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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moving news.

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Speaker 1: Bond the Bloomberg Markets Podcast called Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash

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Speaker 1: podcast pack of West it looks like it's trading, that

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Speaker 1: it stopped. Western Alliance is now trading, it's down twenty

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Speaker 1: two percent. We want to bring in another smart voice here,

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Speaker 1: Jay Hatfield, CEO of Infrastructure Capital Management, and Jay, your

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Speaker 1: veteranan of these markets. What do what do you make

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Speaker 1: of this regional bank business these days? How these structure trading?

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Speaker 3: Well, you know, I was around during the financial crisis

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Speaker 3: and this is sort of the normal, the normal dynamic

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Speaker 3: that you run into. Whereas if you have problem with

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Speaker 3: one bank, then short sellers will naturally talk to the

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Speaker 3: other banks. And one thing that's important to remember is

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Speaker 3: that the bondholders get white out as well, and it's

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Speaker 3: easy to manipulate or quickly blow out the CBS market

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Speaker 3: and so then that can be a signal to equity traders,

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Speaker 3: but it's a very i liquid market, so that can

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Speaker 3: then breed you know, lost in deposits, and with the

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Speaker 3: Fed being so hawkish, it's horrible to his deposits as

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Speaker 3: we saw from First Republic.

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Speaker 4: What do you think needs to happen to put an

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Speaker 4: end to this?

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Speaker 2: I mean, how many people came out yesterday and said JP.

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Speaker 4: Morgan, Wait, what day is today?

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Speaker 2: No, how many people came out on Monday and said

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Speaker 2: JP Morgan, you know, has put an end to this

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Speaker 2: by buying First Republic. This seals it off. There's no

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Speaker 2: more problems for regional banks. I mean, out of the

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Speaker 2: Milkan conference, every single big wig was saying the banking

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Speaker 2: system is sound. This was, you know, an idiosyncratic issue

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Speaker 2: and just bad management at First Republic and SBB.

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Speaker 4: But it's not going to be a problem that spreads.

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Speaker 4: There's no contagion.

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Speaker 3: Well, I think that they're just trying to generate some

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Speaker 3: stability in the market and really just trying to stick

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Speaker 3: to the party line, which the government wants them to.

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Speaker 3: But until you really fix the posit insurance and or

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Speaker 3: the FED cuts rates, which is extremely unlikely they should

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Speaker 3: have done it last meeting, then.

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Speaker 4: You're gonna but they're not gonna do it at this meeting.

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Speaker 3: Or definitely meeting now they might raise again. The best

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Speaker 3: way to predict what the Fed is gonna do is

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Speaker 3: think about what they should have done a year ago.

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Speaker 3: So if it's June of twenty two, then inflation ad

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Speaker 3: and peaked, and they probably We're more bullish about the

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Speaker 3: second half of the year because then it'll be obvious

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Speaker 3: inflation's peaked and then the Federal figured out, But we

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Speaker 3: wouldn't expect them to cut rates because that'll take them

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Speaker 3: a year to figure out that they probably should cut rates.

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Speaker 1: So, but I mean, the concern here on some of

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Speaker 1: these regional banks has been called out by analysts and economists.

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Speaker 1: Is it really sets in motion a credit crunch or not.

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Speaker 1: Maybe that's your credit crunch, but just you know, it's

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Speaker 1: just tougher to get credit out there, and what credit

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Speaker 1: you do get the fund business and growth is more expensive,

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Speaker 1: and that in and of itself could really either trigger

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Speaker 1: a recession or make it a deeper than maybe people think.

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Speaker 1: Is that a material risk in your mind?

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Speaker 3: It definitely is, and it's kind of surprising the Feds

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Speaker 3: seems to be ignoring it. But we still are constructive

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Speaker 3: about the economy, maybe not staying out of a technical recession,

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Speaker 3: but not going into a deepercession. And the real dynamic

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Speaker 3: there is that we have a shortage of housing and autos.

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Speaker 3: So unlike the FEDS model where they assume we have

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Speaker 3: to have unemployment, you don't. You just have to have

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Speaker 3: a shrinking money supply dropping commodity prices that will cure inflation.

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Speaker 3: That's what the history shows. There is eleven hundred and

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Speaker 3: fifty percent increase in oil prices during the seventies, so

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Speaker 3: all the things that Fed learned from the seventies are incorrect.

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Speaker 3: Is really driven mostly by very high energy prices.

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Speaker 2: So you think that simply a goods and housing shortage

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Speaker 2: will be enough to keep us out of a deeper

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Speaker 2: session deep one.

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Speaker 3: Yes, But I wouldn't ignore the credit crunch and particularly

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Speaker 3: has been you know, publicized on not so much the

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Speaker 3: mortgages that affect reads because those are gigantic buildings with

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Speaker 3: you know, very liquid like the building we're in right now,

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Speaker 3: But these smaller real estate lending, smaller buildings throughout the

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Speaker 3: country could be pressured.

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Speaker 5: Yeah.

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Speaker 2: Well, I mean the big question is and the you know,

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Speaker 2: the biggest names in finance have been warning. I think

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Speaker 2: Charlie Munger was telling this to an Australian newspaper, and

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Speaker 2: then someone much younger from Apollow, Mark Rohan, was telling

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Speaker 2: this is Shinali Bassic that you know the next shoot

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Speaker 2: to drop is commercial real estate.

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Speaker 4: We should be watching out for.

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Speaker 3: That, and there's no doubt about that. It just would

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Speaker 3: point out it's not as bad as the financial crisis

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Speaker 3: because you do have strong recoveries, so there's less leverage,

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Speaker 3: it's easy to repossess, which is not true for individual housing,

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Speaker 3: and there is a deep bid at some level for

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Speaker 3: most of these assets, so you really just have to

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Speaker 3: analyze the portfolios. But I don't think that's going to

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Speaker 3: be catastrophic, just for the reason I mentioned that the

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Speaker 3: loan to values were all pretty reasonable and then so

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Speaker 3: therefore the recoveries are going to be pretty substantial.

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Speaker 1: Jay, I'm going at WTI crud here. It's off three

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Speaker 1: point seven percent today, just under seventy three dollars a barrel,

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Speaker 1: giving up more than the gains it had when the

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Speaker 1: OPEC plus cut production several weeks ago. What's going on in.

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Speaker 2: Even though supply is tight, right? I mean every time

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Speaker 2: I see, we see stockpiles coming out. They're lower than

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Speaker 2: it had been anticipated.

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Speaker 3: Yeah, So one thing that keep in mind about oil

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Speaker 3: is it's not just a commodity, it's also a like

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Speaker 3: a stock, so it has a bit of about point

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Speaker 3: eight to the market. So you know, given the fears,

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Speaker 3: if there are headlines like we're seeing with the banking sector,

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Speaker 3: you can almost be certain, unless Ope's acting that day,

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Speaker 3: that oil be very weak. In fact, this is something

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Speaker 3: that FED should not ignore. Oil prices now with this drop,

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Speaker 3: are off about ten percent just since the banking crisis occurred,

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Speaker 3: and that's highly deflationary because it does bleed through to core,

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Speaker 3: so that'll take about a half percent out of core.

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Speaker 3: But of course they don't look at these real time indicators. Again,

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Speaker 3: commodity prices mightey supply and the housing market. They're focused

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Speaker 3: on the lagging indicators, which is really the labor market.

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Speaker 4: So let me ask you a question.

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Speaker 2: Just got a minute left here, But if we have

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Speaker 2: a recession that's not a horrible recession, short and shallow,

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Speaker 2: what kind of recovery do we have and how do

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Speaker 2: you figure in the FED? Because they don't want to

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Speaker 2: cut rates and they're not going to cut rates. It

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Speaker 2: seems unless inflation gets back to two, terribly unlikely or

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Speaker 2: something horrible happens, which I guess you don't expect.

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Speaker 3: Well, you could argue that this banking crisis is a

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Speaker 3: horrible thing happening, so maybe that'll actually force them to act,

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Speaker 3: because keep in mind, it's just terrible for the banking

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Speaker 3: business to have inverted O curve because if you lose deposits,

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Speaker 3: then you lose profitability. And there's something called roll down

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Speaker 3: where when you have a three year bond, it becomes

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Speaker 3: a two year bond, becomes a one year bond, and

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Speaker 3: that becomes more valuable. But when you have an inverted

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Speaker 3: yield curve, that doesn't occur. So it's really terrible for

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Speaker 3: the financial system. So I guess that's the upside. The

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Speaker 3: worst it gets, maybe the federal at least stop raising

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Speaker 3: rates and maybe even cut them later this year.

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Speaker 1: All right, Jay, I always appreciate getting some of your time,

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Speaker 1: very learned approach to this, and we appreciate getting some

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Speaker 1: of your comments. Ja Haffield he's the CEO, founder and

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Speaker 1: portfolio manager of Infrastructure Capital Management.

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Speaker 4: What's the website, by the way, with your inflation tracker?

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Speaker 3: Infracap funds dot Com.

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Speaker 2: Ww FRA CAT infrastructure infracap funds dot Com.

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Speaker 5: Yeah, got it.

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Speaker 1: So that's an inflation tracker you like, right, Mat.

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Speaker 2: Yeah, I mean we've talked about this with JB four

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Speaker 2: any Essentially what you pull out the rent component?

