WEBVTT - Surveillance: ECB Signals More Hikes to Come 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.840 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.040 --> 0:00:31.880 Coatraining it down to join this now port filio manager 0:00:31.880 --> 0:00:34.960 at Franklin Mitchell Seriestina. Can we start that the difference 0:00:34.960 --> 0:00:37.479 in the inflation that the eurosone is experiencing right now 0:00:37.479 --> 0:00:39.240 and that we are home in the United States. Is 0:00:39.280 --> 0:00:41.240 there a big difference from your perspective. 0:00:41.400 --> 0:00:44.159 We need to think about what's generating the inflation in 0:00:44.200 --> 0:00:47.639 the Eurozone region and what has been generating it. And 0:00:47.840 --> 0:00:50.560 the war in Ukraine has really not come to light 0:00:50.680 --> 0:00:53.680 for such a long period of time, but that's really 0:00:53.720 --> 0:00:57.040 what is reflected in those European inflation numbers. It's the 0:00:57.120 --> 0:00:59.600 fact that someone cut off the gas supply and we 0:00:59.680 --> 0:01:02.440 need to replace that gas, and that is the inflation 0:01:02.760 --> 0:01:05.760 that people are dealing with. But we keep talking about it, 0:01:05.800 --> 0:01:08.440 and I think it's so important. It's the reaction of 0:01:08.480 --> 0:01:11.480 the governments that we have been very very positive upon 0:01:11.880 --> 0:01:14.760 in terms of that incremental help that they're providing to 0:01:14.840 --> 0:01:18.559 their citizens. And I think that that is where there's 0:01:18.560 --> 0:01:22.240 that disconnect, is that the population is actually quite happy 0:01:22.520 --> 0:01:25.559 because they're getting support and they're getting help, so they're 0:01:25.560 --> 0:01:27.039 not protesting in the streets. 0:01:27.200 --> 0:01:29.280 What's fascinating to me, and this came up at the 0:01:29.319 --> 0:01:31.560 meetings of the IMF, and we have Reguard John When 0:01:31.600 --> 0:01:35.960 is Leguard like in an hour? Thankfully five, it's going 0:01:36.000 --> 0:01:39.560 to be here in she's speaking a different language to 0:01:39.640 --> 0:01:42.920 a different culture and fabric. And I wonder, within all 0:01:43.040 --> 0:01:46.199 your study by university, all the work you've done in equities, 0:01:46.600 --> 0:01:49.559 are we at a point where we can say they've 0:01:49.560 --> 0:01:53.920 gone beyond eurosclerosis and that they have a financial structure 0:01:54.000 --> 0:01:57.280 more like us, more Anglo Saxon, if you will, than 0:01:57.320 --> 0:01:58.760 what we knew when we were studying this. 0:01:59.480 --> 0:02:02.120 It's trying to pansitioning. I think that the bond market 0:02:02.320 --> 0:02:05.400 in the Eurozone is still not as robust as the 0:02:05.400 --> 0:02:08.440 bond market that we see in the United States. And 0:02:08.480 --> 0:02:11.200 what does that mean is that your companies don't go 0:02:11.280 --> 0:02:14.120 into bankruptcy that is driven by the bondholders and the 0:02:14.120 --> 0:02:16.440 breaching of those covenants because the debt is held in 0:02:16.480 --> 0:02:19.040 the banks, and the banks tend to be wanting to 0:02:19.200 --> 0:02:21.800 work with their customers on a longer period of time. 0:02:21.880 --> 0:02:25.200 So even though you've had that transition, it's not being 0:02:25.760 --> 0:02:29.799 a really noticeable one. But look, they're data dependent. I mean, 0:02:29.840 --> 0:02:32.680 who does not want to hear the fact that the 0:02:32.800 --> 0:02:36.120 people running the ECB are looking at the data and 0:02:36.160 --> 0:02:39.000 they're being informed by the data, and they're saying that, 0:02:39.200 --> 0:02:42.520 you know, the core inflation number is still high. It's 0:02:42.560 --> 0:02:45.880 at five point six percent on a core basis. That's 0:02:45.919 --> 0:02:50.360 significantly above two. We're not talking the difference between two 0:02:50.440 --> 0:02:53.639 and three. We're talking you're multiple points higher. And they 0:02:53.760 --> 0:02:56.120 need to I think forcefully was the word, but they 0:02:56.200 --> 0:02:58.200 need to really push that number down. 0:02:58.440 --> 0:03:01.760 So we haven't seen it it yet. Data dependency is 0:03:01.800 --> 0:03:03.920 a key phrase on the show where you're going to 0:03:03.919 --> 0:03:05.760 have an alarm go off and then we'll say, well, 0:03:05.800 --> 0:03:07.120 what exactly do you mean by that? 0:03:07.280 --> 0:03:07.400 Right? 