1 00:00:14,040 --> 00:00:17,400 Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast. 2 00:00:17,520 --> 00:00:20,600 Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg. 3 00:00:20,239 --> 00:00:23,040 Speaker 2: And I'm all down a higher across asset reporter with Bloomberg. 4 00:00:23,520 --> 00:00:26,200 Speaker 1: And this week on the show, well, what if we've 5 00:00:26,239 --> 00:00:29,600 Speaker 1: all been bracing for a recession that never actually shows up. 6 00:00:30,320 --> 00:00:32,760 Speaker 1: That's a question that's floating around more and more of 7 00:00:32,800 --> 00:00:35,680 Speaker 1: these days as the economy just keeps hanging in there 8 00:00:36,200 --> 00:00:39,440 Speaker 1: despite the rapid rise in interest rates, a few bank failures, 9 00:00:39,479 --> 00:00:42,000 Speaker 1: and all the dire predictions that came along with both 10 00:00:42,040 --> 00:00:44,440 Speaker 1: of those. We'll get into it with a well known 11 00:00:44,479 --> 00:00:48,360 Speaker 1: economist at a major Wall Street bank. But first of all, Donna, 12 00:00:48,400 --> 00:00:52,120 Speaker 1: I've got a very strange question for it. I'm shocked, shocked. Yeah, 13 00:00:52,159 --> 00:00:54,720 Speaker 1: I've never asked you a strange question. Have you ever 14 00:00:54,840 --> 00:00:57,920 Speaker 1: daydreamed about like being a princess or a queen? No 15 00:00:59,040 --> 00:01:02,520 Speaker 1: you haven't. No, that's a healthy outlook. 16 00:01:02,760 --> 00:01:05,680 Speaker 2: Yeah it's not real. And they like didn't have bathrooms. 17 00:01:06,160 --> 00:01:08,720 Speaker 2: Well there are real princesses and oh that's true, like 18 00:01:08,800 --> 00:01:09,520 Speaker 2: modern day. 19 00:01:09,400 --> 00:01:12,960 Speaker 1: Do you think, uh, the current princesses and princes Prince 20 00:01:12,959 --> 00:01:14,360 Speaker 1: Harry doesn't have a modern bathroom. 21 00:01:14,400 --> 00:01:18,120 Speaker 2: He definitely does, but like, are they beloved by their people? 22 00:01:18,520 --> 00:01:21,360 Speaker 2: You know, it comes with a lot of baggage. 23 00:01:21,440 --> 00:01:22,800 Speaker 1: All right, well that's a healthy editor. 24 00:01:22,800 --> 00:01:23,479 Speaker 3: Why are you asking? 25 00:01:23,760 --> 00:01:27,040 Speaker 1: Well, it's my craziest thing this week has to do 26 00:01:27,360 --> 00:01:30,800 Speaker 1: with there's actually a market for royal titles, if you 27 00:01:30,800 --> 00:01:31,280 Speaker 1: believe it or not. 28 00:01:31,480 --> 00:01:34,680 Speaker 2: Wow, So we'll get by one. You would, all right, 29 00:01:34,840 --> 00:01:35,920 Speaker 2: I would be the highest bitro. 30 00:01:36,400 --> 00:01:37,399 Speaker 1: You're going to find out how much? 31 00:01:40,319 --> 00:01:42,400 Speaker 2: Okay, I don't want to keep our guests waiting because 32 00:01:42,760 --> 00:01:44,520 Speaker 2: and I actually just told him this right before we 33 00:01:44,560 --> 00:01:47,160 Speaker 2: started taping. I'm a huge fan of his. I've been 34 00:01:47,360 --> 00:01:50,480 Speaker 2: a fan for years and I'm so excited. 35 00:01:50,840 --> 00:01:52,600 Speaker 1: The posters on the walls, yeah. 36 00:01:52,520 --> 00:01:56,640 Speaker 2: Kind of yeah, No, no, not to that extreme. It's 37 00:01:56,680 --> 00:02:00,880 Speaker 2: Seth Carpenter. He's the global chief economist at Morgan's Stanley. Seth, 38 00:02:00,960 --> 00:02:03,120 Speaker 2: thank you so much for joining us, Bill. 39 00:02:02,960 --> 00:02:05,280 Speaker 4: Donna, thank you, Mike, thanks for having me. I am 40 00:02:05,400 --> 00:02:07,559 Speaker 4: I'm glad that this is audio only because I would 41 00:02:07,560 --> 00:02:08,400 Speaker 4: have blushed. 42 00:02:08,639 --> 00:02:10,280 Speaker 3: You just I'm blushing, don't worry. 43 00:02:10,360 --> 00:02:14,200 Speaker 1: He's also a former writer of The Princeton Dinky as well. 44 00:02:14,400 --> 00:02:17,920 Speaker 2: I know, yes, yes, he got his PhD at Princeton 45 00:02:17,960 --> 00:02:18,400 Speaker 2: with what's. 46 00:02:18,280 --> 00:02:20,320 Speaker 1: A weird hobby is? I love the Princeton Dinky. I 47 00:02:20,320 --> 00:02:22,640 Speaker 1: don't know why, but I find it fascinating that there's 48 00:02:23,280 --> 00:02:26,040 Speaker 1: a one car train that goes what a mile back 49 00:02:26,040 --> 00:02:26,760 Speaker 1: and forth every. 50 00:02:26,720 --> 00:02:28,360 Speaker 2: Day and you can have your tall guy on it, 51 00:02:28,480 --> 00:02:32,400 Speaker 2: or what's it called a tall guy, a tall tall boy. 52 00:02:33,280 --> 00:02:35,040 Speaker 2: You couldn't even finish a tall boy at the time. 53 00:02:35,080 --> 00:02:41,280 Speaker 2: It takes okay, But Seth, you have a very decorated resume, 54 00:02:41,360 --> 00:02:42,280 Speaker 2: so I'm hoping you could. 55 00:02:42,320 --> 00:02:43,000 Speaker 3: We can just start out. 56 00:02:43,040 --> 00:02:45,200 Speaker 2: You can tell us about your background and then how 57 00:02:45,240 --> 00:02:46,520 Speaker 2: you ended up at Morgan Stantley. 58 00:02:47,040 --> 00:02:49,000 Speaker 4: How did I get to where I am? You started 59 00:02:49,040 --> 00:02:52,000 Speaker 4: off noting that I have a PhD in economics, and 60 00:02:52,040 --> 00:02:55,480 Speaker 4: I'm happy to say that my primary advisor was Ben Bernanke, 61 00:02:55,680 --> 00:02:57,760 Speaker 4: who when I was at Princeton did not have a 62 00:02:57,760 --> 00:03:00,840 Speaker 4: Nobel Prize and now he does, so I had something 63 00:03:00,880 --> 00:03:05,120 Speaker 4: to do with that, I would say. So. No, that 64 00:03:05,240 --> 00:03:08,760 Speaker 4: was actually a fantastic opportunity, and I actually thought I 65 00:03:08,760 --> 00:03:11,560 Speaker 4: was going to be an academic. My research was on 66 00:03:11,639 --> 00:03:14,440 Speaker 4: monetary policy, but I went to teach for a couple 67 00:03:14,480 --> 00:03:16,080 Speaker 4: of years at the College of William and Mary, and 68 00:03:16,120 --> 00:03:19,040 Speaker 4: then the FED called and said, are you interested in 69 00:03:19,240 --> 00:03:22,359 Speaker 4: coming up to give a to do an interview? And 70 00:03:22,480 --> 00:03:25,280 Speaker 4: the answer was yes, and they offered me a job 71 00:03:25,600 --> 00:03:28,520 Speaker 4: and I took it. And shocking news for anybody who's 72 00:03:28,520 --> 00:03:31,000 Speaker 4: in their late twenties, Washington, d C. Is a bit 73 00:03:31,040 --> 00:03:34,600 Speaker 4: more interesting to live in than Williamsburg, Virginia. So I 74 00:03:34,680 --> 00:03:37,360 Speaker 4: ended up staying in Washington, DC, and I was at 75 00:03:37,360 --> 00:03:39,760 Speaker 4: the FED for fifteen years. By the time I left, 76 00:03:39,800 --> 00:03:42,800 Speaker 4: I was the Deputy Director of the Division of Monetary Affairs. 