Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. As confused
Speaker 1: as we are, but never confused. It's Jay Bryce and
Speaker 1: chief economist at Wills Fargo. Ja, wonderful to have you
Speaker 1: with us. I think that states the confusion right now.
Speaker 1: Does Wells Fargo have clarity on what the American consumer
Speaker 1: is doing?
Speaker 2: Clarity that's a strong word, Tom, But I guess in general,
Speaker 2: when I stand back and I look at everything here,
Speaker 2: there has been some deceleration in consumer spending. Consumer spending
Speaker 2: in the first quarter in real terms, grew over four annualize.
Speaker 2: We're just not going to get that in the second quarter.
Speaker 2: We came into the second quarter with some deceleration. These
Speaker 2: numbers that you know Mike just talked about, I mean,
Speaker 2: you know, on on on balance, I think you know
Speaker 2: they're okay, But in general, it doesn't change the big
Speaker 2: story that there has been some deceleration in terms of
Speaker 2: consumer spending out there.
Speaker 3: Jay, how much has the overall discussion been completely distorted
Speaker 3: by the auto sector. How much the price is just
Speaker 3: shot upwards in the aftermath of the pandemic and now
Speaker 3: are coming down and resetting, especially as auto loan rates
Speaker 3: are getting so high. How much is that behind all
Speaker 3: of the confusion.
Speaker 2: Well, at list, I wouldn't say it's it's a huge
Speaker 2: part of it. I mean, so if you break down
Speaker 2: consumer spending, you know, roughly two thirds of consumer spending
Speaker 2: is going to be on services, and the other third
Speaker 2: is split roughly equally between non durable goods, so that
Speaker 2: would be like clothing and shoes, et cetera, and then
Speaker 2: durable goods. We component of that is autos, so it
Speaker 2: moves things around on the margin. But again, you know,
Speaker 2: the big driver of consumer spending growth in the economy
Speaker 2: is services, and I think that has been in some
Speaker 2: sense more distorting over the last three years. You know,
Speaker 2: in the sense of when the economy was shut down,
Speaker 2: the service sector was shut down, and then that came
Speaker 2: roaring back last year as the economy opened up. All
Speaker 2: this pent up demand for spending, and a lot of
Speaker 2: that now is pretty much behind us right now, so
Speaker 2: we hopefully are getting to the point where things, you know,
Speaker 2: the aftershocks of the pandemic in terms of the economy
Speaker 2: are now settling out.
Speaker 3: Okay, so the after shocks are settling out. What is
Speaker 3: the new economic trajectory when it comes to inflation. Is
Speaker 3: it back to what we saw previously or is it
Speaker 3: something different, especially if people are getting paid more and
Speaker 3: they're not pushing back as significantly as some would like.
Speaker 3: With respect to how much prices can keep going up.
Speaker 2: Well, you know, I may differ a little bit on that.
Speaker 2: I mean, I think you are seeing some signs of
Speaker 2: that right now. I mean, we are seeing it in
Speaker 2: terms of deceleration in terms of inflation out there. It's
Speaker 2: still slowly coming through in the service sector, but if
Speaker 2: you look at the rate of change over the last
Speaker 2: three months, you're seeing less service sector inflation as well.
Speaker 2: I mean, our view here is that we are heading
Speaker 2: back towards two percent. Now. It's not going to be
Speaker 2: right away. It's going to take a little bit of time,
Speaker 2: and part of that is predicated on some economic softness
Speaker 2: i e. A mild recession early next year. But you know,
Speaker 2: I think these nine ten percent sort of numbers that
Speaker 2: we saw are even five percent. I think that's the
Speaker 2: thing of the past, and I think we're heading back
Speaker 2: towards a two percent sort of error.
Speaker 1: Jay on the international basis here and after the clumsiness
Speaker 1: that we see here of American retail analysis, do you
Speaker 1: have a clue what the Chinese consumer's doing? I mean,
Speaker 1: we sit there, guys like you have to pontificate and say, yeah, this, this, this,
Speaker 1: but do we really know what the Chinese consumer's doing?
