WEBVTT - Surveillance: Basak on Gorman Resigning 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.560 the Bloomberg Terminal and the Bloomberg Business app. Who could 0:00:30.560 --> 0:00:33.279 we speak to that could talk about the bench at 0:00:33.360 --> 0:00:36.159 Morgan Stanley and that would be Oh, I don't know, 0:00:36.320 --> 0:00:39.800 Ellen Zendner or you know Jim Caron will be on 0:00:39.920 --> 0:00:42.599 with John Farrow in the next hour. No, that's not 0:00:42.680 --> 0:00:45.680 the bench expert at the benches of Wall Street firms 0:00:46.200 --> 0:00:50.080 is our Bloomberg Someday they'll be CEO Correspondent Shannelli bask 0:00:50.200 --> 0:00:52.959 joins us. Is this a surprise that mister Gorman will 0:00:53.000 --> 0:00:53.680 step aside? 0:00:53.800 --> 0:00:56.280 The timeline is certainly a surprise. We knew that it 0:00:56.280 --> 0:00:57.960 would be coming one day. He's been at the home 0:00:58.000 --> 0:00:59.680 for a very long time now and we know that 0:00:59.760 --> 0:01:03.960 more and Stanley has been prepping the bench for a while. 0:01:04.400 --> 0:01:07.319 Think about how many people have grown up under James 0:01:07.319 --> 0:01:10.479 Gorman have left the firm and the two men under 0:01:10.560 --> 0:01:13.360 him right now, Andy Saperstin at the Wealth business and 0:01:13.440 --> 0:01:17.200 Ted Pick. They're home grown. They have been there for 0:01:17.240 --> 0:01:19.320 a long time. They have been at the most pivotal 0:01:19.319 --> 0:01:21.880 moments of the firm up and down. That is a 0:01:22.000 --> 0:01:25.640 Ted Pick at the institutional Securities division really helped make 0:01:25.720 --> 0:01:28.800 this tough transition from cutting and adding to the fixed 0:01:28.880 --> 0:01:32.280 income business, for example, help competing as the top prime 0:01:32.319 --> 0:01:34.920 broker on Wall Street in the equities business as well. 0:01:35.280 --> 0:01:38.640 And over at the wealth business. Andy Sapristin, former consultant, 0:01:38.800 --> 0:01:42.560 longtime lieutenant to James Gorman. Now the question is and 0:01:43.040 --> 0:01:45.680 waiting for the headlines on this did they at what 0:01:45.720 --> 0:01:49.240 point are they going to announce who is taking over? 0:01:49.600 --> 0:01:52.840 Well, let me just read the exact statement this from 0:01:52.920 --> 0:01:55.800 Gorman at the firm's annual meeting. He said, it is 0:01:55.840 --> 0:01:58.240 the boards and my expectation that it will occur at 0:01:58.240 --> 0:02:00.160 some point in the next twelve months. He's talking about 0:02:00.160 --> 0:02:03.680 his departure as chief executive officer and becoming the chair 0:02:03.720 --> 0:02:06.600 of the board. That is the current expectation in the 0:02:06.640 --> 0:02:09.960 absence of a major change in the external environment. Also, 0:02:10.000 --> 0:02:12.920 a key question was this a decision that he made 0:02:12.960 --> 0:02:17.000 independently for a lifestyle kind of issue. Was this some 0:02:17.000 --> 0:02:21.519 sort of strategic shift by the board made basically without 0:02:21.600 --> 0:02:24.560 necessarily his desiring this departure. 0:02:24.360 --> 0:02:26.480 You know, I think that's an interesting question. It's hard 0:02:26.480 --> 0:02:29.320 to have any evidence of something like that. James Gorman 0:02:29.360 --> 0:02:32.320 has just made this firm into a behemoth. Remember when 0:02:32.320 --> 0:02:34.680 I started covering Morgan Stanley, they were worth much less 0:02:34.680 --> 0:02:37.480 than Goldman's acts. Now they are worth much more. That 0:02:37.560 --> 0:02:41.800 divide has just increased despite many, many doubts. I remember 0:02:42.639 --> 0:02:45.600 years ago there was a call, a conference call, and 0:02:47.160 --> 0:02:49.800 you had analysts asking why he wasn't raising the bar 0:02:49.960 --> 0:02:52.840 more for Morgan Stanley, and you had James Gorman