like energy would but 649 00:29:19,520 --> 00:29:21,440 Speaker 9: right now it's pushed off the blodder. It's not on 650 00:29:21,480 --> 00:29:24,080 Speaker 9: the buying bladder of a lot of the asset managers, 651 00:29:24,200 --> 00:29:26,320 Speaker 9: and they're waiting for signs at oil prices are going 652 00:29:26,360 --> 00:29:27,720 Speaker 9: to come back up again, Chris. 653 00:29:27,720 --> 00:29:30,160 Speaker 2: When you talk with it clients, how willing are they 654 00:29:30,360 --> 00:29:32,840 Speaker 2: to actually deploy cash right now? How much are they 655 00:29:32,840 --> 00:29:34,640 Speaker 2: feeling the holiday season of bullishness. 656 00:29:36,160 --> 00:29:38,720 Speaker 9: Just two months ago, it was all about what's around 657 00:29:38,720 --> 00:29:39,400 Speaker 9: the corner too. 658 00:29:39,720 --> 00:29:42,480 Speaker 10: Actually, for any extra rally. 659 00:29:42,640 --> 00:29:45,600 Speaker 9: Now it's all about, Okay, where should I be as 660 00:29:45,600 --> 00:29:48,680 Speaker 9: it relates to the market. Not significant enthusiasm because the 661 00:29:48,680 --> 00:29:51,920 Speaker 9: geopolitical curve and volatility is still there as you talked 662 00:29:51,920 --> 00:29:54,720 Speaker 9: about before in the Red Sea, but ultimately heading into 663 00:29:54,800 --> 00:29:57,640 Speaker 9: next year, the common question is always how should we 664 00:29:57,680 --> 00:30:01,000 Speaker 9: be positioned? Now it's about how how much and when 665 00:30:01,040 --> 00:30:04,480 Speaker 9: should I be adding to areas of equities and longer 666 00:30:04,560 --> 00:30:05,680 Speaker 9: duration fixed income. 667 00:30:06,240 --> 00:30:08,480 Speaker 10: We talked about it in the summer. We talked about 668 00:30:08,480 --> 00:30:08,800 Speaker 10: it again. 669 00:30:08,840 --> 00:30:11,640 Speaker 9: In the ball no one throws up a flare gun, 670 00:30:11,720 --> 00:30:13,440 Speaker 9: no one rings the bell when that's going to happen. 671 00:30:13,840 --> 00:30:16,880 Speaker 10: There's always a surprise that comes in. That surprise came 672 00:30:16,920 --> 00:30:18,959 Speaker 10: with the Fed pivot, particularly Powell. 673 00:30:19,320 --> 00:30:22,120 Speaker 9: We expect a couple more surprises to the upside early 674 00:30:22,160 --> 00:30:22,600 Speaker 9: next year. 675 00:30:22,680 --> 00:30:26,200 Speaker 8: The psychology of Marcus, it's just phenomenal. Chris Heise, Chris, 676 00:30:26,200 --> 00:30:28,960 Speaker 8: thank you, sir. Enjoyed the Christmas break of Marridon. Bank 677 00:30:28,960 --> 00:30:41,280 Speaker 8: of America Private Bank. Let's get to the bond markets. 678 00:30:41,280 --> 00:30:45,000 Speaker 8: Sabatra Jeaffer, head of US Ray Strategy as sockjen Stra, 679 00:30:45,080 --> 00:30:47,240 Speaker 8: I want to talk about your call on the bond market. 680 00:30:47,280 --> 00:30:47,960 Speaker 5: It's refreshing. 681 00:30:48,360 --> 00:30:52,960 Speaker 8: It's not super bearish, it's not super bullish. It's just neutral. Sapetra, 682 00:30:52,960 --> 00:30:53,760 Speaker 8: Why is it neutral? 683 00:30:55,240 --> 00:30:57,920 Speaker 11: Well into your end, I think we've already seen a 684 00:30:58,120 --> 00:31:02,800 Speaker 11: very large rally in ties in just the last few weeks, 685 00:31:02,880 --> 00:31:04,520 Speaker 11: so it doesn't make any sense. 686 00:31:04,320 --> 00:31:05,720 Speaker 12: For the market to continue to rally. 