Speaker 2: So, you know, we started this with Lisa saying, you know,
Speaker 2: what's your view with all this noise in the United
Speaker 2: States now square that when you talk with China and
Speaker 2: just in terms of the data laps and gaps, and
Speaker 2: you've got to take it with their grand assault sort
Speaker 2: of stuff. But it does seem like, you know, things
Speaker 2: in China are also kind of slowing down as well.
Speaker 2: You got this really lousy GDP number the other day,
Speaker 2: and I think that's going to continue going forward. What
Speaker 2: we do know is the Chinese consumers or you know,
Speaker 2: they still have a very very high savings rate. You know,
Speaker 2: they're still very concerned about healthcare. You just don't have
Speaker 2: the healthcare system in China as you do in many
Speaker 2: Western sort of company countries, and so that keeps the
Speaker 2: savings rate in China elevated.
Speaker 1: Over there, Jada, go to micro here. This is your
Speaker 1: team under you working on this, including Sarah Hunt, the
Speaker 1: retail sales control group X, what X X, red SOX, tickets,
Speaker 1: Mike X, building materials X, autos X this X that.
Speaker 1: Do you get value out of a buoyant control group
Speaker 1: for sixty days?
Speaker 2: Jake? You know, there's obviously there's there's some information in there, Tom,
Speaker 2: but you know, again these are nominal sort of numbers,
Speaker 2: and at the end of the day, what we economists
Speaker 2: are more concerned about is real and so you have
Speaker 2: to deflate that by you know, some things that are
Speaker 2: in the CPI. And again, as I said earlier, when
Speaker 2: you look at overall retail spending, it's roughly a third
Speaker 2: of the US of spending. You know, the big component
Speaker 2: is the service one. So what we pay much more
Speaker 2: attention to is the numbers that we're going to get
Speaker 2: at the end of the month and the personal income
Speaker 2: and spending. That's when you get the service sector components
Speaker 2: and you get real numbers as well.
Speaker 3: So just putting this all together, are you increasingly in
Speaker 3: the soft landing camp with this being a soft landing
Speaker 3: type of retail sales number.
Speaker 2: So we've been in the you know, it depends on
Speaker 2: what your definition of a hard landing is. But we've
Speaker 2: been in a recession camp now for about a year,
Speaker 2: and you know, we've had to push that call increasingly
Speaker 2: back out. I would say, right now, if you hold
Speaker 2: a gun to my head you say what's the probability
Speaker 2: of a recession in the next twelve months, I would
Speaker 2: still say it's roughly it's still roughly sixty percent. I mean,
Speaker 2: what's going to happen as we go forward is the
Speaker 2: inflation is coming down, okay the Fed. No one thinks
Speaker 2: the Fed's going to be cutting anytime soon. So what's
Speaker 2: going to happen in the month's coming is you're going
Speaker 2: to get a passive tightening of monetary policy as the
Speaker 2: real rate drifts higher and higher. So in order to
Speaker 2: have a quote soft landing here, I think the FED
Speaker 2: needs to be still very adept in terms of monetary
Speaker 2: policy later this year as inflation comes down.
Speaker 1: Is that to Bryson thank you so much for joining
Speaker 1: us today. Jay Brison leading all the economics at Will's far.
Speaker 4: Going joining guess now, Amy wou Silverman, the head of
Speaker 4: Derivative Strategy of RBC Capital Markets, to have you with
Speaker 4: us on the program. We've had the bank earnings over
Speaker 4: the last week, the banks have lanked. What's happened with tech?
Speaker 4: Pretty much everything cast tech is absolutely dominated. You today, Amy,
Speaker 4: I'm sure you filled the same question that we ask
Speaker 4: repeatedly over the last several months. Can this rally broaden out?
Speaker 4: Do you think it can?
Speaker 5: I do, John, and I actually think you are seeing
Speaker 5: that already in the options market. You know, we kind
Speaker 5: of take that metric of call exuberance, you know, where
Speaker 5: are folks buying single stock call options? And of course
Speaker 5: that was in your in the videos and your apples
Speaker 5: and your Googles, not too surprisingly a couple of weeks ago.
