WEBVTT - Big Banks Hold Clues To Recession Question 0:00:01.280 --> 0:00:05.640 This is Bloomberg business Week Inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:30.960 Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio. 0:00:32.320 --> 0:00:34.280 All Right, everybody, you know it already. You've been listening 0:00:34.280 --> 0:00:36.720 to Bloomberg. We just talked about it in our simulcast. Really, 0:00:36.760 --> 0:00:39.159 front and center, is that update that we got from 0:00:39.200 --> 0:00:42.640 some of the largest US banks earlier this morning? JP Morgan, 0:00:42.760 --> 0:00:46.720 Chase City, Wells Fargo. We also heard from PNC Financial, 0:00:46.760 --> 0:00:49.080 which fell to its lowest level intraday since November of 0:00:49.120 --> 0:00:51.919 twenty twenty. But JPM and City, they are your top 0:00:51.960 --> 0:00:53.960 performers in the S and P five hundred. All right, 0:00:54.000 --> 0:00:56.720 so let's get to it. Let's get some more deeper 0:00:56.760 --> 0:00:59.440 thought on the group and the reporting season so far. 0:01:00.040 --> 0:01:02.840 Bloomberg News Wall Street reporter Shanali Bassak here in our 0:01:02.880 --> 0:01:06.160 studio along with Josh Rosner, managing director at the independent 0:01:06.160 --> 0:01:09.080 research consultancy firm, Graham Fisher, co author of the New 0:01:09.160 --> 0:01:13.200 York Times bestseller Reckless Endangerment, How outsized ambition, greed and 0:01:13.240 --> 0:01:16.600 corruption led to economic armageddon, as you know, a trusted 0:01:16.680 --> 0:01:19.640 voice that we really leaned on during the Great Financial Crisis. 0:01:19.880 --> 0:01:21.840 Hey guys, but the great to have you here. We've 0:01:21.880 --> 0:01:24.520 got a couple of blocks to dig into it. So welcome, welcome, 0:01:24.720 --> 0:01:26.319 should onlie, I want to kick it off with you. 0:01:27.560 --> 0:01:30.080 So far, so good for the three banks, or walk 0:01:30.160 --> 0:01:31.920 us through some of the highlights and what you think 0:01:31.959 --> 0:01:34.200 our audience needs to know. Well, a few things. One, 0:01:34.280 --> 0:01:37.679 coming into this period, we had the investment banks doing 0:01:37.800 --> 0:01:40.520 better in terms of trading than you had the regional 0:01:40.520 --> 0:01:43.040 banking system and even the consumer banks, even the largest ones, 0:01:43.280 --> 0:01:45.480 if you could believe, a Bank of America this morning 0:01:45.520 --> 0:01:48.240 before the market open was trading at below book value. 0:01:48.280 --> 0:01:51.800 And so but with that said, you did see JP 0:01:51.880 --> 0:01:54.120 Morgan City Group beat on fixed income trading. There was 0:01:54.160 --> 0:01:57.320 worries here that the institutional businesses would be weaker, but 0:01:57.440 --> 0:02:00.600 guess what, they're common in hot still. And on top 0:02:00.640 --> 0:02:03.320 of that, you also have JP Morgan raising their net 0:02:03.360 --> 0:02:06.000 interest and come out. Look they're making money on the 0:02:06.040 --> 0:02:08.680 heels of higher interest rates. But listen, it's from the 0:02:08.840 --> 0:02:11.840 credit card business largely, and that's why there are some 0:02:11.960 --> 0:02:15.320 unique stories for these big rank gun up dramatically, especially 0:02:15.360 --> 0:02:17.919 if you're not paying on time, and their deposit rates 0:02:17.960 --> 0:02:22.440 are still very low, right, and feels like a recession 0:02:22.520 --> 0:02:24.840 story to me. Am I reading that correctly. So what's 0:02:24.880 --> 0:02:28.040 interesting is when you look at the provisions for low 0:02:28.120 --> 0:02:30.480 losses are certainly rising at the banks, but they're not 0:02:30.560 --> 0:02:34.720 at these massive danger levels. But with that said, you know, 0:02:34.880 --> 0:02:37.880 I think the biggest difference between now in two thousand 0:02:37.880 --> 0:02:39.640 and eight, and I'll let our guests also way in 0:02:39.639 --> 0:02:42.560 into this is it's not this big crash all at once, 0:02:43.000 --> 0:02:46.440 but this long, slow bleed of uncertainty that is killing 0:02:46.520 --> 0:02:49.000 everybody here and there. It's a bummer. It's a bummer. 