77 00:03:43,560 --> 00:03:47,920 Speaker 4: Got to work through the financial crisis, which was a 78 00:03:48,000 --> 00:03:50,560 Speaker 4: terrible point in economic history, but now that it's in 79 00:03:50,560 --> 00:03:53,520 Speaker 4: the rearview mirror, it sort of was fascinating part of 80 00:03:53,560 --> 00:03:55,840 Speaker 4: my career to be at the FED in the trenches, 81 00:03:56,360 --> 00:03:58,840 Speaker 4: trying to work on both strategy for policy and then 82 00:03:58,880 --> 00:04:02,120 Speaker 4: the nitty gritty like all of the different lending programs 83 00:04:02,120 --> 00:04:05,120 Speaker 4: the FED did, and thinking about the FED balance sheet. 84 00:04:05,200 --> 00:04:07,880 Speaker 4: I was for a while the Fed's person in charge 85 00:04:07,920 --> 00:04:10,600 Speaker 4: of the Fed's balance sheet, if you will, So it 86 00:04:10,680 --> 00:04:13,440 Speaker 4: was fascinating. But at some point I needed a break. 87 00:04:13,600 --> 00:04:17,440 Speaker 4: I went to the Treasury Department, ostensibly for just a 88 00:04:17,440 --> 00:04:20,200 Speaker 4: one year visit, but while I was there, I had 89 00:04:20,200 --> 00:04:23,640 Speaker 4: the very good fortune of having President Obama nominate me 90 00:04:23,720 --> 00:04:27,479 Speaker 4: to be Assistant Secretary for Financial Markets. So I resigned 91 00:04:27,480 --> 00:04:30,279 Speaker 4: from the FED and got to work at the Treasure Department, 92 00:04:30,279 --> 00:04:32,200 Speaker 4: and I have to say that was a fantastic job. 93 00:04:32,720 --> 00:04:34,520 Speaker 4: But I did that until twenty sixteen, and then I 94 00:04:34,520 --> 00:04:38,000 Speaker 4: went to the private sector to financial markets, worked for 95 00:04:38,040 --> 00:04:40,480 Speaker 4: a year at a hedge fund, worked for four years 96 00:04:40,480 --> 00:04:42,400 Speaker 4: at a different bank, and now I'm happy to say 97 00:04:42,400 --> 00:04:45,760 Speaker 4: I am the global chief economist here at Morgan Stanley, 98 00:04:45,880 --> 00:04:47,000 Speaker 4: and I couldn't be happier. 99 00:04:47,080 --> 00:04:48,760 Speaker 1: I guess you did have to buy a new wardrobe 100 00:04:48,760 --> 00:04:50,680 Speaker 1: when you moved to Washington, though, Seth, you couldn't walk 101 00:04:50,680 --> 00:04:52,920 Speaker 1: around in those colonial uniforms anymore. 102 00:04:55,000 --> 00:04:56,440 Speaker 4: Ten striped suit with a tri corner. 103 00:04:56,560 --> 00:05:00,640 Speaker 1: Had to get back to what I was saying in 104 00:05:00,680 --> 00:05:04,160 Speaker 1: the introduction. You know, my impression is that you were 105 00:05:04,240 --> 00:05:07,320 Speaker 1: sort of leading into the soft landing camp these days, 106 00:05:07,680 --> 00:05:11,320 Speaker 1: thinking that perhaps fingers crossed, knock on wood and all, 107 00:05:11,320 --> 00:05:14,520 Speaker 1: that we actually might be able to avoid a recession. 108 00:05:15,000 --> 00:05:16,919 Speaker 1: Walk us through how you're thinking about that. You know 109 00:05:16,960 --> 00:05:20,000 Speaker 1: what's changed to make you a little bit less worried 110 00:05:20,000 --> 00:05:20,760 Speaker 1: about recession? 111 00:05:21,040 --> 00:05:23,760 Speaker 4: Absolutely, we've we've actually been in the soft landing camp 112 00:05:23,839 --> 00:05:26,400 Speaker 4: for a while, there were definitely times when everyone in 113 00:05:26,480 --> 00:05:29,880 Speaker 4: markets was throwing rocks and sticks at us and saying 114 00:05:29,920 --> 00:05:32,320 Speaker 4: that we're crazy, because it was clear we'd get a recession. 115 00:05:32,360 --> 00:05:35,040 Speaker 4: And then the data for Januine and February came in 116 00:05:35,080 --> 00:05:36,800 Speaker 4: that looked a lot better, and people were telling us 117 00:05:36,839 --> 00:05:38,520 Speaker 4: that we were crazy, that we were still calling for 118 00:05:38,560 --> 00:05:41,279 Speaker 4: a big slowdown. And now the world has shifted again. 119 00:05:41,880 --> 00:05:44,400 Speaker 4: What is our thinking. The first thing is that seems 120 00:05:44,480 --> 00:05:46,640 Speaker 4: hard to avoid the fact that the US economy is 121 00:05:46,680 --> 00:05:49,000 Speaker 4: going to slow down. And part of the reason why 122 00:05:49,000 --> 00:05:51,839 Speaker 4: that's hard to avoid is because that is absolutely, categorically 123 00:05:51,920 --> 00:05:54,400 Speaker 4: the feds objective. Right The reason they will keep hiking 124 00:05:54,440 --> 00:05:56,880 Speaker 4: industrates at least a bit more is because they want 125 00:05:56,960 --> 00:05:59,240 Speaker 4: the economy to slow down a lot in order to 126 00:05:59,240 --> 00:06:02,320 Speaker 4: have inflationary pressures of bait. So the slowdown part should 127 00:06:02,360 --> 00:06:04,520 Speaker 4: be pretty easy to get on board with. So what 128 00:06:04,640 --> 00:06:07,919 Speaker 4: about the missing the recession part? Well, partly because the 129 00:06:07,960 --> 00:06:11,200 Speaker 4: slowdown is the Fed's choice, at least, having a chance 130 00:06:11,240 --> 00:06:13,600 Speaker 4: to avoid a recession should also be the fed's choice, 131 00:06:13,600 --> 00:06:16,279 Speaker 4: And we think they're looking carefully at the data and 132 00:06:16,360 --> 00:06:19,080 Speaker 4: asking do we have enough evidence that things are slowing 133 00:06:19,120 --> 00:06:22,359 Speaker 4: down a lot? But not yet crashing, because that's what 134 00:06:22,360 --> 00:06:24,480 Speaker 4: they're looking for in order to stop the hiking cycle. 135 00:06:24,520 --> 00:06:26,960 Speaker 4: So we think the last hike is in May, when 136 00:06:27,000 --> 00:06:29,719 Speaker 4: there'll be more evidence of more of a slowdown, but 137 00:06:29,960 --> 00:06:32,560 Speaker 4: not yet evidence that things have actually fallen off of 138 00:06:32,560 --> 00:06:35,480 Speaker 4: a cliff. And then I think the last part of 139 00:06:35,480 --> 00:06:38,839 Speaker 4: our thesis is usually what takes in the US to 140 00:06:38,880 --> 00:06:41,800 Speaker 4: get a recession is some shock or something that causes 141 00:06:41,800 --> 00:06:44,240 Speaker 4: the slowdown. So we've got that, but you also need 142 00:06:44,240 --> 00:06:48,560 Speaker 4: an amplification mechanism. So the economy slows down and businesses 143 00:06:48,680 --> 00:06:51,320 Speaker 4: lay off millions of workers and their lack of income 144 00:06:51,400 --> 00:06:54,080 Speaker 4: causes a slump and stending, or you get a big 145 00:06:54,120 --> 00:06:58,680 Speaker 4: credit crunch and everything seizes up. Both of those are 146 00:06:58,680 --> 00:07:03,559 Speaker 4: clearly possible, but we don't think they are imminent. For 147 00:07:03,839 --> 00:07:06,400 Speaker 4: the labor side of things, the job market still seems 148 00:07:06,400 --> 00:07:09,560 Speaker 4: pretty healthy, the unemployment rates very low, and if you 149 00:07:09,960 --> 00:07:12,320 Speaker 4: kind of look at how much employment do we have 150 00:07:13,000 --> 00:07:16,280 Speaker 4: relative to the level of GDP, you'd come away with 151 00:07:16,400 --> 00:07:19,760 Speaker 4: the conclusion that, boy, businesses are still a little shorthanded. 