WEBVTT - Surveillance: Bank Earnings Kick Off 0:00:00.080 --> 0:00:02.840 We bring you news and analysis every day on the 0:00:02.840 --> 0:00:06.840 Bloomberg Surveillance Podcast, but now you can get the latest 0:00:06.880 --> 0:00:11.639 news on demand whenever you want. Subscribe to Bloomberg News 0:00:11.640 --> 0:00:14.400 Now to get the latest headlines at the click of 0:00:14.440 --> 0:00:18.880 a button. Get informed on your schedule. You can listen 0:00:18.960 --> 0:00:22.720 and subscribe to Bloomberg News Now on the Bloomberg Business App, 0:00:22.760 --> 0:00:27.720 Bloomberg dot Com plus Apple, Spotify, and anywhere else you 0:00:27.800 --> 0:00:35.519 get your podcasts. Search Bloomberg News Now and subscribe today. 0:00:37.720 --> 0:00:40.920 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:40.960 --> 0:00:44.279 Bramwoids, along with Tom Keane and Jonathan Ferrow. Join us 0:00:44.320 --> 0:00:47.920 each day for insight from the best in economics, geopolitics, 0:00:47.960 --> 0:00:49.080 finance and investment. 0:00:49.400 --> 0:00:51.959 Subscribe to Bloomberg Surveillance on demand. 0:00:51.640 --> 0:00:54.880 On Apple, Spotify and anywhere you get your podcasts, and 0:00:54.960 --> 0:00:57.880 always on Bloomberg dot Com, the Bloomberg Terminal, and the 0:00:57.920 --> 0:01:00.880 Bloomberg Business appich Nolly Boss has been parsing through the 0:01:00.960 --> 0:01:03.880 numbers listening to the call for JP Morgan because she 0:01:03.920 --> 0:01:05.720 can do everything at the same time, and I'm wondering 0:01:05.760 --> 0:01:07.960 if there are any larger takeaways before we dig into 0:01:07.959 --> 0:01:10.920 some of the details from these earnings that we can 0:01:11.000 --> 0:01:13.560 kind of draw a conclusion on with respect to the banks. 0:01:13.640 --> 0:01:15.480 Yeah, there's one thing that JP Morgan says that I 0:01:15.480 --> 0:01:17.399 think is very important in terms of caution for the 0:01:17.400 --> 0:01:20.040 industry that is so excited that things aren't so bad today. 0:01:20.319 --> 0:01:23.320 And he says, these results benefit from our over earning 0:01:23.400 --> 0:01:26.280 on both net interest income and below normal credit costs. 0:01:26.480 --> 0:01:29.480 What does that mean? Don't expect this to be normal? 0:01:29.560 --> 0:01:30.200 Per se? 0:01:30.560 --> 0:01:34.959 He raised his net interest income at least three times. 0:01:34.959 --> 0:01:36.800 There's a debate if it was a fourth time. 0:01:36.600 --> 0:01:40.160 This year, and can you imagine to that many times 0:01:40.200 --> 0:01:41.800 say we're going to make more money, We're going to 0:01:41.840 --> 0:01:44.120 make more money. We're going to make more money, and 0:01:44.160 --> 0:01:46.440 we're going to make more money. 0:01:46.720 --> 0:01:48.840 Here's the thing, there's a bigger takeaway here. 0:01:48.960 --> 0:01:51.760 And John was asking this earlier, which is how much 0:01:51.840 --> 0:01:54.559 is this pr and basically saying, don't look at us. 0:01:54.840 --> 0:01:56.720 We're not expecting to make this money. It just keeps 0:01:56.760 --> 0:02:00.360 coming through the door. Or is this something that is 0:02:00.680 --> 0:02:02.800 some sort of tea leaf of what they expect to 0:02:02.840 --> 0:02:06.080 come and saying to regulators and saying to others, hey, 0:02:06.440 --> 0:02:09.200 it's not so great, we're not really making bank. 0:02:09.280 --> 0:02:11.080 Is just sort of a quirk of the moment. 0:02:11.160 --> 0:02:12.600 There is a little bit of balancing here. 0:02:12.600 --> 0:02:16.440 Remember they are taking to Washington again soon in early December. 0:02:16.480 --> 0:02:20.320 You have the big banks that will be facing lawmakers 0:02:20.320 --> 0:02:23.240 at the beginning of their annual grilling. I love listening 0:02:23.320 --> 0:02:27.640 to this one because they are making pretty stunning profits 0:02:27.639 --> 0:02:29.959 in this environment. But you know, they can also say 0:02:30.200 --> 0:02:32.840 this is a US consumer, This is a good thing. 