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Speaker 1: This is the Bloomberg Surveillance podcast. I'm Lisa A. Bromoids,

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Speaker 1: along with Tom Keen and Jonathan Ferrow. Join us each

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Speaker 1: day for insight from the best in economics, geopolitics, finance

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Speaker 1: and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 1: Spotify and anywhere you get your podcasts, and always on

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Speaker 1: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: That conversation can commence Right now Bloomberg's Amrie Horton sitting

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Speaker 2: down with the Treasury Secretary Janet Yell, and Amrie I

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Speaker 2: would see you.

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Speaker 3: Thanks so much, John Yea, We're very pleased to be

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Speaker 3: joined by Jersury Secretary Janet Yellen. You join us now

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Speaker 3: from India where you're meeting your counterparts. It's the G

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Speaker 3: twenty finance ministers and Central Bank Governor's meeting. And really

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Speaker 3: the cloud around this meeting is the fresh data we

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Speaker 3: got out of China today. Beijing slowing momentum in their

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Speaker 3: growth city is talking about the growth target being at risk.

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Speaker 3: I'd like to start Treasury Secretary with the fact of

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Speaker 3: whether you think this means there could be an increased

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Speaker 3: chance of a US recession.

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Speaker 4: Well, you're talking about the slow growth number from China,

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Speaker 4: Is that right, Anne Marie?

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Speaker 5: Yes, correct, So I think.

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Speaker 4: China has seen slower growth than they expected upon opening

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Speaker 4: up from COVID. Consumer spending has been relatively weak. It

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Speaker 4: looks like consumers are more focused on building back their

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Speaker 4: savings buffers, and so growth has been slow in As

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Speaker 4: you know, youth unemployment is quite high there. So I

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Speaker 4: think the Chinese are concerned about sluggish growth in their economy.

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Speaker 3: But what does this mean for US growth and global

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Speaker 3: growth overall? Is the soft landing in the United States

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Speaker 3: sill your base case scenario?

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Speaker 4: Well, many countries do to depend on strong Chinese growth

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Speaker 4: to promote growth in their own economies, particularly countries in Asia,

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Speaker 4: and slow growth in China can have some negative spillovers.

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Speaker 4: For the United States, growth is slowed, but our labor

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Speaker 4: market continues to be quite strong. I don't expect a recession.

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Speaker 4: I think that we're on a good path to bringing

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Speaker 4: inflation down. The most recent inflation data we're quite encouraging

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Speaker 4: that we're making progress on getting inflation down. But as

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Speaker 4: I'd hoped and expected that would occur in the context

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Speaker 4: of a strong labor market, and we continue to see

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Speaker 4: that the libor market's the fact the labor market's been

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Speaker 4: so strong has encouraged more primate people to enter the

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Speaker 4: labor force into work, and that's helped take a bit

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Speaker 4: of the heat out of the labor market. The fact

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Speaker 4: that growth overall has slowed after we enjoyed a rapid recovery,

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Speaker 4: that's normal, but it's also led to some reduction in

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Speaker 4: the desire of firms to hire. Still lots of job openings,

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Speaker 4: but wage growth is moderating and inflation is subsiding. So

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Speaker 4: I think we're in a good path on the United States.

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Speaker 3: Okay, So it sounds like soft landing is your base case,

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Speaker 3: and you don't think we're going to see a recession.

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Speaker 3: Yesterday when you were speaking to reporters, you talked about

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Speaker 3: this de escalation with China, and you rolled out lifting

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Speaker 3: tariffs as part of this de escalation with Beijing.

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Speaker 5: So what is on the table?

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Speaker 4: You know, several years have gone by in which we've

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Speaker 4: had COVID lockdowns, especially in China, and very limited contact

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Speaker 4: between senior officials in the United States in China, and

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Speaker 4: we now have a new economic team in China that

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Speaker 4: we need to establish relationships with We need to get

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Speaker 4: our relationship back in a more stable place, put a

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Speaker 4: floor under it, and try to promote better understanding between

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Speaker 4: our countries. So I recently made a trip met with

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Speaker 4: a number of Chinese officials, including the new economic team. There,

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Speaker 4: we had very candid discussions. Each side raised a series

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Speaker 4: of concerns. Chinese certainly mentioned their concern with the tariffs

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Speaker 4: that we have in place, but we had constructive conversations,

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Speaker 4: deepened our understanding of the economic situation and of our concerns,

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Speaker 4: were able to address them and agree that there are

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Speaker 4: a broad range of global challenges, particularly debt and climate change,

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Speaker 4: that affect the entire global economy that we need to

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Speaker 4: work on jointly, and I'm hopeful we'll be able to

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Speaker 4: do that more successfully. On tariffs, you know, we put

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Speaker 4: tariffs in place on China because we had underlying concerns

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Speaker 4: about unfair trade practices, particularly those affecting intellectual property and

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Speaker 4: technology transfer, and those concerns really have not been addressed.

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Speaker 4: We're undergoing a four year required review of tariff and

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Speaker 4: of course China also retaliated putting tariffs in place on us.

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Speaker 4: We have to see what comes out of the four

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Speaker 4: year review. But I would emphasize that really the underlying

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Speaker 4: concerns we have have not yet been addressed, and we

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Speaker 4: need to work on that going forward.

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Speaker 3: But when you're looking at de escalating, we're trying to

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Speaker 3: figure out what we'll be left on the table, because

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Speaker 3: what it feels right now is the administration is actually

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Speaker 3: just amping up when it comes to potential tit for

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Speaker 3: tat with Beijing. There is the outbound Executive Order that

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Speaker 3: potentially we could see as soon as the end of

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Speaker 3: July or this summer.

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Speaker 5: Could that be a place pulling.

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Speaker 3: A punch from the outbound Executive order, maybe making that

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Speaker 3: a little bit more toned down.

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Speaker 5: Could that be a place you could de escalate with Beijing.

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Speaker 4: Well, first of all, I want to say that what

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Speaker 4: we're doing is not TIT for tet. What we're doing

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Speaker 4: is putting in place controls that are designed to protect

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Speaker 4: US national security and in some cases to address fundamental

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Speaker 4: human rights abuses. And we do intend to protect our

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Speaker 4: national security. We have export controls that play an important

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Speaker 4: role in accomplishing that, and what I try to explain

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Speaker 4: to our Chinese counterparts is that our desire is to

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Speaker 4: make these US policies clearly national security focused, transparent and narrow,

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Speaker 4: that we're not attempting to stifle economic progress in China

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Speaker 4: that we have and want to continue to have deep

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Speaker 4: economic ties. After all, this year are trade aid has

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Speaker 4: reached almost seven hundred billion dollars. The national security concern

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Speaker 4: the economic.

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Speaker 3: Madame Secretary of the National Security concerns are so important.

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Speaker 3: Jake Sullivan called for this outbound of executive order two

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Speaker 3: years ago.

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Speaker 5: Why is it taking the administration so long?