152 00:07:20,200 --> 00:07:22,440 Speaker 4: But what that means is the economy can slow down 153 00:07:22,840 --> 00:07:25,240 Speaker 4: and businesses don't have to do the same wave of 154 00:07:25,360 --> 00:07:27,880 Speaker 4: firing that they've had to do in previous slowdown, So 155 00:07:27,880 --> 00:07:31,119 Speaker 4: that makes us feel a little bit better. And even 156 00:07:31,120 --> 00:07:35,800 Speaker 4: though there's clearly tighter funding conditions for banks and banks 157 00:07:35,800 --> 00:07:40,239 Speaker 4: are pulling back on their lending, especially given what's happened 158 00:07:40,240 --> 00:07:44,120 Speaker 4: in the wake of all of the banking turmoil, we 159 00:07:44,240 --> 00:07:46,600 Speaker 4: kind of remember that things were already slowing down. Loan 160 00:07:46,720 --> 00:07:50,320 Speaker 4: growth was already slowing before we got these new sensational 161 00:07:50,600 --> 00:07:54,720 Speaker 4: headlines about the banking sector turmoil. And because we were 162 00:07:54,760 --> 00:07:57,480 Speaker 4: sure the economy was going to be slowing down anyway, 163 00:07:57,840 --> 00:07:59,960 Speaker 4: the demand for that borrowing is going to be following. 164 00:08:00,040 --> 00:08:02,680 Speaker 4: And so we don't think any pullback by banks and 165 00:08:02,720 --> 00:08:04,760 Speaker 4: their willingness to lend is going to be the thing 166 00:08:04,760 --> 00:08:08,720 Speaker 4: that tips us over to recession. So not a super 167 00:08:08,800 --> 00:08:11,480 Speaker 4: rosy outlook. We are looking for growth that's below a 168 00:08:11,560 --> 00:08:14,160 Speaker 4: half a percent in real terms, so very very close 169 00:08:14,200 --> 00:08:17,800 Speaker 4: to zero. But importantly, we are not looking for a 170 00:08:17,800 --> 00:08:20,360 Speaker 4: full blown recession where we have several months in a 171 00:08:20,440 --> 00:08:21,320 Speaker 4: row of contraction. 172 00:08:21,960 --> 00:08:25,000 Speaker 2: Okay, so Seth, you mentioned tighter funding conditions, and I'm 173 00:08:25,040 --> 00:08:28,000 Speaker 2: wondering where else you are looking to see signs of 174 00:08:28,040 --> 00:08:30,680 Speaker 2: that now that we've obviously we've had the bank turmoil. 175 00:08:31,040 --> 00:08:34,439 Speaker 2: Been a month since that happened. I know, I was 176 00:08:34,480 --> 00:08:36,320 Speaker 2: reading some notes from some of the big banks, and 177 00:08:36,440 --> 00:08:39,280 Speaker 2: a couple of them actually mentioned Fastenal some of the 178 00:08:39,320 --> 00:08:41,520 Speaker 2: warnings from that company, and that company being such a 179 00:08:41,559 --> 00:08:43,600 Speaker 2: bell weather. So where else are you looking maybe for 180 00:08:43,760 --> 00:08:46,280 Speaker 2: signs of tighter funding conditions. 181 00:08:46,880 --> 00:08:49,280 Speaker 4: So we're trying to look as broadly and as deeply 182 00:08:49,320 --> 00:08:52,720 Speaker 4: as we possibly can. You can look at things like 183 00:08:52,880 --> 00:08:56,200 Speaker 4: delinquency rates and deterioration of credit quality on credit cards 184 00:08:56,400 --> 00:08:59,160 Speaker 4: and that kind of lending to customers. But I you know, 185 00:08:59,240 --> 00:09:01,640 Speaker 4: close to home for big chunk of my career, the 186 00:09:01,640 --> 00:09:05,040 Speaker 4: Federal Reserve has their Senior Loan Officer Opinion Survey. They 187 00:09:05,080 --> 00:09:07,839 Speaker 4: have a survey in terms of business lending, and there 188 00:09:07,920 --> 00:09:11,720 Speaker 4: they ask lots of banks, what's going on with your lending? 189 00:09:11,760 --> 00:09:14,960 Speaker 4: And I think that's another really key, uh source of 190 00:09:15,000 --> 00:09:17,800 Speaker 4: information about willingness to lend by creditors. 191 00:09:18,040 --> 00:09:22,000 Speaker 1: Yes, I wonder everybody was kind of bracing for, if 192 00:09:22,000 --> 00:09:25,760 Speaker 1: not a credit crunch, definitely some kind of credit slowdown. 193 00:09:25,960 --> 00:09:29,800 Speaker 1: After Silicon Valley Bank and Signature Bank failed. Was the 194 00:09:30,520 --> 00:09:34,080 Speaker 1: emergency term lending facility that was introduced, and the you know, 195 00:09:34,160 --> 00:09:37,800 Speaker 1: the discount window at the FED opened wide. Was that 196 00:09:38,000 --> 00:09:42,760 Speaker 1: enough to basically prevent that type of contagion from that 197 00:09:42,760 --> 00:09:46,280 Speaker 1: that type of nervousness among banks to rein in lending, 198 00:09:46,720 --> 00:09:48,480 Speaker 1: do you think, or is it something else? 199 00:09:48,679 --> 00:09:50,760 Speaker 4: So that's a great question, and it's really hard to 200 00:09:50,800 --> 00:09:53,360 Speaker 4: know what the counter factual would have been. But then 201 00:09:53,360 --> 00:09:55,920 Speaker 4: when you start to look into the details, there wasn't, 202 00:09:55,960 --> 00:09:58,040 Speaker 4: at least in the first week, that much that went 203 00:09:58,040 --> 00:10:01,680 Speaker 4: through that nude term lending facilit about twelve billion dollars 204 00:10:01,760 --> 00:10:05,640 Speaker 4: or so. A huge amount went to the FDIC's bridge banks. 205 00:10:05,960 --> 00:10:08,839 Speaker 4: There's also a fair amount based on First republic z 206 00:10:08,840 --> 00:10:12,839 Speaker 4: owned public disclosures that went directly there. And so, you know, 207 00:10:12,920 --> 00:10:16,680 Speaker 4: my initial reading, perhaps through some slightly rose colored glasses, 208 00:10:16,800 --> 00:10:20,560 Speaker 4: was that the situation based on that borrowing was more 209 00:10:20,679 --> 00:10:24,960 Speaker 4: idiosyncratic than systemic. Now, there were still a lot of 210 00:10:25,000 --> 00:10:27,760 Speaker 4: borrowing from many banks, and the amounts going through that 211 00:10:27,880 --> 00:10:30,920 Speaker 4: term facility has actually edged up a bit over time, 212 00:10:31,000 --> 00:10:34,559 Speaker 4: it has not fallen, So we don't want to be complacent, 213 00:10:34,920 --> 00:10:38,960 Speaker 4: but my initial read was that it was more idiosyncratic 214 00:10:39,000 --> 00:10:41,920 Speaker 4: than systemic, and so as a result, yeah, I suspect 215 00:10:41,960 --> 00:10:44,960 Speaker 4: that the lending was there took care of some of 216 00:10:44,960 --> 00:10:48,360 Speaker 4: the institutions that critically needed. Others, as we know, or 217 00:10:49,000 --> 00:10:52,640 Speaker 4: have been resolved or being resolved, and so you know, 218 00:10:52,760 --> 00:10:55,760 Speaker 4: my take really though, is that we had a largely 219 00:10:55,800 --> 00:10:59,160 Speaker 4: idiosyncratic problem against the backdrop of the whole system have 220 00:10:59,280 --> 00:11:01,280 Speaker 4: been facing a high funding costs. But that was very 221 00:11:01,360 --> 00:11:03,720 Speaker 4: much the intent of the Fed by raising the Federal 222 00:11:03,760 --> 00:11:06,360 Speaker 4: Funds rate five hundred basis points. I do think there 223 00:11:06,400 --> 00:11:08,480 Speaker 4: was mostly an adies and credit situation going on. 224 00:11:14,960 --> 00:11:17,439 Speaker 1: You know, the other issue that's coming up with banks 225 00:11:17,480 --> 00:11:20,040 Speaker 1: a lot these days, seth And admittedly I'm kind of 226 00:11:20,040 --> 00:11:21,520 Speaker 1: talking my book here a little bit. I've got a 227 00:11:21,520 --> 00:11:25,080 Speaker 1: story in our BusinessWeek magazine about this this week. But 228 00:11:25,679 --> 00:11:28,680 Speaker 1: it's basically the notion of deposit beta. When the Fed 229 00:11:28,720 --> 00:11:32,120 Speaker 1: Funds rate goes up to five percent, how quickly do 230 00:11:32,240 --> 00:11:36,480 Speaker 1: banks jack up their rates that they pay on savings deposits, 231 00:11:36,800 --> 00:11:40,400 Speaker 1: demand deposits, especially in reflection to how much the Fed 232 00:11:40,440 --> 00:11:43,480 Speaker 1: Fund's rate has gone up, Because it's a really fascinating, 233 00:11:43,600 --> 00:11:47,760 Speaker 1: I think, almost a historical whiplash that we've seen. You 234 00:11:47,800 --> 00:11:53,040 Speaker 1: saw bank deposits just swell tremendously during the pandemic, something 235 00:11:53,080 --> 00:11:56,640 Speaker 1: like twenty percent in twenty twenty, I believe it was, 236 00:11:56,679 --> 00:11:59,560 Speaker 1: and then another ten percent in twenty twenty one. Now 237 00:11:59,520 --> 00:12:03,000 Speaker 1: there's start to shrink, albeit you know, not by a ton. 238 00:12:03,080 --> 00:12:04,560 Speaker 1: I think it was like a percent and a half 239 00:12:04,640 --> 00:12:07,880 Speaker 1: last year, but you know, on an aggregate basis, bank 240 00:12:07,920 --> 00:12:12,200 Speaker 1: deposits are shrinking. There's more competition possibly for deposits. A 241 00:12:12,200 --> 00:12:15,080 Speaker 1: lot of banks are now paying above four percent on 242 00:12:15,160 --> 00:12:19,200 Speaker 1: their savings rates their deposit rates. To me, that that 243 00:12:19,240 --> 00:12:22,200 Speaker 1: creates a lot of questions I think about the financial system, 244 00:12:22,400 --> 00:12:24,400 Speaker 1: you know, And warning here I'm about to give you 245 00:12:24,400 --> 00:12:27,720 Speaker 1: about a ten part question, so stand by. But you know, 246 00:12:28,240 --> 00:12:32,080 Speaker 1: a does that sort of deposit competition, that worriiness about 247 00:12:32,160 --> 00:12:36,400 Speaker 1: stickiness of deposits have any effect on the supply of 248 00:12:36,440 --> 00:12:40,680 Speaker 1: credit you think? And secondly, does it have any macro 249 00:12:41,320 --> 00:12:44,480 Speaker 1: follow up for the markets themselves? You know, I'm thinking, 250 00:12:44,480 --> 00:12:46,320 Speaker 1: if I'm getting if I can get four to four 251 00:12:46,320 --> 00:12:50,160 Speaker 1: and a half percent on my savings account at a bank, 252 00:12:50,920 --> 00:12:52,720 Speaker 1: am I going to be less willing to take risk 253 00:12:52,800 --> 00:12:54,839 Speaker 1: in the stock market? That sort of thing? So I'm 254 00:12:54,880 --> 00:12:57,600 Speaker 1: curious how you see that whole situation playing out, both 255 00:12:57,600 --> 00:13:01,480 Speaker 1: from the credit side and any other potential macro impact 256 00:13:01,520 --> 00:13:01,960 Speaker 1: it might. 257 00:13:01,840 --> 00:13:06,280 Speaker 4: Have absolutely so fascinating topic one that is absolutely critical. 258 00:13:06,640 --> 00:13:08,440 Speaker 4: So let me take a step back and think about 259 00:13:08,480 --> 00:13:12,280 Speaker 4: it in an historical sense. Every time we have an 260 00:13:12,320 --> 00:13:14,800 Speaker 4: interest rate cycle, business cycle, and then the Fed's moving 261 00:13:15,080 --> 00:13:17,520 Speaker 4: short term rates up and down, you see an interesting 262 00:13:17,559 --> 00:13:20,640 Speaker 4: and fairly familiar pattern when when the FED cuts rates 263 00:13:20,640 --> 00:13:23,559 Speaker 4: and market rates fall, deposit rates fall along with them, 264 00:13:23,880 --> 00:13:25,800 Speaker 4: and then the Fed starts to raise interest rates and 265 00:13:25,800 --> 00:13:29,240 Speaker 4: deposit rates kind of lag, and then over time that 266 00:13:29,280 --> 00:13:33,040 Speaker 4: deposit beta, as you noted, starts to starts to pick 267 00:13:33,160 --> 00:13:37,400 Speaker 4: up a big plug. To my colleague Betsy Graysek, who 268 00:13:37,480 --> 00:13:41,480 Speaker 4: runs equity research at Morgan Stanley for financial institutions, she's 269 00:13:41,520 --> 00:13:44,320 Speaker 4: been saying since the beginning of this hiking cycle that 270 00:13:44,360 --> 00:13:47,440 Speaker 4: the deposit beta increased this time would be more dramatic 271 00:13:47,480 --> 00:13:49,840 Speaker 4: than it has been in past cycles, and that's been 272 00:13:49,880 --> 00:13:52,640 Speaker 4: born out. As you've said, I think there are a 273 00:13:52,640 --> 00:13:54,600 Speaker 4: few things that are that are a little bit different 274 00:13:54,679 --> 00:13:59,160 Speaker 4: this time than previous cycles, at least recent cycles. One 275 00:13:59,240 --> 00:14:02,200 Speaker 4: is the speed with which the FED increased interest rates. 276 00:14:02,240 --> 00:14:04,600 Speaker 4: We had four to seventy five basis point rate increases 277 00:14:04,640 --> 00:14:08,680 Speaker 4: this time compared to the previous couple of hiking cycles. 278 00:14:08,679 --> 00:14:11,719 Speaker 4: That's a really big departure in terms of speed, and 279 00:14:12,280 --> 00:14:16,120 Speaker 4: banks are are having to follow up on it. Historically, though, 280 00:14:16,240 --> 00:14:18,080 Speaker 4: what do you see. You see the growth rate of 281 00:14:18,200 --> 00:14:21,760 Speaker 4: deposits fall, or even an outright decline in deposits, because 282 00:14:21,920 --> 00:14:25,120 Speaker 4: as market rates start to go up and people can 283 00:14:25,160 --> 00:14:28,520 Speaker 4: invest in treasury bills, deposits start to look a little 284 00:14:28,520 --> 00:14:33,080 Speaker 4: bit less attractive, and you see that same pattern. So qualitatively, 285 00:14:33,120 --> 00:14:36,280 Speaker 4: we're seeing the same thing. Quantitatively, the speed of the 286 00:14:36,320 --> 00:14:39,240 Speaker 4: increase was much bigger. Key difference here is that the 287 00:14:39,240 --> 00:14:42,280 Speaker 4: FED has this reverse repo facility where they take in 288 00:14:42,440 --> 00:14:46,720 Speaker 4: cash from investors and primarily money marketing mutual funds, and 289 00:14:47,080 --> 00:14:50,200 Speaker 4: they're using that tool to help keep all market interest 290 00:14:50,320 --> 00:14:55,080 Speaker 4: rates higher. That tool existed in the last hiking cycle, 291 00:14:55,120 --> 00:14:57,040 Speaker 4: but that was a much more gradual hiking cycle. It 292 00:14:57,080 --> 00:15:00,320 Speaker 4: did not exist in any other previous hiking cycle. And 293 00:15:00,360 --> 00:15:03,000 Speaker 4: so what you can see are investors who might have 294 00:15:03,120 --> 00:15:05,880 Speaker 4: otherwise had their cash and deposited banks can now have 295 00:15:06,200 --> 00:15:08,640 Speaker 4: their cash shifted over to a money market mutual fund. 296 00:15:09,040 --> 00:15:12,080 Speaker 4: That money market mutual fund can put that cash at 297 00:15:12,120 --> 00:15:17,040 Speaker 4: the FED, and it's facilitating that very historical pattern of 298 00:15:17,520 --> 00:15:20,320 Speaker 4: higher interest rates leading to slower deposit growth or even 299 00:15:20,400 --> 00:15:23,640 Speaker 4: negative deposit growth. It's helping that process move along, but 300 00:15:23,680 --> 00:15:27,320 Speaker 4: it's doing it even more effectively than historically, and again 301 00:15:27,440 --> 00:15:30,440 Speaker 4: against the backdrop of a much faster hiking cycle. So 302 00:15:30,480 --> 00:15:32,960 Speaker 4: the first part of the question is absolutely, yes, this 303 00:15:33,560 --> 00:15:37,600 Speaker 4: shift in deposit matters. It's part of a normal hiking cycle. 