Speaker 1: Welcome to the Bloombergs Surveillance Podcast. I'm Tom Keene along
Speaker 1: with Jonathan Ferrill and Lisa A. Brownwitz Jailey. We bring
Speaker 1: you insight from the best and economics, finance, investment and
Speaker 1: international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg
Speaker 1: dot Com and of course on the Bloomberg terminal. So,
Speaker 1: fifty basis points is the hike for the Bank of
Speaker 1: England standing by John and Rochester g ten Effect strategist
Speaker 1: over Namura Jordan. Your reaction to this decision by the
Speaker 1: Bay a week, Well, John, it's the simple case that
Speaker 1: this wasn't a big surprise from the bank. Think we
Speaker 1: were expecting around fifty basis points. That's what we got
Speaker 1: today conversations with clients as well. Fifty basis points from
Speaker 1: the bank again is probably the last fifty basis points,
Speaker 1: the first and the last since they became independence. Probably
Speaker 1: As for us, the view is that the situation in
Speaker 1: the energy market will decimate the incomes of UK workers,
Speaker 1: the consumer confidences going to continue to fall, consumts going
Speaker 1: to continue slow, and the Bank of Englian is going
Speaker 1: to potentially revive down their inflation forecast. So the last
Speaker 1: rate hike of this cycle is probably going to be November,
Speaker 1: is the view from us, and that means it's very
Speaker 1: unclear to me why today the banking and doing fifty
Speaker 1: is a reason to buy the pattern that if they
Speaker 1: did seventy five, you would have seen selling head higher.
Speaker 1: But John, the problem for markets is we're just not
Speaker 1: used to trading seventies styles stamulation. Tom was mentioning they're
Speaker 1: the thirteen percent inflation really decimating people's ability to spend.
Speaker 1: The Bank of England will reflecting this. They've already put
Speaker 1: in their forecast. Today we saw they think the price
Speaker 1: cap goes three thousand, five hundred in October. That's about right.
Speaker 1: It's going up again in January to three thousand, eight
Speaker 1: hundred pounds per year before the average household. This is
Speaker 1: a massive amount of money coming out the system just
Speaker 1: spent on energy during I think very much different than
Speaker 1: the Fed, where we have all the different Fed presidents,
Speaker 1: including Kansas City, where we'll visit a jective, Paul. We
Speaker 1: perceived the Bank of England as the city and maybe
Speaker 1: London as well. What does thirteen percent inflation Due to
Speaker 1: the Bank of England's relationship with the go to the
Speaker 1: Premier League this weekend, to Liverpool, to Leicester to Newcastle.
Speaker 1: What does the BOE relationship with the inflation the North
Speaker 1: will face. Indeed, you mentioned Tommy, haven't mentioned past Harrods,
Speaker 1: So one day me and John will have to take
Speaker 1: to our hometown north of Birmingham and certain Coldfield it
Speaker 1: will be felt a look in the north. Were seeing
Speaker 1: lots of strikes being held around the UK. I was
Speaker 1: listening to one of the NHS union representatives just earlier
Speaker 1: this weekend. The pay rises they're being offered after inflation
Speaker 1: adjusted roughly ten percent real pay cut is essentially like
Speaker 1: asking workers to do a whole month of the year
Speaker 1: working for free or losing all of their statutory holidays,
Speaker 1: so that the impact would be we're gonna have more
Speaker 1: labor market strikes. This will potentially see wages going so
Speaker 1: it puts the banking in that really strange place that
Speaker 1: they're raising rates. The consumer is being squeezed. That does
Speaker 1: lower their inflation forecast perhaps ahead, but if we do
Speaker 1: get a wage price spiral, this is very nineteen seventies like,
Speaker 1: so they're gonna be keeping an eye on that and
Speaker 1: the way the banking looks at it in the north.
Speaker 1: They used to Bank of England agents summary. We've only
Speaker 1: just got it now, so I'll need to look for
Speaker 1: those details that came out at the same time as
Speaker 1: this meeting. But they do get a holistic picture of
Speaker 1: the rest of the country through the agents and they
Speaker 1: will be seeing this this story that I've just laid
Speaker 1: out playing out around the country. Jordan, I want to
Speaker 1: take a little deeper into your idea that November will
Speaker 1: be the last rate hike, will be the end the
Speaker 1: rate hiking cycle of the Bank of England, raising questions
Speaker 1: about the front loading of monetary policy and monetary tightening
Speaker 1: that has been a big discussion. We have the Bank
Speaker 1: of England warning of a long recession. At what point
Speaker 1: does that pause in rate hikes lead to rate cuts?
Speaker 1: In your view, it could happen quite quickly. The Bank
Speaker 1: of Thing was one of the first major center banks
Speaker 1: to rates rates. They started December last year whilst everyone
Speaker 1: was still talking about transitory in on the crop. So
Speaker 1: when the banking kick things off in December last year
Speaker 1: gives them sort of the ability to end their rate
Speaker 1: hiking cycle earlier than most and also introduce the idea
Speaker 1: of cuts, so we're looking for May cuts from the
Speaker 1: Bank of England. That's sort of timing and why so
Speaker 1: inflation will still be higher than two percent. I actually
Speaker 1: think the risk reward is inflation doesn't fall down to
Speaker 1: two percent as quickly as the markets pricing, but the
Speaker 1: center banks will react to the situation in credit markets.