687 00:31:05,720 --> 00:31:08,680 Speaker 11: From your on, we think that the bond market, at 688 00:31:08,720 --> 00:31:10,320 Speaker 11: least over the near drum, is going to lose some 689 00:31:10,360 --> 00:31:14,120 Speaker 11: momentum given the fact that we're priced nearly for six 690 00:31:14,200 --> 00:31:16,360 Speaker 11: cuts for net year, so. 691 00:31:16,240 --> 00:31:17,720 Speaker 12: That seems a little bit dramatic. 692 00:31:17,800 --> 00:31:22,560 Speaker 11: I think our view is that the Fed will deliver 693 00:31:22,960 --> 00:31:26,040 Speaker 11: a height starting in May, but a March straight cut 694 00:31:26,200 --> 00:31:29,280 Speaker 11: definitely seems a little bit premature at the current time. 695 00:31:29,360 --> 00:31:32,840 Speaker 11: As you were discussing earlier, John, you're looking at an 696 00:31:32,840 --> 00:31:36,880 Speaker 11: outlook where finacial conditions have eased quite dramatically. 697 00:31:37,400 --> 00:31:39,680 Speaker 12: Inflation is coming down very nicely. 698 00:31:39,920 --> 00:31:45,600 Speaker 11: Gas prices or oil prices in general have declined quite meaningfully, 699 00:31:45,680 --> 00:31:49,080 Speaker 11: so the consumer is still relatively strong. So the risk 700 00:31:49,160 --> 00:31:51,720 Speaker 11: here is that we might see a resurgence in services 701 00:31:51,760 --> 00:31:52,400 Speaker 11: SAT inflation. 702 00:31:52,760 --> 00:31:54,320 Speaker 8: Let's build on that a little bit more. Where would 703 00:31:54,320 --> 00:31:56,960 Speaker 8: that leaves a call on the yield curve because traditionally, 704 00:31:56,960 --> 00:31:59,720 Speaker 8: when we're talking about maybe the end of cycle, maybe 705 00:31:59,720 --> 00:32:01,440 Speaker 8: the st have a right, cunning, right game, you'd get 706 00:32:01,440 --> 00:32:03,800 Speaker 8: that bull stake and come through the curve. Savantra, what's 707 00:32:03,840 --> 00:32:05,960 Speaker 8: the core for you and the team now through next year. 708 00:32:07,400 --> 00:32:09,760 Speaker 11: So our call in our outlook that we published in 709 00:32:09,800 --> 00:32:12,280 Speaker 11: the end of November was that the first move would 710 00:32:12,320 --> 00:32:15,720 Speaker 11: be towards a bull flattener with the front end pegg 711 00:32:16,200 --> 00:32:18,000 Speaker 11: and the long end rally. 712 00:32:18,120 --> 00:32:19,120 Speaker 12: But that hasn't happened. 713 00:32:19,120 --> 00:32:21,080 Speaker 11: The market has priced in a lot of cuts in 714 00:32:21,080 --> 00:32:23,680 Speaker 11: a very short amount of time. But the long long 715 00:32:23,760 --> 00:32:26,000 Speaker 11: end is also rally So the Tuesday's part of the 716 00:32:26,040 --> 00:32:29,880 Speaker 11: of the Yelk curve is still quite inverted. You are 717 00:32:30,040 --> 00:32:33,240 Speaker 11: going to see that disinvert and steepen out with the 718 00:32:34,080 --> 00:32:35,920 Speaker 11: you know as we progress, but that's going to be 719 00:32:35,960 --> 00:32:40,160 Speaker 11: more of a mid twenty twenty four story. When the 720 00:32:40,200 --> 00:32:42,600 Speaker 11: FED starts to cut rates aggressively, you're going to see 721 00:32:42,600 --> 00:32:45,920 Speaker 11: that you know curves steeping out. So for now, I 722 00:32:45,960 --> 00:32:50,240 Speaker 11: think that inversion is very much in play because investors 723 00:32:50,280 --> 00:32:52,160 Speaker 11: are getting back into the bond market in a big way. 724 00:32:52,480 --> 00:32:54,200 Speaker 12: Across the curve. You're seeing this for. 725 00:32:54,320 --> 00:32:57,800 Speaker 11: More trade play out, and that that would mean that 726 00:32:58,360 --> 