304 00:15:37,600 --> 00:15:39,960 Speaker 4: But it's just happening much more quickly and perhaps much 305 00:15:39,960 --> 00:15:42,920 Speaker 4: more effectively than it has historically. What does it mean 306 00:15:42,960 --> 00:15:46,720 Speaker 4: for other asset prices? I mean again, usually when people 307 00:15:46,720 --> 00:15:50,200 Speaker 4: talk about portfolio construction, sort of think about what can 308 00:15:50,240 --> 00:15:52,440 Speaker 4: you get on a risk free asset, and then any 309 00:15:52,520 --> 00:15:56,800 Speaker 4: other risky asset has to outperform and expand and expected value. 310 00:15:57,040 --> 00:16:00,360 Speaker 4: And yeah, deposits are paying more this time around. Money 311 00:16:00,440 --> 00:16:03,520 Speaker 4: funds are paying more than before. Tea bills are doing 312 00:16:03,560 --> 00:16:07,080 Speaker 4: more than paying more than before. My colleagues and interest 313 00:16:07,160 --> 00:16:09,840 Speaker 4: rates strategy here at Morgan Stanley had put out a 314 00:16:09,880 --> 00:16:13,080 Speaker 4: piece as their outlook for twenty twenty three that was 315 00:16:13,120 --> 00:16:16,360 Speaker 4: called the Year of Yield. Cash once again is an 316 00:16:16,360 --> 00:16:18,920 Speaker 4: actual asset class. It's not just sort of where you 317 00:16:18,960 --> 00:16:20,800 Speaker 4: have your wealth because you can't make up your mind yet. 318 00:16:20,800 --> 00:16:23,920 Speaker 4: It's a legitimate asset class because t bills are paying 319 00:16:24,000 --> 00:16:26,880 Speaker 4: five percent. So yeah, the second part of your question, 320 00:16:27,560 --> 00:16:30,280 Speaker 4: I'll also answer yes too. I think this is absolutely 321 00:16:30,320 --> 00:16:33,200 Speaker 4: an important development. It matters at a macro level, it 322 00:16:33,280 --> 00:16:37,200 Speaker 4: matters at a financial market level, but it is ultimately 323 00:16:37,240 --> 00:16:38,520 Speaker 4: at the end of the day and just part of 324 00:16:38,560 --> 00:16:42,200 Speaker 4: how monetary policy works. But boy, the details are a 325 00:16:42,240 --> 00:16:43,040 Speaker 4: little bit different this. 326 00:16:43,040 --> 00:16:44,440 Speaker 3: Time around, Seth. 327 00:16:44,440 --> 00:16:48,640 Speaker 2: I'm also wondering if maybe there's a disinflationary aspect to this, 328 00:16:48,840 --> 00:16:50,840 Speaker 2: in that if I'm somebody who puts a bunch of 329 00:16:50,840 --> 00:16:53,840 Speaker 2: money in a money market fund, I'd be less inclined 330 00:16:53,880 --> 00:16:56,920 Speaker 2: to actually go and then spend it. I wouldn't have 331 00:16:57,000 --> 00:16:58,720 Speaker 2: it at the ready if I wanted to buy a 332 00:16:58,720 --> 00:16:59,920 Speaker 2: brand new TV, for instance. 333 00:17:00,760 --> 00:17:03,160 Speaker 4: I mean, I think that is possible. I think there's 334 00:17:03,200 --> 00:17:07,439 Speaker 4: definitely the possibility that easier savings means less spending, and 335 00:17:07,520 --> 00:17:09,959 Speaker 4: that makes a lot of sense. There's not always a 336 00:17:10,040 --> 00:17:12,600 Speaker 4: lot of evidence in the empirical research, and it all 337 00:17:12,640 --> 00:17:16,840 Speaker 4: comes down to sort of how do households way spending 338 00:17:16,920 --> 00:17:20,119 Speaker 4: versus savings. But one thing that it clearly does is 339 00:17:20,119 --> 00:17:23,200 Speaker 4: for anybody who is going to be borrowing in order 340 00:17:23,280 --> 00:17:26,640 Speaker 4: to spend, the cost of funding is just going up. 341 00:17:26,680 --> 00:17:29,119 Speaker 4: So We see this clearly in banks. Their cost of 342 00:17:29,119 --> 00:17:31,359 Speaker 4: funding is going up, making it harder for them to 343 00:17:31,440 --> 00:17:34,159 Speaker 4: lend households that might want to borrow in order to 344 00:17:34,359 --> 00:17:36,680 Speaker 4: buy a new car. Their cost of borrowing is going 345 00:17:36,760 --> 00:17:39,760 Speaker 4: up because anyone who's borrowing at this point is going up. 346 00:17:40,119 --> 00:17:44,080 Speaker 4: That for me is the traditionally stronger channel for monetary policy, 347 00:17:44,440 --> 00:17:46,800 Speaker 4: but it could work through the savings mechanism the way 348 00:17:46,800 --> 00:17:47,560 Speaker 4: you said it as well. 349 00:17:48,160 --> 00:17:50,800 Speaker 1: You know, Seth, you had mentioned those flashbacks to your 350 00:17:50,880 --> 00:17:55,000 Speaker 1: days in Washington when the debt sailing first sort of 351 00:17:55,080 --> 00:17:57,720 Speaker 1: reared its ugly head and became an issue. I think 352 00:17:57,760 --> 00:18:00,680 Speaker 1: as we you know, I guess we're in the extraordinary 353 00:18:00,720 --> 00:18:03,960 Speaker 1: measures phase of the debt ceiling right now, and as 354 00:18:03,960 --> 00:18:06,640 Speaker 1: we get closer and closer to sort of the drop 355 00:18:06,720 --> 00:18:10,639 Speaker 1: dead date, you know, there's this assumption that it's brinkmanship, 356 00:18:11,000 --> 00:18:13,359 Speaker 1: that some sort of deal will be cut at the 357 00:18:13,400 --> 00:18:17,000 Speaker 1: eleventh hour. But I got to say, you know, politics 358 00:18:17,040 --> 00:18:20,040 Speaker 1: is way more bare knuckles than I think it's ever 359 00:18:20,080 --> 00:18:22,879 Speaker 1: been in my life, and I wonder if that is 360 00:18:23,720 --> 00:18:25,480 Speaker 1: the wrong way to think about it this time. You 361 00:18:25,520 --> 00:18:29,240 Speaker 1: think there is a bigger risk this time of some 362 00:18:29,640 --> 00:18:34,720 Speaker 1: actual default and some serious you know, financial risks to 363 00:18:34,760 --> 00:18:36,040 Speaker 1: the whole system because of that. 364 00:18:36,200 --> 00:18:40,600 Speaker 4: This time, absolutely, I do think that the risks are 365 00:18:40,680 --> 00:18:42,280 Speaker 4: bigger this time, and I think there are a few 366 00:18:42,280 --> 00:18:45,440 Speaker 4: things that figure into that calculus. At the end of 367 00:18:45,440 --> 00:18:49,880 