Speaker 1: If you look at the crossover spread, to look at
Speaker 1: the ECB systemic risk, whatever you want to look at,
Speaker 1: the credit stress in the market is roughly around the
Speaker 1: same levels as the worst moments in the coronavirus panic
Speaker 1: of March. I suspect the energy prices ten times higher
Speaker 1: than they were on average in Germany will knock out
Speaker 1: the business models of many manufacturers. We're gonna see credit
Speaker 1: stress leads to hire defaults, lead to unemployment rising, and
Speaker 1: that's why in Q form Q one the story will
Speaker 1: change for central banks. Even though we'll have high inflation,
Speaker 1: there could be a dobbish moment. Joldan's South Sterling still
Speaker 1: the trade for you. Indeed, I think we've had a
Speaker 1: big move high up to level not very fun for
Speaker 1: me holding a short from about that period, but the
Speaker 1: trend is lower in Starling. It has the same problems
Speaker 1: as Europe when it comes to this energy crisis. It's
Speaker 1: bank central bank has just done fifty basis points. Look
Speaker 1: back to the ECB meeting they did fifty basis points.
Speaker 1: What did the euro do nothing? Just because central banks
Speaker 1: are doing these bigger rate hikes, not enough to defend
Speaker 1: their currency against what's a big terms of trade shock
Speaker 1: that the pounds should essentially be trading towards one fifteen
Speaker 1: down to one ten just based on terms of trade alone.
Speaker 1: The price of the UK's exports have fallen, was the
Speaker 1: price of UK's imports of skyrocketed. The UK needs a
Speaker 1: weaker currency to help is exchange rate ugly. Jordan, just quickly,
Speaker 1: can you imagine if the Fed forecast the recession like
Speaker 1: this one, the starts in four q and runs through
Speaker 1: the whole of next year. Could you see them emtive forecasting?
Speaker 1: Could you forecasting at the mirror? So I just I
Speaker 1: can see it happening, but they'll be a bit slower
Speaker 1: than us to get that. Let's get right to at
Speaker 1: our conversation of the day on the United Kingdom with
Speaker 1: David blanche Flower, professor of Economics of Dharmouth College. He
Speaker 1: darkened the door at the Bank of England a number
Speaker 1: of years ago. We're thrilled he could join us today. Danny,
Speaker 1: you've gone through the details and you make it very
Speaker 1: clear that A ninety seven in a path to the
Speaker 1: Eisenhower deflation. The inflation panic is overwrought. This is a
Speaker 1: bank signaling a deflation or a substantial disinflation out to
Speaker 1: two thousand twenty four. What should be policy if we
Speaker 1: model a future disinflation? Well, obviously this the story is
Speaker 1: the forecast of a recession six quarters of negative growth
Speaker 1: they're forecasting. But if you go to that, I think
Speaker 1: it's the chart one point four and what you see
Speaker 1: there is that there's a significant risk in four of deflation.
Speaker 1: And that's the famous chart the Bank of England produces
Speaker 1: shows you eight hundred years of inflation, and the one
Speaker 1: thing that stands out from it is the big risk
Speaker 1: when you have high inflation is that you generate deflation.
Speaker 1: And so that's obviously the worry. I mean, the truth
Speaker 1: is Johnny's right there forecasting inflation pretty soon this year,
Speaker 1: but by this thing plummets, and I think the likelihood
Speaker 1: is actually that this forecast is overly optimistic. I think
Speaker 1: the chances are the unemployment rate is going to rise
Speaker 1: by much more. Output is probably I mean it may
Speaker 1: not last for six quarters, but output probably is going
Speaker 1: to be weaker. Um and we're probably going to see
Speaker 1: the bank having to the u turn pretty fast. I mean,
Speaker 1: this is the devastating, terrible forecast. And sorry, last point.
Speaker 1: I remember in two thousand, an age in August, so
Speaker 1: you know a number of reports ago and the big
Speaker 1: deal then was the UK was in recession and they
Speaker 1: didn't use the word recession. The word recession is all
Speaker 1: over this report. So this is this is devastating. But
Speaker 1: I think the argument the balance of risks is balance.
Speaker 1: Lisa just talked about it. Risks are actually very strongly
Speaker 1: to the downside to this. So so why they actually
Speaker 1: raised rates sort of unclear when you read the thing. Well, Danny,
Speaker 1: let's talk about how original this moment truly is. And
Speaker 1: can you imagine a federal reserve forecasting of recession in
Speaker 1: the way that the Bank having it has done today?
Speaker 1: And why do you think that's the case. Well, I
Speaker 1: think I think that in some ways they are under
Speaker 1: huge political pressure to try and deal with the interest rate,
Speaker 1: with the inflation rates story, I mean, trust came out
Speaker 1: this morning and said the bank should have raised rates
Speaker 1: earlier and we're going to re look at the remits.
Speaker 1: So I think the politics of it are pretty interesting.