00:33:01,479 Speaker 11: with the front end pegg to FED expectationations, investors are 727 00:33:01,480 --> 00:33:03,200 Speaker 11: going to also buy the long end. 728 00:33:03,640 --> 00:33:05,960 Speaker 2: I was struck by the Bank of America Global fund 729 00:33:05,960 --> 00:33:09,440 Speaker 2: manager survey that showed people really going out of cash 730 00:33:09,480 --> 00:33:13,040 Speaker 2: and into bonds. Cash was cut to a two year 731 00:33:13,160 --> 00:33:17,160 Speaker 2: low and people were the most overweight bonds in fifteen years. 732 00:33:17,160 --> 00:33:20,280 Speaker 2: Have we already seen the rotation out of cash out 733 00:33:20,280 --> 00:33:23,680 Speaker 2: of money market funds that would have transpired given the 734 00:33:23,680 --> 00:33:24,880 Speaker 2: potential for rate cuts. 735 00:33:26,880 --> 00:33:29,240 Speaker 11: Well, I think that what you're seeing is an asset 736 00:33:29,280 --> 00:33:34,960 Speaker 11: allocation towards bonds given the fat that you know, people 737 00:33:35,000 --> 00:33:38,240 Speaker 11: have concluded that bond yields have topped around tens Around 738 00:33:38,320 --> 00:33:40,960 Speaker 11: five percent is as high as it gets. If that's 739 00:33:41,040 --> 00:33:43,840 Speaker 11: the case, you're going to get the best yield you've 740 00:33:43,880 --> 00:33:45,920 Speaker 11: ever had in the last couple of decades. So it 741 00:33:46,000 --> 00:33:49,320 Speaker 11: makes sense to allocate into bonds as well as perhaps 742 00:33:49,320 --> 00:33:52,120 Speaker 11: all the assets, but bonds first, because the sequencing, the 743 00:33:52,120 --> 00:33:54,520 Speaker 11: way it's going to work is, you know, as the 744 00:33:54,600 --> 00:33:58,520 Speaker 11: Fed prepares to cut rates, the economy slows down, you're 745 00:33:58,560 --> 00:34:01,320 Speaker 11: going to see bonds rally for and then we do 746 00:34:01,360 --> 00:34:04,160 Speaker 11: see a recession like we're expecting at South Gen by 747 00:34:04,160 --> 00:34:06,920 Speaker 11: the middle of next year, then you should see some 748 00:34:06,960 --> 00:34:11,600 Speaker 11: weakness inequities, and then you'll see the acid allocation into equities. 749 00:34:11,840 --> 00:34:13,279 Speaker 12: But that's really not how it's playing on. 750 00:34:13,360 --> 00:34:15,680 Speaker 11: There's just a lot of cash in the system six 751 00:34:15,800 --> 00:34:17,440 Speaker 11: trillion or so close. 752 00:34:17,200 --> 00:34:19,120 Speaker 12: To that in money market funds, and. 753 00:34:19,040 --> 00:34:23,719 Speaker 11: That cash is just being reallocated into other assets where 754 00:34:23,760 --> 00:34:26,080 Speaker 11: you could potentially get higher returns over the longer run. 755 00:34:26,239 --> 00:34:28,359 Speaker 2: So can you give us a sense of how much 756 00:34:28,440 --> 00:34:30,520 Speaker 2: lower you think ten year yields are going to end 757 00:34:30,560 --> 00:34:33,000 Speaker 2: next year given the fact that there still is a 758 00:34:33,040 --> 00:34:35,480 Speaker 2: lot of cash to flow into bonds, and you do 759 00:34:35,560 --> 00:34:37,080 Speaker 2: expect weakness in the economy. 760 00:34:38,680 --> 00:34:43,000 Speaker 11: So you know, our call for tenure yels is for 761 00:34:43,120 --> 00:34:46,520 Speaker 11: tends to get around three seventy five by the middle 762 00:34:46,560 --> 00:34:50,239 Speaker 11: of next year. And the reason for that is is 763 00:34:50,280 --> 00:34:52,640 Speaker 11: because we think that the US economy goes into recession, 764 00:34:52,719 --> 00:34:55,760 Speaker 11: so we do see more room for ten yure years 765 00:34:55,800 --> 00:34:58,440 Speaker 11: to to rally. I mean, granted, when we put out 766 00:34:58,480 --> 00:35:01,719 Speaker 11: these forecasting years, we're close to five percent, so three 767 00:35:01,760 --> 00:35:04,239 Speaker 11: seventy five seem like a stretch, but we're almost. 