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Speaker 2: We're justking a great little conversation with Jenny Sorain here
Speaker 2: in our studio ahead of her story because it is
Speaker 2: among the most right on the Bloomberg. It's also the
Speaker 2: Bloomberg Big Take. It's about the hot money that is
Speaker 2: scorching regional bank profits after they were losing lots of deposits.
Speaker 2: So let's get into it. The who, what, where and
Speaker 2: why with us is Bloomberg News Finance reporter Jenny Sorain
Speaker 2: in our Bloomberg Interactive Brokers studio. So great story, Thank you,
Speaker 2: amazing story. So tell us what's going on and what
Speaker 2: is hot money?
Speaker 3: So hot money is the word that regulators like to
Speaker 3: call broker deposits. And these are basically deposits that banks
Speaker 3: get whenever they use a third party to go out
Speaker 3: and a deposits for them. The reason that regulators don't
Speaker 3: like them is, you know, these brokers are typically connecting
Speaker 3: these banks with wealthy individuals, big corporations that are just
Speaker 3: looking for a better rate on their cash, and so
Speaker 3: that means as soon as a better rate comes along,
Speaker 3: this money is quick to depart. So regulators really do
Speaker 3: view it as kind of a more risky way to
Speaker 3: fund yourself. And on top of that, it's a lot
Speaker 3: more expensive than the kind of core deposits banks you
Speaker 3: know have relied on for so long.
Speaker 4: Why do I mean, I've been thinking about this since
Speaker 4: last night, so I read your story and it's been
Speaker 4: on top of my mind. For one thing, because I'm
Speaker 4: already angry about the FHLB story, right, But then I
Speaker 4: was thinking about broker deposits and how exactly do they work.
Speaker 4: On the one hand, it seems they could be very
Speaker 4: simple and benign, right like my bank offers certificates of
Speaker 4: deposit where I get very high interest rates if I
Speaker 4: promise to keep the money locked up there for a
Speaker 4: long time.
Speaker 5: But that's different from a broker deposit, isn't it.
Speaker 3: So in some cases, a broker deposit can be a
Speaker 3: certificate of deposit. It all depends on if there's like
Speaker 3: a third party kind of sitting in between you and
Speaker 3: the bank and so there's these networks that will connect,
Speaker 3: like I said, like wealthy individuals or big corporations to
Speaker 3: all these regional banks that are in need of more liquidity.
Speaker 3: And so that's that's really I think the kind that
Speaker 3: that regulators don't like because there's not that like direct
Speaker 3: relationship that a consumer would have with the bank, and
Speaker 3: so they don't feel anything about moving their money. And
Speaker 3: you're right that it is really good for consumers. I mean,
Speaker 3: this is a way for folks to get the rate
Speaker 3: that they should be getting probably on their cash. But
Speaker 3: for the banks, it's it's really expensive. It's really you know,
Speaker 3: pinging their profits, putting pressure on them. And so it's
Speaker 3: sort of a yeah, a tale of two cities, as
Speaker 3: it were.
Speaker 2: How much more expensive is it?
Speaker 3: I mean, over the last year, interest expenses have risen
Speaker 3: twelvefold and.
Speaker 4: As a result, and that's putting it lightly by the way,
Speaker 4: because a lot of banks that like me and Carroll
Speaker 4: probably use banks that we're paying less well less than
Speaker 4: one percent inflation, right, it's right interest, and these broker
Speaker 4: deposits are probably paying five percent plus the banks need
Speaker 4: to give the broker a cut.
Speaker 3: Yeah, yeah, so these yeah, exactly, So this is you know,
Speaker 3: around five percent is kind of the going rate these days.
Speaker 3: And yeah, I mean a year ago, most banks weren't
Speaker 3: paying anything like, well well below one percent on core deposits.
Speaker 3: So these are much more expensive. Interest expenses are going up.
Speaker 3: You've already heard from a number of regional bank executives
Speaker 3: warning that, you know, the profits that we thought we
Speaker 3: were going to have this year, that's not looking likely anymore.
Speaker 2: Can I ask you something, our is private credit loaning money?
Speaker 2: Do we know if private lenders are actually loaning money?
Speaker 3: I think so for the most part, this is really
Speaker 3: you know, the cash that a company has on its
Speaker 3: balance sheet. They and for the past year have probably
Speaker 3: been hearing, you know, us talking about interest rates going
Speaker 3: up a lot, and they were earning less than one
Speaker 3: percent on that cash. And so now they've kind of
Speaker 3: woken up. They've realized, hey, I'm getting charged more for
Speaker 3: my loans. I need to be making more of my deposits.
Speaker 3: And so you're just seeing a lot of these customers
Speaker 3: finally kind of wake up and say I need to
Speaker 3: make more. On top of that, we had three regional
Speaker 3: banks fail, you know, at the start of the year,
Speaker 3: and so anybody who was sitting on large piles of
Speaker 3: uninsured cash. We're also like, I need to find a
Speaker 3: network that allows me to get more insurance on this cash.
Speaker 2: So you know what I'm saying, right, those private credit funds,
Speaker 2: Like I'm just curious if they're taking some of their
Speaker 2: funds and throwing it in a bank for a little
Speaker 2: bit and then just pulling it when they want.
Speaker 3: It, that's a great Actually, that's a really good question.
Speaker 3: I don't know, it's because it's like.
Speaker 2: I guarantee like five percent. Yeah, it's for like a
Speaker 2: month or two, right, Yeah, truly, if they haven't put
Speaker 2: it to work, that's very good. So next story exactly.
Speaker 4: So I wonder if regulators are going to crack down,
Speaker 4: and maybe not on broker deposits, because, as you point out,
Speaker 4: they've been around for a while, regulators don't love them,
Speaker 4: but they haven't done anything about them yet. On the
Speaker 4: other hand, we're just now seeing the light shone on
Speaker 4: the FHLB issue, and we're right ahead of an election year,
Speaker 4: so it seems like the perfect time to crack down
Speaker 4: on this like one hundred year old institution.
Speaker 3: Yeah. I think the bigger way that we'll see crackdown
Speaker 3: is like I think First Republic is actually a really
Speaker 3: good example where they didn't get seized and you know,
Speaker 3: ultimately fail because of some big rush on deposits. It
Speaker 3: was more of a slow bleed and they were replacing
Speaker 3: that slow bleed with these more expensive forms of funding.
Speaker 3: And so ultimately, when regulators sees them, they were like,
Speaker 3: you know, this has everything to do with the fact
Speaker 3: that your borrowing costs have gone up in such a
Speaker 3: manner that you were no longer you're structurally unprofitable, and
Speaker 3: you're no longer able to operate in a safe and
Speaker 3: sound manner. And so I think you'll start to see regulators,
Speaker 3: you know, really taking that seriously and saying, you know,
Speaker 3: if you've had to backfill this you know, you know,
Speaker 3: slow and steady decline and deposits with these more expensive
Speaker 3: forms of funding, we're going to take notice and we're
Speaker 3: gonna you know, show So you.
Speaker 5: Think they're gonna shut down.
Speaker 3: More banks, I hesitant to say that. I think more
Speaker 3: banks are aware that that is that's the risk here, Yeah, exactly,
Speaker 3: that's what That's what I think is this next phase
Speaker 3: of the regional bank turmoil is you know, we're not
Speaker 3: seeing these big sudden rush on deposits anymore. It's really
Speaker 3: this slow bleed that is more worrisome in a way
Speaker 3: and could honestly affect a lot more lenders.
