WEBVTT - Surveillance: Rate Cuts with Peterson 0:00:05.040 --> 0:00:09.160 This is the Bloomberg Surveillance Podcast. I'm Lisa Abramwoyd's along 0:00:09.160 --> 0:00:12.119 with Tom Keane and Jonathan Farrow, join us each day 0:00:12.160 --> 0:00:16.400 for insight from the best in economics, geopolitics, finance and investment. 0:00:16.720 --> 0:00:20.200 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:20.320 --> 0:00:23.800 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:23.800 --> 0:00:27.400 the Bloomberg Terminal, and the Bloomberg Business app. Data Peterson 0:00:27.480 --> 0:00:30.760 joining us now chief economist at the conference Board Data. 0:00:31.040 --> 0:00:33.279 I want to start by just asking how much has 0:00:33.320 --> 0:00:35.720 your outlook for the US economy changed over the past 0:00:35.720 --> 0:00:39.080 two weeks. It really hasn't. We have been calling for 0:00:39.120 --> 0:00:42.080 a recession starting in the second quarter and extending through 0:00:42.080 --> 0:00:46.640 the fourth quarter. If anything, this might accelerate things. Certainly, 0:00:46.680 --> 0:00:50.480 consumers have already dialed back spending on goods, businesses are 0:00:50.520 --> 0:00:54.080 not spending on investments, and also the housing market has 0:00:54.120 --> 0:00:57.240 really folded in on itself. And really the last jew 0:00:57.280 --> 0:01:00.800 to fall is services. Now, a credit crunch really doesn't 0:01:00.800 --> 0:01:04.440 affect services because people don't tend to finance restaurant and 0:01:04.520 --> 0:01:08.600 visits other than using their credit cards. But certainly we 0:01:08.680 --> 0:01:11.840 think that in terms of durable goods and certainly the 0:01:12.800 --> 0:01:16.800 ability for businesses to invest that tighter credit conditions are 0:01:16.840 --> 0:01:19.720 not a good thing for them, and that will potentially 0:01:19.760 --> 0:01:22.920 cause the economy to have maybe a little bit worse 0:01:23.000 --> 0:01:25.880 recession than we're expecting. So that's what a lot of 0:01:25.920 --> 0:01:28.360 people are saying is that this brings forward the recession. 0:01:28.800 --> 0:01:32.319 But you ring another specter to the table here, this 0:01:32.360 --> 0:01:36.319 idea of a potentially deeper recession. At what point do 0:01:36.400 --> 0:01:40.319 liquidity concerns at banks become a credit problem for the 0:01:40.360 --> 0:01:43.399 consumer a credit problem for the economy akin to what 0:01:43.440 --> 0:01:47.960 we have seen in history when there are liquidity issues. Well, 0:01:48.000 --> 0:01:50.480 if you're a bank and you're concerned about your deposit 0:01:50.560 --> 0:01:53.960 levels dropping, you're less likely to lend money. But the 0:01:53.960 --> 0:01:57.200 things that consumers are already pulling back, they're not going 0:01:57.200 --> 0:02:00.400 out and buying cars and homes because interest rates have 0:02:00.520 --> 0:02:04.760 risen significantly, almost five percentage points and roughly a year. 0:02:04.920 --> 0:02:08.640 So there may not be a much effect on the consumer, 0:02:09.000 --> 0:02:11.560 but certainly I think there's a risk for businesses who 0:02:11.960 --> 0:02:14.880 tend to need cash, especially to pay their workers and 0:02:15.400 --> 0:02:18.760 to invest in and in short term and long term venture. 0:02:18.880 --> 0:02:21.560 So I think the pressures will probably be more on 0:02:21.680 --> 0:02:24.959 businesses relative to consumers. Does this also shift your view 0:02:25.000 --> 0:02:27.080 on how much unemployment could go up or do you 0:02:27.120 --> 0:02:29.880 think that we could get this downturn without some sort 0:02:29.919 --> 0:02:33.640 of structural increase in joblessness just simply because of the 0:02:33.680 --> 0:02:39.360 mismatch right now in the labor market, well, the industries 0:02:39.360 --> 0:02:42.480 that are letting people go or the former pandemic darlings. Again, 0:02:42.639 --> 0:02:48.400 it's tech, it's financed, it's real estate, it's construction, it's transportation, warehousing, 0:02:48.480 --> 0:02:51.160 which were linked to the strong demand for good. So 0:02:51.200 --> 0:02:54.160 that's what we're still seeing in terms of layoffs and weakness. 