1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:38,280 Speaker 2: Terminal and the Bloomberg Business app. Stockslower as doubtscrow over 10 00:00:38,280 --> 00:00:40,680 Speaker 2: the credit house of US regional banks. Lisa is standing 11 00:00:40,720 --> 00:00:44,640 Speaker 2: by with a key guest. Hey Lisa, Hey John, thanks 12 00:00:44,680 --> 00:00:45,040 Speaker 2: so much. 13 00:00:45,080 --> 00:00:48,360 Speaker 3: I am here with Christian Saving, the CEO of Deutsche Bank. 14 00:00:48,400 --> 00:00:50,559 Speaker 3: And before we get started, I want to say we 15 00:00:50,560 --> 00:00:53,199 Speaker 3: booked this weeks ago. This was not necessarily booked to 16 00:00:53,240 --> 00:00:55,880 Speaker 3: talk about the credit issues that are emerging to stave 17 00:00:55,920 --> 00:00:58,440 Speaker 3: off any concerns that might be percolating out. But I 18 00:00:58,480 --> 00:01:00,680 Speaker 3: do want to start there this idea that this morning 19 00:01:00,720 --> 00:01:02,160 Speaker 3: we're all focused on. 20 00:01:02,000 --> 00:01:02,840 Speaker 4: What are we missing? 21 00:01:03,080 --> 00:01:04,160 Speaker 1: Have things gotten too. 22 00:01:04,000 --> 00:01:07,520 Speaker 3: Frauthy and have there been some issues of fraud or 23 00:01:07,640 --> 00:01:10,720 Speaker 3: easy financing conditions. Do you see that anywhere. 24 00:01:10,319 --> 00:01:14,240 Speaker 5: In your book, morning, Liza, I know, actually not. I 25 00:01:14,319 --> 00:01:16,120 Speaker 5: mean there's a lot of volatility in the market. We 26 00:01:16,160 --> 00:01:18,479 Speaker 5: have seen that actually over the last weeks and months. 27 00:01:18,560 --> 00:01:22,039 Speaker 5: Whenever something is supposed to be the market is reacting. 28 00:01:23,000 --> 00:01:24,880 Speaker 5: In our books, I can tell you no, there is 29 00:01:24,920 --> 00:01:28,080 Speaker 5: no deterioration we have. Actually, we are very confident with 30 00:01:28,200 --> 00:01:31,880 Speaker 5: our credit portfolio and that across the world, whether it's 31 00:01:31,880 --> 00:01:34,759 Speaker 5: in Germany, whether it's in Europe, whether it's in the US, 32 00:01:35,240 --> 00:01:39,280 Speaker 5: in the different asset classes corporate bank, private bank, and 33 00:01:39,640 --> 00:01:44,520 Speaker 5: in this regard, I think the market is reacting quite heavily, 34 00:01:45,280 --> 00:01:47,319 Speaker 5: but I think you always have to see it over 35 00:01:47,400 --> 00:01:50,440 Speaker 5: the long term, and so far, to be honest, I 36 00:01:50,480 --> 00:01:51,480 Speaker 5: see no credit. 37 00:01:51,160 --> 00:01:52,440 Speaker 4: Deterioration long term. 38 00:01:52,560 --> 00:01:54,840 Speaker 3: Your shares are up more than eighty percent so far 39 00:01:54,880 --> 00:01:57,320 Speaker 3: this year, so a couple percent here there is sort 40 00:01:57,360 --> 00:01:59,480 Speaker 3: of you know, Okay, it's tough, but we can manage 41 00:01:59,520 --> 00:02:04,280 Speaker 3: through it. Just wondering though, whether it's indicative of people's 42 00:02:04,320 --> 00:02:06,120 Speaker 3: mood that people are looking for a reason to sell 43 00:02:06,200 --> 00:02:08,680 Speaker 3: because they're getting nervous about how good things are getting 44 00:02:08,720 --> 00:02:09,160 Speaker 3: and how. 45 00:02:09,040 --> 00:02:10,600 Speaker 1: Far valuations have gone. 46 00:02:10,600 --> 00:02:13,720 Speaker 3: Do you see that with any executives and the confidence 47 00:02:13,720 --> 00:02:16,359 Speaker 3: that you're hearing from them in terms of what they're 48 00:02:16,360 --> 00:02:18,960 Speaker 3: seeking to do or how much they're extending to planning 49 00:02:19,000 --> 00:02:19,560 Speaker 3: to expand. 50 00:02:19,840 --> 00:02:21,920 Speaker 1: No, actually confidence is quite good. 51 00:02:22,480 --> 00:02:26,800 Speaker 5: I mean, there's obviously always the risk in case in 52 00:02:26,840 --> 00:02:31,040 Speaker 5: case a recession would come, then obviously the confidence would 53 00:02:31,080 --> 00:02:33,200 Speaker 5: go down. You would also see then a situation in 54 00:02:33,200 --> 00:02:35,799 Speaker 5: the credititfolio. But this is not the topic at all. Also, 55 00:02:35,840 --> 00:02:38,600 Speaker 5: in the whole week here in Washington, we haven't discussed 56 00:02:38,600 --> 00:02:41,480 Speaker 5: the topic of recession at all. People are seeing growth, 57 00:02:41,760 --> 00:02:45,359 Speaker 5: they're seeing employment. We talk a lot about what is 58 00:02:45,400 --> 00:02:48,359 Speaker 5: happening in Germany and in Europe and how we can 59 00:02:48,440 --> 00:02:54,040 Speaker 5: actually grow competitiveness and the economic output. So therefore I 60 00:02:54,040 --> 00:02:58,200 Speaker 5: wouldn't say that people are concerned. Of course, the geopolitical 61 00:02:58,280 --> 00:03:07,440 Speaker 5: uncertainties still discussions. Other other issues are also dominating, dominating 62 00:03:07,480 --> 00:03:10,760 Speaker 5: the discussions, But I wouldn't say that there is a 63 00:03:10,880 --> 00:03:15,040 Speaker 5: concern of the executives. We are watching the market, but 64 00:03:15,120 --> 00:03:18,480 Speaker 5: there is nothing out where I would say people are 65 00:03:18,520 --> 00:03:21,000 Speaker 5: concerned of a deterioration given the fact. 66 00:03:20,840 --> 00:03:23,960 Speaker 3: That there are so many uncertainties still outstanding. Are you 67 00:03:24,000 --> 00:03:26,160 Speaker 3: surprised by how much optimism you've been hearing. 68 00:03:28,800 --> 00:03:31,799 Speaker 5: Yes, because we have talked for the last two years, 69 00:03:31,840 --> 00:03:36,200 Speaker 5: given all the instabilities and uncertainties, when when is actually 70 00:03:36,280 --> 00:03:39,920 Speaker 5: a potential down downturn in the market's coming. But again, 71 00:03:39,960 --> 00:03:42,680 Speaker 5: there is a lot of liquidity in the market people. 72 00:03:43,240 --> 00:03:45,240 Speaker 5: We have seen it, for instance in the in the 73 00:03:45,280 --> 00:03:48,440 Speaker 5: second quarter when there was a stimulus program in Germany, 74 00:03:48,440 --> 00:03:51,640 Speaker 5: how much liquidity came to Europe. And you see that 75 00:03:51,720 --> 00:03:55,440 Speaker 5: people really want to deploy their money. And therefore, I 76 00:03:55,480 --> 00:03:57,360 Speaker 5: think you always have to see if there is a 77 00:03:57,480 --> 00:04:01,920 Speaker 5: slight decrease in market prices, liquidity immediately comes in again. 78 00:04:02,360 --> 00:04:06,400 Speaker 5: And therefore I'm still optimistic actually that we are not 79 00:04:06,520 --> 00:04:07,920 Speaker 5: talking about an overvaluation. 80 00:04:08,000 --> 00:04:09,960 Speaker 1: We have some stretch valuations. 81 00:04:09,480 --> 00:04:12,400 Speaker 5: No doubt, but I wouldn't say that the whole market 82 00:04:12,400 --> 00:04:13,000 Speaker 5: is overvalued. 83 00:04:13,160 --> 00:04:15,960 Speaker 3: Let's talk about Germany and European banks in general have 84 00:04:16,000 --> 00:04:18,000 Speaker 3: been on a tear this year, and it's been driven 85 00:04:18,040 --> 00:04:20,640 Speaker 3: by this idea that maybe there will be deregulation and 86 00:04:20,720 --> 00:04:24,200 Speaker 3: maybe there will be actual fiscal spending to support the region. 87 00:04:24,760 --> 00:04:28,640 Speaker 3: Are you seeing any actual tangible signs of deregulation that 88 00:04:28,720 --> 00:04:32,680 Speaker 3: you think could unleash, whether it's bank mergers, whether it's 89 00:04:32,839 --> 00:04:35,680 Speaker 3: just more dynamism in the European banking sector. 90 00:04:36,440 --> 00:04:37,720 Speaker 1: Well, at least we have discussions. 