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Speaker 4: So we are looking carefully at outbound investment controls, and

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Speaker 4: they would serve as a complement to the export controls

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Speaker 4: that we have in place to make sure that we've

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Speaker 4: covered all the channels by which technologies can be transferred

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Speaker 4: to China that we think pose national security concerns. I

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Speaker 4: explained to my Chinese counterparts that if we go forward

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Speaker 4: with these, they would indeed be narrowly targeted. They would

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Speaker 4: focus on a few sectors, in particular semiconductors, quantum and

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Speaker 4: artificial intelligence. That they would contain a combination of notification

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Speaker 4: requirements and in very narrowly scoped portions of these sectors prohibitions.

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Speaker 4: But these would not be broad controls. That would affect

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Speaker 4: US investment broadly in China, or in my opinion, have

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Speaker 4: a fundamental impact on affecting the investment climate for China.

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Speaker 4: So these would be national security focused.

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Speaker 5: It sounds like it's already done.

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Speaker 3: Is the administration have it finished and is just waiting

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Speaker 3: for a good time to release it.

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Speaker 4: We want to make sure if we do this, that

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Speaker 4: we get it right, and we've been working on the details.

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Speaker 5: If we do go ahead, and there.

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Speaker 4: Is a good chance that we will, that we would

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Speaker 4: put out along with the executive Order and notice of

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Speaker 4: proposed rulemaking so that the public would have a chance

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Speaker 4: to comment on these proposed controls, and we would receive

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Speaker 4: a wide range of public input before finalizing anything that

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Speaker 4: we do.

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Speaker 3: Madame Secretary, you obviously have a lot on your plate

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Speaker 3: when it comes to re engaging with China and your discussions.

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Speaker 3: They're just off this trip from Beijing. I'm curious how

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Speaker 3: difficult the dialogue is going to continue to be after

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Speaker 3: the revelations about the Chinese hacking of your colleague, Secretary

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Speaker 3: Gina Romundo.

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Speaker 4: So I do have concerns about hacking of US government

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Speaker 4: officials or private individuals or companies, and I know the

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Speaker 4: United States has expressed those concerns, but we intend to

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Speaker 4: continue to deepen our discussions with China to increase our engagement.

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Speaker 4: It's especially important to explain what our motivation is to

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Speaker 4: avoid misunderstandings that can lead to necessary, unnecessary and dangerous escalation.

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Speaker 4: President Chi and President Biden agreed in Bali that senior officials,

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Speaker 4: including those in economics, should interact more regularly, and I

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Speaker 4: think an outcome of my trip there was that we

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Speaker 4: will have deeper ongoing engagement at all levels.

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Speaker 5: When did you learn about the China email hockey.

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Speaker 3: I'm curious if you had a chance to maybe bring

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Speaker 3: this up on your trip to Beijing.

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Speaker 4: I believe I did not know about that in Beijing.

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Speaker 4: Wasn't one of the things that we discussed.

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Speaker 3: I also want to ask about what's happening on the ground,

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Speaker 3: something that I know is very important to you, and

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Speaker 3: this comes to debt relief of these developing countries. There

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Speaker 3: has been this push from the US administration to use

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Speaker 3: the Zambia principle for other countries like Ghana, but that's

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Speaker 3: not getting.

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Speaker 5: The broad support it needs in India. On the ground.

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Speaker 3: Amongst other G twenty finance ministers is China the hold

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Speaker 3: up here?

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Speaker 4: Well, we designed the G twenty designed something called the

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Speaker 4: Common Framework, which is a set of trough principles and

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Speaker 4: processes to deal with unsustainable DIBt situations.

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Speaker 5: And we would like.

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Speaker 4: To see countries that apply to use the Common Framework

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Speaker 4: get rapid relief from their dit that they need in

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Speaker 4: order to grow and be able to attract investment and

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Speaker 4: undertake IMF programs that can help to stabilize their economies.

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Speaker 4: And the few cases that have applied to use the

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Speaker 4: Common Framework, including Zambia, have taken far too long. The

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Speaker 4: process has been onerous and it's taken a very long

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Speaker 4: time to get debt relief. We are pleased that China

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Speaker 4: has become China, after all, is a major creditor of

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Speaker 4: these countries. We have been anxious to see China move

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Speaker 4: more quickly and take a more constructive attitude. Participating in

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Speaker 4: these debt relief talks and getting agreement on Zambia is

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Speaker 4: an important step. China has also been helpful in Ghana,

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Speaker 4: the case of Ghana and Sri Lanka, and I'm hopeful

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Speaker 4: that we'll be able going forward to make more rapid progress.

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Speaker 4: I should emphasize the dead issue is one that concerns

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Speaker 4: the entire g twinning and we are united in wanting

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Speaker 4: to see this framework work more effectively and it is

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Speaker 4: a priority for India as well.

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Speaker 3: Madam Secretary, thank you so much for your time today

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Speaker 3: live from India at the G twenty Finance Ministers and

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Speaker 3: Central Bank Governors meeting. And safe travels to you as

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Speaker 3: I know you're heading off to Vietnam next.

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Speaker 2: Let's push it out and talk about a federal reserve

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Speaker 2: for July and beyond. The former FED Vice Chair Richard

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Speaker 2: Clarda saying market bets for rat cut in March makes sense.

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Speaker 2: JP Morgan's Calsi Barra writes in this raightcuts will need

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Speaker 2: to be preceded by a more material way can get

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Speaker 2: the labor market tom while we are seeing softening under

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Speaker 2: the surface, we will need to see a further slow

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Speaker 2: in job creation or a sharp pick up in layoffs

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Speaker 2: the cause the FED to shift away from the concept

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Speaker 2: of higher for longer.

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Speaker 6: Joining us now, Kelsey Barrow fixed income portfolio manager that

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Speaker 6: barely describes your duties with some Michael over JP Morgan

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Speaker 6: Asset Management. Boy, Am I glad you're here. First of all,

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Speaker 6: have you people changed tone, duration stability, the Fabosi curve

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Speaker 6: out rather Fobosi out there. You'll give all the different

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Speaker 6: metrics you use. Have you changed that view given the

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Speaker 6: news flow of the last ten days.

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Speaker 7: So I think the biggest data point that is impacting

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Speaker 7: our view has been the recent inflation data. I think

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Speaker 7: what we've seen there is increased confidence that inflation is

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Speaker 7: coming down, and it's coming down faster than the FED projects.

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Speaker 7: The FED has a forecast of three point nine percent

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Speaker 7: for core PC by the end of the year. We

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Speaker 7: think they're going to get there, and we're going and

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Speaker 7: they're going to go even further. Inflation is going to

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Speaker 7: move down even further. So for us, what we're seeing

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Speaker 7: is the FED is going to be able to pause

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Speaker 7: and it's going to be a function of this inflation

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Speaker 7: data coming down faster than the FED projects.

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Speaker 6: Look at this and I say, Okay, what's the tactical response,

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Speaker 6: like do you barbell, do you ladder? Do you shift

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Speaker 6: your ladder out picking up greater duration? What's the do

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Speaker 6: right now?

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Speaker 7: So we've been looking at the fixed income market this year.

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Speaker 6: It was a great trying to frush at Bob's watching, So.

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Speaker 5: A great question. I think all morning.