0:02:54.639 --> 0:02:57.720 But you still have these huge labor shortages and areas 0:02:57.760 --> 0:03:01.040 that are less sensitive to interest rates, such as healthcare 0:03:01.440 --> 0:03:06.200 and restaurants and hotels, and so what we really need 0:03:06.280 --> 0:03:11.000 to see is consumers turn that dour sentiment that we're 0:03:11.040 --> 0:03:14.359 seeing in our consumer confidence gage, which we've seen over 0:03:14.400 --> 0:03:17.240 the last year, into Okay, I no longer want to 0:03:17.280 --> 0:03:21.280 purchase services. And certainly higher interest rates may not get 0:03:21.320 --> 0:03:25.200 at that issue. But if consumers think, well, I might 0:03:25.240 --> 0:03:27.799 be next in terms of layoffs, then they'll pull back 0:03:27.840 --> 0:03:29.880 on spending. But all in all, we still think that 0:03:29.919 --> 0:03:32.600 the unemployment rate's probably going to rise to about four 0:03:32.639 --> 0:03:35.920 point four percent next year. That's roughly a million jobs loss. 0:03:35.960 --> 0:03:37.920 I would not want to be in that number, but 0:03:38.120 --> 0:03:40.680 certainly not as bad as what it could be. We're 0:03:40.680 --> 0:03:43.440 speaking with Dana Peterson, chief economist at the Conference Board, 0:03:43.480 --> 0:03:47.080 as we look forward to another week, another month, potentially 0:03:47.200 --> 0:03:49.520 a rate cuts in the face of what some people 0:03:49.520 --> 0:03:53.880 are expecting is a decline in economic momentum. Dana here 0:03:53.920 --> 0:03:56.520 comes sort of the rub on the whole issue as 0:03:56.520 --> 0:03:59.360 we talk about perhaps the sooner recession, a deeper recession, 0:03:59.640 --> 0:04:02.520 and FED cutting rates in response to that. Have we 0:04:02.640 --> 0:04:05.960 dealt with the inflation problem, especially given the stickiness that 0:04:06.000 --> 0:04:09.960 we've seen in recent data. I don't think we have. Certainly, 0:04:09.960 --> 0:04:12.800 when we see the stickiness, it's linked to wages through 0:04:13.280 --> 0:04:17.320 well services through wages and very strong demand for services, 0:04:17.400 --> 0:04:22.400 also food prices, which are being influenced by outside effects, 0:04:22.400 --> 0:04:27.680 certainly the declines that we expect in rent inflation. It's 0:04:27.680 --> 0:04:29.520 in the pipeline. We just have to wait for it 0:04:29.560 --> 0:04:32.400 to happen. Maybe it'll start in the springtime or early summer. 0:04:32.880 --> 0:04:35.719 But I don't think we've licked the inflation problem, and 0:04:35.800 --> 0:04:38.240 so that's why we're not anticipated that the Fed's going 0:04:38.279 --> 0:04:40.680 to cut rates this year even if there is a 0:04:40.720 --> 0:04:44.560 mild recession. If you still have prices that are so 0:04:44.600 --> 0:04:47.839 far above the two percent target, why would the FED 0:04:47.880 --> 0:04:51.160 be cutting interest rates, especially if they also think that 0:04:51.200 --> 0:04:53.560 if there is a recession that it's not going to 0:04:53.600 --> 0:04:56.120 be that bad. Well, and this isn't just an interest 0:04:56.200 --> 0:04:58.240 rate story. It's also a balance sheet story. And we 0:04:58.240 --> 0:05:00.760 saw the balance sheet increase traumatic lay over the past 0:05:00.800 --> 0:05:03.600 two weeks in terms of the Federal Reserve and its holdings, 0:05:03.600 --> 0:05:06.760 and part of this is not necessarily stimulative. Some people 0:05:06.800 --> 0:05:10.200 will point out these are emergency loans to certain banks. 0:05:10.240 --> 0:05:14.680 At the same time, Can this central bank kill inflation 0:05:14.960 --> 0:05:17.520 if it keeps going back to the same crisis area 0:05:17.640 --> 0:05:21.800 tools to try to solve financial instability? Well, I think 0:05:21.800 --> 0:05:23.400 the FEED is trying to say that it can do 0:05:23.400 --> 0:05:26.360 two things at once. Right, It can address inflation through 0:05:26.400 --> 0:05:29.560 the credit channel by raising interest rates and also the 0:05:29.640 --> 0:05:32.760 continue dialing down of its balance sheet. But it can 0:05:32.760 --> 0:05:35.880 also provide liquidity, which yes, does hit the balance sheet, 0:05:35.880 --> 0:05:38.599 but you can think about it as two different wallets 0:05:38.640 --> 0:05:41.400 that the FET is working with here, and so the 0:05:41.400 --> 0:05:43.839 FET is saying we can provide liquidity to banks, and 0:05:43.920 --> 0:05:47.799 it's not stimulative because banks are taking this money because 0:05:48.040 --> 0:05:50.520 they needed to make sure that they remain stable. But 0:05:50.560 --> 0:05:52.920 they're also probably not going to lend this money, so 0:05:53.000 --> 0:05:57.240 that doesn't so that prevents it from being stimulative or inflationary. 