91 00:04:38,279 --> 00:04:41,240 Speaker 5: I mean, look, there are also some tangible items like 92 00:04:42,240 --> 00:04:46,159 Speaker 5: the delay in the implementation of fr to be we 93 00:04:46,279 --> 00:04:50,160 Speaker 5: have also in certain national buffers. When it comes to 94 00:04:50,279 --> 00:04:54,640 Speaker 5: capital buffers, we have seen some movements of the national regulators, 95 00:04:54,640 --> 00:04:57,039 Speaker 5: but also of the ECB. I think we have a 96 00:04:57,080 --> 00:05:01,120 Speaker 5: constructive discussion with the ECB. We are talking about that 97 00:05:01,160 --> 00:05:04,480 Speaker 5: we as European banks, are demanding a level playing field. 98 00:05:04,520 --> 00:05:07,080 Speaker 5: We see the developments here in the US, we see 99 00:05:07,080 --> 00:05:09,640 Speaker 5: developments in the UK, and therefore I think there are 100 00:05:09,680 --> 00:05:12,239 Speaker 5: constructive discussions with our regulators, so there. 101 00:05:12,080 --> 00:05:12,760 Speaker 1: Is some movement. 102 00:05:13,920 --> 00:05:18,520 Speaker 5: Nevertheless, I think it's not only about regulation. I think 103 00:05:18,560 --> 00:05:21,600 Speaker 5: the most important is how can we ensure that Europe 104 00:05:21,640 --> 00:05:26,200 Speaker 5: of all, but also Germany is actually increasing the competitiveness 105 00:05:26,200 --> 00:05:29,080 Speaker 5: and growth, and therefore we need to do more on 106 00:05:29,120 --> 00:05:32,720 Speaker 5: the structural reform saute, which goes way beyond bank regulations. 107 00:05:33,279 --> 00:05:35,520 Speaker 5: That is actually the topic which we need to push for, 108 00:05:35,760 --> 00:05:38,480 Speaker 5: because at the end of the day, regulation is important, 109 00:05:38,520 --> 00:05:40,960 Speaker 5: we need a level playing field, but the most important 110 00:05:41,000 --> 00:05:43,480 Speaker 5: is the underlying growth and therefore we need structural reforms 111 00:05:43,480 --> 00:05:44,120 Speaker 5: in Europe is. 112 00:05:44,040 --> 00:05:44,840 Speaker 2: That friscal spending. 113 00:05:44,880 --> 00:05:46,640 Speaker 3: Are you saying that you hope that they increase it 114 00:05:46,720 --> 00:05:49,200 Speaker 3: more and that you're already seeing stimulative effects from that? 115 00:05:49,480 --> 00:05:54,680 Speaker 5: I suppose I personally think that the debt break alignment 116 00:05:54,720 --> 00:05:56,680 Speaker 5: and adjustments which we have seen in Germany was the 117 00:05:56,800 --> 00:05:59,680 Speaker 5: right step to do. But only doing this is not 118 00:05:59,720 --> 00:06:02,920 Speaker 5: the right thing. Just increasing debt is not the right thing. 119 00:06:03,000 --> 00:06:05,520 Speaker 5: What you need to do is in parallel work on 120 00:06:05,560 --> 00:06:09,160 Speaker 5: structural reforms that it makes sense for corporate's private individuals 121 00:06:09,200 --> 00:06:11,880 Speaker 5: to invest. And that has all about to do with 122 00:06:13,279 --> 00:06:17,160 Speaker 5: tackling the problem of energy prices in Germany, reducing bureaucracy, 123 00:06:17,880 --> 00:06:21,720 Speaker 5: making sure that we are doing bigger investments into infrastructure, 124 00:06:22,000 --> 00:06:26,440 Speaker 5: that the approvals for new investments are not taking that 125 00:06:26,560 --> 00:06:27,640 Speaker 5: long as it did before. 126 00:06:27,960 --> 00:06:29,080 Speaker 1: All that needs to be done. 127 00:06:29,120 --> 00:06:35,360 Speaker 5: So aligning or just growing by a stimulus program will. 128 00:06:34,560 --> 00:06:35,280 Speaker 1: Not be sufficient. 129 00:06:35,600 --> 00:06:38,479 Speaker 5: We need imperilel structural reforms, and there I can see 130 00:06:38,520 --> 00:06:41,360 Speaker 5: that actually the German government is taking the first step. 131 00:06:41,400 --> 00:06:42,400 Speaker 1: So what about businesses? 132 00:06:42,480 --> 00:06:45,880 Speaker 3: How much are businesses in Germany moving away from places 133 00:06:45,920 --> 00:06:49,120 Speaker 3: like China in terms of sources of business? How much 134 00:06:49,120 --> 00:06:52,880 Speaker 3: are you seeing those fissures just in the companies that 135 00:06:52,960 --> 00:06:53,560 Speaker 3: you work with. 136 00:06:54,000 --> 00:06:56,680 Speaker 5: Well, it's the result already of the COVID. I think 137 00:06:56,760 --> 00:07:00,680 Speaker 5: after COVID people really thought far more about diversification. We 138 00:07:00,720 --> 00:07:04,799 Speaker 5: can see that German corporates, European corporates are very active 139 00:07:05,240 --> 00:07:10,520 Speaker 5: in diversifying their supply chains, their production chains, and are 140 00:07:10,560 --> 00:07:16,680 Speaker 5: also trying to invest more globally and less concentrated. You 141 00:07:16,720 --> 00:07:20,160 Speaker 5: can also see actually that business are confident actually to 142 00:07:20,360 --> 00:07:23,320 Speaker 5: really reinvest in Germany. You may have heard about the 143 00:07:23,360 --> 00:07:28,240 Speaker 5: initiative which is running in Germany, the Made for Germany initiative, 144 00:07:28,760 --> 00:07:31,720 Speaker 5: where more than one hundred corporates are actually committed to 145 00:07:31,920 --> 00:07:34,680 Speaker 5: invest over seven hundred billion euros in Germany over the 146 00:07:34,760 --> 00:07:38,080 Speaker 5: next three years. That shows actually that there is confidence 147 00:07:38,120 --> 00:07:41,520 Speaker 5: in the business and at the same time that corporates 148 00:07:41,560 --> 00:07:43,880 Speaker 5: are really redistributing their supply chains. 149 00:07:43,920 --> 00:07:45,880 Speaker 3: Are you seeing any clients trying to shift away from 150 00:07:45,880 --> 00:07:47,040 Speaker 3: dollar exposure right now? 151 00:07:48,120 --> 00:07:52,440 Speaker 5: Look, there was clearly a trend in Q two about reallocation. 152 00:07:53,040 --> 00:07:56,800 Speaker 5: But I wouldn't join the core of saying well, that 153 00:07:56,920 --> 00:07:59,920 Speaker 5: is the end of the US dollar as the reserve current. 154 00:08:00,480 --> 00:08:02,960 Speaker 1: The US dollar will be the reserve currency. 155 00:08:03,320 --> 00:08:05,400 Speaker 5: But I think that a lot of investors actually are 156 00:08:05,480 --> 00:08:09,360 Speaker 5: trying to reallocate, and in particular with what happened in 157 00:08:09,400 --> 00:08:11,960 Speaker 5: the second quarter in Germany but also in Europe, you 158 00:08:12,000 --> 00:08:14,800 Speaker 5: could see a shift to Europe and that's actually the 159 00:08:14,840 --> 00:08:17,440 Speaker 5: momentum which we need to retain and where we need 160 00:08:17,480 --> 00:08:17,880 Speaker 5: to build on. 161 00:08:18,240 --> 00:08:21,120 Speaker 3: And this move away from the dollar has been largely 162 00:08:21,120 --> 00:08:23,120 Speaker 3: in derivative's markets. I mean, how much has that just 163 00:08:23,160 --> 00:08:25,840 Speaker 3: been on fire this year in terms of hedging any 164 00:08:25,880 --> 00:08:29,320 Speaker 3: exposure to the dollar, not necessarily getting out of dollar 165 00:08:29,360 --> 00:08:30,360 Speaker 3: denominated assets. 166 00:08:30,880 --> 00:08:31,800 Speaker 1: Well, I think it's both. 167 00:08:31,840 --> 00:08:34,920 Speaker 5: It's it's not only in the derivative market can we 168 00:08:35,040 --> 00:08:38,320 Speaker 5: really have seen rear flows And therefore it has been 169 00:08:38,720 --> 00:08:40,839 Speaker 5: it has been a trend in Q two, it's a 170 00:08:40,920 --> 00:08:44,200 Speaker 5: little bit reversing in Q three. And therefore it is 171 00:08:44,240 --> 00:08:47,840 Speaker 5: so important in particular for Europe that they really continue. 172 00:08:47,400 --> 00:08:48,440 Speaker 1: With structural reforms. 173 00:08:48,480 --> 00:08:50,720 Speaker 5: If this is not going through, if we are not 174 00:08:50,800 --> 00:08:54,679 Speaker 5: continued with structural reforms, then obviously grows and therefore so 175 00:08:54,760 --> 00:08:59,040 Speaker 5: the inflow in European assets will not further increase. 176 00:08:59,200 --> 00:09:02,160 Speaker 3: And is that just whether there will be reforms or not. 177 00:09:02,200 --> 00:09:05,200 Speaker 3: How does that effect where you want your footprint to 178 00:09:05,280 --> 00:09:06,720 Speaker 3: be dominant? 