1
00:00:05,160 --> 00:00:08,480
Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

2
00:00:08,520 --> 00:00:12,360
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day

3
00:00:12,400 --> 00:00:16,840
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

4
00:00:17,280 --> 00:00:22,119
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

5
00:00:22,320 --> 00:00:26,600
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

6
00:00:26,640 --> 00:00:30,800
Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. As confused

7
00:00:30,800 --> 00:00:32,880
Speaker 1: as we are, but never confused. It's Jay Bryce and

8
00:00:33,000 --> 00:00:37,080
Speaker 1: chief economist at Wills Fargo. Ja, wonderful to have you

9
00:00:37,280 --> 00:00:40,680
Speaker 1: with us. I think that states the confusion right now.

10
00:00:41,000 --> 00:00:44,800
Speaker 1: Does Wells Fargo have clarity on what the American consumer

11
00:00:45,000 --> 00:00:45,440
Speaker 1: is doing?

12
00:00:47,280 --> 00:00:50,960
Speaker 2: Clarity that's a strong word, Tom, But I guess in general,

13
00:00:50,960 --> 00:00:53,320
Speaker 2: when I stand back and I look at everything here,

14
00:00:53,520 --> 00:00:57,360
Speaker 2: there has been some deceleration in consumer spending. Consumer spending

15
00:00:57,360 --> 00:01:01,120
Speaker 2: in the first quarter in real terms, grew over four annualize.

16
00:01:01,160 --> 00:01:03,280
Speaker 2: We're just not going to get that in the second quarter.

17
00:01:03,360 --> 00:01:06,800
Speaker 2: We came into the second quarter with some deceleration. These

18
00:01:06,920 --> 00:01:08,959
Speaker 2: numbers that you know Mike just talked about, I mean,

19
00:01:09,000 --> 00:01:11,440
Speaker 2: you know, on on on balance, I think you know

20
00:01:11,480 --> 00:01:14,839
Speaker 2: they're okay, But in general, it doesn't change the big

21
00:01:14,880 --> 00:01:18,080
Speaker 2: story that there has been some deceleration in terms of

22
00:01:18,160 --> 00:01:19,520
Speaker 2: consumer spending out there.

23
00:01:19,680 --> 00:01:22,640
Speaker 3: Jay, how much has the overall discussion been completely distorted

24
00:01:22,680 --> 00:01:25,039
Speaker 3: by the auto sector. How much the price is just

25
00:01:25,200 --> 00:01:28,119
Speaker 3: shot upwards in the aftermath of the pandemic and now

26
00:01:28,160 --> 00:01:31,360
Speaker 3: are coming down and resetting, especially as auto loan rates

27
00:01:31,520 --> 00:01:34,240
Speaker 3: are getting so high. How much is that behind all

28
00:01:34,280 --> 00:01:35,040
Speaker 3: of the confusion.

29
00:01:36,160 --> 00:01:38,440
Speaker 2: Well, at list, I wouldn't say it's it's a huge

30
00:01:38,560 --> 00:01:40,400
Speaker 2: part of it. I mean, so if you break down

31
00:01:40,520 --> 00:01:44,480
Speaker 2: consumer spending, you know, roughly two thirds of consumer spending

32
00:01:44,640 --> 00:01:47,240
Speaker 2: is going to be on services, and the other third

33
00:01:47,280 --> 00:01:50,920
Speaker 2: is split roughly equally between non durable goods, so that

34
00:01:50,960 --> 00:01:53,720
Speaker 2: would be like clothing and shoes, et cetera, and then

35
00:01:53,880 --> 00:01:57,120
Speaker 2: durable goods. We component of that is autos, so it

36
00:01:57,240 --> 00:01:59,880
Speaker 2: moves things around on the margin. But again, you know,

37
00:02:00,080 --> 00:02:03,080
Speaker 2: the big driver of consumer spending growth in the economy

38
00:02:03,160 --> 00:02:05,640
Speaker 2: is services, and I think that has been in some

39
00:02:05,680 --> 00:02:08,440
Speaker 2: sense more distorting over the last three years. You know,

40
00:02:08,480 --> 00:02:10,840
Speaker 2: in the sense of when the economy was shut down,

41
00:02:10,960 --> 00:02:13,600
Speaker 2: the service sector was shut down, and then that came

42
00:02:13,760 --> 00:02:16,480
Speaker 2: roaring back last year as the economy opened up. All

43
00:02:16,520 --> 00:02:19,080
Speaker 2: this pent up demand for spending, and a lot of

44
00:02:19,120 --> 00:02:21,960
Speaker 2: that now is pretty much behind us right now, so

45
00:02:22,560 --> 00:02:25,000
Speaker 2: we hopefully are getting to the point where things, you know,

46
00:02:25,040 --> 00:02:28,040
Speaker 2: the aftershocks of the pandemic in terms of the economy

47
00:02:28,080 --> 00:02:29,320
Speaker 2: are now settling out.

48
00:02:29,480 --> 00:02:31,920
Speaker 3: Okay, so the after shocks are settling out. What is

49
00:02:31,960 --> 00:02:35,160
Speaker 3: the new economic trajectory when it comes to inflation. Is

50
00:02:35,200 --> 00:02:37,480
Speaker 3: it back to what we saw previously or is it

51
00:02:37,560 --> 00:02:41,079
Speaker 3: something different, especially if people are getting paid more and

52
00:02:41,240 --> 00:02:44,200
Speaker 3: they're not pushing back as significantly as some would like.

53
00:02:44,520 --> 00:02:46,760
Speaker 3: With respect to how much prices can keep going up.

54
00:02:47,880 --> 00:02:50,120
Speaker 2: Well, you know, I may differ a little bit on that.

55
00:02:50,160 --> 00:02:52,080
Speaker 2: I mean, I think you are seeing some signs of

56
00:02:52,120 --> 00:02:53,639
Speaker 2: that right now. I mean, we are seeing it in

57
00:02:53,800 --> 00:02:57,880
Speaker 2: terms of deceleration in terms of inflation out there. It's

58
00:02:57,919 --> 00:03:00,919
Speaker 2: still slowly coming through in the service sector, but if

59
00:03:00,919 --> 00:03:03,160
Speaker 2: you look at the rate of change over the last

60
00:03:03,160 --> 00:03:06,799
Speaker 2: three months, you're seeing less service sector inflation as well.

61
00:03:07,000 --> 00:03:10,000
Speaker 2: I mean, our view here is that we are heading

62
00:03:10,160 --> 00:03:13,240
Speaker 2: back towards two percent. Now. It's not going to be

63
00:03:13,639 --> 00:03:15,720
Speaker 2: right away. It's going to take a little bit of time,

64
00:03:15,960 --> 00:03:19,200
Speaker 2: and part of that is predicated on some economic softness

65
00:03:19,680 --> 00:03:23,760
Speaker 2: i e. A mild recession early next year. But you know,

66
00:03:24,000 --> 00:03:27,160
Speaker 2: I think these nine ten percent sort of numbers that

67
00:03:27,200 --> 00:03:29,560
Speaker 2: we saw are even five percent. I think that's the

68
00:03:29,600 --> 00:03:31,440
Speaker 2: thing of the past, and I think we're heading back

69
00:03:31,480 --> 00:03:34,200
Speaker 2: towards a two percent sort of error.

70
00:03:34,920 --> 00:03:38,360
Speaker 1: Jay on the international basis here and after the clumsiness

71
00:03:38,480 --> 00:03:43,160
Speaker 1: that we see here of American retail analysis, do you

72
00:03:43,280 --> 00:03:47,240
Speaker 1: have a clue what the Chinese consumer's doing? I mean,

73
00:03:47,280 --> 00:03:51,360
Speaker 1: we sit there, guys like you have to pontificate and say, yeah, this, this, this,

74
00:03:51,680 --> 00:03:54,880
Speaker 1: but do we really know what the Chinese consumer's doing?