0:02:33.200 --> 0:02:36.000 Consumers want to borrow. They're still spending money. You are 0:02:36.040 --> 0:02:38.679 seeing some normalization. You think, look at City Group, the 0:02:38.919 --> 0:02:42.520 kind of the spend here starting to normalize. These are 0:02:42.680 --> 0:02:45.320 things that show you things could start to turn a 0:02:45.320 --> 0:02:47.919 little bit here. But the strength of the consumer is 0:02:48.040 --> 0:02:51.239 keeping the banking industry strong, plus the comeback of these 0:02:51.240 --> 0:02:55.200 institutional businesses that are aided by these very complicated dynamics 0:02:55.200 --> 0:02:55.560 in the market. 0:02:55.720 --> 0:02:59.240 They're going to really push back on potentially future bank 0:02:59.520 --> 0:03:02.160 capital requirements, aren't they when they come to Washington. 0:03:02.480 --> 0:03:03.799 There's going to be two objectives. 0:03:03.800 --> 0:03:06.240 From the banking perspective, they're going to be pushing back 0:03:06.240 --> 0:03:09.639 against those capital requirements. From the lawmaker's perspective, there's all 0:03:09.680 --> 0:03:13.360 sorts of other issues. Why aren't you lending to my constituents? 0:03:13.360 --> 0:03:16.000 Who want to buy a home. The housing market is 0:03:16.040 --> 0:03:19.160 still in dire straits in many places in the country. 0:03:19.760 --> 0:03:22.040 There's going to be the constant. 0:03:21.840 --> 0:03:26.200 Constant push pull on ESG matters, especially with this concern 0:03:26.240 --> 0:03:29.120 about energy security around the world. There's also going to 0:03:29.160 --> 0:03:31.880 be a lot of questions about headcount because besides for 0:03:31.960 --> 0:03:34.399 JP Morgan, most of these other banks are cutting jobs, 0:03:34.440 --> 0:03:35.200 not adding them. 0:03:35.840 --> 0:03:37.440 One thing that you really should need to know about 0:03:37.520 --> 0:03:41.119 Washington when there's hearings like this is actually you think 0:03:41.200 --> 0:03:44.280 lawmakers in the room listening to every question, listening to 0:03:44.320 --> 0:03:47.760 every answer, they're actually not. They come in, it's very performative, 0:03:47.880 --> 0:03:50.720 they decide the point they want to make, potentially try 0:03:50.760 --> 0:03:52.360 to embarrass an executive, and then they leave. 0:03:52.480 --> 0:03:54.000 Don't you just kind of want to go down there 0:03:54.040 --> 0:03:56.480 and buy them all a drink after? Like it is 0:03:56.680 --> 0:03:59.280 such a long day. But you know, speaking of long days, 0:03:59.640 --> 0:04:02.080 this that's us up for next week two, doesn't it, 0:04:02.120 --> 0:04:04.320 because we do have a Goldman, sax Bank of America, 0:04:04.360 --> 0:04:07.000 and Morgan Stanley starting to come in. Remember what's interesting 0:04:07.440 --> 0:04:09.880 a lot of money. Yes, the consumer's holding up the 0:04:10.000 --> 0:04:12.480 economically sensitive parts of the economy as you see it, 0:04:12.600 --> 0:04:16.440 Wells Fargo auto lending homes still under pressure. But when 0:04:16.480 --> 0:04:18.280 you look at Bank of America Morgan stilling, these are 0:04:18.440 --> 0:04:22.360 wealthier client bases that we're looking at here that are 0:04:22.560 --> 0:04:25.880 borrowing for homes and still able to spend at maybe 0:04:25.920 --> 0:04:28.240 a greater scale than you're seeing it the weaker parts 0:04:28.279 --> 0:04:28.960 of the economy. 0:04:29.240 --> 0:04:31.680 One thing that the JP Morgan CFO said on the 0:04:31.720 --> 0:04:34.000 call was that, as you mentioned, the full year net 0:04:34.240 --> 0:04:38.600 income guidance was up on as you mentioned Shnali slower reprice. 0:04:38.920 --> 0:04:42.000 Does this basically just mean that they are not passing 0:04:42.040 --> 0:04:43.960 it along as quickly as they thought they would be 0:04:44.040 --> 0:04:44.880 to depositors. 