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Speaker 3: Yes, we just put in case shell air. It's very simple.

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Speaker 3: You could do it yourself. We put in case shell

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Speaker 3: air instead of the BLS's arcane estimate of rents.

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Speaker 1: Right, Jay, thanks so much for joining us. We really

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Speaker 1: appreciate it.

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Speaker 5: You're listening to the team.

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Speaker 6: Ken's our live program, Bloomberg Markets weekdays at ten am

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Speaker 6: Eastern on Bloomberg dot com, the iHeartRadio app and the

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Speaker 6: Bloomberg Business app, or listen on demand wherever you get

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Speaker 6: your podcasts.

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Speaker 1: Well, a busy week just got even busier. Of course,

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Speaker 1: we have earnings coming out in mass this week, We've

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Speaker 1: got lots of eco data coming out, and of course

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Speaker 1: the Fed tomorrow and add to that today a renewed

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Speaker 1: run on some of these regional banks really just kind

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Speaker 1: of really throwing a wrench into this market here. Prea

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Speaker 1: Misterjoints is Managing director and Global head of Rate Strategy

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Speaker 1: of TD Securities pre I mean, I guess the bank

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Speaker 1: issue is not done, even though Jamie Diamond and JP

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Speaker 1: Morgan stepped in for First Republic yesterday. How do you

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Speaker 1: think this banking turmoil impacts the FED and how it

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Speaker 1: thinks of the economy and what it needs to do

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Speaker 1: with its policy.

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Speaker 7: Sure, thanks for having me on so great question.

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Speaker 8: I mean, the Fed has a dual mandate, so they're

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Speaker 8: looking at the labor market and inflation, and if you

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Speaker 8: look at the data right now, it would argue for

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Speaker 8: them to hike, and we're looking for them to hike

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Speaker 8: tomorrow as well as hike once more in June. But

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Speaker 8: I think the banking in fact, I'm calling it a crisis.

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Speaker 8: I mean this is this wasn't just a couple of

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Speaker 8: banks mismanagement of portfolios. I think there's something structural here.

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Speaker 8: You know, we're seeing deposit outflows across the banking system.

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Speaker 8: I think that continues because money market funds are giving

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Speaker 8: you higher rates than banks.

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Speaker 7: There are unrealized losses on portfolios.

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Speaker 8: And we're not even talking about the loan book between

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Speaker 8: the commercial real estate or other loans. So I think

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Speaker 8: there's a banking issue among a lot of banks, not

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Speaker 8: just the banks that have failed. And what that's going

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Speaker 8: to do is for some banks, I think the FDIC

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Speaker 8: receivership option. For others, it's going to be some sort

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Speaker 8: of consolidation. But overall, you're asking about the longer term impact.

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Speaker 8: I think it's one of bank deleveraging. Banks have to

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Speaker 8: either raise capital or shrink their balance sheet. It's very

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Speaker 8: hard to raise capital, if not impossible, for SVB, it

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Speaker 8: was impossible. So I think in that scenario, a bank

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Speaker 8: is going to have to cut back where they can.

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Speaker 8: So I see title lending standards shrinking off the loan book.

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Speaker 8: It's very hard for them to sell securities because they're

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Speaker 8: in the health to maturity portfolio, but the loan book shrinks,

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Speaker 8: and so that's going to have an impact on the

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Speaker 8: economy long over the next six months or longer. And

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Speaker 8: so our view is that the economy was already heading

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Speaker 8: into a slowdown before March or before the start of

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Speaker 8: the banking crisis. I think the supercharges it, which is

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Speaker 8: why we're thinking the FED is cutting starting later this

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Speaker 8: year December, and then cuts a lot more than what's

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Speaker 8: priced in, so it's you know, I think this is

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Speaker 8: just the accelerant.

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Speaker 2: Why do you think the FED would cut I mean, here,

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Speaker 2: they are raising rates for more than a year in

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Speaker 2: order to bring this about. Why would you turn around

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Speaker 2: and cut after you've achieve your goal? Or I mean

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Speaker 2: they haven't even gotten close to the inflation level they want.

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Speaker 2: Jay Jay continues to tell us. J Powell continues to

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Speaker 2: tell us he needs to get closer to two percent.

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Speaker 2: We saw a headline number of you know, seven percent.

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Speaker 8: So yeah, now, I think that's fair. They did want

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Speaker 8: to slow things down, but they have to be careful

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Speaker 8: what they wish for. Right if they get a really

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Speaker 8: sharp slowdown or a disorderly slow down, I would say

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Speaker 8: the tightening and financial conditions in the last two months

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Speaker 8: is disorderly. It's fast, it's creating this risk of sentiment.

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Speaker 8: It starts to impact other sectors of the economy. Now,

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Speaker 8: right now, I think the data is still strong, but

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Speaker 8: remember the FED is data dependent, and so if the

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Speaker 8: unemployment rate starts to tick up, if you get negative payrolls.

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Speaker 8: We have negative payrolls starting in the fourth quarter in

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Speaker 8: our forecast economy hitting a recession, they're going to have

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Speaker 8: to start cutting.

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Speaker 9: Now.

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Speaker 8: I'm not saying they're going to cut to zero because

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Speaker 8: inflation is going to prevent that. But you know, should

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Speaker 8: the economy have five and a half percent FED funds

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Speaker 8: when the unemployment rates rising sharply and you're seeing negative pyros,

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Speaker 8: that's what we think. They start the cutting and then

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Speaker 8: you see the.

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Speaker 2: Unemployment rate rising sharply. Currently we're at three and a

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Speaker 2: half percent. It's a level that I didn't even know

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Speaker 2: we could get to. You know, I thought that was impossible.

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Speaker 7: No, Lily more it is tight.

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Speaker 4: But we have nine and a half billion open jobs.

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Speaker 8: But you know, there's a structural mismatch between the in

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Speaker 8: the skills mismatch issue. So we see the uneployment rate

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Speaker 8: at five and a half by the end of next year,

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Speaker 8: and that's much higher than the FED once and that's

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Speaker 8: why I think they're going to have to cut more.

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Speaker 2: But that's a long time from now. That's like a

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Speaker 2: century away the end of next year.

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Speaker 1: Making it's there.

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Speaker 2: That's dude, that's that's very difficult to forecast what's going

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Speaker 2: to happen in more than eighteen months.

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Speaker 1: That's what That's what that's what we pay Pria the

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Speaker 1: big bucks for. So she goes out there.

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Speaker 2: I mean, but so Pria, you see the FED cutting

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Speaker 2: in December this year. We do?

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Speaker 7: We do? I mean is there a risk to that?

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Speaker 8: Yes, I would say risks are later because they've just

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Speaker 8: may not have enough evidence to say that the slowdown

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Speaker 8: is more than they anticipated. And remember the unemployment rate.

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Speaker 8: You're talking about how difficult it is to focus. It's

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Speaker 8: also the most lagging indicator. I mean, the first thing

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Speaker 8: that happens is job openings come off, then the layoff start,

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Speaker 8: and then for the unemployment rate to really rise. We

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Speaker 8: might be already in a recession, so it might be

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Speaker 8: janned when they start to cut. But yeah, we're actually

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Speaker 8: forecasting December this year first rate cut, and then fifty

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Speaker 8: basis point cuts most of next year.

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Speaker 1: So what are you going to be listening for tomorrow?

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Speaker 1: Pria in the comments and the Q and A from

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Speaker 1: FED Chairman j Pale. That might either give you greater

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Speaker 1: conviction to that call or maybe cause you some concern.

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Speaker 8: So I'll be watching for how he talks about bank

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Speaker 8: lending standards. I mean they've had I think they would

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Speaker 8: have seen the slews the Senior Loan Officers Survey, which

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Speaker 8: hasn't yet come out after March, but we're going to

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Speaker 8: get that report next week. How does Cheppael talk about

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Speaker 8: it is that, yes, they are tightening, this is what

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Speaker 8: we expected to your earlier point that this was the

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Speaker 8: intent of tightening, or well, if it's disorderly, if it's

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Speaker 8: too much tightening, we have to reconsider. So how do

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Speaker 8: they talk about the bank credit channel. I'm sure he's

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Speaker 8: not going to talk about specific banks, but that's one.

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Speaker 8: The other one, you know, is on inflation. How patient

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Speaker 8: can they be on inflation? If inflation is still in

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Speaker 8: public enemy number one, then I think this is really

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Speaker 8: negative for his assets because that means even if the

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Speaker 8: unemployment rate is rising, if inflation is high and sticky,

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Speaker 8: the FED can't respond. So I'll be watching for that.

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Speaker 8: I hope somebody asks him about QT quantitative tightening, which

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Speaker 8: I think is partly responsible for what's happening because it's

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Speaker 8: draining reserves and deposits from the banking system. But I

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Speaker 8: think the Fed's always talked about that is happening in

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Speaker 8: the background, So we may not get much, but I

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Speaker 8: still hope he's asked.

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Speaker 4: So, I mean the banks.

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Speaker 2: You don't expect anything specific on names, right, but will

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Speaker 2: he talk about financial stability?

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Speaker 4: Does he have to.

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Speaker 7: It? Doesn't have to. That's not his mandate.