Speaker 5: But we've really seen that expanded not only to SMP
Speaker 5: but also to IWM names and also two smaller in
Speaker 5: MidCap names. And that's kind of happening on a much
Speaker 5: broader basis than it was before.
Speaker 1: I mean, let's cut to the Wheehouse. That's what everybody
Speaker 1: on Global Wall Street wants to know from Abe and
Speaker 1: with Silverman, what are the cross moments saying right now
Speaker 1: the four dynamics of the option space. And critically, to
Speaker 1: get a little bit jargoning here, what does SKEW do
Speaker 1: right now?
Speaker 5: You know, Tom, it's it's doing a whole lot of nothing.
Speaker 5: And I always say memory is really short in the
Speaker 5: options market, and it's gotten even shorter. So the folks
Speaker 5: who have had on you know, long put trades, hedging trades,
Speaker 5: they've been burned. The best strategy year today when you
Speaker 5: back test every option strategy has been to be long
Speaker 5: the S and P five hundred.
Speaker 6: So no option.
Speaker 5: Strategy year today has actually just beaten being long the SMP.
Speaker 5: And you know you've seen that kind of taken to
Speaker 5: heart in the VIX levels and the volatility suppression that
Speaker 5: we've seen right now.
Speaker 3: You said that you do expect the rally to broaden out.
Speaker 3: What are you looking at specifically for the areas to
Speaker 3: benefit the most in this broadening at a time when
Speaker 3: some people still are expecting consumers to stop spending as much.
Speaker 5: Yeah, interesting question, Lisa, And I think you know it
Speaker 5: goes back to all these rotation trades that I think
Speaker 5: investors had wanted to put on even you know, six
Speaker 5: months ago, even after the October bottom, which is value
Speaker 5: versus growth, or you know, finally small MidCap versus large cats, cyclicals,
Speaker 5: those type of areas. You know, one thing I will
Speaker 5: say as a copyat is I've asked investors why it
Speaker 5: couldn't be the case that we could just simply have
Speaker 5: a parallel rally. You know, so megacap tech doesn't necessarily
Speaker 5: get hurt, but we just simply broaden the rally because
Speaker 5: one is sort of a secular drive of AI and
Speaker 5: the other is more of an economic recovery story. And
Speaker 5: to be clear to my earlier point, you know, we're
Speaker 5: not seeing less bullish positioning in tech. It's simply that
Speaker 5: that bullish positioning has widened out a bit.
Speaker 3: This is the reason why some people are saying, okay,
Speaker 3: let's just hold on a second before everyone gets over
Speaker 3: their skis and the soft landing type of narrative, because
Speaker 3: if you look at the data, more people are invested
Speaker 3: than have been in equities going back for quite a while.
Speaker 3: We see a much more overweight suddenly in market technicals.
Speaker 3: At what point does that become a concerning sign to you?
Speaker 5: Yep. I watched this too, because I do think you know,
Speaker 5: part of the story from the beginning of the year, Lisa,
Speaker 5: was that there had to be this catch up trade.
Speaker 1: Right.
Speaker 5: One of the reasons I think we thought that positioning
Speaker 5: would get even broader was there're just folks who at
Speaker 5: the index level had to catch up to the momentum
Speaker 5: you were seeing from seven names contributing so much to return.
Speaker 5: Now from a positioning perspective, we are in a much
Speaker 5: better shape. But the question is is there even more
Speaker 5: to go? I think there is if the rally becomes broader.
Speaker 5: And the second thing is, you know, you get these
Speaker 5: kind of technical rebalances, the technical rebalance for the NASTAC
Speaker 5: for instance, which I'll give folks who really couldn't participate
Speaker 5: in that narrow breadth to have some excuse to continue
Speaker 5: to do that widening breath.
Speaker 1: Does diversification pay here, Amy, or is it better to
Speaker 1: place larger focused bets.
Speaker 5: So, Tom, it's interesting because we always think about that
Speaker 5: from a correlation perspective, and correlation has been really really
Speaker 5: low on a real level and an applight level, because
Speaker 5: it's been you know, tech going this way and then
Speaker 5: everything else going the other.