0:05:57.480 --> 0:05:59.320 So I think that's the key thing we have to 0:05:59.400 --> 0:06:02.799 understand that has many different tools, it's using these different 0:06:02.839 --> 0:06:06.359 tools in different ways, and that it can address inflation 0:06:06.480 --> 0:06:09.360 and providing liquidity at the same time. How much do 0:06:09.400 --> 0:06:13.600 you think that the Fed can cut rates? Well, again, 0:06:13.720 --> 0:06:15.800 we think there's there are no rate cuts for this year, 0:06:16.440 --> 0:06:20.320 but we'll probably start seeing consideration of rate cuts maybe 0:06:20.320 --> 0:06:22.560 in the second quarter of next year. But we think 0:06:22.600 --> 0:06:24.600 that we're not going to go back down to the 0:06:24.600 --> 0:06:27.559 low levels that we saw even before the pandemic, because 0:06:27.600 --> 0:06:30.560 inflation may be structurally higher and it may be more 0:06:30.640 --> 0:06:33.479 difficult for the FED to maintain that two percent target. 0:06:33.839 --> 0:06:36.360 So we think that maybe the federal funds rate next 0:06:36.440 --> 0:06:40.320 year goes down to around three quarter four percent, but 0:06:40.440 --> 0:06:43.279 certainly not back to two or one or even zero 0:06:43.360 --> 0:06:46.800 unless we have some major crisis or very deep procession. 0:06:47.200 --> 0:06:49.280 Dana Peterson, thank you so much for being with us 0:06:49.279 --> 0:06:56.240 of the conference board, joining us now as Patrick Compstrong, 0:06:56.360 --> 0:06:59.680 CEO of Plurimi Wealth. Patrick, You've usually got a ridly 0:06:59.720 --> 0:07:02.800 intestinct trade. I know you were sure Credit sways and 0:07:02.960 --> 0:07:05.360 you how some of the jet let's start there. Want 0:07:05.360 --> 0:07:09.080 me through how that worked out? Um, so our story 0:07:09.160 --> 0:07:11.200 Credit swayed all of last year. I actually closed my 0:07:11.280 --> 0:07:14.400 sort unfortunately at the beginning of March, so I thought 0:07:14.440 --> 0:07:17.760 it covered in a two nineties two point nine Swiss 0:07:17.760 --> 0:07:20.520 pranks are there, so made about a seventy percent return 0:07:20.560 --> 0:07:23.720 on the tourt thesis. Was not much upside in the equity, 0:07:23.720 --> 0:07:26.600 even though it's incredibly cheap. But bonds are going to 0:07:26.640 --> 0:07:31.760 be safe. It's a systemically important company. Bonds couldn't fail. 0:07:31.880 --> 0:07:34.240 So I had a bit of a scary ride over 0:07:34.280 --> 0:07:37.080 the weekend. Sure you did some of the bonds. I 0:07:37.120 --> 0:07:40.520 own our senior bonds, all senior bonds, but at the 0:07:40.560 --> 0:07:43.080 group level, and there are were scenarios where if it 0:07:43.160 --> 0:07:45.800 was a forced acid sale and UBS didn't buy the group, 0:07:46.080 --> 0:07:48.600 those bonds would have come under pressure and potentially even 0:07:48.640 --> 0:07:51.240 been worthless. But it turned out to be a good 0:07:51.240 --> 0:07:54.200 trade on both sides of those. Since we've pulled closed 0:07:54.200 --> 0:07:57.080 Credit Swiss, so we're actually short Bank of Nova Scotia 0:07:57.120 --> 0:08:01.320 in Canada now and the Adian banks became the biggest 0:08:01.360 --> 0:08:04.160 banks in the world in the financial crisis. They weren't 0:08:04.200 --> 0:08:08.240 impaired basically by the same issues that all the other 0:08:08.280 --> 0:08:10.680 banks plummet and value, and I think they're viewed as 0:08:10.680 --> 0:08:14.160 a beacon of safety. But Canadian banks have a property 0:08:14.160 --> 0:08:16.160 bubble to deal with, and they've got rising rates to 0:08:16.200 --> 0:08:19.360 deal with, and they're very expensive. You look at every 0:08:19.360 --> 0:08:21.880 other bank in the world and they're