0:03:07.440 --> 0:03:09.920 And it means something different for everybody. For right now, 0:03:09.960 --> 0:03:12.120 the Federal Reserve, it means a Senior Loan Officer survey 0:03:12.160 --> 0:03:15.560 and perhaps what happens with respect to two regional banks 0:03:15.919 --> 0:03:18.360 in Europe? Is it just core inflation? Is that the 0:03:18.480 --> 0:03:20.880 pre eminent data dependency that we're looking at. 0:03:21.080 --> 0:03:24.160 I think that they're looking at multiple of factors. They're 0:03:24.200 --> 0:03:26.840 looking at what's happening in spreads in the periphery and 0:03:26.880 --> 0:03:29.160 we saw that about a year ago where you saw 0:03:29.200 --> 0:03:32.280 that blowout and spreads in Italy and the ECB reacted, 0:03:32.360 --> 0:03:34.640 So that's one area of data they're looking at. They 0:03:34.680 --> 0:03:37.880 are looking at inflation. They're also looking at Eurozone in 0:03:37.920 --> 0:03:42.400 your employment metrics because one of the mechanisms for your 0:03:42.560 --> 0:03:46.240 inflation it needs to be wager dross adjustment because people 0:03:46.320 --> 0:03:48.520 need to get that to be able to cope with it. 0:03:48.720 --> 0:03:50.800 And so they're looking at whether or not those higher 0:03:50.840 --> 0:03:53.600 wages are causing employees to be laid off. So there's 0:03:53.640 --> 0:03:55.440 a lot of different factors they're looking at. 0:03:55.560 --> 0:03:58.360 Katrina, thank you, thank you, jumping on into the studio 0:03:58.800 --> 0:04:00.680 and catching up with a thank t. Don't think that 0:04:00.720 --> 0:04:03.120 Franklin Mitchell on the l likes to say CP decision. 0:04:07.080 --> 0:04:07.680 Right now. 0:04:07.880 --> 0:04:11.480 Stephen Raschudo joins is Steve Rashudo's chief economis at Mizuo, 0:04:11.560 --> 0:04:14.560 and yes it is on the American economy. But Steven, 0:04:14.600 --> 0:04:17.240 I got to start with the EU here and the 0:04:17.400 --> 0:04:22.360 challenges that Madame Leguard faces. The idea here is the 0:04:22.400 --> 0:04:25.960 animal spirit of the United States, our technical superiority. 0:04:26.080 --> 0:04:28.839 Say Apple earnings this afternoon is one. 0:04:28.680 --> 0:04:32.720 Example, gives us a certain as Ned Phelps of Columbia 0:04:32.760 --> 0:04:37.640 would say, dynamism. Does Europe have the dynamism to have 0:04:38.000 --> 0:04:40.880 a higher interest rate regime? Well, part of the problem 0:04:41.000 --> 0:04:43.279 that they face is is all the conditions that you 0:04:43.360 --> 0:04:45.680 just laid out. But in addition, there is a demographic issue, 0:04:46.600 --> 0:04:50.680 and there is a wage subsidy issue, which certainly adds 0:04:50.720 --> 0:04:55.120 to the whole concept of the whole eurosclerosis discussion that 0:04:55.160 --> 0:04:57.760 we had been having for years about Europe. And I 0:04:57.760 --> 0:05:01.200 think Europe is aging rapidly and they're finding a way 0:05:01.320 --> 0:05:05.800 not to keep their best educated people on the sidelines 0:05:05.839 --> 0:05:07.080 in a very comfortable lifestyle. 0:05:07.160 --> 0:05:07.440 At least. 0:05:07.480 --> 0:05:10.720 I want to note the eual craters here. I mean, 0:05:10.800 --> 0:05:15.320 this is widely anticipated by John Ferrell, the ear craters. 