stepping 0:02:52.840 --> 0:02:56.000 back saying be patient, We've got this, and ultimately he 0:02:56.480 --> 0:02:59.600 was right. And so you know, again there's been a 0:02:59.639 --> 0:03:02.040 lot of consistency year, Lisa, when you look at the 0:03:02.080 --> 0:03:05.800 next level of the firm, and again I think this 0:03:05.840 --> 0:03:09.320 is very classic Morgan Stanley fashion. They announced one change, 0:03:09.520 --> 0:03:11.639 they give you some time to absorb it, then they 0:03:11.639 --> 0:03:12.919 announced the next big move. 0:03:13.120 --> 0:03:15.920 So it's interesting to me the point about unless there 0:03:15.960 --> 0:03:18.240 is some sort of shift in the market conditions at 0:03:18.240 --> 0:03:21.000 a time when people have been talking about a financial 0:03:21.080 --> 0:03:23.640 crisis that never transpired, and now people are talking almost 0:03:23.639 --> 0:03:27.040 about stasis or this calm that has really percolated out. 0:03:27.400 --> 0:03:30.400 Is this viewed as sort of a calm period, a 0:03:30.480 --> 0:03:33.280 pond with the duck sailing cross, even if there's paddling underneath, 0:03:33.480 --> 0:03:35.960 where they can actually make shifts like this without any 0:03:36.000 --> 0:03:37.800 major disruption and do it easily. 0:03:37.880 --> 0:03:40.240 Well, how fascinating to talk about this right before people 0:03:40.280 --> 0:03:44.160 are worried about a potential recession. Morgan Stanley has seen 0:03:44.280 --> 0:03:45.960 some of the worst days to two thousand and eight. 0:03:45.960 --> 0:03:48.400 They remember what it felt like. So this is some calm, 0:03:48.480 --> 0:03:50.560 isn't it. That is saying it is calm enough to 0:03:50.600 --> 0:03:52.560 start to transition. And by the way, look how many 0:03:52.600 --> 0:03:55.280 CEOs are changing on Wall Street. This is the time 0:03:55.360 --> 0:03:57.680 for the next generation to step Well. 0:03:57.760 --> 0:04:01.120 Okay, maybe Paul Davis wrote this six months ago, five 0:04:01.120 --> 0:04:03.920 months ago for Bloomberg. Thank you to the Washington Post 0:04:03.960 --> 0:04:08.200 for publishing Paul Davies, and he just I'll never forget 0:04:08.200 --> 0:04:13.480 the headline, Golden Sachs is quote far far behind Morgan Stanley. 0:04:14.320 --> 0:04:17.760 It's all about asset management, right, It's an eat advanced thing. 0:04:17.800 --> 0:04:19.960 I don't know how he trades worked out as well. 0:04:20.880 --> 0:04:24.040 But where does Sa Pristine fit into that? Because my 0:04:24.680 --> 0:04:27.360 basic take here is Ted Picks sort of the older guy. 0:04:27.800 --> 0:04:31.040 He's got the swagger of Morgan Stanley, and Sa Pristine 0:04:31.120 --> 0:04:33.159 is watching paint dry making all the money. 0:04:33.279 --> 0:04:36.920 Glad that right, It's a pretty good characterization of what's 0:04:36.920 --> 0:04:39.080 going on. Listen, in the trading business. These are a 0:04:39.120 --> 0:04:41.880 bunch of loyalists. This goes back to what true killer 0:04:42.200 --> 0:04:45.000 was there. You worry about the traders leading without a 0:04:45.040 --> 0:04:48.120 solid person in charge that they trust that leads the troops. 0:04:48.279 --> 0:04:50.800 But to your point here on Andy, he also has 0:04:50.960 --> 0:04:53.880 tens of thousands of financial advisors across the United States. 0:04:54.520 --> 0:04:57.440 Those are less swashbuckling, let's say, than maybe the traders 0:04:57.440 --> 0:05:01.839 and investment bankers. But it's steady and they bring in 0:05:01.960 --> 0:05:02.440 the big. 0:05:02.240 --> 0:05:06.200 Box besides at any firm who takes. 0:05:05.920 --> 0:05:07.159 Over the board. 0:05:07.279 --> 0:05:09.600 But remember, as we've been talking about, James Gorman is 0:05:09.640 --> 0:05:10.400 on that board. 