Speaker 7: Way.
Speaker 5: The one thing I point to folks is, look, if
Speaker 5: we get more things widening out and that breadth going,
Speaker 5: you know, even larger, then maybe that picks up the
Speaker 5: correlation component of index volatility. So to your question, maybe
Speaker 5: the reason volatility goes up and we see a few
Speaker 5: points stick higher is actually because of that widening of breath,
Speaker 5: which actually makes your correlation component what kicks the ball
Speaker 5: into higher gear.
Speaker 4: Interesting, Ami, thank you, Amy Wosilverman that NBC Capital Markets,
Speaker 4: Ed Marse is.
Speaker 1: Different than the others, and we talk to them all
Speaker 1: and have an immense respect. For example, the oil microeconomics
Speaker 1: of Goldman Sachs, an allegiate global sense of Bank of America,
Speaker 1: maybe what we see from Emerita sen Over in London.
Speaker 1: And then there's Edward Morse. Yeah, he's global head of
Speaker 1: Commodities Research at Citigroup, but he does geopolitics in the
Speaker 1: larger view better than anyone. Doctor Morrise joins this this morning,
Speaker 1: Ed Morris, I'm going to rip up the script here
Speaker 1: and you allude to it in your research. Note, we
Speaker 1: are having a climate change twenty twenty three globally.
Speaker 7: To beat the.
Speaker 1: Band, someone as giant as Michael Mann is really, really
Speaker 1: intense about this is a new climate change. How do you,
Speaker 1: with all of your expertise, interpret the global warming we're observing.
Speaker 8: Well, it certainly has upended a lot of expectations. The
Speaker 8: world has decided to rely significantly more on solar and
Speaker 8: wind and on water. And part of the climate change
Speaker 8: process that we're seeing is disrupting that the sun is
Speaker 8: being impacted by wild buyers, the rain is not happening
Speaker 8: in the places that we needed, is happening in where
Speaker 8: places that we don't want it, and the wind stops
Speaker 8: blowing at the wrong time. So we are really in
Speaker 8: a power gen crisis that is global and is not
Speaker 8: going to stop anytime soon.
Speaker 1: What will that do to price of oil and off
Speaker 1: the price to supply and demand dynamics.
Speaker 8: Well, the price of oil is still essentially that based
Speaker 8: on a transportation fuel market, not on a power fuel market.
Speaker 8: Part of the climate change surprise in twenty twenty one,
Speaker 8: reinforced by both climate change and the rescue frame war
Speaker 8: in twenty twenty two, is that we had a surge
Speaker 8: in natural gas prices and it made diesel more expensive
Speaker 8: because there was fuel switching to beat the ban between
Speaker 8: natural gas and diesel. So that's the first time that
Speaker 8: we've seen a spillover effect from the powergen market into
Speaker 8: the transportation fuel market, and it's not going to be
Speaker 8: the last time that that's happened. But that separation that
Speaker 8: we used to think of is automatic is no longer
Speaker 8: is no longer automatic. And when we get into the
Speaker 8: next crunch on that gas, which might well be in
Speaker 8: twenty twenty four, we might see that happening again. Meanwhile,
Speaker 8: between the obstacles to invest in fossil fuels and the
Speaker 8: reduction and demand that we're seeing, that spells volatility ahead.
Speaker 8: It spells a market which will be moving between supply
Speaker 8: shortage and supply oversupply on the oil side from year
Speaker 8: to year. And the oversupply won't be big enough to
Speaker 8: bread us down to twenty dollars or let alone negative prices,
Speaker 8: and the undersupply won't be big enough to get us
Speaker 8: over one hundred, but it will mean volatility in the
Speaker 8: market is going to be there as we go through
Speaker 8: decades of an energy transition.
Speaker 3: So what's the range then? The band is from sixty
Speaker 3: to one hundred dollars A.