0:05:15.360 --> 0:05:18.120 As I would say on a radio, do a one. 0:05:18.000 --> 0:05:21.000 Ten twenty one, yeah to one one exactly here this 0:05:21.040 --> 0:05:23.080 is what I'm watching. Actually, it's exactly the chart that 0:05:23.120 --> 0:05:24.880 I have up, not just because I'm waiting for it 0:05:24.920 --> 0:05:26.440 to break out of the one ten range, but. 0:05:26.440 --> 0:05:27.720 Steve to be proven correct. 0:05:27.880 --> 0:05:29.839 I'm curious. I don't know what correct would mean for 0:05:29.880 --> 0:05:33.400 me at this point, but I will I'm curious about whether, Steve, 0:05:33.480 --> 0:05:37.120 you think people have overplayed the Europe's strength story, the 0:05:37.160 --> 0:05:41.359 ability to withstand both higher rates and consistent growth. That 0:05:41.960 --> 0:05:44.520 was sort of the consensus heading into this meeting, and 0:05:44.560 --> 0:05:46.760 then all of a sudden they took the lesser of 0:05:46.800 --> 0:05:48.880 the two options with the ECB today, and then in 0:05:48.920 --> 0:05:51.040 the US you see that the data is still strong. 0:05:51.360 --> 0:05:53.880 Does this underscore something that is important? 0:05:53.960 --> 0:05:55.720 Well, I think there is that measure, and I think 0:05:55.720 --> 0:05:57.279 when you're looking at the oil numbers, just I know 0:05:57.279 --> 0:05:59.719 people are talking about a fat finger mistake in terms 0:05:59.720 --> 0:06:01.200 of the client in oil, but I think what you're 0:06:01.200 --> 0:06:03.640 seeing is globally around the world, you're not seeing the 0:06:03.720 --> 0:06:05.560 kind of resilience. You're not seeing it coming out of 0:06:05.560 --> 0:06:08.400 the Chinese opening, You're not seeing it coming out of Europe, 0:06:08.400 --> 0:06:10.760 and I think, yeah, there's a greater potential for Europe 0:06:10.839 --> 0:06:12.880 to run into resistance. Especially I heard one of your 0:06:12.920 --> 0:06:16.200 commentators talking earlier today about the fact that Europe has 0:06:16.200 --> 0:06:18.920 a much closer connection in terms of its mortgage environment 0:06:19.200 --> 0:06:21.200 relative to the interest rate environment than we do in 0:06:21.200 --> 0:06:23.520 the United States because we have fixed rate mortgages. They 0:06:23.520 --> 0:06:25.640 have adjustable rate mortgage and that result is they have 0:06:25.680 --> 0:06:28.080 a bigger economic impact from what's going on. 0:06:28.320 --> 0:06:30.680 Well, let's build on that, because I was wondering whether 0:06:30.680 --> 0:06:34.000 their mortgage situation is akin to the regional banking situation 0:06:34.040 --> 0:06:36.000 in the US. You need the nodes of stress that 0:06:36.040 --> 0:06:39.600 are emerging are distinct depending on what kind of capital 0:06:39.600 --> 0:06:42.640 markets each region has. Do you think that the mortgage 0:06:42.680 --> 0:06:46.320 issue in Europe could become the new regional banking crisis 0:06:46.360 --> 0:06:50.440 in terms of people unable to pay for their monthly bills. 0:06:50.600 --> 0:06:50.800 Yeah. 0:06:50.960 --> 0:06:53.279 Without getting into the specifics of it, I think at 0:06:53.320 --> 0:06:56.000 this particular juncture, I think you're probably okay. And one 0:06:56.000 --> 0:06:57.680 of the reasons for it is because of the social 0:06:57.720 --> 0:07:00.520 safety net that's created in Europe. But I think in 0:07:00.560 --> 0:07:03.240 addition to that, you're in an environment where you know, 0:07:03.360 --> 0:07:06.000 people in Europe are quicker to adjust their spending as 0:07:06.000 --> 0:07:08.360 a result of this, So I think you know you're 0:07:08.360 --> 0:07:12.400 looking at a potential downturn in the economy relative to 0:07:12.680 --> 0:07:14.880 the strength everyone was looking for am I going to 0:07:14.920 --> 0:07:17.080 say it's going to be a deeper, significant downturn at 0:07:17.120 --> 0:07:17.960 this particular juncture. 