0:05:10.440 --> 0:05:11.920 Okay, you can find he's on the board. But how 0:05:11.960 --> 0:05:15.040 independent is on Morgan Stanley board versus a guy who 0:05:15.120 --> 0:05:18.280 many people would suggest as a CEO of the decade 0:05:18.520 --> 0:05:19.599 on Global Wall Street. 0:05:19.640 --> 0:05:20.839 I think it's a great question. 0:05:21.200 --> 0:05:22.800 It's more really good one of the day, so go 0:05:22.880 --> 0:05:23.160 with it. 0:05:23.360 --> 0:05:27.360 Morgan Stanley's board is pretty diverse and very committed, and 0:05:27.400 --> 0:05:31.799 remember they it's changed quite a bit in recent years. 0:05:31.800 --> 0:05:35.839 It has talent from the former Securities and Exchange Commission 0:05:36.240 --> 0:05:39.240 from Japan given their deal with the MUFG during the 0:05:39.360 --> 0:05:42.719 financial crisis. So it is quite independent relative to a 0:05:42.720 --> 0:05:45.200 lot of what you're seeing on Wall Street. And that's 0:05:45.240 --> 0:05:49.279 what kind of makes this succession plan successful in the 0:05:49.320 --> 0:05:52.960 eyes of Wall Street. It's consistent, and it is broad, 0:05:53.120 --> 0:05:56.120 and it is diverse in the way it's being sorted through. 0:05:56.360 --> 0:05:58.760 If you're just joining right now, the news of the day, 0:05:58.800 --> 0:06:01.400 Morgan Stanley CEO J Scoreman is playing to step down 0:06:01.680 --> 0:06:04.520 within twelve months. This he made in an announcement at 0:06:04.560 --> 0:06:08.240 the annual meeting. The shares of the immediately popped lower 0:06:08.279 --> 0:06:10.400 about one point seven percent. They've retraced a lot of 0:06:10.440 --> 0:06:13.080 that down here, just six tenths of a percent. As 0:06:13.080 --> 0:06:16.479 people digest the news, it does seem like shnali. This 0:06:16.560 --> 0:06:18.640 has been in the works. This has been something they've 0:06:18.680 --> 0:06:21.600 been planning for and they pulled the trigger a bit earlier. 0:06:21.800 --> 0:06:24.440 Is there a sense of shift within the strategy of 0:06:24.480 --> 0:06:26.800 this company going forward, or do you think it's stay 0:06:26.880 --> 0:06:30.080 the course, keep the homegrown talent and keep unplugging away. 0:06:30.640 --> 0:06:33.080 It's already changed so much to your point, with the 0:06:33.080 --> 0:06:35.960 big acquisitions. They've always had wealth as a huge driver 0:06:36.080 --> 0:06:39.080 asset management, but the asset manager again, five six years ago, 0:06:39.320 --> 0:06:41.599 you couldn't see Morgan Stanley becoming more than a trillion 0:06:41.600 --> 0:06:44.839 dollars in asset management. That has changed, and it changed 0:06:44.920 --> 0:06:48.520 quickly with acquisitions. So they've they've already changed. The question 0:06:48.720 --> 0:06:51.839 is if they choose one man or the other, which 0:06:52.320 --> 0:06:55.920 part of the bank could suffer from any potential electrical 0:06:56.000 --> 0:06:57.440 in or concerns around who's. 0:06:57.240 --> 0:07:00.760 Leader off the BQ screen glob and six zero three 0:07:00.839 --> 0:07:04.479 price to book Morgan Stanley and James Diamond like one 0:07:04.600 --> 0:07:08.560 point five to three and I'm sorry the guy is 0:07:08.640 --> 0:07:14.160 so modest that he's underplayed what he did with managing money. 0:07:14.360 --> 0:07:17.440 I mean that to me is just the massive theme hearon. 0:07:17.960 --> 0:07:20.360 You've said that he will stay as an executive chairman. 0:07:20.560 --> 0:07:22.480 Yeah, he's going to be chair What do they do? 0:07:23.240 --> 0:07:23.760 What do they do? 0:07:23.800 --> 0:07:25.080 What do executive chairman do? 0:07:25.760 --> 0:07:27.720 They sit around and they make sure that nothing goes wrong, 0:07:27.760 --> 0:07:31.160 and they come back if things do go wrong. I mean, listen, 0:07:31.200 --> 0:07:33.360 the initial market reaction tells you a lot. He's a 0:07:33.440 --> 0:07:35.920 iconic at the helm of Morgan Stanley. He's changed the 0:07:35.960 --> 0:07:38.880 firm more than any other bank has changed. 