WEBVTT - Surveillance: Wall St. and Main St. Brace for Recession (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Bramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.000 and of course, on the Bloomberg Terminal. Chrispa Rengui joins 0:00:31.080 --> 0:00:33.159 us right now, cost ce Io at Cobelly Funds that 0:00:33.200 --> 0:00:35.159 we do this with the broader sweep of Lisa and 0:00:35.159 --> 0:00:38.280 I getting to the evening and Wall Street week Chris, Regie, 0:00:38.360 --> 0:00:41.760 I want you to help us frame your investment thesis, 0:00:42.080 --> 0:00:46.560 the courage right now to invest for two thousand twenty four. 0:00:47.120 --> 0:00:49.640 How do you do that? How do you develop a 0:00:49.760 --> 0:00:53.800 two or even three year perspective? Well, thanks Tom, Yeah, 0:00:53.800 --> 0:00:55.720 that's exactly what we're looking at. We're trying to look 0:00:55.800 --> 0:00:58.440 out three to five years. One of the good industries, 0:00:58.440 --> 0:01:00.960 one of the good companies in the industry trays how 0:01:01.000 --> 0:01:03.279 bad is bad? Can the companies that we're looking at 0:01:03.440 --> 0:01:05.920 make it through whatever comes in the next eight months? 0:01:06.520 --> 0:01:09.639 So when you look at it that way, we're pretty 0:01:09.640 --> 0:01:12.600 calm um, you know, we think as JP Diamond pointed 0:01:12.600 --> 0:01:14.760 out yesterday, economy is going to be much figger than 0:01:14.800 --> 0:01:17.600 it is today in five ten years. Uh. A lot 0:01:17.640 --> 0:01:19.560 of uncertainty, a lot of balls in the air now, 0:01:19.760 --> 0:01:21.440 we're not going to get them all right, but we 0:01:21.480 --> 0:01:23.320 try to pick We try to do the best to 0:01:23.360 --> 0:01:25.560 pick the best companies, at least in my research. Comment 0:01:25.680 --> 0:01:29.080 yesterday was some David George a Baird who really leaned 0:01:29.120 --> 0:01:32.080 in and said, would everybody calm down about the hurricane 0:01:32.080 --> 0:01:34.920 that's out there? This on JP Morgan. Of course, George 0:01:35.000 --> 0:01:37.720 just simply saying lose their acane. Well, and that seems 0:01:37.720 --> 0:01:40.120 to be actually what JP Morris Jamie Diamond was saying too. 0:01:40.319 --> 0:01:42.920 There might be a hurricane. We are expecting recession, but 0:01:43.080 --> 0:01:45.360 right now things look pretty good. But Chris, you know, 0:01:45.400 --> 0:01:47.840 you talk pretty constructively, and yet you talk about the 0:01:47.880 --> 0:01:52.440 six eyes late last year, inflation, interest rates, infrastructure, income taxes, 0:01:52.440 --> 0:01:56.640 and international relations and infection, and today you add inversion 0:01:56.760 --> 0:01:59.280 or implosion. That doesn't sound very optimistic. How do you 0:01:59.320 --> 0:02:03.800 dove tell the simism into the year longer term optimism. Yeah, 0:02:03.880 --> 0:02:06.440 there's no question that we're gonna We've got some volatility 0:02:06.720 --> 0:02:09.400 um and we're watching all the same things everybody else is. 0:02:10.080 --> 0:02:12.680 You know, it's obviously Wall Streets on its key star 0:02:13.120 --> 0:02:15.600 Main Street seems to be doing a little bit better, 0:02:15.639 --> 0:02:19.120 although obviously some signs of stress and moost. We're gonna 0:02:19.120 --> 0:02:22.760 be watching carefully the same data that you mentioned earlier, um, 0:02:22.840 --> 0:02:24.960 and it wouldn't surprise me that we, you know, see 0:02:24.960 --> 0:02:28.600 a recession very soon. I think it's probably shallow, probably 0:02:28.600 --> 0:02:31.080 a little lengthier though than a lot of people hope. 0:02:31.760 --> 0:02:35.000 What about the infrastructure and the income taxes. I mean, 0:02:35.280 --> 0:02:37.680 we have a lot to do on the former, and 0:02:37.919 --> 0:02:40.320 we pay way too much in the ladder. That's not 0:02:40.360 --> 0:02:43.600 going to change, no, And you know, obviously news this 0:02:43.639 --> 0:02:47.320 morning that the most powerful Joe and Washington Joe mansion 0:02:47.560 --> 0:02:50.680 seems to have quashed any effort to get a build 0:02:50.680 --> 0:02:54.160 back better built done this term. Um. So yeah, that's 0:02:54.200 --> 0:02:55.679 kind of delayed. I think one of the I don't 0:02:55.680 --> 0:02:57.079 know if you call it pleasant surprises, but one of 0:02:57.080 --> 0:02:58.680 the things I was surprised about all the last couple 0:02:58.720 --> 0:03:02.200 of years it's been that we haven't movement on on taxas. 