0:04:44.960 --> 0:04:47.640 And this is where that big versus small question comes 0:04:47.680 --> 0:04:50.200 into play again. JP Morgan is not passing it on 0:04:50.320 --> 0:04:53.080 as meaningfully as some of the smaller banks, where you know, 0:04:53.200 --> 0:04:57.400 Jeffries in particular puts out this great chart about just 0:04:57.520 --> 0:05:00.840 how much deposits have repriced, because across the industry they 0:05:00.960 --> 0:05:03.200 certainly have, just not at the biggest of the big 0:05:03.240 --> 0:05:04.960 banks that don't need your deposits. 0:05:05.000 --> 0:05:07.359 So at what point does that become some sort of 0:05:07.440 --> 0:05:09.960 rally and cry, If you're getting so much money, why 0:05:09.960 --> 0:05:11.680 don't you pass it along with some of your clients 0:05:11.720 --> 0:05:12.120 that you have. 0:05:12.440 --> 0:05:13.400 At what point does. 0:05:13.240 --> 0:05:17.200 That deposit beta play a role and really come under focus. 0:05:17.320 --> 0:05:20.400 And it's also that question for consumers. Do you park 0:05:20.400 --> 0:05:22.120 your money at a JP Morgan where you know your 0:05:22.120 --> 0:05:24.479 money is safe, too big to fail, right, or do 0:05:24.520 --> 0:05:26.280 you park it at a smaller bank where there could 0:05:26.279 --> 0:05:27.160 be some more worries. 0:05:27.200 --> 0:05:28.560 As we've seen earlier. 0:05:28.200 --> 0:05:30.520 This year, the smaller banks are getting a bigger rate, 0:05:30.839 --> 0:05:33.240 a better rate on your deposits. But to your point too, 0:05:33.560 --> 0:05:36.400 this has been highly politicized. The bankers have been directly 0:05:36.440 --> 0:05:40.000 asked where is this money going if we're raising interest 0:05:40.080 --> 0:05:42.040 rates and you are not giving that money back. 0:05:41.880 --> 0:05:44.159 To consumer, which raises a question of modest buybacks, and 0:05:44.160 --> 0:05:45.800 modest has been the word of the day. It's sort of, 0:05:45.920 --> 0:05:48.320 you know, something that we've seen as a theme and 0:05:48.360 --> 0:05:49.279 a lot of the banks. 0:05:49.600 --> 0:05:52.120 How much are we going to see in terms of buybacks? 0:05:52.160 --> 0:05:56.159 What will count as modest enough to satisfy investors and 0:05:56.240 --> 0:05:57.800 quell concerns by regulators. 0:05:58.040 --> 0:06:00.840 It's a great question because the banking and investor story, 0:06:01.080 --> 0:06:03.560 I don't know that it's hinging necessarily on those buybacks. 0:06:03.560 --> 0:06:06.560 They just want the numbers themselves to get better. But 0:06:06.800 --> 0:06:09.040 to that point, you're making. Also, you can't sit there 0:06:09.080 --> 0:06:11.320 and return a ton of money to investors when you're 0:06:11.360 --> 0:06:13.719 laying tens of thousands of people off at most of 0:06:13.720 --> 0:06:16.760 these banks, right, the expense story and the use of 0:06:16.839 --> 0:06:20.680 capital is a massive tension and only getting more so 0:06:20.760 --> 0:06:23.080 by the day because wage pressure still exists at these 0:06:23.080 --> 0:06:23.520 banks too. 0:06:23.839 --> 0:06:25.960 There's also a big theme, especially as we head toward 0:06:26.000 --> 0:06:28.839 Morgan Stanley Bank of America and Goldman Sachs next week, 0:06:28.960 --> 0:06:33.600 about why equity revenues, equity trading revenues disappointed and fixed 0:06:33.680 --> 0:06:36.360 income revenues beat. Do you have a sense of what 0:06:36.520 --> 0:06:38.360 was behind it? Is this a theme for the industry 0:06:38.440 --> 0:06:41.359 or is this an execution issue for both City Group 0:06:41.480 --> 0:06:42.800 as well as JP Morgan. 0:06:42.880 --> 0:06:44.800 There's one big tell that shows you that this is 0:06:44.839 --> 0:06:46.520 a theme for the industry. You had three of the 0:06:46.520 --> 0:06:49.200 biggest investment banks in the world, Goldman's at JP Morgan 0:06:49.240 --> 0:06:53.200 and Morgan Stanley on the Birkenstock IPO and the IPO 0:06:53.480 --> 0:06:56.280 whift and so that is a really big. 0:06:56.080 --> 0:06:57.400 Problem for the IPO market. 