Speaker 2: Well, one of the things I loved in your story
Speaker 2: is you talked I guess it was specifically somebody quoted
Speaker 2: the chief financial officer at Western Alliance, I guess about
Speaker 2: current liquidity. I mean, are we not getting a clear
Speaker 2: picture of the bank's liquidity picture as a result because
Speaker 2: of this, money can be yanked very quickly.
Speaker 3: I think that's what regulators fear, and that's they actually
Speaker 3: do have really stringent rules around broker deposits that they're
Speaker 3: not viewed as favorably as like the typical core deposit
Speaker 3: that a bank will have, and so that's why regulators
Speaker 3: have long hated them. You don't get broker deposit numbers
Speaker 3: and earnings. You get them in call reports weeks later.
Speaker 3: Even the data that we based our story off of
Speaker 3: this is all first quarter data, and really this was
Speaker 3: an issue only in the last two weeks of the
Speaker 3: first quarter. So even now it's just the tip of
Speaker 3: the iceberg really coming out, and I think the second
Speaker 3: quarter data that we get in the coming weeks and months,
Speaker 3: that's going to be a lot more worrisome.
Speaker 5: So, I mean it makes sense. I'm from Ohio, my
Speaker 5: whole family is from there. You always have views.
Speaker 4: Huntington Bank or Park National or one of these you know,
Speaker 4: local regional banks, and we're unlikely to move our money
Speaker 4: out of there because it's part of who we are,
Speaker 4: right But these broker deposits, how likely are they to
Speaker 4: shift from one bank to another.
Speaker 5: Or be polled?
Speaker 3: So some of the hope is that because more folks
Speaker 3: are doing this because they want more FDIC insurance on
Speaker 3: their deposits, the hope is actually that they wouldn't need
Speaker 3: to move as much because as long as you know,
Speaker 3: whatever regional bank is still offering five percent, even if
Speaker 3: that person can get five point two percent by you
Speaker 3: know moving, really they're there for the FDIC insurance and
Speaker 3: so it should be fine. But we really don't know.
Speaker 3: I mean, this is kind of a new era where
Speaker 3: it's a lot easier to move your money than it
Speaker 3: ever has been before. I mean, that was one of
Speaker 3: the big issues we saw with Silicon Valley Bank. So
Speaker 3: a lot of exactly on your phone and it's you know,
Speaker 3: hundreds of thousands of dollars move. So it's just it's
Speaker 3: hard to know. And I think that's also why regulators
Speaker 3: have so much anxiety around this issue, is you really
Speaker 3: don't know what consumer behavior will be like, given how
Speaker 3: much tech has evolved since the last crisis.
Speaker 2: Jenny, about forty five seconds left here. So with more
Speaker 2: earnings just around the corner, we've already gotten warnings as
Speaker 2: you guys, as you write in your story about from
Speaker 2: M and TV, from Columbia Financial, from Fifth Third Bank Corps,
Speaker 2: should we expect that there could be some not so
Speaker 2: great earnings releases in that in the next round of
Speaker 2: quarterly earnings. I'm just thinking about for our audience who's
Speaker 2: thinking about investing and maybe have been looking at this space.
Speaker 3: I think yes, I mean, I think a lot of
Speaker 3: these regional banks have already started to kind of prepare
Speaker 3: investors for this new reality. But I think we'll hear
Speaker 3: a lot more comments like that in the coming weeks
Speaker 3: as banks kind of come to terms of the fact
Speaker 3: that they might have set guidance in January that you know,
Speaker 3: wasn't anticipating a bank crisis in March, and you know,
Speaker 3: further rate hikes, and so I think You're going to
Speaker 3: see a lot more kind of you know, honesty and
Speaker 3: transparency from these bank executives as they realized the extent
Speaker 3: of the problem.
Speaker 2: Hot money. What's the matter is.
Speaker 5: Fifth Third Bank Corps Latin for?
Speaker 6: What?
Speaker 5: Is it like the Marine Corps?
Speaker 7: Did I say it again?
Speaker 2: I always say in a core corp? All Right, I
Speaker 2: can't help it. It's like this hang in my head,
Speaker 2: fifth Third Big Court.
Speaker 5: This has been going on for twenty years. Jack, Yeah,
Speaker 5: I do don't.
Speaker 2: Yeah, I know. It's you know, just some things you
Speaker 2: just got to accept. Yeah, what I am Jenny Sarying,
Speaker 2: great story. It's a Bloomberg big take. It is among
Speaker 2: our most read on the Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 8: A little bit.
Speaker 2: You used to just that movie, No, not The Bodyguard.
Speaker 2: There's actually a movie like on her.
Speaker 5: No, it's actually well done.
Speaker 2: It's really well done. Anyway, I digree The Biggest Little Farm.
Speaker 2: I haven't seen that yet.
Speaker 5: You should see that.
Speaker 2: Have you seen air, Yes, have you seen the what's
Speaker 2: going on with treasury yields today?
Speaker 5: Yeah? Very cool?
Speaker 4: I mean fourteen basis point jump right in the ten
Speaker 4: year yield and Bill Dudley out with the column saying
Speaker 4: he thinks the ten year should be about four and
Speaker 4: a half percent rather than what are we looking at
Speaker 4: right now?
Speaker 5: Three eighty four?
Speaker 2: Uh yeah, I think so, I just head it up there,
Speaker 2: let me just pull it up. But bun got a
Speaker 2: ten yere at three eighty five? Is that what you're
Speaker 2: looking at the tenure? Yeah? Three hundy five? All right,
Speaker 2: So let's see because we, as we said, swap markets
Speaker 2: now indicating you know, we're looking at what two rate
Speaker 2: hikes by the Fed by year end. So let's try
Speaker 2: to make some sense out of it with us. Lucky
Speaker 2: for us in studios Ben Emmons, he's senior portfolio manager,
Speaker 2: head of fixed income over the wealth management firm New
Speaker 2: Edge Wealth, and he's here, as we said in our
Speaker 2: Blue Work Interactive Brokers Studio.
Speaker 9: Hello, Hello, Hi Carol, it's great to meet you.
Speaker 2: It's nice to meet you. I've heard a lot about you.
Speaker 5: Hi, thank you.
Speaker 2: So make sense of today's moves? Is this logical? Is
Speaker 2: this where we should be and in terms of what
Speaker 2: we're seeing along the Treasury curve.
Speaker 9: Yeah, I think it's logical, and there's actually two reasons why.
Speaker 9: So obviously the GDP data surprise. But you know, as
Speaker 9: Matth was starting the segment off the bally of the curve, underperformance.
Speaker 5: That tends to happen.
Speaker 9: The ball mar could recognized strong growth. The five year
Speaker 9: part sells off the most. That's I think if very
Speaker 9: logical reaction. The auto reaction is that Powell overnight puts
Speaker 9: in a speech that there could be two or more
Speaker 9: rate hikes. That really caught a lot of people's attention
Speaker 9: because he endorsed the dop lot the day before in
Speaker 9: the Penelt and Cintra saying it could be more rate
Speaker 9: hikes meaning I'm saying what the forecast is showing you.
Speaker 9: But if you say two or more, if you look
Speaker 9: at that dop lot, anything beyond where the median is,
Speaker 9: which is five point six two five percent, are those
Speaker 9: three little dots on the top that are.
Speaker 2: Six to six and quarter percent different?
Speaker 5: Huge difference.
Speaker 9: So the bomb marker is edging here a bit about Okay,
Speaker 9: we're getting core PC tomorrow, which, by the way, Powell
Speaker 9: also floated in the speech saying likely to be four
Speaker 9: point seven percent, which is the number that forecasts tomorrow.