0:02:49.080 --> 0:02:50.639 So Josh, come on in and how you see in 0:02:50.760 --> 0:02:52.760 terms of everything? No, I agree with all of that. 0:02:52.919 --> 0:02:55.320 I'd also say that you have to remember that so 0:02:55.400 --> 0:02:58.799 much of the financial intermediation that used to exist within 0:02:58.840 --> 0:03:01.600 the banks doesn't really in the banks anymore. I mean, 0:03:01.600 --> 0:03:04.040 to some degree, it exists at some of the smaller banks, 0:03:04.040 --> 0:03:06.160 some of the regional banks, but a lot of it 0:03:06.160 --> 0:03:09.240 has moved oft into the shadow banking. Whether that's a 0:03:09.280 --> 0:03:12.400 private area that's right, whether that's whether that's mortgage lending, 0:03:12.840 --> 0:03:16.919 whether that's other lending, whether that's even auto finance, right, 0:03:16.960 --> 0:03:20.120 So to some degree, the large banks have actually become 0:03:20.200 --> 0:03:25.560 much more dependent upon credit cards, other consumer and really 0:03:27.320 --> 0:03:30.200 playing the trading game, and they've done so quite successfully. 0:03:30.360 --> 0:03:32.200 I think that's going to insulate them, and it's part 0:03:32.240 --> 0:03:34.920 of the reason we're not seeing loan loss allowances rise 0:03:35.000 --> 0:03:37.480 like we have in prior cycles. But I think at 0:03:37.520 --> 0:03:40.200 some point the net interest margin is still the risk 0:03:40.240 --> 0:03:42.320 to the point where I kind of feel like this 0:03:42.560 --> 0:03:44.920 is almost the best of what we're going to see 0:03:44.920 --> 0:03:47.840 in this cycle. Profitability being coming a big issue, plus 0:03:47.840 --> 0:03:50.720 a UCP and C slowing buybacks and investors just don't 0:03:50.760 --> 0:03:53.120 have a story to hang onto. Well, let's kind of 0:03:53.120 --> 0:03:54.280 play on that a little bit and then we'll get 0:03:54.280 --> 0:03:55.600 into some of what we're going to get next week. 0:03:55.640 --> 0:03:58.720 P and C a regional player, yeah, And what's interesting 0:03:58.760 --> 0:04:01.480 about that is they are bigger than many of the 0:04:01.480 --> 0:04:05.200 regional players, so they're even among that group, they're safer 0:04:05.200 --> 0:04:07.119 than some of the other ones that we are even 0:04:07.120 --> 0:04:09.320 more worried about. So you can't even look at today 0:04:09.360 --> 0:04:11.440 and have said it wasn't all clear. The other banks 0:04:11.560 --> 0:04:15.160 have much bigger issues, arguably, but P and C even 0:04:15.200 --> 0:04:17.960 with the deposits coming in above expectations, you see the 0:04:18.000 --> 0:04:20.800 market changing their mind already. They started today higher and 0:04:20.839 --> 0:04:22.920 now they are lower on the day, and it's because 0:04:22.920 --> 0:04:24.960 of a lot of those profitability questions that we've been 0:04:25.000 --> 0:04:27.440 talking about. Well, how do you think about the group overall? 0:04:27.480 --> 0:04:29.240 I mean I was looking at the KBW extuming it 0:04:29.320 --> 0:04:31.320 was going to be off the charts this morning. Are 0:04:31.480 --> 0:04:33.599 off the charts at some point, but it wasn't because 0:04:33.640 --> 0:04:35.760 there's a lot of names still in the sector. You 0:04:35.880 --> 0:04:38.000 think still, Josh, a lot of questions out there. Well, 0:04:38.040 --> 0:04:40.120 I think there's a lot of questions out there because yes, 0:04:40.160 --> 0:04:44.360 we've seen the impact of rising rates on their ability 0:04:44.360 --> 0:04:47.760 to reprice cards as example, but we haven't actually seen 0:04:47.800 --> 0:04:50.920 an increase in demand for topod or it turns on deposits, 0:04:51.120 --> 0:04:54.080 so that any interest margin is one risk. And we're 0:04:54.200 --> 0:04:57.000 endering into the period and where the credit cycle ends 0:04:57.040 --> 0:04:59.880 up starting to play out because the FED rate hikes. 