Speaker 1: I mean, the fact that the word was meant, the
Speaker 1: word recession is in this report. It's I don't know
Speaker 1: if any other monetary policy report that has that word.
Speaker 1: As I said, go back to the August two thousand,
Speaker 1: they didn't even use the word recession when they were
Speaker 1: in recession. So so obviously some of the questions, you know,
Speaker 1: how how quickly does recession come and how quickly does
Speaker 1: the bad data come? But we've got bad p m
Speaker 1: s this morning, sales of UK cars down. I mean,
Speaker 1: this baby could get bad pretty quickly. And I think,
Speaker 1: as you say, the likelihood of the FED doing this
Speaker 1: is is really pretty different. But I think this is
Speaker 1: pretty unique for the NPC. I've not seen anything like
Speaker 1: this in all my time with them watching. When you're
Speaker 1: talking about the balance of risks and how it's incredibly
Speaker 1: skewed to the downside, how do them respond to Jordan
Speaker 1: Rochester's point about a wage spiral that you're actually starting
Speaker 1: to see in a very real way, and how this
Speaker 1: bank gets ahead of that to curtail that, even if
Speaker 1: it requires some sort of recession or significant downside in
Speaker 1: the near term. Well, we've been talking about non existent
Speaker 1: wage spiral since two thousand and eight, which we haven't seen.
Speaker 1: I mean, we've seen some some attempt to try and
Speaker 1: keep up nominal wage growth, um that we've seen big
Speaker 1: falls in real wages. I think the idea of a
Speaker 1: wage price fire in the United States and in the
Speaker 1: UK is for the birds. I mean, we're seeing settlements
Speaker 1: around four percent, We're seeing public sector workers saying, you know,
Speaker 1: we we need to try and maintain our living standards.
Speaker 1: The chance that any of this is driven by workers
Speaker 1: there demanding and getting higher wage increases, I see absolutely
Speaker 1: none of that. None of it in the United States,
Speaker 1: none of it in Europe, none of it in the UK.
Speaker 1: We're talking about inflation and workers asking for four percent
Speaker 1: pay raises. This is not none of this is driven
Speaker 1: by by wages. So I think that whole argument is
Speaker 1: just nonsense. Danny. A lot of people are saying that
Speaker 1: right now this is the Bank of England front loading
Speaker 1: rate hikes, that they're going to start cutting rates or
Speaker 1: at least pausing the rate hikes later. This year than
Speaker 1: cutting next year, And that seems to be this belief
Speaker 1: with the Fed as well, that yes, there are some
Speaker 1: pretty significant rate hikes, but it is a front loading
Speaker 1: to try to get ahead of the inflationary push. Why
Speaker 1: do you think that's a bad idea to see what
Speaker 1: you can do now and then wait and then see
Speaker 1: how it, however, trickles out. Lisa, that's I mean, it's
Speaker 1: a great point, but I mean I always had the
Speaker 1: view that you say, and what we need to do
Speaker 1: is get rates up to dry and cut them later
Speaker 1: from the recession that you've caused. So obviously that seems
Speaker 1: like a problem. I mean, the bigger issue in some
Speaker 1: sense least is that, yes, you've now got rates up.
Speaker 1: You know we're talking to globally around two or something
Speaker 1: less in the Euro Area. The problem actually is, I
Speaker 1: think back to two thousand and eight you could we
Speaker 1: could cut from five five percent of a half or zero.
Speaker 1: The room for the central Bank to cut is limited. Um,
Speaker 1: it's going to fall on fiscal authorities. Look in the
Speaker 1: UK there's there's basically no Prime minister, there's no chancel
Speaker 1: of the exchequer. People are talking about the plans that
Speaker 1: they might have but that but the pressure is going
Speaker 1: to come on a new chancellor and a new Prime
Speaker 1: minister pretty down quickly, and the markets are going to
Speaker 1: speak and they're going to say whether they whether they
Speaker 1: think this is appropriate or not. I mean, we don't
Speaker 1: even know who the channel that would be in September
Speaker 1: when these bad data come in. So I agree with you,
Speaker 1: but it looks to me that you front load, you flunk,
Speaker 1: your front load interest rate rises for the recession that
Speaker 1: you worsened by doing it. So I think there was
Speaker 1: a significant argument today to actually sit pat and wait,
Speaker 1: because it's unclear that these rate rises are going to
Speaker 1: do anything to bring inflation down being caused by global
Speaker 1: oil prices. What it? What it? How is these interest
Speaker 1: rates actually gonna do anything other than tank the economy?
Speaker 1: How do they actually bring prices down? And Baby is
Speaker 1: already admitted that basically it can't. So I think there
Speaker 1: was a strong argument to sit weight and watch. But
Speaker 1: the political argument was a very strong one because the
Speaker 1: Trust was threatening the remit of the banks and it
Speaker 1: should have raised rates earlier. Well, I'm not surprised you
Speaker 1: said that at the end there, Danny, that's for sure.
Speaker 1: Danny plans fright. Danny always good to catch up. But
Speaker 1: we've gotten here is earnings, but nobody cares because when
Speaker 1: you do a transaction of this import and symbolism to
Speaker 1: Wall Street and frankly a recovering world from the pandemic.