0:06:57.440 --> 0:07:01.760 This lack of equity issuance, this real scarcity here makes 0:07:01.800 --> 0:07:05.240 it tough to keep equity trading live in terms of 0:07:05.240 --> 0:07:08.120 fees for the banks. But you know, a little inside baseball, 0:07:08.240 --> 0:07:11.000 that Goldman number versus Morgan Stanley. 0:07:10.600 --> 0:07:12.559 Next week is the talk of the town. 0:07:13.040 --> 0:07:16.600 Goldman has been leading on financing the big hedge funds 0:07:16.840 --> 0:07:20.760 and trying to win that business leverage while constraint is 0:07:20.800 --> 0:07:22.720 still alive and well, Chanelli. 0:07:22.440 --> 0:07:23.400 Blasik, thank you so much. 0:07:23.440 --> 0:07:25.480 We'll be catching up with you throughout next week and 0:07:25.520 --> 0:07:28.520 throughout the day ahead, and of course we're going to 0:07:28.680 --> 0:07:31.080 get those earnings from Bank of America as well as 0:07:31.080 --> 0:07:33.320 Morgan Stanley and Goldman Sacks next week. 0:07:37.400 --> 0:07:40.400 Ken Leon a c if all right, Ken, you've gone 0:07:40.400 --> 0:07:41.600 through sacy what you might commit. 0:07:43.160 --> 0:07:45.840 This was a good quarter. It shows that there's a 0:07:45.920 --> 0:07:49.880 progression of the restructuring, and yet some of their core 0:07:50.320 --> 0:07:55.200 franchises such as consumer and Treasury services are doing quite well. 0:07:55.880 --> 0:07:59.720 So I think on operational basis we would give them 0:07:59.720 --> 0:08:04.840 an we also for being courageous. Jane Fraser is moving 0:08:04.880 --> 0:08:08.840 ahead as discussed in terms of removing layers of management 0:08:08.880 --> 0:08:12.480 to reduce expense, and this is critical to get efficiency 0:08:12.560 --> 0:08:16.960 for this bank and to improve returns on capital. Lastly, 0:08:17.440 --> 0:08:20.679 let's not forget there's nine thousand employees at City Group 0:08:20.960 --> 0:08:25.200 that are working on a US consent decree to improve 0:08:25.240 --> 0:08:30.600 their processing and regulatory regime for compliance. This is important. 0:08:30.880 --> 0:08:34.880 It sometimes gets lost in the weeds, but for many 0:08:34.960 --> 0:08:39.800 years City did not operationally have the best platform for surveillance, 0:08:39.840 --> 0:08:43.679 and I think they're getting there. Looking ahead. For the investor, 0:08:44.040 --> 0:08:47.400 it's always you're always tempted with any stock in the 0:08:47.480 --> 0:08:51.120 large bank's trading at half its net tangible book value 0:08:51.320 --> 0:08:54.280 when the others are well above par. And I think 0:08:54.280 --> 0:08:56.439 we need to say just a little bit more attraction 0:08:56.920 --> 0:09:01.080 with what Jane Fraser does. Not only costs, but you 0:09:01.160 --> 0:09:06.760 need a successful IPO Banamex in Mexico. As you recall, 0:09:06.880 --> 0:09:09.600 they couldn't sell it. So now they're going IPO in 0:09:09.679 --> 0:09:13.640 twenty twenty five. So things like promising, but they're still not, 0:09:14.000 --> 0:09:15.520 you know, hitting on all cylinders. 0:09:15.600 --> 0:09:17.480 Well, Ken, that's the problem. That's the question. Do they 0:09:17.480 --> 0:09:19.760 have a problem with expenses or with strategy. 0:09:20.920 --> 0:09:23.720 I think the strategy is in place, and it does 0:09:23.800 --> 0:09:26.920 take time now to get the right people in place. 0:09:27.320 --> 0:09:30.600 That would be the management teams below the C suite 0:09:30.679 --> 0:09:33.800 or the first layer, so that they can execute on 0:09:33.920 --> 0:09:38.200 the strategy. We also are talking again, this could be 0:09:38.200 --> 0:09:41.800 a conversation in two quarters of a very highly efficient 0:09:41.920 --> 0:09:46.080 global bank as they paired off all of their non 0:09:46.280 --> 0:09:51.680 US consumer banks except for a few areas. So I 0:09:51.720 --> 0:09:55.120 think overall there's still a lot of more work to do, 0:09:56.040 --> 0:09:58.840 and that means that what we've learned with the Wells 0:09:58.880 --> 0:10:02.560 Fargo turnaround is that they don't happen over six months, 0:10:02.679 --> 0:10:04.240 they take three to five years. 