0:05:00.000 --> 0:05:03.520 I haven't really started hitting the books yet. Really, Yeah, 0:05:03.560 --> 0:05:07.680 we're not really. I guess we'll be a year, but 0:05:07.720 --> 0:05:11.080 I think we're what a year in on the streets. Yeah, 0:05:11.200 --> 0:05:14.480 but again we're seeing we haven't seen this pricing of 0:05:14.960 --> 0:05:17.240 any assets. Yes, they're the assets that we're probably on 0:05:17.279 --> 0:05:20.680 a regular basis credit cards, but for the most part, 0:05:20.720 --> 0:05:22.839 a lot of it's locked and so that's where the 0:05:22.920 --> 0:05:25.560 risk is, which is why we're worried about commercial realists. Absolutely. 0:05:25.600 --> 0:05:28.440 I think about commercial real estate, even corporate debt, they 0:05:28.480 --> 0:05:31.400 have to refinance at some rate, and at that rate 0:05:31.480 --> 0:05:34.080 you don't know just how expensive it's going to get 0:05:34.080 --> 0:05:36.560 for a lot of the industry, and there's a lot 0:05:36.560 --> 0:05:38.600 of worries not just about commercial real estate, but all 0:05:38.600 --> 0:05:41.599 of these companies that borrowed money during the pandemic that 0:05:41.600 --> 0:05:44.599 will protect right exactly, and not just corporate but smaller 0:05:44.600 --> 0:05:48.200 and mid sized businesses well. And that's where to some degree, 0:05:48.600 --> 0:05:51.120 certainly the big banks don't really have the same worries. 0:05:51.480 --> 0:05:55.400 That is mostly community banks, local institutions, but we've also 0:05:55.400 --> 0:06:00.280 seen a lot of that migrate well outside to private equity. 0:05:59.680 --> 0:06:04.000 Again BDCs the shadows, and so that's that's the care 0:06:04.080 --> 0:06:05.840 they are in the coal mine. As far as I'm king, Well, 0:06:05.839 --> 0:06:07.920 that's what he's going to ask you, and so is 0:06:08.000 --> 0:06:10.400 that the problem that that's likely to be the problem, 0:06:10.440 --> 0:06:12.240 and in some large measure it's also going to be 0:06:12.279 --> 0:06:14.839 the problem in some of the commercial real estate portfolios. 0:06:14.920 --> 0:06:18.279 It's a strange one because on one hand, and I 0:06:18.320 --> 0:06:20.240 remember during twenty twenty in particular, I talked to a 0:06:20.279 --> 0:06:22.240 lot of the BBC's in private credit folks and they 0:06:22.279 --> 0:06:25.520 said to me at that time, yes, they stepped in 0:06:25.560 --> 0:06:27.400 a huge way where the bank stepped out, but they 0:06:27.400 --> 0:06:30.080 only stepped in so far. You know, they're they're risks, 0:06:30.080 --> 0:06:31.640 they're not willing to take. At the end of the day, 0:06:31.640 --> 0:06:32.920 they want to make money, and they make it at 0:06:33.040 --> 0:06:36.120 maybe standards too. They have to, not all of them, 0:06:36.160 --> 0:06:43.000 but on YouTube, Josh on radio job because because in 0:06:43.080 --> 0:06:45.880 some places, in some places when libor mattered during the 0:06:46.080 --> 0:06:50.440 during the pandemic, they were still charging discrete credits libor 0:06:50.560 --> 0:06:53.960 plus five six hundred basis points at essentially is zero 0:06:54.040 --> 0:06:57.200 rate environment. How many of the discrete corporate credits are 0:06:57.240 --> 0:07:01.080 going to be able to reprice up from nine percent 0:07:01.200 --> 0:07:04.240 plus to twelve percent and survive? And so I think 0:07:04.240 --> 0:07:06.599 you're going to end up with some real credit quality problems. 0:07:06.640 --> 0:07:09.360 Do you think it's fair to put a JP Morgan 0:07:09.400 --> 0:07:11.560 and a Jamie Diamond and maybe City because I think 0:07:11.560 --> 0:07:12.840 these were the top gainers in the S and P 0:07:12.960 --> 0:07:14.880 five hundred. Can we put them in a separate class? 0:07:14.920 --> 0:07:16.680 Think we have to, and and by the way, I 0:07:16.720 --> 0:07:19.840 think we have to as well, because although a Goldman 0:07:19.960 --> 0:07:23.280 and a Well's fire, let's just call it what it is. 0:07:23.360 --> 0:07:25.240 You and I were here during the debates as to 0:07:25.320 --> 0:07:28.560 whether we want to ever again be exposed to companies 0:07:28.600 --> 0:07:32.080 that are too big to fail. Well, that bird has flown. 