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Speaker 7: I've been hearing you guys debate soft landing or hard landing, right,

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Speaker 7: and what does that mean for fixed income? Well, the

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Speaker 7: good news is is that regardless of a soft landing

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Speaker 7: or a hard landing, if the FED is at the

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Speaker 7: end of the cycle, bonds are going to outperform. So

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Speaker 7: you look at the last seven rate hiking cycles, including

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Speaker 7: the ones which were soft landings, that's nineteen eighty four

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Speaker 7: and nineteen ninety five. In all of those scenarios, over

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Speaker 7: the next two years, cumulatively, bonds outperformed cash or three

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Speaker 7: month te bills by an average rate of thirteen percent.

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Speaker 7: So we can disagree about if it's going to be

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Speaker 7: a hard landing or a soft landing, but what we

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Speaker 7: can agree upon is getting an allocation to core fixed

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Speaker 7: income at this time is the appropriate positioning for an

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Speaker 7: end of cycle time for the FED to pause.

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Speaker 2: Matt hombachmore ca and Stanley agrees with you, says Bonnie,

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Speaker 2: Dips and bonds. Can we talk about the potential limits

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Speaker 2: of a rally. Some people think maybe yields won't fall

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Speaker 2: that far that quick. I know that you and the

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Speaker 2: team are looking potentially for three percent across the whole curve.

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Speaker 2: Can you help people who are listening to this right

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Speaker 2: now make sense of that? So right now the two

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Speaker 2: years at four seventy two, and you think it's potential

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Speaker 2: to get down to three point zero, the ten years

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Speaker 2: at three seventy seven to thirty years at about three ninety,

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Speaker 2: can you just walk us through how you're thinking about that.

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Speaker 5: Yeah.

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Speaker 7: To us, what we're seeing is not that there are

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Speaker 7: limits to the rally. There's actually limits to the selloff.

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Speaker 7: So if you look at the ten year yield so

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Speaker 7: far ye're to date, it's not able to sustainably trade

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Speaker 7: above four percent. So if you look back, we had

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Speaker 7: a peek at four and a quarter in Q four

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Speaker 7: of last year. We tried to retest that four percent

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Speaker 7: level in Q one of this year. It failed. We

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Speaker 7: then tried to retest four percent again in Q two

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Speaker 7: that also failed. So what we're seeing is that there

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Speaker 7: are limits to how high longer dated yields can trade,

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Speaker 7: and to us, that's a signal that we are later

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Speaker 7: in the cycle. The FED does have limits to how

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Speaker 7: far they can go, and that is reflecting in this

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Speaker 7: very historic yield curb in version that we currently see.

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Speaker 2: So later cycle, considering end of cycle by core fixed income.

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Speaker 2: Treasury's rarely got that. Why a high yield spreads near

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Speaker 2: the ties.

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Speaker 8: Of the year.

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Speaker 7: Yeah, So it has been a grind tighter for credit

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Speaker 7: in general. And so we've been looking with our high

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Speaker 7: yield analyst about what is going on, and there are

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Speaker 7: certainly a lot.

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Speaker 5: Of cross currents.

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Speaker 7: So if you look across the sectors, right, you're hearing

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Speaker 7: different things across every sector. Every sector is kind of

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Speaker 7: operating in its own little cycle. From the chemicals or

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Speaker 7: technology in high yield not so great, right, then you

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Speaker 7: hear from leisure and hospitality and people can't stop traveling.

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Speaker 7: Everyone on my Instagram is in Europe this summer. I mean,

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Speaker 7: it's incredible.

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Speaker 6: That's funny, mind too.

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Speaker 5: There you go.

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Speaker 7: And so what we're seeing ultimately though, is that in

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Speaker 7: the absence of a material weakening in the labor market,

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Speaker 7: you're seeing that people just want to get that spread

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Speaker 7: and they just want to get that yield.

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Speaker 5: And on top of that.

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Speaker 7: We've had very little issuance in the high old market,

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Speaker 7: so the technicals are really there for that grind tighter.

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Speaker 7: And what we found historically is that high old spreads

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Speaker 7: really don't blow out until the recession is actually here,

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Speaker 7: so this move is not really that unusual, but it

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Speaker 7: really has been a grind.

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Speaker 1: Do you still see a recession though? I mean, is

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Speaker 1: it incompatible to see the strength that we're seeing that's

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Speaker 1: underpinning this euphoria that we felt last week and the

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Speaker 1: tighter spreads, as John was mentioning, is that compatible with

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Speaker 1: a steadied grind lower in inflation?

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Speaker 7: So we do see a recession still in the horizon.

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Speaker 7: We have seen strong labor markets, but it's really important

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Speaker 7: to understand that the labor market is a lagging indicator.

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Speaker 7: So the unemployment rate bottoms right as the recession starts,

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Speaker 7: and the unemployment rate doesn't peak.

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Speaker 5: Until a recession is ending.

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Speaker 7: So what we're looking at is the leading indicators, things

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Speaker 7: like gross domestic income, which is softening below the surface,

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Speaker 7: hours worked within the labor report which is also softening.

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Speaker 7: And we're saying the five hundred basis points of rate

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Speaker 7: hikes that have already occurred, they're not behind us, they're

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Speaker 7: still impacting the economy.

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Speaker 1: With John's point, we're seeing spreads right now in hiled

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Speaker 1: bonds at the tightest levels going back to April of

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Speaker 1: twenty twenty two. This has been an incredible grind. If

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Speaker 1: credit is a leading indicator, is saying that we're not

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Speaker 1: going to get a recession, We're not going to get

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Speaker 1: a default cycle, and all systems ago when you look

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Speaker 1: at sucks and where they are. So from your vantage point,

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Speaker 1: do you reset and start to allocate a little bit

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Speaker 1: more to risk your sectors than say a couple of

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Speaker 1: months ago, when a lot of people Jet included saw

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Speaker 1: a more imminent recession on the horizon.

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Speaker 7: So where I would disagree is credit being a leading indicator.

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Speaker 7: In fact, credit highield spreads don't actually tend to blow

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Speaker 7: out until the recession is actually upon us. So just

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Speaker 7: because risk assets are doing well now doesn't mean that

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Speaker 7: a recession isn't on the horizon. So for us, what

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Speaker 7: we're doing is we're for focusing on a high quality

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Speaker 7: fixing come portfolio.

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Speaker 5: So that's investment grade over high yield.

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Speaker 7: Another sector we really like right now, agency mortgage backed securities.

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Speaker 7: You can get very attractive valuations there. You get a

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Speaker 7: lot of the spread without a lot of the risk.

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Speaker 6: Kelsey. Most people in the equity space think the bomb

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Speaker 6: markets three guys in a room with the slide rule

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Speaker 6: and the fact that the opposite is true. It's much bigger,

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Speaker 6: much deeper, etc.

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Speaker 8: But at the.

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Speaker 6: Margin, bonds can move off equity valuations. Are bonds competing

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Speaker 6: now with equities? Are people buying particularly credit corporate quality

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Speaker 6: bonds versus owning equities? Now do you observe that?