0:07:18.000 --> 0:07:18.680 I can't make that. 0:07:18.720 --> 0:07:21.160 Call, but I do think it adds to the growth 0:07:21.680 --> 0:07:25.320 to the recession call forecast, as the regional bank problem 0:07:25.400 --> 0:07:27.960 adds to the recession forecast here. And if you look 0:07:28.000 --> 0:07:30.200 at all the data we've gotten out this week, you know, 0:07:30.560 --> 0:07:32.160 get much of its March data, some of it is 0:07:32.200 --> 0:07:32.800 April data. 0:07:32.960 --> 0:07:33.640 It's all strong. 0:07:33.640 --> 0:07:35.239 Even when you look at the claims number this morning, 0:07:35.360 --> 0:07:38.520 two forty two, between two fifty and between two hundred 0:07:38.520 --> 0:07:41.280 and two fifty, you're not in a recession that's residual. 0:07:41.600 --> 0:07:43.640 You've got to get into that two fifty to three 0:07:43.680 --> 0:07:45.960 are to start saying, okay, it's a really shallow recession. 0:07:46.120 --> 0:07:47.840 And then you keep on going up from there. And 0:07:47.880 --> 0:07:50.559 then you look at claim continuing claims they dropped again. 0:07:51.080 --> 0:07:53.880 So you know, we don't have that labor market issue 0:07:54.120 --> 0:07:56.680 that I think a lot of people are concerned about. 0:07:56.720 --> 0:07:59.560 Yet, if you just joining us on radio on television, 0:07:59.560 --> 0:08:01.880 Stephen Shooto of MISSOI where this we could go for 0:08:01.920 --> 0:08:05.360 three hours with them with the experience of the American economy. 0:08:05.440 --> 0:08:08.240 Let's turn to America right now, I want you to 0:08:08.280 --> 0:08:11.360 dovetail in with your colleague dominant Constum's idea of a 0:08:11.400 --> 0:08:15.600 FED with monetary policy but with other stuff, including the 0:08:15.640 --> 0:08:20.520 banking crisis, becoming a constanm states super restrictive. How close 0:08:20.560 --> 0:08:23.120 are we to reshoot out super restrictive? 0:08:23.800 --> 0:08:24.000 You know? 0:08:24.040 --> 0:08:26.240 I mean, I think the Federal Reserve has a way 0:08:26.320 --> 0:08:29.560 out of this that would be very, very simple, and 0:08:29.640 --> 0:08:31.520 I think one of the things that they should do 0:08:31.600 --> 0:08:36.240 immediately is end quantitative tightening. Part of the problem in 0:08:36.400 --> 0:08:39.080 the overall scenario for the outlook for the US economy 0:08:39.360 --> 0:08:41.960 is the fact that the Federal Reserve is taking down 0:08:42.120 --> 0:08:44.800 its balance sheet. And the Fed seems to believe taking 0:08:44.840 --> 0:08:47.080 down its balance sheet will not lead douart or dollar 0:08:47.120 --> 0:08:50.480 to taking down reserves. It is taking down reserves, and 0:08:50.559 --> 0:08:54.200 the net result is that's amplifying the problems. So the 0:08:54.200 --> 0:08:56.520 Federal Reserve, you know, this is the second time they've 0:08:56.520 --> 0:08:59.000 attempted to do both an interest rate increase and a 0:08:59.080 --> 0:09:01.320 quantitative tightening, and they've blown it both times. 0:09:01.320 --> 0:09:04.079 Okay, but is this like a British austerity? The United 0:09:04.160 --> 0:09:08.920 Kingdom buried itself with some philosophical twentieth century austerity a 0:09:09.000 --> 0:09:12.280 number of years ago. Do we have an austere Jerome Powell. 0:09:12.480 --> 0:09:16.520 Well, I think the Federal Reserve is overplaying its hand 0:09:16.640 --> 0:09:20.040 by using both quantitative tightening and interest rate policy at 0:09:20.040 --> 0:09:22.280 the same time. They should separate the two. They should 0:09:22.320 --> 0:09:24.679 use one at a time, and they should recognize that 0:09:24.760 --> 0:09:27.960 largely when you go into a quantitative easing standpoint, you 0:09:28.000 --> 0:09:30.360 do it and you assume it is permanent because you've 0:09:30.400 --> 0:09:33.760 done it because you're afraid of deflation. Okay, this concept 0:09:33.760 --> 0:09:37.600 that it's equivalent to an interest rate in reduction is wrong. 0:09:37.920 --> 0:09:39.360 We're in a free reserve environment. 