75
00:03:55,960 --> 00:03:58,520
Speaker 2: So, you know, we started this with Lisa saying, you know,

76
00:03:58,560 --> 00:04:00,560
Speaker 2: what's your view with all this noise in the United

77
00:04:00,600 --> 00:04:03,840
Speaker 2: States now square that when you talk with China and

78
00:04:03,920 --> 00:04:08,000
Speaker 2: just in terms of the data laps and gaps, and

79
00:04:08,040 --> 00:04:10,040
Speaker 2: you've got to take it with their grand assault sort

80
00:04:10,080 --> 00:04:12,880
Speaker 2: of stuff. But it does seem like, you know, things

81
00:04:12,920 --> 00:04:16,039
Speaker 2: in China are also kind of slowing down as well.

82
00:04:16,080 --> 00:04:19,240
Speaker 2: You got this really lousy GDP number the other day,

83
00:04:19,440 --> 00:04:23,240
Speaker 2: and I think that's going to continue going forward. What

84
00:04:23,279 --> 00:04:26,160
Speaker 2: we do know is the Chinese consumers or you know,

85
00:04:26,200 --> 00:04:29,240
Speaker 2: they still have a very very high savings rate. You know,

86
00:04:29,279 --> 00:04:32,039
Speaker 2: they're still very concerned about healthcare. You just don't have

87
00:04:32,080 --> 00:04:34,400
Speaker 2: the healthcare system in China as you do in many

88
00:04:34,640 --> 00:04:37,680
Speaker 2: Western sort of company countries, and so that keeps the

89
00:04:37,720 --> 00:04:39,960
Speaker 2: savings rate in China elevated.

90
00:04:40,480 --> 00:04:43,000
Speaker 1: Over there, Jada, go to micro here. This is your

91
00:04:43,000 --> 00:04:45,800
Speaker 1: team under you working on this, including Sarah Hunt, the

92
00:04:45,839 --> 00:04:51,520
Speaker 1: retail sales control group X, what X X, red SOX, tickets,

93
00:04:51,560 --> 00:04:55,839
Speaker 1: Mike X, building materials X, autos X this X that.

94
00:04:56,600 --> 00:04:59,960
Speaker 1: Do you get value out of a buoyant control group

95
00:05:00,120 --> 00:05:01,040
Speaker 1: for sixty days?

96
00:05:01,160 --> 00:05:06,360
Speaker 2: Jake? You know, there's obviously there's there's some information in there, Tom,

97
00:05:06,400 --> 00:05:08,680
Speaker 2: but you know, again these are nominal sort of numbers,

98
00:05:08,680 --> 00:05:10,440
Speaker 2: and at the end of the day, what we economists

99
00:05:10,480 --> 00:05:12,840
Speaker 2: are more concerned about is real and so you have

100
00:05:12,920 --> 00:05:15,720
Speaker 2: to deflate that by you know, some things that are

101
00:05:15,720 --> 00:05:18,400
Speaker 2: in the CPI. And again, as I said earlier, when

102
00:05:18,400 --> 00:05:21,839
Speaker 2: you look at overall retail spending, it's roughly a third

103
00:05:21,880 --> 00:05:25,279
Speaker 2: of the US of spending. You know, the big component

104
00:05:25,360 --> 00:05:27,640
Speaker 2: is the service one. So what we pay much more

105
00:05:27,680 --> 00:05:29,960
Speaker 2: attention to is the numbers that we're going to get

106
00:05:29,960 --> 00:05:31,800
Speaker 2: at the end of the month and the personal income

107
00:05:31,839 --> 00:05:34,839
Speaker 2: and spending. That's when you get the service sector components

108
00:05:35,040 --> 00:05:36,960
Speaker 2: and you get real numbers as well.

109
00:05:37,400 --> 00:05:40,520
Speaker 3: So just putting this all together, are you increasingly in

110
00:05:40,560 --> 00:05:43,360
Speaker 3: the soft landing camp with this being a soft landing

111
00:05:43,400 --> 00:05:44,800
Speaker 3: type of retail sales number.

112
00:05:46,120 --> 00:05:49,360
Speaker 2: So we've been in the you know, it depends on

113
00:05:49,400 --> 00:05:51,360
Speaker 2: what your definition of a hard landing is. But we've

114
00:05:51,400 --> 00:05:53,920
Speaker 2: been in a recession camp now for about a year,

115
00:05:53,960 --> 00:05:58,320
Speaker 2: and you know, we've had to push that call increasingly

116
00:05:58,400 --> 00:06:00,800
Speaker 2: back out. I would say, right now, if you hold

117
00:06:00,800 --> 00:06:02,880
Speaker 2: a gun to my head you say what's the probability

118
00:06:02,880 --> 00:06:05,840
Speaker 2: of a recession in the next twelve months, I would

119
00:06:05,880 --> 00:06:09,880
Speaker 2: still say it's roughly it's still roughly sixty percent. I mean,

120
00:06:09,920 --> 00:06:12,640
Speaker 2: what's going to happen as we go forward is the

121
00:06:12,960 --> 00:06:16,640
Speaker 2: inflation is coming down, okay the Fed. No one thinks

122
00:06:16,640 --> 00:06:19,039
Speaker 2: the Fed's going to be cutting anytime soon. So what's

123
00:06:19,080 --> 00:06:21,280
Speaker 2: going to happen in the month's coming is you're going

124
00:06:21,360 --> 00:06:24,240
Speaker 2: to get a passive tightening of monetary policy as the

125
00:06:24,320 --> 00:06:27,279
Speaker 2: real rate drifts higher and higher. So in order to

126
00:06:27,360 --> 00:06:30,480
Speaker 2: have a quote soft landing here, I think the FED

127
00:06:30,960 --> 00:06:34,440
Speaker 2: needs to be still very adept in terms of monetary

128
00:06:34,480 --> 00:06:37,200
Speaker 2: policy later this year as inflation comes down.

129
00:06:37,360 --> 00:06:39,119
Speaker 1: Is that to Bryson thank you so much for joining

130
00:06:39,160 --> 00:06:43,440
Speaker 1: us today. Jay Brison leading all the economics at Will's far.

131
00:06:43,440 --> 00:06:56,400
Speaker 4: Going joining guess now, Amy wou Silverman, the head of

132
00:06:56,440 --> 00:07:00,760
Speaker 4: Derivative Strategy of RBC Capital Markets, to have you with

133
00:07:00,839 --> 00:07:02,880
Speaker 4: us on the program. We've had the bank earnings over

134
00:07:02,920 --> 00:07:05,400
Speaker 4: the last week, the banks have lanked. What's happened with tech?

135
00:07:05,400 --> 00:07:08,799
Speaker 4: Pretty much everything cast tech is absolutely dominated. You today, Amy,

136
00:07:08,800 --> 00:07:10,720
Speaker 4: I'm sure you filled the same question that we ask

137
00:07:11,000 --> 00:07:14,360
Speaker 4: repeatedly over the last several months. Can this rally broaden out?

138
00:07:14,360 --> 00:07:15,040
Speaker 4: Do you think it can?

139
00:07:17,000 --> 00:07:19,640
Speaker 5: I do, John, and I actually think you are seeing

140
00:07:19,680 --> 00:07:23,120
Speaker 5: that already in the options market. You know, we kind

141
00:07:23,160 --> 00:07:26,080
Speaker 5: of take that metric of call exuberance, you know, where

142
00:07:26,080 --> 00:07:29,320
Speaker 5: are folks buying single stock call options? And of course

143
00:07:29,360 --> 00:07:31,600
Speaker 5: that was in your in the videos and your apples

144
00:07:31,600 --> 00:07:34,360
Speaker 5: and your Googles, not too surprisingly a couple of weeks ago.