768 00:35:04,080 --> 00:35:06,520 Speaker 12: There in a very short amount of time. 769 00:35:07,520 --> 00:35:10,120 Speaker 11: So yeah, we could we see you know, ten years 770 00:35:10,160 --> 00:35:13,080 Speaker 11: dip below three cent fad perhaps, But really, the core 771 00:35:13,200 --> 00:35:16,560 Speaker 11: story that I think that I'm sticking with is the 772 00:35:16,560 --> 00:35:18,920 Speaker 11: fact that the sort of turned premium build up that 773 00:35:18,960 --> 00:35:22,839 Speaker 11: we saw over the last you know, i'd say since 774 00:35:22,920 --> 00:35:24,600 Speaker 11: August to the end. 775 00:35:24,520 --> 00:35:27,240 Speaker 12: Of October, that story is still very much in play. 776 00:35:27,280 --> 00:35:32,040 Speaker 11: You're seeing the supply demand imbalances continuing to plague the market. 777 00:35:32,760 --> 00:35:35,759 Speaker 11: You know, you're seeing tailed options. There's just not as 778 00:35:35,920 --> 00:35:38,880 Speaker 11: much demand for treasuries as we've seen in. 779 00:35:40,400 --> 00:35:43,040 Speaker 12: The past, and the Fed you know, our. 780 00:35:42,920 --> 00:35:44,560 Speaker 11: Call is that the FED is going to continue to 781 00:35:44,600 --> 00:35:47,359 Speaker 11: do QT not just into the end of twenty twenty four, 782 00:35:47,400 --> 00:35:50,239 Speaker 11: but also into twenty twenty five. So given that sort 783 00:35:50,239 --> 00:35:52,600 Speaker 11: of dynamic, it makes sense if you start seeing a 784 00:35:52,600 --> 00:35:55,399 Speaker 11: build up in term premiere once the FED starts cutting 785 00:35:55,480 --> 00:35:57,400 Speaker 11: rates and the economy starts to stabilize. 786 00:35:57,560 --> 00:35:59,920 Speaker 8: So bet, this was excellent, just fantastical here from you, 787 00:36:00,400 --> 00:36:03,319 Speaker 8: Thank you Savatar Jape of selk gent On. This bond 788 00:36:03,400 --> 00:36:10,600 Speaker 8: market joining us right now from the Atlantic Council is 789 00:36:10,680 --> 00:36:13,520 Speaker 8: anam world. Allan. This is a big, big story. Traffic 790 00:36:13,560 --> 00:36:16,279 Speaker 8: going through the SEUs Canal, the Red Sea grinding to 791 00:36:16,320 --> 00:36:18,960 Speaker 8: a hole. Can you walk us through the additional time 792 00:36:19,360 --> 00:36:21,680 Speaker 8: that's required if you can't go through that and you 793 00:36:21,719 --> 00:36:24,160 Speaker 8: need to go around the southern tip of Africa? What 794 00:36:24,160 --> 00:36:25,120 Speaker 8: are we talking about here? 795 00:36:26,040 --> 00:36:28,920 Speaker 13: Yeah, it seems that we're talking about an additional twelve 796 00:36:28,960 --> 00:36:33,440 Speaker 13: to fourteen days of travel time to go around Africa. 797 00:36:33,480 --> 00:36:36,240 Speaker 13: But that's not the only issue here. We're also talking 798 00:36:36,320 --> 00:36:38,960 Speaker 13: about increased fuel for ships. 799 00:36:38,800 --> 00:36:41,320 Speaker 12: A longer trip for the crews on board. 800 00:36:41,400 --> 00:36:44,840 Speaker 13: It's going to cost more, they're going to emit more 801 00:36:45,360 --> 00:36:49,360 Speaker 13: carbon and so this isn't just you know, it's not 802 00:36:49,560 --> 00:36:51,400 Speaker 13: safe for the SEUs Canal is closed. 