Speaker 9: You know, that's too high inflation, and with the growth
Speaker 9: number today being this strong, means that inflation like that
Speaker 9: stays high, and that means yes that maybe not only
Speaker 9: two high rate hydred may have to be more. I
Speaker 9: think that's the reaction to it.
Speaker 4: So what do you think about the underlying economy though, Ben?
Speaker 4: I mean, we got some good numbers today on the economy, but.
Speaker 5: They're very backwards looking.
Speaker 4: Right, we're talking about first quarter GDP and personal consumption.
Speaker 4: First quarter core PCE in fact, was revised down. Does
Speaker 4: the economy look good to you here or do we
Speaker 4: need to see earnings to really judge that.
Speaker 9: You do need to see earnings to judge it. And
Speaker 9: there it's corporate profits, right, we were at least too and
Speaker 9: they were down for the first quarter. So there's one
Speaker 9: one I guess, softness in the economy. But what stood
Speaker 9: out to me that number was that the housing market
Speaker 9: is coming through the data. You know, the fixed structures
Speaker 9: is one component was actually much higher. So it does
Speaker 9: tell you that rates are not finding everywhere. You know,
Speaker 9: it's footprints in order to slow the economy truly down.
Speaker 9: We would have otherwise had a number that would have
Speaker 9: not been this two percent or so, it would have
Speaker 9: been downside surprise. So I think backward looking data. But
Speaker 9: it is an economy that's on his feet and resilient
Speaker 9: and that's the worst right and therefore growing stronger than potential.
Speaker 2: Then could we theyll get potentially what you know, like
Speaker 2: a rolling recession. We saw housing take a hit, go
Speaker 2: back what a few months, go back last year right
Speaker 2: as rates started to tick higher. So could we that
Speaker 2: at this point people like I got to buy a
Speaker 2: house or something. Could we see that there's just going
Speaker 2: to be different parts of the economy so that it
Speaker 2: won't be felt so severely.
Speaker 9: Yeah, because if you if you could say no, yeah,
Speaker 9: I don't like to say that, but you probably have
Speaker 9: a good point. You know, we come out of a
Speaker 9: pandemic and we're getting a big inventory correction first, then
Speaker 9: it spills over to the housing market. Then we're seeing
Speaker 9: an auto is a big correction, and then we probably
Speaker 9: see at some point that the travel leisure chector will
Speaker 9: slow down. It's going to be no, it's sound unstatable
Speaker 9: to mend but it's going to taper off at some points.
Speaker 9: And obviously we have seen on the manufacturing side quite contraction,
Speaker 9: but it doesn't feel the traditional Mber recession definition really
Speaker 9: because we haven't seen unemployment rate going up so quick
Speaker 9: so fast that it makes you really wonder like, Okay,
Speaker 9: we're having a lot of layoff announcements, we're having layoffs,
Speaker 9: but it having no really material impact on widespread unemployment.
Speaker 9: I think that's the key missing agreement.
Speaker 5: So is the issue.
Speaker 4: You know, corporations are sufficiently financed better than they have
Speaker 4: been in the recent past, and households have bigger bank deposits,
Speaker 4: people have you know, thirty year fixed interest, fixed rate mortgages.
Speaker 4: So basically these long and variable effects are taking even
Speaker 4: longer to make a difference.
Speaker 9: Yeah, and maybe not what you ate us said that
Speaker 9: it takes twenty five years like in Japan, but it's
Speaker 9: definitely taking longer because in an air off QE actually
Speaker 9: generate all the benefits you just describe math. You know,
Speaker 9: if you have, indeed companies that have been able to
Speaker 9: refinance their debt at double the maturity that they had
Speaker 9: pre financial crisis, if you have corporate sorry households that
Speaker 9: are better positioned in terms of savings and bound sheet.
Speaker 9: Why I had only a cover more than two thirds
Speaker 9: of the economy. So interstrates will take time to work
Speaker 9: through the system. Interstates will take time also to actually
Speaker 9: change people's behavior ultimately. I think that's the other part
Speaker 9: of it. You know, we haven't seen really a significant
Speaker 9: change of Oh I'm looking at treasury yields now over
Speaker 9: five percent, say I'm going to really pair back and
Speaker 9: to sit at home and say if that's not really
Speaker 9: what was happening.
Speaker 2: And we've actually seen money coming into the equity markets.
Speaker 9: Right, people are comfortab with the last one.
Speaker 2: Let me ask you something in terms of the Fed's
Speaker 2: dual mandate. Right, you've got inflation, and you've got the
Speaker 2: jobs market. Might have fed as much as we are, Like,
Speaker 2: I don't know if they're going to get back to
Speaker 2: two percent. Might the FED more likely have to abandon
Speaker 2: in terms of more weakness and pain in the job
Speaker 2: market because maybe there's just demographics going on. I've had
Speaker 2: family members who would have been still working, but you know,
Speaker 2: at the pandemic hit and they're like, you know, I'm
Speaker 2: going to go in an early retirement. I keep hearing
Speaker 2: stories about you know, companies wanting to bring back older
Speaker 2: workers because teenagers aren't taking jobs and so on and
Speaker 2: so forth that they used to. Is there we don't
Speaker 2: have immigration like an aging of the population. Is there
Speaker 2: a chance that demographically there are some macro forces going
Speaker 2: on that are going to keep a tight labor market
Speaker 2: going for longer?
Speaker 9: Have you take a very simple metric of the labor
Speaker 9: force participation rate, you're looking at that twenty year history.
Speaker 9: You're seeing the blow that happened in two thousand and
Speaker 9: eighth of yes, big fall in that labor force participation
Speaker 9: because people were sidelined and did not come back into
Speaker 9: the labor force and then being either discouraged or early retirement.
Speaker 9: And we had the same blow again in twenty twenty,
Speaker 9: only that labor force participation rates went down just as
Speaker 9: much like interust rates went down, same with so with
Speaker 9: big trough pig trough. So it will take a lot
Speaker 9: to get more and more people back into labor force.
Speaker 9: In other words, current rage is running somewhere three and
Speaker 9: a half four and a half percent range. We'd have
Speaker 9: to probably double to get people really pulled back in.
Speaker 9: And then there's still groups of people that say, like
Speaker 9: you know what, I got enough money to retire. I
Speaker 9: don't want to go back into this, and I think
Speaker 9: this economy could become way too cyclical or I'm uncertain
Speaker 9: about it, or I have other things to do and
Speaker 9: I don't want to want to.
Speaker 2: Work, so it could stay strong, Yes, I.
Speaker 9: Think so, I think if we're dealing with a demographic
Speaker 9: effect that we've had in Japan, Yeah, only Japan has
Speaker 9: you know, at least ten years ahead of us with them.
Speaker 4: So the Fed has to then keep raising rates, and
Speaker 4: you know, by Dudley's math, we could see treasuries hit
Speaker 4: four and a half percent on the tenure. At what
Speaker 4: point do you say, okay, now I want to lock
Speaker 4: in these rates.
Speaker 9: Yeah, you know, one that we do get a decisive
Speaker 9: change in that core inflation number. Right, So if the
Speaker 9: core PC number tomorrow and subsequent months shows really decline
Speaker 9: and never getting more more confident like okay, fat, you
Speaker 9: are winning this game, You're going to bring that infratirate
Speaker 9: indeed down.
Speaker 5: Then you want to buy treasuries. You do want to
Speaker 5: buy a treasure. At what point do you start to
Speaker 5: go out further out on the curve.