145
00:07:34,680 --> 00:07:38,160
Speaker 5: But we've really seen that expanded not only to SMP

146
00:07:38,440 --> 00:07:41,680
Speaker 5: but also to IWM names and also two smaller in

147
00:07:41,760 --> 00:07:43,880
Speaker 5: MidCap names. And that's kind of happening on a much

148
00:07:43,920 --> 00:07:45,400
Speaker 5: broader basis than it was before.

149
00:07:45,480 --> 00:07:47,400
Speaker 1: I mean, let's cut to the Wheehouse. That's what everybody

150
00:07:47,400 --> 00:07:49,280
Speaker 1: on Global Wall Street wants to know from Abe and

151
00:07:49,280 --> 00:07:52,080
Speaker 1: with Silverman, what are the cross moments saying right now

152
00:07:52,120 --> 00:07:56,240
Speaker 1: the four dynamics of the option space. And critically, to

153
00:07:56,280 --> 00:07:59,280
Speaker 1: get a little bit jargoning here, what does SKEW do

154
00:07:59,480 --> 00:07:59,960
Speaker 1: right now?

155
00:08:02,040 --> 00:08:05,080
Speaker 5: You know, Tom, it's it's doing a whole lot of nothing.

156
00:08:05,360 --> 00:08:08,400
Speaker 5: And I always say memory is really short in the

157
00:08:08,440 --> 00:08:12,000
Speaker 5: options market, and it's gotten even shorter. So the folks

158
00:08:12,000 --> 00:08:15,480
Speaker 5: who have had on you know, long put trades, hedging trades,

159
00:08:15,840 --> 00:08:19,040
Speaker 5: they've been burned. The best strategy year today when you

160
00:08:19,080 --> 00:08:22,360
Speaker 5: back test every option strategy has been to be long

161
00:08:22,400 --> 00:08:23,560
Speaker 5: the S and P five hundred.

162
00:08:23,760 --> 00:08:24,840
Speaker 6: So no option.

163
00:08:24,640 --> 00:08:27,560
Speaker 5: Strategy year today has actually just beaten being long the SMP.

164
00:08:28,120 --> 00:08:29,920
Speaker 5: And you know you've seen that kind of taken to

165
00:08:30,000 --> 00:08:32,880
Speaker 5: heart in the VIX levels and the volatility suppression that

166
00:08:32,920 --> 00:08:34,280
Speaker 5: we've seen right now.

167
00:08:34,320 --> 00:08:36,440
Speaker 3: You said that you do expect the rally to broaden out.

168
00:08:36,640 --> 00:08:39,080
Speaker 3: What are you looking at specifically for the areas to

169
00:08:39,120 --> 00:08:42,480
Speaker 3: benefit the most in this broadening at a time when

170
00:08:42,520 --> 00:08:45,839
Speaker 3: some people still are expecting consumers to stop spending as much.

171
00:08:47,679 --> 00:08:50,880
Speaker 5: Yeah, interesting question, Lisa, And I think you know it

172
00:08:51,000 --> 00:08:54,160
Speaker 5: goes back to all these rotation trades that I think

173
00:08:54,240 --> 00:08:57,480
Speaker 5: investors had wanted to put on even you know, six

174
00:08:57,520 --> 00:09:01,040
Speaker 5: months ago, even after the October bottom, which is value

175
00:09:01,120 --> 00:09:05,560
Speaker 5: versus growth, or you know, finally small MidCap versus large cats, cyclicals,

176
00:09:05,840 --> 00:09:08,520
Speaker 5: those type of areas. You know, one thing I will

177
00:09:08,559 --> 00:09:11,960
Speaker 5: say as a copyat is I've asked investors why it

178
00:09:11,960 --> 00:09:14,360
Speaker 5: couldn't be the case that we could just simply have

179
00:09:14,440 --> 00:09:17,720
Speaker 5: a parallel rally. You know, so megacap tech doesn't necessarily

180
00:09:17,760 --> 00:09:20,760
Speaker 5: get hurt, but we just simply broaden the rally because

181
00:09:20,760 --> 00:09:23,560
Speaker 5: one is sort of a secular drive of AI and

182
00:09:23,600 --> 00:09:26,839
Speaker 5: the other is more of an economic recovery story. And

183
00:09:27,160 --> 00:09:29,000
Speaker 5: to be clear to my earlier point, you know, we're

184
00:09:29,040 --> 00:09:32,719
Speaker 5: not seeing less bullish positioning in tech. It's simply that

185
00:09:32,720 --> 00:09:34,959
Speaker 5: that bullish positioning has widened out a bit.

186
00:09:35,559 --> 00:09:38,280
Speaker 3: This is the reason why some people are saying, okay,

187
00:09:38,760 --> 00:09:41,040
Speaker 3: let's just hold on a second before everyone gets over

188
00:09:41,080 --> 00:09:43,760
Speaker 3: their skis and the soft landing type of narrative, because

189
00:09:43,760 --> 00:09:46,559
Speaker 3: if you look at the data, more people are invested

190
00:09:46,800 --> 00:09:50,080
Speaker 3: than have been in equities going back for quite a while.

191
00:09:50,120 --> 00:09:53,880
Speaker 3: We see a much more overweight suddenly in market technicals.

192
00:09:54,120 --> 00:09:56,400
Speaker 3: At what point does that become a concerning sign to you?

193
00:09:58,520 --> 00:10:01,960
Speaker 5: Yep. I watched this too, because I do think you know,

194
00:10:02,080 --> 00:10:04,880
Speaker 5: part of the story from the beginning of the year, Lisa,

195
00:10:05,320 --> 00:10:07,400
Speaker 5: was that there had to be this catch up trade.

196
00:10:07,440 --> 00:10:07,600
Speaker 1: Right.

197
00:10:07,840 --> 00:10:10,320
Speaker 5: One of the reasons I think we thought that positioning

198
00:10:10,360 --> 00:10:12,880
Speaker 5: would get even broader was there're just folks who at

199
00:10:12,920 --> 00:10:15,160
Speaker 5: the index level had to catch up to the momentum

200
00:10:15,160 --> 00:10:18,480
Speaker 5: you were seeing from seven names contributing so much to return.

201
00:10:18,880 --> 00:10:21,760
Speaker 5: Now from a positioning perspective, we are in a much

202
00:10:21,800 --> 00:10:24,760
Speaker 5: better shape. But the question is is there even more

203
00:10:24,800 --> 00:10:28,480
Speaker 5: to go? I think there is if the rally becomes broader.

204
00:10:28,520 --> 00:10:30,280
Speaker 5: And the second thing is, you know, you get these

205
00:10:30,320 --> 00:10:34,040
Speaker 5: kind of technical rebalances, the technical rebalance for the NASTAC

206
00:10:34,120 --> 00:10:38,040
Speaker 5: for instance, which I'll give folks who really couldn't participate

207
00:10:38,080 --> 00:10:41,080
Speaker 5: in that narrow breadth to have some excuse to continue

208
00:10:41,120 --> 00:10:42,520
Speaker 5: to do that widening breath.

209
00:10:42,840 --> 00:10:47,560
Speaker 1: Does diversification pay here, Amy, or is it better to

210
00:10:47,679 --> 00:10:50,319
Speaker 1: place larger focused bets.

211
00:10:52,520 --> 00:10:55,520
Speaker 5: So, Tom, it's interesting because we always think about that

212
00:10:55,559 --> 00:10:59,240
Speaker 5: from a correlation perspective, and correlation has been really really

213
00:10:59,320 --> 00:11:01,760
Speaker 5: low on a real level and an applight level, because

214
00:11:01,760 --> 00:11:04,079
Speaker 5: it's been you know, tech going this way and then

215
00:11:04,080 --> 00:11:05,400
Speaker 5: everything else going the other.