Speaker 1: It is good to talk to Jim's alter he's co
Speaker 1: president Apollo Asset Management, and yeah, and earnings, but I'm
Speaker 1: gonna go beyond earnings, Jim to your new transaction acquiring
Speaker 1: the leasing efforts of the largest fleet of seven forties
Speaker 1: sevens in the world. This is a cargo business, mostly
Speaker 1: of Atlas Air. How do you dive into such a
Speaker 1: troubled industry? Is covid Asia moving cargo? And say the
Speaker 1: opportunity is now well, good morning, thanks for having me on.
Speaker 1: You know that's a that's a classic Apollo transaction. We
Speaker 1: know the industry well, we've been around it for decades.
Speaker 1: We've successfully navigated it. No pun intended in terms of
Speaker 1: variety of other investments in the space um and it's
Speaker 1: a classic opportunity for us to use our great industry skills,
Speaker 1: are our great capital formation skills, uh and do something
Speaker 1: we think has got a lot of fundamental value where
Speaker 1: purchase price manners. So uh, you know, a lot to
Speaker 1: talk about a pile today. That's one transaction, um, But
Speaker 1: very very happy with what we've done in the in
Speaker 1: that situation, let's talk about the inflow is thirty six billion,
Speaker 1: I think thirteen billion after quarter end in a first
Speaker 1: close your next flagship p fun Just kinda through some
Speaker 1: of these numbers, Jimmys. You look at the opportunities in
Speaker 1: front of you. Where aren't they? What can you do
Speaker 1: that the banks can't do that you're excited about. Well, listen,
Speaker 1: as you said, Johnan, it's a very foggy environment out there,
Speaker 1: a lot a lot of dispersion on views on where
Speaker 1: rates and other things are going. And that's when we
Speaker 1: do well. You know, record record f R re Ford
Speaker 1: for the quarter, record s R E. You know, capital formation, deployment,
Speaker 1: origination strong um. You know, for us, it was a
Speaker 1: great quarter in terms of you know, investor dialogue. As
Speaker 1: you said, thirty six billion in the quarter. We closed
Speaker 1: thirteen billion on on our new flagship funten um. And
Speaker 1: for us, you know, we we are this is the
Speaker 1: kind of markets that we thrive. When others are a
Speaker 1: bit paralyzed or markets are closed, we bring our our
Speaker 1: flexible capital or permanent capital or ingenuity uh to transactions.
Speaker 1: And you know, I know you mentioned the the Atlas era,
Speaker 1: but for us New Fortress Energy was a great transaction
Speaker 1: Air France, you know in No Fortress Energy. Basically they
Speaker 1: we've been to this company for a couple of years.
Speaker 1: We've been a financing partner. They put their liquid lergy
Speaker 1: products vehicles into a in j V. We provided the equity,
Speaker 1: but the bank market was shut. Typically most folks would
Speaker 1: have to put their pencil down. We we really marshaled
Speaker 1: our resources and raised the billion four financing to have
Speaker 1: a successful transaction. So for us, these are the markets
Speaker 1: we thrive, uh, you know, firms doing extraordinary and hitting
Speaker 1: on all cylinders. Jim, you said that the markets are closed,
Speaker 1: and they were for the most part until last month
Speaker 1: where they reopened with a vengeance and you saw everybody
Speaker 1: fled back to the market, money pile into even the
Speaker 1: most speculative debt people basically sounding the all clear sign.
Speaker 1: What do you make of that and how do you
Speaker 1: sort of adjust your view? And perhaps in May when
Speaker 1: you said that recession was one third to two thirds
Speaker 1: of your base case and you were talking about not
Speaker 1: taking that durational liquidity risk. Yeah, I think you've got
Speaker 1: to differentiate between a rally and credit and the markets
Speaker 1: being open. The reality is, it's been well publicized that, uh,
Speaker 1: you know, a lot of financing commitments have been hung
Speaker 1: if you will, nowhere near what they were in oh A,
Speaker 1: probably eighty billion plus on minus versus the four But
Speaker 1: new financing commitments are very challenging to secure today. We're
Speaker 1: a leader in private credit. We extend credit, we borrow
Speaker 1: in those markets as well. But the reality is the markets,
Speaker 1: the I G markets open, but the lower quality high
Speaker 1: your markets still very few transactions are getting done. Very
Speaker 1: few new commitments are being made on buyouts. So it's
Speaker 1: it's not as clear as you said. Again, please don't
Speaker 1: differentiate a railly and credit versus really an open, thriving
Speaker 1: financing market. And Jim, can I ask you what you
Speaker 1: think of that rallying credit though a hundred and forty
Speaker 1: basis points of spread tight and they on high yield
Speaker 1: in the last month alone, we've got just lining up
Speaker 1: calling that wishful thinking. What do you call it? Well,
Speaker 1: it's interesting we we we typically when when when spreads
Speaker 1: go to six hundred, we usually have to buy signal
Speaker 1: for us. Historically, they were there for just a couple
Speaker 1: of a short period of time. As you said, they
Speaker 1: rally dramatically. It feels like the rally. You know, I
Speaker 1: would say they're on the richer side of fair value
Speaker 1: than they are the attractive side of fair value. But
Speaker 1: I think it's interesting to contrast that to the private
Speaker 1: markets right now. You can you know, a year ago
Speaker 1: high old indexes were in the mid four's, maybe touching five.