0:10:04.679 --> 0:10:08.120 Ken we saw JP Morgan just notch a record quarter 0:10:08.200 --> 0:10:11.160 of net interest income twenty two point nine billion dollars. 0:10:11.240 --> 0:10:14.200 They now see total full year net interest income of 0:10:14.240 --> 0:10:14.960 eighty eight and a. 0:10:14.960 --> 0:10:16.079 Half billion dollars. 0:10:16.160 --> 0:10:19.120 City Group also raise their expectation for their full year 0:10:19.160 --> 0:10:23.199 net interest income to forty seven point five billion dollars 0:10:23.240 --> 0:10:24.600 from forty six billion dollars. 0:10:24.720 --> 0:10:27.120 Is the takeaway from some of these results. 0:10:26.800 --> 0:10:30.600 That higher yields are now becoming a good thing for banks, 0:10:30.640 --> 0:10:32.440 a tailwind rather than a headwind. 0:10:34.040 --> 0:10:36.960 So one scenario that hasn't been talked about, you know, 0:10:37.000 --> 0:10:40.240 with the Fed possibly what a rate pause, is that 0:10:40.640 --> 0:10:43.720 with rates staying high and if the banks can hold 0:10:43.760 --> 0:10:46.960 the line in terms of deposit costs, they can enjoy 0:10:47.080 --> 0:10:51.120 net interest income growth, particularly if there's loan growth. But 0:10:51.240 --> 0:10:54.240 one of the worries we have is that still twenty 0:10:54.280 --> 0:10:58.560 five to thirty percent of total deposits are still non interest, 0:10:58.640 --> 0:11:04.120 fearing that can certainly shift and go to higher deposit costs. 0:11:04.360 --> 0:11:08.040 This is absolutely true, and asset and wealth management for 0:11:08.200 --> 0:11:11.160 JP Morgan Chase not so much a problem in the 0:11:11.240 --> 0:11:14.640 corporate areas where they have other reasons for keeping non 0:11:14.720 --> 0:11:16.640 interest deposits in those areas. 0:11:16.760 --> 0:11:18.040 But Ken, we're not seeing it yet. 0:11:18.240 --> 0:11:19.559 And this is something that a lot of people have 0:11:19.679 --> 0:11:22.200 pointed to that these deposits have been sticky, that it 0:11:22.240 --> 0:11:24.040 is such a pain in the butt to actually move 0:11:24.120 --> 0:11:25.920 all of your money from one place to another and 0:11:25.960 --> 0:11:28.679 rebank with an entirely new institution, that people just are 0:11:28.720 --> 0:11:30.920 not doing it. What makes you think that people are 0:11:30.960 --> 0:11:34.200 going to start doing it, especially if they do start 0:11:34.240 --> 0:11:36.560 investing in other assets and they haven't so far. 0:11:37.679 --> 0:11:40.520 Well, we actually did see that again in Acid and 0:11:40.559 --> 0:11:43.880 wealth management down eight percent on deposits. But in the 0:11:43.920 --> 0:11:46.720 other areas, I think you're right, it's a little bit stickier. 0:11:46.880 --> 0:11:50.960 There's lots of reasons for small business or sometimes for consumers, 0:11:51.160 --> 0:11:54.040 you know, to keep those large balances and checking accounts. 0:11:54.440 --> 0:11:56.280 Ken, I want to finish with a bondmark if we 0:11:56.320 --> 0:11:58.280 can something at least or not I've been talking about 0:11:58.360 --> 0:12:00.199 now for weeks. 0:12:00.240 --> 0:12:02.240 Need lower yields or high yields. 0:12:02.400 --> 0:12:05.080 A long long time ago, we'd catch up with people 0:12:05.200 --> 0:12:08.920 who would tell us forever that what they needed was yields, 0:12:09.000 --> 0:12:11.679 higher rates up because they can become more profitable off 0:12:11.679 --> 0:12:12.200 the back of it. 0:12:12.440 --> 0:12:13.680 Can has that changed this year? 0:12:15.160 --> 0:12:18.319 It really hasn't changed. But it's you know, for nen 0:12:18.360 --> 0:12:21.199 intra syncron, which is very different than the bond conversation, 0:12:21.480 --> 0:12:24.840 it's loan volume growth. I think for the bond market, 0:12:25.000 --> 0:12:29.280 it's really what happens in an investment grade that's so critical. Again, 0:12:29.320 --> 0:12:31.920 I want to see how many of these banks talk 0:12:32.000 --> 0:12:35.640 about getting to be balance sheet light, which means possibly 0:12:35.760 --> 0:12:40.200 partnering with private credit partners, given that they may have 0:12:40.280 --> 0:12:43.520 some portfolios that just don't make any more sense with 0:12:43.679 --> 0:12:44.360 higher rates. 