0:03:02.400 --> 0:03:04.720 That's something that we need to get in order probably 0:03:04.960 --> 0:03:07.680 you know, in the next term. Um. But obviously we've 0:03:07.720 --> 0:03:12.040 got some near term issues to deal with on rates, Chris, 0:03:12.400 --> 0:03:15.240 everyone's talking about seventy verses one hundred and what we're 0:03:15.280 --> 0:03:17.680 gonna see the following meeting. But I think if you 0:03:17.720 --> 0:03:19.960 step back and look at the bigger picture, it's more important, 0:03:20.040 --> 0:03:23.880 especially if you see the framework coming back down into 0:03:24.560 --> 0:03:28.640 Is that how you see it? Yeah? I think that's right. Um. 0:03:28.720 --> 0:03:32.280 You know, I share Bill Ackman's perspective that we probably 0:03:32.320 --> 0:03:35.480 need to get after this as quickly and aggressively as possible. Um. 0:03:35.640 --> 0:03:38.280 Maybe that means a hundred at the next meeting, but 0:03:38.480 --> 0:03:40.640 you know, at some point that gives the FED the 0:03:40.720 --> 0:03:45.280 ability to cut and to stimulate. Again, Chris, we're doing 0:03:45.320 --> 0:03:48.520 Wall Street Week tonight. Can we go Mario Gabelly on you? 0:03:48.920 --> 0:03:51.320 Can you give in your single best idea after we 0:03:51.400 --> 0:03:55.440 go to the Elves? Absolutely, And it's the same one 0:03:55.440 --> 0:03:56.920 that I've had for the last several months, and that's 0:03:56.960 --> 0:03:58.680 Liberty Braves. I don't want to talk about my New 0:03:58.720 --> 0:04:00.120 York Yankees this morning. I want to talk a out 0:04:00.120 --> 0:04:02.560 of public company and ability to oh one of thirty 0:04:03.000 --> 0:04:05.120 Major League Baseball teams, one that happens to be doing 0:04:05.120 --> 0:04:07.960 pretty well. Um, but you know, controlled by the John 0:04:07.960 --> 0:04:12.000 Malone Liberty Media Empire and likely to be spun off 0:04:12.000 --> 0:04:15.200 and sold in the next eighteen months' trading, which applies 0:04:15.200 --> 0:04:18.200 a billion and a half value for the team. Steve's 0:04:18.200 --> 0:04:21.280 going for closer to three billion. Probably. There you go, 0:04:21.400 --> 0:04:23.760 Christmas Ange here on Wall Street week. Thank you so much, 0:04:23.800 --> 0:04:31.440 Chris Goobelly Funds. Of course, Claudia Sam has been listening 0:04:31.480 --> 0:04:34.960 on in the foreign moment of Jerome Powell, central Banker 0:04:35.000 --> 0:04:38.440 to the world. She's founder of Some Consulting, and most 0:04:38.480 --> 0:04:42.440 importantly Claudia Sam of the Some Rule. What an oddity 0:04:42.600 --> 0:04:46.719 of recession gloom into a fully employed America? Let's get 0:04:46.760 --> 0:04:49.920 this phrase. It was never in the Michigan textbooks. Can 0:04:50.000 --> 0:04:55.040 you have a recession in a fully employed economy? At 0:04:55.040 --> 0:04:57.640 this point, we can have anything. I mean, nothing would 0:04:57.640 --> 0:05:02.640 surprise me. It is absolutely unusual to have a recession 0:05:03.279 --> 0:05:07.159 and like to see activity, to see GDP contracting for 0:05:07.240 --> 0:05:11.479 two quarters straight, and at the same time have low 0:05:11.560 --> 0:05:15.360 unemployment and massive job games. So we might have what 0:05:15.480 --> 0:05:19.960 I've heard called a job full recession. This is not usual. 