Speaker 9: So what happens then is that as that core number
Speaker 9: starts to decline, the yucur starts to steepen, right, the
Speaker 9: two yield starts to decline, and that that is the
Speaker 9: moment to do that. That's actually when you want to
Speaker 9: extend from short maturity bonds to low maturity bonds, because
Speaker 9: you're going to not only getting the price return and
Speaker 9: out of long term bonds, but so the real return
Speaker 9: because if inflation starts to decline, even if normally yields
Speaker 9: to decline, you're getting a better real return.
Speaker 2: So then do we see money coming out of the
Speaker 2: equity side of things at that at that point.
Speaker 9: So I think that the yukur of inversion not having
Speaker 9: an impact on the stock market is interesting. Right the
Speaker 9: stock market set like at least this year, that is
Speaker 9: the case. Stock market says like okay, restrictive policy is
Speaker 9: sufficient that it brings that infrati rate gradually down, means
Speaker 9: that profit margins don't collapse, and means that not all
Speaker 9: the pricing power all of a sudden gets sucked down
Speaker 9: and therefore the equity market doesn't get a factored so
Speaker 9: much by that inverted you curve that, which I think
Speaker 9: signals this really type policy to get infation and a
Speaker 9: glidepath down. But if you think of the of the
Speaker 9: the switch that we're probably going to see in the
Speaker 9: future in the fixed income market, if you're getting able
Speaker 9: we call bulls deepening, meaning the two yields has a
Speaker 9: really decline much faster than the tenure yield. That's a
Speaker 9: signal of real economic weakness. I think that's a signal
Speaker 9: of fat You have to indeed start truly pivoting and
Speaker 9: moving to a different policy stance that would I think
Speaker 9: be taking negative better stubmre But.
Speaker 5: Is I mean pals has years out?
Speaker 2: Do you agree?
Speaker 5: Yeah, so that's interesting.
Speaker 2: Quickly we got twenty Yeah, so if you.
Speaker 9: Believe that you're not going to hit the target until
Speaker 9: twenty twenty five, you're going to stay in this very
Speaker 9: type policy inverted you curve and therefore we may not
Speaker 9: see much change at this point and therefore you cannot
Speaker 9: exten duration so easily as you see today.
Speaker 5: What I'm just glad we had that.
Speaker 2: In day I know we talk about thank you, Thank you,
Speaker 2: gl pleasure. Ben Emin's senior portfolio manager, head of fixed
Speaker 2: income over at New Edge Wealth. Here in our interactive
Speaker 2: broker studio, I'm Carol Master along with Matthew Miller, and
Speaker 2: you are listening and watching Bloomberg Radio.
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Speaker 2: All right, Well, Bloomberg recently releasing some data from Provident Bank.
Speaker 2: They did a national survey, Matt and they found sixty
Speaker 2: seven percent of small to medium sized business owners and
Speaker 2: execs believe a recession is likely in twenty twenty three.
Speaker 2: And I got to say, you run a small business,
Speaker 2: it ain't easy.
Speaker 5: Yeah, No, for sure.
Speaker 4: It's really especially with credit conditions tightening. You know, if
Speaker 4: you can't get alone and you have to go to
Speaker 4: private credit, you're going to have to pay more for that.
Speaker 4: We've talked about and one of the biggest problems I
Speaker 4: think for small business owners is not access to capital.
Speaker 5: I would guess labor.
Speaker 4: You know, finding people to hire, depending on what you're
Speaker 4: doing on this issue can be a huge issue.
Speaker 2: That's why a lot of them are actually being very
Speaker 2: flexible with working conditions right now. But even harder I
Speaker 2: think from the get go is finding funding to start
Speaker 2: one in the first place. And our next guest knows
Speaker 2: about that a lot. We're delighted to have with us.
Speaker 2: Elizabeth Gore, president and CEO of Hello Alice it's a
Speaker 2: free platform designed for and buy small business owners, and
Speaker 2: she joins us on Zoom in San Francisco, designed for
Speaker 2: and buy small business owners. I don't know that I've
Speaker 2: read that so well.
Speaker 5: So I understood it perfectly.
Speaker 2: I'm not understanding anything on this Friday. No, it's Thursday, Elizabeth.
Speaker 2: Nice to have you here with Matt and me.
Speaker 4: Great.
Speaker 8: That sounded good to me.
Speaker 2: Tell us about what you guys are up to and
Speaker 2: how you got here and how.
Speaker 8: It all Startedly, we're very proud of Hello Wallis to
Speaker 8: be the largest community serving small business owners. We have
Speaker 8: one point three million small business owners who are acts
Speaker 8: capital on our platform and most importantly, really understanding their
Speaker 8: financial health.
Speaker 5: All right. So are they healthy right now?
Speaker 8: That's a great question, you know. I have both the
Speaker 8: sense of optimism but also a stark reality check. We
Speaker 8: have five times the amount of businesses right now launching
Speaker 8: in our country than the last twenty years. So both
Speaker 8: with folks coming out of COVID and wanting more flexibility,
Speaker 8: and then also the amount of layoffs that folks decide well,
Speaker 8: you know, and I'm going to pursue my dream. Finally,
Speaker 8: there is a lot of businesses opening. Additionally, we have
Speaker 8: mostly women and people of color launching those businesses, which
Speaker 8: is very exciting. The reality check I have is getting
Speaker 8: access to capital in the first twenty four months of
Speaker 8: that business is very hard, particularly getting loans, and so
Speaker 8: most small business owners are relying on operational credit, which
Speaker 8: can also be very challenging, particularly if you think of
Speaker 8: women who've been in the care economy who don't have
Speaker 8: access to get credit history US veterans coming home without
Speaker 8: credit history. So our job at Halo Wallis is ensure
Speaker 8: they get that equable access to credit that they need.
Speaker 2: Well, that's a really good point.
Speaker 4: How do is care economy a phrase that I didn't
Speaker 4: know what is that?
Speaker 8: So if you really look at women who stepped away
Speaker 8: from the workforce to take care of their children, take
Speaker 8: care of elder care, their community around them, they're in COVID.
Speaker 8: There was a big step back with women in the
Speaker 8: workforce or running their own business. It was a real
Speaker 8: necessity during COVID. So if you think of that two
Speaker 8: to three year gap maybe and their credit history, it
Speaker 8: has an impact of what they can apply for now.
Speaker 2: Yeah, that's really worsome. And we saw that, right, I
Speaker 2: think Elizabeth, we thought the pandemic was going to be
Speaker 2: kind of freeing for women, right, this flexibility of being
Speaker 2: able to work at home, and then all of a
Speaker 2: sudden it was like, yeah, you can, but you'll just
Speaker 2: got to take care of the kids and your mom
Speaker 2: and your dad or your grandparents.
Speaker 7: Like.
Speaker 2: It was a lot placed on women and it really
Speaker 2: put I think a lot out of them in terms
Speaker 2: of being able to either pursue their careers or start
Speaker 2: a business. So tell us, first of all, where do
Speaker 2: you guys get your funding to help others?
Speaker 8: Absolutely so, at Hello Allis we run a thirty million
Speaker 8: dollar grant program that comes from both government philanthropy as
Speaker 8: well as enterprise companies. We also distribute credit and secured credit.