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Speaker 8: And I think he's going to say, well, you saw

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Speaker 8: Vice share Bars report on it. The FDIC is talking

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Speaker 8: about different things they can do. This is really a

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Speaker 8: Congress if it's a regulation issue that something Congress needs

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Speaker 8: to work on. I think he's going to deflect and

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Speaker 8: say the FED meeting is about monetary policy. But I

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Speaker 8: do think he's going to reinforce data dependence, right, so

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Speaker 8: if the data suddenly turns, I think the FED is

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Speaker 8: going to say, well, we'll respond and state that even

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Speaker 8: if they do pause, they could hike after that, or

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Speaker 8: they could cut after that. I don't think they'll have

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Speaker 8: the ability to hike, but I think he might say

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Speaker 8: that and sound a little hawkish tomorrow.

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Speaker 5: All right.

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Speaker 1: Prea, thank you so much for joining us. Always appreciate

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Speaker 1: getting your perspective there. Prea Misrap. She's a managing director,

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Speaker 1: Global head of rate Strategy at TD Securities. I think

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Speaker 1: with a very interesting call here, expecting the FED to

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Speaker 1: begin cutting rates at the end of next of this

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Speaker 1: year and then continue at maybe an accelerated pace in

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Speaker 1: twenty twenty four.

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Speaker 4: So and unemployment rising.

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Speaker 2: I mean, if you look at the unemployment rate right now,

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Speaker 2: it's doing anything but right. On the other hand, Friday,

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Speaker 2: we're going to get a new number.

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Speaker 1: We've got like we don't have enough going on. We've

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Speaker 1: got earnings all over the place. We've got Ego data

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Speaker 1: all over the place. We've got the Fed. Now, we've

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Speaker 1: got renewed banks selling. But we also have this issue

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Speaker 1: of paying our bills, our government paying the bills. I mean,

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Speaker 1: you know, I balance a check book every month like

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Speaker 1: a lot of folks. I'm sure, but the government, I'm

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Speaker 1: not sure. They're not so good at that. Dwayne Wright,

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Speaker 1: senior government analysts with Bloomberg Intelligence, joins us here. So Dwayne,

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Speaker 1: give us a sense of where we are with the

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Speaker 1: debt sealing negotiations and maybe what's kind of the best

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Speaker 1: guess of how this thing plays out.

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Speaker 9: Well, where we are Republicans pass their gets You bill

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Speaker 9: last week, and we then got news from Secretary Treasury

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Speaker 9: Yellen that the new X state is June first, and

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Speaker 9: so shortly after that we heard the Biden White House

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Speaker 9: invite the leaders of the House and Senate, so the

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Speaker 9: majority and minority leaders in the House and Senate to

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Speaker 9: the White House to essentially kick off negotiations on a

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Speaker 9: path forward. So a very timely move. I think the

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Speaker 9: challenge here is that one, there's not a whole lot

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Speaker 9: of time. It's May second, June first is right around

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Speaker 9: the corner to the House pass bill is pretty much

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Speaker 9: a non starter for Democrats, who have signaled that they

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Speaker 9: only want a clean debt ceiling raise. So really the

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Speaker 9: question is where do we go from here if the

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Speaker 9: two parties are pretty much far apart from what they're

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Speaker 9: looking for. Yeah, to me, deat ceiling.

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Speaker 4: Does the do the Democrats get what they want?

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Speaker 2: I mean, will they hold you know, the economy hostage

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Speaker 2: and unless they get a clean debt ceiling raise or

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Speaker 2: isn't it, you know, in a sense, the responsible thing

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Speaker 2: to try and control spending while you're raising the debt limit.

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Speaker 9: I think we're heading towards a path where both parties

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Speaker 9: can say that they've won here. First off, I think

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Speaker 9: we're gonna need a short term debt ceiling raise, a

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Speaker 9: kick the can down the road because parties are just

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Speaker 9: too far apart on how much to cut.

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Speaker 4: Don't we always do that? Dwayne isn't kicking the can

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Speaker 4: what the government?

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Speaker 2: Wouldn't it be great if they sat down and thought

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Speaker 2: of a long term solution that included lifting the debt

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Speaker 2: limit but also put some kind of cap on our spending.

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Speaker 9: I think that's where we'll go. I just don't think

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Speaker 9: they can get there in four weeks, So kicking the

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Speaker 9: can down the road to say the fall is probably

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Speaker 9: what's going to happen, and that's going to allow time.

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Speaker 9: I'm for both parties to say, what's the universe of

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Speaker 9: cuts that we're willing to live with, What can we

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Speaker 9: get out of the House, what can we get out

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Speaker 9: of the Senate. And it sets up a narrative where

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Speaker 9: if they can agree on what that spending package looks like,

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Speaker 9: not just for next year, but also for say, the

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Speaker 9: next five to ten years, they can work on what

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Speaker 9: those specific cuts are and in the meantime pass a

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Speaker 9: clean debt ceiling race. So you have on the one hand,

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Speaker 9: President Biden getting his clean debt ceiling rais and then

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Speaker 9: on the other you have the Republicans getting their fiscal

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Speaker 9: budgetary cuts which they've put forward. So this whole process

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Speaker 9: needs to play out for a bit longer, especially when

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Speaker 9: keep in mind Republicans just pass their bill, So we

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Speaker 9: need a couple more weeks, probably a couple more months

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Speaker 9: to figure it all out.

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Speaker 2: If you step back on this, Dwayne and I'm you know,

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Speaker 2: you live in this and Paul and I are just

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Speaker 2: you know, tourists. Has anyone suggested a smart solution that

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Speaker 2: will solve this once and forever, you know, other than

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Speaker 2: just saying no more debt ceiling, you know, something that

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Speaker 2: somehow controls spending but also doesn't push us to the

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Speaker 2: brink every few years.

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Speaker 9: There have been a lot of ideas put out there

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Speaker 9: in terms of how we get there, whether it's creating

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Speaker 9: a commission, whether it's just spending to the rate of inflation.

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Speaker 9: I think the challenges that both parties will have to

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Speaker 9: do things that they don't want to do, because addressing

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Speaker 9: our fiscal situation involves some level of addressing the tax

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Speaker 9: side of the equation and also some level of addressing

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Speaker 9: the spending side of the equation. Keeping in mind part

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Speaker 9: of that spending is Medicare social security, and those two

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Speaker 9: issues are off the table as far as these budget

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Speaker 9: discussions are. So, I think that there are a lot

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Speaker 9: of out there, but it just involves a lot of

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Speaker 9: political choices that members past and present have not been

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Speaker 9: willing to make. Republicans don't want to raise taxes. Democrats

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Speaker 9: don't want to touch Medicare.

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Speaker 1: All right, Barry rid helts wealth Management, he darkens the

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Speaker 1: door here, I know he wants to jump in.

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Speaker 10: So, Matt, the solution is we moved to a parliamentarian

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Speaker 10: system so that you whoever's in charge, gets to pass

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Speaker 10: their budget, as opposed to going through this circumstance where

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Speaker 10: we've already allocated this money by Congress. We just failed

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Speaker 10: to say, oh, we have to raise that debt ceiling,

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Speaker 10: you know, Congress.

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Speaker 2: Or you could get I mean, you could get rid

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Speaker 2: of the filibuster, right, and then the party in charge,

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Speaker 2: the party with the majority, automatically gets to do whatever

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Speaker 2: it wants.

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Speaker 10: One would think. But so instead we have these crazy

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Speaker 10: DC permutations as opposed to focusing on doing the people's business.

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Speaker 10: That has taken a back seat to posture during and

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Speaker 10: teeing up for the next election.

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Speaker 1: All right, all right, Barr, you're gonna stick around because

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Speaker 1: we've got you h here in our studio here, Dwayne right,

439
00:22:08,040 --> 00:22:09,480
Speaker 1: thanks so much for joining us, Dwayne Wright as a

440
00:22:09,480 --> 00:22:13,240
Speaker 1: senior government analyst Bloomberg Intelligence. Really sharp. Guy's got a

441
00:22:13,280 --> 00:22:17,240
Speaker 1: lot of great experience. Unfortunately he got his undergraduate Chapel

442
00:22:17,280 --> 00:22:19,800
Speaker 1: Hill at the University of North Carolina at Chapel Hill.

443
00:22:19,800 --> 00:22:21,159
Speaker 4: But what a nice place that must be.

444
00:22:21,600 --> 00:22:23,159
Speaker 1: Yeah, yeah, so I hear.

445
00:22:23,200 --> 00:22:24,240
Speaker 4: It's where's duke again?

446
00:22:24,280 --> 00:22:27,080
Speaker 1: What's in Durham? In Durham ten miles down the road,

447
00:22:27,119 --> 00:22:28,080
Speaker 1: fifteen to five to one.

448
00:22:28,119 --> 00:22:30,240
Speaker 2: If you had, just if you had one night to

449
00:22:30,280 --> 00:22:31,879
Speaker 2: go to either town, would you when you go to

450
00:22:31,960 --> 00:22:32,480
Speaker 2: Chapel Hill.

451
00:22:32,640 --> 00:22:34,440
Speaker 1: Used to be you'd go to Chapel Hill hands down.

452
00:22:34,480 --> 00:22:37,760
Speaker 1: Now it's the exact opposite. Durham has undergone this tremendous renaissance.

453
00:22:37,880 --> 00:22:39,320
Speaker 1: It is now the place to be.