179 00:09:06,760 --> 00:09:06,920 Speaker 1: Right? 180 00:09:06,960 --> 00:09:08,719 Speaker 3: Do you want to be more in Germany. Do you 181 00:09:08,760 --> 00:09:10,360 Speaker 3: want to be more in the United States? Do you 182 00:09:10,440 --> 00:09:12,800 Speaker 3: want to expand more in one place or another based 183 00:09:12,840 --> 00:09:15,959 Speaker 3: on your faith, hope, et cetera, that there will be 184 00:09:16,000 --> 00:09:18,920 Speaker 3: reform in Europe versus what actually is happening elsewhere. 185 00:09:19,360 --> 00:09:22,880 Speaker 5: Look, Liza, for me, it is that from a bank's 186 00:09:22,920 --> 00:09:25,280 Speaker 5: point of view, the most important is to be diversified, 187 00:09:25,600 --> 00:09:28,280 Speaker 5: and we as Loutsche Bank, have taking a clear decision 188 00:09:28,559 --> 00:09:30,600 Speaker 5: to be a global bank and to make sure that 189 00:09:30,640 --> 00:09:34,000 Speaker 5: we are not too concentrated in any one of the regions. 190 00:09:34,160 --> 00:09:35,240 Speaker 1: Of course, when you. 191 00:09:35,120 --> 00:09:37,599 Speaker 5: Have your home market in Germany with forty percent of 192 00:09:37,679 --> 00:09:40,640 Speaker 5: the revenues, you have a great interest that this country 193 00:09:40,720 --> 00:09:43,280 Speaker 5: is growing, that you have the right structural reforms, that 194 00:09:43,320 --> 00:09:44,800 Speaker 5: fiscal stimulus is kicking in. 195 00:09:45,080 --> 00:09:47,760 Speaker 1: But at the same time, despite. 196 00:09:47,600 --> 00:09:51,560 Speaker 5: All the talks about the end of globalization, globalization will 197 00:09:51,559 --> 00:09:55,079 Speaker 5: not end. Globalization will be different going forward, but that 198 00:09:55,240 --> 00:09:58,640 Speaker 5: needs actually global banks with local nohow and that is 199 00:09:58,679 --> 00:10:01,040 Speaker 5: actually where we are focusing from a Deutsche Bank point 200 00:10:01,040 --> 00:10:04,520 Speaker 5: of view, strong home market, but being an international player, 201 00:10:04,559 --> 00:10:07,920 Speaker 5: because what we see from our clients, they would like 202 00:10:08,000 --> 00:10:11,439 Speaker 5: to have a bank with an international exposure, with an 203 00:10:11,480 --> 00:10:14,960 Speaker 5: international expertise, and that with the global network, and that's 204 00:10:15,000 --> 00:10:18,679 Speaker 5: exactly what we want to be. So diversified and a 205 00:10:18,760 --> 00:10:21,240 Speaker 5: global setup is I think the key to success. 206 00:10:21,280 --> 00:10:23,440 Speaker 3: Are you interested in any acquisitions or is this going 207 00:10:23,480 --> 00:10:25,959 Speaker 3: to be a very organic process going forward? 208 00:10:26,000 --> 00:10:28,520 Speaker 5: So very organic process. Look, I'm very happy with the 209 00:10:28,520 --> 00:10:32,600 Speaker 5: development which we have taken. You were just talking about 210 00:10:32,600 --> 00:10:35,199 Speaker 5: our share price. I think overall the bank has done 211 00:10:35,600 --> 00:10:39,439 Speaker 5: very well over the last three four years. The turnaround 212 00:10:39,440 --> 00:10:42,400 Speaker 5: has been completed, and now it's really bringing the bank 213 00:10:42,440 --> 00:10:44,720 Speaker 5: from a ten percent hour to eat to the next stage. 214 00:10:45,160 --> 00:10:49,880 Speaker 5: All leavers for that are leavers which are sort of say, 215 00:10:50,000 --> 00:10:51,199 Speaker 5: within our own hands. 216 00:10:51,480 --> 00:10:52,360 Speaker 1: It's about a. 217 00:10:52,280 --> 00:10:56,000 Speaker 5: Better capital management, it's about focus growth, it's further about 218 00:10:56,720 --> 00:11:00,559 Speaker 5: investing into technology to get further efficiencies out that is 219 00:11:00,600 --> 00:11:01,440 Speaker 5: in our hands. 220 00:11:01,600 --> 00:11:03,120 Speaker 1: And as long as if. 221 00:11:03,080 --> 00:11:06,440 Speaker 5: I have the chance to further increase my return on 222 00:11:06,480 --> 00:11:08,280 Speaker 5: equity with sort of. 223 00:11:08,200 --> 00:11:10,960 Speaker 1: Say homework, that is always the preferred option. 224 00:11:11,120 --> 00:11:13,280 Speaker 3: So not interested in any local banks that are nearby 225 00:11:13,360 --> 00:11:14,480 Speaker 3: that you might bring out here. 226 00:11:15,440 --> 00:11:18,000 Speaker 5: As I said again, if you can focus on yourself, 227 00:11:18,080 --> 00:11:20,840 Speaker 5: if you can improve your return on equity by applying 228 00:11:20,880 --> 00:11:23,000 Speaker 5: this homework, honestly, it's always the first option. 229 00:11:23,120 --> 00:11:25,480 Speaker 3: There's also a big question here about artificial intelligence and 230 00:11:25,480 --> 00:11:28,520 Speaker 3: how much it's going to alter the size of the staff, 231 00:11:28,760 --> 00:11:31,520 Speaker 3: the way of doing business going forward. Have you seen 232 00:11:31,559 --> 00:11:35,440 Speaker 3: any material changes or advantages from using and adopting artificial 233 00:11:35,520 --> 00:11:40,360 Speaker 3: intelligence of late that have really materially improved profitability. 234 00:11:39,760 --> 00:11:40,959 Speaker 1: Or decreased staff. 235 00:11:41,520 --> 00:11:43,959 Speaker 5: Well, we have many use cases and you can apply 236 00:11:44,040 --> 00:11:46,880 Speaker 5: that across the bank. And the interesting part is it 237 00:11:46,920 --> 00:11:52,120 Speaker 5: actually it actually applies to revenue SI, customer satisfaction, interaction 238 00:11:52,679 --> 00:11:56,560 Speaker 5: risk clients. It applies to efficiency and cost management, and 239 00:11:56,640 --> 00:11:59,320 Speaker 5: also it applies to something which is very important for banks, 240 00:11:59,520 --> 00:12:02,920 Speaker 5: control and regulatory compliance. And in each of these three 241 00:12:03,000 --> 00:12:05,800 Speaker 5: areas we have seen great use cases. If you think 242 00:12:05,800 --> 00:12:09,800 Speaker 5: about also our research department, they started actually applying AI. 243 00:12:10,200 --> 00:12:13,280 Speaker 5: If you think about the precision of research reports, with 244 00:12:13,400 --> 00:12:15,920 Speaker 5: the help of AI got far better. Of course, that 245 00:12:16,000 --> 00:12:18,880 Speaker 5: has an impact in terms of the speed and turnaround 246 00:12:18,880 --> 00:12:22,680 Speaker 5: of research reports. Same actually in other areas when you 247 00:12:22,720 --> 00:12:27,120 Speaker 5: think about operations, the way we can apply AI. Now, 248 00:12:27,200 --> 00:12:29,640 Speaker 5: the really important thing is now that we have a 249 00:12:29,800 --> 00:12:32,920 Speaker 5: structural approach to all these use cases and that we 250 00:12:32,960 --> 00:12:35,600 Speaker 5: have a clear priority where do we prioritize it at first? 251 00:12:35,800 --> 00:12:38,720 Speaker 5: Because you can imagine that everybody in this bank wants 252 00:12:38,760 --> 00:12:41,400 Speaker 5: to apply now, AI, we need to have a clear 253 00:12:41,440 --> 00:12:44,280 Speaker 5: priority of investments. But I think it will be a 254 00:12:44,320 --> 00:12:47,360 Speaker 5: game changer going forward and it will be one of 255 00:12:47,400 --> 00:12:50,520 Speaker 5: the key leavers how to increase profitability of banks. 