Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz.
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Speaker 1: Should we get to our guests with sure?
Speaker 3: Choose around the table with this usually on the other
Speaker 3: end of a camera, Anahan, it's been a fit to
Speaker 3: see in person. Thanks for bamdas from whilst fago as
Speaker 3: Tom just moves his autosport magazines.
Speaker 1: Away from a movement. You want to read a card table?
Speaker 1: You have Aston Martin coming up? Do you watch your one?
Speaker 4: I do we spoke of Ballou's Hamilton List.
Speaker 3: You're a Mersiti son, an't you? We'll catch up with
Speaker 3: Aston Martin later this how we'll talk about Fernando, who's
Speaker 3: rumored to be dating Taylor Swift.
Speaker 2: But Fernando is, oh my word, so far behind in
Speaker 2: the gossip.
Speaker 3: On the gossip, the rumor that Fernando is dating Taylor Swift,
Speaker 3: that's a story for another time. The wels Fanco Equity
Speaker 3: strategist joins us now to talk about stocks and a hand.
Speaker 3: You're and a team Chris Harvey leading the way for
Speaker 3: equities at WEWES looking for a ten percent correction at
Speaker 3: the headline sm P five hundred. What is it that
Speaker 3: you see that's going to lead to that correction?
Speaker 4: We're seeing really margin compression. We think that earnings are slowing,
Speaker 4: and right now where earning's projections are as we go
Speaker 4: through Q one reporting, they continue to believe pretty much
Speaker 4: a flat growth year over year for the S and
Speaker 4: P five hundred, we think that's too optimistic. So we're
Speaker 4: bringing our EPs number down about ten percent contraction and
Speaker 4: EPs growth. We think that's very reasonable in an environment
Speaker 4: that you expect GDP growth, slowing consumer and still inflationary pressure.
Speaker 4: So you put that in, you tack on still a
Speaker 4: pretty reasonable multiple of eighteen half That brings us lower.
Speaker 3: How does tech absolutely crushing it over the last week
Speaker 3: factor into your.
Speaker 4: Cod Absolutely something we're watching, but we think that it's
Speaker 4: getting a little ahead of itself. Right now you are
Speaker 4: seeing as well, why is that running ahead of itself?
Speaker 4: The yield markets you're down with the ten year round
Speaker 4: three a half. That is a move already expecting FED cuts.
Speaker 4: The market is expecting cuts after this meeting, and again
Speaker 4: that's just too soon for us. I think that realization
Speaker 4: and people having to move forward or out their expectation
Speaker 4: for monetary easing is going to make things a little
Speaker 4: tougher in this summer.
Speaker 2: To challenge your mathiveness at Yale, and I'm thinking now
Speaker 2: seeing Tela, the great quant finance guru, on the tail
Speaker 2: risks out there. If I look at the tails of
Speaker 2: the distribution, the risks of the distribution good and bad
Speaker 2: out to next year, can you see them or is
Speaker 2: it as opaque as you've ever seen?
Speaker 4: I certainly think there are things top of mind, actually,
Speaker 4: and that's what's got things so interesting. We know what
Speaker 4: to look at, which is not sure how to weigh
Speaker 4: each one. For example, we're looking at the commercial real
Speaker 4: estate space that's been a hot topic. What's going to
Speaker 4: happen if those loans can't get renewed? Another one is
Speaker 4: student loans. How does that impact consumer spending if student
Speaker 4: loans don't get dismissed. We're looking at these kind of
Speaker 4: factors and as well, what if the FED really doesn't
Speaker 4: start cutting. What if they just pause and hold Because.
Speaker 2: Of the litany of worries that all of our listeners
Speaker 2: and viewers have, there's got to be a good side
Speaker 2: of this, and that the SPX is recovered from a
Speaker 2: great bear market. We're back to negative three percent whatever
Speaker 2: it is, twelve months trailing. You're basically saying, take the
Speaker 2: summer off and take the rest of the year off.
Speaker 1: Right when you.
Speaker 2: Take the summer off under Anahan Wells Fargo economics, do
Speaker 2: you go to cash? How do you take the summer off?
Speaker 1: Based on your.
Speaker 4: Forty two hundred call, I think actually, rather than go
Speaker 4: full cash, we're not that bearish yet. We do think
Speaker 4: you can weather through this by looking at those secular growers.
Speaker 4: I still think there's opportunity. And you look in the
Speaker 4: cab good space as well, for example, and you're seeing
Speaker 4: that volumes are actually holding up, and all other sectors,
Speaker 4: especially even in something like staples like food area, you're
Speaker 4: seeing volumes shrink. So there'll are opportunities to keep that
Speaker 4: growth to plow through what could be that rough summer
Speaker 4: we talked about.
Speaker 3: And know it's difficult to identify specific names with you
Speaker 3: so I'm going to be delicate about asking this question.
Speaker 3: Are the cloud name secular grower is still oh?
Speaker 4: Well, you know, as someone who believes in that technology
Speaker 4: and certainly uses it and believes in the computing power
Speaker 4: of it, I do still think that there's growth opportunities.
Speaker 4: But like we said, especially with the software spin tech
Speaker 4: itself overall has had such a hot run, It's not
Speaker 4: somewhere where I'm ready to really pour in the investments now.
Speaker 3: So what is a secular growth story that you do
Speaker 3: want to get behind at the moment.