216
00:11:05,480 --> 00:11:05,720
Speaker 7: Way.

217
00:11:06,040 --> 00:11:08,280
Speaker 5: The one thing I point to folks is, look, if

218
00:11:08,320 --> 00:11:11,560
Speaker 5: we get more things widening out and that breadth going,

219
00:11:11,679 --> 00:11:14,400
Speaker 5: you know, even larger, then maybe that picks up the

220
00:11:14,440 --> 00:11:18,959
Speaker 5: correlation component of index volatility. So to your question, maybe

221
00:11:19,000 --> 00:11:21,280
Speaker 5: the reason volatility goes up and we see a few

222
00:11:21,280 --> 00:11:24,640
Speaker 5: points stick higher is actually because of that widening of breath,

223
00:11:24,640 --> 00:11:27,920
Speaker 5: which actually makes your correlation component what kicks the ball

224
00:11:28,000 --> 00:11:29,160
Speaker 5: into higher gear.

225
00:11:29,520 --> 00:11:34,000
Speaker 4: Interesting, Ami, thank you, Amy Wosilverman that NBC Capital Markets,

226
00:11:38,400 --> 00:11:39,240
Speaker 4: Ed Marse is.

227
00:11:39,200 --> 00:11:41,520
Speaker 1: Different than the others, and we talk to them all

228
00:11:41,559 --> 00:11:45,120
Speaker 1: and have an immense respect. For example, the oil microeconomics

229
00:11:45,160 --> 00:11:48,719
Speaker 1: of Goldman Sachs, an allegiate global sense of Bank of America,

230
00:11:49,280 --> 00:11:53,079
Speaker 1: maybe what we see from Emerita sen Over in London.

231
00:11:53,400 --> 00:11:56,040
Speaker 1: And then there's Edward Morse. Yeah, he's global head of

232
00:11:56,080 --> 00:11:59,560
Speaker 1: Commodities Research at Citigroup, but he does geopolitics in the

233
00:11:59,640 --> 00:12:03,200
Speaker 1: larger view better than anyone. Doctor Morrise joins this this morning,

234
00:12:03,720 --> 00:12:05,679
Speaker 1: Ed Morris, I'm going to rip up the script here

235
00:12:05,760 --> 00:12:08,800
Speaker 1: and you allude to it in your research. Note, we

236
00:12:08,920 --> 00:12:13,679
Speaker 1: are having a climate change twenty twenty three globally.

237
00:12:14,320 --> 00:12:15,000
Speaker 7: To beat the.

238
00:12:15,000 --> 00:12:19,679
Speaker 1: Band, someone as giant as Michael Mann is really, really

239
00:12:19,840 --> 00:12:24,280
Speaker 1: intense about this is a new climate change. How do you,

240
00:12:24,520 --> 00:12:29,199
Speaker 1: with all of your expertise, interpret the global warming we're observing.

241
00:12:31,360 --> 00:12:35,760
Speaker 8: Well, it certainly has upended a lot of expectations. The

242
00:12:35,880 --> 00:12:39,960
Speaker 8: world has decided to rely significantly more on solar and

243
00:12:40,040 --> 00:12:44,200
Speaker 8: wind and on water. And part of the climate change

244
00:12:44,280 --> 00:12:47,719
Speaker 8: process that we're seeing is disrupting that the sun is

245
00:12:47,760 --> 00:12:51,400
Speaker 8: being impacted by wild buyers, the rain is not happening

246
00:12:51,400 --> 00:12:53,680
Speaker 8: in the places that we needed, is happening in where

247
00:12:53,760 --> 00:12:56,960
Speaker 8: places that we don't want it, and the wind stops

248
00:12:57,000 --> 00:13:00,240
Speaker 8: blowing at the wrong time. So we are really in

249
00:13:00,280 --> 00:13:04,840
Speaker 8: a power gen crisis that is global and is not

250
00:13:04,880 --> 00:13:06,240
Speaker 8: going to stop anytime soon.

251
00:13:07,000 --> 00:13:10,240
Speaker 1: What will that do to price of oil and off

252
00:13:10,280 --> 00:13:12,840
Speaker 1: the price to supply and demand dynamics.

253
00:13:13,720 --> 00:13:16,840
Speaker 8: Well, the price of oil is still essentially that based

254
00:13:16,880 --> 00:13:20,760
Speaker 8: on a transportation fuel market, not on a power fuel market.

255
00:13:21,200 --> 00:13:24,000
Speaker 8: Part of the climate change surprise in twenty twenty one,

256
00:13:24,520 --> 00:13:27,680
Speaker 8: reinforced by both climate change and the rescue frame war

257
00:13:28,040 --> 00:13:30,480
Speaker 8: in twenty twenty two, is that we had a surge

258
00:13:30,480 --> 00:13:35,400
Speaker 8: in natural gas prices and it made diesel more expensive

259
00:13:35,880 --> 00:13:38,720
Speaker 8: because there was fuel switching to beat the ban between

260
00:13:38,800 --> 00:13:41,720
Speaker 8: natural gas and diesel. So that's the first time that

261
00:13:41,760 --> 00:13:45,079
Speaker 8: we've seen a spillover effect from the powergen market into

262
00:13:45,120 --> 00:13:47,720
Speaker 8: the transportation fuel market, and it's not going to be

263
00:13:47,720 --> 00:13:51,240
Speaker 8: the last time that that's happened. But that separation that

264
00:13:51,280 --> 00:13:53,679
Speaker 8: we used to think of is automatic is no longer

265
00:13:54,280 --> 00:13:57,320
Speaker 8: is no longer automatic. And when we get into the

266
00:13:57,320 --> 00:14:00,520
Speaker 8: next crunch on that gas, which might well be in

267
00:14:00,559 --> 00:14:05,320
Speaker 8: twenty twenty four, we might see that happening again. Meanwhile,

268
00:14:06,080 --> 00:14:11,160
Speaker 8: between the obstacles to invest in fossil fuels and the

269
00:14:11,240 --> 00:14:15,840
Speaker 8: reduction and demand that we're seeing, that spells volatility ahead.

270
00:14:15,880 --> 00:14:20,400
Speaker 8: It spells a market which will be moving between supply

271
00:14:20,600 --> 00:14:25,720
Speaker 8: shortage and supply oversupply on the oil side from year

272
00:14:25,760 --> 00:14:28,480
Speaker 8: to year. And the oversupply won't be big enough to

273
00:14:28,640 --> 00:14:31,560
Speaker 8: bread us down to twenty dollars or let alone negative prices,

274
00:14:31,880 --> 00:14:33,920
Speaker 8: and the undersupply won't be big enough to get us

275
00:14:33,920 --> 00:14:36,400
Speaker 8: over one hundred, but it will mean volatility in the

276
00:14:36,400 --> 00:14:38,800
Speaker 8: market is going to be there as we go through

277
00:14:39,640 --> 00:14:41,160
Speaker 8: decades of an energy transition.

278
00:14:41,440 --> 00:14:43,600
Speaker 3: So what's the range then? The band is from sixty

279
00:14:43,600 --> 00:14:44,760
Speaker 3: to one hundred dollars A.