256 00:12:52,280 --> 00:12:55,720 Speaker 2: Stay with us more Bloomberg Surveillance coming up after this, 257 00:13:04,600 --> 00:13:07,840 Speaker 2: Let's turn to private equity. The Consortium Bank Electronic Arts 258 00:13:07,840 --> 00:13:09,600 Speaker 2: is set to add more than a dozen banks to 259 00:13:09,640 --> 00:13:13,000 Speaker 2: its underwriting group after JP Morgan put up twenty billion 260 00:13:13,040 --> 00:13:15,640 Speaker 2: dollars of debt to bankroll the leverage buyout. The banks 261 00:13:15,640 --> 00:13:18,200 Speaker 2: are inline to share roughly five hundred million dollars in 262 00:13:18,240 --> 00:13:21,400 Speaker 2: fees for arranging the financinc joining us. Now, a man 263 00:13:21,440 --> 00:13:24,280 Speaker 2: who knows something about a leverage buyout, Steve Paluk of 264 00:13:24,360 --> 00:13:26,240 Speaker 2: Being Capital. Steve's good to see it, so it could 265 00:13:26,240 --> 00:13:29,080 Speaker 2: be a good morning. Let's reflect on your time. The 266 00:13:29,280 --> 00:13:33,120 Speaker 2: largest leverage buyo ever before this one was HCA back 267 00:13:33,160 --> 00:13:35,480 Speaker 2: in two thousand and sixty thousand and seven. There are 268 00:13:35,559 --> 00:13:37,319 Speaker 2: you were right there in the middle of it. Despite 269 00:13:37,360 --> 00:13:39,440 Speaker 2: that moment, and how it compares to what we're seeing 270 00:13:39,480 --> 00:13:40,240 Speaker 2: play out now. 271 00:13:40,120 --> 00:13:40,960 Speaker 4: Well, it's really interesting. 272 00:13:41,000 --> 00:13:44,040 Speaker 6: I think that buyout was five billion equity and twenty 273 00:13:44,080 --> 00:13:47,760 Speaker 6: seven billion dollars debt. This buyout is much more equity, 274 00:13:48,000 --> 00:13:50,360 Speaker 6: you know, kind of thirty billion of equity and twenty 275 00:13:50,360 --> 00:13:52,800 Speaker 6: five twenty billion, may thirty five billion of equity. So 276 00:13:53,960 --> 00:13:55,760 Speaker 6: the markets have changed to that extent that you can't 277 00:13:55,800 --> 00:13:57,959 Speaker 6: leverage you much. But the EBA does a little less 278 00:13:59,080 --> 00:14:02,520 Speaker 6: very quality sponsor, and JP Morgan is a very quality bank. 279 00:14:02,600 --> 00:14:05,760 Speaker 6: So they did the deal because of the great growth 280 00:14:05,960 --> 00:14:09,320 Speaker 6: in gaming and media and entertainment, and I think is 281 00:14:09,320 --> 00:14:10,240 Speaker 6: a very solid company. 282 00:14:10,360 --> 00:14:12,839 Speaker 2: You did the tremendously well out of HCA. It needs 283 00:14:12,840 --> 00:14:14,880 Speaker 2: to be very very clear about that. But the timing 284 00:14:14,920 --> 00:14:17,040 Speaker 2: of it is curious. It came right at the peak 285 00:14:17,040 --> 00:14:19,800 Speaker 2: of credit and this is now too. Is that anything 286 00:14:19,840 --> 00:14:20,640 Speaker 2: to be concerned about? 287 00:14:21,240 --> 00:14:23,720 Speaker 6: You know, I'm less concerned about credit right now in 288 00:14:23,800 --> 00:14:29,440 Speaker 6: terms of the private credit markets because the private letters actually. 289 00:14:29,080 --> 00:14:29,840 Speaker 4: Are very good. 290 00:14:29,960 --> 00:14:32,760 Speaker 6: The banks have been very good JP Morgan, especially Bank 291 00:14:32,800 --> 00:14:35,280 Speaker 6: of America, well run, well capitalized banks. 292 00:14:35,600 --> 00:14:37,440 Speaker 4: And private credit is different. 293 00:14:37,280 --> 00:14:39,840 Speaker 6: Than credit from banks because if it does go bad, 294 00:14:40,480 --> 00:14:42,520 Speaker 6: you only write off the equity from people that put 295 00:14:42,520 --> 00:14:45,440 Speaker 6: the equity in. It doesn't have a systemic multiplier effect. 296 00:14:45,760 --> 00:14:48,080 Speaker 6: So I'm less concerned about private credit. What one more 297 00:14:48,120 --> 00:14:51,320 Speaker 6: concerned about is the size of the national debt and 298 00:14:51,320 --> 00:14:54,400 Speaker 6: how much interest we're spending on the national debt. It's 299 00:14:54,440 --> 00:14:56,400 Speaker 6: really interesting if you go back to when I got 300 00:14:56,400 --> 00:14:59,280 Speaker 6: out of business school, there was a huge sturm and 301 00:14:59,360 --> 00:15:02,600 Speaker 6: drawing about the national debt passing one trillion. That's in 302 00:15:02,680 --> 00:15:05,720 Speaker 6: nineteen eighty two, So it took two hundred and fifty 303 00:15:05,800 --> 00:15:09,000 Speaker 6: years to have one trillion of national debt. In the 304 00:15:09,080 --> 00:15:13,600 Speaker 6: last forty years, we now have thirty seven trillion. 305 00:15:13,600 --> 00:15:15,440 Speaker 4: Which is more than the GDPGB. 306 00:15:15,480 --> 00:15:18,560 Speaker 6: It's about thirty trillion, So that concerns me more in 307 00:15:18,640 --> 00:15:21,240 Speaker 6: terms of the impact of the dollar interest rates. Our 308 00:15:21,560 --> 00:15:24,000 Speaker 6: interest from the government now is one of the highest expenditures. 309 00:15:24,000 --> 00:15:27,280 Speaker 6: It's right up there with defense and healthcare. So that 310 00:15:27,320 --> 00:15:29,040 Speaker 6: concerns me more than private credit. 311 00:15:29,200 --> 00:15:30,840 Speaker 2: I Steve, I could probably find you people who a 312 00:15:30,880 --> 00:15:33,000 Speaker 2: consent back in the eighties two, and then in the 313 00:15:33,040 --> 00:15:35,760 Speaker 2: two thousands, and as we went through ten trillion, twenty 314 00:15:35,760 --> 00:15:37,840 Speaker 2: trillion and kept going high, they were concerned all the 315 00:15:37,840 --> 00:15:39,680 Speaker 2: way up. Unfortunately, I say this moment. 316 00:15:39,480 --> 00:15:42,520 Speaker 6: Different, Well, I think I don't know if it is different, 317 00:15:42,920 --> 00:15:46,560 Speaker 6: But in situations like this, it's always okay till it 318 00:15:46,600 --> 00:15:50,840 Speaker 6: isn't okay. So you get used to you pass a trillion. Ever, 319 00:15:50,960 --> 00:15:53,000 Speaker 6: Dirkson had a board up that was counting it up 320 00:15:53,080 --> 00:15:55,000 Speaker 6: at that time, and it passed a trillion, there was 321 00:15:55,360 --> 00:15:58,800 Speaker 6: a huge outcry. Now it's ten trillion, then twenty trillion, 322 00:15:59,000 --> 00:16:01,800 Speaker 6: then thirty trillion. But at some point you've got to 323 00:16:01,840 --> 00:16:04,040 Speaker 6: have some long term plan to pay that money back 324 00:16:04,080 --> 00:16:06,280 Speaker 6: and get that deficit down because it's eating up huge 325 00:16:06,320 --> 00:16:07,400 Speaker 6: amounts of the government budget. 326 00:16:07,680 --> 00:16:10,000 Speaker 4: And as as as the interest rates roll. 327 00:16:09,960 --> 00:16:11,480 Speaker 6: Over, you know, a lot of that is still financing 328 00:16:11,520 --> 00:16:13,520 Speaker 6: the old really low interest rates. They're going to have 329 00:16:13,560 --> 00:16:15,400 Speaker 6: to refinance it at five percent, you know, you know, 330 00:16:15,520 --> 00:16:18,440 Speaker 6: four and a half percent, and then the number goes 331 00:16:18,520 --> 00:16:18,920 Speaker 6: up again. 332 00:16:19,320 --> 00:16:21,040 Speaker 7: Well, when you see what's going on Washington, I want 333 00:16:21,040 --> 00:16:23,120 Speaker 7: to go back to your EA deal. It's not just 334 00:16:23,160 --> 00:16:25,200 Speaker 7: the size and scope that got a ton of people's attention. 335 00:16:25,680 --> 00:16:28,560 Speaker 7: There's concern in Washington given some of the players involved. 336 00:16:28,800 --> 00:16:30,480 Speaker 7: Have you heard from politicians about that. 337 00:16:30,960 --> 00:16:32,920 Speaker 6: I don't think there's been a lot of pushback on 338 00:16:33,280 --> 00:16:35,400 Speaker 6: that and the deal. I think we'll be controlled by 339 00:16:35,400 --> 00:16:38,160 Speaker 6: silver Lake, which is an American, you know, fantastic private 340 00:16:38,160 --> 00:16:39,280 Speaker 6: equity company, but. 341 00:16:39,400 --> 00:16:41,800 Speaker 7: With the Saudi PIF being involved, some people think Jared 342 00:16:41,840 --> 00:16:44,080 Speaker 7: Kushner was brought in just to get the check government 343 00:16:44,080 --> 00:16:44,960 Speaker 7: seal of approval. 