Speaker 4: So besides the cop good space where we do like
Speaker 4: as well, media and entertainment, and now again that too
Speaker 4: has had a great start to the year. We still
Speaker 4: think that it's attractive. We still think there's opportunities, and
Speaker 4: a lot of it is thinking about where consumers will
Speaker 4: continue to spend even as they have to tighten the belt,
Speaker 4: and part of that is really in the experiences in
Speaker 4: the services that they can enjoy.
Speaker 3: Can we get an extra level of detail here, is
Speaker 3: this Tom spending more money on streat gaps? What exactly
Speaker 3: you're talking about?
Speaker 4: It could be him watching a more f one and
Speaker 4: spending there. That certainly is true. There is that push.
Speaker 4: But again it's more of what is going to relatively
Speaker 4: outperform when people start pulling back on their spending, pulling
Speaker 4: back on the revenge travel spending year, talking about how
Speaker 4: those prices in airlines are still expensive.
Speaker 3: So you think the airline story is done? Is can
Speaker 3: I go that far? Do you think it's done?
Speaker 4: I wouldn't say it's done, but it's not somewhere where
Speaker 4: if I had cash to put to work, where I
Speaker 4: would rotate into right.
Speaker 3: Now, Okay, that sounds like it's done.
Speaker 2: You know, I look at the Wells Fargo economic call,
Speaker 2: and you know your economics team looking at where GDP is.
Speaker 2: Is there enough nominal GDP to keep this game going?
Speaker 2: To me, that's the heart of the matter. How do
Speaker 2: you fold in Wells Fargo economics into your equity analysis.
Speaker 4: So our expectation for actually GDP growth is just above
Speaker 4: one percent for this year, but pretty much a flat
Speaker 4: twenty twenty four, and that is concerning. But I think
Speaker 4: the sharpest pain points where we see the most GDP
Speaker 4: contraction is four Q and one Q. Four Q this
Speaker 4: year and the beginning of next year is going to
Speaker 4: be the toughest drop in GDP. But that doesn't necessarily
Speaker 4: align with when we expect to see the toughest earnings contraction.
Speaker 3: Okay, just to be specific about that, just final question,
Speaker 3: when is that Ernie's contraction. What's the window that you
Speaker 3: and a team you're looking for.
Speaker 4: We think, really it's this year, and we think it's
Speaker 4: already occurring. You already have been seeing those margins come
Speaker 4: under pressure and you've seen that four Q last year
Speaker 4: earnings came in a little lower than projected. I think
Speaker 4: that continues and these are the quarters now where it's
Speaker 4: going to be toughest. That realization is what's going to
Speaker 4: push equity multiples and equity levels lower.
Speaker 3: And a hand of Wes Faga and a great to
Speaker 3: do this in person. Wonderful, really good to see you.
Speaker 3: Thank you. The team at West Fago looking for a
Speaker 3: ten percent correction in the next three to six months
Speaker 3: off the back of earnings.
Speaker 1: Where the snow and he's helped us so much.
Speaker 2: I think of Ken Leon over at CEFII, Michael Mayo
Speaker 2: when we can dress him in Gerard Cassidy up early
Speaker 2: in London, had a US bank equity strategy at the
Speaker 2: Royal Bank of Canada, and we welcome him this morning, Gerard,
Speaker 2: I'm gonna go to the PowerPoint. I thought it was
Speaker 2: really quite nicely done by JP Morgan. I'm service massage
Speaker 2: by his staff of forty two. And buried at the
Speaker 2: bottom was an internal rate to return guestament of twenty percent.
Speaker 2: You and I aren't going to go to an iterative
Speaker 2: discussion of the equation, but I fell off my chair.
Speaker 2: Is this really an IRR twenty percent? Is it that
Speaker 2: lucrative for Fortress Diamond, Tom?
Speaker 1: It is?
Speaker 5: And thank you for having me on the program from
Speaker 5: London here, And I would point out that one of
Speaker 5: the reasons the internal rate of return is so strong
Speaker 5: is that in an agreement with the FDIC, which is
Speaker 5: very common the FDIC, when they sell these banks out
Speaker 5: of receivership, we'll take a law sharing agreement with the buyer.
Speaker 5: As a result, when you have one of those laws
Speaker 5: sharing agreements, the amount of capital that the bank is
Speaker 5: required to hold against those assets goes down. And that's
Speaker 5: one of the reasons the IRR is as strong as
Speaker 5: it is.
Speaker 2: What kind of pop do you calculate, JP Morgan will
Speaker 2: get if interest rates actually come in, if we disinvert,
Speaker 2: if we get ourselves back to some form of normal
Speaker 2: interst rate structure. To me, it's an incalculable delta. It's
Speaker 2: just a huge number if they get the markets to cooperate, you.
Speaker 5: Know, and Tom, you really put your thumb on it,
Speaker 5: because if you go back to ninety four ninety five,
Speaker 5: and I'm not suggesting we're going to have that Goldilocks
Speaker 5: economy we had in ninety five, but Greensman took rates
Speaker 5: up from three to six percent and we didn't have
Speaker 5: a recession, and then he started cutting rates in ninety five.
Speaker 5: The bank stocks were up fifty five percent that year.
Speaker 5: So if we don't have a big recession as many
Speaker 5: people think we are going to have, the credit problems
Speaker 5: for the banks will not be that severe and rates
Speaker 5: will start coming down probably next year.
Speaker 2: You and I studied at the altar of Henry Kaufman.
Speaker 2: He was so kind to me when I first joined Bloomberg.