280
00:14:44,800 --> 00:14:49,080
Speaker 8: Barrel I said, there's a soft put it around seventy

281
00:14:49,120 --> 00:14:53,760
Speaker 8: at the moment that soft put exists, not only because

282
00:14:54,480 --> 00:14:58,200
Speaker 8: we have OPEC, which really doesn't want oil below seventy

283
00:14:58,800 --> 00:15:01,520
Speaker 8: and are proven to be to take action, but we

284
00:15:01,600 --> 00:15:04,400
Speaker 8: have the US which is basically announced that it will

285
00:15:04,440 --> 00:15:07,720
Speaker 8: be more aggressive about filling the strategic stockpile when we

286
00:15:07,760 --> 00:15:10,360
Speaker 8: get to seventy. We have China that has, since the

287
00:15:10,400 --> 00:15:14,920
Speaker 8: two thousand and eight to nine Great Financial Crisis, decided

288
00:15:15,000 --> 00:15:18,680
Speaker 8: to build inventories when prices are low and to use

289
00:15:18,720 --> 00:15:21,280
Speaker 8: those inventories when prices are high. So I think we

290
00:15:21,320 --> 00:15:24,200
Speaker 8: have a soft put at the moment higher than sixty

291
00:15:24,360 --> 00:15:27,440
Speaker 8: and maybe at the seventy level. On the upper side.

292
00:15:27,440 --> 00:15:30,480
Speaker 8: You never really know what happens. There are wild cards.

293
00:15:30,760 --> 00:15:35,280
Speaker 8: Hurricanes are certainly wild cards. What we need is two, three,

294
00:15:35,320 --> 00:15:38,120
Speaker 8: four or five category hurricanes in the Gulf of Mexico

295
00:15:39,000 --> 00:15:42,920
Speaker 8: and we get damage like Hurricane Harvey or Rita and

296
00:15:42,960 --> 00:15:46,840
Speaker 8: Katrina a year where refineries are out for four or

297
00:15:46,840 --> 00:15:50,080
Speaker 8: five or six months. The US is the heart of

298
00:15:50,120 --> 00:15:54,040
Speaker 8: the global fossil fuel market. The US Gulf Coast is

299
00:15:54,080 --> 00:15:57,360
Speaker 8: the largest contributor to combine to oil and gas in

300
00:15:57,400 --> 00:16:01,840
Speaker 8: the world. We are in bet oil, cruit and petrolion

301
00:16:01,880 --> 00:16:04,960
Speaker 8: products now seeing nine or ten million barrels a day

302
00:16:05,000 --> 00:16:07,680
Speaker 8: of exports, most of that coming out of the Gulf Coast,

303
00:16:08,120 --> 00:16:11,760
Speaker 8: and that's larger than the total production of either Russia

304
00:16:11,920 --> 00:16:15,880
Speaker 8: or Saudi Arabia. And we're seeing fifteen bcf a day

305
00:16:15,960 --> 00:16:18,880
Speaker 8: of natural gas coming out of the US Golf Coast.

306
00:16:19,400 --> 00:16:21,560
Speaker 8: Flooding can knock all of that out for a while,

307
00:16:21,640 --> 00:16:24,680
Speaker 8: So we have that wild card sitting there. But without

308
00:16:24,680 --> 00:16:28,320
Speaker 8: the wild card, I'm comfortable thinking ninety is a real

309
00:16:28,360 --> 00:16:32,440
Speaker 8: ceiling for whatever we see on the Titaness side of

310
00:16:32,480 --> 00:16:33,440
Speaker 8: oil for the time being.

311
00:16:33,880 --> 00:16:36,600
Speaker 3: Ed, where does a soft landing versus a hard landing

312
00:16:36,640 --> 00:16:39,000
Speaker 3: fit in from the US? You said, we haven't really

313
00:16:39,040 --> 00:16:43,480
Speaker 3: priced in something of a more honest recession in the US,

314
00:16:43,520 --> 00:16:46,440
Speaker 3: which a lot of people are discounting altogether. What makes

315
00:16:46,480 --> 00:16:48,080
Speaker 3: you think we shouldn't.

316
00:16:49,560 --> 00:16:53,000
Speaker 8: Well, partly because of my colleagues Veronica and Andrew, who

317
00:16:53,040 --> 00:16:56,040
Speaker 8: you were talking about earlier, And you know, I believe

318
00:16:56,320 --> 00:16:59,960
Speaker 8: what they say about about where economic growth is going,

319
00:17:00,800 --> 00:17:04,080
Speaker 8: and I tend to believe people like Larry Summers who

320
00:17:04,240 --> 00:17:08,280
Speaker 8: are among those pushing for the hard landing scenario. But

321
00:17:08,960 --> 00:17:12,960
Speaker 8: there's something secular going on as well. We had lower

322
00:17:13,040 --> 00:17:15,679
Speaker 8: oil demand last year in the United States than we

323
00:17:15,760 --> 00:17:19,199
Speaker 8: had a year before, and that's by every measure on

324
00:17:19,520 --> 00:17:23,080
Speaker 8: almost any product other than this category we call other.

325
00:17:23,600 --> 00:17:27,640
Speaker 8: But we had less gasoline demand, we had less diesel demand.

326
00:17:28,320 --> 00:17:32,359
Speaker 8: We're seeing a pickup in gasoline demand this year because

327
00:17:32,400 --> 00:17:35,120
Speaker 8: people are taking vacations more than they did last year,

328
00:17:35,320 --> 00:17:38,720
Speaker 8: but we're not at twenty nine nineteen levels yet, if

329
00:17:38,720 --> 00:17:41,760
Speaker 8: we ever will be there again. We're really seeing a

330
00:17:41,760 --> 00:17:45,720
Speaker 8: phenomenal structural shift both in gasoline and diesel in the US.

331
00:17:45,800 --> 00:17:48,359
Speaker 8: The diesel side of it is partly related to the

332
00:17:48,400 --> 00:17:52,359
Speaker 8: efficiency of trucks. More importantly, there are two things structurally

333
00:17:52,400 --> 00:17:55,840
Speaker 8: going on. If you look at those of us living

334
00:17:55,840 --> 00:17:58,040
Speaker 8: in New York and looking at on the street and

335
00:17:58,080 --> 00:18:03,359
Speaker 8: seeing delivery vans, they're mostly fueled by cleaner energy than diesel.

336
00:18:03,400 --> 00:18:07,400
Speaker 8: They're mostly fueled by either hybrid vehicles or electric vehicles

337
00:18:07,720 --> 00:18:12,520
Speaker 8: or natural gas vehicles. So that plus the actual drop

338
00:18:12,600 --> 00:18:18,439
Speaker 8: in trade where we have a lower level of containership movements.

339
00:18:18,480 --> 00:18:22,199
Speaker 8: Since last September, we have on shoring going on in

340
00:18:22,240 --> 00:18:25,360
Speaker 8: the United States and in Europe to take away from

341
00:18:25,480 --> 00:18:28,320
Speaker 8: China what has been a significant part of their exports.

342
00:18:28,359 --> 00:18:30,800
Speaker 8: We're seeing a slow down in trade which means to

343
00:18:30,840 --> 00:18:34,000
Speaker 8: slow down in trucks going back and forth to ports.

344
00:18:34,040 --> 00:18:36,680
Speaker 8: Between the change and the fuel stock and the change

345
00:18:36,680 --> 00:18:40,960
Speaker 8: in the trade environment, that's a really permanent factor in

346
00:18:41,400 --> 00:18:44,040
Speaker 8: the market. On the gaso leane side, one of the

347
00:18:44,040 --> 00:18:47,199
Speaker 8: biggest issues is of course the increase in fuel efficiency.