0:09:39.480 --> 0:09:41.600 Building on that. Just over in Europe, when we are 0:09:41.640 --> 0:09:44.319 about six minutes from the press conference with Christine Legard, 0:09:44.440 --> 0:09:48.240 who heads the ECB, one person saying and Maria today, 0:09:48.240 --> 0:09:52.120 I'll bringing us this that the most key point for 0:09:52.240 --> 0:09:55.800 the press conference will be that they are ending reinvestment 0:09:55.960 --> 0:09:59.559 of the APP basically one of their main bond purchasing 0:09:59.559 --> 0:10:02.400 acid per programs. And this was sort of a nod 0:10:02.440 --> 0:10:05.000 to the Hawks to basically say, Okay, we are going 0:10:05.040 --> 0:10:07.120 to get rid of this program more quickly, even though 0:10:07.160 --> 0:10:09.680 we're not going to raise rates by fifty basis points. 0:10:09.840 --> 0:10:11.960 What are you looking for in terms of what Christine 0:10:12.000 --> 0:10:13.200 Legard has to say about this. 0:10:13.440 --> 0:10:15.480 Again, I think they're going to go down the same 0:10:15.559 --> 0:10:18.880 path that we've gone down. There is this misconception that 0:10:19.080 --> 0:10:21.800 what you put in you can take out. When you're 0:10:21.840 --> 0:10:24.840 looking at the reserves in the system, the bank's balance 0:10:24.880 --> 0:10:27.600 sheet expands to the level of reserves that are provided, 0:10:27.920 --> 0:10:29.760 and it's harder to shrink the balance sheet than it 0:10:29.800 --> 0:10:32.320 is to expand the balance sheet. And this is why 0:10:32.320 --> 0:10:33.760 the FED thinks, well, if we put it on all 0:10:33.760 --> 0:10:35.760 the automatic pilot, we read it, let it run in 0:10:35.800 --> 0:10:39.120 the background, everything's fine. Okay, that's fine to some extent, 0:10:39.160 --> 0:10:42.120 but you're also raising interest rates. So the reality is 0:10:42.200 --> 0:10:45.520 separate the two. Leave them as separate policies because they 0:10:45.559 --> 0:10:49.960 are distinctly separate policies guided for very distinctly different things. 0:10:50.120 --> 0:10:51.599 So I think what the FED should do and I 0:10:51.640 --> 0:10:53.840 think what the ECB should do is leave one alone, 0:10:54.000 --> 0:10:55.920 do one and then come back to the other. The 0:10:55.960 --> 0:10:58.840 ECB so far has only focused on one. The FED 0:10:58.920 --> 0:11:01.200 was doing both at the same time. We've gotten into 0:11:01.240 --> 0:11:03.719 a problem with less taking out of the system now 0:11:03.760 --> 0:11:06.640 than we did in twenty eighteen. In twenty nineteen. 0:11:06.320 --> 0:11:08.720 Don't be a stranger Stephen Raushudo where US was MISSOI 0:11:08.840 --> 0:11:11.800 just a terrific team between Steve Rushudo and Dominique. 0:11:11.440 --> 0:11:22.960 Constant joining us. 0:11:23.000 --> 0:11:26.640 Now our reporter Matthew Monks after removed markets and truly 0:11:26.720 --> 0:11:30.440 moved all of banking markets last night. Matthew, congratulations on 0:11:30.520 --> 0:11:33.240 your reporting as simple as I can. In the April 0:11:33.240 --> 0:11:37.240 twenty fifth statement by the leadership of pac West, they 0:11:37.280 --> 0:11:42.320 say that credit dynamics are steady. I found that really, really, 0:11:42.400 --> 0:11:46.800 really important. What are the credit metrics they have? Is 0:11:46.800 --> 0:11:50.200 it real estate on Rodeo Drive? What do they actually 0:11:50.440 --> 0:11:52.360 own away from the deposits. 0:11:53.280 --> 0:11:55.360 They have a lot of commercial real estate, so that's 0:11:55.360 --> 0:11:57.720 like multifamily apartment loans. They have a lot of business 0:11:58.000 --> 0:12:00.640 loans like sover bawling credit lines to business is they 0:12:00.640 --> 0:12:02.480 have a venture capital lending business. 0:12:02.640 --> 0:12:05.320 The important thing to understand here this is not a credit. 