Speaker 8: Barrel I said, there's a soft put it around seventy
Speaker 8: at the moment that soft put exists, not only because
Speaker 8: we have OPEC, which really doesn't want oil below seventy
Speaker 8: and are proven to be to take action, but we
Speaker 8: have the US which is basically announced that it will
Speaker 8: be more aggressive about filling the strategic stockpile when we
Speaker 8: get to seventy. We have China that has, since the
Speaker 8: two thousand and eight to nine Great Financial Crisis, decided
Speaker 8: to build inventories when prices are low and to use
Speaker 8: those inventories when prices are high. So I think we
Speaker 8: have a soft put at the moment higher than sixty
Speaker 8: and maybe at the seventy level. On the upper side.
Speaker 8: You never really know what happens. There are wild cards.
Speaker 8: Hurricanes are certainly wild cards. What we need is two, three,
Speaker 8: four or five category hurricanes in the Gulf of Mexico
Speaker 8: and we get damage like Hurricane Harvey or Rita and
Speaker 8: Katrina a year where refineries are out for four or
Speaker 8: five or six months. The US is the heart of
Speaker 8: the global fossil fuel market. The US Gulf Coast is
Speaker 8: the largest contributor to combine to oil and gas in
Speaker 8: the world. We are in bet oil, cruit and petrolion
Speaker 8: products now seeing nine or ten million barrels a day
Speaker 8: of exports, most of that coming out of the Gulf Coast,
Speaker 8: and that's larger than the total production of either Russia
Speaker 8: or Saudi Arabia. And we're seeing fifteen bcf a day
Speaker 8: of natural gas coming out of the US Golf Coast.
Speaker 8: Flooding can knock all of that out for a while,
Speaker 8: So we have that wild card sitting there. But without
Speaker 8: the wild card, I'm comfortable thinking ninety is a real
Speaker 8: ceiling for whatever we see on the Titaness side of
Speaker 8: oil for the time being.
Speaker 3: Ed, where does a soft landing versus a hard landing
Speaker 3: fit in from the US? You said, we haven't really
Speaker 3: priced in something of a more honest recession in the US,
Speaker 3: which a lot of people are discounting altogether. What makes
Speaker 3: you think we shouldn't.
Speaker 8: Well, partly because of my colleagues Veronica and Andrew, who
Speaker 8: you were talking about earlier, And you know, I believe
Speaker 8: what they say about about where economic growth is going,
Speaker 8: and I tend to believe people like Larry Summers who
Speaker 8: are among those pushing for the hard landing scenario. But
Speaker 8: there's something secular going on as well. We had lower
Speaker 8: oil demand last year in the United States than we
Speaker 8: had a year before, and that's by every measure on
Speaker 8: almost any product other than this category we call other.
Speaker 8: But we had less gasoline demand, we had less diesel demand.
Speaker 8: We're seeing a pickup in gasoline demand this year because
Speaker 8: people are taking vacations more than they did last year,
Speaker 8: but we're not at twenty nine nineteen levels yet, if
Speaker 8: we ever will be there again. We're really seeing a
Speaker 8: phenomenal structural shift both in gasoline and diesel in the US.
Speaker 8: The diesel side of it is partly related to the
Speaker 8: efficiency of trucks. More importantly, there are two things structurally
Speaker 8: going on. If you look at those of us living
Speaker 8: in New York and looking at on the street and
Speaker 8: seeing delivery vans, they're mostly fueled by cleaner energy than diesel.
Speaker 8: They're mostly fueled by either hybrid vehicles or electric vehicles
Speaker 8: or natural gas vehicles. So that plus the actual drop
Speaker 8: in trade where we have a lower level of containership movements.
Speaker 8: Since last September, we have on shoring going on in
Speaker 8: the United States and in Europe to take away from
Speaker 8: China what has been a significant part of their exports.
Speaker 8: We're seeing a slow down in trade which means to
Speaker 8: slow down in trucks going back and forth to ports.
Speaker 8: Between the change and the fuel stock and the change
Speaker 8: in the trade environment, that's a really permanent factor in
Speaker 8: the market. On the gaso leane side, one of the
Speaker 8: biggest issues is of course the increase in fuel efficiency.