Speaker 1: You can issue a be part of a senior club
Speaker 1: in private credit right now with spreads you know a
Speaker 1: lot of so for plus six fifty, which is basically
Speaker 1: almost touching nine and a half ten percent high quality,
Speaker 1: first lean position, top of the capital structure, thirty forty LTV.
Speaker 1: So that's an interesting market, and we're open. We've been
Speaker 1: active h at Apollo and at mid cap. The the
Speaker 1: generic on the run high your market not particularly interesting,
Speaker 1: and I suspect you're right, um, you know, at least
Speaker 1: I mentioned I was of the view that you know,
Speaker 1: a recession was in the cards in twenty three. We
Speaker 1: still believe it will be. I don't think it's going
Speaker 1: to be a deep historical recession. Um, As we all
Speaker 1: know the numbers right now, you're having you know, negative
Speaker 1: GDP numbers with four thousand uh a new employment per month.
Speaker 1: So it's not your follows recession by any means. It's
Speaker 1: a different kind of environment um. But you know, from
Speaker 1: our perspective, if you have the ability to navigate, it
Speaker 1: is quite interesting. As many are on pause, Jim, I
Speaker 1: got twenty seconds to squeeze this in. This is the
Speaker 1: question where the person behind your camera starts wiping a handset.
Speaker 1: Don't answer it. You were considering how being needle Musk
Speaker 1: finance that Twitter bit, given how it's falling apart, Has
Speaker 1: that left a bit of taste in your mouth around
Speaker 1: doing business with him potentially in the future. Just yes
Speaker 1: or no your thoughts on it. We're we're a big
Speaker 1: player in the bubble financing markets. We we financed lots
Speaker 1: of folks, were very thoughtful about what we do uh
Speaker 1: and we got a long term craft record to prove
Speaker 1: that out. We begin our jobs coverage now we do
Speaker 1: it with our great Michael McKee, And then we moved
Speaker 1: to Thomas Porcelli. Tom Porcelli's chief you US economists at
Speaker 1: RBC Capital Markets, and first came to my attention with
Speaker 1: absolutely brilliant study of the wage dynamics of the United
Speaker 1: States of America. Tom Porcelli, good morning. I want to
Speaker 1: talk to you about what we just heard from Professor
Speaker 1: Blanche Flower Dartmouth, where he said, basically, a linkage of
Speaker 1: these tumultuous times indue wage growth is unfounded. Give us
Speaker 1: your update on America's wage growth in this nine percent
Speaker 1: inflation we're facing. I completely agree with his assessment. I
Speaker 1: think the people that are comparing today to the seventies
Speaker 1: slash eight ease, I think that they're doing us a disservice.
Speaker 1: I think that this probably has much more in common
Speaker 1: with the forties than it does the seventies. UM. I
Speaker 1: don't think that this is some wage price spiral that
Speaker 1: that the FED is is trying to or can impact.
Speaker 1: UM And I think that those that effort will will
Speaker 1: bear very little fruit. UM. I think the FED is
Speaker 1: hiking pretty aggressively into an economy that's very clearly slowing down. UM.
Speaker 1: I don't I don't know how that ends well. UM
Speaker 1: And I think, you know, if if their thought process
Speaker 1: is what we've got to really tamp down on on
Speaker 1: wage pressures, I don't know more you want to tamp
Speaker 1: down on those I mean in negative terms, excuse me,
Speaker 1: in real terms, they're deeply in negative territory. I mean,
Speaker 1: I I always like sort of marvel at the idea
Speaker 1: that I think very few people appreciate that disposable personal
Speaker 1: income nominally UM in nominal terms from the beginning of
Speaker 1: the year to today is really up only modestly nominal.
Speaker 1: But in real terms you're deeply in negative. So that
Speaker 1: that whole I d I think is UM is sort
Speaker 1: of foolish. And and I would say one last thing
Speaker 1: time and then I'll stop, you know this idea And
Speaker 1: and uh, Mike was talking about Mike McKee was talking
Speaker 1: about this a moment ago UM, and you know he's right.
Speaker 1: The FED keeps on sort of, you know, hanging their
Speaker 1: hat on the idea that there's you know, people can
Speaker 1: find a job really quick and etcetera. And make no
Speaker 1: mistake in certain industries that is still true. But UM,
Speaker 1: job openings or not the thing we're supposed to be
Speaker 1: hanging our hat on. It's a massive lagging indicator. They
Speaker 1: fall in earnest in the midst of a recession. UM.
Speaker 1: In other words, they're free option for companies um. And
Speaker 1: we're already seeing them slow now in a in a
Speaker 1: more meaningful way. So you know, this idea and by
Speaker 1: the way, sorry, one last thing on that. UM. This
Speaker 1: this idea too, that there's you know, two job openings
Speaker 1: for every person unemployed. That that is not correct. You
Speaker 1: have to look at people also that are not in
Speaker 1: the labor force that want a job, right, a completely
Speaker 1: separate metric. Um. And when you add that to the
Speaker 1: number of unemployed, what you actually see is that the
Speaker 1: ratio is actually one for one. And actually, just to
Speaker 1: be clear, it was one for one are to the
Speaker 1: most recent job openings number. Now it's less than that.