0:05:20.520 --> 0:05:23.280 You grew up in the crucible, academically, grew up in 0:05:23.320 --> 0:05:29.640 the crucible of inflation study. Michigan is the franchise for studying, folks, 0:05:29.680 --> 0:05:33.200 the slicing and dicing. Should our bankers be looking at 0:05:33.279 --> 0:05:37.720 top line inflation or the trimmed inflation, or the core 0:05:37.800 --> 0:05:44.159 inflation or the psalm inflation. Well so, monetary policymakers ought 0:05:44.200 --> 0:05:48.640 to be looking at every piece of inflation, both the 0:05:48.680 --> 0:05:52.520 top line stripping out of food and energy and also 0:05:52.600 --> 0:05:55.960 the components, like we really need to understand what's driving 0:05:56.000 --> 0:06:00.159 this to understand where it's going. Now. One thing that 0:06:00.240 --> 0:06:04.440 I have heard from Drome Powell that is disconcerting is 0:06:04.480 --> 0:06:09.880 the idea that topline, including these massive energy swings, will 0:06:09.920 --> 0:06:15.280 help guide their policy. That's problematic because we know food 0:06:15.320 --> 0:06:18.640 and energy whips all around, and frankly the FED those 0:06:18.640 --> 0:06:21.720 are supply problems. They can't do anything about that. So 0:06:22.040 --> 0:06:27.640 it's that is hard to hear, Um, but it is true. 0:06:27.640 --> 0:06:30.360 We've had big energy increases and what they are concerned 0:06:30.360 --> 0:06:33.719 about is the consumers look at that and they start 0:06:33.839 --> 0:06:37.520 expecting more inflation. They change their behavior and they cause 0:06:37.600 --> 0:06:40.159 more inflation, and that would be would be bad. Well 0:06:40.160 --> 0:06:42.560 and Claudia, this is the reason why the FED is 0:06:42.600 --> 0:06:44.480 between a rock and a hard place. They don't want 0:06:44.480 --> 0:06:47.039 to cause recession, but they also don't want to allow 0:06:47.080 --> 0:06:50.720 those inflation expectations to become entrenched. You have basically argued 0:06:50.960 --> 0:06:53.080 that the FED should do what it needs to do 0:06:53.120 --> 0:06:56.160 to take down inflation. Other supply side issues are not 0:06:56.200 --> 0:06:58.680 their issue, though, that it really is Congress and what 0:06:58.760 --> 0:07:01.920 happens in Washington. As a result, the FED shouldn't go 0:07:02.000 --> 0:07:05.280 too far at this point given the lack of action 0:07:05.320 --> 0:07:08.599 in Congress. What is too far? How far should the 0:07:08.640 --> 0:07:11.320 Fed eventually go just expecting that we're not going to 0:07:11.360 --> 0:07:14.920 get anything in terms of legislation and play Congress. Yeah, well, 0:07:14.960 --> 0:07:18.440 we learned last night that Senator Joe Manchin is walking 0:07:18.480 --> 0:07:23.440 away from any kind of energy legislation, and that's that 0:07:23.520 --> 0:07:26.000 means the FED is on its own. The administration has 0:07:26.000 --> 0:07:30.080 floated nothing that will get gas prices down, So now 0:07:30.080 --> 0:07:35.680 it's up to the FED that inflation will be transitory 0:07:35.720 --> 0:07:38.520 one way or the other. The FED will guarantee that 0:07:38.520 --> 0:07:41.080 that's not what we're gonna want. They're gonna try. The 0:07:41.120 --> 0:07:44.800 FED will try their hardest to avoid a recession. But 0:07:44.920 --> 0:07:47.120 what they are doing right now, the full effect of 0:07:47.160 --> 0:07:52.320 it comes next year, and that's nobody knows what's coming 0:07:52.360 --> 0:07:54.640 next year. We gotta have some things in the world 0:07:55.160 --> 0:07:58.240 go our way, and that has not been the case 0:07:58.360 --> 0:08:00.840 for two and a half years. So it's not a 0:08:00.840 --> 0:08:04.920 pretty picture. And frankly, as Congress walks away, it's getting worse. Claudia, 0:08:05.080 --> 0:08:07.720 the timing seems really bad here because the Fed is 0:08:08.360 --> 0:08:12.240 going all out guns ablazing. We're talking about full percentage 0:08:12.240 --> 0:08:14.560 point increase right at the time when it looks like 0:08:14.600 --> 0:08:17.320 inflation really has peaked. I mean, if you look at 0:08:17.560 --> 0:08:20.720 the Bloomberg commodity indexes, on the eggs, on the metals, 0:08:20.720 --> 0:08:24.960 on the oils, they're all coming down markedly. Um, do 0:08:25.000 --> 0:08:28.240 you think we're gonna see inflation? Where do you think 0:08:28.240 --> 0:08:29.920 we're gonna see inflation at the end of the year? 0:08:29.960 --> 0:08:31.480 And is the Fed still going to be headed up 0:08:31.480 --> 0:08:35.720 towards four This was part of the reason that the 