Speaker 8: And we didn't expect the increase in fuel efficiency that
Speaker 8: we've seen, but certainly during three years in which we
Speaker 8: have supply chain problems in the auto industry, auto manufacturers
Speaker 8: were selling either the most fuel efficient and therefore the
Speaker 8: most expensive ice ice vehicles they had, or selling more
Speaker 8: electric vehicles. And the fuel efficiency of the US has
Speaker 8: gone up a lot in the last three years. And
Speaker 8: on top of that, we're having a record amount of
Speaker 8: retirements and with that, fewer people with two or three
Speaker 8: going to more people with one or two cars, and
Speaker 8: they're driving even with the labor market statistics, so balancing
Speaker 8: that are other factors, and I think we're very close
Speaker 8: to the US joining China and Europe in yiji oil
Speaker 8: demand coming sooner than most people expect ed.
Speaker 4: We've got to leave it that fantastic assessment analysis on
Speaker 4: the commodity intensiveness of economic growth, that's most of SITSI.
Speaker 1: Gretoriy Peters's cool common collected coat CIO at pGEM fixed
Speaker 1: income Right now, Greg, if I defind a given aggregate
Speaker 1: index is in between here maybe on a technical basis,
Speaker 1: it's a Pennant formation. Which way is price going to break?
Speaker 1: Are we going to get higher price, lower yield or
Speaker 1: the other way around?
Speaker 6: I think it's the other way around. If you look
Speaker 6: at what's going on in the market, the market is
Speaker 6: very excited around policy rates peeking, But if you see
Speaker 6: what's embedded in the future price, there's talk about soft landing,
Speaker 6: inflation coming down, and then on top of it you
Speaker 6: have pretty substantial rate cut. So those two factors are
Speaker 6: somewhat confusing to me. Right, if the economy continues to
Speaker 6: actually chug along here we avoid a recession. I'm not
Speaker 6: necessarily sure why forward rate should be two hundred basic
Speaker 6: points lower than they are today.
Speaker 1: I look at where rates are and what is going
Speaker 1: to give way from where you sit, How will issuance
Speaker 1: change given price down, yield up, what will be the
Speaker 1: spirit of the market.
Speaker 6: Well, what we've found over the past, you know, a
Speaker 6: couple of years, is that there's not a lot of
Speaker 6: price sensitivity here, corporates will issue when they have to.
Speaker 6: There's a constant desire to issue, so I don't really
Speaker 6: worry about that factor too much, you know, honestly. So
Speaker 6: you know, to me, I think it's steady as you go.
Speaker 6: So I think it's a very good environment for fixed
Speaker 6: income for sure. But at the same time, some of
Speaker 6: the pricing confuses me.
Speaker 3: Okay, let's talk about that, Greg, particularly an investment grade.
Speaker 3: Why do you think that prices are just too high?
Speaker 5: Well, that's so much.
Speaker 6: Well it's just it's pricing in a soft lending, which
Speaker 6: I think should be the little outcome. But the risks
Speaker 6: are still, you know, pretty elevated. And so I look
Speaker 6: at you know, IG credit spreads, you know index level
Speaker 6: just called one hundred and twenty five basis points. That's
Speaker 6: well below the long term average long term me you know,
Speaker 6: high yield is sub four hundred basis points, So you're
Speaker 6: not getting paid a lot from a spread premium standpoint.
Speaker 6: Basic the risk out there, But you know, the overall
Speaker 6: yield environment is a fantastic one, and I think that
Speaker 6: will continue to drive flows into fix income. It makes
Speaker 6: fixing come a very attractive place. As we're back to
Speaker 6: the role and carry days, which I think is the
Speaker 6: hallmark of fix income investing.
Speaker 3: Typically after banks report earnings, they issue a slew of bonds.
Speaker 3: We saw Wells Fargo float and offering yesterday with an
Speaker 3: eight handle offering more than eight percent yield. It was
Speaker 3: on a subordinate bond with equity like features. Is this
Speaker 3: a type of asset that you want to own? Are
Speaker 3: you looking to the big banks and saying I'm a buyer?