Speaker 1: So I have no sympathy for for that view in
Speaker 1: any way. So Tom, translate that picture into what we're
Speaker 1: expecting tomorrow with the jobs report that we get out
Speaker 1: there in the anecdotal data that we're getting from a
Speaker 1: number of companies that they are starting to cut back workers. Yeah, Lisa,
Speaker 1: I think that's exactly right. I mean, you know again, uh,
Speaker 1: you know, I know you guys were talking about jobless claims.
Speaker 1: What and what number starts to scare you. I don't
Speaker 1: know why you're not scared now, I mean it's you know,
Speaker 1: you don't have to wait for some magical to eighty
Speaker 1: or three hundred. I mean you're up from one hundred
Speaker 1: and sixty six thousand, right, that was the low that
Speaker 1: we hit in mid March, and so from that point
Speaker 1: to today we're now up fifty percent. Now, I know,
Speaker 1: the standard retort on that is, hey, you know, but
Speaker 1: we're coming off a really low levels. Okay, you were
Speaker 1: coming off a really low levels in oh one two,
Speaker 1: I mean they're historically low then. Um, but hey, we
Speaker 1: managed to actually lose jobs in the unemployment one uprising,
Speaker 1: so that the level thing is not compelling. It's the move, right,
Speaker 1: it's the delta, um, and the delta is incredibly compelling.
Speaker 1: You're up fifty from the low. And sorry, just to
Speaker 1: me be clear on that. So if you look back
Speaker 1: to every other every recession we went back to the
Speaker 1: recession that started in nine nine, if you look at
Speaker 1: every recession from the low into that recession, um, you're
Speaker 1: up about Um here we are up fifty. And yes,
Speaker 1: I know there's some seasonal thing. I get all of that,
Speaker 1: but even if you adjust for that, you're still up wildly.
Speaker 1: I mean, this is it's not a good outcome. A
Speaker 1: lot of people would argue that you're coming from a
Speaker 1: point where everybody had been taken out of the workforce
Speaker 1: and then brought back in in this sort of artificial
Speaker 1: breach as a result of the pandemic and the global
Speaker 1: economy shutting down as we look forward, is your argument
Speaker 1: that the FED should look through this and stand pat
Speaker 1: not raise rates that much or at all, and sort
Speaker 1: of wait to see what happens, even in the face
Speaker 1: of nine point one percent headline CP I I have
Speaker 1: a lot of sympathy for lifting rates. I think you know,
Speaker 1: look and you you will have heard me say this before.
Speaker 1: I mean, I think the FED was very very late
Speaker 1: to this. I me, I would argue that today we
Speaker 1: should be a hundred basis points higher because the FED
Speaker 1: was much more aggressive, you know, sort of late last year. Um.
Speaker 1: But so I do have a lot of sympathy for that.
Speaker 1: I just think that we have to be careful. Um
Speaker 1: And and ask aloud, do you think that these interst
Speaker 1: rate hikes are actually going to scale back on inflation?
Speaker 1: I think inflation is going to slow organically. I know
Speaker 1: that's a it's a that's a tough pill to swallow
Speaker 1: for the FED, and I know they can't stand oddly
Speaker 1: buy up and wait for that to happen, so they
Speaker 1: have to keep on raising rates. I just think we
Speaker 1: have to be careful about the level of rates that
Speaker 1: we get to. UM. I don't know that we have
Speaker 1: to get wildly into restrictive territory. I mean, look, let's
Speaker 1: be clear. You know, prior to things starting to term
Speaker 1: pretty squishy over the last few months, and the backdrop
Speaker 1: did not need UM any accommodation. I mean, we should
Speaker 1: have been at neutral a while ago. But I think
Speaker 1: now where in so many ways, I feel like we're
Speaker 1: fighting yesterday's war on inflation. And moreover, I would add
Speaker 1: there's certain components of inflation that have been doing some
Speaker 1: pretty heavy lifting that the FED has zero ability to
Speaker 1: control UM. Whether that's food or energy, things that are
Speaker 1: obviously now receding to some extent. But I think about
Speaker 1: some of the inflation components over the last month or two,
Speaker 1: like UH auto insurance or or our car repair. I
Speaker 1: know that might sound like small, these small little things
Speaker 1: they added like a tenth, right, they added a tenth
Speaker 1: or more UM to the headline, on to the month
Speaker 1: on month gain. UM. That's an enormous number that again,
Speaker 1: the FEED is no ability to control. People went out
Speaker 1: and bought a bunch of used cars. They are breaking
Speaker 1: down and they need more insurance. I mean, what does
Speaker 1: what can the FED do about that? So I just
Speaker 1: think the FED has to be honest about the things
Speaker 1: that it can cannot control. Tell I want to finish
Speaker 1: out with this. The federal seven with FED funds pakes
Speaker 1: what does it pake for the team over Ambi's sake? Yeah,
Speaker 1: so we we think you get to the midpoint, it
Speaker 1: would be three three three point three sevent five. So
Speaker 1: basically they hyked over the balance of of this year. Um,
Speaker 1: we think that that's uh reasonable still at this point. Um,
Speaker 1: you know, I know it's probably sort of in line
Speaker 1: with what the market is saying. I don't know if
Speaker 1: I like that or not. Um, but that's where we
Speaker 1: are right now. I tell myself, somebody catch up. Thank you,
Speaker 1: said some Plocenic Capital Markets. The signal from our antenna
Speaker 1: reached to Louisburg, Pennsylvania. Louisburg, PA. And long ago she
Speaker 1: used to listen to the garbage we do every it's
Speaker 1: our fault. You you were at Scenic Bucknell in school,
Speaker 1: and you actually were listening to Bloomberg Radio. I was
Speaker 1: actually watching Bloomberg TV when I woke up in the
Speaker 1: morning because I couldn't read financial media, didn't understand economics.