454
00:22:41,680 --> 00:22:45,119
Speaker 6: You're listening to the team Ken's Are Live program Bloomberg

455
00:22:45,160 --> 00:22:47,440
Speaker 6: Markets weekdays at ten am Eastern.

456
00:22:47,200 --> 00:22:50,280
Speaker 5: On Bloomberg dot Com, the iHeartRadio.

457
00:22:49,560 --> 00:22:52,320
Speaker 6: App, and the Bloomberg Business app, or listen on demand

458
00:22:52,359 --> 00:22:53,920
Speaker 6: wherever you get your podcast.

459
00:22:55,720 --> 00:22:58,000
Speaker 1: Well, the bad news is Matt Miller just abandoned us.

460
00:22:58,000 --> 00:22:59,439
Speaker 1: He's out there because he's a you know, he's a

461
00:22:59,440 --> 00:23:01,480
Speaker 1: TV star, so he's talking to his producer. The good

462
00:23:01,520 --> 00:23:03,600
Speaker 1: news is we more than make up for with Barry

463
00:23:03,640 --> 00:23:05,560
Speaker 1: Rudholt's He Joints is here in our studio. He's rod

464
00:23:05,600 --> 00:23:09,280
Speaker 1: Halt's Wealth Management. He's got a podcast, Masters in Business.

465
00:23:09,680 --> 00:23:12,119
Speaker 1: We appreciate him coming in. All right, here's we've been

466
00:23:12,119 --> 00:23:13,959
Speaker 1: talking about the banks, but there's some stuff going on

467
00:23:14,000 --> 00:23:18,000
Speaker 1: out in Hollywood. The writers are striking and that can't

468
00:23:18,000 --> 00:23:20,040
Speaker 1: be good for the media business. I don't know. But

469
00:23:20,119 --> 00:23:22,679
Speaker 1: Keether Ronganathan Joints is, she's a senior media analyst for

470
00:23:22,680 --> 00:23:26,080
Speaker 1: Bloomberg Intelligence. KEITHA, let's start off which just tell us

471
00:23:26,240 --> 00:23:29,280
Speaker 1: why the writers are striking, and then we'll get to

472
00:23:29,600 --> 00:23:30,960
Speaker 1: what it means for the media companies.

473
00:23:31,600 --> 00:23:33,720
Speaker 11: Yeah. Absolutely, Thank you so much Paul for having me.

474
00:23:33,840 --> 00:23:37,800
Speaker 11: So the writers are striking, of course because of a

475
00:23:37,880 --> 00:23:41,280
Speaker 11: whole new ecosystem where they're making much less money than

476
00:23:41,320 --> 00:23:44,200
Speaker 11: they used to. And this is really the first time

477
00:23:44,240 --> 00:23:47,040
Speaker 11: that they are striking in fifteen years. So the last

478
00:23:47,040 --> 00:23:50,919
Speaker 11: time we had a major strike of this magnitude was

479
00:23:50,960 --> 00:23:52,880
Speaker 11: back in two thousand and seven, two thousand and eight,

480
00:23:53,520 --> 00:23:56,000
Speaker 11: but that was a very different time in the media ecosystem.

481
00:23:56,000 --> 00:23:58,679
Speaker 11: You know, you had a very thriving model with the

482
00:23:58,720 --> 00:24:02,000
Speaker 11: TV networks, but with streaming, everything has changed. It has

483
00:24:02,040 --> 00:24:04,400
Speaker 11: revolutionized the industry, and it has also changed the way

484
00:24:04,400 --> 00:24:07,440
Speaker 11: that writers are paid, and that's what they're really unhappy about.

485
00:24:08,600 --> 00:24:11,720
Speaker 10: Hey, Githa Barry riddolts here. So one of the things

486
00:24:11,800 --> 00:24:16,760
Speaker 10: I noticed the Writer's Guild talking about is artificial intelligence

487
00:24:17,600 --> 00:24:22,200
Speaker 10: as source material using AI generated text. What's going to

488
00:24:22,280 --> 00:24:26,920
Speaker 10: happen with this? Is Hollywood gonna shift to an all

489
00:24:27,520 --> 00:24:32,280
Speaker 10: AI based type of scripts or are the writers going

490
00:24:32,359 --> 00:24:33,000
Speaker 10: to get their way?

491
00:24:33,720 --> 00:24:36,920
Speaker 11: Yeah, it's it's a really really important question, and it's

492
00:24:36,920 --> 00:24:39,760
Speaker 11: a great point that you bring up. What is happening

493
00:24:39,880 --> 00:24:44,080
Speaker 11: this time around is I think the writers have less leverage,

494
00:24:44,960 --> 00:24:47,639
Speaker 11: and you know, it's just a very different time in

495
00:24:47,800 --> 00:24:52,200
Speaker 11: the full media ecosystem. So first of all, you know, streaming,

496
00:24:52,240 --> 00:24:55,520
Speaker 11: of course is front and center right now, they're not

497
00:24:55,760 --> 00:24:59,560
Speaker 11: as dependent. So of course, when when writers go on strike,

498
00:24:59,600 --> 00:25:02,800
Speaker 11: it's the t television shows that you know where the

499
00:25:02,800 --> 00:25:05,160
Speaker 11: production is halted. And so I think those are the networks.

500
00:25:05,160 --> 00:25:08,560
Speaker 11: The networks that are affected the most. Most of the

501
00:25:08,560 --> 00:25:12,280
Speaker 11: streaming services have enough library of content, they have a

502
00:25:12,320 --> 00:25:16,639
Speaker 11: stockpiled on on some show, so they're not that badly affected.

503
00:25:17,440 --> 00:25:19,359
Speaker 11: So I think, you know, if you're kind of looking

504
00:25:19,480 --> 00:25:24,359
Speaker 11: at broadcast television obviously, so generally I would say that

505
00:25:24,400 --> 00:25:27,679
Speaker 11: the disruption is not going to be as dramatic. And

506
00:25:27,720 --> 00:25:30,240
Speaker 11: then the question of AI is really an important one

507
00:25:30,280 --> 00:25:34,359
Speaker 11: because yes, I think Hollywood is definitely going to look

508
00:25:34,720 --> 00:25:37,960
Speaker 11: to AI, and of course the writers want to make

509
00:25:38,000 --> 00:25:41,119
Speaker 11: sure that their source of livelihood isn't impacted, and they

510
00:25:41,160 --> 00:25:43,720
Speaker 11: want to make sure so they're not totally against using AI,

511
00:25:43,760 --> 00:25:45,840
Speaker 11: but they want to make sure that, you know, residual

512
00:25:45,880 --> 00:25:48,280
Speaker 11: payments are not going to AI or credits are not

513
00:25:48,359 --> 00:25:50,760
Speaker 11: being taken away by AI. So it's going to be

514
00:25:50,800 --> 00:25:54,600
Speaker 11: interesting to see how, you know, the definition of technology

515
00:25:54,680 --> 00:25:57,440
Speaker 11: kind of gets incorporated into these new negotiations.

516
00:25:57,960 --> 00:26:00,600
Speaker 2: I don't know that AI would necessarily do worst job

517
00:26:00,640 --> 00:26:03,080
Speaker 2: than the kind of writing that I've witnessed over the.

518
00:26:03,000 --> 00:26:04,600
Speaker 4: Past few seasons.

519
00:26:04,680 --> 00:26:07,040
Speaker 2: I mean, if this is one of those proved me

520
00:26:07,080 --> 00:26:10,679
Speaker 2: wrongs right on Reddit, has there been a series that

521
00:26:10,760 --> 00:26:12,400
Speaker 2: has really good writing?

522
00:26:13,560 --> 00:26:16,320
Speaker 4: Millions of them like, no, what like what recently? Os

523
00:26:16,320 --> 00:26:18,040
Speaker 4: are true?

524
00:26:18,680 --> 00:26:22,640
Speaker 2: I agree Yellowstone, No, Yellowstone, definitely not Yellowstone.

525
00:26:22,640 --> 00:26:24,560
Speaker 1: I'll stick by that's the most popular show on television

526
00:26:24,600 --> 00:26:25,400
Speaker 1: as well dressed.

527
00:26:25,440 --> 00:26:27,199
Speaker 4: But I don't like the ways way it's written.

528
00:26:27,720 --> 00:26:29,360
Speaker 2: I feel like I feel like a lot of these

529
00:26:29,440 --> 00:26:32,879
Speaker 2: programs are just pitched and then have horrible writing.

530
00:26:33,240 --> 00:26:37,879
Speaker 10: There are two totally different models. There's the HBO Apple

531
00:26:37,960 --> 00:26:42,320
Speaker 10: model on one side, which is a handful of concentrated bets,

532
00:26:42,680 --> 00:26:46,320
Speaker 10: and then there's the Netflix. Let's throw a million things

533
00:26:46,400 --> 00:26:49,640
Speaker 10: up against the wall and see what sticks. Very different

534
00:26:50,320 --> 00:26:54,640
Speaker 10: things like Ted Lasso or The Morning Show or or

535
00:26:54,840 --> 00:26:58,920
Speaker 10: White Lotus is a very different group of writers. Then hey,

536
00:26:59,000 --> 00:27:01,560
Speaker 10: let's just try a whole mon. I mean, who would

537
00:27:01,600 --> 00:27:06,000
Speaker 10: have predicted in advance that Formula one Drive to Survive

538
00:27:06,240 --> 00:27:09,399
Speaker 10: was going to be a mega hit that just took off.