Speaker 4: the day, this is a standoff game theoretic setting between 368 00:18:50,359 --> 00:18:53,760 Speaker 4: two sides and a negotiation, and that's for me, part 369 00:18:53,760 --> 00:18:55,520 Speaker 4: of how I think about it as an economist. But 370 00:18:55,640 --> 00:18:59,320 Speaker 4: the things that are different now relative to say, twenty 371 00:18:59,359 --> 00:19:02,840 Speaker 4: eleven and twenty thirteen, and let's not forget both of 372 00:19:02,880 --> 00:19:07,080 Speaker 4: those episodes came basically down to the wire and we're 373 00:19:07,119 --> 00:19:10,040 Speaker 4: a little bit for me at least nerve wracking. But 374 00:19:10,160 --> 00:19:13,640 Speaker 4: now you've got different leadership in the House of Representatives 375 00:19:13,720 --> 00:19:16,560 Speaker 4: where there were, you know, lots of rounds of voting 376 00:19:16,560 --> 00:19:19,159 Speaker 4: to come up with the speakership, and I think that 377 00:19:19,200 --> 00:19:22,159 Speaker 4: probably changes a little bit how the calculation goes on 378 00:19:22,160 --> 00:19:25,919 Speaker 4: that side. I think the other point that's very different 379 00:19:26,000 --> 00:19:29,800 Speaker 4: now relative to twenty eleven or twenty thirteen is that 380 00:19:30,520 --> 00:19:34,080 Speaker 4: in the public domain on the fed's public website are 381 00:19:34,119 --> 00:19:37,680 Speaker 4: the transcripts of two different conference calls, one in twenty 382 00:19:37,720 --> 00:19:41,600 Speaker 4: thirteen one in twenty eleven, where the FMC discussed what 383 00:19:41,680 --> 00:19:43,800 Speaker 4: would happen if we got to the point where the 384 00:19:43,840 --> 00:19:46,440 Speaker 4: treasury ran out of cash. And if you read that, 385 00:19:47,160 --> 00:19:50,440 Speaker 4: you might conclude, I think wrongly from my personal perspective, 386 00:19:50,440 --> 00:19:52,119 Speaker 4: but it would be easy to conclude that the Fed's 387 00:19:52,119 --> 00:19:55,639 Speaker 4: got a plan and there's a way to finesse not 388 00:19:55,760 --> 00:20:01,040 Speaker 4: defaulting on treasury securities while avoiding paying on other government obligations. 389 00:20:01,800 --> 00:20:05,800 Speaker 4: I'm not sure creating that potentially false sense of comfort 390 00:20:06,200 --> 00:20:08,720 Speaker 4: is a good thing to get a quick and easy 391 00:20:08,760 --> 00:20:10,960 Speaker 4: resolution to these sorts of things. So I do think 392 00:20:11,200 --> 00:20:14,440 Speaker 4: the water has got more muddy because of the political circumstances, 393 00:20:14,520 --> 00:20:18,359 Speaker 4: because of the extra information in the public domain, And 394 00:20:19,480 --> 00:20:21,879 Speaker 4: you know, I worry. Maybe it's just because I'm always 395 00:20:21,880 --> 00:20:25,199 Speaker 4: a congenital worrier, but we really do. In my opinion, 396 00:20:25,160 --> 00:20:29,000 Speaker 4: you need to see, hopefully a timely resolution one way 397 00:20:29,080 --> 00:20:29,440 Speaker 4: or the other. 398 00:20:44,680 --> 00:20:44,880 Speaker 3: Zeth. 399 00:20:44,920 --> 00:20:47,160 Speaker 2: I also want to take us abroad because you're bullish 400 00:20:47,200 --> 00:20:50,760 Speaker 2: on China growth, and I'm wondering, first of all, what 401 00:20:50,800 --> 00:20:55,120 Speaker 2: you're projecting in terms of China's economic growth, and then 402 00:20:55,119 --> 00:20:59,640 Speaker 2: how that actually is helping hold up global growth numbers, 403 00:21:00,400 --> 00:21:02,640 Speaker 2: which maybe would be looking a little bit more anemic 404 00:21:02,720 --> 00:21:06,200 Speaker 2: without some of the numbers that China has been posting recently. 405 00:21:06,160 --> 00:21:09,320 Speaker 4: Sure a great topic. We are here at Morgan Stanley 406 00:21:10,400 --> 00:21:14,240 Speaker 4: very bullish on economic growth for Asia in general and 407 00:21:14,359 --> 00:21:18,000 Speaker 4: China in particular. We've written down five point seven percent 408 00:21:18,040 --> 00:21:21,240 Speaker 4: growth for China this year, which is above the official 409 00:21:21,280 --> 00:21:24,520 Speaker 4: growth target from Beijing of about five percent. The data 410 00:21:24,560 --> 00:21:27,520 Speaker 4: that are coming in now in terms of the rebound, 411 00:21:28,119 --> 00:21:31,000 Speaker 4: first we got readings on things like mobility index is 412 00:21:31,119 --> 00:21:33,720 Speaker 4: now more the data are coming in. My take is 413 00:21:33,720 --> 00:21:37,040 Speaker 4: they're coming in in line with that very bullish outlook 414 00:21:37,080 --> 00:21:40,640 Speaker 4: for what's going on with China, and so we are 415 00:21:41,000 --> 00:21:43,800 Speaker 4: sticking with our view five point seven percent growth for 416 00:21:43,840 --> 00:21:47,920 Speaker 4: this year, maybe even some risk to the upside. It will, however, 417 00:21:48,000 --> 00:21:53,160 Speaker 4: require that as the year progresses, as spending continues to recover, 418 00:21:53,600 --> 00:21:56,320 Speaker 4: that we get more and more people brought back into 419 00:21:56,359 --> 00:21:59,800 Speaker 4: the labor force, more employment gains, especially among young people. 420 00:22:00,160 --> 00:22:02,480 Speaker 4: But we think that's likely to happen, and in lots 421 00:22:02,480 --> 00:22:06,159 Speaker 4: of ways. That's the thesis for our outlook is first 422 00:22:06,320 --> 00:22:09,119 Speaker 4: reopening coming off of a really weak level, and then 423 00:22:09,200 --> 00:22:13,560 Speaker 4: as economic activity continues, it has the standard virtuous cycle, 424 00:22:13,600 --> 00:22:17,240 Speaker 4: if you will, of pulling people back to work. Now 425 00:22:17,280 --> 00:22:19,159 Speaker 4: the spillover to the rest of the world, though, I 426 00:22:19,200 --> 00:22:22,679 Speaker 4: think is very interesting this time. People are used to 427 00:22:22,720 --> 00:22:26,760 Speaker 4: looking at past cycles where China accelerated and it helped 428 00:22:26,760 --> 00:22:31,040 Speaker 4: pull the whole global economy along. This time, well, it's 429 00:22:31,080 --> 00:22:33,560 Speaker 4: going to be good, presumably for the rest of Asia, 430 00:22:33,640 --> 00:22:36,960 Speaker 4: especially the parts of Asia that will benefit from Chinese tourism. 