348
00:18:47,560 --> 00:18:50,560
Speaker 8: And we didn't expect the increase in fuel efficiency that

349
00:18:50,640 --> 00:18:54,159
Speaker 8: we've seen, but certainly during three years in which we

350
00:18:54,200 --> 00:18:58,240
Speaker 8: have supply chain problems in the auto industry, auto manufacturers

351
00:18:58,240 --> 00:19:01,840
Speaker 8: were selling either the most fuel efficient and therefore the

352
00:19:01,840 --> 00:19:05,600
Speaker 8: most expensive ice ice vehicles they had, or selling more

353
00:19:05,600 --> 00:19:08,640
Speaker 8: electric vehicles. And the fuel efficiency of the US has

354
00:19:08,640 --> 00:19:11,280
Speaker 8: gone up a lot in the last three years. And

355
00:19:11,359 --> 00:19:13,359
Speaker 8: on top of that, we're having a record amount of

356
00:19:13,400 --> 00:19:17,120
Speaker 8: retirements and with that, fewer people with two or three

357
00:19:17,560 --> 00:19:20,040
Speaker 8: going to more people with one or two cars, and

358
00:19:20,080 --> 00:19:23,920
Speaker 8: they're driving even with the labor market statistics, so balancing

359
00:19:23,960 --> 00:19:28,080
Speaker 8: that are other factors, and I think we're very close

360
00:19:28,160 --> 00:19:33,160
Speaker 8: to the US joining China and Europe in yiji oil

361
00:19:33,240 --> 00:19:36,159
Speaker 8: demand coming sooner than most people expect ed.

362
00:19:36,160 --> 00:19:39,359
Speaker 4: We've got to leave it that fantastic assessment analysis on

363
00:19:39,400 --> 00:19:43,720
Speaker 4: the commodity intensiveness of economic growth, that's most of SITSI.

364
00:19:53,640 --> 00:19:58,119
Speaker 1: Gretoriy Peters's cool common collected coat CIO at pGEM fixed

365
00:19:58,160 --> 00:20:02,240
Speaker 1: income Right now, Greg, if I defind a given aggregate

366
00:20:02,280 --> 00:20:05,320
Speaker 1: index is in between here maybe on a technical basis,

367
00:20:05,520 --> 00:20:09,159
Speaker 1: it's a Pennant formation. Which way is price going to break?

368
00:20:09,200 --> 00:20:12,119
Speaker 1: Are we going to get higher price, lower yield or

369
00:20:12,160 --> 00:20:13,040
Speaker 1: the other way around?

370
00:20:14,160 --> 00:20:16,040
Speaker 6: I think it's the other way around. If you look

371
00:20:16,080 --> 00:20:18,240
Speaker 6: at what's going on in the market, the market is

372
00:20:18,320 --> 00:20:24,359
Speaker 6: very excited around policy rates peeking, But if you see

373
00:20:24,359 --> 00:20:28,160
Speaker 6: what's embedded in the future price, there's talk about soft landing,

374
00:20:28,800 --> 00:20:31,320
Speaker 6: inflation coming down, and then on top of it you

375
00:20:31,440 --> 00:20:35,760
Speaker 6: have pretty substantial rate cut. So those two factors are

376
00:20:35,760 --> 00:20:39,119
Speaker 6: somewhat confusing to me. Right, if the economy continues to

377
00:20:39,440 --> 00:20:42,600
Speaker 6: actually chug along here we avoid a recession. I'm not

378
00:20:42,680 --> 00:20:46,480
Speaker 6: necessarily sure why forward rate should be two hundred basic

379
00:20:46,560 --> 00:20:48,159
Speaker 6: points lower than they are today.

380
00:20:49,119 --> 00:20:51,400
Speaker 1: I look at where rates are and what is going

381
00:20:51,440 --> 00:20:55,760
Speaker 1: to give way from where you sit, How will issuance

382
00:20:55,920 --> 00:20:59,840
Speaker 1: change given price down, yield up, what will be the

383
00:20:59,840 --> 00:21:01,639
Speaker 1: spirit of the market.

384
00:21:02,480 --> 00:21:05,080
Speaker 6: Well, what we've found over the past, you know, a

385
00:21:05,119 --> 00:21:07,600
Speaker 6: couple of years, is that there's not a lot of

386
00:21:07,880 --> 00:21:13,159
Speaker 6: price sensitivity here, corporates will issue when they have to.

387
00:21:13,840 --> 00:21:17,400
Speaker 6: There's a constant desire to issue, so I don't really

388
00:21:17,400 --> 00:21:21,960
Speaker 6: worry about that factor too much, you know, honestly. So

389
00:21:22,520 --> 00:21:25,240
Speaker 6: you know, to me, I think it's steady as you go.

390
00:21:25,359 --> 00:21:27,560
Speaker 6: So I think it's a very good environment for fixed

391
00:21:27,560 --> 00:21:30,480
Speaker 6: income for sure. But at the same time, some of

392
00:21:30,520 --> 00:21:32,399
Speaker 6: the pricing confuses me.

393
00:21:32,880 --> 00:21:35,600
Speaker 3: Okay, let's talk about that, Greg, particularly an investment grade.

394
00:21:35,600 --> 00:21:39,240
Speaker 3: Why do you think that prices are just too high?

395
00:21:39,320 --> 00:21:39,960
Speaker 5: Well, that's so much.

396
00:21:40,119 --> 00:21:43,280
Speaker 6: Well it's just it's pricing in a soft lending, which

397
00:21:43,320 --> 00:21:46,240
Speaker 6: I think should be the little outcome. But the risks

398
00:21:46,320 --> 00:21:48,800
Speaker 6: are still, you know, pretty elevated. And so I look

399
00:21:48,840 --> 00:21:51,360
Speaker 6: at you know, IG credit spreads, you know index level

400
00:21:51,440 --> 00:21:54,199
Speaker 6: just called one hundred and twenty five basis points. That's

401
00:21:54,359 --> 00:21:57,520
Speaker 6: well below the long term average long term me you know,

402
00:21:57,600 --> 00:22:01,480
Speaker 6: high yield is sub four hundred basis points, So you're

403
00:22:01,520 --> 00:22:05,159
Speaker 6: not getting paid a lot from a spread premium standpoint.

404
00:22:05,359 --> 00:22:10,040
Speaker 6: Basic the risk out there, But you know, the overall

405
00:22:10,160 --> 00:22:13,520
Speaker 6: yield environment is a fantastic one, and I think that

406
00:22:13,560 --> 00:22:18,160
Speaker 6: will continue to drive flows into fix income. It makes

407
00:22:18,160 --> 00:22:21,879
Speaker 6: fixing come a very attractive place. As we're back to

408
00:22:22,080 --> 00:22:24,800
Speaker 6: the role and carry days, which I think is the

409
00:22:24,880 --> 00:22:26,960
Speaker 6: hallmark of fix income investing.

410
00:22:27,240 --> 00:22:30,439
Speaker 3: Typically after banks report earnings, they issue a slew of bonds.

411
00:22:30,480 --> 00:22:33,960
Speaker 3: We saw Wells Fargo float and offering yesterday with an

412
00:22:33,960 --> 00:22:37,159
Speaker 3: eight handle offering more than eight percent yield. It was

413
00:22:37,280 --> 00:22:40,840
Speaker 3: on a subordinate bond with equity like features. Is this

414
00:22:41,080 --> 00:22:43,480
Speaker 3: a type of asset that you want to own? Are

415
00:22:43,560 --> 00:22:46,280
Speaker 3: you looking to the big banks and saying I'm a buyer?

416
00:22:47,600 --> 00:22:47,840
Speaker 1: Yeah?

417
00:22:47,880 --> 00:22:51,480
Speaker 6: So the key point there is equity like features, right,

418
00:22:51,560 --> 00:22:54,800
Speaker 6: So I've always been on the mind, We've always been

419
00:22:54,800 --> 00:22:57,080
Speaker 6: on the mind that that's a poor risk.

420
00:22:57,720 --> 00:22:58,600
Speaker 4: You have fix.