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Speaker 7: Yeah, we absolutely do observe that. So what we're seeing

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Speaker 7: is that people are taking this opportunity to pick up

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Speaker 7: the yields that are historically attractive. So if you look back,

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Speaker 7: real yields, for an example, are at their highest level

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Speaker 7: in fifteen or twenty years, and this is not an

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Speaker 7: opportunity that comes around very often, particularly in an era

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Speaker 7: where the Fed has had to go to the zero

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Speaker 7: lower bound multiple times in the last few decade.

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Speaker 6: What are you guys going to say an issuance? I mean,

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Speaker 6: I mean, I know you take the call that Bob Michael.

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Speaker 6: What they do, folks, is when the issue bonds, here's

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Speaker 6: some big fancy company. They call four people and one

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Speaker 6: of them's Bob Michael. He's out at lunch watch in Liverpool.

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Speaker 6: So you get the phone call. Are you getting phone

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Speaker 6: calls about bond issuance right now?

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Speaker 5: We are?

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Speaker 7: So there is a little bit of a bifurcation between

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Speaker 7: the markets. So, as I mentioned, high yield has been

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Speaker 7: a market that has not had very much issuance. On

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Speaker 7: the other hand, you have investment grade market. It's fully

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Speaker 7: open and there is issuance taking place.

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Speaker 2: Kessie Love it as always Cassie Power of the of

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Speaker 2: JP Morkan Asset Management.

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Speaker 6: Joining us. Now I've experienced David balin Cio at City

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Speaker 6: Global Wealth. David is not that we've been here before.

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Speaker 6: To me, it's absolutely original. But what is the character

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Speaker 6: of this bullmarket?

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Speaker 9: Well, it's a bull market I think born of a

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Speaker 9: variety of things. Number one, a lot of exceeding expectations.

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Speaker 9: You know, we had started the year expecting that there'd

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Speaker 9: be an energy crisis in Europe that didn't happen. The

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Speaker 9: banking crisis, you know that you've discussed this morning, didn't

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Speaker 9: turn out to be a banking crisis. Growth turned out

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Speaker 9: to be better than expected. And ultimately what we saw

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Speaker 9: is really, you know, inflation coming down meaningfully. And I

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Speaker 9: think it's very hard to make the argument the next

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Speaker 9: year inflation goes up, Oh, will the source of that be?

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Speaker 9: The last remnants of inflation really are in the area

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Speaker 9: of housing and of rental costs and we see that,

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Speaker 9: you know, it is possible for us to get to

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Speaker 9: it a two to two and a half percent inflation

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Speaker 9: rate in twenty two twenty four. Now you take all

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Speaker 9: of that mix and you think about where we started

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Speaker 9: the year from investor positioning, we had huge bear short positions,

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Speaker 9: much worse than we saw in two thousand and eight.

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Speaker 9: In two thousand and nine, and we had one point

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Speaker 9: twenty five trillion dollars of money sitting in money market funds,

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Speaker 9: of people waiting to invest or at least thinking they

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Speaker 9: were waiting to invest. And then ultimately what happened, We

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Speaker 9: had this innovative moment where you know, all of a sudden,

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Speaker 9: the talk we came about artificial intelligence and the impact

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Speaker 9: that we would have markets. That is the combination that's

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Speaker 9: brought us here. And also, you know, the backdrop in

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Speaker 9: twenty twenty two it is that this was an extremely

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Speaker 9: rare year. Only in nineteen thirty one and in nineteen

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Speaker 9: sixty nine do we see markets both equity and debt

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Speaker 9: go down at the same time. So lots of facts,

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Speaker 9: right it contributed to where we are right now and

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Speaker 9: where we go forward. Of course, I think is a

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Speaker 9: little bit more difficult because so much optimism has built

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Speaker 9: into the market at these levels.

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Speaker 6: Do you have enough combined information from your securities analysts

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Speaker 6: to say yet that we have a better ANUE growth

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Speaker 6: line because of a better nominal GDP?

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Speaker 8: Not really, Tom.

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Speaker 9: You know what our view is that next year we're

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Speaker 9: going to be you know, one half of one percent

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Speaker 9: highering GDP in the US. It's going to take time

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Speaker 9: for momentum to build. We consider this to be like

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Speaker 9: a rolling recession. So if you imagine that a sharp

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Speaker 9: procession would have a be like this and last for

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Speaker 9: six months, we think this recession is probably a fifteen

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Speaker 9: month length and it's just like a solid, shallow trough.

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Speaker 9: And if that's the case, it's going to take a

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Speaker 9: while for us to have, you know, a building momentum.

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Speaker 9: But what markets are looking to now is what's going

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Speaker 9: to happen in twenty twenty four. And it's not going

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Speaker 9: to be twenty twenty three where we see revenue growth.

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Speaker 9: It's going to have to be next year because again,

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Speaker 9: I think these next two quarters are going to be

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Speaker 9: somewhat challenging.

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Speaker 1: In the meantime, David, you said that you're raising your

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Speaker 1: allocation to global equities. Where, in particular, when did you

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Speaker 1: start to make a more meaningful shift on the heels

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Speaker 1: of better than expected data.

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Speaker 8: We've made two emerging markets moves.

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Speaker 9: The first one was to Brazil specific allocation there, and

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Speaker 9: then subsequently about a week half ago, we added emerging

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Speaker 9: market debt to our portfolios. We really want everyone to

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Speaker 9: think about their cash position a lot, and to think

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Speaker 9: about moving from cash and taking some duration risk now

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Speaker 9: you know, five or six year duration risk.

442
00:26:12,960 --> 00:26:14,560
Speaker 8: Capture the yields that you're getting.

443
00:26:14,320 --> 00:26:16,720
Speaker 9: In your money market fund today for the next five

444
00:26:16,760 --> 00:26:18,800
Speaker 9: to six years, and in emerging markets, if you don't

445
00:26:18,800 --> 00:26:21,000
Speaker 9: take a lot of credit risk, you can actually get

446
00:26:21,040 --> 00:26:23,439
Speaker 9: you know, yields of seven to eight percent, and that

447
00:26:23,520 --> 00:26:26,000
Speaker 9: to us is very attractive. If we expect inflation in

448
00:26:26,040 --> 00:26:28,320
Speaker 9: fact two and two and a half percent next year,

449
00:26:28,600 --> 00:26:29,080
Speaker 9: how much.

450
00:26:29,000 --> 00:26:30,960
Speaker 1: Is that really predicated on the idea of a dollar

451
00:26:31,000 --> 00:26:31,919
Speaker 1: continuing to weaken.

452
00:26:32,359 --> 00:26:34,240
Speaker 9: Well, last week was a very important single and you've

453
00:26:34,240 --> 00:26:36,399
Speaker 9: touched upon this in your conversation today. I mean, the

454
00:26:36,480 --> 00:26:39,760
Speaker 9: dollar really took a move once inflation the inflation print

455
00:26:40,040 --> 00:26:42,960
Speaker 9: came out last week, and I think that's indicative of

456
00:26:43,000 --> 00:26:45,360
Speaker 9: what the world's expecting, right, the US is a much

457
00:26:45,359 --> 00:26:48,760
Speaker 9: more active you know, our central bank than Europe does.