Speaker 2: Mister Cassidy. Henry Kaufman is quoted by John Authurs, Folks,
Speaker 2: Matt Levine, John Authors. Read them today if you're part
Speaker 2: of Global at Wall Street. Mister Authors talks about Kaufman
Speaker 2: is a quasi public utility. Is that what we've gotten
Speaker 2: now with a combination of JP Morgan and Bank of America.
Speaker 1: Are they a public utility?
Speaker 5: Tommy, You know, I wouldn't refrain too much from saying that,
Speaker 5: but other than to say the financial utilities, and that's
Speaker 5: not a negative that it's a positive. If we could
Speaker 5: have banks that consistently pay their dividends through the cycle
Speaker 5: and also deliver you know, mid to lower teens ro
Speaker 5: return on tangible common equity, those are very attractive returns,
Speaker 5: So you could call them financial utilities, in my opinion.
Speaker 3: Great for Shahoudis. I want to it's great for customers.
Speaker 1: Jared.
Speaker 3: Let's talk about that the deposit that they're assuming JP
Speaker 3: Morgan from First Republic. You asked about this on the
Speaker 3: call yesterday, Jared, how do those deposits repriced? Did you
Speaker 3: get some clarity on that.
Speaker 5: John, What happens normally in bank failures. Quite often the
Speaker 5: acquirers are able to renegotiate down those rates of interest
Speaker 5: on those deposits, not the term CDs. Those are contractual.
Speaker 5: But that was the reason for the question, because that
Speaker 5: makes the deal even more attractive. To know, JP Morgan
Speaker 5: and quite often, and I'm not saying this happened with
Speaker 5: First Republic. But quite often what happens when these banks
Speaker 5: head into receivership they have to pay up for deposits
Speaker 5: to bring money in. That's why the buyers get to
Speaker 5: reprice them downwards. What makes it more profitable for the buyer.
Speaker 3: I left the way that Jeremy Bonnham, the CFO of
Speaker 3: JP Morgan, addressed this. Listen to this language. I think
Speaker 3: the reprice experience will blend over time into the rest
Speaker 3: of our deposit franchise. Do you know what that means?
Speaker 1: Tom?
Speaker 3: Their deposits and their rate of return will come down
Speaker 3: to zero over time because I've got JP Morgan, John,
Speaker 3: They're not paying much for deposits and they don't need to. Jod,
Speaker 3: I was wondering yesterday whether you thought they were downplaying
Speaker 3: to some extent for pr reasons, just how profitable this
Speaker 3: deal might be for JP Morgan, John.
Speaker 1: I think you said it well.
Speaker 5: I think it's an extremely profitable deal for JP Morgan.
Speaker 5: Their size and their strength gave them the advantage. We
Speaker 5: wrote last night in our research note on this transaction
Speaker 5: that the prior to transactions, the loans were marked to
Speaker 5: market to about seventy seven cents on the dollar and
Speaker 5: in the case of JP Morgan yesterday they marked them
Speaker 5: to eighty three cents on the dollar, so they didn't
Speaker 5: have to be as aggressive as maybe some of the
Speaker 5: other bidders who were bidding on this, and that was
Speaker 5: an advantage they had.
Speaker 2: There's the math, folks, you get it from Joad Cassidy,
Speaker 2: not from us. We go to the pros and John,
Speaker 2: you got a bond at par or a loan at
Speaker 2: par down to seventy seven cents and JP Morgan paid
Speaker 2: up where the others.
Speaker 3: So, Jared, I've got experience of dealing with distressed institutions
Speaker 3: Washington Mutual bad Jamie, time has been that done that, Judge,
Speaker 3: you addressed that question as well. Why is this so
Speaker 3: different and why in five years want me to be
Speaker 3: sitting care rethinking everything we've just said in the last
Speaker 3: twenty four hours.
Speaker 5: John, the major difference in Jamie Diamond addressed this yesterday
Speaker 5: to my question as well, which is this was a
Speaker 5: deposit flight deposit run problem. It was a classic duration
Speaker 5: issue of long assets on duration short umfunding. This was
Speaker 5: not a credit problem, and that and First Republic had
Speaker 5: pristine credit and I would suggest that this is a
Speaker 5: very different situation As a result, it's not as risky
Speaker 5: for JP Morgan and the others because this is a
Speaker 5: mismatch of assets versus liabilities, and they're now going to
Speaker 5: benefit from the marketing of market of those assets and
Speaker 5: the yields that that creates.
Speaker 3: George wonderful coutage. As a wise, I'm going to see
Speaker 3: you in London as well, Jared Cassidy that of obviously
Speaker 3: Capital Marcus. Thank you Jered.
Speaker 1: Right now and this is a joy.
Speaker 2: As John and I continue our coverage of this banking crisis,
Speaker 2: it pays to have somebody with real worlds experience. He
Speaker 2: is global Currency's an interest rate strategy at Australia's Macquarie,
Speaker 2: but far more Terry Weisman is something that has lived
Speaker 2: what so many other people are doing. I want to
Speaker 2: go back to Alan Schwartz, David Malpass, John writing you
Speaker 2: emishioh and it blew up in March of two thousand
Speaker 2: and eight at bear Stearns. From your distance, but your
Speaker 2: tangible experience of collapse. How is JP Morgan different in
Speaker 2: two thousand and eight than JP Morgan is in twenty
Speaker 2: twenty three.