0:07:38.880 --> 0:07:40.200 In the last name, I thank you. 0:07:40.240 --> 0:07:42.720 She is our chief Wall Street correspondent. There's no other 0:07:42.760 --> 0:07:49.000 way to put it appropriate to speak Tom his misery. Now, 0:07:49.000 --> 0:07:51.240 I had a global rates TD securities and we do 0:07:51.320 --> 0:07:54.280 this with the two tens spread sixty basis points her 0:07:54.360 --> 0:07:57.080 great call of curven version a good year and a 0:07:57.120 --> 0:08:00.360 half ago. Priya, good morning. You are focused not on 0:08:00.440 --> 0:08:02.440 ten year, not on two years, but in the belly 0:08:02.480 --> 0:08:05.280 of the curve at five years. Why are you suggesting 0:08:05.400 --> 0:08:08.200 dynamics in the five year would be a more attractive place? 0:08:08.240 --> 0:08:09.760 To be sure? 0:08:09.800 --> 0:08:12.400 So I think it's all about how far you are 0:08:12.480 --> 0:08:15.160 from the first rate cut and where is the FED 0:08:15.240 --> 0:08:16.320 going to cut those rates to. 0:08:16.640 --> 0:08:18.600 You know, I still think we're about six months away 0:08:18.600 --> 0:08:19.480 from the first rate cut. 0:08:19.480 --> 0:08:21.280 In fact, the risks are that they don't even cut 0:08:21.280 --> 0:08:23.480 this year, they start to cut next year. They're so 0:08:23.640 --> 0:08:26.680 hyper focused on inflation they are looking for a slowdown, 0:08:26.720 --> 0:08:28.400 So I think they might be a little late. But 0:08:28.520 --> 0:08:30.440 once they start to cut we think they're going to 0:08:30.440 --> 0:08:32.400 cut a lot more than what's priced in. I mean, 0:08:32.440 --> 0:08:35.240 the market's pricing in the you know what we're calling 0:08:35.240 --> 0:08:38.400 the trough rate, which is the end point of those cuts. 0:08:38.440 --> 0:08:41.240 At three percent, I mean three percent is actually higher 0:08:41.240 --> 0:08:43.640 than the Fed's estimate of neutral rate. So the market 0:08:43.679 --> 0:08:45.679 is not pricing in a recession. Far from it. I 0:08:45.760 --> 0:08:48.760 think the market's pricing in normalization if we actually do 0:08:49.000 --> 0:08:50.720 enter a recession, and in our view, it's going to 0:08:50.720 --> 0:08:53.480 be a recession, you know, because of the bank lending standards, 0:08:53.480 --> 0:08:56.280 because of the lagged impact of rate hikes, as the 0:08:56.320 --> 0:08:59.000 consumer savings buffer runs out, and now we might even 0:08:59.040 --> 0:09:00.959 have fiscal drag. I think the only way to get 0:09:00.960 --> 0:09:03.520 a dead seating deal is to get that fiscal drag. So, 0:09:03.880 --> 0:09:05.800 you know, as the economy slows down, I think the 0:09:05.800 --> 0:09:07.960 Fed's going to cut a lot more. But if the 0:09:08.040 --> 0:09:10.480 cuts are six months out, I think it's a little 0:09:10.480 --> 0:09:11.960 tricky to be in the very front end. 0:09:12.280 --> 0:09:13.160 But if you're too. 0:09:13.000 --> 0:09:16.640 Far out, then you know, there's essentially a lot of 0:09:16.640 --> 0:09:18.360 things that can move long end rates. I think that 0:09:18.400 --> 0:09:20.559 five years sort of the sweet spot. Three or five 0:09:20.640 --> 0:09:22.720 year rates, I think those are actually very attractive because 0:09:22.760 --> 0:09:25.880 they're positioning for the FED whenever they start to cut. 0:09:26.360 --> 0:09:27.960 Just this idea that they're going to cut a lot 0:09:28.120 --> 0:09:29.000 post pause. 0:09:29.240 --> 0:09:32.679 Whenever that is, where is the ten year yield? 