539
00:27:09,400 --> 00:27:13,240
Speaker 10: It can't believe it, right, and yet it's endlessly fascinated,

540
00:27:13,520 --> 00:27:18,320
Speaker 10: fascinating not just for F one fans, but it's become like.

541
00:27:18,320 --> 00:27:22,199
Speaker 2: A fascinating to people who aren't F one fans, right,

542
00:27:22,200 --> 00:27:24,280
Speaker 2: because I don't both I know people who are one

543
00:27:24,320 --> 00:27:27,840
Speaker 2: sopot graification of F one or Moto GP. I like

544
00:27:27,880 --> 00:27:29,480
Speaker 2: both of them just find the way they are.

545
00:27:29,640 --> 00:27:32,359
Speaker 10: You know, well, a lot of people disagree with you

546
00:27:32,400 --> 00:27:35,200
Speaker 10: when they're watched the watching that show and droves.

547
00:27:34,880 --> 00:27:37,720
Speaker 1: Hey, Githa, what does this mean for the media company's

548
00:27:37,760 --> 00:27:39,440
Speaker 1: p and L here? I mean, on the one hand,

549
00:27:39,480 --> 00:27:41,080
Speaker 1: I mean, I know you've got a NOTEUBT saying, hey,

550
00:27:41,080 --> 00:27:43,920
Speaker 1: it's not that big a deal, but at some point

551
00:27:43,920 --> 00:27:45,920
Speaker 1: couldn't be a big deal if this goes on for

552
00:27:45,960 --> 00:27:49,159
Speaker 1: a while and maybe movies and stuff like that and

553
00:27:49,359 --> 00:27:51,280
Speaker 1: gets halted or delayed.

554
00:27:51,840 --> 00:27:54,720
Speaker 11: Yes, I think what's going to happen is so remember

555
00:27:54,760 --> 00:27:56,520
Speaker 11: we're again, as I just said, we're in a very

556
00:27:56,520 --> 00:27:59,959
Speaker 11: different place right now. The industry, of course, hasn't suffered

557
00:28:00,119 --> 00:28:03,560
Speaker 11: workstoppage in a long time. But I think what we've

558
00:28:03,560 --> 00:28:07,240
Speaker 11: generally seen is is Hollywood studios have kind of predicted this,

559
00:28:07,320 --> 00:28:09,280
Speaker 11: and so they've gone ahead and they've kind of stockpile

560
00:28:09,320 --> 00:28:12,280
Speaker 11: script So that's number one. Number two is I think

561
00:28:12,520 --> 00:28:15,800
Speaker 11: they are looking at the possibility of exploring new genres.

562
00:28:15,880 --> 00:28:18,760
Speaker 11: So you know, you don't have access to scripted content,

563
00:28:18,800 --> 00:28:22,560
Speaker 11: But that's okay because reality content is now really becoming

564
00:28:22,560 --> 00:28:25,840
Speaker 11: a bigger and bigger part of the programming of a

565
00:28:25,840 --> 00:28:28,159
Speaker 11: lot of these streaming platforms as well as you know,

566
00:28:28,400 --> 00:28:30,719
Speaker 11: the television networks. So you know, if you look at

567
00:28:30,720 --> 00:28:33,520
Speaker 11: even Netflix's recent shows, whether it's you know, Love is

568
00:28:33,560 --> 00:28:38,120
Speaker 11: Blind or so many of these other reality focused shows,

569
00:28:38,160 --> 00:28:40,360
Speaker 11: they obviously can pivot to that, which is not only

570
00:28:41,640 --> 00:28:43,840
Speaker 11: give them a steady stream of programming, but it's also

571
00:28:43,920 --> 00:28:46,800
Speaker 11: much more economical for them to produce. And then again,

572
00:28:46,840 --> 00:28:49,000
Speaker 11: if you look at Netflix's strategy, and this is where

573
00:28:49,040 --> 00:28:50,640
Speaker 11: I think they have an edgeob over so many of

574
00:28:50,680 --> 00:28:54,280
Speaker 11: the other streamers, is that they just don't rely on Hollywood,

575
00:28:54,360 --> 00:28:57,560
Speaker 11: right They have gone global and so so many of

576
00:28:57,600 --> 00:29:01,400
Speaker 11: their programming titles come from so many different regions in

577
00:29:01,440 --> 00:29:03,960
Speaker 11: the world, and so we're not necessarily going to see

578
00:29:03,960 --> 00:29:07,600
Speaker 11: a big stoppage in terms of you know, new programming

579
00:29:07,640 --> 00:29:10,600
Speaker 11: because they have access to it or they have you know,

580
00:29:10,640 --> 00:29:13,920
Speaker 11: source material comes from so many other different places. So

581
00:29:13,960 --> 00:29:16,440
Speaker 11: I think on the whole, what we're going to see is,

582
00:29:17,080 --> 00:29:19,200
Speaker 11: you know, if you look at how Wall Street is

583
00:29:19,240 --> 00:29:22,680
Speaker 11: assessing media companies right now, profitability is front and center,

584
00:29:23,720 --> 00:29:26,520
Speaker 11: and if you know, in fact we are going to

585
00:29:26,560 --> 00:29:29,080
Speaker 11: see some stoppage of shows, I think what is going

586
00:29:29,120 --> 00:29:31,000
Speaker 11: to happen, especially in the second half of this year,

587
00:29:31,040 --> 00:29:33,720
Speaker 11: if it results in fewer shows being delivered, I think

588
00:29:33,720 --> 00:29:36,240
Speaker 11: we're actually going to see better profitability metrics and so

589
00:29:36,320 --> 00:29:40,760
Speaker 11: ironically it might be better in fact for their bottom lines.

590
00:29:40,440 --> 00:29:44,560
Speaker 4: Does Netflix always sell.

591
00:29:46,120 --> 00:29:49,840
Speaker 2: It's streaming service alone? Does HBO always sell its streaming

592
00:29:49,880 --> 00:29:52,640
Speaker 2: service alone? Does Disney always sell at streaming service alone?

593
00:29:52,680 --> 00:29:55,120
Speaker 2: Or will we get to back to a cable model

594
00:29:55,560 --> 00:29:58,640
Speaker 2: where you know, I can buy a bundle of everything

595
00:29:58,880 --> 00:30:00,480
Speaker 2: for eighty dollars a month.

596
00:30:01,200 --> 00:30:03,440
Speaker 11: Yeah, I think, you know, we're definitely heading in that direction.

597
00:30:03,520 --> 00:30:05,440
Speaker 11: I think ultimately what we're going to see is a

598
00:30:05,480 --> 00:30:07,960
Speaker 11: big tech giant, whether it's an Apple or an Amazon

599
00:30:08,080 --> 00:30:11,160
Speaker 11: or a Google, kind of come up with that new bundle,

600
00:30:11,200 --> 00:30:12,760
Speaker 11: and so I think they are going to be the

601
00:30:12,800 --> 00:30:16,600
Speaker 11: aggregators where we're definitely heading to that, you know, very soon.

602
00:30:16,640 --> 00:30:18,680
Speaker 11: I don't know exactly when it happens, but but you know,

603
00:30:18,720 --> 00:30:21,080
Speaker 11: I think in the next couple of years, you know,

604
00:30:21,160 --> 00:30:23,560
Speaker 11: that is going to be the replacement for the old

605
00:30:23,640 --> 00:30:24,600
Speaker 11: PATV bundle.

606
00:30:25,240 --> 00:30:30,240
Speaker 1: Hey KEITHA. Jerry Smith Bloomberg News had an interesting article

607
00:30:30,320 --> 00:30:35,200
Speaker 1: yesterday talking about Disney and ESPN and when do they

608
00:30:35,520 --> 00:30:38,960
Speaker 1: really go all in on ESPN Plus and put the

609
00:30:39,000 --> 00:30:42,440
Speaker 1: top flight programming on there. When do you think that

610
00:30:42,440 --> 00:30:44,720
Speaker 1: that happens, Because they've been migrating some more and more

611
00:30:44,760 --> 00:30:46,800
Speaker 1: program but if you want the NFL, if you want

612
00:30:46,840 --> 00:30:49,000
Speaker 1: the end, you know, you got to stick with the

613
00:30:49,000 --> 00:30:49,800
Speaker 1: linear network.

614
00:30:50,680 --> 00:30:52,720
Speaker 11: Yeah, that's a really important question, and I think, you know,

615
00:30:52,800 --> 00:30:56,560
Speaker 11: this is what everybody has been kind of scratching their head.

616
00:30:56,600 --> 00:31:00,080
Speaker 11: When do they make that big pivot with ESPN And

617
00:31:00,120 --> 00:31:02,680
Speaker 11: Bob Aiger is back, I think he's he's kind of

618
00:31:02,720 --> 00:31:05,240
Speaker 11: just waiting it out. So for the very first time

619
00:31:05,280 --> 00:31:09,560
Speaker 11: in the company's history, they're actually disclosing ESPN Financials as

620
00:31:09,600 --> 00:31:12,320
Speaker 11: a standalone unit, and so I think, you know, this

621
00:31:12,440 --> 00:31:15,520
Speaker 11: kind of paves the way for them to maybe separate

622
00:31:15,560 --> 00:31:18,440
Speaker 11: it out, maybe, you know, make this big, bigger pivot

623
00:31:18,480 --> 00:31:22,080
Speaker 11: into ESPN Plus. Obviously they do have all the market programming.