Speaker 6: Let me instead speaking about JP Morgan, Tom, let me
Speaker 6: just talk about the banking pastor generally, thousand and eight
Speaker 6: was I think qualitatively different than the situation we're seeing
Speaker 6: now for the banks in the United States. In two
Speaker 6: thousand and eight, you had a situation where the primary
Speaker 6: problem at the banks was the asset side of the
Speaker 6: balance sheet. It was generally a situation where there were
Speaker 6: too many mortgages that went bad too quickly. That's an
Speaker 6: asset side problem, it's a collateral side problem. What we're
Speaker 6: seeing now is different. What we're seeing now primarily is
Speaker 6: deposit flight. In other words, it's a liability side problem.
Speaker 6: It's lack of confidence in the banks. Yes, it may
Speaker 6: be lack of confidence in the banks because people are
Speaker 6: worried about their ability to continue to honor their obligations,
Speaker 6: their liabilities, their deposits. But nonetheless, this is a crisis
Speaker 6: that has started from the liability side, and I think
Speaker 6: that makes it qualitatively different. It actually makes it easier
Speaker 6: for entities like the Federal Reserve to solve because the
Speaker 6: Federal Reserve has backstops. It could come in and replace
Speaker 6: the liability side that the banks are losing. Right if
Speaker 6: at the one dollars deposits leaves, the bank can simply
Speaker 6: go to the FED and borrow from on the Prime
Speaker 6: Credit Facility or from the new BTFP and get that
Speaker 6: dollar back, rebuild its base of liabilities, and continue to
Speaker 6: do what it's doing. So I think this is qualitatively
Speaker 6: different than two thousand.
Speaker 2: And eight, And can interest rates assist government institutions? And
Speaker 2: can interest rates assist JP Morgan here by getting the
Speaker 2: win behind him over the next one two and five
Speaker 2: years to make this easier.
Speaker 6: There's nothing better in promoting confidence than economic growth, nominal
Speaker 6: income growth, certainly, because obligations are typically in nominal terms.
Speaker 6: But if you can't get nominal growth, you might as
Speaker 6: well just get real growth. I guess the question comes
Speaker 6: down to do lower interest rates help growth? I think
Speaker 6: they do right. If the Fed were to lower interest
Speaker 6: rates these days, certainly you would get some inflation, presumably,
Speaker 6: but that would be coincident with nominal growth. It would
Speaker 6: help corporations, bank and every obligator in the economy honor
Speaker 6: those obligations, honor their debts. I think that would reduce
Speaker 6: the amount of financial stress in the economy.
Speaker 3: Let's talk about something that's not promoting confidence. The debts
Speaker 3: samely divide down in Washington, people are already exhausted about it,
Speaker 3: and negotiations haven't really even started to get going. Now, Terry,
Speaker 3: you've got a different view on this. Can you just
Speaker 3: walk us through piece by piece? And we have time
Speaker 3: to do this, so just go through peace by piece.
Speaker 3: Why you think this can get addressed.
Speaker 6: Well, first of all, we've had examples of a debt
Speaker 6: sealing crisis in the past before and they have found resolution. Now,
Speaker 6: I'm not going to say that this is the same,
Speaker 6: but I think the differences today are political, they're not
Speaker 6: really economic. Why do I say that, Because Kevin McCarthy
Speaker 6: wanted the acclamation of his party to become speaker, and
Speaker 6: he had to make certain promises. And among the promises
Speaker 6: he made, given that this was January and we were
Speaker 6: already coming up against the dead ceiling, Janet Yellen had
Speaker 6: said so in January, one of the promises he made
Speaker 6: was that he wasn't going to back down with respect
Speaker 6: to getting out of the administration what he wants in
Speaker 6: terms of spending cuts if he's going to go with
Speaker 6: a debt sealing increase. Unfortunately, he got the speakership, and
Speaker 6: now he painted himself in a quarter because he made
Speaker 6: that promise to his caucus, and he can't really back
Speaker 6: out that easily. So now you have a a stone
Speaker 6: heartstone coming up against a hard wall, etc. You've got
Speaker 6: two intransigent sides. I actually think that we might come
Speaker 6: down to the wire, and I actually think that the
Speaker 6: way we may resolve this is not to the traditional
Speaker 6: means of a debate and negotiation that results in a compromise.
Speaker 6: I think we may approach a crisis. But I think
Speaker 6: the cleaner solution here I get to if we don't
Speaker 6: get to a political resolution, is simply for the US
Speaker 6: Treasury to continue to do what it's doing, i e.
Speaker 6: Issue debt and get challenged in the courts by the opposition.
Speaker 6: Now remember they've already passed the spending, so there's some
Speaker 6: legal basis for the view that they have to issue
Speaker 6: the debt to support that spending, because that was a
Speaker 6: bill that was passed. But what happened to that that point, well,
Speaker 6: I think it will go immediately to the Supreme Court.
Speaker 6: I think the Supreme Court could issue an injunction. I
Speaker 6: think the Supreme Court has legal basis for doing that.
Speaker 6: They have amended fourteen Section four says the debt of
Speaker 6: the United States will not be questioned, and that's a
Speaker 6: legal basis for telling the administration you can do what
Speaker 6: you want. And if that happens, by the way, it'll
Speaker 6: put the debt ceiling situation on ice forever because now
Speaker 6: you have a clean, clear judicial ruling.
Speaker 3: So that's a clean that's a clean way to do it.