344 00:16:45,600 --> 00:16:47,760 Speaker 6: You know, again, I think silver Lake's a fantastic firm 345 00:16:47,800 --> 00:16:49,680 Speaker 6: and they're leading the charge there and so I think 346 00:16:49,720 --> 00:16:51,600 Speaker 6: there's really going to be no concern because they'll be 347 00:16:51,680 --> 00:16:52,720 Speaker 6: calling the shots on the deal. 348 00:16:52,720 --> 00:16:54,800 Speaker 2: And say, if we started this conversation by comparing this 349 00:16:54,920 --> 00:16:58,480 Speaker 2: dale ci in I was six. I seven. Have the 350 00:16:58,520 --> 00:17:01,080 Speaker 2: pose off capits have changed in the last twenty years. 351 00:17:01,280 --> 00:17:02,240 Speaker 4: Yeah? Absolutely. 352 00:17:03,120 --> 00:17:05,040 Speaker 6: You know, when I started out in the industry, there 353 00:17:05,040 --> 00:17:06,960 Speaker 6: was only three or four firms doing this I think 354 00:17:07,280 --> 00:17:10,760 Speaker 6: in general, and it was mostly USA. Now it's global. 355 00:17:11,920 --> 00:17:16,400 Speaker 6: The fund sizes are up probably twenty times from when 356 00:17:16,400 --> 00:17:20,520 Speaker 6: I started. And also you have sovereigns and bid againstucial 357 00:17:20,560 --> 00:17:24,560 Speaker 6: players partnering with private equity, so the dry powder is huge. 358 00:17:24,720 --> 00:17:26,480 Speaker 2: Are there are enough opportunities to go around? 359 00:17:27,680 --> 00:17:27,840 Speaker 4: You know? 360 00:17:28,240 --> 00:17:30,320 Speaker 6: You know I got asked that question in nineteen eighty 361 00:17:30,400 --> 00:17:38,439 Speaker 6: nine again, and I feel like a broken record. Private equity, 362 00:17:38,480 --> 00:17:41,640 Speaker 6: I think is here to stay. The model has really evolved, 363 00:17:41,680 --> 00:17:44,760 Speaker 6: so it really is huge value added to to kind 364 00:17:44,800 --> 00:17:50,240 Speaker 6: of transform companies, make them better, globalize them, build new products, 365 00:17:50,520 --> 00:17:52,120 Speaker 6: and in an environment where you don't have to worry 366 00:17:52,119 --> 00:17:54,520 Speaker 6: about quart of learning. So the model is a very 367 00:17:54,520 --> 00:17:57,080 Speaker 6: good model, and it's only expanded, it's only gotten bigger, 368 00:17:57,560 --> 00:17:59,600 Speaker 6: and I think it'll meet There will be plenty of 369 00:17:59,600 --> 00:18:01,480 Speaker 6: opportunit these for these folks to invest money. 370 00:18:01,480 --> 00:18:03,760 Speaker 2: Well, let's talk about the opportunities now for you and 371 00:18:03,800 --> 00:18:06,760 Speaker 2: how your sport franchise is are going. Starting with Atlanta. 372 00:18:06,800 --> 00:18:09,040 Speaker 2: Steve walked into the room with some Atlanta sneakers with 373 00:18:09,520 --> 00:18:12,399 Speaker 2: the sponsor New Balance. On the relationship between you and 374 00:18:12,440 --> 00:18:14,719 Speaker 2: New balants, can you just debscribe what that's like at 375 00:18:14,720 --> 00:18:15,080 Speaker 2: the moment? 376 00:18:15,560 --> 00:18:16,159 Speaker 4: Fantastic. 377 00:18:16,640 --> 00:18:19,439 Speaker 6: A New Balance is a is kind of a fighting 378 00:18:19,480 --> 00:18:22,800 Speaker 6: brand growing taking a lot of share. They really like 379 00:18:22,840 --> 00:18:24,919 Speaker 6: the Atalanta story because we have the same values. You know, 380 00:18:25,080 --> 00:18:27,879 Speaker 6: we're kind of a fighting brand against your the wanted 381 00:18:27,880 --> 00:18:32,360 Speaker 6: AC one team that you support, and so it's kind 382 00:18:32,359 --> 00:18:34,719 Speaker 6: of a matchmate and having the New Balance is very 383 00:18:34,720 --> 00:18:37,040 Speaker 6: excited about it. We're excited about it. We've just named 384 00:18:37,040 --> 00:18:39,080 Speaker 6: our stadium New Balance Arena. I think it's the first 385 00:18:39,080 --> 00:18:41,800 Speaker 6: arena that New Balance is named. And we're very proud 386 00:18:41,800 --> 00:18:43,719 Speaker 6: to be associated with New Balance as a family company. 387 00:18:43,960 --> 00:18:45,560 Speaker 6: You know, the Package Group is a family company in 388 00:18:45,560 --> 00:18:47,480 Speaker 6: the precossis in Italy, your family companies, so the three 389 00:18:47,480 --> 00:18:51,880 Speaker 6: families have come together and hopefully take to the next level. 390 00:18:51,920 --> 00:18:53,840 Speaker 2: You've done a tremendous job with the same in a franchise. 391 00:18:53,880 --> 00:18:56,639 Speaker 2: Can you just describe the opportunities now that exist in 392 00:18:56,680 --> 00:18:58,479 Speaker 2: the sports world at a time when some people are 393 00:18:58,480 --> 00:19:00,200 Speaker 2: pushing back against funny wish. 394 00:19:01,280 --> 00:19:04,560 Speaker 6: Well, no question valuations or record levels. Why is that 395 00:19:04,680 --> 00:19:08,760 Speaker 6: is because sports is now the only thing left that 396 00:19:08,840 --> 00:19:10,720 Speaker 6: aggregates huge audiences globally. 397 00:19:11,359 --> 00:19:13,440 Speaker 4: And there's been a technology change where. 398 00:19:13,640 --> 00:19:17,080 Speaker 6: When I lived in Holland and in the nineteen seventies, 399 00:19:17,840 --> 00:19:20,359 Speaker 6: you would only get sports scores three days later from 400 00:19:20,400 --> 00:19:22,879 Speaker 6: an international tribune and you could watch anything. Now you 401 00:19:22,880 --> 00:19:26,399 Speaker 6: can watch any team globally. So fans are counted in 402 00:19:26,440 --> 00:19:28,560 Speaker 6: the billions instead of the tens of thousands where they 403 00:19:28,600 --> 00:19:31,520 Speaker 6: used to be thirty years ago. So I think sports 404 00:19:31,520 --> 00:19:34,400 Speaker 6: still has upside because advertisers, you don't want to reach 405 00:19:34,440 --> 00:19:35,760 Speaker 6: the globe and that's the way to do it. 406 00:19:35,840 --> 00:19:38,359 Speaker 2: As you look at the sports world and it's pretty broad. 407 00:19:39,000 --> 00:19:41,520 Speaker 2: Where do you see the best opportunity right now? Because 408 00:19:41,560 --> 00:19:43,480 Speaker 2: your name's been linked to a team in the WNBA, 409 00:19:43,600 --> 00:19:45,360 Speaker 2: I know you wanted to bring a team up to Boston. 410 00:19:45,800 --> 00:19:48,720 Speaker 2: Is that where you're looking stale or is it outsewere Well, we're. 411 00:19:48,520 --> 00:19:52,080 Speaker 6: Looking at many opportunities. I think the WNBA is a 412 00:19:52,080 --> 00:19:55,320 Speaker 6: great opportunity. Women's sports and general women's soccer in the 413 00:19:55,400 --> 00:19:57,320 Speaker 6: USA and globally is growing. 414 00:19:58,240 --> 00:19:59,960 Speaker 4: The NFL is the market proper. 415 00:20:00,240 --> 00:20:02,960 Speaker 6: I think they've had record ratings and record advertising on 416 00:20:03,000 --> 00:20:05,600 Speaker 6: the NFL. So again, I think sports as a category 417 00:20:06,640 --> 00:20:09,520 Speaker 6: is really a growth asset, and as you have this 418 00:20:09,640 --> 00:20:13,760 Speaker 6: battle between old media and new media, it's ex extential 419 00:20:13,760 --> 00:20:16,280 Speaker 6: for them and they're battling over these properties that get 420 00:20:16,320 --> 00:20:17,040 Speaker 6: all the eyeballs in. 421 00:20:17,080 --> 00:20:18,800 Speaker 4: So I think that bodes well for all the leagues. 422 00:20:19,000 --> 00:20:22,280 Speaker 7: John mentioned the WA Connecticut team. Do you think that 423 00:20:22,320 --> 00:20:25,200 Speaker 7: there potentially could be a future for you and that team. 424 00:20:26,200 --> 00:20:26,880 Speaker 4: That's something clear. 425 00:20:26,920 --> 00:20:30,159 Speaker 6: We've kind of stood down for now and we're going 426 00:20:30,160 --> 00:20:32,080 Speaker 6: to abide by whatever the NBA wants to do with 427 00:20:32,080 --> 00:20:36,119 Speaker 6: the team. I think it's very exciting. The ratings are 428 00:20:36,200 --> 00:20:38,840 Speaker 6: huge for WNBA, and I think it's great that all 429 00:20:39,400 --> 00:20:41,840 Speaker 6: Americans are following that sport now and it's going to 430 00:20:41,920 --> 00:20:43,359 Speaker 6: it's going to really take off, and the NBA has 431 00:20:43,359 --> 00:20:44,160 Speaker 6: done a great job. 432 00:20:43,960 --> 00:20:45,800 Speaker 2: With that You've done a great job, Stafe. It's always 433 00:20:45,840 --> 00:20:46,600 Speaker 2: going to catch up with you. 434 00:20:46,680 --> 00:20:47,200 Speaker 1: What a career. 