0:12:05.040 --> 0:12:08.319 Quality issue, uh not yet at least it's it's it's 0:12:08.880 --> 0:12:12.000 an interest rate issue, which means that these loans are 0:12:12.040 --> 0:12:14.400 no longer you know, worth what they were when they 0:12:14.400 --> 0:12:17.760 wrote them. They're you know, their market value is below par, 0:12:18.160 --> 0:12:20.360 but you know they're they're they're assuming that they all 0:12:20.400 --> 0:12:23.120 get paid back. You know they will be worth whole eventually, 0:12:23.200 --> 0:12:25.400 but it's really about the interest rate and the credit quality. 0:12:25.440 --> 0:12:28.720 Is it's holding steady, which is different than the last crisis. 0:12:28.880 --> 0:12:31.840 So Matt, let's talk about these strategic options, go through 0:12:31.880 --> 0:12:33.800 them one by one. What is on the table here 0:12:33.840 --> 0:12:36.240 and where you think the priority lies for leadership of 0:12:36.320 --> 0:12:36.760 this bank. 0:12:37.600 --> 0:12:40.920 So the ideal solution here would be some kind of 0:12:41.080 --> 0:12:44.920 UH rescue merger with another larger institution. It's it's it's 0:12:44.920 --> 0:12:47.640 a great franchise in California. There's a lot of people 0:12:47.679 --> 0:12:50.440 that be interested in expanding California. But the issue, like 0:12:50.480 --> 0:12:52.559 I said, it goes back to this kind of interest 0:12:52.600 --> 0:12:55.040 rate risk and those loans. Since they're not worth what 0:12:55.080 --> 0:12:58.439 they used to be, any potential buyer is going to 0:12:58.520 --> 0:13:01.600 have to take a substantial hit right out the gate 0:13:01.920 --> 0:13:05.000 marking down those loans, which would create a loss. So 0:13:05.040 --> 0:13:07.000 it makes it really really hard for someone to buy them. 0:13:07.120 --> 0:13:09.800 So obviously that would be the first priority for them, 0:13:09.840 --> 0:13:10.800 is to find a merger parting. 0:13:10.840 --> 0:13:12.520 But just getting someone to take that it would be 0:13:12.920 --> 0:13:13.480 an issue. 0:13:13.600 --> 0:13:16.040 Bet, we just saw the playbook with this, right, I mean, 0:13:16.040 --> 0:13:18.920 we just saw the idea that basically you just wait 0:13:19.000 --> 0:13:21.400 for the for the FDIC to come in and give 0:13:21.440 --> 0:13:24.280 you some sort of loan loss agreement and then all 0:13:24.280 --> 0:13:27.240 of a sudden it's a feasible purchase. Why is this 0:13:27.320 --> 0:13:28.840 not just going to end up in the same place. 0:13:30.400 --> 0:13:32.960 I don't know yet. If you can, I don't know. 0:13:32.960 --> 0:13:34.199 I'm trying to get a head wrapt around of this. 0:13:34.280 --> 0:13:34.439 Well. 0:13:34.440 --> 0:13:37.199 Now there is one possible reason. Now, this is a 0:13:37.280 --> 0:13:40.520 much smaller institution than First Republic. It's much smaller than 0:13:40.559 --> 0:13:43.679 a Silicon Valley bank. So potentially, you know, a bank 0:13:43.720 --> 0:13:46.120 could kind of step up in and eat a loss 0:13:46.559 --> 0:13:47.760 and make it worth their while. 0:13:47.800 --> 0:13:49.160 But it's kind of hard. 0:13:48.920 --> 0:13:52.360 To argue with, you know, getting a sweetheart deal from 0:13:52.360 --> 0:13:52.840 the FDIC. 0:13:53.000 --> 0:13:55.600 I guess, but it's all still to be determined. Matt. 0:13:55.640 --> 0:13:57.600 I don't want you to tip your hand, but I 0:13:57.600 --> 0:13:59.480 know that you speak with a lot of people in 0:13:59.559 --> 0:14:03.359 the world dealmaking. How much chatter is there about additional 0:14:03.480 --> 0:14:06.000 m and a about additional kinds of tie ups in 0:14:06.000 --> 0:14:10.079 the banking sector, perhaps under less distressed kinds of circumstances, 0:14:10.120 --> 0:14:11.320 to get ahead of this type of thing. 0:14:12.360 --> 0:14:14.280 I think everything's dead right now for the reason that 0:14:14.320 --> 0:14:14.760 I mentioned. 