803 00:36:51,400 --> 00:36:52,320 Speaker 12: We've had that before. 804 00:36:53,160 --> 00:36:57,760 Speaker 13: This is a very significant journey, and it's particularly important 805 00:36:57,840 --> 00:37:00,360 Speaker 13: right now because it used to be that Europe was 806 00:37:00,400 --> 00:37:02,640 Speaker 13: getting a lot of it's oil from Russia. That's not 807 00:37:02,719 --> 00:37:05,720 Speaker 13: happening now and it's relying a lot more on oil 808 00:37:05,760 --> 00:37:08,040 Speaker 13: from the Middle East. And so if that oil can't 809 00:37:08,080 --> 00:37:11,040 Speaker 13: go through the Suez Canal, then now we're talking an 810 00:37:11,120 --> 00:37:15,440 Speaker 13: extra twelve to fourteen day trip around Africa. And it 811 00:37:15,520 --> 00:37:20,640 Speaker 13: also cuts out the Siumed pipeline because that pipeline is accessible. Also, 812 00:37:21,000 --> 00:37:23,080 Speaker 13: you have to go through the Red Sea to access 813 00:37:23,080 --> 00:37:26,040 Speaker 13: that pipeline as well. So essentially only you can get 814 00:37:26,080 --> 00:37:30,200 Speaker 13: Saudi oil if it leaves the west coast of Saudi Arabia, 815 00:37:30,280 --> 00:37:34,120 Speaker 13: which isn't a place where that much oil leaves Saudi Arabia. 816 00:37:34,280 --> 00:37:36,800 Speaker 13: That can get to the Suez Canal or the Siumed 817 00:37:37,040 --> 00:37:42,800 Speaker 13: pipeline without a threat of Houti activity, but otherwise everybody 818 00:37:42,880 --> 00:37:43,920 Speaker 13: else is stuck. 819 00:37:44,200 --> 00:37:46,239 Speaker 8: So if this was twenty twenty one, this would be 820 00:37:46,280 --> 00:37:49,840 Speaker 8: dreadful twenty twenty two chaos. We'd be talking about higher 821 00:37:49,880 --> 00:37:53,160 Speaker 8: prices and inflation spiraling down of control. In twenty twenty three. 822 00:37:53,200 --> 00:37:55,640 Speaker 8: It just feels like supply chains are a better place, 823 00:37:55,960 --> 00:37:57,640 Speaker 8: and then can you describe them all? We in a 824 00:37:57,640 --> 00:37:58,240 Speaker 8: better place. 825 00:37:59,120 --> 00:38:01,400 Speaker 13: Yeah, we're definitely in a better place. This is not 826 00:38:01,719 --> 00:38:04,160 Speaker 13: We're not going to see oil shortages. We're not going 827 00:38:04,239 --> 00:38:07,240 Speaker 13: to see gas lines. You know, during the Suez Canal 828 00:38:07,320 --> 00:38:11,920 Speaker 13: crisis in nineteen fifty six, that's what we saw when 829 00:38:11,960 --> 00:38:15,279 Speaker 13: the Suez Canal was closed. We also didn't have at 830 00:38:15,280 --> 00:38:18,239 Speaker 13: that time the very large crude carrier, which were these 831 00:38:18,400 --> 00:38:23,120 Speaker 13: massive crude oil carriers which they basically invented in order 832 00:38:23,200 --> 00:38:27,359 Speaker 13: to take crude oil around Africa so that they could 833 00:38:27,400 --> 00:38:30,200 Speaker 13: get enough to Europe. So we've got that now, So 834 00:38:30,320 --> 00:38:34,480 Speaker 13: we're not talking devastation, but we are talking about increased 835 00:38:34,480 --> 00:38:38,560 Speaker 13: time at a time when we've already got increased time 836 00:38:38,640 --> 00:38:42,160 Speaker 13: to get oil shipments to Europe, and we're talking about 837 00:38:42,160 --> 00:38:43,200 Speaker 13: increased costs. 838 00:38:43,440 --> 00:38:44,960 Speaker 2: Are you surprised that we haven't seen more of a 839 00:38:45,000 --> 00:38:47,040 Speaker 2: pop and oil prices as a result, Ellen. 