Speaker 1: So you used to watch Bloomberg I did. I did,
Speaker 1: and so I learned a thing or two. Hopefully I'm
Speaker 1: not disappointing you now. And so it's our folcus, it's
Speaker 1: our faulty bassak here of course, looking at all of
Speaker 1: our banking work, it truly has a wonderful pulse on
Speaker 1: this island of Manhattan for all of you worldwide. How
Speaker 1: nervous is it? What's the sweat factor this first week?
Speaker 1: I don't think people realize how deep some of the
Speaker 1: cuts can start to get because on one hand, yes,
Speaker 1: of course bonuses are going to be down this year,
Speaker 1: and many many businesses, so many businesses have stalled very dramatically.
Speaker 1: I p O S Spacks Remember Spack bankers were being
Speaker 1: hired left and right last year. Even debt underwriting has
Speaker 1: dramatically slowed down, and M and A has also slowed down.
Speaker 1: So of course bonuses will be down. But the question
Speaker 1: now becomes job cuts because you have a lot of banks,
Speaker 1: like credit suites that are an enormous amount of pressure
Speaker 1: and they you know, they are scooped. This morning from
Speaker 1: Bloomberg was that they're discussing thousands of job cuts globally.
Speaker 1: But are you equating the challenges of American Wall Street
Speaker 1: with the huge realities of Zurk. Yes, because Credit Sweet
Speaker 1: is a huge US bank as well, and not in
Speaker 1: wealth went management, but yes, in investment banking they were
Speaker 1: top ten. So I can get a seat at eleven
Speaker 1: fine down there at the back end of Madison Avenue. Listen.
Speaker 1: The interesting thing about this, too is every conversation we
Speaker 1: have on background with executives is yes, that normal attriction
Speaker 1: will probably come back at the end of the year,
Speaker 1: that five percent, calling that usual. The question this year
Speaker 1: is that four or five become ten. That's a possibility
Speaker 1: if things continue to go south for the rest of
Speaker 1: the year, and it's a reality that. Remember, there's playing
Speaker 1: offense and there's playing defense. And if you're an investment bank,
Speaker 1: you're playing you're gonna want to play offense, and you're
Speaker 1: gonna want to prepare for a tough time. As I remember,
Speaker 1: A good example of this is Morgan Stanley. Remember a
Speaker 1: couple of years ago they started cutting jobs before things
Speaker 1: got bad, so that they would have capital to deploy
Speaker 1: into markets, so that they would have the ability to
Speaker 1: hire in other areas if they needed to. People like
Speaker 1: to get prepared. Only you were just sitting here in
Speaker 1: our Bloomberg, in our active studio, I'm gonna say, nine
Speaker 1: months ago, twelve months of recording about how these investment
Speaker 1: banks couldn't hire enough people, how they couldn't pay their
Speaker 1: junior people enough, raising their pay three or four times
Speaker 1: in the course of a year, which I've never seen before.
Speaker 1: Now it's exactly opposite. I mean, it just kind of
Speaker 1: confirmed my BELI having worked on Wall Street for twenty
Speaker 1: five years and maybe one of the worst managed businesses.
Speaker 1: I don't know that it's worst managed. I think you
Speaker 1: have to prepare on Wall Street for it to be
Speaker 1: a volatile business, right are you lecturing? Mr Sweeney? Take
Speaker 1: I need some help here, because for a whole my
Speaker 1: whole career is just managing the bonus expectations, which Tom,
Speaker 1: You're right, they started in when you got back from
Speaker 1: Labor Day. Your every conversation you had around the water
Speaker 1: cooler was about bonus bonus out of February and suggesting
Speaker 1: this year is going to start in, Well, let's go
Speaker 1: to what Paul was talking about, which is the junior bankers,
Speaker 1: and we said good morning to all of them. Are
Speaker 1: studying for cf A level four right now, no question
Speaker 1: about it. To review mortals used to get eighty and
Speaker 1: then they went to one hundred, and then there was
Speaker 1: a salary war, right yes. And it's so funny. This
Speaker 1: is kind of like an insider baseball a thing going on,
Speaker 1: and we can get insider baseball. It's funny because last
Speaker 1: year Liquidity, a Meme company, had started to break a
Speaker 1: lot of that news about the junior banker salaries. They
Speaker 1: themselves hired somebody, so there are two employees for this company.