0:12:44.440 --> 0:12:48.080 So that means sunning off loans can Yes, it does interesting, 0:12:48.240 --> 0:12:50.760 Ken Leon Cfira, thank you sir for being with us 0:12:50.800 --> 0:13:03.480 this morning to break down JP Morgan. It's the perfect 0:13:03.600 --> 0:13:06.320 day to catch up with this man right here. Agia Denny, 0:13:06.600 --> 0:13:09.760 president of the Denny Research and ed. As I often say, 0:13:09.800 --> 0:13:12.280 but it's worth repeating the man who coined the phrase 0:13:12.559 --> 0:13:14.840 bond vigilantes. As you know me too well, you know 0:13:14.880 --> 0:13:17.360 the next question the bond vigilances backhead. 0:13:18.360 --> 0:13:20.559 I think they are yes, because it's certainly one of 0:13:20.600 --> 0:13:25.280 the reasons that the bond yield has soared from just 0:13:25.440 --> 0:13:29.800 under four percent on July thirty first to over four 0:13:29.800 --> 0:13:32.400 and a half percent and a range only four and 0:13:32.440 --> 0:13:34.240 a half to five percent recently. If we look at 0:13:34.240 --> 0:13:38.199 the tenure the thirty years been higher. But supply clearly matters, 0:13:38.280 --> 0:13:43.680 and supply is a result of fiscal profligacy. It's you know, 0:13:44.040 --> 0:13:46.600 fiscal policy is out of control. Monetary policy has actually 0:13:46.640 --> 0:13:49.640 been doing its job. I don't think the bond market 0:13:49.760 --> 0:13:51.680 or the bond vigilantes really have an issue with the 0:13:51.800 --> 0:13:56.160 monetary policy authorities. It's really well you can see they 0:13:56.200 --> 0:13:58.000 can't even get a speaker of the House. 0:13:58.559 --> 0:14:00.000 And sometimes supply doesn't matter. 0:14:00.400 --> 0:14:03.360 Typically an economic downturns, people will be willing to finance 0:14:03.400 --> 0:14:07.040 the deficit by treas rebonds with exceptionally low yields. And 0:14:07.280 --> 0:14:09.319 is this a situation that can be addressed with bad 0:14:09.360 --> 0:14:11.680 economic data? And what I mean by that is, will 0:14:11.720 --> 0:14:14.079 we buy this bond market where those auctions look better? 0:14:14.120 --> 0:14:15.360 If this economy looks worse. 0:14:16.679 --> 0:14:20.760 Well, for all the volatility we've had since the summer, 0:14:20.840 --> 0:14:24.640 I think we're fairly looking for a yield level at 0:14:24.640 --> 0:14:26.960 which the market will clear, and I think four and 0:14:27.000 --> 0:14:29.960 a half to five percent should do it. So I 0:14:30.000 --> 0:14:32.920 think some of this recent volatility, as long as it's 0:14:33.240 --> 0:14:37.720 range bound, is actually a good sign that the bond 0:14:37.800 --> 0:14:40.400 market figures this is a good yield relative to the 0:14:40.400 --> 0:14:42.960 inflation outlook. I know there are a lot of people 0:14:42.960 --> 0:14:46.160 that were concerned about the inflation numbers of CPI numbers 0:14:46.160 --> 0:14:49.200 that came out yesterday, But if you take out shelter, 0:14:49.320 --> 0:14:51.160 you know, I always take out things that don't support 0:14:51.240 --> 0:14:55.000 my story. So if you take out shelter, the CPI 0:14:55.360 --> 0:14:59.240 headline and core, we're both at two percent, exactly at 0:14:59.240 --> 0:15:03.120 two percent. It's that, you know, it's that shelter that's 0:15:03.160 --> 0:15:07.720 just way too blank blank blank too high. That's been 0:15:07.880 --> 0:15:10.600 the problem, and even in the latest number it was 0:15:10.640 --> 0:15:13.800 a problem. But we know that lease inflation and new 0:15:13.880 --> 0:15:15.960 leases has actually come down substantially. 