421
00:22:58,440 --> 00:23:03,280
Speaker 6: Income type of yield equity optionality, so that the option

422
00:23:03,440 --> 00:23:06,280
Speaker 6: is always against you. So never really like that part

423
00:23:06,280 --> 00:23:08,280
Speaker 6: of the market, you know, known as the coco part

424
00:23:08,280 --> 00:23:13,639
Speaker 6: of the market. But the senior place looks very attractive

425
00:23:13,680 --> 00:23:16,879
Speaker 6: to us and continues to be. So, you know, the

426
00:23:16,960 --> 00:23:20,920
Speaker 6: money center banks as we call them, are very attractive

427
00:23:20,960 --> 00:23:23,800
Speaker 6: investments in fixed income and continue to be one of

428
00:23:23,840 --> 00:23:27,800
Speaker 6: our favorite places to play. In investment grade corporate.

429
00:23:28,200 --> 00:23:30,679
Speaker 1: The theme with price down Greg Peters is I'm going

430
00:23:30,760 --> 00:23:33,760
Speaker 1: to get a coupon along the way. I get that rationalization,

431
00:23:34,280 --> 00:23:37,080
Speaker 1: but as a general statement out one year or dare

432
00:23:37,119 --> 00:23:40,680
Speaker 1: I say, out of PGM short term three years, are

433
00:23:40,680 --> 00:23:42,879
Speaker 1: you going to clip a coupon or are you going

434
00:23:42,960 --> 00:23:46,320
Speaker 1: to invest out three years for total return?

435
00:23:48,160 --> 00:23:51,479
Speaker 6: I still believe that given the shape of the curve,

436
00:23:52,000 --> 00:23:55,520
Speaker 6: given the attractive nature of the front end, to me,

437
00:23:55,640 --> 00:23:58,440
Speaker 6: it doesn't make a whole lot of sense to go

438
00:23:58,520 --> 00:24:03,000
Speaker 6: out in duration. So I think front end. Carrie just

439
00:24:03,119 --> 00:24:07,520
Speaker 6: called three years in tom a very attractive place to play.

440
00:24:07,960 --> 00:24:12,480
Speaker 6: So I don't really see the need to kind of reach, right.

441
00:24:12,600 --> 00:24:15,000
Speaker 6: I think investors are stole very much in the reach

442
00:24:15,080 --> 00:24:18,760
Speaker 6: for yield environment, you know, going back pre pandemic, and

443
00:24:18,840 --> 00:24:21,000
Speaker 6: the truth of the matter is you don't need to

444
00:24:21,080 --> 00:24:23,320
Speaker 6: reach now right, it's right in front of you. So

445
00:24:23,400 --> 00:24:28,120
Speaker 6: there's no reason to take unnecessary amount of credit risk

446
00:24:28,440 --> 00:24:30,400
Speaker 6: or or duration risk at this.

447
00:24:30,359 --> 00:24:30,960
Speaker 1: Point in time.

448
00:24:31,200 --> 00:24:33,320
Speaker 3: Does this mean that you don't necessarily buy into the

449
00:24:33,560 --> 00:24:37,000
Speaker 3: soft landing narrative or just that it doesn't matter whether

450
00:24:37,040 --> 00:24:39,400
Speaker 3: there's a soft landing or a hard landing. You're going

451
00:24:39,400 --> 00:24:40,080
Speaker 3: for the short thing.

452
00:24:41,440 --> 00:24:44,440
Speaker 6: Well, so I mean you go to the soft landing narrative.

453
00:24:44,600 --> 00:24:48,040
Speaker 6: So I don't understand, you know, this is the price

454
00:24:48,080 --> 00:24:51,280
Speaker 6: confusion in my mind. I don't understand if you believe

455
00:24:51,320 --> 00:24:54,280
Speaker 6: in a soft landing, why the FED would be cutting

456
00:24:54,280 --> 00:24:56,480
Speaker 6: two hundred basis points at the same time over the

457
00:24:56,520 --> 00:24:59,720
Speaker 6: next year or so. So to me, that's the income

458
00:24:59,720 --> 00:25:02,480
Speaker 6: brument seeing the market. So if you actually do get

459
00:25:02,560 --> 00:25:06,440
Speaker 6: us soft landing right, I think front end yield will

460
00:25:06,440 --> 00:25:09,959
Speaker 6: remain pretty sticky. So maybe there's a little cuts, you know,

461
00:25:10,040 --> 00:25:13,560
Speaker 6: into the market, but that should help normalize the curve,

462
00:25:13,600 --> 00:25:17,719
Speaker 6: which means, you know, the inversion starts to normalize, and

463
00:25:17,760 --> 00:25:20,560
Speaker 6: that means kind of higher yields across the curve. So

464
00:25:20,640 --> 00:25:22,640
Speaker 6: that's how I see it, actually.

465
00:25:22,359 --> 00:25:25,160
Speaker 4: Greg one of the best, always apprivileged to listen to you.

466
00:25:25,320 --> 00:25:29,040
Speaker 4: Gregats the page and Fixed incompany.

467
00:25:31,280 --> 00:25:35,080
Speaker 1: Christopher Merinek, Jenny Montgomery Scott, thank you Christopher taking time

468
00:25:35,119 --> 00:25:38,880
Speaker 1: out from your clients this morning. Is Margan Stanley a.

469
00:25:38,920 --> 00:25:44,800
Speaker 9: Bank, Absolutely sure, they take they make loans and take deposits.

470
00:25:44,800 --> 00:25:47,040
Speaker 7: Their deposit costs rose a lot in this quarter.

471
00:25:47,119 --> 00:25:49,560
Speaker 9: Tom, I mean they had one hundred percent beta if

472
00:25:49,600 --> 00:25:52,280
Speaker 9: you look at the change and average deposit costs from

473
00:25:52,359 --> 00:25:55,240
Speaker 9: a first quarter to second quarter, so that's forty seven

474
00:25:55,280 --> 00:25:57,720
Speaker 9: basis points, which is exactly what the average change and

475
00:25:57,760 --> 00:25:59,920
Speaker 9: the FED funds rate was for the court.

476
00:26:00,480 --> 00:26:03,400
Speaker 1: I am fascinated by the compare and contrast with the

477
00:26:03,440 --> 00:26:06,800
Speaker 1: mystery of what we'll see tomorrow with gold and Sacks.

478
00:26:07,160 --> 00:26:11,000
Speaker 1: To begin that study, what's the key distinction here of

479
00:26:11,040 --> 00:26:14,240
Speaker 1: a Marcus like free Morgan Stanley.

480
00:26:15,920 --> 00:26:18,320
Speaker 9: Well, I think Morgan Stanley can get access to funds

481
00:26:18,400 --> 00:26:20,680
Speaker 9: cheaper than what Marcus is paying. Marcus is the rate

482
00:26:20,800 --> 00:26:23,240
Speaker 9: leader in the marketplace, and so that has a different

483
00:26:23,320 --> 00:26:26,479
Speaker 9: spread component at the bank level, and I think that's

484
00:26:26,520 --> 00:26:29,360
Speaker 9: awfully important. I think there's less of an advantage at

485
00:26:29,640 --> 00:26:31,840
Speaker 9: Goldman on the cost of funds, and so that's one

486
00:26:31,880 --> 00:26:35,120
Speaker 9: thing that most banks have, and certainly Morgan Stanley does

487
00:26:35,160 --> 00:26:37,920
Speaker 9: have an advantage in terms of borrowing and raising money

488
00:26:37,960 --> 00:26:39,760
Speaker 9: cheaper than the cost of FED funds.