0:07:32.640 --> 0:07:35.920 And what everybody, they're bigger and we've told everyone a 0:07:36.240 --> 0:07:38.960 that they're bigger would be if you're concerned about your 0:07:39.000 --> 0:07:43.080 small bank. These are systemic run to them. And unfortunately 0:07:43.120 --> 0:07:46.200 we've we've reinforced all of the concerns, making it more 0:07:46.280 --> 0:07:50.040 that they are government guaranteed. Yeah, utilities, we saw it 0:07:50.120 --> 0:07:52.480 right as kind of you know, the market doesn't love 0:07:52.480 --> 0:07:55.480 the concentration either. For example, you know, you think back 0:07:55.480 --> 0:07:57.360 to credit SPEECE and you know we're looking at these 0:07:57.360 --> 0:08:01.560 training numbers. Fine, they're blowout numbers, but at the same time, 0:08:01.600 --> 0:08:04.280 remember the banks even start to cap out at how 0:08:04.360 --> 0:08:06.840 much leverage they can extend to the buy side. Right, 0:08:07.120 --> 0:08:09.720 And so I think, you know, the rest of the 0:08:09.800 --> 0:08:12.520 year is a big question mark, even for the big 0:08:12.560 --> 0:08:15.600 institutional safe guys, not that they will run into any 0:08:15.600 --> 0:08:18.280 big existential issues. You think about it this way, the 0:08:18.400 --> 0:08:22.200 fdi FN fees have already risen for JP Morgan their profitability. 0:08:22.240 --> 0:08:25.960 You don't even these fees are nothing. They're not. I mean, 0:08:26.000 --> 0:08:29.640 it's the question becomes, do the community and regional banks 0:08:29.680 --> 0:08:33.920 have to compete for deposits? Yes? Where which we know 0:08:33.960 --> 0:08:36.400 the answer is yes, where the big bellies don't have 0:08:36.440 --> 0:08:40.079 to compete for deposits. But why wouldn't Washington hear these 0:08:40.080 --> 0:08:43.520 earnings from JP Morgan today and say, you guys can 0:08:43.840 --> 0:08:46.520 get in here and help us feed these regional banks 0:08:46.520 --> 0:08:49.240 and keep saving them. Well, I mean, I think we 0:08:49.320 --> 0:08:51.440 saw that to some degree a couple of weeks ago 0:08:51.559 --> 0:08:54.840 with them putting money in, you know. But all we're 0:08:54.880 --> 0:08:58.080 doing then is confirming that these companies are arms of 0:08:58.120 --> 0:09:01.920 the government. They're not really private companies, though they are 0:09:01.960 --> 0:09:04.160 shareholder own. It's kind of an interesting thing when we're 0:09:04.160 --> 0:09:06.720 so suspect about like if I think of China or 0:09:06.760 --> 0:09:13.160 that aren't right it is. It's a little comfortable and frankly, 0:09:13.280 --> 0:09:15.960 if that is the case, should we at some point 0:09:16.000 --> 0:09:20.440 admit it just to own it tie them to utility 0:09:20.520 --> 0:09:23.720 type rates of return to reduce the trading risk. Yeah, 0:09:24.000 --> 0:09:28.240 it's David Solomon calling. He's got well, you know, I 0:09:28.240 --> 0:09:29.839 mean that's why you hear Jamie Diaman on the call 0:09:29.880 --> 0:09:32.760 today talking about the need for more banks and not 0:09:32.960 --> 0:09:35.679 a full scales consolidation of the system. The more you 0:09:35.679 --> 0:09:37.959 have that happen, I'll use the words from Aaron Klein 0:09:38.040 --> 0:09:40.440 at the Brooklyn Institution, who says, you know, the more 0:09:40.600 --> 0:09:42.400 we get into trouble and the more that we have 0:09:42.480 --> 0:09:44.559 to kind of bail out the banking system and not 0:09:44.960 --> 0:09:47.240 have a healthy system above and beyond the top five, 0:09:47.679 --> 0:09:50.160 you go towards a slow movement towards the nationalization of 0:09:50.200 --> 0:09:52.720 a banking system. That's right. It's never good to have 0:09:52.720 --> 0:09:55.800 no competition for the consumer at least. Yeah, what do 0:09:55.920 --> 0:09:58.840 we look at to determine the health of the regional banks? Then? Today? 0:09:58.880 --> 0:10:01.400 What are you looking at? I mean, unfortunately, I think 0:10:01.400 --> 0:10:04.680 it really is not a health of the regional banks. 