Speaker 3: There are other there are there's no sound to clean.
Speaker 3: Let's just say, well, well, look, I.
Speaker 6: Mean, I mean, I mean to come in here and
Speaker 6: and and have the Supreme Court, which is coequal to
Speaker 6: the other two branches of government, and effectively say no,
Speaker 6: this is our perview.
Speaker 3: No outcome would be clean. Show the process not so well.
Speaker 6: It can happen the course of forty eight hours. You
Speaker 6: don't really need, you know, a lengthy hearings on the
Speaker 6: part of the Supreme Court. They have the Constitution right there.
Speaker 6: They can read what's Amendment fourteen. Section four says. It's
Speaker 6: very clear to me. You should read it yourself. I mean,
Speaker 6: it's it's it's undeniable that this is not something that's
Speaker 6: constitutional to let the to let to let intentionally let
Speaker 6: certainly intentionally let the payments go unpaid. There's another way
Speaker 6: to do this. Of course, the Treasury has you know,
Speaker 6: hundreds of billions of gold in storage right at Fort Knox.
Speaker 6: One way to do this is simply to issue gold
Speaker 6: certificates to the Federal Reserve and have the Federal Reserve
Speaker 6: continue to fund uh the the the government's operations through
Speaker 6: this period.
Speaker 1: That's a solution.
Speaker 6: Look, there are a few workarounds. People have proposed these.
Speaker 6: You can go on the web and you can read them,
Speaker 6: and they tap it to be cleaner than the messy
Speaker 6: situation we might get ourselves into the next few weeks.
Speaker 2: This is a dissertation, folks, and the history of debt
Speaker 2: coming out of World War two. Terry, how much of
Speaker 2: this is almost religious in nature. We have a culture
Speaker 2: in this America. I'm going to generalize it's Calvinists, but
Speaker 2: that's unfair to the gentleman from Switzerland.
Speaker 1: Debt is bad and.
Speaker 2: Heil Broner and Bernstein wrote a classic monograph on his
Speaker 2: thirty years.
Speaker 1: Ago, debt is bad. We've got to get rid of debt,
Speaker 1: and then we don't do we right?
Speaker 2: I mean to me, there's a whole cultural overlayer that's unspoken.
Speaker 6: Yeah, Debt in support of investment, debt in support of
Speaker 6: assets being created in the economy. Debt in support of
Speaker 6: more productivity by way of that is good. Debt in
Speaker 6: support of more spending without a common amount of SA
Speaker 6: savings on the other side is bad, especially when that
Speaker 6: debt rises to a point where the income that's generated
Speaker 6: by the spender is no longer sufficient to honor that debt,
Speaker 6: to support that debt, to support the obligations of that
Speaker 6: debt implied by that debt. So I think I think
Speaker 6: debt is perfectly fine. It's an aspect of the capitalist
Speaker 6: economy with limits, right. It depends where it's where it's going,
Speaker 6: it's what activity is it's supporting effectively.
Speaker 3: So let's get to the market question. Is there any risk?
Speaker 3: What is the risk outside of the so called at
Speaker 3: risk securities in the tebo market? What is that risk?
Speaker 3: What does that look like?
Speaker 6: Well, look, a lot of people say that if there's
Speaker 6: a miss payment on a principle principal payment or missed
Speaker 6: coupon payment, that Moodies will put the US in the fault,
Speaker 6: or S and P will put the US in the
Speaker 6: fault and then that will trigger CDs payments on the swaps.
Speaker 6: I think that is not realistic, and I say that
Speaker 6: with the fact that unlike a corporate bond or a
Speaker 6: corporate obligation, US treasuries don't have cross default provisions. If
Speaker 6: I do not, If I, as the US Treasury, do
Speaker 6: not make a payment on a single bond, it does
Speaker 6: not accelerate the payments on every other obligation that the
Speaker 6: US Treasury has. Yes, you can say, maybe that bond
Speaker 6: has defaulted, but the corpus of debt has not defaulted.
Speaker 6: There's no, there's no there are no cross cross default provisions.
Speaker 6: And that's tricky because you have to think of a
Speaker 6: default as something different, and movies would have to think
Speaker 6: about it as something different than they would if the
Speaker 6: similar thing happened for a corporate issuer. And that's tricky.
Speaker 6: That calls for a judgment call at that point. And
Speaker 6: it's not too clear to me that even if a
Speaker 6: payment is skipped that movies will go that far. Because
Speaker 6: it has that out, they can avoid calling the fault.
Speaker 6: We could avoid going to triggering the CBS.
Speaker 3: What would that mean for things like collateral Treasuries used
Speaker 3: as collateral for all types of things. What would that mean?
Speaker 6: Well, look, the collateral, the value of the collateral is
Speaker 6: only as good as the price of the collateral. So
Speaker 6: to the extent that we're talking about a few pips
Speaker 6: change in the price of those treasuries, Yeah, you'll demand
Speaker 6: more of them to support whatever repoactivity or lending activity
Speaker 6: you're trying to sponsor. But in the final analysis, as
Speaker 6: long as the treasury bill has value in dollars, it'll
Speaker 6: serve as good collateral.
Speaker 2: Right thirty seconds Martin's Place, Sidney, Australia, Macquarie Group. Do
Speaker 2: you still believe in the Pacific rim expansion?
Speaker 1: Oh?