489
00:26:39,960 --> 00:26:41,880
Speaker 3: As we parted through the results in Shanali was great

490
00:26:41,880 --> 00:26:44,439
Speaker 3: about pointing this out. At Bank of America, the average

491
00:26:44,440 --> 00:26:48,720
Speaker 3: FICO score was seven sixty seven, an incredibly high, very

492
00:26:48,880 --> 00:26:52,360
Speaker 3: well off kind of customer base. We're seeing a similar

493
00:26:52,520 --> 00:26:55,720
Speaker 3: type of suggestion in the numbers of Morgan Stanley. What

494
00:26:55,760 --> 00:26:58,119
Speaker 3: does this mean for those who are not in the

495
00:26:58,119 --> 00:27:01,040
Speaker 3: echelons of the upper tiers of and come earners. Does

496
00:27:01,080 --> 00:27:02,959
Speaker 3: this mean that they are not getting credit or does

497
00:27:03,000 --> 00:27:04,359
Speaker 3: that mean that they're going to the P and c's

498
00:27:04,400 --> 00:27:06,399
Speaker 3: of the world, maybe the Western alliances.

499
00:27:07,760 --> 00:27:09,600
Speaker 9: I think all those banks tend to have a higher

500
00:27:09,640 --> 00:27:12,480
Speaker 9: FICO score in general, so I think unfortunately they're probably

501
00:27:12,560 --> 00:27:16,040
Speaker 9: looking outside of the banking industry and other sources, which

502
00:27:16,080 --> 00:27:17,520
Speaker 9: really means that it's more expensive.

503
00:27:17,560 --> 00:27:18,760
Speaker 7: I think that's the hard part.

504
00:27:19,280 --> 00:27:21,919
Speaker 9: The banks are bragging about having high FIGHTO scores and

505
00:27:21,920 --> 00:27:23,159
Speaker 9: that kind of cuts both ways.

506
00:27:23,160 --> 00:27:25,440
Speaker 7: It's good from a credit quality perspective.

507
00:27:24,920 --> 00:27:27,639
Speaker 9: But it does make it difficult for certain barrowers to

508
00:27:27,760 --> 00:27:29,960
Speaker 9: access funds from a consumer standpoint.

509
00:27:30,280 --> 00:27:32,480
Speaker 3: Right now, as you take a look at Morgan Stanley,

510
00:27:32,600 --> 00:27:36,360
Speaker 3: Bank of America JP, Morgan City Group, Wells Fargo, who

511
00:27:36,400 --> 00:27:39,800
Speaker 3: looks the best to you in navigating a pretty uncertain time.

512
00:27:41,000 --> 00:27:43,960
Speaker 9: Well, Bank America has the best deposit base in the country,

513
00:27:44,000 --> 00:27:46,000
Speaker 9: and so that gives them a leg up. I mean,

514
00:27:46,040 --> 00:27:48,840
Speaker 9: they have access to consumer funds that are cheap, and

515
00:27:48,920 --> 00:27:51,080
Speaker 9: they have a big advantage over fed funds. As I

516
00:27:51,119 --> 00:27:54,280
Speaker 9: mentioned earlier, I feel that they've got a lot going

517
00:27:54,280 --> 00:27:56,480
Speaker 9: for them. They also have been a leader on the

518
00:27:56,520 --> 00:27:59,400
Speaker 9: digital buildout JP Morgan has too, and you know those

519
00:27:59,440 --> 00:28:01,919
Speaker 9: are two big engines and the whole transformation of the

520
00:28:01,960 --> 00:28:06,239
Speaker 9: industry towards digital that's going to continue to create a

521
00:28:06,320 --> 00:28:09,200
Speaker 9: wider gulf between other banks and the quarters ahead.

522
00:28:09,640 --> 00:28:13,040
Speaker 1: Chris and the zeitgeist of this July is a massive

523
00:28:13,320 --> 00:28:18,560
Speaker 1: roll up worldwide in asset management. Clearly active management, dare

524
00:28:18,600 --> 00:28:23,479
Speaker 1: I say also Index passive management as well. Is Market

525
00:28:23,520 --> 00:28:27,360
Speaker 1: Stanley one of the giant players that can take advantage

526
00:28:27,440 --> 00:28:29,919
Speaker 1: of their roll up or do they have to grow

527
00:28:29,960 --> 00:28:32,000
Speaker 1: and defend against the roll up?

528
00:28:33,040 --> 00:28:33,200
Speaker 5: Oh?

529
00:28:33,240 --> 00:28:34,440
Speaker 7: I think they're on growth mode.

530
00:28:34,440 --> 00:28:36,119
Speaker 9: I think if you go back to March and April

531
00:28:36,119 --> 00:28:40,040
Speaker 9: when we had the explosion of First Republic, they received

532
00:28:40,040 --> 00:28:42,760
Speaker 9: several clients and teams of people, and I think that's

533
00:28:42,760 --> 00:28:44,480
Speaker 9: going to bode them well. Even though they did not

534
00:28:44,600 --> 00:28:46,680
Speaker 9: bid on the bank, they still had a lot of

535
00:28:46,720 --> 00:28:49,680
Speaker 9: transactions and new customers that have come in, and I

536
00:28:49,680 --> 00:28:52,280
Speaker 9: think that's going to become more apparent on the asset

537
00:28:52,400 --> 00:28:53,640
Speaker 9: side in the months ahead.

538
00:28:53,920 --> 00:28:57,600
Speaker 1: Shanali Bassek is studying the succession plans as well. You're

539
00:28:57,760 --> 00:29:02,040
Speaker 1: student of it. End If person should be taking over

540
00:29:02,160 --> 00:29:06,800
Speaker 1: a wealth manager, a banker, somebody from outside.

541
00:29:07,280 --> 00:29:09,280
Speaker 7: I think you need one who can be a leader.

542
00:29:09,360 --> 00:29:11,000
Speaker 9: At the end of the day, you need a person

543
00:29:11,240 --> 00:29:13,520
Speaker 9: where he or she can really focus on how to

544
00:29:13,600 --> 00:29:16,560
Speaker 9: lead an organization, bring in new clients, being able to

545
00:29:16,600 --> 00:29:19,400
Speaker 9: be flexible when you have market volatility like we've already

546
00:29:19,440 --> 00:29:20,080
Speaker 9: seen this year.

547
00:29:20,640 --> 00:29:21,960
Speaker 7: That's really is what it's about.

548
00:29:22,000 --> 00:29:24,280
Speaker 9: I would be less about labels, about whether they came

549
00:29:24,280 --> 00:29:26,240
Speaker 9: from the investment side or the bank side.

550
00:29:26,360 --> 00:29:27,240
Speaker 7: I think being able to.

551
00:29:27,280 --> 00:29:29,760
Speaker 9: Lead a team of folks and grow the business and

552
00:29:29,840 --> 00:29:32,920
Speaker 9: the next decade is what I think is most important.

553
00:29:32,960 --> 00:29:34,840
Speaker 4: Hey, Chris, I appreciate you being with us this morning.

554
00:29:35,120 --> 00:29:37,400
Speaker 4: Chris marinache At, Jenny Montgomery, scot.

555
00:29:37,600 --> 00:29:41,440
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and

556
00:29:41,560 --> 00:29:45,760
Speaker 1: anywhere else you get your podcasts. Listen live every weekday

557
00:29:46,040 --> 00:29:51,000
Speaker 1: starting at seven am Eastern Bloomberg dot Com, the iHeartRadio app,

558
00:29:51,320 --> 00:29:54,880
Speaker 1: tune In, and the Bloomberg Business app. You can watch

559
00:29:55,080 --> 00:29:59,360
Speaker 1: us live on Bloomberg Television and always. I'm the Bloomberg Terminal.

560
00:30:00,000 --> 00:30:03,880
Speaker 1: Thanks for listening. I'm Tom Keane, and this is blumber