0:09:34.040 --> 0:09:36.440 So I would say that the tenure is benefiting a 0:09:36.440 --> 0:09:38.800 little bit from the fact that there's significant inflows into 0:09:38.880 --> 0:09:41.400 bond mutual funds. You know, once the pause happens, I 0:09:41.400 --> 0:09:43.880 think we all look at what's next. I don't really 0:09:43.960 --> 0:09:47.520 buy this skip idea because the economy doesn't move, you know, 0:09:47.800 --> 0:09:50.000 it's not that volatile. I think right now we're seeing 0:09:50.000 --> 0:09:53.160 the slowdown as it starts to build up steam. I 0:09:53.160 --> 0:09:55.440 think it's going to lose momentum really fast. So I 0:09:55.440 --> 0:09:58.720 don't buy this skip and then rehike. I think we'll 0:09:58.720 --> 0:10:01.199 be all focused on when the cuts happen. I mean, 0:10:01.640 --> 0:10:04.280 we're looking at the tenure below three percent by year end, 0:10:04.840 --> 0:10:06.520 at two and a half by next year, so the 0:10:06.559 --> 0:10:09.000 tenure will also have a significant move. I just like 0:10:09.080 --> 0:10:10.640 the five year a little bit more right now because 0:10:10.679 --> 0:10:12.760 it's more sensitive to economic data. 0:10:12.800 --> 0:10:15.040 We've been talking about the resilience and retailers. We've been 0:10:15.040 --> 0:10:17.280 talking about the resilience in deer sales. We've been talking 0:10:17.360 --> 0:10:19.000 about the fact that a lot of these companies have 0:10:19.000 --> 0:10:21.439 been able to pass along price increases, which is one 0:10:21.480 --> 0:10:24.240 reason why perhaps people are rethinking the view that you 0:10:24.320 --> 0:10:26.720 just put out there that it's unlikely for the FED 0:10:26.800 --> 0:10:30.000 to cut rates significantly in the next twelve to twenty 0:10:30.000 --> 0:10:32.400 four months. Michael Hartner over at Bank of America said 0:10:32.400 --> 0:10:34.360 that the biggest pain trade in the next twelve months 0:10:34.440 --> 0:10:37.440 is a FED funds rate rising to six percent instead 0:10:37.440 --> 0:10:40.880 of three percent. How realistic is that in your mind? 0:10:41.080 --> 0:10:43.040 So I can see this, So we're actually looking for 0:10:43.080 --> 0:10:45.080 one more hike, So we're looking for five and a half, 0:10:45.840 --> 0:10:48.080 you know, just listening to FED speak, I think they 0:10:48.120 --> 0:10:50.880 would rather pause and stay on hold for longer than 0:10:50.920 --> 0:10:52.920 actually try and push the last you know, what's fifty 0:10:52.920 --> 0:10:54.000 basis months among friends. 0:10:54.040 --> 0:10:55.640 I mean, they can go from five and a half 0:10:55.679 --> 0:10:55.959 to six. 0:10:56.000 --> 0:10:59.040 Remember they're also doing QT, so I think it's a 0:10:59.080 --> 0:11:01.840 high bar for them to keep going. But I think 0:11:01.840 --> 0:11:03.880 it's also very high bar for them to start to 0:11:03.920 --> 0:11:06.120 cut because remember they're looking for four and a half 0:11:06.160 --> 0:11:08.040 on the unemployment rate by year end. I think if 0:11:08.080 --> 0:11:09.680 we're at four and a half by year end, we're 0:11:09.679 --> 0:11:12.880 in a recession. The economy is slowing, down pretty drastically, 0:11:12.920 --> 0:11:15.319 but the FED might say, yes, this was in our forecast, 0:11:15.679 --> 0:11:17.520 so I think they stay on whole longer. 0:11:17.880 --> 0:11:18.760 But I would agree. 0:11:18.800 --> 0:11:21.960 I think if inflation increases somewhere, I mean the Fed's 0:11:21.960 --> 0:11:24.000 telling us that they want to slow things down, they 0:11:24.000 --> 0:11:25.640 don't see the slow down. I think they're going to 0:11:25.720 --> 0:11:28.280 keep hiking and as a result, they are going to 0:11:28.320 --> 0:11:31.160 overdo it. I think we're already in restrictive territory. It 0:11:31.320 --> 0:11:33.840 just takes a while for different parts of the economy 0:11:33.880 --> 0:11:35.760 to slow down. I mean, we're not getting that big 0:11:35.840 --> 0:11:38.439 shock that can slow down everything at the same time, 0:11:38.600 --> 0:11:40.520 which is why I think it's so tricky to trade 0:11:40.559 --> 0:11:43.160 this market. We move ten twenty basis points on not 0:11:43.200 --> 0:11:44.880 a whole lot of news. I think