Speaker 8: That is our own program at Hello Wallis in partnership
Speaker 8: with MasterCard. And then we're also working very hard on
Speaker 8: equitable loan access, so we have a loan center here
Speaker 8: with ninety two lenders. We follow the lender's bill of
Speaker 8: rights to make sure that there's no predatory lending and
Speaker 8: that ranges from banks to CDFI's And now we are
Speaker 8: launching a significant fund that is also helping small business
Speaker 8: owners put forth collateral. If they don't have that credit history,
Speaker 8: then they will need to actually access some kind of
Speaker 8: credit enhancing tool to make sure that they can apply
Speaker 8: for traditional credit.
Speaker 2: Community Development Financial Institutions fund A head to look up
Speaker 2: CDFIs in terms of that they're out there, sorry, head
Speaker 2: to check, Thank you Google, I get it.
Speaker 4: So is I mean you go beyond just giving money, right,
Speaker 4: you also educate and help people with I just wonder
Speaker 4: what the biggest problem is for these businesses once they
Speaker 4: get over the funding hurdle, the initial funding, what problems
Speaker 4: are they facing?
Speaker 8: So I can't underscore I can't skip over access to capital,
Speaker 8: by the way, just being the number one problem for
Speaker 8: these business owners. And again, whether that's credit, whether it's loans,
Speaker 8: whatever that may be, once that does happen, and actually
Speaker 8: their financial acumen is really important. So what is my
Speaker 8: business health? Could not be a more important topic for
Speaker 8: all of us in this country to talk about right now,
Speaker 8: most small business owners are very good at providing that
Speaker 8: pet care, being your child care provider, or that coffee
Speaker 8: shop or that art that they're selling. Most of us
Speaker 8: do not have business degrees. So what we do at
Speaker 8: Hello Wallis is provide a business health score, which is
Speaker 8: super easy. It lets you come in fill out a
Speaker 8: specific survey on everything from you know, what is your
Speaker 8: credit to your cash flow situation, and we really help
Speaker 8: you navigate that business plan and understand your financial health.
Speaker 8: Just because you have the money in the bank, how
Speaker 8: are you spending it? You talked about employees, When can
Speaker 8: I approachally hire that first fte? How am I paying
Speaker 8: my taxes? So we really equate access to capital and
Speaker 8: financial health together.
Speaker 2: And is that really the key to success? I always
Speaker 2: think about it because we talk often about the number
Speaker 2: of people who start small businesses and then they don't
Speaker 2: work out. Is it the access to capital the number
Speaker 2: one thing that keeps somebody going or is it you know,
Speaker 2: as Matt was talking about, and you were talking about
Speaker 2: financial acumen or financial literacy and understanding kind of all
Speaker 2: the things and just got about thirty seconds left here.
Speaker 8: Yeah, financial literacy is the number one so we again
Speaker 8: we say your business financial health is more important than
Speaker 8: even accessing that capital. The number one place to get
Speaker 8: capital is from your customers, from those receipts, So that
Speaker 8: is really critical.
Speaker 2: All Right, we're gonna leave it there. Hey listen, thank
Speaker 2: you so much of a great holiday weekend. Elizabeth Gore.
Speaker 2: She's present in CEO of Hello Alice. If you want
Speaker 2: to find out more, you can find them on the
Speaker 2: net the internet. Hello Alice dot.
Speaker 5: Com, Twitter at Twitter is hellolics dot com? Right or sorry,
Speaker 5: Twitter is at Hello Alice.
Speaker 2: Yeah, i'd say, but yeah, if you just google Hello Alice,
Speaker 2: you'll find it. It's really interesting.
Speaker 10: Now.
Speaker 2: I always think about it because we did see a
Speaker 2: lot of people starting small businesses during the pandemic. But
Speaker 2: you just wonder, you know, how they're doing and what
Speaker 2: they need. But kew things.
Speaker 5: The amount of new businesses started. She said that in
Speaker 5: the last what twenty.
Speaker 2: Years, a lot. It's a lot.
Speaker 1: All right.
Speaker 2: You are listening and watching Bloomberg Business Week Carol Meser
Speaker 2: along with Matthew Miller. It is Thursday, This is BusinessWeek.
Speaker 2: This is Bloomberg Radio.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 2: Oh yeah, there are there are folks out there taking
Speaker 2: the money and running. When you hear that, you know,
Speaker 2: the Heist Issue. It's just it's here everybody. It's happening
Speaker 2: for the last five years. It's a double issue Bloomberg
Speaker 2: Business Week. We look forward to it. It's stories of intrigue, thievery,
Speaker 2: scheme scams, good guys and bad guys, and it's really
Speaker 2: just great summer reads. And Matt and I have been
Speaker 2: funny looking at having had some fun looking over the issue.
Speaker 2: So let's get an overview of the Heist Issue. It
Speaker 2: is on newsstands, online at Bloomberg dot com, Slash BusinessWeek,
Speaker 2: and of course on the Bloomberg terminals. So let's get
Speaker 2: to it with Bloomberg BusinessWeek Features editor Jeremy Keener on
Speaker 2: zoom in New York City. Hi, Jeremy, also the editor
Speaker 2: of Bloomberg Busin this week, til weber right here in
Speaker 2: our Bloomberg Interactive Broker's studio. This is a fun issue.
Speaker 6: Oh, it's one of my favorites of the year and
Speaker 6: we go cover to cover In in heist, there are
Speaker 6: you know, sortied tales, there are cliffhangers, there are ongoing mysteries.
Speaker 6: There are bank rubbers who are bad guys, or a
Speaker 6: bank rubbers who are maybe not bad guys. It's got
Speaker 6: it all. Jeremie Keane puts it all together. We wrote
Speaker 6: these stories out over the course of a week. We've
Speaker 6: still got a little bit more to give you tomorrow, which.
Speaker 5: I say it is like, so.
Speaker 6: If BusinessWeek kind of shark week, this is it.
Speaker 5: I think it's so cool.
Speaker 4: And but the thing is, when I first thought about it,
Speaker 4: when I first heard the concept, I thought cool because
Speaker 4: I want to someday be part.
Speaker 5: Of a heist, right.
Speaker 4: I think we all you might regret that we all
Speaker 4: sort of do. But some of these thieves are really
Speaker 4: bad people. Like we talked about one of the stories
Speaker 4: yesterday made me very angry, like who steals benefits from
Speaker 4: the poorest people in America?
Speaker 1: Sad?
Speaker 6: Right, Yeah, And what feels really challenging about that one
Speaker 6: is all it would take is the government to put
Speaker 6: a little chip in a card and it would protect
Speaker 6: But because it's still a swipe and we all know
Speaker 6: how vulnerable those ATM cards can be. Like some of
Speaker 6: the most vulnerable people don't have anybody having their back.
Speaker 6: So the stories go in many, many, many different directions.
Speaker 6: Like I said before, Jeremy Keene is the architect of
Speaker 6: the issue and decide what goes what's not in the issue.
Speaker 6: One little fun fact, I know you read this one already.
Speaker 6: Jeremy did a story wrote for almost a year now. Jeremy,
Speaker 6: you've been working on this thing, right, put put a
Speaker 6: filter in place to basically track all the crazy weird
Speaker 6: stuff that has been stolen since our last heist issue
Speaker 6: a year ago. Jeremy, what was your single favorite thing
Speaker 6: on that list?
Speaker 11: I think that would have to be the eight foot
Speaker 11: statue of Gary the gorilla was stolen from a garden
Speaker 11: center in Scotland. And one of the nice things when
Speaker 11: you drink, you drill down into the into these news
Speaker 11: of the weird type stories, and one of the things
Speaker 11: that's great is there's always additional little nuggets that are great.