0:10:04.720 --> 0:10:07.760 I really think that it's geography by geography, and management 0:10:07.760 --> 0:10:11.800 by management. Unfortunately, even more micro, much more micro, and 0:10:11.880 --> 0:10:14.040 I think, when you know, I think actually you have 0:10:14.080 --> 0:10:18.320 to dig into the call reports pretty dramatically to really 0:10:18.320 --> 0:10:22.280 assess the business line mix, how they're managing their their 0:10:22.360 --> 0:10:26.280 low lost provisions and how they're managing as we saw 0:10:26.320 --> 0:10:28.319 a couple of weeks ago, their health to maturity and 0:10:28.360 --> 0:10:31.160 available for sale portfolios. It's so funny we were saying that, 0:10:31.200 --> 0:10:33.680 you know, normally in an earning season, we don't really 0:10:33.720 --> 0:10:36.560 care about the regional I'm dumping them all together. But 0:10:36.640 --> 0:10:38.240 all of a sudden, you're right, like, we have to 0:10:38.280 --> 0:10:40.040 go through those balance sheets. I think about the FA 0:10:40.080 --> 0:10:42.320 function on the Bloomberg. We have to be pouring over 0:10:42.320 --> 0:10:45.640 that to really understand, you know, the health or lack 0:10:45.679 --> 0:10:49.160 thereof of these individual names. All Right, so we've got 0:10:49.200 --> 0:10:53.600 through today markets digesting it. What do we need to 0:10:53.600 --> 0:10:55.600 think about or what do we need to think about? Right, 0:10:55.760 --> 0:10:58.120 We've got more big banks tomorrow next week, and we're 0:10:58.120 --> 0:11:00.760 obviously going to get into the smaller players. Yeah, you 0:11:00.800 --> 0:11:04.200 have MNT really starting the smaller players quote unquote starting Monday. 0:11:04.240 --> 0:11:06.439 But you also have SCHWAB, which has been betting on 0:11:06.480 --> 0:11:09.640 the bank and got killed. Yeah, there are a lot 0:11:09.640 --> 0:11:12.160 of concerns, and you know, we had one large investor, 0:11:12.240 --> 0:11:15.560 GQG tele Financial Times that it's not that they have 0:11:15.600 --> 0:11:18.800 an existential crisis, but this is a profitability question for them, 0:11:19.000 --> 0:11:21.560 which is also assuring, right, because it's such a big 0:11:21.559 --> 0:11:23.680 firm that's outside of the regional banks being impacted by 0:11:23.679 --> 0:11:27.040 a lot of the same factors. Goldman Morgan Stanley, they're 0:11:27.080 --> 0:11:29.440 also interesting, not just because of the investment banking, but 0:11:29.480 --> 0:11:31.760 presumably Morgan Stanley would have taken a lot of the 0:11:31.800 --> 0:11:35.320 clientele as well from Silicon Valley Bank and potentially First Republic. 0:11:35.640 --> 0:11:39.480 So the way that Morgan Stanley may have benefited from 0:11:39.559 --> 0:11:42.400 some of this will be also interesting come Wednesday, and 0:11:42.440 --> 0:11:45.240 then we get back on the regional banks train right 0:11:45.240 --> 0:11:47.199 after that. All right, when you look at the you know, 0:11:47.280 --> 0:11:51.360 when we went through the crisis moment and we were 0:11:51.360 --> 0:11:54.839 looking at call reports for both the health maturity books 0:11:54.880 --> 0:11:57.240 that were underwater and the available for sale books that 0:11:57.240 --> 0:12:01.280 were underwater, Schwab has three banks. All of them were 0:12:01.320 --> 0:12:04.360 among the top five worst banks in terms of their 0:12:04.440 --> 0:12:08.800 exposure or negative exposure to treasuries. And that's really a 0:12:08.800 --> 0:12:11.719 big piece of what kicked off. That's really a big 0:12:11.760 --> 0:12:15.199 piece of a kick kicked off. The concern are you 0:12:15.200 --> 0:12:17.720 concerned about you? What? I'm not really? I mean, they're different, 0:12:17.760 --> 0:12:21.280 they're higher net worth customer. It's uh, it's a higher 0:12:21.320 --> 0:12:26.079 deposit it's a it's a lower uninsured deposit rate. So 0:12:26.160 --> 0:12:28.600 I'm not particularly concerned. I think there are questions as 0:12:28.640 --> 0:12:30.920 to why they did such a bad job of treasury management, 0:12:30.960 --> 0:12:32.360 but they also have to flow in and out of 0:12:32.360 --> 0:12:35.960 the securities firm as a separate and differentiating What about 0:12:36.000 --> 0:12:37.559 the other big banks that are reporting next week in 0:12:37.600 --> 