trading at frank 0:08:22.080 --> 0:08:25.520 practions of tangible book value. In Canada they're still trading 0:08:25.520 --> 0:08:28.960 at multiples of tangible book values. So very expensive banks, 0:08:29.320 --> 0:08:32.120 very well run banks, but with a property bubble that 0:08:32.200 --> 0:08:34.120 creates some risks. Well, let's put some numbers on that 0:08:34.160 --> 0:08:38.439 property bubble, Patrick, how about is that situation? Well, property 0:08:38.440 --> 0:08:43.880 it's always very hard to exactly quantify, but affordability index 0:08:44.000 --> 0:08:46.559 Canada is right near the bottom of the world. Property 0:08:46.559 --> 0:08:49.760 prices have gone up four hundred percent incomes a rising 0:08:49.840 --> 0:08:52.720 in line with the rest of the world. So zero 0:08:52.760 --> 0:08:56.160 interest rate policy that led to property price jumps everywhere. 0:08:56.280 --> 0:09:00.000 Just we're really magnified in Canada. Canada has been commodity 0:09:00.040 --> 0:09:02.240 the exporter as well. So in high old prices, the 0:09:02.240 --> 0:09:06.160 economy was relatively resilient, and zero interest rate policies have 0:09:06.360 --> 0:09:10.400 led to incredibly strong property market, especially in the big cities. Patrick, 0:09:10.440 --> 0:09:12.880 I'm going to help you out disclosure. You're from Canada, right, 0:09:12.920 --> 0:09:15.280 so this is something coming from a place where you 0:09:15.320 --> 0:09:17.920 can you can criticize your own home more easily. I 0:09:17.960 --> 0:09:20.880 am curious of whether this is just a symptom of 0:09:21.000 --> 0:09:23.360 liquidity being drawn out of the system that is exposing 0:09:23.360 --> 0:09:26.680 other areas is overly inflated that have not gotten repriced down, 0:09:26.960 --> 0:09:31.200 or you see a potential trade. What's a combination with 0:09:31.280 --> 0:09:35.920 bank lover expensive versus other banks very high on book value, 0:09:36.080 --> 0:09:39.479 higher on earnings, and you are going to see impairments 0:09:39.480 --> 0:09:42.559 on its loan book because banks their business model is 0:09:42.600 --> 0:09:45.080 you lend money to people to buy houses. If those 0:09:45.120 --> 0:09:48.600 house prices come back to normal on any measure versus history, 0:09:49.400 --> 0:09:51.920 you're going to have bad dents in Canada. But it's 0:09:51.960 --> 0:09:53.960 not just a Canadian story. I mean aside from just 0:09:54.040 --> 0:09:56.720 real estate, and there are issues or pockets of issues 0:09:57.000 --> 0:09:59.760 in the Scandinavian countries and other areas where there also 0:09:59.880 --> 0:10:02.920 is an affordability problem. It's also in private equity. It's 0:10:02.920 --> 0:10:04.880 also in private debt. We have seen this. We've heard 0:10:04.920 --> 0:10:07.320 this from a number of different people, and then others 0:10:07.360 --> 0:10:09.640 push back and say, well, it's either repriced or won't 0:10:09.640 --> 0:10:12.400 have to reprice because the assets will return to their 0:10:12.480 --> 0:10:15.040 value later on. Do you think that that's fair or 0:10:15.040 --> 0:10:17.800 do you think that there are pockets nodes of potential contagents. 0:10:17.800 --> 0:10:21.440 Should there be some forced sale, some price discovery in 0:10:21.520 --> 0:10:25.960 some of these assets. Yeah, private equity investors are generally 0:10:25.960 --> 0:10:28.360 not forced in to sell. But if you mark to 0:10:28.440 --> 0:10:32.560 market properly, there's no way private equity dodge to sell 0:10:32.600 --> 0:10:34.760 off in treasuries, to sell off in equities, to sell 0:10:34.800 --> 0:10:37.600 off in every asset. In twenty twenty two, but private 0:10:37.640 --> 0:10:40.600 equity funds mark their assets down six percent some of 0:10:40.600 --> 0:10:43.599 them things like that, But those aren't realizable levels. So 0:10:44.240 --> 0:10:46.960 actually I don't want to talk about but I'm sort equt, 0:10:47.240 --> 0:10:49.880 which is a private equity a lot of private equity assets. 0:10:49.920 --> 0:10:53.079 I'm sort soft bank, which was a play on higher 0:10:53.080 --> 0:10:56.440 interest rates and companies that have no path to profitability. 