you just have 0:11:44.960 --> 0:11:47.280 to be nimble and sort of start to step in. 0:11:47.360 --> 0:11:49.560 We stepped in yesterday, we were now a little bit 0:11:49.640 --> 0:11:52.560 long duration. Here we get another sell off here. I 0:11:52.600 --> 0:11:55.920 think the technicals right now, with all the FDIC sales, I. 0:11:55.880 --> 0:11:57.280 Think we should think about that as well. 0:11:57.360 --> 0:12:00.439 It's one hundred billion that the FDIC is selling fixed 0:12:00.440 --> 0:12:03.120 income paper. That's a new supply that's coming in. I 0:12:03.120 --> 0:12:05.920 think that's part of the reason why we've risen in rates, 0:12:06.360 --> 0:12:08.400 but you're supposed to start to think about hedging some 0:12:08.440 --> 0:12:10.720 of those risk assets if the economy slows down. I 0:12:10.760 --> 0:12:12.560 think that's a pretty big pain trade as well. 0:12:12.920 --> 0:12:15.200 If the FED does raise rates one more time, is 0:12:15.200 --> 0:12:17.319 that enough to break the backs of some of these 0:12:17.360 --> 0:12:19.840 regional banks that are drawing on some of the emergency 0:12:19.920 --> 0:12:22.640 landing facilities still to this day, even though the crisis, 0:12:23.000 --> 0:12:24.880 if it was one, has simmered off. 0:12:26.040 --> 0:12:30.360 So you know, the deposit outflows have stabilized, but they're 0:12:30.400 --> 0:12:33.520 still continuing to leave banks, and I think that's going 0:12:33.559 --> 0:12:35.920 to continue to happen. It's very hard for banks to 0:12:35.960 --> 0:12:38.760 compete with deposits when money market funds are giving you, 0:12:38.760 --> 0:12:40.640 you know, five percent five and a quarter, and if 0:12:40.679 --> 0:12:43.520 the FED continues to raise rates, I think that gap 0:12:43.559 --> 0:12:46.360 continues to be wide. So I think the regional banks 0:12:46.440 --> 0:12:49.800 are still in trouble, not so much because of massive 0:12:49.800 --> 0:12:53.080 outflows but their entire business model. If they are funding 0:12:53.120 --> 0:12:55.680 from the FED at five percent, it's very hard to 0:12:55.760 --> 0:12:57.920 fund your assets which you bought at two percent. So 0:12:58.120 --> 0:13:00.360 I think that's going to be a slow drag or 0:13:00.400 --> 0:13:03.720 the rest of this year and beyond pre you're outrageous. 0:13:03.880 --> 0:13:07.479 When you talk not only about inversion, but large inversion, 0:13:07.559 --> 0:13:11.120 you're also very lonely. Can you frame out given the 0:13:11.160 --> 0:13:13.760 cards and I, you know, let's assume optimistically we're going 0:13:13.840 --> 0:13:17.520 to get beyond the debt idiocy. Great. Can you frame 0:13:17.520 --> 0:13:21.200 out a six percent three month T bill, six percent 0:13:21.559 --> 0:13:25.640 libor so for other short term rates? No one's looking 0:13:25.679 --> 0:13:27.440 for that. All my radars up. 0:13:29.360 --> 0:13:29.920 Now that's true. 0:13:29.920 --> 0:13:32.559 I think the big paint trade, really another pin paint 0:13:32.559 --> 0:13:35.520 trade is if inflation remains high. I mean the tips market, 0:13:35.640 --> 0:13:39.320 it's the best indicator of market expectations of inflation. I 0:13:39.320 --> 0:13:42.320 think it's extremely mispriced. It's sup two percent in the 0:13:42.320 --> 0:13:45.480 near term, so I think the market saying some aw, magically, 0:13:45.480 --> 0:13:47.360 inflation's going to come down, which is why the Fed 0:13:47.400 --> 0:13:48.280 will not raise rates. 0:13:48.400 --> 0:13:50.400 What if inflation becomes extremely sticky? 0:13:50.520 --> 0:13:53.440 That was the biggest aspect of our inversion call was 0:13:53.480 --> 0:13:57.199 inflation is very slow moving, extremely lagging, and so if 0:13:57.200 --> 0:14:00.400 inflation actually stays high, there's your case for at six 0:14:00.440 --> 0:14:01.400 percent FED funds. 0:14:01.520 --> 0:14:03.319 But does that move the five year or the tenure. 