624
00:31:22,360 --> 00:31:25,200
Speaker 11: We do have NFL content on the TV broadcast networks

625
00:31:25,200 --> 00:31:28,360
Speaker 11: for at least another five years. But I think they're

626
00:31:28,480 --> 00:31:30,760
Speaker 11: very slowly going to try and shift the content, especially

627
00:31:30,800 --> 00:31:33,000
Speaker 11: when we have a new NBA contract coming up in

628
00:31:33,040 --> 00:31:35,280
Speaker 11: the next two years. So I'm thinking over the next

629
00:31:35,320 --> 00:31:39,000
Speaker 11: two years, you know, we will see kind of that

630
00:31:39,080 --> 00:31:44,480
Speaker 11: bigger shift into an ESPN plus mainstream DTC service.

631
00:31:45,400 --> 00:31:48,840
Speaker 10: So so githa quick last question from me. You know,

632
00:31:49,040 --> 00:31:52,120
Speaker 10: when we had the last strike fifteen years ago, a

633
00:31:52,280 --> 00:31:57,840
Speaker 10: scripted sitcoms and other sorts of shows, we're huge today,

634
00:31:58,680 --> 00:32:02,680
Speaker 10: it's a much smaller purpose of the world. What do

635
00:32:02,720 --> 00:32:05,040
Speaker 10: we see the costs of this if it goes on

636
00:32:05,080 --> 00:32:06,520
Speaker 10: more than a few days or weeks.

637
00:32:06,560 --> 00:32:08,040
Speaker 2: I'm gonna put a pin in this right here and

638
00:32:08,080 --> 00:32:10,200
Speaker 2: make that question a comment because you see the red

639
00:32:10,200 --> 00:32:13,640
Speaker 2: clock up there right. We only have twenty seconds left

640
00:32:13,880 --> 00:32:16,959
Speaker 2: until a herd break, so you can't lob any questions

641
00:32:17,000 --> 00:32:19,520
Speaker 2: in after just run in a minute.

642
00:32:19,560 --> 00:32:21,840
Speaker 1: This is pot This is the kettle black right here.

643
00:32:21,840 --> 00:32:23,960
Speaker 1: But Keitha, we'll get back to that one. You know Ranganathan,

644
00:32:24,280 --> 00:32:27,000
Speaker 1: she's a media analyst for Bloomberg Intelligence, and it's a

645
00:32:27,080 --> 00:32:29,080
Speaker 1: nice soft out so we can kind of be a

646
00:32:29,080 --> 00:32:29,960
Speaker 1: little scoresh here.

647
00:32:30,240 --> 00:32:33,360
Speaker 6: You're listening to the tape Can's are live program Bloomberg

648
00:32:33,400 --> 00:32:37,000
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

649
00:32:37,040 --> 00:32:40,280
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business app.

650
00:32:40,320 --> 00:32:43,160
Speaker 6: You can also listen live on Amazon Alexa from our

651
00:32:43,160 --> 00:32:48,200
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

652
00:32:49,480 --> 00:32:53,880
Speaker 1: Simona Mukuda joins us. She's the chief economist at State Street. Simona,

653
00:32:54,240 --> 00:32:55,880
Speaker 1: you know, i'd love to get we're gonna hear from

654
00:32:55,880 --> 00:32:58,400
Speaker 1: the Fed tomorrow. What do you think they will do?

655
00:32:58,480 --> 00:32:59,960
Speaker 4: And what do you think they should do?

656
00:33:01,440 --> 00:33:01,640
Speaker 12: Yeah?

657
00:33:01,680 --> 00:33:05,680
Speaker 13: I wish those two things were had the same answer. Unfortunately,

658
00:33:05,680 --> 00:33:08,520
Speaker 13: I think they will hike again, but I do not

659
00:33:08,720 --> 00:33:13,280
Speaker 13: believe they should. I think, you know, for a few weeks,

660
00:33:13,400 --> 00:33:17,040
Speaker 13: we may have thought that the stories about SVB and

661
00:33:17,120 --> 00:33:20,880
Speaker 13: signature were away from the headlines, but those stories are

662
00:33:21,000 --> 00:33:24,720
Speaker 13: very much in the economy and those effects are playing out.

663
00:33:25,760 --> 00:33:28,920
Speaker 13: I think the FAT has done enough, but unfortunately I

664
00:33:28,920 --> 00:33:30,560
Speaker 13: think they will will go again.

665
00:33:33,920 --> 00:33:38,480
Speaker 1: So the issue for me is, I mean, you know,

666
00:33:38,520 --> 00:33:42,280
Speaker 1: the real risk is pushing this economy into a recession.

667
00:33:42,360 --> 00:33:44,760
Speaker 1: Is that is that in in your wheelhouse? Is that

668
00:33:44,800 --> 00:33:45,920
Speaker 1: something you guys are looking for?

669
00:33:46,840 --> 00:33:46,959
Speaker 11: Uh?

670
00:33:47,080 --> 00:33:51,400
Speaker 13: Yeah, I think with any additional incremental tightening right now,

671
00:33:52,000 --> 00:33:55,960
Speaker 13: you're doing more to worsen the growth outlook than I

672
00:33:56,000 --> 00:34:00,600
Speaker 13: think you're doing two. In terms of winning the inflation battle,

673
00:34:00,680 --> 00:34:04,800
Speaker 13: that battle on inflation is being one, and I know

674
00:34:04,880 --> 00:34:08,000
Speaker 13: that there are many indicators that don't show victory yet,

675
00:34:09,040 --> 00:34:12,040
Speaker 13: But inflation is a very lagging indicator. And I think

676
00:34:12,120 --> 00:34:15,359
Speaker 13: right now anybody who's watching the economy is to has

677
00:34:15,400 --> 00:34:18,360
Speaker 13: a decision to make. You know, what do you believe

678
00:34:18,719 --> 00:34:22,960
Speaker 13: is telling you more about the future versus about the past.

679
00:34:23,040 --> 00:34:26,280
Speaker 13: And from where I see it, everything that I consider

680
00:34:26,360 --> 00:34:30,000
Speaker 13: to be leading indicators says two things, slow down and

681
00:34:30,040 --> 00:34:33,160
Speaker 13: this inflation. And it's just a matter of how intense

682
00:34:33,239 --> 00:34:34,560
Speaker 13: these two forces become.

683
00:34:35,640 --> 00:34:38,160
Speaker 2: I mean, the concern I think for this FED is

684
00:34:38,160 --> 00:34:40,560
Speaker 2: that Arthur Burns thought he had beaten inflation a couple

685
00:34:40,600 --> 00:34:41,279
Speaker 2: times as well.

686
00:34:41,440 --> 00:34:41,640
Speaker 5: Right.

687
00:34:42,080 --> 00:34:46,799
Speaker 2: And even if you think that inflation, I don't know,

688
00:34:47,480 --> 00:34:50,840
Speaker 2: isn't going back up, You probably don't think it's headed

689
00:34:50,960 --> 00:34:55,720
Speaker 2: to two, do you, Simona, Because yes, it's not ten percent,

690
00:34:56,120 --> 00:34:58,120
Speaker 2: but we're not. It doesn't look like we're gonna be

691
00:34:58,200 --> 00:35:01,719
Speaker 2: going down to two. You were three percent anytime soon.

692
00:35:01,760 --> 00:35:04,680
Speaker 2: It's pretty sticky, at least from the from what we

693
00:35:04,760 --> 00:35:05,840
Speaker 2: hear the people we talk to.

694
00:35:06,000 --> 00:35:08,200
Speaker 4: They use the word sticky quite a lot.

695
00:35:09,000 --> 00:35:12,000
Speaker 13: Yeah, I think, well, first of all, I think the

696
00:35:12,080 --> 00:35:14,800
Speaker 13: question is to be asked in the context of what horizon.

697
00:35:14,960 --> 00:35:15,160
Speaker 5: Right.

698
00:35:15,200 --> 00:35:18,960
Speaker 13: I think even by the end of this year, we

699
00:35:19,080 --> 00:35:21,960
Speaker 13: could be looking at three percent headline inflation, and for

700
00:35:22,080 --> 00:35:24,920
Speaker 13: twenty twenty four, I don't think you you know, we

701
00:35:25,000 --> 00:35:29,320
Speaker 13: could be very close to two percent, but a little

702
00:35:29,400 --> 00:35:32,799
Speaker 13: you know, once inflation has gone so high, I make

703
00:35:32,880 --> 00:35:36,359
Speaker 13: a you know, I think of it a little bit

704
00:35:36,400 --> 00:35:38,879
Speaker 13: like gaining weight. You gained the weight, when you take

705
00:35:38,920 --> 00:35:41,600
Speaker 13: it off, It's not going to happen overnight. And if

706
00:35:41,640 --> 00:35:44,600
Speaker 13: you try to accelerate that process, you can cause a

707
00:35:44,640 --> 00:35:47,960
Speaker 13: lot of you know, unnecessary damage in the process. So

708
00:35:48,000 --> 00:35:52,120
Speaker 13: I think slow, we steady. The inflation fight is actually

709
00:35:52,160 --> 00:35:55,440
Speaker 13: being one. I don't necessarily think that next month you're

710
00:35:55,440 --> 00:35:57,399
Speaker 13: going to see a lot of improvement, but I think

711
00:35:58,120 --> 00:36:01,600
Speaker 13: in June you will, may and Junior will and then

712
00:36:01,719 --> 00:36:04,640
Speaker 13: continue to see further improvement through the end of the year. So,

713
00:36:05,360 --> 00:36:07,799
Speaker 13: you know, you talked about the idea that you know,

714
00:36:08,160 --> 00:36:11,520
Speaker 13: you may think you win, you've won, but perhaps you haven't.