Speaker 6: I don't necessarily believe in the China expansion long term
Speaker 6: and structurally, I mean yes, China's undergoing a nice recovery
Speaker 6: these days. It's hindered somewhat by the slowdown in demand
Speaker 6: coming out of Europe in the US, but domestic demand
Speaker 6: in China is good and that's enough to keep China's
Speaker 6: engine moving forward for another year.
Speaker 3: Beyond that.
Speaker 6: Structurally speaking, you know, you have a demographic problem in China,
Speaker 6: you have the demise of globalization. These are the things
Speaker 6: that are going to slow the Asia Pacific story beyond
Speaker 6: this year.
Speaker 3: Wait, py Am, I early this week surprised to see it.
Speaker 3: Try Wiseman, thank you. Now, I'm really placed to say
Speaker 3: it's Mike Crack, the team principle for the Ashton Martin
Speaker 3: F one team. Might wonderful to have you with a
Speaker 3: Sam Blombag TV and Bloomberg Radio. I have to say, Mike,
Speaker 3: this wasn't what I was expecting last year when I
Speaker 3: heard the news that Sebastian Vader was leaving and Fernando
Speaker 3: Alonzo was stepping in. To see you second in the
Speaker 3: Constructors Championship is quite something, Mike. What's let that turn
Speaker 3: around for you and the team?
Speaker 7: Well, to be honest with you, I didn't expect that either,
Speaker 7: to make such a big step. But we tried to
Speaker 7: develop our car as much as we could last year,
Speaker 7: and during the year we made subs central progress, but
Speaker 7: it was never enough to pick the big points and
Speaker 7: move forward in the championship. So yeah, by the end
Speaker 7: of the year, the car was in a much much
Speaker 7: better place and we were much more competitive and we
Speaker 7: took another step over the window. And because everything is
Speaker 7: related in this sport, it could also be that some
Speaker 7: other competitors have not made the step that they wanted
Speaker 7: and it brought us to the place we are in now,
Speaker 7: and yeah, we are quite happy to be there.
Speaker 3: Might well, get to the business of all of this
Speaker 3: in just the moment. Can you tell me how important
Speaker 3: it's been to bring Dan Fallows, the technical director on
Speaker 3: board to as the modern F one.
Speaker 7: Yeah, that is one of many recruits that we had
Speaker 7: lately all across last year, and they have been very,
Speaker 7: very complimentary to great workforce that we were already having.
Speaker 7: So all in all, I think they came together as
Speaker 7: a great group, get all the strength out of everybody,
Speaker 7: and you see the resultant track.
Speaker 2: Finally, I look, Mike at the extraordinary original that each
Speaker 2: race is different in American baseball. We compare Fenway to
Speaker 2: schavaz Ravine and other baseball parks. The distance from Baku
Speaker 2: to Miami in terms of the actual track is just
Speaker 2: extraordinary to me. How much is the adjustment for you
Speaker 2: in what ten days to go from Azerbaijan to Florida.
Speaker 7: Well, it is. First of all, it's a huge logistics
Speaker 7: efforts to bring the whole, the whole circus over to
Speaker 7: the US. But in that short time then you have
Speaker 7: to adjust basically everything, not only the clocks, but you
Speaker 7: have to bring the cars adopt cast to the layout
Speaker 7: of the Miami circuit because it's substantially different, and then
Speaker 7: we need to get used to the temperatures, to the
Speaker 7: heat and all the things that are different. So it's
Speaker 7: quite a substantial exercise for everybody.
Speaker 5: You know.
Speaker 2: I look at Red Bull as a leading team now,
Speaker 2: and the two drivers really go and add it second
Speaker 2: by second, tenth of a second by tenth of a second.
Speaker 2: And the relationship of your two drivers is absolutely extraordinary.
Speaker 2: The veteranal Alonzo with Stroll, and granted I get the
Speaker 2: idea that Dad's helping out as well, but Stroll seems
Speaker 2: like he's really earned the stripes. Explain the relationship of
Speaker 2: your two drivers is they go into Miami.
Speaker 7: Well, they are, first of all, they are great drivers,
Speaker 7: but they're not They are great human being, is very
Speaker 7: mach sure, and great teammates, and they they help us
Speaker 7: a big, big time to work as a team much
Speaker 7: much more than other teams too very often, and you
Speaker 7: see with other teams there is a fierce rivalry between
Speaker 7: teams and teammates, which at times is even ending in accidents.
Speaker 7: At the circuit. Between these two cars, I think we
Speaker 7: are fortunate to have two such great drivers that have
Speaker 7: understood that this is a team sport and that the
Speaker 7: rivals are out there with the different colored cars than ours,
Speaker 7: and we need to gether at every possible opportunity to
Speaker 7: to do better than the others.
Speaker 3: Mike, have to be honest with you, and this is
Speaker 3: my perspective. The Miami racetrack looks absolutely terrible, and I've
Speaker 3: got to say, and maybe you've got to be more
Speaker 3: diplomatic because of the position you're in. I think it's
Speaker 3: a worry for long term fans of this sport that
Speaker 3: the emphasis on breaking the United States of America and
Speaker 3: wanting to sacrifice the quality of the racing to do so. Mike,
Speaker 3: do you share those concerns?
Speaker 7: No, I do not share these concerns because I think
Speaker 7: the racetrack in Miami has everything that is that every
Speaker 7: that the normal modern Formula one race teck has to have.