0:15:16.520 --> 0:15:18.240 And I love that you said that you take out 0:15:18.240 --> 0:15:20.520 things that don't support your story because it's what everybody 0:15:20.560 --> 0:15:22.280 is doing. And you can take out whatever data that 0:15:22.320 --> 0:15:24.640 you want and support whatever story you want to write. 0:15:24.920 --> 0:15:26.600 A lot of people are looking at the volatility of 0:15:26.640 --> 0:15:29.320 the bond market, and you heard Michael Stowell yesterday talking 0:15:29.320 --> 0:15:31.960 about how something will break and that that will be 0:15:32.400 --> 0:15:34.880 something problematic for the market that the FED is going 0:15:34.920 --> 0:15:37.360 to have to respond to. Do you have the same 0:15:37.440 --> 0:15:41.040 feeling or is your response the opposite That the resilience 0:15:41.040 --> 0:15:43.400 that we have seen in risk aids to date in 0:15:43.480 --> 0:15:45.520 the light of such volatility is a sign that it 0:15:45.560 --> 0:15:49.000 can continue regardless of what the bond market does well. 0:15:49.040 --> 0:15:51.680 I've been in the soft landing camp since early last year, 0:15:51.680 --> 0:15:54.280 and I characterized it as a rolling recession that's sitting 0:15:54.280 --> 0:15:58.200 in different sectors at different times, and something is breaking 0:15:58.560 --> 0:16:01.040 right now, and that's in the commercial real estate market. 0:16:01.200 --> 0:16:02.760 There's going to be a lot of things breaking in 0:16:02.760 --> 0:16:04.800 the commercial real estate market, and I think it's one 0:16:04.800 --> 0:16:07.680 of the reasons the FED is probably done raising interest 0:16:07.720 --> 0:16:10.360 rates because they realized that the bond market has been 0:16:10.440 --> 0:16:13.800 recently doing all the heavy lifting and monetary policy. With 0:16:13.880 --> 0:16:18.040 a bond yield up close to five percent, that's a 0:16:18.120 --> 0:16:20.640 disaster for a lot of commercial real estate deals that 0:16:20.720 --> 0:16:25.040 have to be refinanced, or the value of commercial real 0:16:25.160 --> 0:16:27.720 estate so those things are going to break. Very reminiscent 0:16:27.760 --> 0:16:30.040 of what happened in the early nineteen nineties when we 0:16:30.080 --> 0:16:32.640 had the SNL crisis. A lot of things broken the 0:16:32.640 --> 0:16:35.640 commercial real estate market. We did have a recession back then, 0:16:35.960 --> 0:16:38.600 but it was very mild. It was just the growth 0:16:38.640 --> 0:16:43.280 rate that was really hampered by all those problems. 0:16:43.800 --> 0:16:45.520 Let's tie that together, because we heard from the Wells 0:16:45.520 --> 0:16:48.160 Fargo CEO is saying that they do expect commercial real 0:16:48.240 --> 0:16:53.200 estate losses to increase. They are expecting loan losses to increase, 0:16:53.320 --> 0:16:55.800 even though provisions are not necessarily increasing as much as 0:16:55.800 --> 0:16:59.960 people previously expected. Is your sense right now that we're 0:17:00.120 --> 0:17:02.960 seeing things just soften and that we're not going to 0:17:02.960 --> 0:17:06.119 actually see anything break in that basically it's all been 0:17:06.200 --> 0:17:09.040 priced in based on where we are in this cycle. 0:17:09.920 --> 0:17:10.120 Yeah. 0:17:10.119 --> 0:17:13.760 Well, I'm still in that rolling recession camp, and indeed, 0:17:13.760 --> 0:17:17.399 in some areas it's starting to look like a rolling recovery. 