Speaker 1: Yeah?
Speaker 6: So the key point there is equity like features, right,
Speaker 6: So I've always been on the mind, We've always been
Speaker 6: on the mind that that's a poor risk.
Speaker 4: You have fix.
Speaker 6: Income type of yield equity optionality, so that the option
Speaker 6: is always against you. So never really like that part
Speaker 6: of the market, you know, known as the coco part
Speaker 6: of the market. But the senior place looks very attractive
Speaker 6: to us and continues to be. So, you know, the
Speaker 6: money center banks as we call them, are very attractive
Speaker 6: investments in fixed income and continue to be one of
Speaker 6: our favorite places to play. In investment grade corporate.
Speaker 1: The theme with price down Greg Peters is I'm going
Speaker 1: to get a coupon along the way. I get that rationalization,
Speaker 1: but as a general statement out one year or dare
Speaker 1: I say, out of PGM short term three years, are
Speaker 1: you going to clip a coupon or are you going
Speaker 1: to invest out three years for total return?
Speaker 6: I still believe that given the shape of the curve,
Speaker 6: given the attractive nature of the front end, to me,
Speaker 6: it doesn't make a whole lot of sense to go
Speaker 6: out in duration. So I think front end. Carrie just
Speaker 6: called three years in tom a very attractive place to play.
Speaker 6: So I don't really see the need to kind of reach, right.
Speaker 6: I think investors are stole very much in the reach
Speaker 6: for yield environment, you know, going back pre pandemic, and
Speaker 6: the truth of the matter is you don't need to
Speaker 6: reach now right, it's right in front of you. So
Speaker 6: there's no reason to take unnecessary amount of credit risk
Speaker 6: or or duration risk at this.
Speaker 1: Point in time.
Speaker 3: Does this mean that you don't necessarily buy into the
Speaker 3: soft landing narrative or just that it doesn't matter whether
Speaker 3: there's a soft landing or a hard landing. You're going
Speaker 3: for the short thing.
Speaker 6: Well, so I mean you go to the soft landing narrative.
Speaker 6: So I don't understand, you know, this is the price
Speaker 6: confusion in my mind. I don't understand if you believe
Speaker 6: in a soft landing, why the FED would be cutting
Speaker 6: two hundred basis points at the same time over the
Speaker 6: next year or so. So to me, that's the income
Speaker 6: brument seeing the market. So if you actually do get
Speaker 6: us soft landing right, I think front end yield will
Speaker 6: remain pretty sticky. So maybe there's a little cuts, you know,
Speaker 6: into the market, but that should help normalize the curve,
Speaker 6: which means, you know, the inversion starts to normalize, and
Speaker 6: that means kind of higher yields across the curve. So
Speaker 6: that's how I see it, actually.
Speaker 4: Greg one of the best, always apprivileged to listen to you.
Speaker 4: Gregats the page and Fixed incompany.
Speaker 1: Christopher Merinek, Jenny Montgomery Scott, thank you Christopher taking time
Speaker 1: out from your clients this morning. Is Margan Stanley a.
Speaker 9: Bank, Absolutely sure, they take they make loans and take deposits.
Speaker 7: Their deposit costs rose a lot in this quarter.
Speaker 9: Tom, I mean they had one hundred percent beta if
Speaker 9: you look at the change and average deposit costs from
Speaker 9: a first quarter to second quarter, so that's forty seven
Speaker 9: basis points, which is exactly what the average change and
Speaker 9: the FED funds rate was for the court.
Speaker 1: I am fascinated by the compare and contrast with the
Speaker 1: mystery of what we'll see tomorrow with gold and Sacks.
Speaker 1: To begin that study, what's the key distinction here of
Speaker 1: a Marcus like free Morgan Stanley.
Speaker 9: Well, I think Morgan Stanley can get access to funds
Speaker 9: cheaper than what Marcus is paying. Marcus is the rate
Speaker 9: leader in the marketplace, and so that has a different
Speaker 9: spread component at the bank level, and I think that's
Speaker 9: awfully important. I think there's less of an advantage at
Speaker 9: Goldman on the cost of funds, and so that's one
Speaker 9: thing that most banks have, and certainly Morgan Stanley does
Speaker 9: have an advantage in terms of borrowing and raising money
Speaker 9: cheaper than the cost of FED funds.