458
00:26:49,520 --> 00:26:51,720
Speaker 9: They expected rates in the United States will come down

459
00:26:51,760 --> 00:26:54,199
Speaker 9: when they need to, whereas if you think about the

460
00:26:54,200 --> 00:26:57,400
Speaker 9: European central banks, they're going to keep their policies pretty constant.

461
00:26:57,680 --> 00:26:59,840
Speaker 9: And if that's the truth, then you've already seen, you know,

462
00:26:59,880 --> 00:27:02,880
Speaker 9: the beginning of the weekending dollar. And we think that

463
00:27:02,880 --> 00:27:05,679
Speaker 9: that trend could last for several years from here, and

464
00:27:05,720 --> 00:27:07,920
Speaker 9: that the dollar could be considerably weaker if we were

465
00:27:07,920 --> 00:27:09,160
Speaker 9: to look out eighteen months.

466
00:27:09,760 --> 00:27:12,640
Speaker 6: I'm told the public is pushing in against sixty forty.

467
00:27:12,760 --> 00:27:16,080
Speaker 6: David Baal into sixty forty work in twenty twenty four,

468
00:27:16,119 --> 00:27:17,760
Speaker 6: in twenty twenty five.

469
00:27:18,480 --> 00:27:21,359
Speaker 9: I'm really back in love with sixty forty. Tom. I

470
00:27:21,400 --> 00:27:23,640
Speaker 9: think that investors have to think about it this way.

471
00:27:24,080 --> 00:27:26,040
Speaker 9: You're getting paid now for the first time in a

472
00:27:26,119 --> 00:27:30,600
Speaker 9: very long time to hold a medium duration bond portfolio.

473
00:27:30,880 --> 00:27:32,679
Speaker 9: If you can make as you know, five percent or

474
00:27:32,680 --> 00:27:34,639
Speaker 9: five and a half percent doing that for five or

475
00:27:34,640 --> 00:27:36,360
Speaker 9: six years, or you want to take more risk.

476
00:27:36,720 --> 00:27:38,480
Speaker 8: You can really you know, earn some.

477
00:27:38,520 --> 00:27:41,760
Speaker 9: Terrific yields and emerging markets and in private credit, you

478
00:27:41,800 --> 00:27:44,199
Speaker 9: should be doing that right now. Because that is going

479
00:27:44,240 --> 00:27:47,560
Speaker 9: to have diversification as compared to your equity portfolio.

480
00:27:47,960 --> 00:27:48,720
Speaker 8: And the second thing.

481
00:27:48,680 --> 00:27:50,520
Speaker 9: People have to be mindful of is that they need

482
00:27:50,560 --> 00:27:52,879
Speaker 9: to think about the value that they're getting their portfolio.

483
00:27:53,040 --> 00:27:56,200
Speaker 9: So I believe we're in a recovery in twenty four,

484
00:27:56,359 --> 00:27:57,600
Speaker 9: a more meaningful recovery.

485
00:27:57,920 --> 00:28:00,000
Speaker 8: You want to have small and medium sized stops.

486
00:28:00,280 --> 00:28:02,879
Speaker 9: You want to diversify into areas even like China right

487
00:28:02,880 --> 00:28:06,360
Speaker 9: which are countercyclical, which you A're treating it incredibly low values,

488
00:28:06,760 --> 00:28:09,560
Speaker 9: and for the reason now, but ultimately you've got to

489
00:28:09,560 --> 00:28:13,320
Speaker 9: be forward looking in your portfolio construction and diversification really

490
00:28:13,400 --> 00:28:15,479
Speaker 9: is the only free lunch that you get on Wilson,

491
00:28:15,560 --> 00:28:17,040
Speaker 9: and we think we need to see more of it

492
00:28:17,160 --> 00:28:19,240
Speaker 9: less you are centrist, David.

493
00:28:19,280 --> 00:28:23,000
Speaker 6: One final question and quickly unfortunately David Balin, are we

494
00:28:23,040 --> 00:28:27,080
Speaker 6: clipping coupons or can we actually own that debt portion

495
00:28:27,320 --> 00:28:28,280
Speaker 6: for total return?

496
00:28:28,800 --> 00:28:30,719
Speaker 9: I really think it's the right now. Actually, I think

497
00:28:30,800 --> 00:28:33,040
Speaker 9: you can get it for total return. You're being paid

498
00:28:33,119 --> 00:28:34,920
Speaker 9: a lot of money to you know, if you can

499
00:28:35,000 --> 00:28:37,560
Speaker 9: capture three or four percent real interest rates a year

500
00:28:37,560 --> 00:28:40,080
Speaker 9: and a half from now, that is an exciting prospect

501
00:28:40,160 --> 00:28:42,640
Speaker 9: relative to where we've been for the last eleven years.

502
00:28:42,800 --> 00:28:45,480
Speaker 9: So I do think it contributes meaningfully both to risk

503
00:28:45,520 --> 00:28:48,480
Speaker 9: reduction and to the total return tom and we're emphasizing

504
00:28:48,480 --> 00:28:51,000
Speaker 9: that to our clients. We're actually seeing some real movement,

505
00:28:51,040 --> 00:28:54,280
Speaker 9: you know, at the private bank into you know, into

506
00:28:54,320 --> 00:28:56,840
Speaker 9: these areas where where clients are finally saying, Wow, I've

507
00:28:56,840 --> 00:28:59,200
Speaker 9: just got too much cash, you know, I can actually

508
00:28:59,240 --> 00:29:01,280
Speaker 9: put money to work and sustain my yields.

509
00:29:01,520 --> 00:29:03,000
Speaker 2: David, i' just think for a lot of people that

510
00:29:03,080 --> 00:29:05,360
Speaker 2: have been trapped in cash this year, and I say

511
00:29:05,360 --> 00:29:07,720
Speaker 2: trapped in cash only relative to the gains we've seen

512
00:29:07,760 --> 00:29:10,040
Speaker 2: elsewhere in the nastak and the S and P five hundred,

513
00:29:10,400 --> 00:29:12,480
Speaker 2: if they're going to come back in they feel fall

514
00:29:12,520 --> 00:29:16,360
Speaker 2: less chasing big tech. What do you say to those people.

515
00:29:17,240 --> 00:29:18,800
Speaker 8: Well, we have to divide that up, right.

516
00:29:18,880 --> 00:29:20,760
Speaker 9: So first of all, our clients have been sitting there

517
00:29:20,800 --> 00:29:22,760
Speaker 9: for ten years waiting to come back into the market.