0:12:41.040 the other names, No, I mean I think you right. Yeah, 0:12:41.080 --> 0:12:42.400 I mean I think that we're going to see a 0:12:42.400 --> 0:12:45.920 pretty clean moment from everyone. Again, I'm more concerned about 0:12:45.920 --> 0:12:48.240 when the when the when the mouse starts going through 0:12:48.280 --> 0:12:52.720 the through the snake in terms of credit quality. Yeah. Um, 0:12:52.760 --> 0:12:56.920 and that's still probably two quarters out before we start 0:12:57.520 --> 0:13:01.880 a minimum Yeah. Absolutely year guys. Yeah, I think you 0:13:01.880 --> 0:13:03.800 could last long if you think about it. I think 0:13:03.800 --> 0:13:06.440 commercial real estate is really where kind of you know, 0:13:06.440 --> 0:13:08.480 it's the Canarian the coal mine. Do you think it 0:13:08.520 --> 0:13:11.360 could be terrible? I'm expecting. I'm expecting we're going to 0:13:11.440 --> 0:13:14.640 start hearing calls for the FED to start buying CMBs anytime. So, 0:13:15.080 --> 0:13:18.160 like David Weston talked to Blackstone this week, right, Yeah, 0:13:18.240 --> 0:13:21.679 Kathy McCarthy over a Blackstone, And I feel like everybody's 0:13:21.679 --> 0:13:24.280 like it's kind of a Listen, they're not really exposed 0:13:24.320 --> 0:13:28.040 to office that much, and so you have resident Yeah, 0:13:28.040 --> 0:13:30.800 and they've also exposed themselves to residential in places where 0:13:30.840 --> 0:13:33.520 they think that they can get you know, really you know, 0:13:33.679 --> 0:13:36.199 a boost from the population Sun belts, right, they think 0:13:36.200 --> 0:13:38.480 that they can earn a lot from there. But they 0:13:38.520 --> 0:13:40.920 were buying the Florida properties right right off the crisis. 0:13:41.000 --> 0:13:43.360 Really yeah. And so the question is now there are 0:13:43.280 --> 0:13:45.199 a few things happening. I've been spending a lot of 0:13:45.200 --> 0:13:47.400 time in commercial real estate this week and anticipation of this, 0:13:47.520 --> 0:13:50.959 But what happened was, um, a lot of the private 0:13:51.000 --> 0:13:53.960 creditors are looking to the folks that are exposed to 0:13:53.960 --> 0:13:57.040 regional banks, or they're talking to the regional banks at 0:13:57.040 --> 0:13:58.960 this moment to see what they can do to help 0:13:59.000 --> 0:14:01.160 them with that part of the story. I don't know 0:14:01.240 --> 0:14:03.199 how much that helps things. I don't know how much 0:14:03.200 --> 0:14:06.440 it more expensive it makes things for borrowers. So if rates, 0:14:06.960 --> 0:14:09.600 if for some reason the markets are right well right 0:14:09.600 --> 0:14:12.280 now they're pricing in now two more increases. But if 0:14:12.280 --> 0:14:14.520 for some reason, to think it changes and we start 0:14:14.600 --> 0:14:17.320 to get rate cuts, possibly, I don't know. I feel 0:14:17.360 --> 0:14:20.280 like that's farfetched. Would it help out the commercial. Well, 0:14:20.640 --> 0:14:24.320 I think no, I think that's really farfetched. Yeah, okay, right, 0:14:24.400 --> 0:14:26.920 that we get cut there, we get cuts anytime soon. Okay, okay, 0:14:26.960 --> 0:14:30.680 Because does a pause help, I mean a pause doesn't. 0:14:31.000 --> 0:14:33.040 I don't think it actually helps. You're still gonna have 0:14:33.120 --> 0:14:34.800 the resets to the higher rate, So I don't think 0:14:34.800 --> 0:14:37.400 it really changes that anything. I just don't see the 0:14:37.440 --> 0:14:41.200 FED given the trajectory they were on and intend to be, 0:14:41.400 --> 0:14:43.560 and the fact that they need to take back, and 0:14:44.000 --> 0:14:46.160 you know, frankly, at some point, maybe we have to 0:14:46.200 --> 0:14:50.120 set a different expectation of inflation target rates. It's no 0:14:50.200 --> 0:14:52.160 longer two percent, maybe it's you know, three and a 0:14:52.240 --> 0:14:55.840 half for they seem very committed to two. That's right, 0:14:55.920 --> 0:14:59.200 but but but I don't think that's realistic point they're 0:14:59.200 --> 0:15:01.840 going to have to compit well. Also, I mean there's 0:15:02.160 --> 0:15:04.680 at least from what you're hearing from some of the banks, 0:15:05.040 --> 0:15:06.880 a city group of pushed them on this, whether they 0:15:06.880 --> 0:15:09.440 expect higher for longer. They kind of won't get there. 