0:14:14.920 --> 0:14:16.400 I think long term, you're going to see a lot 0:14:16.440 --> 0:14:18.600 of consolidation, but right now everything is just kind of 0:14:18.600 --> 0:14:20.920 off the table, especially when you see that TD deal 0:14:21.320 --> 0:14:24.560 graveling this morning. If you're a large institution, how are 0:14:24.600 --> 0:14:26.920 you going to take that risk that it's going to 0:14:26.920 --> 0:14:29.400 get shot down? These deals take nine months close to 0:14:29.440 --> 0:14:31.480 begin with. Now you're going to do a deal and 0:14:31.520 --> 0:14:33.840 it's just going to be open ended. So no, I mean, 0:14:33.880 --> 0:14:35.480 I hate to say it, but unless it's kind of 0:14:35.560 --> 0:14:38.680 forced or distressed bank, m and A right now is dead. 0:14:38.960 --> 0:14:40.560 I mean, I don't want you to play sell side 0:14:40.600 --> 0:14:43.360 analysts here. That's not the Bloomberg way, Matthew Monks. But 0:14:43.520 --> 0:14:47.720 in your reporting, even if you have deposit stability from 0:14:47.760 --> 0:14:51.280 thirty five billion down to twenty eight billion, is the 0:14:51.320 --> 0:14:55.320 other side of the ledgers so diminished mark the market 0:14:55.440 --> 0:14:59.160 that they're at a net capital negative right now? 0:14:59.360 --> 0:15:02.800 I mean, is back west. I don't think zero capital. 0:15:03.680 --> 0:15:05.320 No, I don't think so. I don't think they're in solving. 0:15:05.360 --> 0:15:06.960 And then everybody that I was talking to last night, 0:15:07.000 --> 0:15:09.680 you know, wasn't indicating that they're solving. I mean, it's 0:15:09.720 --> 0:15:14.320 it's it's it's about investors in shorts selling down these 0:15:14.320 --> 0:15:17.800 banks and just being merciless Uh, all the institutional investors 0:15:17.840 --> 0:15:20.280 have led. You're not really seeing bargain investors kind of 0:15:20.280 --> 0:15:22.840 get into the stock. It's really it's just it's just 0:15:22.920 --> 0:15:25.520 investors sentiment that's just hammering these banks. I mean, the 0:15:25.880 --> 0:15:29.280 three larger banks that failed before these were really incredibly 0:15:29.480 --> 0:15:32.920 problematic banks with the one hundred billion of troubled assets 0:15:33.440 --> 0:15:34.400 on their balance sheets. 0:15:34.280 --> 0:15:35.240 It's it's not the case here. 0:15:35.280 --> 0:15:37.520 This is really it's actually it's a it's actually really 0:15:37.600 --> 0:15:39.360 nice franchise in pretty decent shape. 0:15:39.360 --> 0:15:41.920 It's just getting pummeled humbled bank investors. 0:15:42.240 --> 0:15:45.680 The deposit profile is so different compared to sleep and 0:15:45.720 --> 0:15:47.560 we can put some numbers on that with these. We 0:15:47.640 --> 0:15:50.440 did that a little bit earlier from a reporter's perspective 0:15:50.520 --> 0:15:53.080 for you, Are you focused on that? Are we focused 0:15:53.080 --> 0:15:55.080 on the right thing when we sit here and say 0:15:55.080 --> 0:15:58.120 depositive stabilized, which is something that bank the communicy? 0:15:58.360 --> 0:16:00.600 And yeah, absolutely, And I'm going back to the point 0:16:00.600 --> 0:16:03.000 that so I think eighty percent or so of their 0:16:03.000 --> 0:16:06.040 deposits are ensured that that that liquidity is not just 0:16:06.080 --> 0:16:10.320 going to run off in a heartbeat. And these you know, 0:16:10.480 --> 0:16:13.160 and these are these are insured kind of retail and 0:16:13.160 --> 0:16:17.640 commercial deposits. Uh, I don't think that we're seeing a 0:16:17.680 --> 0:16:18.040 run on them. 0:16:18.040 --> 0:16:19.360 So yeah, I'm absolutely focused on that. 0:16:19.400 --> 0:16:21.480 That's why I keep putting this message out here that 0:16:21.720 --> 0:16:24.840 it's it's a different situation than some of these other institutions. 0:16:25.000 --> 0:16:27.960 One of the listeners of the program had an amazing question, 0:16:28.040 --> 0:16:30.520 which is, essentially, what is what you're saying that the 0:16:30.520 --> 0:16:34.000 Fed has to cut rates to get bank consolidation to 0:16:34.040 --> 0:16:36.880 take place? Is that kind of what people are waiting for, 0:16:37.120 --> 0:16:40.120 that opportunity for perhaps a balance sheet that makes a 0:16:40.160 --> 0:16:41.080 little bit more sense. 