431 00:22:37,440 --> 00:22:39,800 Speaker 4: But we've got some research out there that suggests that 432 00:22:39,840 --> 00:22:43,600 Speaker 4: the normal spillovers from Chinese economic growth to the rest 433 00:22:43,600 --> 00:22:45,480 Speaker 4: of the world. If you were to say, okay, this 434 00:22:45,640 --> 00:22:49,600 Speaker 4: year close to three percentage point acceleration, can we multiply 435 00:22:49,680 --> 00:22:53,080 Speaker 4: that three percentage point acceleration by the same coefficient we 436 00:22:53,080 --> 00:22:55,200 Speaker 4: would normally use in past cycles, And the answer I 437 00:22:55,240 --> 00:22:57,560 Speaker 4: think is no, it's probably only about half as much, 438 00:22:58,280 --> 00:23:01,959 Speaker 4: and that includes the spillover to commodities. And the reason 439 00:23:02,000 --> 00:23:05,399 Speaker 4: for that is most of the growth that we're seeing 440 00:23:05,440 --> 00:23:08,520 Speaker 4: in China this year is likely to be domestic spending 441 00:23:09,119 --> 00:23:11,000 Speaker 4: as opposed to a lot of the growth being fueled 442 00:23:11,040 --> 00:23:13,800 Speaker 4: by exports. So that's one difference, And second, a lot 443 00:23:13,800 --> 00:23:17,119 Speaker 4: of it is going to be skewed towards services instead 444 00:23:17,160 --> 00:23:20,159 Speaker 4: of towards physical goods. Now, to be clear, the housing 445 00:23:20,200 --> 00:23:24,120 Speaker 4: market that had been imploding is not only stabilized. It's 446 00:23:24,160 --> 00:23:26,880 Speaker 4: actually starting to recover, so there's it's not as though 447 00:23:26,920 --> 00:23:29,919 Speaker 4: this is a binary one zero kind of outcome. So 448 00:23:29,960 --> 00:23:32,120 Speaker 4: we are getting a recovery in housing. We do think 449 00:23:32,240 --> 00:23:35,280 Speaker 4: part of the fiscal policy stimulus will be through infrastructure, 450 00:23:35,800 --> 00:23:39,760 Speaker 4: but boy, relative to historical patterns, a heavy skew towards 451 00:23:39,760 --> 00:23:41,919 Speaker 4: spending on services, and that just means you're going to 452 00:23:41,920 --> 00:23:45,040 Speaker 4: get less of a pull into China from the rest 453 00:23:45,040 --> 00:23:48,040 Speaker 4: of the world than you would have in previous cycles. 454 00:23:48,080 --> 00:23:51,359 Speaker 4: So we are bullish China. We're Asia more generally. We 455 00:23:51,359 --> 00:23:54,840 Speaker 4: think Asia outperforms, but we don't think that China is 456 00:23:54,840 --> 00:23:57,440 Speaker 4: going to end up being the engine of growth for 457 00:23:57,520 --> 00:23:59,639 Speaker 4: the global economy. We're looking at weak growth in the 458 00:23:59,720 --> 00:24:01,320 Speaker 4: US and in Europe this year. 459 00:24:02,119 --> 00:24:05,840 Speaker 1: Well Seth Carpenter, Global Chief Economist at Morgan Stanley. What 460 00:24:06,040 --> 00:24:08,560 Speaker 1: a absolute pleasure to pick your brain like that. We 461 00:24:08,680 --> 00:24:11,960 Speaker 1: really appreciate it. Can't let you go quite yet, though. 462 00:24:11,960 --> 00:24:14,160 Speaker 1: We do have an attrition here on what goes up 463 00:24:14,359 --> 00:24:17,520 Speaker 1: where we have to go over all the craziest. 464 00:24:17,000 --> 00:24:19,160 Speaker 2: Things, where we torture our guests. 465 00:24:18,800 --> 00:24:22,719 Speaker 1: We torture, where the torture, Let the torture commence, Yes, yes, 466 00:24:22,960 --> 00:24:24,960 Speaker 1: all right, I'm going to start for once. I'm going 467 00:24:25,040 --> 00:24:27,760 Speaker 1: to start as I said Veil Donna, I think you 468 00:24:27,800 --> 00:24:33,119 Speaker 1: should buy a royal title from the Nation of Seaaland. 469 00:24:33,160 --> 00:24:36,040 Speaker 1: Have you ever heard of Seiland? This is great. So 470 00:24:36,160 --> 00:24:38,760 Speaker 1: this is courtesy of a story in The Athletic, which 471 00:24:38,800 --> 00:24:41,680 Speaker 1: is actually a sports website. 472 00:24:41,720 --> 00:24:44,000 Speaker 3: But one of the best stories doesn't sound like it. 473 00:24:45,440 --> 00:24:48,359 Speaker 1: How do you ever figured one of the best future 474 00:24:48,400 --> 00:24:52,480 Speaker 1: stories I've read about the while. It's about the sovereign 475 00:24:52,560 --> 00:24:56,199 Speaker 1: nation of Sealand, which sits six nautical miles off the 476 00:24:56,200 --> 00:25:00,280 Speaker 1: coast of Suffolk, England, and basically what it was In 477 00:25:00,320 --> 00:25:05,159 Speaker 1: World War Two, the Brits built a ocean fort basically 478 00:25:05,240 --> 00:25:08,680 Speaker 1: looks like a big oil platform. It was called h 479 00:25:08,920 --> 00:25:12,600 Speaker 1: M Fort Ruffs and the idea was to have sort 480 00:25:12,640 --> 00:25:15,639 Speaker 1: of defenses out in the sea to fight off the 481 00:25:15,640 --> 00:25:19,719 Speaker 1: German warplanes as they came over. Some guy in nineteen 482 00:25:19,760 --> 00:25:22,639 Speaker 1: sixty seven, a Ham radio operator of all people, named 483 00:25:22,720 --> 00:25:26,080 Speaker 1: Patty Roy Bates, decided he was going to take over 484 00:25:26,560 --> 00:25:30,320 Speaker 1: the fort and make it the sovereign nation of Sealand. 485 00:25:30,520 --> 00:25:32,479 Speaker 1: And he pretty much got away with it. He's out 486 00:25:32,520 --> 00:25:35,240 Speaker 1: in the international waters. There's not much Britain can do 487 00:25:36,160 --> 00:25:39,480 Speaker 1: to get it back from him. So he and his 488 00:25:39,560 --> 00:25:43,240 Speaker 1: family been living there ever since. They have a soccer team. 489 00:25:43,400 --> 00:25:46,480 Speaker 1: Believe it or not, the whole sovereignation of Sealand is 490 00:25:46,520 --> 00:25:51,480 Speaker 1: actually half the size of a soccer pitch. But the 491 00:25:51,560 --> 00:25:54,840 Speaker 1: fascinating part is you can buy a royal title from 492 00:25:55,040 --> 00:25:59,880 Speaker 1: Sealand Baron, Baroness, Sir, Dame, Count Count. 493 00:26:00,160 --> 00:26:01,240 Speaker 2: Can I put it on my resume? 494 00:26:01,320 --> 00:26:05,119 Speaker 1: I buy two duchess. Absolutely, you bought and paid for it. 495 00:26:05,160 --> 00:26:11,040 Speaker 1: So the question is the lowest priced title royal title? 496 00:26:11,080 --> 00:26:14,520 Speaker 1: Mind you from the island of Sealand is lord or lady. 497 00:26:14,640 --> 00:26:19,040 Speaker 1: So you could be Lady Waldonna Hirich of Sealand for 498 00:26:19,119 --> 00:26:20,879 Speaker 1: a certain price. Now the question is what do you 499 00:26:20,880 --> 00:26:24,240 Speaker 1: think it costs to be Lady Vildonna of Sealand. 500 00:26:24,280 --> 00:26:26,159 Speaker 2: I'm going to buy this and then on next week's episode, 501 00:26:26,160 --> 00:26:30,440 Speaker 2: I'm going to introduce myself as Lady Wildonna Hirick. Okay, 502 00:26:30,480 --> 00:26:32,199 Speaker 2: I'm only bidding a thousand bucks on this. 503 00:26:32,640 --> 00:26:35,480 Speaker 1: A thousand bucks, so it's in British pounds, so that 504 00:26:36,080 --> 00:26:40,680 Speaker 1: would be nine hundred probably British pound Seth, you're now 505 00:26:40,760 --> 00:26:43,320 Speaker 1: contestant on the game show. We like to call the 506 00:26:43,359 --> 00:26:45,960 Speaker 1: prices precise. What do you think the going rate for 507 00:26:46,400 --> 00:26:50,800 Speaker 1: the title of Lady of Sealand is all thousand ones? 508 00:26:50,840 --> 00:26:53,440 Speaker 1: You're going on the over huh? Oh my gosh, you guys. 509 00:26:53,720 --> 00:26:56,280 Speaker 1: The King of Sealand is going to be reaching out 510 00:26:56,280 --> 00:26:58,560 Speaker 1: to both of you guys, I think because he's willing 511 00:26:58,560 --> 00:27:01,920 Speaker 1: to sell one for the lo lo price of twenty 512 00:27:01,920 --> 00:27:03,680 Speaker 1: four pounds ninety nine. 513 00:27:03,880 --> 00:27:05,840 Speaker 3: Oh shoot, so. 514 00:27:05,800 --> 00:27:07,520 Speaker 1: You guys are cursed. 