0:08:35.720 --> 0:08:39.640 cp I print this this week was so crushing, Like 0:08:39.679 --> 0:08:43.040 the Fed is not going to stop until they see 0:08:43.080 --> 0:08:47.560 inflation published inflation from the Bureau of Labor Statistics coming 0:08:47.600 --> 0:08:51.000 down in a meaningful way. Right, We've been head faked 0:08:51.000 --> 0:08:54.600 by supply chains getting better and then plutin shows up, 0:08:54.800 --> 0:08:57.360 and then they get worse again, or China shuts down 0:08:57.360 --> 0:09:00.079 and they get worse again. So the Fed needs to 0:09:00.120 --> 0:09:03.760 see it, and we haven't seen it. Right in, Claudia, 0:09:04.040 --> 0:09:06.240 end of the weekend, what's your soul? What to the 0:09:06.320 --> 0:09:08.959 five or six death siles of America flat on their 0:09:09.040 --> 0:09:13.959 black back with massive negative real wage growth? I mean, 0:09:14.040 --> 0:09:16.960 what how do we deal with that? I've never seen 0:09:17.000 --> 0:09:21.400 an integram like that, the area below the zero line. Yeah, well, 0:09:21.440 --> 0:09:25.160 we gotta get inflation down right. The labor market is strong. 0:09:25.280 --> 0:09:29.200 People are, they're getting jobs, they're getting paychecks. We've seen 0:09:29.280 --> 0:09:33.120 wade raids is a little bit less recently. You gotta 0:09:33.160 --> 0:09:35.880 get inflation down. You've got to get the purchasing power 0:09:36.000 --> 0:09:38.240 right now. Households have a lot of them have some 0:09:38.280 --> 0:09:41.640 money on the side right from the relief packages and 0:09:41.679 --> 0:09:44.960 the labor market that's been strong. So that is helping 0:09:44.960 --> 0:09:47.720 with spending. But that could only go on so long. 0:09:47.880 --> 0:09:51.520 And income is the best predictor of spending. Spending is 0:09:51.520 --> 0:09:57.120 the biggest part of activity of gen P. That's okay, Claudia, 0:09:57.160 --> 0:09:59.000 thank you so much for the Friday breed, Claudia, So 0:09:59.080 --> 0:10:01.560 I'm getting us here. End of the weekend. Her claimed 0:10:01.640 --> 0:10:11.880 some rule as well. Right now, this is a great joy. 0:10:11.960 --> 0:10:16.199 Thomas showed as CEO of Kieth Briat and what's KBW. 0:10:16.400 --> 0:10:19.400 It's a stiple company, but far more he is our 0:10:19.520 --> 0:10:22.560 great voice on the state of American banking. Is not 0:10:22.640 --> 0:10:27.600 a security analyst. He's actually out there trying to do business. 0:10:28.040 --> 0:10:31.920 Thomas showed where is the American banking industry and for 0:10:32.040 --> 0:10:35.920 that matter, for Wells Fargo in thirty six months. So 0:10:36.120 --> 0:10:39.680 Wells Fargo I think is a unique situation unto itself 0:10:39.760 --> 0:10:42.720 because of the transition there, and and I've been listening 0:10:42.760 --> 0:10:45.040 to the results just as they've just been coming out, 0:10:45.040 --> 0:10:47.560 and I haven't had a chance to dig into them. However, 0:10:48.160 --> 0:10:51.160 I think this it depends who you are, Tom, in 0:10:51.200 --> 0:10:53.680 my opinion, what type of bank you are, and what 0:10:53.880 --> 0:10:59.040 your business mixes. Because the big money center banks, essentially 0:10:59.120 --> 0:11:02.640 parts of their business this are already in recession, and 0:11:02.720 --> 0:11:06.679 recession is the central point to everything in the banking 0:11:06.720 --> 0:11:10.000 industry because it's gonna drive what happens to revenues and 0:11:10.040 --> 0:11:13.640 then what happens to credit. So uh, the investment banks 0:11:13.760 --> 0:11:18.120 right now are showing declining revenues. Revenues were down eleven 0:11:18.160 --> 0:11:21.480 percent from Morgan Stanley. We think anyone, any bank with 0:11:21.559 --> 0:11:24.400 a big investment banking business is going to have a 0:11:24.480 --> 0:11:28.880 tough run on revenues. At the same time, don't forget 0:11:28.920 --> 0:11:31.959 what the core regional banks are doing. We've had two 0:11:32.000 --> 0:11:36.400 regional banks reports so far. First Republics revenues were up 0:11:38.120 --> 0:11:42.800 year over year, while Morgan Stanley's were