0:16:42.120 --> 0:16:44.720 Yeah, well, I mean people are waiting for maybe the 0:16:44.760 --> 0:16:47.320 government to raise the deposit insurance cap. That's one thing 0:16:47.360 --> 0:16:49.480 that can kind of just stabilize thing and then maybe 0:16:49.480 --> 0:16:52.680 create stability for m and a federal reserve, you know, 0:16:52.720 --> 0:16:54.800 sluming its role when it comes into your straights. Yeah, 0:16:54.840 --> 0:16:57.680 at this point, the private market is definitely waiting for 0:16:57.720 --> 0:17:00.760 some kind of guidance from the government to stable life things, 0:17:01.320 --> 0:17:04.000 to foster consolidation one way or the other. 0:17:04.280 --> 0:17:06.800 Hey, matt one for the catch up with this tremendous reporting. 0:17:07.080 --> 0:17:09.480 Matt let's talk against so before the week is out, 0:17:09.560 --> 0:17:12.280 Thank you, sir. Matthew Monkster on the latest story with 0:17:12.359 --> 0:17:17.560 pack Web. Do you want to get to around the 0:17:17.560 --> 0:17:21.280 table right now? Whaley, Global Chief investment Strategist A black 0:17:21.359 --> 0:17:24.919 Rock Whaley, Let's talk about what Tom's discussing and build 0:17:24.960 --> 0:17:27.440 on it. We've had the rate shock, are you looking 0:17:27.440 --> 0:17:29.159 for some kind of credit shock to follow? 0:17:29.840 --> 0:17:33.920 We are expecting a version of credit tightening and crunch 0:17:34.000 --> 0:17:38.240 to come through to do some of the output destruction 0:17:38.760 --> 0:17:41.120 work for the fact, which is why we have now 0:17:41.359 --> 0:17:46.960 entered the beginning of the pause face. They signaled pause yesterday. 0:17:47.000 --> 0:17:52.320 We're expecting we're getting close to pick, if not at peak. 0:17:52.480 --> 0:17:55.960 But more importantly from the meeting yesterday is that they 0:17:56.119 --> 0:18:01.800 continue to consistently reiterate no for this year and markets 0:18:01.880 --> 0:18:04.679 upricing in three cards for this year, and that this 0:18:04.800 --> 0:18:08.359 connect is going to be a source of further market volatility. 0:18:08.760 --> 0:18:11.280 If I look at three months ten spread out one 0:18:11.320 --> 0:18:13.480 hundred and ninety three basis points, I can state I've 0:18:13.480 --> 0:18:15.840 never seen in a textbook. I've never thought about it. 0:18:15.840 --> 0:18:18.040 It never was back thirty years. It's a three standard 0:18:18.119 --> 0:18:22.760 deviation move, totally unprecedented. In your note, you talk about 0:18:22.840 --> 0:18:25.840 short term government paper. What will short term government paper 0:18:25.920 --> 0:18:29.000 do when in some form the three month ten year 0:18:29.080 --> 0:18:30.480 differential cracks. 0:18:31.359 --> 0:18:35.360 Well, we expect a short term government paper to give 0:18:35.400 --> 0:18:38.840 you income which we haven't had in fixed income for 0:18:38.880 --> 0:18:42.520 a very very long time. And that is notwithstanding the 0:18:42.600 --> 0:18:48.000 debt ceiling uncertainty. And that is notwithstanding this dispersion, this huge, 0:18:48.080 --> 0:18:50.560 huge kind of discrepancy in terms of yields that you 0:18:50.600 --> 0:18:53.320 get in three months versus ten years if you hold 0:18:53.359 --> 0:18:57.560 it out for maturity, some of that uncertainty also kind 0:18:57.600 --> 0:19:02.880 of washes away. The curve extremely inverted, is so inverted 0:19:03.320 --> 0:19:07.159 that we think the next movie is for ten year 0:19:07.200 --> 0:19:11.320 yields to do to come back up and curve to 0:19:11.400 --> 0:19:16.080 steepen from those extremely inverted inverted levels, which is why 0:19:16.119 --> 0:19:20.120 we long the front end, but we are less constructive 0:19:20.240 --> 0:19:21.359