518
00:29:22,800 --> 00:29:25,560
Speaker 9: So there's always this idea that you can outsmart the markets, right,

519
00:29:25,920 --> 00:29:29,040
Speaker 9: you know, And so the difference between now and anytime

520
00:29:29,080 --> 00:29:30,520
Speaker 9: in the last ten years is that you want to

521
00:29:30,560 --> 00:29:33,239
Speaker 9: capture a real yield, right, and you need to do

522
00:29:33,280 --> 00:29:35,440
Speaker 9: that now because when we're talking about it. In three

523
00:29:35,520 --> 00:29:38,000
Speaker 9: or six months, this opportunity may go away with that

524
00:29:38,080 --> 00:29:40,480
Speaker 9: much cash on the sidelines. In terms of the whole

525
00:29:40,480 --> 00:29:43,320
Speaker 9: concept of the technology trade. Really, if you think about that,

526
00:29:43,640 --> 00:29:45,440
Speaker 9: take a look at the valuation of the Nasdaq at

527
00:29:45,440 --> 00:29:47,959
Speaker 9: twenty six plus times or the S and P at

528
00:29:47,960 --> 00:29:49,800
Speaker 9: twenty one. There are parts of the market that you

529
00:29:49,800 --> 00:29:52,080
Speaker 9: can actually invest in that are trading at fifteen or

530
00:29:52,080 --> 00:29:55,160
Speaker 9: sixteen times, which is totally acceptable if we expect rates

531
00:29:55,160 --> 00:29:57,640
Speaker 9: to go down. So you want to move away from

532
00:29:57,680 --> 00:30:01,200
Speaker 9: the trendiest markets right into the MidCap, into the small caps,

533
00:30:01,200 --> 00:30:03,360
Speaker 9: into some of the foreign markets. And if you do

534
00:30:03,440 --> 00:30:05,400
Speaker 9: that meaningfully, you know, for five or ten percent of

535
00:30:05,440 --> 00:30:08,920
Speaker 9: your portfolio, you'll get the benefit, you know, of this

536
00:30:08,960 --> 00:30:11,080
Speaker 9: sort of total rerating of the market that we think

537
00:30:11,120 --> 00:30:11,800
Speaker 9: will take place.

538
00:30:12,320 --> 00:30:14,560
Speaker 8: But you don't want to time this the.

539
00:30:14,560 --> 00:30:16,720
Speaker 9: Situation and say, oh my goodness, it's all over now,

540
00:30:16,720 --> 00:30:19,480
Speaker 9: because we've had this movement in technology. The type of

541
00:30:19,640 --> 00:30:24,040
Speaker 9: change we're talking about with artificial intelligence affects every industry

542
00:30:24,160 --> 00:30:27,400
Speaker 9: and every company, and the adoption of it is something

543
00:30:27,440 --> 00:30:29,240
Speaker 9: that we're going to be monitoring and looking for those

544
00:30:29,240 --> 00:30:32,520
Speaker 9: companies that actually become more efficient maintain their margins, or

545
00:30:32,600 --> 00:30:35,600
Speaker 9: drive revenues as a result of AI's you know, sort

546
00:30:35,640 --> 00:30:36,960
Speaker 9: of rapid acceptance.

547
00:30:37,520 --> 00:30:39,400
Speaker 2: Babe of City David, thank you.

548
00:30:50,520 --> 00:30:53,080
Speaker 6: Tom Mischel joins us now. He's the chief executive officer

549
00:30:53,080 --> 00:30:57,400
Speaker 6: of KBW, Keith, Buryett and Woods Stifle Company, and he

550
00:30:58,320 --> 00:31:02,920
Speaker 6: understands this American banking system truly like no one we

551
00:31:03,320 --> 00:31:09,040
Speaker 6: speak to. Off the market, off the March shock, the Keith,

552
00:31:09,080 --> 00:31:12,520
Speaker 6: Friods and Wood index, I'm stunned by this. Off a

553
00:31:12,600 --> 00:31:15,840
Speaker 6: dead cat bounces up all of four percent off of

554
00:31:15,920 --> 00:31:18,280
Speaker 6: the middle of March shock. I thought it would have

555
00:31:18,320 --> 00:31:22,360
Speaker 6: done much better. Why are the broader indexes of banks?

556
00:31:22,400 --> 00:31:23,400
Speaker 6: Why is it lagging?

557
00:31:24,000 --> 00:31:27,360
Speaker 10: It's lagging mainly because the market's unsettled about what the

558
00:31:27,400 --> 00:31:30,000
Speaker 10: earnings is going to be for the regional banks and

559
00:31:30,040 --> 00:31:33,640
Speaker 10: for the banks, and there's a reset underway. The first

560
00:31:33,680 --> 00:31:37,000
Speaker 10: reset is around net interest income and what's happening with

561
00:31:37,080 --> 00:31:40,000
Speaker 10: deposit costs. I thought it was very interesting that when

562
00:31:40,000 --> 00:31:42,520
Speaker 10: you looked at the big bank earnings on Friday, which

563
00:31:42,640 --> 00:31:46,240
Speaker 10: were actually pretty good relative expectations, the stock still went

564
00:31:46,320 --> 00:31:49,120
Speaker 10: down across the sector. And it's because the view is

565
00:31:49,160 --> 00:31:52,560
Speaker 10: that we're not there yet in terms of understanding how

566
00:31:52,600 --> 00:31:56,360
Speaker 10: this remixing is happening in deposits. Some of the good

567
00:31:56,440 --> 00:31:59,720
Speaker 10: news is that we're really not seeing big shoes drop

568
00:31:59,760 --> 00:32:04,720
Speaker 10: on credit, but that also continues to be a concern.

569
00:32:05,160 --> 00:32:08,080
Speaker 10: So I think you know KBW for our twenty twenty

570
00:32:08,080 --> 00:32:12,320
Speaker 10: four estimates for banks, we've cut estimates twenty percent in

571
00:32:12,360 --> 00:32:15,640
Speaker 10: the last six months, and I think investors want to

572
00:32:15,680 --> 00:32:18,040
Speaker 10: know when is that going to stop? When and when

573
00:32:18,080 --> 00:32:20,640
Speaker 10: is this reset to profitability going to stop?

574
00:32:20,680 --> 00:32:22,920
Speaker 2: Could you have us understand just the size of those

575
00:32:22,960 --> 00:32:25,000
Speaker 2: banks when you come out of a number like that

576
00:32:25,040 --> 00:32:26,960
Speaker 2: twenty percent drop, it's.

577
00:32:26,720 --> 00:32:28,920
Speaker 10: All the way through the industry, all the way through

578
00:32:28,960 --> 00:32:30,000
Speaker 10: the down.

579
00:32:30,280 --> 00:32:31,360
Speaker 2: It's large, just up and down.

580
00:32:31,520 --> 00:32:33,760
Speaker 10: So just if I were to talk about dynamics, if

581
00:32:33,760 --> 00:32:37,720
Speaker 10: you're just a spread income lender alone, you have more pressure.

582
00:32:38,080 --> 00:32:40,520
Speaker 10: But don't forget we think this second quarter is going

583
00:32:40,560 --> 00:32:44,000
Speaker 10: to be a very difficult quarter for investment banking. They

584
00:32:44,000 --> 00:32:46,960
Speaker 10: did maybe a smidge in better than we thought, but still,

585
00:32:47,040 --> 00:32:50,440
Speaker 10: let's just say down twenty percent at least a year

586
00:32:50,480 --> 00:32:53,400
Speaker 10: over year. Now we're seeing green shoots and investment banking.

587
00:32:53,680 --> 00:32:56,200
Speaker 10: That's only about half a dozen or so companies, but

588
00:32:56,320 --> 00:32:59,520
Speaker 10: that really matters. The other banks are just feeling the

589
00:32:59,520 --> 00:33:02,920
Speaker 10: full bread of the spread compression, which also impacts the

590
00:33:02,920 --> 00:33:05,880
Speaker 10: bigger banks, even though the biggest banks are faring better.