Speaker 11: And one of my favorite things about that one was
Speaker 11: was after police asked people to call in with tips,
Speaker 11: people were saying, oh, I spotted this eight foot gorilla
Speaker 11: statue going down the highway, and they pointed out that
Speaker 11: in fact, it was Gary's twin brother that was made
Speaker 11: by the same company, but not Gary. Gary remains missing.
Speaker 5: What about the Morgue, Oh yeah.
Speaker 11: That's I mean, that's really quite a story. That's that's ongoing.
Speaker 11: In fact, I think one of some of the main
Speaker 11: people were just just pleaded not guilty in court a
Speaker 11: couple of days ago. This was that Harvard Medical School.
Speaker 11: The main morgue manager has been accused by the government
Speaker 11: of running a trafficking ring in cadaver parts, allegedly selling
Speaker 11: them to to other people who are using them. In
Speaker 11: one case, the allegation is in in I think art
Speaker 11: might be a strong word for it, but some pretty
Speaker 11: grim crafts.
Speaker 5: And hey, one man's trash is another man's treasure.
Speaker 2: Law and order for you know episode, it's really cool.
Speaker 6: So I'm going to do a thing here. One of
Speaker 6: the things I'm going to link this story another story.
Speaker 5: You ready for this?
Speaker 6: Yes, there was an Oscar Mayer wienermobile that lost a part. Matt,
Speaker 6: do you know what part it lost? It was stolen
Speaker 6: by thieves.
Speaker 5: I'm the steering wheel.
Speaker 6: It was the catalytic converter.
Speaker 5: Ah, Yes, because of the platinum and palladium.
Speaker 6: Inside, so they got that whole patch continued on to
Speaker 6: its scheduled event. I'm going to link this story to
Speaker 6: another one that was all about catalytic converter thefts, and
Speaker 6: we went big on this one. It's one of the
Speaker 6: longest stories we've ever published, and definitely in the HIGST
Speaker 6: issue by I just.
Speaker 4: Tell you quickly, we don't call it the Oscar Mayer
Speaker 4: Wiener Mobile anymore.
Speaker 5: Oh it's been there's a new politically correct name.
Speaker 4: It's I think they really They renamed it the Frank Mobile.
Speaker 6: Okay, well, yes, yeah, so the Frankmobile lost its catalytic converter.
Speaker 6: That relates directly to this other story we did. We
Speaker 6: have for the past couple of years keep seeing these
Speaker 6: headlines about all these catalytic converter thefts that have been
Speaker 6: happening across the country, and the parking lot after parking
Speaker 6: lot thieves were going in saws alls, climbing under vehicles,
Speaker 6: removing catalytic converters. And it turns out that was all
Speaker 6: because there are rare earths inside the catalytic converter that
Speaker 6: could be basically reprocessed, and thieves were making thousands of
Speaker 6: dollars off of them, based on the model, could be
Speaker 6: much more lucrative than others. What Evan showed wasn't just
Speaker 6: the trees that this had been happening in one off's
Speaker 6: all over the place. There's a forest of a story here.
Speaker 6: Tulsa Police Department brought down half a billion dollar crime
Speaker 6: ring that was built on your catalytic converters. I don't
Speaker 6: know for sure if the frankmobiles ended up there or not.
Speaker 6: That didn't affect into that narrative. But Jeremy, what was
Speaker 6: so impressive to you about about that story?
Speaker 11: Well, it was not just you know, first of all,
Speaker 11: it seems like almost every everybody you know knows somebody
Speaker 11: who's had the converter off their car stolen because they've
Speaker 11: become so valuable over the past five or so years,
Speaker 11: maybe longer. But it was also really fascinating to see
Speaker 11: the kind of illicit supply chain and the way that
Speaker 11: it ran, you know, through supposedly this a chop shop
Speaker 11: in New Jersey and then and then carrying on too
Speaker 11: Asia and possibly in Japan.
Speaker 6: I believe it was was it is like a scene
Speaker 6: out of remember the show Fargo. Yes, it's like a
Speaker 6: whole season of Fargo baked into this magazine article. For you, Jemy,
Speaker 6: what was another favorite of yours.
Speaker 11: Of articles in the Yeah, I think certainly one of
Speaker 11: the ones that stands out is the sneaker story that
Speaker 11: that also went live today that looked at what what
Speaker 11: looked what looks like something like a Ponzi scheme for sneakers,
Speaker 11: almost the you know the yes they they essentially we
Speaker 11: had somebody who is taking options bets on sneakers. So
Speaker 11: when a when a coveted sneaker was about to be
Speaker 11: released four months down the road, one of the big
Speaker 11: shoe companies made an announcement. This is Michael Malexa Day
Speaker 11: of Zade Kicks had a business where he'd say, okay,
Speaker 11: we can place your orders now. This is how much
Speaker 11: we'll charge you, and in four or five months, we'll
Speaker 11: send you your shoes at the price, at a price
Speaker 11: that you know might be about what the company is
Speaker 11: selling them for. But because sneakers are now resold and
Speaker 11: their values go up depending on how hot they are,
Speaker 11: if you can lock in a good price early on,
Speaker 11: you're going to be pretty excited. So he was selling
Speaker 11: people these pre sales and eventually he reached a shoe
Speaker 11: that was so hot as the Air Jordan cool Grade eleven.
Speaker 11: I believe that that they couldn't. He had so many
Speaker 11: orders that it was going to be impossible to fill them,
Speaker 11: and the whole business came crashing down. He himself had
Speaker 11: to what basically went to the US attorney and said,
Speaker 11: you know, I'm in over my head, and he.
Speaker 2: Went into hiding for a while, right yeah, I.
Speaker 11: Mean because he was look ahead.
Speaker 6: So many people mad at him, and we do not
Speaker 6: want to mess with sneaker sneakerheads want their Air Jordans,
Speaker 6: and when they don't get them, they get very mad.
Speaker 6: So what's interesting about this one is he had like
Speaker 6: sixty thousand boxes worth of shoes, right Jeremy, and they're
Speaker 6: in the process of liquidating them.
Speaker 5: Still.
Speaker 6: The trial he got postponed actually to see how much
Speaker 6: they can actually make off his inventory that he did have.
Speaker 11: He's in bankruptcy proceedings and they have a receiver who's
Speaker 11: sent like going through the warehouse getting basically recovering as
Speaker 11: much value as it can. You can buy some of
Speaker 11: the sneakers on eBay, So.
Speaker 6: I'll mention the other one that I like, you're ready
Speaker 6: for this one.
Speaker 4: I'm amazed by the way just keep they go for
Speaker 4: such a high amount of money.
Speaker 5: They're such cheap, kind of trashy.
Speaker 2: We've been playing on stock x a little bit.
Speaker 5: Anyway, how scare you? I mean, look, some sneakers are
Speaker 5: very cool. I'm not saying that.
Speaker 4: I'm just saying they're very inexpensive to make and often
Speaker 4: sewn together by like kids in Malaysia, I know.
Speaker 5: So it's unbelievable.
Speaker 6: Did they go for tow But then as you learned
Speaker 6: an air you know, my son steps into them and
Speaker 6: they go to a different place.
Speaker 2: Right, So that was a great, great, great movie.
Speaker 6: Okay, So the other story that I just while we
Speaker 6: were talking about the heist issue cover to cover beat
Speaker 6: reads We're trying to steal your summer here. The other
Speaker 6: one I will bring up that we also published today
Speaker 6: is about the Rhino.
Speaker 5: Yeah, but this is another one that's just bad people
Speaker 5: do this kind of stuff.