Speaker 7: It has straight with the rs zons, it has high
Speaker 7: speed corners, it has some low speed corners, it has
Speaker 7: been completely resurfaced, and I think the heat that we
Speaker 7: will have over the weekend will add a lot of
Speaker 7: difficulty to cool the cars, but mainly to also keep
Speaker 7: the tire management under control. So all in all, I
Speaker 7: think we are for a great weekend and great racing.
Speaker 3: Well, clearly the future is bright for the spot. The
Speaker 3: attention has got off the back of the Netflix series
Speaker 3: has just been absolutely phenomenal. To get my partner in crime,
Speaker 3: Tom Keane on board to folks and I for one
Speaker 3: has been a pleasure for me over the last twelve
Speaker 3: months or so. Mike, I want to talk about things
Speaker 3: further down the road. There's always been a relationship between
Speaker 3: the F one team and the road car. Ferrari is
Speaker 3: a great example of that over the years, more recently
Speaker 3: as the martl again talking about the same thing, I
Speaker 3: want to understand the tension ten years out when as
Speaker 3: the Martin and the road car is fully electrified by
Speaker 3: twenty thirty s, where does that leave as the Mard
Speaker 3: and F one and the relationship between the F one
Speaker 3: team and what goes into the road car.
Speaker 7: Well, that is a very good question, and the same
Speaker 7: applies also to all the other brands. The one that
Speaker 7: you were just mentioning. I think F one is currently
Speaker 7: working heavily into carbon net zero, into going more sustainable
Speaker 7: by twenty thirty, which is much less than in ten
Speaker 7: years time. So by twenty twenty six we will run
Speaker 7: only on sustainable fuel. We will substantially increase the amount
Speaker 7: of electric power that we will deliver to the car.
Speaker 7: It will be around fifty to fifty. So the from
Speaker 7: Lomer cars are already hybrids, but the electric part will
Speaker 7: will increase and it will complement the road car fleet
Speaker 7: by these developments.
Speaker 3: How will that take place if you're going to retain
Speaker 3: to some degree the internal combustion engine and the road
Speaker 3: can won't.
Speaker 1: Well.
Speaker 7: I think lately the developments in artificial orses or how
Speaker 7: you call them, sustainable fuels is adding or is massively
Speaker 7: increasing life of the combustion engine, and it has been
Speaker 7: also classified like that. So from that point of view,
Speaker 7: I think Form one can be a great participant or
Speaker 7: great catalysts to the road cup business to make these
Speaker 7: nice cars that we have today sustainable and be able
Speaker 7: to run them for longer.
Speaker 3: I sense from what you're saying, Mike, that you don't
Speaker 3: think everyone ever becomes fully electrified, and actually to some
Speaker 3: degree you can go some way to preserve in the
Speaker 3: internal combustion engine on the road. Is that right?
Speaker 7: Well, that's a good question. I think the combustion engine
Speaker 7: will you have is time for the next ten years
Speaker 7: for sure, but ultimately it will fade out and for one,
Speaker 7: will not be with the combustion engine in say, twenty
Speaker 7: years from now. I will doubt that.
Speaker 2: Mike oh reporters in London, they're like, okay, enough talk
Speaker 2: about Taylor, Swift and the rest of it. What's the
Speaker 2: relationship with Honda going to be out to twenty twenty six?
Speaker 2: So we're going to see some drama is Honda tries
Speaker 2: to climb into Formula f one.
Speaker 7: We are quite happy with the powertrain power unit manufacturer
Speaker 7: that we have at the moment. We have a lot
Speaker 7: of on our plate at the moment for twenty twenty three,
Speaker 7: twenty twenty four to make further progress, and we are
Speaker 7: not really too much into twenty twenty six at this stage.
Speaker 3: Just for the pit passes for Miami seven thirty one
Speaker 3: Lexington Avenue, we got the code. I've got the zip code.
Speaker 1: For Mike one zero zero two to two.
Speaker 3: Okay, I'll buy tell Alonzo.
Speaker 2: I'll buy the Globe Trotter lug if you can get
Speaker 2: us into the pits.
Speaker 3: My thanks for this, I appreciate it.
Speaker 1: Mate. We could be there with Taylor.
Speaker 3: Good luck for the weekend. We're not going to Oscar
Speaker 3: that time. Thank you.
Speaker 2: And there are the trees now with this Economic Policy
Speaker 2: Research Director Veda partners with great experience on the marble
Speaker 2: halls of Capitol Hill. When there is a debt crisis,
Speaker 2: when there is some form of shutdown or jaw boning,
Speaker 2: how does the budget process change on Capitol Hill.
Speaker 8: I think, if anything, it speeds up, it speeds up dramatically.
Speaker 8: There was a lot of hay made about Secretary Yellen
Speaker 8: moving the date for the debt ceiling up from June
Speaker 8: fifth to as early as June first yesterday, but the
Speaker 8: reality is that nobody does anything until the last minute. Anyway,
Speaker 8: we got about four weeks to get this resolved.
Speaker 2: If those four.
Speaker 8: Weeks are in May or June or July or even September,
Speaker 8: it's not like they're going to start working in advance.
Speaker 8: I think Speaker McCarthy demonstrated a lot of good will
Speaker 8: by putting that vote on the floor last week, getting
Speaker 8: things moving well ahead of schedule, even before Secretary Yellen
Speaker 8: provided the update post tax receipts. So basically it just
Speaker 8: burst them into action. We've got four weeks to get
Speaker 8: this result. That's plenty of time. We've seen it done
Speaker 8: in far less and in fact, I would wager that
Speaker 8: it won't even start to come to an end until
Speaker 8: we get a twenty second.