840 00:38:48,160 --> 00:38:51,160 Speaker 13: You know, I'm not that surprised because this is something 841 00:38:51,200 --> 00:38:53,680 Speaker 13: that's been going on for a while and it's only 842 00:38:53,800 --> 00:38:58,080 Speaker 13: recently i think escalated to the point where tankers and 843 00:38:58,160 --> 00:39:01,080 Speaker 13: shipping companies that are not direct connected with any kind 844 00:39:01,080 --> 00:39:05,440 Speaker 13: of Israeli interests are getting concerned and are making moves. 845 00:39:05,840 --> 00:39:07,560 Speaker 13: So I think that the market has kind of been 846 00:39:07,600 --> 00:39:10,640 Speaker 13: anticipating this for a bit of time, and then you've 847 00:39:10,640 --> 00:39:13,840 Speaker 13: also got these overall kind of economic issues waiting on 848 00:39:14,200 --> 00:39:17,120 Speaker 13: the market. I think that maybe they should be more concerned, 849 00:39:17,400 --> 00:39:22,480 Speaker 13: especially because the idea that suddenly the US Defense Secretary 850 00:39:22,560 --> 00:39:25,440 Speaker 13: is only now setting up a commission to deal with 851 00:39:25,480 --> 00:39:27,359 Speaker 13: this that doesn't bode. 852 00:39:27,000 --> 00:39:29,520 Speaker 2: Well, and there are questions around what that commission can 853 00:39:29,600 --> 00:39:32,040 Speaker 2: actually do, what they are willing to do, and what 854 00:39:32,160 --> 00:39:36,640 Speaker 2: exactly the conversations are between the US and Riad, for example, 855 00:39:36,640 --> 00:39:38,640 Speaker 2: which might have more influence over the. 856 00:39:38,640 --> 00:39:41,240 Speaker 1: Hoo Thies than say Canada. 857 00:39:41,360 --> 00:39:43,360 Speaker 2: So how much from your perspective do you think that 858 00:39:43,360 --> 00:39:45,960 Speaker 2: the right people are involved in these conversations, and do 859 00:39:45,960 --> 00:39:49,239 Speaker 2: you have a sense of what the potential allies in 860 00:39:49,280 --> 00:39:51,839 Speaker 2: the region might be willing and able to do. 861 00:39:52,920 --> 00:39:54,839 Speaker 13: I think that rio I would love nothing more than 862 00:39:54,840 --> 00:39:57,600 Speaker 13: a green light from the United States to just bomb 863 00:39:57,719 --> 00:40:00,040 Speaker 13: the heck out of the hoo these in Yemen. I 864 00:40:00,080 --> 00:40:02,200 Speaker 13: don't think they're going to get that. I think the 865 00:40:02,239 --> 00:40:05,560 Speaker 13: real issue here is where is getting this technology and 866 00:40:05,600 --> 00:40:08,760 Speaker 13: these drones to buzz these ships and cause these issues. 867 00:40:09,280 --> 00:40:12,799 Speaker 13: And that's the answer to that is Iran. And when 868 00:40:12,840 --> 00:40:16,280 Speaker 13: you look at the likelihood of maybe a US Iranian 869 00:40:16,320 --> 00:40:19,080 Speaker 13: confrontation over this, that's not something I think the US 870 00:40:19,160 --> 00:40:22,520 Speaker 13: is willing to risk. So the question is really what 871 00:40:22,719 --> 00:40:25,680 Speaker 13: kind of show of force is the United States and 872 00:40:25,960 --> 00:40:31,760 Speaker 13: potentially an international coalition because a safe passage in the seas, 873 00:40:31,960 --> 00:40:34,840 Speaker 13: essentially freedom of the seas is an international issue. This 874 00:40:34,960 --> 00:40:38,680 Speaker 13: is not just a US issue or a US British issue. 