down eleven Washington Federal, 0:11:42.840 --> 0:11:47.600 which reported yesterday, was up seventeen percent, while JP Morgan's 0:11:47.600 --> 0:11:50.920 revenues were flat. And and so I think it depends 0:11:51.040 --> 0:11:53.880 what your business mix is. And then we should also 0:11:53.920 --> 0:11:56.840 have a conversation about credit. Alright, So Tom, before we 0:11:56.880 --> 0:11:59.640 get there, what's the leading indicator here? The Wall Street 0:11:59.720 --> 0:12:04.160 or the Main Street? I personally think the Main Street 0:12:04.280 --> 0:12:09.280 because there's a there's a smaller number of investment banks 0:12:09.360 --> 0:12:12.880 for the industry, the big investment banks, the right downs 0:12:12.920 --> 0:12:17.720 that you mentioned earlier. Uh, that's that's a real issue, 0:12:17.800 --> 0:12:21.600 which is credit spreads have widened out and as credit spread, 0:12:21.600 --> 0:12:23.839 and I think that's been already part of the story 0:12:23.920 --> 0:12:26.480 of this core quarter, which is the marks on a 0:12:26.520 --> 0:12:29.079 lot of these assets. These are not the assets that 0:12:29.200 --> 0:12:31.920 regional banks own. These are these are the assets that 0:12:32.000 --> 0:12:35.160 the big banks owned. So I think their dilemma and 0:12:35.200 --> 0:12:38.120 their challenges are different. And it's also going to be 0:12:38.200 --> 0:12:41.480 quite stark because last year was such an incredible year, 0:12:41.800 --> 0:12:45.440 so the comparisons are are traumatic. Don't forget that JP 0:12:45.640 --> 0:12:49.280 Morgan had a difficult quarter and earned sixteen non equity. 0:12:49.559 --> 0:12:54.040 Morgan Stanley had a difficult quarter and earned fifteen non equity. 0:12:54.320 --> 0:12:57.400 So I think you have to remember the underlying basis 0:12:57.440 --> 0:13:00.640 of the company's is still pretty good. Tom. We're not 0:13:00.679 --> 0:13:03.280 looking at a meltdown in the financial sector. There is 0:13:03.320 --> 0:13:06.160 a question, though, is Larry McDonald said, at what point 0:13:06.160 --> 0:13:09.320 do market to overtake the economy? Do they take overtake 0:13:09.360 --> 0:13:12.760 the narrative in the broader world? How much are we 0:13:12.840 --> 0:13:15.720 looking at a difficulty of companies raising money? And I 0:13:15.760 --> 0:13:17.600 speak to you as someone who has a bird's eye 0:13:17.679 --> 0:13:22.120 view into investment banking activity through KBW. I think the 0:13:22.160 --> 0:13:24.800 world has changed, and I think every day that goes by, 0:13:24.880 --> 0:13:28.960 it's changing more. I think you're my own personal opinion 0:13:29.000 --> 0:13:32.800 about the inevitability of a recession continues to grow. And 0:13:32.840 --> 0:13:36.840 I and and and they're actually pockets of business that 0:13:36.960 --> 0:13:39.520 feel like they're already there. If you're in the equity 0:13:39.520 --> 0:13:43.560 the equity capital markets have essentially ceased. These businesses are 0:13:43.600 --> 0:13:49.000 down ceased, operations they're down sevent So if that already 0:13:49.000 --> 0:13:53.880 feels like a recession. If you're in the mortgage origination business, uh, 0:13:53.960 --> 0:13:56.280 that is going to feel like a recession. We're looking 0:13:56.280 --> 0:14:01.040 for originations to be down, so so I think that 0:14:01.120 --> 0:14:04.840 this is going to be somewhat of a rolling experience. 0:14:05.160 --> 0:14:08.880 The question is, really, is it a crisis. I think 0:14:08.920 --> 0:14:11.360 it's I think it's inevitable that we're going to have 0:14:11.440 --> 0:14:14.560 a technical recession. The question is is it a mild 0:14:14.600 --> 0:14:18.440 recession or a crisis. As of now, my instincts are 0:14:18.559 --> 0:14:22.520 not a crisis. But but I think it's inevitable that 0:14:22.560 --> 0:14:25.720 this economy is slowing. And and I'm watching forecasts, and 0:14:25.760 --> 0:14:29.200 I'm watching real GDP already send these signal I wonder 0:14:29.240 --> 0:14:32.320 how the housing market plays into that, tom especially because 0:14:32.320 --> 0:14:35.360 we're talking about Wells