Speaker 2: So based on that answer, five guys sitting on a
Speaker 2: couch with Cherry Yellen in the Oval Office on May
Speaker 2: ninth doesn't have an urgency to it.
Speaker 1: Is that what I hear?
Speaker 8: I'm happy for the Big four to get in a room.
Speaker 8: I think that's very important. That is one of the
Speaker 8: steps in the process. But we have a number of
Speaker 8: other formalities that also need to be accomplished. Senator Schumer,
Speaker 8: the majority leader, has scheduled two votes in the Senate
Speaker 8: or queued them up, at least one on a clean
Speaker 8: debt ceiling hike with all the Democrats will vote four
Speaker 8: and one on the House pass built, which some of
Speaker 8: the Republicans might vote force. And we're still at least
Speaker 8: a week away from any concrete negotiations. I want to
Speaker 8: see some of the Budget committee chairs get called up.
Speaker 8: I imagine that there will be more than just this
Speaker 8: one group of Big four that gets called up to
Speaker 8: the White House. And then, of course we really want
Speaker 8: to see staff in the room. You guys know this
Speaker 8: about me, and so to all of our clients. I
Speaker 8: really care what staff has to say more than anything else.
Speaker 8: So I want to see those guys get together, and
Speaker 8: I would imagine that starts soon and they're able to
Speaker 8: come together a deal within the next three weeks.
Speaker 3: And let's taste that out a little bit more, Henrietta,
Speaker 3: I don't have a read on this. I've got no
Speaker 3: idea which way it goes. I'm told by some people
Speaker 3: to same movie, same ending, won't be any different this
Speaker 3: time around. I'm told by other people it is different
Speaker 3: this time, Henrietta, what informs your read on that you mentioned?
Speaker 3: Staff wok me through it right?
Speaker 8: Well, not only have we seen this movie so many
Speaker 8: times before, but it's almost an exact repeat of twenty eleven.
Speaker 8: You can even find similar votes from twenty fourteen. In
Speaker 8: twenty seventeen, we have the exact v act same dynamic
Speaker 8: where the president is a Democrat, the Senate is controlled
Speaker 8: by Democrats, and the House is controlled by Republicans. What
Speaker 8: ends up happening is you see a bill passing the
Speaker 8: House that's written mostly with the intention of just getting
Speaker 8: my majority party in one chamber signed on. That's what
Speaker 8: they did last week, and now we're going to start
Speaker 8: moving into the place where staff goes through the fine
Speaker 8: print and finds three hundred to five hundred billion dollars
Speaker 8: in deficit reduction, which is the level that Staff advises me.
Speaker 8: On the Democratic side they're willing to swallow in order
Speaker 8: to hike the debt ceiling to thirty three trillion, which
Speaker 8: would get us roughly through call it March of twenty
Speaker 8: twenty five, after the presidential election cycle. Those are the
Speaker 8: kind of minuship points that Staff is focused on. And
Speaker 8: if you see, those cuts come from things like clawing
Speaker 8: back COVID relief, reducing service on the debt, fraud, waste
Speaker 8: and abuse spending, all things that were incorporated as a
Speaker 8: part of the Republican past bill, but not nearly the
Speaker 8: three trillion plus number that Speaker mccarthney put on the floor.
Speaker 8: That's a non starter. We need to get that down
Speaker 8: to three hundred and five hundred billion and horse trade
Speaker 8: back and forth, and that's what Staff will do behind
Speaker 8: the scenes.
Speaker 3: There's going to be a lot of inquisted on, a
Speaker 3: lot of analysis between now and then. Henryta indulge me
Speaker 3: in go through this scenario. This is something Terry Wiseman
Speaker 3: of Macquarie mentioned in the last hour. He said this
Speaker 3: and this is a quote from him. If we approach
Speaker 3: a crisis, I think the cleanest solution here, if we
Speaker 3: don't get to a political solution, is simply for the
Speaker 3: US Treasury to continue to do to do what it's doing,
Speaker 3: i e. Issue debt Henry. So he made the point
Speaker 3: that they can just go on ignore the political situation
Speaker 3: and carry on issue in debt and pay their bills.
Speaker 3: Is that something you can see as a workable solution
Speaker 3: to this?
Speaker 8: No, no offense, but it's just not Congress is going
Speaker 8: to insist on acting here. I know it looks like
Speaker 8: they don't want to take a boat, but they react
Speaker 8: very poorly when any federal agency or otherwise take some
Speaker 8: of their authority away. That jurisdiction or control is something
Speaker 8: that you see committees cover it, and certainly the House
Speaker 8: and Senate look no further than the ways it means
Speaker 8: for their tax policy bills getting blue slipped, you know,
Speaker 8: insisting that they start in the House. They react very
Speaker 8: poorly when any federal regulator oversteps their bounds and use
Speaker 8: serves their authority. So I believe Congress will act. I
Speaker 8: am not concerned about whether they will act. Default is
Speaker 8: not an option I think investors should, you know, sort
Speaker 8: of skip over the headlines and see that Kevin McCarthy
Speaker 8: put that bill on the floor well before he needed to.
Speaker 8: We've got four weeks to negotiate. I see no real
Speaker 8: problem here.
Speaker 3: Four weeks is enough as far as you'll consent more
Speaker 3: than enough, I'm going to trice the fight upon us.
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