591
00:33:05,960 --> 00:33:08,440
Speaker 2: Have you been surprised by how quickly we've left behind

592
00:33:08,440 --> 00:33:10,800
Speaker 2: the events of March April time.

593
00:33:11,120 --> 00:33:15,840
Speaker 10: I am, which is good and bad. It's good because

594
00:33:15,920 --> 00:33:20,120
Speaker 10: the American banking industry is really resilient and these were

595
00:33:20,240 --> 00:33:23,640
Speaker 10: idiosyncratic risks, and I think we've proven that. But at

596
00:33:23,680 --> 00:33:28,600
Speaker 10: the same time, we need the right reform. And actually

597
00:33:28,600 --> 00:33:31,000
Speaker 10: in the last quarter I did testify in front of Congress,

598
00:33:31,040 --> 00:33:35,160
Speaker 10: and I was urging deposit insurance reform. Instead we're getting

599
00:33:35,200 --> 00:33:39,640
Speaker 10: capital increases, which I think are going to create unintended

600
00:33:39,680 --> 00:33:41,760
Speaker 10: consequences and be a whole nother dynamic.

601
00:33:42,000 --> 00:33:44,920
Speaker 1: How idiosyncratic, though, was it? And I asked this at

602
00:33:44,920 --> 00:33:47,200
Speaker 1: a time when a lot of people are studying commercial

603
00:33:47,200 --> 00:33:50,720
Speaker 1: real estate, including the Saint Louis Federal Reserve, which accounts

604
00:33:50,760 --> 00:33:54,240
Speaker 1: for about half of all loans on smaller banks balance sheets,

605
00:33:54,520 --> 00:33:58,160
Speaker 1: And we're looking at a potential record of maturities maturing

606
00:33:58,200 --> 00:34:01,920
Speaker 1: commercial real estate loans this year? How do you dovetail

607
00:34:02,000 --> 00:34:04,640
Speaker 1: that into future weakness that we could start to see

608
00:34:04,640 --> 00:34:05,640
Speaker 1: in this earning cycle?

609
00:34:05,840 --> 00:34:07,800
Speaker 10: So and I remember the last time we're on, we

610
00:34:07,840 --> 00:34:10,000
Speaker 10: talked about this. So we have a commercial real estate

611
00:34:10,040 --> 00:34:13,840
Speaker 10: research group, and higher rates are going to hurt commercial

612
00:34:13,840 --> 00:34:17,400
Speaker 10: real estate values everywhere in the country, but the ones

613
00:34:17,480 --> 00:34:20,840
Speaker 10: we're most worried about are the cities and the cities

614
00:34:20,880 --> 00:34:23,840
Speaker 10: where they have the big properties. That's where you're seeing

615
00:34:23,880 --> 00:34:27,959
Speaker 10: the biggest stress in terms of occupancy, in particular, where

616
00:34:28,000 --> 00:34:31,120
Speaker 10: we think that the hits may be the biggest. Big

617
00:34:31,120 --> 00:34:34,279
Speaker 10: news out of Friday Wells Fargo took their reserve for

618
00:34:34,320 --> 00:34:36,760
Speaker 10: those type of properties to nine percent.

619
00:34:37,160 --> 00:34:37,760
Speaker 5: Nine percent.

620
00:34:37,800 --> 00:34:40,239
Speaker 10: That's a big number for a bank after you think

621
00:34:40,239 --> 00:34:42,960
Speaker 10: about all the equity that's already in those projects, So

622
00:34:43,080 --> 00:34:45,920
Speaker 10: that's pretty big. So we had a regional bank that

623
00:34:45,960 --> 00:34:48,480
Speaker 10: we took around in New York recently to meet investors

624
00:34:48,480 --> 00:34:52,160
Speaker 10: about a forty billion dollar bank. Their median commercial real

625
00:34:52,280 --> 00:34:54,920
Speaker 10: estate loan was a million dollars and almost none of

626
00:34:54,920 --> 00:34:57,600
Speaker 10: it in a city. So we feel better about that.

627
00:34:58,000 --> 00:35:00,719
Speaker 10: And if that describes what a regional bank's what portfolio

628
00:35:00,800 --> 00:35:03,600
Speaker 10: looks like, there'll be pressure, but nothing like these big

629
00:35:03,640 --> 00:35:06,040
Speaker 10: cities where they're gonna be bigger hits.

630
00:35:06,040 --> 00:35:07,440
Speaker 1: The last time you were on, we talked a lot

631
00:35:07,480 --> 00:35:11,120
Speaker 1: about consolidation. You did expect a wave of consolidation among

632
00:35:11,200 --> 00:35:14,279
Speaker 1: smaller banks. Do you feel differently now that evidently the

633
00:35:14,280 --> 00:35:16,200
Speaker 1: crisis is over and everything has changed, or do you

634
00:35:16,239 --> 00:35:18,600
Speaker 1: feel like we're going to see an ongoing turn of

635
00:35:18,640 --> 00:35:20,799
Speaker 1: consolidation that hasn't yet transpired.

636
00:35:21,320 --> 00:35:23,799
Speaker 10: I think we're going to see consolidation a because it's

637
00:35:23,840 --> 00:35:26,000
Speaker 10: just been the trend for the last couple of decades.

638
00:35:26,200 --> 00:35:29,120
Speaker 10: Then you ask yourself, why would that happen, Well, it

639
00:35:29,160 --> 00:35:33,040
Speaker 10: would happen because the costs of regulation continue to go up,

640
00:35:33,320 --> 00:35:35,480
Speaker 10: and one way to be able to afford it is

641
00:35:35,520 --> 00:35:37,840
Speaker 10: either to have more scale or to merge with a

642
00:35:37,840 --> 00:35:39,919
Speaker 10: bank that already has it so that way you don't

643
00:35:39,960 --> 00:35:41,760
Speaker 10: have to build it yourself, and that makes the system

644
00:35:41,800 --> 00:35:45,680
Speaker 10: more sound. Also, over time, healthy banks tend to acquire

645
00:35:45,719 --> 00:35:48,440
Speaker 10: banks that are not performing as well, and that's a

646
00:35:48,480 --> 00:35:52,759
Speaker 10: healthy step that also happens. Then, I think lastly is

647
00:35:53,160 --> 00:35:56,200
Speaker 10: and this is a bigger story is over the last

648
00:35:56,239 --> 00:36:01,080
Speaker 10: decade plus, especially since Dodd Frank, You've I've seen non

649
00:36:01,200 --> 00:36:03,880
Speaker 10: bank lenders pick up market share. We did a report

650
00:36:03,960 --> 00:36:06,719
Speaker 10: earlier this year where we think banks have about half

651
00:36:06,760 --> 00:36:10,160
Speaker 10: of the market. Every time capital ratios go up, Vice

652
00:36:10,200 --> 00:36:13,319
Speaker 10: Chairman Barr talked about a two percentage point change that's

653
00:36:13,320 --> 00:36:16,239
Speaker 10: going to benefit non banks. Jamie Diamond talked about that

654
00:36:16,320 --> 00:36:18,960
Speaker 10: in his call on Friday, and that's what's going to

655
00:36:19,000 --> 00:36:21,720
Speaker 10: happen in that world is unregular, less regulated. I wouldn't

656
00:36:21,719 --> 00:36:24,120
Speaker 10: say unregulated, less regulated.