0:10:56.520 --> 0:10:59.160 But it is also tying into what you just said 0:10:59.160 --> 0:11:01.760 about marking to market versus marking to what you wanted 0:11:01.760 --> 0:11:04.120 to market out So Patrick, tell me about the lungs. 0:11:04.120 --> 0:11:05.679 Since you don't want to talk about the shorts too 0:11:05.720 --> 0:11:09.560 much anymore. What's your favorite long run? Now? My favorite 0:11:09.679 --> 0:11:16.240 long I like BBVA. If we're talking about banks, especially, 0:11:16.360 --> 0:11:19.040 that's a company that's going to grow its revenue probably 0:11:19.080 --> 0:11:22.720 at fifteen percent minimum this year. They've told the regulator 0:11:22.800 --> 0:11:25.960 they expect to grow revenue at twenty five percent. Interest 0:11:26.040 --> 0:11:28.559 rates on zero anymore, that was a big headwind to 0:11:28.600 --> 0:11:32.920 their profitability. So I'm not anti bank. I think some 0:11:32.960 --> 0:11:35.560 of the banks makes sense. I like to pair longs 0:11:35.559 --> 0:11:38.959 with shorts. BBVA I think is very attractive value. Right now, 0:11:39.000 --> 0:11:41.920 the ECPs coming out swinging talking about more hikes. You 0:11:42.000 --> 0:11:44.600 heard the German Central Bank governor saying the same thing, 0:11:44.679 --> 0:11:48.400 maybe even speeding up QT in three Q. You think 0:11:48.440 --> 0:11:52.480 that's achievable, Well, you've got to measure price stability, which 0:11:52.520 --> 0:11:55.760 they're worried about. But financial stability I think is first 0:11:55.800 --> 0:11:59.120 and foremost in all the central banks as to be 0:11:59.360 --> 0:12:02.400 right now, and I actually think we probably aren't going 0:12:02.440 --> 0:12:05.360 to get as hawks responses we probably would have otherwise, 0:12:05.800 --> 0:12:07.840 and it's going to soil the seeds for future inflation 0:12:07.880 --> 0:12:10.520 down the line because central banks playbook when there is 0:12:10.559 --> 0:12:15.880 financial press still liquidity at it, and you've got conditions 0:12:15.960 --> 0:12:18.520 tightening that are offset by the liquidity is they're throwing 0:12:18.600 --> 0:12:20.800 right now. So it's not in placemary right now, but 0:12:20.920 --> 0:12:22.960 they have a tendency to leave those policies in place 0:12:23.000 --> 0:12:25.120 a little bit longer than they could. So I think 0:12:25.120 --> 0:12:28.320 inflation is really dying out quick right now, but I 0:12:28.360 --> 0:12:31.000 think it's probably got another leg up in response to 0:12:31.040 --> 0:12:32.880 what's going to be happening from central banks in the 0:12:32.880 --> 0:12:39.120 coming month. What's the growth profile associated with that inflation? Kilpatrick? Well, so, 0:12:39.200 --> 0:12:42.280 I think the US is probably going to fall into 0:12:42.600 --> 0:12:46.359 a technical recession, probably just based on the tighter financial conditions, 0:12:46.440 --> 0:12:49.920 less access to credit. My view was a month ago 0:12:49.920 --> 0:12:52.840 it wouldn't and my view is now that it probably will, 0:12:52.880 --> 0:12:54.920 but I think it's going to be relatively minor. The 0:12:54.920 --> 0:12:58.920 employment situation is still robust. Employments always a lagging indicator, 0:12:59.040 --> 0:13:02.679 but one point six job openings for every unemployed person. 0:13:03.040 --> 0:13:05.200 That's got to change a lot before you see a 0:13:05.240 --> 0:13:08.600 meaningful disdropt into the US consumer Patra fascinating to catch 0:13:08.679 --> 0:13:11.320 up great cold on credit Swaice as well, Patrick Armstrong. 0:13:11.360 --> 0:13:13.640 There of plurimi wealth. I'm sure he hoped he'd held 0:13:13.679 --> 0:13:17.559 on for another two weeks onto that short but seventy 0:13:17.600 --> 0:13:19.959 percent move. Yeah, that's a pretty big move. Yeah, he 0:13:20.200 --> 0:13:27.160 did pretty well for himself. Henrita Trace joins us now 0:13:27.200 --> 0:13:30.480 the managing partner and director of Economic Research at FADA Partners. 