515 00:27:07,720 --> 00:27:10,920 Speaker 2: I overpaid and I thought I was, But guess what. 516 00:27:11,080 --> 00:27:13,040 Speaker 2: I beat Seth Carpenter in this game. 517 00:27:13,160 --> 00:27:14,760 Speaker 1: Whoa, whoa. 518 00:27:14,920 --> 00:27:15,560 Speaker 3: That's huge. 519 00:27:15,600 --> 00:27:17,240 Speaker 1: She's never gonna let you hear the end of that set. 520 00:27:17,280 --> 00:27:18,600 Speaker 3: I don't need to be a lady anymore. 521 00:27:18,680 --> 00:27:22,320 Speaker 1: The highest priced is duper Duchess. So for one thousand pounds, 522 00:27:22,359 --> 00:27:25,240 Speaker 1: you guys could be duke and duchess thirty duke Duchess 523 00:27:25,280 --> 00:27:28,760 Speaker 1: lady one hundred ninety nine pounds. Wow, thirty nine pence. 524 00:27:28,920 --> 00:27:29,680 Speaker 3: That's pretty good. 525 00:27:29,800 --> 00:27:34,000 Speaker 2: I wish you hadn't gone first, because I actually can't compete. 526 00:27:34,880 --> 00:27:37,720 Speaker 2: Mine is actually from my sister, who I mentioned last 527 00:27:37,720 --> 00:27:39,879 Speaker 2: week has been sending me tons of crazy things now 528 00:27:39,960 --> 00:27:42,960 Speaker 2: that she's a fan of the podcast. So again a 529 00:27:42,960 --> 00:27:45,280 Speaker 2: shout out to Marilla and she sent me this article. 530 00:27:45,520 --> 00:27:47,960 Speaker 2: It's about Apple having a savings account now and the 531 00:27:48,000 --> 00:27:49,720 Speaker 2: interest rate is four point one five percent. 532 00:27:50,080 --> 00:27:52,840 Speaker 1: It's amazing, right, yeah, all right. That's that made its 533 00:27:52,880 --> 00:27:55,720 Speaker 1: way to my Business Week story along with they're partnering 534 00:27:55,760 --> 00:27:58,479 Speaker 1: with Golden so yeah, and it sits on the wallet 535 00:27:58,480 --> 00:28:00,439 Speaker 1: on your phone, which makes the I don't know if 536 00:28:00,480 --> 00:28:03,320 Speaker 1: I want my entire savings sitting in my phone. 537 00:28:03,040 --> 00:28:05,440 Speaker 2: Wallet, yeah, because the subway machines might steal it from 538 00:28:05,440 --> 00:28:07,760 Speaker 2: you when you swept in, yeah, or something or something, 539 00:28:08,119 --> 00:28:10,160 Speaker 2: because that's how it works, right, What. 540 00:28:10,119 --> 00:28:11,520 Speaker 1: Do you think, Seth? Are you Are you willing to 541 00:28:11,520 --> 00:28:14,360 Speaker 1: have your entire savings and your Apple wallet on your phone? 542 00:28:14,840 --> 00:28:17,160 Speaker 5: I am not, precisely because of my fear of what 543 00:28:17,240 --> 00:28:18,560 Speaker 5: the subway turns out. 544 00:28:21,080 --> 00:28:22,440 Speaker 3: They're known for stealing money. 545 00:28:22,480 --> 00:28:24,160 Speaker 1: The good news is you get to ride for free 546 00:28:24,240 --> 00:28:26,520 Speaker 1: for the rest of your life. The bad news is 547 00:28:27,240 --> 00:28:30,840 Speaker 1: you're broke. But you know, Seth, it does it does 548 00:28:30,920 --> 00:28:34,040 Speaker 1: go to speak to this competition for deposits really heating up. 549 00:28:34,080 --> 00:28:36,680 Speaker 1: I think it's you know, so many of us had 550 00:28:36,720 --> 00:28:39,560 Speaker 1: sort of written off savings accounts for so long as 551 00:28:39,640 --> 00:28:42,640 Speaker 1: just you know, a piggyback not really a place to 552 00:28:43,000 --> 00:28:45,600 Speaker 1: earn a yield, and the times really have changed. It's 553 00:28:45,840 --> 00:28:47,680 Speaker 1: it's pretty fascinating to watch. 554 00:28:48,240 --> 00:28:50,800 Speaker 5: It is a huge change now relative to where things 555 00:28:50,800 --> 00:28:52,920 Speaker 5: have been for a while. But I like to tell 556 00:28:53,040 --> 00:28:56,200 Speaker 5: some of the younger folks in the bank that I'm 557 00:28:56,200 --> 00:28:59,120 Speaker 5: old enough to remember that there were even recessions when 558 00:28:59,120 --> 00:29:01,360 Speaker 5: the federal funds raised and go down to zero. So 559 00:29:01,680 --> 00:29:04,479 Speaker 5: it hasn't hadn't always been the case that savings accounts 560 00:29:04,480 --> 00:29:06,400 Speaker 5: were useless until we're going back to normal as far 561 00:29:06,440 --> 00:29:07,000 Speaker 5: as I can tell. 562 00:29:07,200 --> 00:29:10,040 Speaker 1: Yeah, yeah, fair point, fair point. Well how about you, Seth, 563 00:29:10,080 --> 00:29:11,040 Speaker 1: do you see anything crazy? 564 00:29:11,280 --> 00:29:11,400 Speaker 4: Uh? 565 00:29:11,920 --> 00:29:15,120 Speaker 5: These days? You remember, I'm the global chief economist, So 566 00:29:15,240 --> 00:29:17,200 Speaker 5: I look around the world and it looks like every 567 00:29:17,240 --> 00:29:19,080 Speaker 5: corner of the world had something just a little bit 568 00:29:19,120 --> 00:29:21,680 Speaker 5: crazy going on. So I don't think I can narrow 569 00:29:21,680 --> 00:29:23,600 Speaker 5: it out fair enough. 570 00:29:24,120 --> 00:29:27,000 Speaker 1: It's a crazy world all around. It's a mad, mad, 571 00:29:27,200 --> 00:29:30,760 Speaker 1: mad mad world. Which you don't get that reference. 572 00:29:30,400 --> 00:29:33,000 Speaker 3: To me, I do. It's a song? Is it a song? 573 00:29:33,520 --> 00:29:38,240 Speaker 1: It might be, but it's a movie, a movie, great movie. 574 00:29:37,640 --> 00:29:43,120 Speaker 1: But well, Seth Carpenter, such a relliant honor to talk 575 00:29:43,160 --> 00:29:46,000 Speaker 1: to you and hear your thoughts about everything. I hope 576 00:29:46,000 --> 00:29:47,640 Speaker 1: we can do it again someday soon. 577 00:29:48,000 --> 00:29:49,760 Speaker 5: Oh my gosh, this is great. Thank you for having me. 578 00:29:49,800 --> 00:29:50,520 Speaker 5: I appreciate it. 579 00:29:50,560 --> 00:30:00,960 Speaker 3: Thank you so much for joining us What Goes Up. 580 00:30:01,120 --> 00:30:04,040 Speaker 2: We'll be back next week. Until then, you can find 581 00:30:04,080 --> 00:30:07,800 Speaker 2: us on the Bloomberg Terminal website and app, or wherever 582 00:30:07,920 --> 00:30:09,000 Speaker 2: you get your podcasts. 583 00:30:09,560 --> 00:30:10,280 Speaker 3: We'd love it if you. 584 00:30:10,280 --> 00:30:12,320 Speaker 2: Took the time to rate and review the show so 585 00:30:12,400 --> 00:30:15,120 Speaker 2: more listeners can find us. And you can find us 586 00:30:15,240 --> 00:30:20,040 Speaker 2: on Twitter, follow me at Wildona Hirich. Mike Reagan is 587 00:30:20,080 --> 00:30:24,960 Speaker 2: at Reaganonymous. You can also follow Bloomer Podcasts at podcasts. 588 00:30:25,600 --> 00:30:28,400 Speaker 2: What Goes Up is produced by Stacey Wong and our 589 00:30:28,440 --> 00:30:31,680 Speaker 2: head of podcasts is Sage Bauman. Thanks for listening and 590 00:30:31,720 --> 00:30:35,280 Speaker 2: we'll see you next week.