435 00:20:47,359 --> 00:20:49,560 Speaker 2: It's those you have in the best of times now. 436 00:20:50,280 --> 00:20:52,720 Speaker 6: You know, I've been very fortunate, you know, coming my 437 00:20:52,760 --> 00:20:56,000 Speaker 6: grandfather came from Italy on a boat with one suitcase 438 00:20:56,440 --> 00:20:58,240 Speaker 6: and worked in a shoe factory here in New York 439 00:20:58,240 --> 00:21:00,680 Speaker 6: and the Bronx for eight dollars a week. So I 440 00:21:00,680 --> 00:21:03,600 Speaker 6: would say America is a great place coming from that. 441 00:21:03,720 --> 00:21:07,600 Speaker 6: And I've loved the homecoming, coming back to Italy with Atalanta. 442 00:21:08,080 --> 00:21:10,280 Speaker 6: I get off the plane and I love it because 443 00:21:10,280 --> 00:21:11,080 Speaker 6: everyone looks like me. 444 00:21:11,119 --> 00:21:11,439 Speaker 1: There. 445 00:21:12,600 --> 00:21:16,120 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. 446 00:21:25,080 --> 00:21:28,640 Speaker 2: The ten year below four percent at three ninety nine, 447 00:21:28,680 --> 00:21:31,560 Speaker 2: Steve schuttev Missua right in the following. This is the 448 00:21:31,680 --> 00:21:33,800 Speaker 2: minimum level of rates you would expect if the Fed 449 00:21:33,880 --> 00:21:37,080 Speaker 2: were credible in its inflation target. At four percent, the 450 00:21:37,119 --> 00:21:39,480 Speaker 2: yield on the tenure is fully priced for an economy 451 00:21:39,520 --> 00:21:42,880 Speaker 2: with little to no inflation risk. Steve joined us now 452 00:21:42,880 --> 00:21:44,960 Speaker 2: for more. Steve, goodmnic good morning. Do you think we 453 00:21:44,960 --> 00:21:47,000 Speaker 2: should be priced for an economy with little to no 454 00:21:47,480 --> 00:21:48,320 Speaker 2: inflation risk? 455 00:21:48,480 --> 00:21:49,000 Speaker 4: No, I don't. 456 00:21:49,600 --> 00:21:52,119 Speaker 8: I think there is more inflation risk in the system 457 00:21:52,480 --> 00:21:55,280 Speaker 8: than the markets are currently pricing in. But I think 458 00:21:55,280 --> 00:21:57,720 Speaker 8: the markets are pricing in the degree of excess liquidity 459 00:21:57,760 --> 00:21:59,960 Speaker 8: that's still there. Even though we're seeing some you know, 460 00:22:00,119 --> 00:22:03,560 Speaker 8: chinks in the armor in terms of the quantitative approach 461 00:22:03,600 --> 00:22:05,240 Speaker 8: here and what's happening in terms of some of the 462 00:22:05,280 --> 00:22:08,320 Speaker 8: reverse repo areas, there's still an enormous amount of liquidity. 463 00:22:08,359 --> 00:22:10,200 Speaker 4: And you see the way it trade. 464 00:22:10,200 --> 00:22:12,879 Speaker 8: The market traded this week, especially you know, earlier in 465 00:22:12,920 --> 00:22:14,880 Speaker 8: the week and the credit story when we're worried about 466 00:22:14,920 --> 00:22:18,280 Speaker 8: banks initially, and then we saw the Goldman issue come 467 00:22:18,280 --> 00:22:22,160 Speaker 8: out and the market was substantially over subscribed for that issue. 468 00:22:22,240 --> 00:22:25,400 Speaker 8: While we're worried about banks, and so I think there's 469 00:22:25,440 --> 00:22:27,520 Speaker 8: still an enormous amount of liquidity, and I think that's 470 00:22:27,520 --> 00:22:29,800 Speaker 8: holding down the long end of the curve. Plus there's 471 00:22:29,840 --> 00:22:32,280 Speaker 8: the global deflation story that's holding down the long end 472 00:22:32,280 --> 00:22:33,000 Speaker 8: of the curve as well. 473 00:22:33,040 --> 00:22:35,520 Speaker 7: When you see inflation risk, do you mean tariffs or 474 00:22:35,520 --> 00:22:37,080 Speaker 7: are you seeing inflation in other parts? 475 00:22:37,440 --> 00:22:38,919 Speaker 8: Well, I mean we've got to fed a reserve that 476 00:22:39,000 --> 00:22:41,840 Speaker 8: wants to maintain full employment, and we have an economy 477 00:22:41,880 --> 00:22:45,720 Speaker 8: where we are seeing inflation without much tariff running at 478 00:22:45,760 --> 00:22:48,919 Speaker 8: well above its target, running closer to three percent, So 479 00:22:49,119 --> 00:22:51,159 Speaker 8: you would sit there and say, okay, then there is 480 00:22:51,359 --> 00:22:53,840 Speaker 8: inflation risk in there that's not being priced in. Now 481 00:22:53,880 --> 00:22:56,639 Speaker 8: you could say the tenure is expecting on average the 482 00:22:56,640 --> 00:22:59,080 Speaker 8: FED to be credible over a ten year period of time. 483 00:22:59,280 --> 00:22:59,520 Speaker 4: True. 484 00:22:59,560 --> 00:23:03,200 Speaker 8: However, we have been above two percent for four plus years, 485 00:23:04,040 --> 00:23:06,600 Speaker 8: so there starts to be a window there where this is. 486 00:23:06,520 --> 00:23:07,960 Speaker 4: A fully priced market. 487 00:23:08,160 --> 00:23:10,000 Speaker 8: And I think that's part of the reason why we 488 00:23:10,040 --> 00:23:13,240 Speaker 8: had this rally yesterday afternoon and then we've pulled back 489 00:23:13,359 --> 00:23:16,320 Speaker 8: towards that four percent level, because it is a critical 490 00:23:16,400 --> 00:23:20,200 Speaker 8: psychological level, and it's also a critical mathematical level because 491 00:23:20,200 --> 00:23:21,440 Speaker 8: it's a two percent inflation rate. 492 00:23:21,480 --> 00:23:23,479 Speaker 2: Why is it critical psychological. 493 00:23:23,000 --> 00:23:26,960 Speaker 8: Level Because it's an environment in which, when you look 494 00:23:27,000 --> 00:23:29,399 Speaker 8: at most people who've been in the marketplace, if you 495 00:23:29,480 --> 00:23:32,800 Speaker 8: break through four percent, you're usually looking at a substantial 496 00:23:32,800 --> 00:23:36,440 Speaker 8: move below that because something has gone wrong in the system. 497 00:23:37,359 --> 00:23:40,040 Speaker 8: And that's why you had so much of a response 498 00:23:40,119 --> 00:23:44,920 Speaker 8: to yesterday's announcements by Zion and so forth in terms 499 00:23:44,960 --> 00:23:47,840 Speaker 8: of the way the market's knee jerk response took place 500 00:23:47,880 --> 00:23:49,800 Speaker 8: on that. And now we're starting to see the pullback 501 00:23:50,080 --> 00:23:52,919 Speaker 8: as we begin to realize it's more idiosyncratic than it 502 00:23:52,960 --> 00:23:54,239 Speaker 8: is systemic. 503 00:23:54,040 --> 00:23:56,240 Speaker 2: And we've bounced back big time. The broader recory market 504 00:23:56,280 --> 00:23:58,320 Speaker 2: has too. We'll be tracking that. I want to stay 505 00:23:58,320 --> 00:24:00,960 Speaker 2: on course for the federal reservance downtrack with you. This 506 00:24:01,160 --> 00:24:03,480 Speaker 2: FED and the recent decisions, and the next one too 507 00:24:03,600 --> 00:24:06,480 Speaker 2: is anchored to a massive step down at payrolls. What 508 00:24:06,600 --> 00:24:09,000 Speaker 2: do you think they should be anchoring these decisions too. 509 00:24:09,720 --> 00:24:12,800 Speaker 8: I think they should be setting it up as an 510 00:24:12,800 --> 00:24:16,439 Speaker 8: insurance policy standpoint, and I think they should be setting 511 00:24:16,480 --> 00:24:19,280 Speaker 8: it up in an environment in which they want to 512 00:24:19,320 --> 00:24:23,320 Speaker 8: make sure that they are achieving still full employment. That's 513 00:24:23,359 --> 00:24:26,160 Speaker 8: what they say their target is. And I think if 514 00:24:26,160 --> 00:24:30,000 Speaker 8: you wind up getting an unemployment rate movement that goes 515 00:24:30,320 --> 00:24:33,560 Speaker 8: against their need to cut interest rates, that I think 516 00:24:33,600 --> 00:24:34,320 Speaker 8: they should pause. 