0:13:30.720 --> 0:13:34.160 What a moment, Henrietta. I wouldn't subscribe it that way. 0:13:34.240 --> 0:13:37.040 I don't think spying is the right way to describe it. 0:13:37.160 --> 0:13:40.760 What were your thoughts when you heard that? Look, please stop. 0:13:40.800 --> 0:13:43.280 I mean that was so terrible to watch. That was 0:13:43.360 --> 0:13:45.640 really tough, and it was definitely one of the most 0:13:45.679 --> 0:13:48.679 aggressive hearings that I can remember watching, and I've seen 0:13:48.760 --> 0:13:50.960 quite a few of them. But I agree with your point. 0:13:51.000 --> 0:13:53.240 I think he did as great of a job as 0:13:53.280 --> 0:13:55.800 you could have done. The members knew what they wanted 0:13:55.840 --> 0:13:57.920 to get out of that moment, out of that five 0:13:58.000 --> 0:14:00.960 hour hearing, and it was some of the members were saying, 0:14:01.080 --> 0:14:03.760 the most bipartisan committee and the most bipartisan hearing that 0:14:03.800 --> 0:14:05.600 we've seen in a very long time. And I think 0:14:05.600 --> 0:14:08.880 that is really what drove the attention yesterday, and they 0:14:08.920 --> 0:14:11.200 got the SoundBite they wanted. As he pointed out, Lisa well, 0:14:11.200 --> 0:14:13.600 but Henrietta, how quickly can they actually get something done? 0:14:13.679 --> 0:14:16.840 Where is the actual political will to do something that 0:14:17.040 --> 0:14:20.800 could make some serious ripple effects, particularly among younger Americans. 0:14:21.840 --> 0:14:23.800 I'm really glad you asked. I don't think that there 0:14:23.840 --> 0:14:27.760 will be material legislation targeting TikTok specifically, and I do 0:14:27.800 --> 0:14:29.320 not think that there will be a national ban. I 0:14:29.400 --> 0:14:32.240 understand that yesterday's hearing was very explosive, got a lot 0:14:32.240 --> 0:14:35.280 of attention. It was the banner headline across all media 0:14:35.320 --> 0:14:38.600 platforms yesterday. But the Congress is not in a position 0:14:38.680 --> 0:14:41.800 to pass legislation to ban TikTok right now, even constitutionally 0:14:41.800 --> 0:14:44.080 if they could. What I think is happening, and I 0:14:44.080 --> 0:14:46.760 would encourage investors to do, is watch Katherine Tie, the 0:14:46.880 --> 0:14:49.600 US Trade Representative, today when she's up on the help 0:14:49.600 --> 0:14:51.600 for the second hearing in front of the House Ways 0:14:51.640 --> 0:14:55.120 and Means Committee. That's where you're writing a big, comprehensive 0:14:55.240 --> 0:14:57.400 China Bille, and we saw her give a preview of 0:14:57.400 --> 0:15:00.400 that yesterday. It state finance. They were dueling here at 0:15:00.440 --> 0:15:03.000 the exact same time. But if you didn't want as 0:15:03.120 --> 0:15:05.600 much fireworks, and you were more interested in policy, you 0:15:05.600 --> 0:15:07.680 would have watched the Setate Finance Committee hearing and that's 0:15:07.720 --> 0:15:10.320 what I was doing. So I would encourage people to 0:15:10.360 --> 0:15:13.960 watch Katherine Tye today Master Tie at nine am because 0:15:14.040 --> 0:15:18.640 they have issues about China's expansion into Latin America, Brazil, Russia, 0:15:19.560 --> 0:15:24.800 ip theft, human rights, climate issues. This is the TikTok issue, 0:15:24.880 --> 0:15:28.760 is one that effectively brings everybody to the yard, gets 0:15:28.760 --> 0:15:31.560 the bipartisan support we're looking for that allows them to 0:15:31.560 --> 0:15:34.360 craft a comprehensive China bill, which the Biden administration is 0:15:34.360 --> 0:15:37.360 hoping to do after the debt ceiling standoff is resolved 0:15:37.680 --> 0:15:40.120 or worst case scenario, in his next term if he 0:15:40.160 --> 0:15:42.440 gets reelected. When it comes to the consequences of this, 0:15:42.520 --> 0:15:44.320 how much are you watching TikTok and how much are 0:15:44.360 --> 0:15:47.560 you watching Apple and other big tech companies that have 0:15:47.600 --> 0:15:51.680 substantial businesses over in China. This is exactly what's in 0:15:51.720 --> 0:15:54.360 the restrict Act. That is the one bill that I 0:15:54.360 --> 0:15:57.600 do think could pass on TikTok. It's really about all 0:15:57.640 --> 0:16:01.440 emerging technologies, all social media, and it doesn't just target China. 