0:15:09.440 --> 0:15:12.640 But JB. Morgan's like, hey, we're preparing for six percent. 0:15:12.760 --> 0:15:14.480 We're not saying it will happen, but we're saying it 0:15:14.520 --> 0:15:17.400 could happen. And you should get on board because if 0:15:17.440 --> 0:15:21.120 the market is clearly not prepared for that kind of reality, 0:15:21.200 --> 0:15:23.720 are you thinking that we go six percent? I think 0:15:23.720 --> 0:15:27.320 it's I think it's more than more than not likely. Okay, yeah, 0:15:27.360 --> 0:15:29.160 And but the by side, by the way, there's a 0:15:29.160 --> 0:15:31.400 lot of like the large hedge funds and stuff, that's 0:15:31.640 --> 0:15:33.840 what they're prepared for higher for longer. I think it's 0:15:33.840 --> 0:15:36.200 a contrarian bet when you look at the market and 0:15:36.400 --> 0:15:39.240 it's a risk management exercise. Here, I do want to 0:15:39.240 --> 0:15:40.840 give you some love in terms of a new book 0:15:40.840 --> 0:15:43.400 that's coming in or what we're gonna do. Okay, you're 0:15:43.440 --> 0:15:45.640 coming out with a book with Gretchen Morganson, Pulter Prize 0:15:45.680 --> 0:15:48.400 winning journalists New York Times. She has always been a 0:15:48.480 --> 0:15:50.720 must read. The book is called These Are the Plunderers. 0:15:50.760 --> 0:15:53.920 How Private Equity Runs in Res America. My former co 0:15:54.000 --> 0:15:57.000 host Jason Kelly used to cover private equities, written many 0:15:57.040 --> 0:16:00.400 books about the impact it has had on the fitness 0:16:00.440 --> 0:16:04.120 wellness industry. Right, all of the investment private equity business 0:16:04.120 --> 0:16:06.120 becaus done cover stories on it like they are just 0:16:06.200 --> 0:16:09.840 in all walks of our life. Josh, tell us what 0:16:09.880 --> 0:16:13.560 you can literally, how you were thinking about fatal to grave. Right, 0:16:13.560 --> 0:16:17.840 pick an industry, pick a company. Usually the consumer is 0:16:17.880 --> 0:16:20.160 not aware that when they're shopping at a brand, they're 0:16:20.160 --> 0:16:22.840 actually shopping at a private equity owned brand. Funeral homes. 0:16:22.840 --> 0:16:25.600 And yeah, when you go to the doctor, more likely 0:16:25.640 --> 0:16:29.840 than not, somehow the practice is owned by private equity. Certainly, 0:16:29.880 --> 0:16:32.040 when you go to the hospital, more likely than not 0:16:32.080 --> 0:16:35.000 it's owned by private equity. And really it does affect 0:16:35.000 --> 0:16:37.360 every aspect of life. And you're seeing not only the 0:16:37.400 --> 0:16:40.840 impact in terms of cost, you're seeing the impact in 0:16:40.960 --> 0:16:44.120 terms of employment. You're seeing the impact in terms of 0:16:44.600 --> 0:16:50.160 you know, entire towns, cities wiped out because of the 0:16:50.200 --> 0:16:52.560 excessive debt that they put upon a company when they 0:16:52.600 --> 0:16:55.600 take it over, they get they extract the equity really 0:16:55.680 --> 0:16:58.480 quickly to pay themselves back, and then to some degree 0:16:58.520 --> 0:17:00.680 it doesn't really matter what happens to the carcass. To 0:17:00.760 --> 0:17:03.600 be fair, is it really all bad? I would love 0:17:03.640 --> 0:17:06.080 to see an analysis of it across the board, because 0:17:06.119 --> 0:17:07.880 you're just talking about the companies they buy, But Josh, 0:17:07.920 --> 0:17:10.040 what about the what about you know, for example, the 0:17:10.080 --> 0:17:13.600 real estate they own is a real estate landlord, a 0:17:13.600 --> 0:17:17.400 private equity real estate landlord charging you more than your 0:17:17.640 --> 0:17:22.639 older landlord would have. Right, Well, no, I don't really so. 0:17:22.880 --> 0:17:25.400 I remember they were also separating the real estate assets 0:17:25.720 --> 0:17:28.439 into a different fund for the most part of the company. 