Speaker 6: Well, okay, so the rhino is now worth more dead
Speaker 6: than alive because of the value of its horn, which
Speaker 6: gets can get about forty thousand bucks in the black market.
Speaker 5: All this trade is illegal.
Speaker 6: So the effort that we write about in the story
Speaker 6: is the good guys tranquilize rhinos in Africa now, many
Speaker 6: of which are in Kruger National Parks South Africa. Tranquilize
Speaker 6: them and then actually take a chainsaw and remove the
Speaker 6: horn rhinos. Okay, turns out horn just like your fingernail.
Speaker 6: It's going to grow back. Takes about five years to
Speaker 6: do so, and in that time you can keep the
Speaker 6: rhino alive because it's not enticing a poacher.
Speaker 2: Right versus poachers who were just killed them, right for them.
Speaker 6: To just let it go exactly. So pretty frightening stuff
Speaker 6: to think about how endangered the African rhino is now
Speaker 6: become because of the interest in poaching, but also this
Speaker 6: you know, unexpected effort. And the story goes through a
Speaker 6: lot of different characters who are all wrapped up in this,
Speaker 6: from the people who have gigantic reserves. To even keep
Speaker 6: them runing alive, they have to have security forces and
Speaker 6: so that's part of the reason why it's so expensive.
Speaker 2: I'm always curious, Jeremy, And forgive me, I think I
Speaker 2: said Keener at the beginning, but I'm just having a
Speaker 2: Friday Bran Jeremy Kean, So what is this? That's my
Speaker 2: nickname Okay, so I'm just going to think, so, what's
Speaker 2: what's the process when you guys are putting this together.
Speaker 2: I think I've talked to Joel about it in the past,
Speaker 2: but I mean I can imagine just the stories coming
Speaker 2: at you guys, because it's just such a cool way
Speaker 2: of telling a story. I feel like each one is
Speaker 2: cinematic in its own right.
Speaker 11: Absolutely, And you know, some of it is not long
Speaker 11: after we put the last one to bed we start
Speaker 11: thinking about, Okay, an idea will come in. Maybe we
Speaker 11: know it's going to take four or five months to
Speaker 11: report out, and right there, okay, great, let's lock it in.
Speaker 11: And it's you know, it's an issue where we have
Speaker 11: a lot of great people at Bloomberg News who are
Speaker 11: working on, you know, different stories and finance and crypto
Speaker 11: in supply chain thefts that that come our way, that
Speaker 11: that we think this is a great enterprise story. We
Speaker 11: want to go along on it and go deep. Maybe
Speaker 11: there's a video component, you know, so that kind of
Speaker 11: landing happens as we go along. It's also one that
Speaker 11: freelance contributors often are eager to work on because crime
Speaker 11: stories are there's really a lot of fun material to
Speaker 11: dig into sometimes or just dramatic material. And you know,
Speaker 11: the other thing is, even just as I've been gathering
Speaker 11: a little quirky stories for for that one spread that
Speaker 11: we talked, we talked about off the top, other ideas
Speaker 11: come out that that could be longer, you know, longer
Speaker 11: features that we might want to assign down the road.
Speaker 11: So it's something that we, you know, we start thinking
Speaker 11: about year round, and we think about different formats that
Speaker 11: we can do things that we have a great comic
Speaker 11: in this issue and it's right breakdown about a jewelry
Speaker 11: heist in Los Angeles, so.
Speaker 6: So much much in the in the in the heist
Speaker 6: week that we live through here, we look forward to
Speaker 6: this one like it's truly like do you.
Speaker 4: Worry about glorifying some heists to kind of encourage people
Speaker 4: to want to do it?
Speaker 6: But I think about so okay, counterpoint here. Another story
Speaker 6: that we published today is about this bank robbing Brazilian
Speaker 6: gang called the PCC that came out of prison, right
Speaker 6: and it is truly like a story out of the
Speaker 6: movie Heat or something like it. And they're actually inspired
Speaker 6: by Hollywood films and that's how it informed sort of
Speaker 6: how they go about doing what they do. I'm gonna
Speaker 6: say that those are more on the bad guys skill.
Speaker 6: There's also an interesting bank robbing story from Lebanon where
Speaker 6: people are stealing back the money that they put in
Speaker 6: the bank and can't get out because of capital country
Speaker 6: for Dad's operation. There you go. So it's a very
Speaker 6: grey area and I, you know, enjoyed giving you these
Speaker 6: stories so that you can steal your summer with a
Speaker 6: bunch of ice stories.
Speaker 2: Where's the van, Where's the van? Joe Webber, Jeremy Keane.
Speaker 2: It is an incredible issue. It always is. It's the
Speaker 2: heist issue. It's a double issue on newstands tomorrow, online
Speaker 2: at Bloomberg dot com and on the Bloomberg terminal. Thanks guys,
Speaker 2: a journal.
Speaker 4: No, how about you let me drive?
Speaker 5: Oh no, no, no, no, who's going to drive?
Speaker 3: Honey?
Speaker 5: Please, I'll do the driving, gravels.
Speaker 6: Let's mate, I want to try it.
Speaker 4: Try it's a good question.
Speaker 1: This is the drive to the Globes.
Speaker 9: Dot com for me.
Speaker 1: I think we'll buy an I'm on Bloomberg Radio.
Speaker 2: All right, everybody, we've got just under eighteen minutes left
Speaker 2: in today's trading session. Time to get to it. Carol
Speaker 2: Mester along with Matthew Miller in for Tim Stanovich, as
Speaker 2: you know here on Bloomberg Business Week with us as
Speaker 2: Sonya Meskin, she just walked in our studio. She's head
Speaker 2: of US Macro at bny Mail and Investment Management here
Speaker 2: in our Bloomberg Interactive Brokers studio on a day where
Speaker 2: stocks aren't doing a whole heck of a lot, What
Speaker 2: really is the stories, what's going on when it comes
Speaker 2: to the treasury curve and what we're seeing in the
Speaker 2: move up in yields. Sonya, you do look at big
Speaker 2: US macro stories what it means for the investment environment.
Speaker 2: So what do you make of this move up in yields?
Speaker 10: Yeah, you know, it makes a lot of sense to me. Atally,
Speaker 10: I would say it's consistent with our view of potential
Speaker 10: upside in inflation remaining still at least in core. And
Speaker 10: I think that the Central bank talk, both from the
Speaker 10: Federal Reserve officials today and the ECB are consistent with
Speaker 10: the move higher in yields.
Speaker 4: Did you see Bill Dudley's piece today? He wrote for
Speaker 4: Bloomberg Opinion and said he thinks treasuries should be about
Speaker 4: four and a half percent in the I guess medium
Speaker 4: term because of well a few reasons, the premium should
Speaker 4: be higher. Inflation he thinks is going to be two
Speaker 4: percent or more in the future, and the FED has
Speaker 4: to keep raising rates again.
Speaker 10: That makes a lot of sense, the term premium that
Speaker 10: has been suppressed quite a bit in the previous cycle,
Speaker 10: but of course now uncertainty around inflation remains elevated, and
Speaker 10: we see it not just in the market based measures,
Speaker 10: we also see it in survey based measures. For example,
Speaker 10: the Michigan Consumer Survey, inflation expectations are quite dispersed, a
Speaker 10: bit more so than in the previous business cycle. And
Speaker 10: I think that's very consistent with what Bill Dudley said
Speaker 10: about the term premium.
Speaker 5: And oh, way, did you work for Bill Dudley before?
Speaker 3: Correct?
Speaker 5: Okay, I thought I knew you were at the New
Speaker 5: York Fed. I didn't know when it was so.