0:16:01.440 --> 0:16:06.160 It also targets around Russia, Venezuela, Cuba. It's most it's 0:16:06.160 --> 0:16:10.360 the most comprehensive and it could theoretically put every social 0:16:10.360 --> 0:16:13.440 media company on the front of the table and allow 0:16:13.480 --> 0:16:17.000 the Department of Commerce, obviously run by an extraordinarily competent 0:16:17.080 --> 0:16:20.080 Secretary Raymondo, to see what they want to do, study 0:16:20.120 --> 0:16:22.240 the issue, and then restrict and ban if they see 0:16:22.280 --> 0:16:25.400 fit they takes CEO had a tough day. Secretary has 0:16:25.440 --> 0:16:28.600 had a tough two weeks, Henrietta. Let's talk about policy. 0:16:28.920 --> 0:16:31.960 Where is this policy effort going on the bank in front? 0:16:33.720 --> 0:16:38.480 Nowhere fast. I have spoken with Democrats and Republicans House 0:16:38.520 --> 0:16:41.480 Senate for the last two weeks or two years, however 0:16:41.520 --> 0:16:46.560 it's been since SAB collapsed. The reality on Capitol Hill 0:16:46.680 --> 0:16:49.400 is that the House Republican Conference is not prepared to 0:16:49.480 --> 0:16:54.240 move legislation on banking at this time. There are many 0:16:54.280 --> 0:16:57.640 ideas floating around, but there is no path to two 0:16:57.760 --> 0:16:59.800 hundred and eighteen votes from a majority of the Republican 0:16:59.800 --> 0:17:02.280 call friends in the House on any legislation. And what 0:17:02.360 --> 0:17:04.639 I hear time and time again is that you need 0:17:04.680 --> 0:17:09.280 to see the impact of this banking crisis and the 0:17:09.280 --> 0:17:13.200 collapse of a couple sort of bespoke boutique firms, which 0:17:13.240 --> 0:17:15.280 is how a lot of House Republicans think about this 0:17:15.680 --> 0:17:17.720 really start to hit the heartland. You need to see 0:17:17.920 --> 0:17:21.639 farming banks, farming state impacts. You know, it can't just 0:17:21.680 --> 0:17:25.440 be commercial real estate that is reeling from this collapse 0:17:25.480 --> 0:17:29.040 and potentially seeing their lending ability squeezed. You need to 0:17:29.080 --> 0:17:33.320 see real heartland impact that's not just in a certain 0:17:33.760 --> 0:17:36.920 couple of places. Most of the Republican conference, I would 0:17:36.960 --> 0:17:40.320 say about eighty percent was not in office during the 0:17:40.359 --> 0:17:42.919 Great Recession, and they were not here during the banking collapse, 0:17:42.960 --> 0:17:45.199 and many of them ran on the campaign of we 0:17:45.280 --> 0:17:48.840 are against bailouts, were against heart and when they look at, 0:17:48.880 --> 0:17:51.600 you know, ensuring all deposits and passing legislation to hike 0:17:51.640 --> 0:17:54.080 the two hundred fifty thousand dollars cap, all they see 0:17:54.119 --> 0:17:56.320 is bailout and that's not going to pass in this conference. 0:17:56.560 --> 0:17:59.560 Do you see and can you identify a mechanism for 0:17:59.600 --> 0:18:02.639 the trade ye to move forward and temporarily suspend the 0:18:02.680 --> 0:18:05.639 limit on deposits. It's to a mechanism that exists in 0:18:05.680 --> 0:18:09.240 your mind. Yes, absolutely. And one thing that I recall, 0:18:09.280 --> 0:18:11.080 you know, I was in the Senate during the banking crisis. 0:18:11.160 --> 0:18:14.840 The ability regulators to act is unparalleled, and the things 0:18:14.840 --> 0:18:17.679 that they can pull out of a hat are really impressive. 0:18:17.720 --> 0:18:20.120 So I think the most focused right now. What I've 0:18:20.160 --> 0:18:22.720 spoken with Senate Banking Committee staff on, and I know 0:18:22.800 --> 0:18:25.720 Treasury is working on, is shoring up all the things 0:18:25.760 --> 0:18:27.760 that we would think of for extraordinary measures on the 0:18:27.800 --> 0:18:30.760 debt ceiling. I would encourage folks to look at Secretary 0:18:30.800 --> 0:18:33.600 Geitner's letters sent back in twenty twelve, where he lays 0:18:33.640 --> 0:18:36.640 out like five different baskets of funding that the Treasury 0:18:36.640 --> 0:18:39.879 has exclusive authority over that they can tap into in 0:18:39.920 --> 0:18:43.000 the event of a crisis. This circumstance I'm referencing was 0:18:43.040 --> 0:18:45.480 the debt ceiling, but they can use that here as well. 0:18:45.920 --> 0:18:48.520 The ESG Fund in particular, is getting a lot of attention. 