715
00:36:11,640 --> 00:36:14,000
Speaker 13: But I think the FED is at five percent, right,

716
00:36:14,080 --> 00:36:16,879
Speaker 13: I think there is no doubt now in the light

717
00:36:17,320 --> 00:36:19,840
Speaker 13: of everything that's transparent. That's that's tight.

718
00:36:20,280 --> 00:36:22,560
Speaker 1: Right, all right, Hey, Simona, thank you so much for

719
00:36:22,680 --> 00:36:25,480
Speaker 1: joining us. I really appreciate getting your thoughts. As always,

720
00:36:25,680 --> 00:36:28,880
Speaker 1: Simona Mokuda, Chief Economists for State streets.

721
00:36:29,239 --> 00:36:32,360
Speaker 6: You're listening to the tape cans are live program Bloomberg

722
00:36:32,400 --> 00:36:36,000
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

723
00:36:36,040 --> 00:36:38,000
Speaker 6: tune in app, Bloomberg dot Com, and.

724
00:36:38,000 --> 00:36:39,279
Speaker 5: The Bloomberg Business App.

725
00:36:39,320 --> 00:36:42,120
Speaker 6: You can also listen live on Amazon Alexa from our

726
00:36:42,160 --> 00:36:47,160
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

727
00:36:48,400 --> 00:36:50,120
Speaker 4: We have a couple of very smart people in the

728
00:36:50,120 --> 00:36:51,120
Speaker 4: studio with us right now.

729
00:36:51,200 --> 00:36:56,040
Speaker 1: Thankfully, Yep got Herman Chen who covers the banks for

730
00:36:56,239 --> 00:36:59,200
Speaker 1: Bloomberg Intelligence, as well as Ridka Gupta and Ridka Good.

731
00:36:59,200 --> 00:37:00,640
Speaker 4: Are you writing for m every day?

732
00:37:00,640 --> 00:37:03,400
Speaker 1: Now? I'm live during for an embed.

733
00:37:03,600 --> 00:37:05,680
Speaker 2: Okay, so you can see her work if you type

734
00:37:05,800 --> 00:37:07,759
Speaker 2: nl ivy go on your Bloomberg trug right. And of

735
00:37:07,760 --> 00:37:11,120
Speaker 2: course Herman. You know and love Herman already. He's a

736
00:37:11,120 --> 00:37:12,000
Speaker 2: household name.

737
00:37:12,280 --> 00:37:14,800
Speaker 1: So Herman. I've been very careful here up to this point,

738
00:37:15,320 --> 00:37:18,080
Speaker 1: not calling it a bank crisis but bank turmoil. I

739
00:37:18,160 --> 00:37:19,960
Speaker 1: just flipped this. I ripped up the script, as Tom

740
00:37:20,040 --> 00:37:22,640
Speaker 1: Kin would say today after I think I'm flipping today

741
00:37:22,680 --> 00:37:25,200
Speaker 1: and I'm calling it a crisis. What do you think?

742
00:37:25,520 --> 00:37:32,879
Speaker 14: Yeah? With SVB with signature with First Republic you can

743
00:37:33,360 --> 00:37:36,759
Speaker 14: make the case that these were very idiosyncratic issues where

744
00:37:36,800 --> 00:37:40,719
Speaker 14: these banks grew too fast during the pandemic period and

745
00:37:40,840 --> 00:37:45,680
Speaker 14: put on some risk that they really underappreciated. But now

746
00:37:45,760 --> 00:37:49,720
Speaker 14: with the stocks reacting like they have today across the board,

747
00:37:49,800 --> 00:37:54,040
Speaker 14: with some other regionals that shouldn't necessarily be painted in

748
00:37:54,080 --> 00:37:57,600
Speaker 14: the same brush, you can make the case that you

749
00:37:57,600 --> 00:37:59,800
Speaker 14: could make the case that maybe it is more of

750
00:37:59,880 --> 00:38:02,439
Speaker 14: a crisis then in an idiosyncratic issue.

751
00:38:02,440 --> 00:38:04,440
Speaker 4: All right, so let's talk about the problem.

752
00:38:04,960 --> 00:38:08,960
Speaker 2: Was the rates mismatch or the maturities mismatch? Right that

753
00:38:09,800 --> 00:38:13,080
Speaker 2: at SVB, and it was a similar problem at first

754
00:38:13,120 --> 00:38:17,320
Speaker 2: Republic Signature may have just been singled out by regulators

755
00:38:17,360 --> 00:38:20,440
Speaker 2: because they hate crypto, right, but at least if you

756
00:38:20,440 --> 00:38:22,960
Speaker 2: listen to Barney Frank. But when I look at the

757
00:38:23,120 --> 00:38:26,400
Speaker 2: big losers today, PacWest is down twenty six percent, Western

758
00:38:26,440 --> 00:38:29,840
Speaker 2: Alliance is down twenty one percent, Metropolitan is down nineteen percent.

759
00:38:30,480 --> 00:38:33,160
Speaker 2: Are these banks that you have looked at in your

760
00:38:33,200 --> 00:38:35,799
Speaker 2: research and said, WHOA, they have way too big holds

761
00:38:35,920 --> 00:38:40,160
Speaker 2: maturity portfolios, or well they've been giving out super cheap

762
00:38:40,200 --> 00:38:42,040
Speaker 2: mortgages to really rich people.

763
00:38:42,160 --> 00:38:44,400
Speaker 4: I mean, do they have any of those same problems.

764
00:38:44,600 --> 00:38:49,400
Speaker 14: No, the issue with Peck West and with Western Alliances

765
00:38:49,760 --> 00:38:52,279
Speaker 14: they get painted in the same brush SSVB because they

766
00:38:52,400 --> 00:38:57,360
Speaker 14: also bank tech companies and startups. With Metropolitan Bank, it's

767
00:38:57,800 --> 00:39:02,760
Speaker 14: the crypto issue with all signature. So the market saying

768
00:39:03,560 --> 00:39:06,279
Speaker 14: they had a victory, the shorts had a victory with

769
00:39:06,320 --> 00:39:08,120
Speaker 14: some of these other banks that already failed, and now

770
00:39:08,160 --> 00:39:11,279
Speaker 14: they're playing the same playbook again with banks that are

771
00:39:11,400 --> 00:39:13,360
Speaker 14: tangential to the failed banks.

772
00:39:14,600 --> 00:39:16,360
Speaker 1: All Right, Herman Chan, thank you so much. We appreciate

773
00:39:16,360 --> 00:39:17,640
Speaker 1: it because that boy, I'm looking to P and C

774
00:39:17,760 --> 00:39:20,160
Speaker 1: Bank talk about a high quality regional down twenty five

775
00:39:20,160 --> 00:39:22,760
Speaker 1: percent year to date, and even your former bank, Herman

776
00:39:22,920 --> 00:39:24,880
Speaker 1: M and T Bank down you know, about twenty percent,

777
00:39:24,920 --> 00:39:27,279
Speaker 1: another high quality bank. So it's really starting to spread there.

778
00:39:27,440 --> 00:39:31,000
Speaker 2: Well, if they get hit hard just by shorts that

779
00:39:31,040 --> 00:39:33,719
Speaker 2: are playing a game, isn't it a great time to

780
00:39:33,760 --> 00:39:35,759
Speaker 2: go in and then buy them. I mean, do you

781
00:39:35,880 --> 00:39:38,280
Speaker 2: like PNC down twenty five percent?

782
00:39:39,360 --> 00:39:40,160
Speaker 5: Yeah?

783
00:39:40,360 --> 00:39:41,680
Speaker 14: P and C is going to be one of the

784
00:39:41,680 --> 00:39:44,960
Speaker 14: winners out of this entire crisis. They were heading into

785
00:39:45,000 --> 00:39:47,680
Speaker 14: the weekend, they were they were the horse to jockey

786
00:39:47,760 --> 00:39:50,160
Speaker 14: on in terms of buying First Republic. They didn't get

787
00:39:50,200 --> 00:39:53,080
Speaker 14: that deal done. But if we see other failed banks,

788
00:39:53,280 --> 00:39:55,640
Speaker 14: you would think P and C would be the first

789
00:39:55,640 --> 00:39:57,719
Speaker 14: call from the regulators to clean up some of the

790
00:39:57,760 --> 00:39:58,520
Speaker 14: messes that we're seeing.

791
00:39:58,520 --> 00:39:59,880
Speaker 1: All right, we'll keep an eye on up, you know,

792
00:40:00,080 --> 00:40:02,440
Speaker 1: kind kind of selling across the board. Herman Chen, he

793
00:40:02,480 --> 00:40:04,880
Speaker 1: covers the regional banks for Bloomberg Intelligence Ritka Group that

794
00:40:04,960 --> 00:40:07,080
Speaker 1: covers all the markets for us. She joins us here

795
00:40:07,080 --> 00:40:08,600
Speaker 1: in a Bloomberg Interactor broker studio.