Fargo, but also because I've seen 0:14:35.400 --> 0:14:39.520 the terms mark to market used in UM bank earnings 0:14:39.520 --> 0:14:43.200 reports the last couple of days, Morgan Stanley and JP Morgan. Fortunately, 0:14:43.240 --> 0:14:45.880 consumers don't have to do that, but the consumer really 0:14:46.120 --> 0:14:50.640 stretched to get the most unaffordable houses um that they 0:14:50.680 --> 0:14:53.240 could over the last few quarters. And if we go 0:14:53.280 --> 0:14:55.480 into a recession, is that a problem for these banks 0:14:57.080 --> 0:15:00.760 I think the underwriting has been extraordinary at least sound. 0:15:00.800 --> 0:15:04.520 I mean, first of all, when when non performers go up, 0:15:04.520 --> 0:15:08.000 which they will, the surprise shouldn't be that they've gone up. 0:15:08.320 --> 0:15:12.440 The surprise should be that they were zero for so long. Um, 0:15:12.640 --> 0:15:16.440 it's a remarkable how pristine this is the most pristine 0:15:16.520 --> 0:15:20.080 I've seen the ratios in my career. So it's inevitable 0:15:20.120 --> 0:15:22.720 that it's going to go up. But where's the real 0:15:22.800 --> 0:15:26.320 big risk? I'll say two quick points. The shadow banking 0:15:26.360 --> 0:15:31.280 industry exploded in size during zero interest rate policy, so 0:15:31.320 --> 0:15:34.040 I think it's gonna be very, very keen to watch 0:15:34.320 --> 0:15:37.000 what happens in the shadow banking industry. There's a lot 0:15:37.040 --> 0:15:39.440 of credit, but it's it's four times the size the 0:15:39.480 --> 0:15:42.720 banking industry. We think, okay, that's number one. Number two 0:15:42.800 --> 0:15:46.880 is the majority of Dodd Frank was really good and 0:15:46.880 --> 0:15:50.640 and so these banks have more capital, more liquidity. They 0:15:50.680 --> 0:15:54.040 may have higher non performers, but I think they're gonna 0:15:54.040 --> 0:15:57.360 be able to turn through it. The average Thomas show. 0:15:57.440 --> 0:15:59.840 Jennie on Park Avenue just emailed it and said, can 0:16:00.000 --> 0:16:02.560 show talk about a real bank? So let's do that 0:16:02.680 --> 0:16:06.040 right now. Tomas showed the Keith Priot Honorable in honor 0:16:06.080 --> 0:16:08.120 of Dave Barry. Are the banks out there that are 0:16:08.120 --> 0:16:11.200 getting it done? And one of them is First National 0:16:11.280 --> 0:16:14.560 Bank of Long Island. What can James Diamond, what can 0:16:14.560 --> 0:16:17.840 Brian moynihan, what can Mr Sharf? What can they learn 0:16:17.920 --> 0:16:21.400 from the operation that you've awarded of the First National 0:16:21.480 --> 0:16:27.160 Bank of Long Island? Well, companies like uh that bank okay, 0:16:28.000 --> 0:16:32.400 keep it very very simple, um and um and and 0:16:32.440 --> 0:16:35.640 they and they tend to take a lot of collateral 0:16:36.080 --> 0:16:39.320 and they don't require a lot of market activity to 0:16:39.400 --> 0:16:43.320 generate revenue. They're very spread based. UM. Now they have 0:16:43.440 --> 0:16:47.040 challenges because technology is impacted your business. You need to 0:16:47.080 --> 0:16:50.040 afford it. But I think the key the key part 0:16:50.400 --> 0:16:53.920 about that is we just went through a very long 0:16:54.000 --> 0:16:57.640 period of time of zero interest rates. Spread lending was 0:16:57.680 --> 0:17:01.840 not built to really sell when interest rates for zero. 0:17:02.240 --> 0:17:05.080 We as long as we don't get into a crisis 0:17:05.440 --> 0:17:08.800 we had a higher rate environment, it's actually gonna be 0:17:08.880 --> 0:17:12.520 okay for a typical regional bank. I got thirty seconds. 0:17:12.840 --> 0:17:15.879 How do they survive digital banking? And how does every 0:17:15.880 --> 0:17:19.439 other bank out there? The heritage of KBW, how do 0:17:19.520 --> 0:17:22.720 they survive my mobile cell phone and my Chase account. 