0:14:03.400 --> 0:14:05.880 In fact, the more the Fed raisers rates, the more 0:14:05.920 --> 0:14:08.520 they'll have to cut because I have to think they 0:14:08.559 --> 0:14:12.000 take rates to you know, restrictive territory. Then they keep 0:14:12.040 --> 0:14:14.240 it there for a while till things slow down. And 0:14:14.280 --> 0:14:15.800 that's going to mean that they're going to have to 0:14:16.160 --> 0:14:18.680 be a lot more accommodative when they start to cut trades. 0:14:18.840 --> 0:14:22.320 What's fifty basis points between friends? That's my takeaway from 0:14:22.320 --> 0:14:25.480 that conversation. With fifty basis points between friends. Prayer measure 0:14:25.520 --> 0:14:27.560 of today, Prayer one for the catchup, you solve the 0:14:27.600 --> 0:14:28.000 dut credit. 0:14:39.360 --> 0:14:42.600 We're in Washington, director at Vada Partners, Henrietta Treys with 0:14:42.840 --> 0:14:48.600 serious Capitol Hill cred. Let's translate the reality of this Friday, 0:14:48.600 --> 0:14:53.160 Henrietta Treys, and that's the idea of recess ready set. 0:14:53.320 --> 0:14:56.640 There's a great crisis. Wait, Senator Schumer is going to say, no, 0:14:56.720 --> 0:14:59.480 we're going to recess. So we're running out of money. 0:14:59.760 --> 0:15:02.160 You and I've been in the cash room at the Treasury. 0:15:02.520 --> 0:15:05.800 We're literally going to run out of gold cash notes. 0:15:06.280 --> 0:15:08.720 And the Senator from New York is saying recess. 0:15:10.560 --> 0:15:11.360 It's incredible. 0:15:11.440 --> 0:15:15.680 You can really watch the Treasury Secretary, you can watch 0:15:15.760 --> 0:15:18.400 the both bracket banks and their predictions, but you can 0:15:18.480 --> 0:15:21.600 actually set your watch to the Congressional calendar to figure 0:15:21.600 --> 0:15:23.200 out when they're going to pass a debt ceiling bill. 0:15:23.240 --> 0:15:25.960 That's what I do, and it works every time. 0:15:26.160 --> 0:15:28.960 Just pay attention to the Congressional recess schedule for sure. 0:15:29.160 --> 0:15:30.360 What does it say right now? 0:15:31.400 --> 0:15:33.760 Right now, it says that we're probably going to see 0:15:33.800 --> 0:15:38.440 bill text on Sunday Monday morning. Maybe Speaker McCarthy will 0:15:38.480 --> 0:15:42.479 file the bipartisan bill that he and President Biden's. 0:15:42.120 --> 0:15:44.440 Team reach over this weekend. 0:15:44.760 --> 0:15:47.800 They will hopefully not vote on a bill in the 0:15:47.840 --> 0:15:52.400 House until Wednesday or Thursday of next week. Anything before that, 0:15:52.520 --> 0:15:55.160 and I'm very anxious about a tarp like moment where 0:15:55.200 --> 0:15:58.840 the bill will fail because the House is moving first here, 0:15:58.880 --> 0:16:02.160 which means the Democrats on the House side, who historically 0:16:02.440 --> 0:16:05.320 provide the bulk of the votes and the critical votes 0:16:05.400 --> 0:16:07.480 for a debt ceiling hike, are not going to have 0:16:07.600 --> 0:16:10.800 local cover from the Democrats in the Senate having voted first. 0:16:11.000 --> 0:16:13.640 So we're going to see the House move first, and 0:16:13.840 --> 0:16:15.600 I hope that there will not be a vote until 0:16:15.600 --> 0:16:17.120 Wednesday or Thursday of next week. 0:16:17.200 --> 0:16:20.360 At that point, Senator Schumer could call the caucuss back. 0:16:20.560 --> 0:16:22.480 He is indicated that he will call them back within 0:16:22.520 --> 0:16:25.680 twenty four hours notice, but eleventh hour in DC really 0:16:25.680 --> 0:16:27.960 does mean the eleventh hour, and they could well not 0:16:28.040 --> 0:16:31.160 come back until Tuesday, May thirtieth, two days before the 0:16:31.320 --> 0:16:33.640 X date, and pass the bill on the Senate next 0:16:33.640 --> 0:16:34.680 Tuesday or Wednesday. 