0:17:17.440 --> 0:17:21.640 I think in the retailing sector, for example, consumers may 0:17:21.800 --> 0:17:24.399 very well be coming back to buying some goods. The 0:17:24.480 --> 0:17:28.160 single family housing market looks like it's bottoming. But yeah, 0:17:28.600 --> 0:17:30.680 I still don't think we're going to have an economy 0:17:30.680 --> 0:17:35.399 wide recession going into next year. I think it's the 0:17:35.400 --> 0:17:39.960 economy's resilience is going to be proven to be with us, 0:17:40.320 --> 0:17:42.840 and I think it's largely because of the consumer. And 0:17:42.840 --> 0:17:45.120 there's a lot of moving parts in the consumer. One 0:17:45.119 --> 0:17:47.959 of them has got seventy five million baby boomers that 0:17:48.080 --> 0:17:51.439 increasingly are retiring and talk about excess savings. I know 0:17:51.560 --> 0:17:54.040 Jamie Diamond said has been saying since May of last 0:17:54.080 --> 0:17:56.399 year that consumers are going to be running out of 0:17:56.440 --> 0:17:59.199 excess savings and that's when we have a recession. But 0:18:00.080 --> 0:18:02.760 baby boomers have a lot of access savings in their 0:18:02.760 --> 0:18:07.280 retirement assets, something like seventy five trillion dollars, and as 0:18:07.320 --> 0:18:09.880 they retire, they're going to be spending those assets to. 0:18:09.880 --> 0:18:13.439 Those boomers, not like Don Paranion out of the mh AS. Yeah, Danny, 0:18:13.600 --> 0:18:15.640 was that not the canary in a coal mine? 0:18:17.720 --> 0:18:23.480 Well, look, I think that the retiring consumers are going 0:18:23.480 --> 0:18:27.960 out to restaurants, they're taking vacations more often, they're flying, 0:18:28.000 --> 0:18:31.000 they're using hotels, motels, and these are all the areas 0:18:31.080 --> 0:18:34.920 where where industries are very labor intensive, and I think 0:18:34.920 --> 0:18:38.840 it explains why the labor market's been so tight. It's 0:18:38.920 --> 0:18:42.200 very hard to have a recession with a record employment. 0:18:42.560 --> 0:18:45.520 I know, employments always at a record right before recessions, 0:18:46.160 --> 0:18:48.600 but it just keeps going going on. It just keeps 0:18:48.920 --> 0:18:52.120 rising to new record highs. So as long as that's 0:18:52.160 --> 0:18:55.560 the case, I think that the economy's resilience is going 0:18:55.600 --> 0:18:58.000 to be attributable to the consumer. And by the way, 0:18:58.800 --> 0:19:01.399 we know that the fiscal policy is out of control, 0:19:01.480 --> 0:19:03.560 but part of that is because they're spending a lot. 0:19:03.560 --> 0:19:07.600 We're just stimulative to the economy. Even those net interest 0:19:07.600 --> 0:19:09.720 payments that they have to make, somebody is getting them. 0:19:09.960 --> 0:19:14.040 Consumers are getting a windfall relative to what they had, 0:19:14.160 --> 0:19:17.520 you know, past several years of much higher net interest income. 0:19:17.800 --> 0:19:19.720 He's sound constructive at it's going to catch up, And 0:19:19.840 --> 0:19:26.280 John Denny, if you have any research. Let's turns to 0:19:26.280 --> 0:19:29.480 Greg Value, the chief US policy strategist at AGF Investments. 0:19:29.520 --> 0:19:31.880 Greg joins us. Now, Greg, wonderful to catch up with you. 0:19:32.280 --> 0:19:34.040 We have this phrase that we borrowed from a famous 0:19:34.040 --> 0:19:36.400 comedian in the United States in the last hour, Aren't 0:19:36.400 --> 0:19:39.480 you embarrassed? Is Washington embarrassed by the dysfunction this playing 0:19:39.480 --> 0:19:41.520 gap currently? Given what's happening in the world. 0:19:42.200 --> 0:19:45.240 Well, we should be this City should be embarrassed. It's 0:19:45.280 --> 0:19:50.160 a clown show, it's a circus. And the serious part 0:19:50.160 --> 0:19:52.520 of the story, John, is that there are three big 0:19:52.600 --> 0:19:55.359 things that have to get done. One is, of course, 0:19:55.600 --> 0:19:58.879 a budget, and I think that November seventeenth deadline will slip. 0:19:59.119 --> 0:20:02.800 Maybe they'll do another extension, probably into next year. Number two, 0:20:03.160 --> 0:20:05.959 we really need more aid for Ukraine, they're starting to 0:20:06.160 --> 0:20:09.760 run low. And now a third story, of course, and 0:20:09.760 --> 0:20:13.440 that's aid to Israel, which is mandatory. The irony here 0:20:13.520 --> 0:20:17.680 is that a vast majority in both houses, in both parties, 0:20:18.080 --> 0:20:21.480 want to do all three, but they can't get it done. 0:20:21.680 --> 0:20:24.440