0:17:28.440 --> 0:17:31.520 But now their real estate hours they are so they've 0:17:31.560 --> 0:17:35.760 gone from private equit when you look at the bankruptcy events, 0:17:36.080 --> 0:17:39.520 ten times more likely to go bankrupt than other companies private. 0:17:40.800 --> 0:17:43.800 The model was always leverage, right, the model was always leveraged. 0:17:43.840 --> 0:17:46.159 But on top of that, you also have to start saying, 0:17:46.400 --> 0:17:48.639 who is it that's feeding these funds to them, and 0:17:48.680 --> 0:17:52.920 it's it's your pension funds nationally, right, And so when 0:17:52.960 --> 0:17:55.960 you start actually dissecting and looking at the returns over 0:17:56.000 --> 0:17:58.760 the past five ten years, what you start realizing is 0:17:59.040 --> 0:18:03.239 their performance is fully in line with index funds, and 0:18:03.359 --> 0:18:06.679 yet you're paying large multiples of what you would be 0:18:06.720 --> 0:18:10.080 paying for an index fund. So the benefit really has 0:18:10.119 --> 0:18:12.320 to be weighed as well, and they're still charging way 0:18:12.359 --> 0:18:18.320 more than it would can we all right, let's drama. 0:18:18.600 --> 0:18:22.600 There's a bad ending. I think that to some would 0:18:22.640 --> 0:18:25.920 say it's created, you know, more liquidity of the market, right, 0:18:26.000 --> 0:18:28.919 provided a whole otherness of the banking system that the 0:18:28.960 --> 0:18:32.040 other big well so sound as to the banking system, 0:18:32.080 --> 0:18:33.760 although we were just saying, you're seeing so many of 0:18:33.760 --> 0:18:36.720 the activities move outside of the banking system, which is 0:18:36.760 --> 0:18:38.920 where some of the clinari in this coal mine comes. 0:18:39.160 --> 0:18:41.159 But on top of that, there are also more and 0:18:41.200 --> 0:18:44.760 more of the leveraged buyout firms are buying insurance companies, 0:18:45.560 --> 0:18:49.680 and they're converting traditional defined benefit and retirement plans into 0:18:49.720 --> 0:18:54.720 annuity plans, and they're investing higher risking assets on behalf 0:18:54.760 --> 0:18:58.160 of those retirees, which ultimately creates a greater risk. We've 0:18:58.160 --> 0:19:00.440 got final thoughts here. The weirdness of it is this 0:19:00.480 --> 0:19:02.439 is kind of the end of a more than decade 0:19:02.480 --> 0:19:04.720 long search for yield, and so do some of those 0:19:04.760 --> 0:19:08.120 models work in this next environment or do they start 0:19:08.160 --> 0:19:11.520 to go bustin I think that's part of the problem 0:19:11.560 --> 0:19:13.840 is look the fact that over the past ten years 0:19:13.840 --> 0:19:19.240 we've seen these firms more aggressively target industries like healthcare, education, 0:19:19.400 --> 0:19:25.399 industries that we always saw as as TBD. There's a 0:19:25.480 --> 0:19:27.320 taste of the book. Josh is going to come back 0:19:27.520 --> 0:19:29.800 at you guys so incredible what we were hoping to 0:19:29.840 --> 0:19:31.840 do on this Friday. Josh Rosner of Grant Fisher and 0:19:31.840 --> 0:19:34.760 of course our own Shinnali bask Wall Street Reporter. You're 0:19:34.800 --> 0:19:38.400 listening to the Bloomberg Business Week podcast. Catch us live 0:19:38.480 --> 0:19:42.119 week afternoons from three to six Eastern Listen on Bloomberg 0:19:42.160 --> 0:19:45.560 dot Com, the iHeartRadio app and the Bloomberg Business App, 0:19:45.880 --> 0:19:58.760 or watch us live on YouTube today. All right, so 0:19:58.880 --> 0:20:02.320 lot going on as you and we did talk about 0:20:02.320 --> 0:20:05.000 this a little bit in our simulcast with remaining Katie 0:20:05.040 --> 0:20:07.920 Carol Master here with Madison Mills and Bloomberg Quicktake live 0:20:07.960 --> 0:20:11.000 in our Bloomberg Interactor Brokers Studio on YouTube and of 0:20:11.040 --> 0:20:13.800 course on Bloomberg Originals. We have to talk about retail sales, Mattie, 0:20:13.880 --> 0:20:17.040 because down for a second month in March, indicating household 0:20:17.040 --> 0:20:19.679 spending is cooling, with Americans challenged by high inflation and 0:20:19.760 --> 0:20:23.399