0:16:34.720 --> 0:16:36.800 Well, that's what I'm bracing our investors for. That's what 0:16:36.840 --> 0:16:38.080 I'm expecting Henrietta. 0:16:38.240 --> 0:16:40.600 To that point, what is the risk that there is 0:16:40.640 --> 0:16:43.920 a technical default because there is a mistake that someone 0:16:43.920 --> 0:16:45.800 miss times, is that there is a bill that gets 0:16:45.800 --> 0:16:47.960 rejected or in transigent members of a party. 0:16:49.240 --> 0:16:51.440 I do not think that there is any risk of that. 0:16:52.360 --> 0:16:54.800 To be honest, I am afraid of a tarp like 0:16:54.880 --> 0:16:57.160 vote in the early part of next week. If Speaker 0:16:57.200 --> 0:16:59.600 McCarthy puts a bill on the floor Monday, Tuesday, Wednesday, 0:17:00.200 --> 0:17:02.480 the odds of a failed vote are about forty percent. 0:17:02.720 --> 0:17:04.639 But that's a good week before we actually need the 0:17:04.640 --> 0:17:06.920 bill to pass. I think that's your biggest risk point. 0:17:07.200 --> 0:17:09.520 After that, I understand there's a lot of hay being 0:17:09.560 --> 0:17:11.680 made about, Hey, the buildings is sit for seventy two hours, 0:17:11.760 --> 0:17:13.680 we need ten days to get it through. If you're 0:17:13.960 --> 0:17:15.760 from the Senate, if you're from the House, you've seen 0:17:15.800 --> 0:17:18.560 these bills come into law before they can work all 0:17:18.640 --> 0:17:20.920 night long and get this done, and in fact they will. 0:17:20.960 --> 0:17:24.040 I think the risk of default is two percent. I 0:17:24.359 --> 0:17:26.320 don't blot by the hype. I have not bought the 0:17:26.400 --> 0:17:30.160 hype this entire process. You guys know, I don't think 0:17:30.160 --> 0:17:31.240 there's a risk of default. 0:17:31.400 --> 0:17:34.400 So then while the hype made by Congress members, made 0:17:34.400 --> 0:17:37.360 by the president himself, why all the discussion about how 0:17:37.359 --> 0:17:40.200 this is not anywhere close given the fact what has 0:17:40.320 --> 0:17:42.080 changed over the past two weeks. 0:17:43.280 --> 0:17:46.080 I mean, quite honestly, if you want me to get 0:17:46.080 --> 0:17:48.440 on my soapbox for just a little minute, the last 0:17:48.480 --> 0:17:50.960 time we had a balance budget was under the Clinton administration. 0:17:51.200 --> 0:17:55.080 And instead of using that surplus to pay down the deficit, 0:17:55.119 --> 0:17:57.120 what do we do? In O one we pass tax cuts? 0:17:57.160 --> 0:17:58.440 What do we do in O three we passed more 0:17:58.480 --> 0:18:01.040 tax cuts? Who blow out the deficit? Continue doing that 0:18:01.080 --> 0:18:03.840 into the Obama years? Did it again in the Trunk years? 0:18:03.960 --> 0:18:06.600 Seven point eight trillion dollars worth of deficit hikes. And 0:18:06.640 --> 0:18:08.480 now all of a sudden, we're in the Biden administration 0:18:08.600 --> 0:18:13.399 post COVID, with looming three trillion dollars tax expirations happening 0:18:13.400 --> 0:18:15.600 in twenty twenty six, and we're talking about five hundred 0:18:15.600 --> 0:18:18.920 billion dollars worth of deficit reduction. It is a political 0:18:18.960 --> 0:18:22.680 show that is designed to say, Hey, the Republican Party 0:18:22.680 --> 0:18:24.840 cares a lot about federal spending. They are fiscal hawks, 0:18:24.880 --> 0:18:27.879 they care about the deficit, no new taxes, and Democrats 0:18:27.880 --> 0:18:30.280 have to explain what it is that they support spending 0:18:30.320 --> 0:18:34.560 money on tan if our working family aid, the Energy Department, 0:18:34.640 --> 0:18:37.680 the energy tax credits that were just passed. It's really 0:18:37.680 --> 0:18:40.000 just about scoring political points. That's what it's always been, 0:18:40.160 --> 0:18:41.959 and that's where we are in this charade. And now 0:18:41.960 --> 0:18:43.760 we're at the eleventh hours, so we're going to stop posturing 0:18:43.800 --> 0:18:44.720