517 00:24:34,680 --> 00:24:37,200 Speaker 2: So this is a risk management decision, correct, That's kind 518 00:24:37,200 --> 00:24:39,000 Speaker 2: of what they're doing, isn't it. How much daylight is 519 00:24:39,000 --> 00:24:41,399 Speaker 2: there between you and what they're doing right now? 520 00:24:42,119 --> 00:24:43,000 Speaker 4: There's not a lot. 521 00:24:43,080 --> 00:24:46,920 Speaker 8: I mean, after the payroll employment numbers came out in August, 522 00:24:46,960 --> 00:24:49,320 Speaker 8: we were I was on this call and we talked 523 00:24:49,320 --> 00:24:50,879 Speaker 8: about the fact that they might as well just do 524 00:24:51,040 --> 00:24:54,440 Speaker 8: three September, October and December, and it looks as if 525 00:24:54,440 --> 00:24:55,879 Speaker 8: that's what we're going to get out of it, and 526 00:24:55,880 --> 00:24:56,600 Speaker 8: that will. 527 00:24:56,359 --> 00:24:58,360 Speaker 2: Pull us back into from my. 528 00:24:58,520 --> 00:25:03,399 Speaker 8: Calculations, a margin least stimulative monetary policy standpoint for the market. 529 00:25:03,400 --> 00:25:05,920 Speaker 8: They still have to get to three percent to be neutral. 530 00:25:06,240 --> 00:25:09,880 Speaker 8: For me, four percent is neutral. So if we get 531 00:25:09,920 --> 00:25:12,000 Speaker 8: to that level of three and three quarters or so 532 00:25:12,720 --> 00:25:15,200 Speaker 8: on the tenure note, then we're into a stimulative territory. 533 00:25:15,240 --> 00:25:17,480 Speaker 7: If they're biases to the labor market, yes, what do 534 00:25:17,520 --> 00:25:19,000 Speaker 7: they do with how the labor market report? 535 00:25:20,440 --> 00:25:22,960 Speaker 8: Well, I mean, as the chairman indicated the other day, 536 00:25:23,000 --> 00:25:25,399 Speaker 8: they have the ADP numbers, They could look at some 537 00:25:25,440 --> 00:25:27,879 Speaker 8: of the weekly claims numbers, they can look at some 538 00:25:27,960 --> 00:25:30,160 Speaker 8: of the continuing claims numbers. They can do some work 539 00:25:30,440 --> 00:25:33,760 Speaker 8: and adding those things up and making those kind of assessments. 540 00:25:34,480 --> 00:25:36,600 Speaker 8: And I think you basically have to take onto consideration 541 00:25:36,680 --> 00:25:38,639 Speaker 8: that there's a lot of uncertainty. 542 00:25:38,600 --> 00:25:39,720 Speaker 4: Built into this situation. 543 00:25:39,840 --> 00:25:40,520 Speaker 1: If you look at the. 544 00:25:40,440 --> 00:25:41,159 Speaker 4: Wall of worry. 545 00:25:41,200 --> 00:25:44,520 Speaker 8: I mean, we've got a government shutdown, we've got the 546 00:25:45,119 --> 00:25:49,680 Speaker 8: tariff situation, we've got the Chinese trade war negotiations. 547 00:25:49,720 --> 00:25:51,439 Speaker 4: In terms of our CALP call of that or not. 548 00:25:52,080 --> 00:25:55,919 Speaker 8: We've got the Middle East hostilities, We've got the Ukrainian hostilities, 549 00:25:55,920 --> 00:25:58,520 Speaker 8: We've got a government shutdown that doesn't look as if 550 00:25:58,520 --> 00:26:02,320 Speaker 8: it's going away. We have the upcoming question as to 551 00:26:02,359 --> 00:26:04,800 Speaker 8: whether or not of the TERRORIFFTSHO are legal or nothing. 552 00:26:04,800 --> 00:26:07,520 Speaker 7: So why why not go on pause then for October 553 00:26:07,600 --> 00:26:09,160 Speaker 7: and recalibrate for the end of the year. 554 00:26:09,560 --> 00:26:11,680 Speaker 8: I think you want to make sure if there is 555 00:26:11,720 --> 00:26:14,159 Speaker 8: something wrong, you get it in in October so that 556 00:26:14,240 --> 00:26:16,360 Speaker 8: you make sure there's a good fourth quarter of the year. 557 00:26:17,080 --> 00:26:19,280 Speaker 2: Steve, I've got no idea what happens in man beyond 558 00:26:19,560 --> 00:26:21,280 Speaker 2: because we don't know what the leadership of the Federal 559 00:26:21,240 --> 00:26:23,639 Speaker 2: Reserve looks like. But do you think markets might be 560 00:26:23,720 --> 00:26:26,880 Speaker 2: underappreciating the potential for a pause from the new year 561 00:26:26,960 --> 00:26:27,400 Speaker 2: up to May? 562 00:26:28,160 --> 00:26:28,320 Speaker 5: Oh? 563 00:26:28,359 --> 00:26:32,040 Speaker 8: I think the market definitely is underestimating the potential not 564 00:26:32,119 --> 00:26:33,119 Speaker 8: to get to three percent. 565 00:26:33,240 --> 00:26:38,120 Speaker 2: Yes, stay with us. More Bloomberg surveillance coming up after this. 566 00:26:47,000 --> 00:26:49,040 Speaker 2: Let's stick with the data. CPI could be the only 567 00:26:49,080 --> 00:26:51,760 Speaker 2: government print the Fed gets ahead of the rate decision 568 00:26:51,800 --> 00:26:54,159 Speaker 2: later on this month. Mark Hayfley of UPS, writing with 569 00:26:54,200 --> 00:26:56,439 Speaker 2: the Fed on track to continue its rate cutting cycle, 570 00:26:56,760 --> 00:26:59,439 Speaker 2: we believe the case for quality fixed income as a 571 00:26:59,440 --> 00:27:03,360 Speaker 2: source of fullier resilience remained strong. Mark John, Just now 572 00:27:03,359 --> 00:27:05,600 Speaker 2: for more, Mike, welcome back, sir. Let's just talk about 573 00:27:05,600 --> 00:27:08,840 Speaker 2: that income. Over the last week or so, they yield 574 00:27:08,920 --> 00:27:10,800 Speaker 2: is just slipping away from us. Mark, what do you 575 00:27:10,840 --> 00:27:12,120 Speaker 2: think is driving that story? 576 00:27:13,480 --> 00:27:17,640 Speaker 9: Well, I mean it's a lot of factors. I think First, 577 00:27:17,760 --> 00:27:21,720 Speaker 9: we do have some you know, some concerns out there 578 00:27:21,800 --> 00:27:24,760 Speaker 9: about the labor market and other things. But you know, 579 00:27:24,800 --> 00:27:27,000 Speaker 9: we've got a FED that's going to cut. And then 580 00:27:27,040 --> 00:27:31,440 Speaker 9: I do think this QT story is also important to 581 00:27:31,520 --> 00:27:34,560 Speaker 9: this because you know, that was a huge factor perhaps 582 00:27:34,680 --> 00:27:39,119 Speaker 9: in creating some of those term premiums. So that side 583 00:27:39,119 --> 00:27:41,159 Speaker 9: of it seems to be be coming together. 584 00:27:41,760 --> 00:27:43,520 Speaker 2: S and P five hundred target for you and a 585 00:27:43,560 --> 00:27:47,120 Speaker 2: team midyear next year seventy three hundred, Mark, What needs 586 00:27:47,160 --> 00:27:48,720 Speaker 2: to go right to get us from where we are 587 00:27:48,960 --> 00:27:49,640 Speaker 2: to get us there? 588 00:27:51,200 --> 00:27:54,280 Speaker 9: Yeah? Well, first, anybody who's in the equity market does 589 00:27:54,359 --> 00:27:57,399 Speaker 9: have a call on AI, whether they like it or not. 590 00:27:57,760 --> 00:28:02,200 Speaker 9: And we think that the cap can continue into next year. 591 00:28:02,560 --> 00:28:06,359 Speaker 9: That's one thing. Second, again, don't fight the FED. Third, 592 00:28:06,440 --> 00:28:10,440 Speaker 9: the earnings are looking good. And fourth, the one big 593 00:28:10,480 --> 00:28:13,720 Speaker 9: beautiful bill is going to start to add some stimulus 594 00:28:13,760 --> 00:28:17,080 Speaker 9: as we get into next year. So that's that looks 595 00:28:17,119 --> 00:28:18,399 Speaker 9: like a positive backdrop to. 596 00:28:18,480 --> 00:28:22,080 Speaker 7: Us, even you're constructive on AI. Do you have any 597 00:28:22,119 --> 00:28:26,040 Speaker 7: sort of concerns about the vendor financing that's happening within 598 00:28:26,080 --> 00:28:26,600 Speaker 7: this space? 599 00:28:28,400 --> 00:28:31,480 Speaker 9: Well, you know, twenty six years ago I sat down 600 00:28:31,800 --> 00:28:35,760 Speaker 9: and was writing to clients about the dot com bubble, 601 00:28:36,280 --> 00:28:40,320 Speaker 9: and so writing this month was you know, brought back 602 00:28:40,400 --> 00:28:44,640 Speaker 9: some memory. So yes, you know, I think that I remember, 603 00:28:45,280 --> 00:28:47,400 Speaker 9: you know, some of the circular financing of the dot 604 00:28:47,440 --> 00:28:51,960 Speaker 9: com very well. And you know, I think that it's 605 00:28:52,000 --> 00:28:58,040 Speaker 9: still early stages. Obviously, you know, it's getting somebody's concerned 606 00:28:58,160 --> 00:29:02,080 Speaker 9: enough that it's getting disclosed, and it's definitely something to watch. 