657
00:36:23,719 --> 00:36:25,719
Speaker 6: Tom Mischelle, all of us on the racket have a

658
00:36:25,760 --> 00:36:27,840
Speaker 6: bank we just follow. I'm not going to mention the bank,

659
00:36:27,880 --> 00:36:30,200
Speaker 6: but it's a pure mediocrity of a small bank and

660
00:36:30,200 --> 00:36:33,160
Speaker 6: it's called bank X. Bank X in the last ten

661
00:36:33,239 --> 00:36:36,560
Speaker 6: years has delivered two point two percent shareholder return and

662
00:36:36,600 --> 00:36:39,680
Speaker 6: the least twenty years, bank X has returned one point

663
00:36:39,719 --> 00:36:42,600
Speaker 6: four percent twenty years. Are these guys not put out

664
00:36:42,640 --> 00:36:45,680
Speaker 6: of their misery because they're protected by an umbrella of

665
00:36:45,800 --> 00:36:49,760
Speaker 6: government support? Back to Andrew Jackson, when do you Sandler,

666
00:36:49,760 --> 00:36:52,000
Speaker 6: O'Neil and the rest of them, when do you roll

667
00:36:52,000 --> 00:36:52,919
Speaker 6: these dogs up?

668
00:36:53,200 --> 00:36:55,560
Speaker 10: Well, I'll tell you what's interesting is in some cases

669
00:36:55,560 --> 00:36:58,319
Speaker 10: there may not be a buyer. There's a chance there

670
00:36:58,360 --> 00:37:01,160
Speaker 10: may not be a buyer. And as technology continues to

671
00:37:01,239 --> 00:37:05,759
Speaker 10: evolve and there's less branch traffic, for example, some of

672
00:37:05,760 --> 00:37:07,880
Speaker 10: these companies may find there's just not the buyer.

673
00:37:07,920 --> 00:37:08,719
Speaker 5: That's so what do they do?

674
00:37:08,920 --> 00:37:12,040
Speaker 6: What what does Bank X do in their twenty year

675
00:37:13,040 --> 00:37:17,359
Speaker 6: garbage mediocrity kept a float not by KBW, but kept

676
00:37:17,360 --> 00:37:18,880
Speaker 6: a float by government regulation.

677
00:37:19,040 --> 00:37:21,480
Speaker 10: Well, and I think the other thing is that should

678
00:37:21,480 --> 00:37:24,200
Speaker 10: that company need capital, because that's say they have a

679
00:37:24,200 --> 00:37:27,200
Speaker 10: bad loan or they need to make an investment, investors

680
00:37:27,239 --> 00:37:29,600
Speaker 10: are going to look at that and an industry where

681
00:37:29,920 --> 00:37:33,640
Speaker 10: where investors don't have strong incentive to invest. If the

682
00:37:33,800 --> 00:37:36,360
Speaker 10: if that company, and I think this applies to any industry,

683
00:37:36,560 --> 00:37:38,320
Speaker 10: but if there isn't a return, they're not going to

684
00:37:38,400 --> 00:37:40,640
Speaker 10: have the access to the capital that the government and

685
00:37:40,640 --> 00:37:43,600
Speaker 10: the regulators would like. You need a healthy industry up in.

686
00:37:43,640 --> 00:37:46,680
Speaker 6: This is a uniquely American thing, John, Hey, this is

687
00:37:46,800 --> 00:37:47,680
Speaker 6: just I'm sorry.

688
00:37:47,840 --> 00:37:50,000
Speaker 10: And the big thing is so you know, and I

689
00:37:50,040 --> 00:37:52,360
Speaker 10: get a lot of questions saying, hey, other countries have

690
00:37:52,440 --> 00:37:55,160
Speaker 10: five or six big banks. You know, we have four

691
00:37:55,200 --> 00:37:57,520
Speaker 10: really big ones. It would be great if we had

692
00:37:57,600 --> 00:38:00,600
Speaker 10: fifteen to twenty five big ones, and then you'd have

693
00:38:00,719 --> 00:38:03,600
Speaker 10: really good choice and really good competition, and then some

694
00:38:03,680 --> 00:38:05,960
Speaker 10: of those local banks will still be critical to their

695
00:38:06,000 --> 00:38:08,920
Speaker 10: local communities. I think it's that middle. I'll give you

696
00:38:08,960 --> 00:38:12,360
Speaker 10: another number, the ninety seven percent of the banking industry

697
00:38:12,400 --> 00:38:15,440
Speaker 10: in America's below ten billion in assets. That means there

698
00:38:15,480 --> 00:38:18,759
Speaker 10: are one hundred and forty banks above ten billion. We're

699
00:38:18,800 --> 00:38:21,680
Speaker 10: actually approaching the endgame where you can start to really

700
00:38:21,719 --> 00:38:23,520
Speaker 10: pay attention as to how this might play out.

701
00:38:23,560 --> 00:38:26,080
Speaker 2: I got thirty seconds when you went in front of Congress.

702
00:38:26,080 --> 00:38:28,280
Speaker 2: Did you get the impression they wanted to make sensible

703
00:38:28,320 --> 00:38:30,280
Speaker 2: policy or just punish this sector?

704
00:38:31,239 --> 00:38:34,400
Speaker 10: I would say the majority, not the entirety, but the

705
00:38:34,440 --> 00:38:39,480
Speaker 10: majority was they were thinking about steps that they could take.

706
00:38:39,880 --> 00:38:42,880
Speaker 10: But I felt as if they were going to address

707
00:38:42,920 --> 00:38:45,960
Speaker 10: issues that weren't solely Silicon Valley and other bank failures,

708
00:38:46,160 --> 00:38:49,799
Speaker 10: and the chances for unintended consequences were high. And I

709
00:38:49,800 --> 00:38:52,280
Speaker 10: think you really got to because if you push too hard,

710
00:38:52,600 --> 00:38:55,080
Speaker 10: you're going to benefit the non bank industry, and I

711
00:38:55,080 --> 00:38:56,800
Speaker 10: think we could be headed in that direction.

712
00:38:57,000 --> 00:39:01,480
Speaker 2: Tom Mischa, thank you guys. I've KBW Maney response the

713
00:39:01,560 --> 00:39:05,640
Speaker 2: question not so much very often on Tom Love it

714
00:39:05,719 --> 00:39:06,680
Speaker 2: as always just want.

715
00:39:06,520 --> 00:39:06,960
Speaker 8: To be with you.

716
00:39:07,440 --> 00:39:10,880
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717
00:39:10,960 --> 00:39:14,360
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718
00:39:14,400 --> 00:39:16,960
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719
00:39:17,040 --> 00:39:19,160
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720
00:39:19,200 --> 00:39:20,440
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721
00:39:20,719 --> 00:39:24,000
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722
00:39:24,080 --> 00:39:27,480
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723
00:39:27,560 --> 00:39:28,600
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