Speaker 1: That employee now split off on his own. You're still
Speaker 1: seeing young people split off on their own, a lot
Speaker 1: of realities about not only the pay not being what
Speaker 1: they would have liked, but also the perks being taken
Speaker 1: away post pandemic. And now when I speak to young
Speaker 1: people on Wall Street, not only are they complaining about
Speaker 1: the perks and the ability not to just kind of
Speaker 1: leave and join a Meme stock company, they also are
Speaker 1: complaining about the fact that they might need to choose
Speaker 1: a new career because the hiring classes from you know,
Speaker 1: analysts are not being promoted as quickly in terms, are
Speaker 1: not being hired as often already already because Paul, what
Speaker 1: what what Ernali does on stands the perks when you
Speaker 1: and I started was if there were ten pizzas, you
Speaker 1: could get a piece of pepperoni, and that exactly. The
Speaker 1: pizzas came in around eight o'clock at night, and you're
Speaker 1: the anchoring here. People were in the pandemic and getting
Speaker 1: free lunch and dinner. And if they came in and
Speaker 1: now they are not, they were getting their ubers paid for.
Speaker 1: Now they are not. And so there's a lot of
Speaker 1: So what's the feeling as to I mean, now we've
Speaker 1: kind of got the markets rallying here over the last
Speaker 1: month and a half or so. I'm wondering what the
Speaker 1: rhetoric is going to be from some of these Wall
Speaker 1: Street executives when they do speak, whether it's at a
Speaker 1: conference coming up here in the fall or some earnings.
Speaker 1: I mean, how dour can they be? We've kind of
Speaker 1: got the markets rallying off of this bottom here. Yeah,
Speaker 1: I sound like a total perma bear. However, you know
Speaker 1: it's called the house of someone's got to do it.
Speaker 1: And if you look at credit employees, if they cut
Speaker 1: thousands of employees and get to what forty nine thousand,
Speaker 1: they still have are very large banks. And so the
Speaker 1: question is what kind of cuts are we really looking
Speaker 1: at these executives normal attrition? They got to go way
Speaker 1: past Yeah, I mean, actually will you could argue that.
Speaker 1: I mean, what we've seen, it seems like over the
Speaker 1: last decade plus is that the big US banks get stronger.
Speaker 1: USUTA bank stutsa banks an there's I gotta get to
Speaker 1: sing because she is so up to speed on everything
Speaker 1: going on. We talked to Mr Zelter today at Apollo
Speaker 1: and they have done a transaction to acquire with the
Speaker 1: team one of the most romantic companies in the world,
Speaker 1: Atlas Cargo. Atlas is the largest owner of the Miracle
Speaker 1: other than the space program of my life, the Boeing seven.
Speaker 1: Paul and I watch Cathay Pacific come in from Anchorage
Speaker 1: to JFK, you know, on our iPhones and all that.
Speaker 1: But that's an example Shenali about private enterprises falling into
Speaker 1: what used to be normal big company for bringing it
Speaker 1: up to because private credit markets, you know, if you
Speaker 1: think about it over at Carlisle, they're a m the
Speaker 1: assets under management and credit alone, where Apolo is the biggest,
Speaker 1: doubled in six months. So they went from seventies some
Speaker 1: billion to a hundred forties some billion within six months.
Speaker 1: Why are they boxing out the big firms from transactions
Speaker 1: like buying Atlas? It's so simple big banks these days
Speaker 1: in credit markets, in private equity markets, they are subjected
Speaker 1: things like Vulcar. They are subject to other capital requirements.
Speaker 1: The FED has clamped down and so when the economic
Speaker 1: gets into environment gets tough. By the way, they have
Speaker 1: tons of leverage loans on their books right now in
Speaker 1: which they're taking you know, an estimated billion to two
Speaker 1: billion dollars with the losses. There's still losses. There a
Speaker 1: brain drain from a given big bank. I'm gonna pick
Speaker 1: Bank of America over to people like Apollo big time.
Speaker 1: But I have to say, even on the buy side,
Speaker 1: there is some pressure private equity marks. In the second
Speaker 1: quarter we're down uh And so with the was a
Speaker 1: massive jargon what's a private equity mark? So when you're
Speaker 1: holding private companies there's usually magic involved where you say
Speaker 1: it's privately held, it's not publicly traded. We don't lose
Speaker 1: money because of that. But that's not true. And now
Speaker 1: you're seeing that, and you see it. You know, look
Speaker 1: at the hedge funds. Tiger Global was a huge attractor
Speaker 1: of talent. Chase Coleman. Michael Barr walks in and she
Speaker 1: just she just knows to mention the Detroit Tigers. Tiger Okay,
Speaker 1: they're they're losing worse than the Detroit Tigers. We gotta
Speaker 1: leave it. Thank you for the brief. Here it's a
Speaker 1: September brief, folks in early Augustali bask This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and
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Speaker 1: Tom keane In. This is Bloomberg