875 00:40:38,680 --> 00:40:41,319 Speaker 13: This is really an international issue that China should be 876 00:40:41,320 --> 00:40:45,480 Speaker 13: concerned about, Korea and we've got everyone should be much 877 00:40:45,520 --> 00:40:48,520 Speaker 13: more concerned about this than they are. But the question 878 00:40:48,600 --> 00:40:52,480 Speaker 13: is who's going to actually put put the muscle where 879 00:40:52,520 --> 00:40:55,480 Speaker 13: it needs to be and I'm not sure that we're 880 00:40:55,520 --> 00:40:56,920 Speaker 13: seeing willingness to do that. 881 00:40:57,080 --> 00:41:00,600 Speaker 8: You touched on potential losers. I believe you mentioned European importers. 882 00:41:00,760 --> 00:41:03,600 Speaker 8: Can we talk about winners? Who wins from this situation? 883 00:41:03,920 --> 00:41:09,400 Speaker 13: Allan Africa. I'm sure that South Africa is absolutely thrilled 884 00:41:09,400 --> 00:41:12,799 Speaker 13: to see lots of increased traffic at its ports in 885 00:41:13,040 --> 00:41:16,440 Speaker 13: an extra tilt to fourteen day trip sealers. They're going 886 00:41:16,520 --> 00:41:18,440 Speaker 13: to want to stop they're going to want to, you know, 887 00:41:18,520 --> 00:41:20,600 Speaker 13: have a break, They're going to want to go, you know, 888 00:41:20,880 --> 00:41:23,279 Speaker 13: on land. And so I think Africa is definitely a 889 00:41:23,280 --> 00:41:25,680 Speaker 13: winner here because they're seeing a lot more traffic and 890 00:41:25,719 --> 00:41:28,040 Speaker 13: that means they can charge for it. I do think 891 00:41:28,080 --> 00:41:31,239 Speaker 13: that Egypt is a huge loser here that really can't 892 00:41:31,239 --> 00:41:34,040 Speaker 13: be overlooked because if we're seeing a lot less traffic 893 00:41:34,080 --> 00:41:37,040 Speaker 13: in the Sewers Canal, they're losing money over this, and 894 00:41:37,400 --> 00:41:38,560 Speaker 13: a lot of money. 895 00:41:38,280 --> 00:41:41,239 Speaker 8: And just to finish on prices oil versus gas, Is 896 00:41:41,239 --> 00:41:43,719 Speaker 8: it a bigger issue for one versus the other or 897 00:41:43,719 --> 00:41:44,160 Speaker 8: the same? 898 00:41:45,120 --> 00:41:47,440 Speaker 13: I don't think so, because also when we talk about 899 00:41:48,040 --> 00:41:50,719 Speaker 13: oil going through the Suez Canal, we often talk about 900 00:41:50,719 --> 00:41:53,719 Speaker 13: it in terms of petroleum products. Overall, we're not really 901 00:41:53,760 --> 00:41:57,719 Speaker 13: differentiating between crude oil and products here. So I think 902 00:41:57,760 --> 00:41:59,840 Speaker 13: it's it's all, it's all tied. 903 00:41:59,560 --> 00:42:02,239 Speaker 8: In allan, thank you, I appreciate the update. Want to 904 00:42:02,320 --> 00:42:04,359 Speaker 8: watch a developing story over the last week for sure, 905 00:42:04,400 --> 00:42:06,360 Speaker 8: Alan Weld at the Atlantic Council. 906 00:42:06,560 --> 00:42:07,239 Speaker 1: Subscribe to the. 907 00:42:07,200 --> 00:42:10,719 Speaker 2: Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you 908 00:42:10,760 --> 00:42:14,160 Speaker 2: get your podcasts. Listen live every weekday starting at seven 909 00:42:14,200 --> 00:42:18,000 Speaker 2: am Eastern on Bloomberg dot com, the iHeartRadio app tune In. 910 00:42:18,000 --> 00:42:19,520 Speaker 1: And the Bloomberg Business app. 911 00:42:19,800 --> 00:42:23,080 Speaker 2: You can watch us live on Bloomberg Television and always 912 00:42:23,160 --> 00:42:26,600 Speaker 2: on the Bloomberg Terminal. Thanks for listening. I'm Lisa Abramowitz, 913 00:42:26,640 --> 00:42:27,680 Speaker 2: and this is Bloomberg