Speaker 3: As we parted through the results in Shanali was great
Speaker 3: about pointing this out. At Bank of America, the average
Speaker 3: FICO score was seven sixty seven, an incredibly high, very
Speaker 3: well off kind of customer base. We're seeing a similar
Speaker 3: type of suggestion in the numbers of Morgan Stanley. What
Speaker 3: does this mean for those who are not in the
Speaker 3: echelons of the upper tiers of and come earners. Does
Speaker 3: this mean that they are not getting credit or does
Speaker 3: that mean that they're going to the P and c's
Speaker 3: of the world, maybe the Western alliances.
Speaker 9: I think all those banks tend to have a higher
Speaker 9: FICO score in general, so I think unfortunately they're probably
Speaker 9: looking outside of the banking industry and other sources, which
Speaker 9: really means that it's more expensive.
Speaker 7: I think that's the hard part.
Speaker 9: The banks are bragging about having high FIGHTO scores and
Speaker 9: that kind of cuts both ways.
Speaker 7: It's good from a credit quality perspective.
Speaker 9: But it does make it difficult for certain barrowers to
Speaker 9: access funds from a consumer standpoint.
Speaker 3: Right now, as you take a look at Morgan Stanley,
Speaker 3: Bank of America JP, Morgan City Group, Wells Fargo, who
Speaker 3: looks the best to you in navigating a pretty uncertain time.
Speaker 9: Well, Bank America has the best deposit base in the country,
Speaker 9: and so that gives them a leg up. I mean,
Speaker 9: they have access to consumer funds that are cheap, and
Speaker 9: they have a big advantage over fed funds. As I
Speaker 9: mentioned earlier, I feel that they've got a lot going
Speaker 9: for them. They also have been a leader on the
Speaker 9: digital buildout JP Morgan has too, and you know those
Speaker 9: are two big engines and the whole transformation of the
Speaker 9: industry towards digital that's going to continue to create a
Speaker 9: wider gulf between other banks and the quarters ahead.
Speaker 1: Chris and the zeitgeist of this July is a massive
Speaker 1: roll up worldwide in asset management. Clearly active management, dare
Speaker 1: I say also Index passive management as well. Is Market
Speaker 1: Stanley one of the giant players that can take advantage
Speaker 1: of their roll up or do they have to grow
Speaker 1: and defend against the roll up?
Speaker 5: Oh?
Speaker 7: I think they're on growth mode.
Speaker 9: I think if you go back to March and April
Speaker 9: when we had the explosion of First Republic, they received
Speaker 9: several clients and teams of people, and I think that's
Speaker 9: going to bode them well. Even though they did not
Speaker 9: bid on the bank, they still had a lot of
Speaker 9: transactions and new customers that have come in, and I
Speaker 9: think that's going to become more apparent on the asset
Speaker 9: side in the months ahead.
Speaker 1: Shanali Bassek is studying the succession plans as well. You're
Speaker 1: student of it. End If person should be taking over
Speaker 1: a wealth manager, a banker, somebody from outside.
Speaker 7: I think you need one who can be a leader.
Speaker 9: At the end of the day, you need a person
Speaker 9: where he or she can really focus on how to
Speaker 9: lead an organization, bring in new clients, being able to
Speaker 9: be flexible when you have market volatility like we've already
Speaker 9: seen this year.
Speaker 7: That's really is what it's about.
Speaker 9: I would be less about labels, about whether they came
Speaker 9: from the investment side or the bank side.
Speaker 7: I think being able to.
Speaker 9: Lead a team of folks and grow the business and
Speaker 9: the next decade is what I think is most important.
Speaker 4: Hey, Chris, I appreciate you being with us this morning.
Speaker 4: Chris marinache At, Jenny Montgomery, scot.
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Speaker 1: Thanks for listening. I'm Tom Keane, and this is blumber