607 00:29:02,960 --> 00:29:04,800 Speaker 9: We just have to see where it goes from here. 608 00:29:05,560 --> 00:29:07,680 Speaker 7: Mark, when it comes to what we had this morning, 609 00:29:07,680 --> 00:29:11,720 Speaker 7: which was the bank sector under pressure given the concerns 610 00:29:11,720 --> 00:29:15,560 Speaker 7: of these bankruptcies and credit qualities, do you think that 611 00:29:15,640 --> 00:29:18,840 Speaker 7: this could potentially be a longer term problem within this 612 00:29:18,960 --> 00:29:22,000 Speaker 7: space and that can affect and have contagion across the 613 00:29:22,000 --> 00:29:23,200 Speaker 7: border market. 614 00:29:25,440 --> 00:29:26,160 Speaker 1: On the banks. 615 00:29:26,320 --> 00:29:28,600 Speaker 9: On the banks, we're you know, we're looking at the 616 00:29:28,640 --> 00:29:33,280 Speaker 9: delinquency rates. They look like they're okay so far, and 617 00:29:33,400 --> 00:29:36,680 Speaker 9: so we're still thinking this is kind of a one 618 00:29:36,760 --> 00:29:40,160 Speaker 9: off and the you know, the globally significant banks, the 619 00:29:40,240 --> 00:29:42,200 Speaker 9: large banks are doing very well. 620 00:29:42,360 --> 00:29:44,960 Speaker 2: It's Altmark that we finished the week talking about these 621 00:29:45,000 --> 00:29:46,960 Speaker 2: issues and I get them, they're import them. We should 622 00:29:47,000 --> 00:29:49,200 Speaker 2: track them on a week when we've just had blowout 623 00:29:49,280 --> 00:29:51,480 Speaker 2: numbers from the big banks on Wall Street. Mark, do 624 00:29:51,520 --> 00:29:53,040 Speaker 2: you see this market as a bit of a market 625 00:29:53,080 --> 00:29:54,240 Speaker 2: of contradictions at the moment? 626 00:29:55,880 --> 00:29:57,640 Speaker 9: Well, you know, I love talking to you on a 627 00:29:57,680 --> 00:30:00,320 Speaker 9: Friday because you're looking back on the week with this 628 00:30:00,440 --> 00:30:03,640 Speaker 9: sense of wonder, almost awe that like all the stuff 629 00:30:03,680 --> 00:30:06,920 Speaker 9: that has happened, And so I agree with you. I mean, 630 00:30:07,240 --> 00:30:09,920 Speaker 9: we've had a heck of a run in the market. 631 00:30:10,360 --> 00:30:13,240 Speaker 9: We don't have a lot of data right now, you know, 632 00:30:13,360 --> 00:30:18,360 Speaker 9: economic data, and so every data point is important. But 633 00:30:18,440 --> 00:30:20,560 Speaker 9: I think as some of the you know, as you highlighted, 634 00:30:21,240 --> 00:30:23,680 Speaker 9: you have to look at everything that's going on from 635 00:30:23,720 --> 00:30:26,320 Speaker 9: what the President is saying to you know, what the 636 00:30:26,360 --> 00:30:30,480 Speaker 9: Fed is saying, to what foreign leaders are saying to 637 00:30:30,720 --> 00:30:33,480 Speaker 9: you know, what you're hearing from companies and put it 638 00:30:33,520 --> 00:30:36,320 Speaker 9: all together in the right matrix. 639 00:30:36,480 --> 00:30:38,680 Speaker 2: The good news is Mark that in bad times bonds 640 00:30:38,720 --> 00:30:40,920 Speaker 2: are working. And I guess the good news for gold 641 00:30:41,000 --> 00:30:43,360 Speaker 2: is that gold works when the market's down and gold 642 00:30:43,360 --> 00:30:46,040 Speaker 2: works when the market's up. This is just a relentless 643 00:30:46,120 --> 00:30:49,240 Speaker 2: rally market. We're on a ninth straight week of gains, 644 00:30:49,640 --> 00:30:52,400 Speaker 2: a run we haven't seen since twenty twenty. This week alone, 645 00:30:52,400 --> 00:30:54,600 Speaker 2: we're up by close to eight percent. I think seven 646 00:30:54,600 --> 00:30:56,880 Speaker 2: point five percent is the number of my Bloomberg terminal 647 00:30:57,320 --> 00:31:00,000 Speaker 2: Right now, Mark, can we just finish that the relationship 648 00:31:00,040 --> 00:31:02,240 Speaker 2: ship between gold and risk. We were touching on this 649 00:31:02,320 --> 00:31:05,000 Speaker 2: when we taught last time. How are you reading these 650 00:31:05,040 --> 00:31:06,800 Speaker 2: moves in gold? What's it all about? 651 00:31:08,360 --> 00:31:12,880 Speaker 9: Well? I think that part of it is feers about 652 00:31:13,280 --> 00:31:16,560 Speaker 9: kind of the dollar and and this this you know, 653 00:31:16,600 --> 00:31:19,360 Speaker 9: and the concerns about debt. But a large part of 654 00:31:19,400 --> 00:31:22,920 Speaker 9: it is the weaponization of the dollar after the Russian 655 00:31:22,960 --> 00:31:26,880 Speaker 9: invasion of Ukraine, the use of sanctions and central banks saying, hey, 656 00:31:27,400 --> 00:31:32,040 Speaker 9: you know, how else can we function that we're not 657 00:31:32,240 --> 00:31:35,920 Speaker 9: necessarily beholden to the dollar system. And we continue to 658 00:31:35,960 --> 00:31:40,120 Speaker 9: see that happening. Obviously we've seen speculatory trades and and 659 00:31:40,280 --> 00:31:44,640 Speaker 9: retail come in on top of those things. But I 660 00:31:44,640 --> 00:31:47,480 Speaker 9: think this this central bank component is key to the story. 661 00:31:47,680 --> 00:31:51,440 Speaker 9: And then of course underpinning this whole rally is the 662 00:31:51,480 --> 00:31:56,160 Speaker 9: continued fiscal spending, deficit spending that that goes on, and 663 00:31:57,040 --> 00:32:00,400 Speaker 9: you know it's don't fight the Fed, but also don't 664 00:32:00,760 --> 00:32:04,680 Speaker 9: fight that tide of money that is stimulating economies around 665 00:32:04,680 --> 00:32:05,040 Speaker 9: the world. 666 00:32:05,280 --> 00:32:07,480 Speaker 2: That's an interesting component of this markt And please you 667 00:32:07,480 --> 00:32:09,959 Speaker 2: mentioned the central bank diversification of the back of what 668 00:32:10,000 --> 00:32:13,640 Speaker 2: happened with Russia, because that's been a source a massive 669 00:32:13,680 --> 00:32:16,640 Speaker 2: tail went for this story. A non yielding assets perform 670 00:32:16,720 --> 00:32:20,000 Speaker 2: so well in an otherwise high interest rate environment. Marcus, 671 00:32:20,040 --> 00:32:22,080 Speaker 2: we start to reduce interest rates to the federal reserve, 672 00:32:22,240 --> 00:32:24,160 Speaker 2: is that just more fuel for the next leg of 673 00:32:24,200 --> 00:32:25,600 Speaker 2: the trade And what kind of numbers are you and 674 00:32:25,640 --> 00:32:26,440 Speaker 2: the team considering? 675 00:32:27,600 --> 00:32:31,480 Speaker 9: Yeah, it normally would be, but I think that given 676 00:32:31,560 --> 00:32:34,400 Speaker 9: this run, you know, from here, we're a little cautious 677 00:32:34,720 --> 00:32:39,080 Speaker 9: and thinking more of gold as a hedge against potential 678 00:32:39,800 --> 00:32:42,480 Speaker 9: risks that pop up, rather than saying, hey, this is 679 00:32:42,480 --> 00:32:45,480 Speaker 9: a great to great time to pile in for kind 680 00:32:45,480 --> 00:32:47,640 Speaker 9: of speculative gains or trading gains. 681 00:32:48,480 --> 00:32:52,040 Speaker 2: This is the Bloomberg Sevendents podcast bringing you the best 682 00:32:52,040 --> 00:32:55,360 Speaker 2: in markets economics. Anngio politics. You can watch the show 683 00:32:55,400 --> 00:32:58,360 Speaker 2: live on Bloomberg TV weekday mornings from six am to 684 00:32:58,480 --> 00:33:02,480 Speaker 2: nine am Eastern, to the podcast on Apple, Spotify, or 685 00:33:02,520 --> 00:33:05,120 Speaker 2: anywhere else you listen, and as always, on the Bloomberg 686 00:33:05,200 --> 00:33:07,040 Speaker 2: Terminal and the Bloomberg Business app. 687 00:33:11,080 --> 00:33:11,600 Speaker 9: Mm hmm