Speaker 10: But I do agree with him independently of how we
Speaker 10: worked for him.
Speaker 5: Not just agreeing with her former boss.
Speaker 10: Perhaps he actually got this from me.
Speaker 2: Well, what's the risk then, in terms of financial assets?
Speaker 10: I think the risk is really frankly inequities, and I
Speaker 10: think I'd be quite cautious about and very mindful of
Speaker 10: equity selection process here, because higher term premium and higher
Speaker 10: real rates are not necessarily equity's friend unless we can,
Speaker 10: of course, maintain very healthy rates of real growth. Right.
Speaker 2: What if we get that soft landing right and we
Speaker 2: don't see some kind of significant recession either deeper wide.
Speaker 4: You know, we had GDP for the first quarter revised
Speaker 4: up to two percent today. That's exactly big revision. We
Speaker 4: were looking at one point three percent. I know it's
Speaker 4: backward looking, but still it's kind of exciting.
Speaker 10: It's actually really exciting given where stocks war and where
Speaker 10: expectations for the recession were in the certain fourth quarters
Speaker 10: of last year. Remember what stocks were doing then, Yeah,
Speaker 10: and then instead of getting a recession, we've got a
Speaker 10: pretty healthy GDP print, right.
Speaker 4: I mean, I was talking to Jess Mattin about this
Speaker 4: today from our stocks team, and she has been pointing
Speaker 4: out to Carol on me over the last few days,
Speaker 4: we thought earnings were going to drop eight percent and
Speaker 4: change in Q one.
Speaker 5: Now they didn't. They fell but only three percent.
Speaker 4: And now we're about to get into Q two earning season,
Speaker 4: and we're looking for earnings to drop another eight percent
Speaker 4: if we have another you know, big beat that like
Speaker 4: we did before, I mean, maybe this will be a
Speaker 4: soft landing.
Speaker 10: I do think that there may be a disconnecting fact
Speaker 10: between what the old the negativity that's been priced by
Speaker 10: analysts formally into earnings expectations, and what the market is
Speaker 10: actually pricing in right now.
Speaker 2: But do you have faith in consumers that they keep spending,
Speaker 2: idea they're going to be hurt maybe because of higher
Speaker 2: school payments or just things still costing a lot and
Speaker 2: making choices. Ex are cheaper now, ex are cheaper well
Speaker 2: siter loans for both, but they've also had a lot
Speaker 2: of money thrown at them post pandemic, and we keep
Speaker 2: talking about okay, home balance sheets are still pretty strong,
Speaker 2: but does that still continue.
Speaker 10: That's a big question yes, because the consumer is really
Speaker 10: propelling all of this. It's a huge tailwind to potential
Speaker 10: you know, issues with across banks and credit, et cetera.
Speaker 2: I think that are you guys making a bet yet
Speaker 2: on why the consumers start to fall apart.
Speaker 10: We're expecting the consumer to potentially soften when the excess
Speaker 10: savings run out, which have been sturdier I think than.
Speaker 2: People had feared as well.
Speaker 10: But we also think that look most of the segments
Speaker 10: where excess savings have run out or close to our
Speaker 10: segments with there's lower I think wages are technically lower.
Speaker 10: These are lower skilled potential workers, but that's also where
Speaker 10: we have the tightest labor markets in a long time
Speaker 10: and where wage growth has been the most robust.
Speaker 4: Usually real conflicting data around the consumer, right because there's
Speaker 4: still over a trillion dollars in excess savings. On the
Speaker 4: other hand, they're putting consumers are putting a lot more
Speaker 4: on credit cards. We're starting to see delinquencies, especially in.
Speaker 5: The auto loan area.
Speaker 4: So I don't know what I need to have on
Speaker 4: my dashboard, But what do you look at to sort
Speaker 4: of gauge the health of the consumer.
Speaker 10: I think credit cards are that you mentioned are really
Speaker 10: really important area to look at. And if you guys
Speaker 10: looked at the Streuss test, the bank stress test results
Speaker 10: they came into it today, credit cards were one of
Speaker 10: the major areas of risk, and I think that that's
Speaker 10: a very good gauge to look at going forward. Now,
Speaker 10: of course, the delinquencies are coming off with very very
Speaker 10: low levels, and it's very difficult to say, well, when
Speaker 10: is this going to tip over? And potentially tip over
Speaker 10: into a recessionary kind of levels.
Speaker 2: But yeah, that's a good area to look at. What
Speaker 2: might we be missing or what is the thing that
Speaker 2: when you guys sit down with your team and say, okay,
Speaker 2: you know, we think we've got it, but don't forget
Speaker 2: to keep a watching this is it regionals?
Speaker 1: Is it?
Speaker 2: As you said, the credit card debt?
Speaker 5: What is it?
Speaker 10: I think it's private credit actually, because that's an area
Speaker 10: where there's less pop look data available and it's very
Speaker 10: hard to triangular what's going on there.
Speaker 2: What specifically are you concerned about? We are kind of
Speaker 2: in on that.
Speaker 10: Well, that may be an unknown unknown In fact, right,
Speaker 10: everyone was very concerned about CIRE earlier this year. The
Speaker 10: issue with cre is that it's it may it's not
Speaker 10: as obviously as big as the mortgage business was in
Speaker 10: two thousand and eight in terms of commercial real estate.
Speaker 10: You're talking yeah, yeah, commercial real estate.
Speaker 2: Sorry.
Speaker 10: But on the other hand, there may be other areas
Speaker 10: that are where there's even less publicly available data that
Speaker 10: are still within private credit and some of.
Speaker 4: The what exactly is the concern because people have been
Speaker 4: getting in big time to private credit, and I guess
Speaker 4: the problem is the loans that they made prior to
Speaker 4: this interest rate rise. Those are floating rate loans, so
Speaker 4: they're the borrowers are maybe going to go bust on mass?
Speaker 5: Is that the worry?
Speaker 10: I think that maybe one of the worry. Yes, I
Speaker 10: would agree with that. I think that a lot of
Speaker 10: the private credit intermediors and credit providers may act actually
Speaker 10: have fairly robust processes in place to protect themselves against
Speaker 10: the media default, and they can potentially turn out lending.
Speaker 10: But who can and who can't is a difficult question.
Speaker 2: So like real estate top tier, probably okay, everybody below
Speaker 2: it maybe not so much. Same thing for private credit
Speaker 2: top tier, where the screening process is really clean and
Speaker 2: top top ranked, probably okay, but there might be some
Speaker 2: other problem. Is it systemic the problems?
Speaker 10: Well, that's another big question, right, How systemic would it
Speaker 10: be if it were to actually tip over into you know,
Speaker 10: crisis type levels?
Speaker 2: Done?
Speaker 5: Yeah, it's pretty exciting.
Speaker 4: I mean, I hope obviously that this doom doesn't happen, right,
Speaker 4: I don't want.
Speaker 5: To see that.
Speaker 4: But it's it's so opaque, you know, we don't get
Speaker 4: the data that we need to feel comfortable in private credit.
Speaker 2: Exactly exactly well, it's the whole thing with the higher
Speaker 2: rate environment, the higher we go right, as we talked
Speaker 2: about that, as the water goes out, you find out, right,
Speaker 2: But who doesn't have on screening trunks how.
Speaker 5: It goes I think that's what it is. I can't
Speaker 5: remember every Core corp.
Speaker 2: This was fine, Come back soon, Sonya Mescid, she's head
Speaker 2: of US Macrover at bny Mellon Investment Management. In studio.
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