0:17:23.280 --> 0:17:25.800 They better get they better get on the trend because 0:17:25.880 --> 0:17:32.040 customer usages here COVID accelerated in five months during COVID 0:17:32.160 --> 0:17:35.280 read about four years of adoption. They better get on 0:17:35.320 --> 0:17:38.560 board or they will become dinosaurs. And we're seeing them 0:17:38.600 --> 0:17:41.080 working hard to do it. But there probably will be 0:17:41.119 --> 0:17:45.920 more consolidation for that reason. Thanks for the brief, been 0:17:45.960 --> 0:17:50.160 too long, Thomas showed of KBW there with Wells Farggle reporting. 0:17:54.280 --> 0:17:57.240 This is a joy always to speak with. Vincent Reinhardt. 0:17:57.320 --> 0:18:01.439 He and uh Carmen Reinhardt wife wrote the essay of 0:18:01.480 --> 0:18:05.600 the Pandemic on the Global Slowdown that now very much 0:18:05.760 --> 0:18:08.880 is clear and on a global basis, they absolutely nailed 0:18:09.320 --> 0:18:11.399 the pandemic slow down, some of it due to the 0:18:11.440 --> 0:18:14.920 political and social policies UH scene in Asia. He is 0:18:14.960 --> 0:18:18.720 chief economist at Dreyfus and Melon. Vince Reinhardt, the last 0:18:18.720 --> 0:18:22.960 time you were on your absolutely lights out on domestic analysis. 0:18:23.000 --> 0:18:26.200 This morning, I have to speak to you about Jerome Powell, 0:18:26.440 --> 0:18:29.320 is Central Banker to the world, and his good fortune 0:18:29.359 --> 0:18:34.320 to have Secretary Yelling assisting an e M crisis moments ago. Folks, 0:18:34.840 --> 0:18:39.240 the nation of Chile intervened in currency markets to provide 0:18:39.280 --> 0:18:44.040 for an appreciation of the Chilean UH pace. So what's shocking, 0:18:44.280 --> 0:18:49.040 Vince Reinhardt is even with the intervention by Chile to 0:18:49.240 --> 0:18:53.640 strengthen the Chilean pace, so it barely moved the needle UH, 0:18:54.359 --> 0:18:59.920 Vince moving to standard deviations. At best, it's an appreciate 0:19:00.000 --> 0:19:04.080 should across what they need to accomplish given the damage 0:19:04.359 --> 0:19:08.080 at this moment. How urgent is it for Secretary Yelling 0:19:08.680 --> 0:19:11.520 to speak to Christina Gorgeva of the I M F 0:19:12.240 --> 0:19:17.800 about e M falling apart? Look, when the federals are 0:19:18.040 --> 0:19:21.320 raises interest rates and we know the Federal Reserve is 0:19:21.400 --> 0:19:26.639 raising interest rates, that pulls capital into financial centers in 0:19:26.680 --> 0:19:30.920 a way from e M. E M had a tough 0:19:31.000 --> 0:19:34.920 pandemic that they could in parts move over by fiscal 0:19:35.000 --> 0:19:40.280 largess that deteriorates balance feats UH, and we're going to 0:19:40.400 --> 0:19:43.440 be seeing that in in in the year to come. 0:19:43.520 --> 0:19:46.040 So it's gonna be a tough tough time for EM. 0:19:46.680 --> 0:19:50.120 Any time the Fed is in a firming cycle, UH, 0:19:50.160 --> 0:19:54.159 it's tough for financial conditions generally, and this will be 0:19:54.240 --> 0:19:57.640 an extremely tight firming cycle if it's right out across 0:19:57.760 --> 0:20:01.840 all of your academic work. There's always the amateur comparing 0:20:01.960 --> 0:20:06.560 contrast with I'm gonna time call that a time of 0:20:06.680 --> 0:20:10.680 naivete in a time of leverage. Do we have comfort 0:20:10.760 --> 0:20:13.720 now that we're less naive? Do we have comfort now 0:20:14.000 --> 0:20:20.040 that we're less leveraged than August of Look, anytime financial 0:20:20.119 --> 0:20:23.880 prices move a lot, you learn something about somebody's balance sheet. 0:20:23.960 --> 0:20:26.840 You don't know who that is and what you learn, 0:20:27.280 --> 0:20:31.399 So I'm not going to say that, uh, it's all clear. 0:20:31.880 --> 0:20:34.760 What do we know? We do know big banks are 0:20:35.000 --> 0:20:39.960 much better capitalized and are more rigorously monitored, witnessed the 0:20:40.000 --> 0:20:43.520 stress test. We do know there's a lot more transparency 0:20:43.520 --> 0:20:47.880 and the documentation, lots more reliance on the big utilities 0:20:47.960 --> 0:20:51.719 of clearing and settlement. That's all good. We also know, 0:20:51.880 --> 0:20:55.080 among other things, that the triashury market is less liquid 0:20:55.200 --> 0:20:58.040 now than it was back then. That's part of the 0:20:58.080 --> 0:21:01.800 consequence of QUI, part of the consequence of of of 0:21:02.119 --> 0:21:05.560 big treasury issuance, and it's also part of the consequence 0:21:05.560 --> 0:21:07.680 of asking big banks to have a lot of capital. 