0:18:48.720 --> 0:18:52.520 Treasury Secretary Yellen, once President Biden gives her the sign off, 0:18:52.640 --> 0:18:55.960 is authorized to use the funds there, which were two 0:18:56.040 --> 0:18:59.200 hundred and sixteen billion dollars as of January thirty first 0:18:59.240 --> 0:19:02.239 of this year, to deploy as she sees it. So 0:19:02.280 --> 0:19:04.760 I think that's where a lot of the focus should be. 0:19:04.840 --> 0:19:07.879 It's on the regulators importantly. I think the regulators know 0:19:07.960 --> 0:19:10.440 that Congress is incapable of action, and so they are 0:19:10.520 --> 0:19:14.360 already prepared to move and they have experienced if the 0:19:15.119 --> 0:19:17.879 members of the House do not just to finish on 0:19:17.920 --> 0:19:21.639 Secretary Yellen, she was asked whether she discussed some of 0:19:21.640 --> 0:19:24.639 these issues, and she said she hadn't discussed them. And 0:19:24.680 --> 0:19:27.879 I struggled to believe that Henrietta just struggled to believe 0:19:27.880 --> 0:19:31.040 that the Treasury hadn't had a discussion about doing away 0:19:31.600 --> 0:19:34.480 with the cap on deposity deposit insurance through the mechanisms 0:19:34.520 --> 0:19:37.919 which you've identified. Were surprised that she used that language. 0:19:39.160 --> 0:19:41.679 I do think that there's been some maybe back and 0:19:41.760 --> 0:19:46.240 forth in terms of what they're telegraphing. But I also 0:19:46.920 --> 0:19:49.560 get the sense the Treasury is trying to you know, 0:19:49.880 --> 0:19:53.359 exude calm and stress as the followers are to help 0:19:53.440 --> 0:19:56.120 them do earlier this week that there's not a systemic 0:19:56.160 --> 0:20:00.359 banking crisis. So I do think that acting unila early 0:20:00.440 --> 0:20:03.000 to you know, provide unlimited backstop would have gotten a 0:20:03.040 --> 0:20:06.600 lot of blowback. Yeah, she'd committed that. Just think about 0:20:06.600 --> 0:20:08.760 how quickly that sounds like a bailout, especially when you've 0:20:08.800 --> 0:20:11.159 got guys like Gary Cohn throwing out ten million dollars numbers. 0:20:12.000 --> 0:20:14.120 It's just too high. So I do think that there 0:20:14.240 --> 0:20:18.360 was some strategy involved there, which was the worst scenario 0:20:18.520 --> 0:20:21.240 saying that you are considering it an unlimited basis, or 0:20:21.240 --> 0:20:23.119 maybe just say, hey, we haven't had that conversation. I 0:20:23.119 --> 0:20:26.280 think she picked the least bad option. What a tough 0:20:26.320 --> 0:20:29.520 spot hemerer trace their faded partners. Who would you prefer 0:20:29.520 --> 0:20:32.960 to be this week? Framo TikTok ceo? Second, Psach, you 0:20:33.040 --> 0:20:36.240 pick TikTok ceo because you had nothing to lose. Who 0:20:36.240 --> 0:20:42.080 are already working to be exactly lose it lost already exactly? 0:20:42.320 --> 0:20:46.440 Patrick calm Strong flimy Wealth coming up. Chris Marangue joins 0:20:46.520 --> 0:20:49.720 US now coc iok Belly Funds. Chris, your words, the 0:20:49.760 --> 0:20:53.200 bank crisis a feature, not a bug of FED policy, Chris, 0:20:53.200 --> 0:20:56.000 what do you mean by that? Well, listen, I think 0:20:56.200 --> 0:20:59.920 we've talked for a long time about Cherry Powell pushing rates. 0:21:00.160 --> 0:21:04.359 Something breaks, and clearly something's broken. He's made no he 0:21:04.400 --> 0:21:07.920 hasn't been shy about about talking about the fact that 0:21:08.000 --> 0:21:12.280 this credit crisis is going to be disinflationary. It helps 0:21:12.280 --> 0:21:15.720 them attack inflation. So as long as we can manage 0:21:15.720 --> 0:21:17.800 through this, it probably helps that part of the equation. 0:21:18.320 --> 0:21:20.240 If we can manage through it, if we can avoid 0:21:20.240 --> 0:21:23.200 a deeper crisis, one that spreads even more. Chris, is 0:21:23.240 --> 0:21:28.200 this sector attractive to you in any way, shape or form. Well, thankfully, 0:21:28.200 --> 0:21:33.160 we have generally avoided cyclical and sorry, we've generally avoided 0:21:33.960 --> 0:21:37.440 commoditized businesses, and the borrow short lived long business is 0:21:37.480 --> 0:21:43.680 somewhat commoditized. And it's become less attractive recently, in part 0:21:43.720 --> 0:21:46.159