0:21:08.040 --> 0:21:10.520 They don't really want to commit as much to trading 0:21:10.560 --> 0:21:12.440 as they used to, and they're showing that. I'd say 0:21:12.440 --> 0:21:14.919 it's a expect Yeah, I mean, what a great what 0:21:15.000 --> 0:21:18.439 a great position from which to go into a recession. Vince, Right, 0:21:18.600 --> 0:21:22.040 the big banks of shoring up their fortress balance sheets 0:21:22.040 --> 0:21:25.720 to consumer um has money in the bank, and there's 0:21:26.000 --> 0:21:28.280 unemployment rate at three point six percent? Do you think 0:21:28.320 --> 0:21:33.719 we're in a recession? So I sort of interesting technically 0:21:33.800 --> 0:21:36.560 might we be in a recession? I'll await the Atlanta 0:21:36.560 --> 0:21:40.680 offense GDP now for later in the day. Retail control 0:21:41.520 --> 0:21:45.160 was better than expected, but last month was revised down 0:21:45.280 --> 0:21:50.000 and poorly of arithmetic counts that more important. Uh don't 0:21:50.040 --> 0:21:53.120 know if we are. It's not much of one because 0:21:53.200 --> 0:21:57.520 we've had four hundred thousand jobs nearly printed each month 0:21:57.560 --> 0:22:00.520 for the last four months. I worry about the recession 0:22:00.640 --> 0:22:03.679 later in the year and next year that will be 0:22:03.720 --> 0:22:07.080 more significant. If we're in a recession right now, it's 0:22:07.200 --> 0:22:10.639 it's it's mostly an inventory in a trade cycle, pretty 0:22:10.680 --> 0:22:14.600 pretty damp. But it might just mean that the slopes 0:22:14.640 --> 0:22:18.879 going down to the more significant problems we have later 0:22:18.960 --> 0:22:22.199 in the year as the Fed titans more. Vince, just 0:22:22.240 --> 0:22:24.560 real quick here, Given the consumer data that we've seen, 0:22:24.600 --> 0:22:26.520 in the fact that they do continue to spend whether 0:22:26.560 --> 0:22:29.800 it's with credit cards or not. Their balance sheets look 0:22:29.840 --> 0:22:32.159 like they are in a pretty good position. How quickly 0:22:32.240 --> 0:22:34.920 could they turn over to achieve some of the negative 0:22:34.920 --> 0:22:38.640 scenarios that a lot of forecasters have out there. Yeah, 0:22:38.720 --> 0:22:42.200 and added to your list is the retained saving from 0:22:42.200 --> 0:22:44.639 all the fiscals or jess of two thousands and two 0:22:44.720 --> 0:22:49.120 thousand twenty one one. That's that's still over a trillion 0:22:49.520 --> 0:22:55.439 trillion dollars. So that helps household unfortunately helps it's skew 0:22:55.600 --> 0:22:59.720 to hire income households who manage their balance sheets better. 0:23:00.160 --> 0:23:03.200 So I think there can be some issues going down 0:23:03.200 --> 0:23:08.080 the road. Remember also that, yeah, the unemployment rates three six, 0:23:08.200 --> 0:23:12.760 but real wages are declining, so actually real household income 0:23:13.000 --> 0:23:18.240 income is going down. That will be a problem. And 0:23:18.280 --> 0:23:22.480 then the last thing to note is, uh, some of 0:23:22.720 --> 0:23:26.720 the benefits household has had from government policies are more forbearance, 0:23:26.800 --> 0:23:31.720 not forgiveness. Uh, that's that's going away, and and that 0:23:31.760 --> 0:23:35.040 therefore will expose their balance sheets more. It's not going 0:23:35.080 --> 0:23:39.120 to be a household recession, I don't think. I think 0:23:39.480 --> 0:23:43.840 um households are better positioned in the US. Uh, not 0:23:44.000 --> 0:23:47.080 as obvious in other places of the world. But but 0:23:47.359 --> 0:23:49.959 the US is more of a more of more of 0:23:49.960 --> 0:23:53.120 that fortress balance sheet. Vincent, thank you so much. Dr 0:23:53.200 --> 0:23:57.920 Reynhard with Dreyfus and Melon this morning. Vincent Reynard, of course, 0:23:58.000 --> 0:24:01.560 is decades of work at the Federal Reserve for the nation. 0:24:02.000 --> 0:24:05.760