796
00:40:08,840 --> 00:40:11,960
Speaker 6: You're listening to the tape Ken's our live program Bloomberg

797
00:40:12,040 --> 00:40:15,600
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

798
00:40:15,680 --> 00:40:17,759
Speaker 6: tune in app, Bloomberg dot Com.

799
00:40:17,480 --> 00:40:18,919
Speaker 5: And the Bloomberg Business App.

800
00:40:18,960 --> 00:40:21,759
Speaker 6: You can also listen live on Amazon Alexa from our

801
00:40:21,800 --> 00:40:26,160
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

802
00:40:27,680 --> 00:40:30,239
Speaker 1: All right, looking at this market here today again, a

803
00:40:30,360 --> 00:40:32,520
Speaker 1: rough day of trading. The s and P off one

804
00:40:32,560 --> 00:40:34,440
Speaker 1: and a half percent. We are off the lows, but

805
00:40:34,480 --> 00:40:37,879
Speaker 1: still trading down on some pretty solid volume. Nastak off

806
00:40:37,880 --> 00:40:39,680
Speaker 1: one and a quarter percent. You know, a lot of

807
00:40:39,719 --> 00:40:41,960
Speaker 1: cross currents out there. We have the feder reserve tomorrow

808
00:40:41,960 --> 00:40:44,279
Speaker 1: that'll be the big driver. But of course, today we

809
00:40:44,360 --> 00:40:47,120
Speaker 1: had some renewed weakness in some of the regional banks,

810
00:40:47,160 --> 00:40:48,600
Speaker 1: and that's kind of where we want to go just

811
00:40:48,640 --> 00:40:51,880
Speaker 1: talking about this banking sector in the relative health of

812
00:40:51,880 --> 00:40:54,319
Speaker 1: the US and global banking space. No one better to

813
00:40:54,440 --> 00:40:57,400
Speaker 1: chat about that than Hugh van steinis vice chair and

814
00:40:57,480 --> 00:41:00,880
Speaker 1: partner at Oliver Wyman. He has been involved in the

815
00:41:00,960 --> 00:41:05,400
Speaker 1: global banking business for decades and we appreciate getting some

816
00:41:05,440 --> 00:41:07,520
Speaker 1: of his time. He is out in la at the

817
00:41:07,520 --> 00:41:10,560
Speaker 1: Milken Conference, so I appreciate a few minutes of his time,

818
00:41:11,120 --> 00:41:13,640
Speaker 1: So love huge. Just to get your thoughts. We had,

819
00:41:14,000 --> 00:41:17,600
Speaker 1: you know, renewed concern today in the stock market about

820
00:41:17,600 --> 00:41:18,800
Speaker 1: some of the US regional banks.

821
00:41:18,800 --> 00:41:19,359
Speaker 5: What's your take?

822
00:41:20,080 --> 00:41:22,239
Speaker 12: Oh well, thanks for having me on. Well, look all

823
00:41:22,280 --> 00:41:24,600
Speaker 12: the conversations about having here, are you know, is the

824
00:41:24,640 --> 00:41:29,440
Speaker 12: regional banking turmoil contained or is there another shoe to drop?

825
00:41:29,640 --> 00:41:31,680
Speaker 12: And then obviously you know, what does it mean from here?

826
00:41:32,160 --> 00:41:36,360
Speaker 12: I think the big challenges that you know, war buffersically

827
00:41:36,400 --> 00:41:40,080
Speaker 12: said depositors won't lose money, but bondholders at First Republic did,

828
00:41:40,120 --> 00:41:43,800
Speaker 12: and so I think the key issue here is nervousness

829
00:41:43,840 --> 00:41:47,040
Speaker 12: through the capital stack about who else you know, resembles

830
00:41:47,080 --> 00:41:49,360
Speaker 12: the banks which have failed. But I think, you know,

831
00:41:49,360 --> 00:41:51,719
Speaker 12: bottom line, for me, we're in the early innings of

832
00:41:51,719 --> 00:41:54,759
Speaker 12: a credit cycle and it's the weakest hands who are struggling.

833
00:41:55,120 --> 00:41:57,399
Speaker 12: And I think it's still you know, I think that

834
00:41:57,440 --> 00:42:01,239
Speaker 12: the system is struggling to repriced for a very sharp

835
00:42:01,280 --> 00:42:02,280
Speaker 12: increase in interest rates.

836
00:42:02,840 --> 00:42:05,400
Speaker 1: Here, what do you think about yesterday's news And this

837
00:42:05,960 --> 00:42:07,920
Speaker 1: kind of news is very fluid in this in this

838
00:42:07,960 --> 00:42:10,240
Speaker 1: industry right now, but the news yesterday at JP Morgan

839
00:42:10,280 --> 00:42:13,000
Speaker 1: buying First Republic. What was your view of that? Was

840
00:42:13,040 --> 00:42:15,920
Speaker 1: that the right solution, a reasonable solution, or kind of

841
00:42:15,960 --> 00:42:17,000
Speaker 1: the only solution you think?

842
00:42:17,760 --> 00:42:19,640
Speaker 12: Look, I don't want to get drawn too much into single,

843
00:42:19,719 --> 00:42:22,440
Speaker 12: single names, but you know, the history of every major

844
00:42:22,480 --> 00:42:26,960
Speaker 12: financial crisis, you know, seventies, eighties, nineties is large, strong

845
00:42:27,040 --> 00:42:31,319
Speaker 12: hands take over the weaker. And obviously, because of you know,

846
00:42:31,400 --> 00:42:34,080
Speaker 12: Frank Dodd and other regulations around the world, the large

847
00:42:34,080 --> 00:42:35,880
Speaker 12: banks have not really been involved in m and A

848
00:42:35,960 --> 00:42:38,080
Speaker 12: for the last decade because they haven't been able to

849
00:42:38,120 --> 00:42:41,960
Speaker 12: take more share. But I think history suggests it's always

850
00:42:42,000 --> 00:42:43,759
Speaker 12: the strong banks who take over, and so you've seen

851
00:42:43,760 --> 00:42:46,200
Speaker 12: that in Europe and the States. So I think, you know,

852
00:42:46,520 --> 00:42:48,680
Speaker 12: it wouldn't surprise anyone if there's a bit more m

853
00:42:48,719 --> 00:42:50,319
Speaker 12: and a to come, because that's what the history of

854
00:42:50,320 --> 00:42:51,799
Speaker 12: banking crisis always suggests.

855
00:42:52,320 --> 00:42:55,320
Speaker 1: The obviously we all learned, I mean just all our listeners,

856
00:42:55,360 --> 00:42:58,000
Speaker 1: all our readers, all our viewers learned a lot about

857
00:42:58,040 --> 00:43:00,319
Speaker 1: the banking business with a great financial crisis back in

858
00:43:00,360 --> 00:43:02,480
Speaker 1: two thousand and seven, two thousand and eight. Do you

859
00:43:02,520 --> 00:43:05,799
Speaker 1: feel do you share the thought that the US and

860
00:43:05,840 --> 00:43:09,160
Speaker 1: we'll get to the global international market later. Do you

861
00:43:09,160 --> 00:43:12,399
Speaker 1: think the US market is as strong as a lot

862
00:43:12,400 --> 00:43:13,640
Speaker 1: of folks keep telling us.

863
00:43:14,480 --> 00:43:17,000
Speaker 12: Oh, look, I think the banking business is in much

864
00:43:17,120 --> 00:43:20,880
Speaker 12: ruder health. I mean, capitalists tripled, the largest banks are

865
00:43:20,920 --> 00:43:25,080
Speaker 12: stress tested, they've got loads more funding, you know, and also,

866
00:43:25,120 --> 00:43:27,480
Speaker 12: let's be honest, they're diversified. I mean, you know, what

867
00:43:27,480 --> 00:43:31,400
Speaker 12: we've really seen here is quite monoligne or narrow businesses

868
00:43:32,040 --> 00:43:36,239
Speaker 12: struggle through an air pocket. The largest banks are very diversified,

869
00:43:36,280 --> 00:43:38,600
Speaker 12: and therefore they've got different streams of earnings coming in.

870
00:43:38,680 --> 00:43:41,960
Speaker 12: So I think the system's much stronger in some ways.

871
00:43:42,000 --> 00:43:44,360
Speaker 12: This is you know, you know, for those listening, is

872
00:43:44,560 --> 00:43:46,359
Speaker 12: it's coming back. This is much more like the early

873
00:43:46,400 --> 00:43:49,680
Speaker 12: nineteen eighties. It's a very sharp increase in interest rates,

874
00:43:50,120 --> 00:43:52,560
Speaker 12: which have you know, meant that some people made some

875
00:43:52,680 --> 00:43:56,319
Speaker 12: rather poor choices on carry trades or in this case,

876
00:43:56,360 --> 00:43:58,080
Speaker 12: you know, we've got a lot of uninsurance positives, you've

877
00:43:58,080 --> 00:44:01,320
Speaker 12: got some weak funding structures. Is much more like eighty

878
00:44:01,400 --> 00:44:04,400
Speaker 12: one to eighty seven in terms of structure, and obviously

879
00:44:04,440 --> 00:44:06,839
Speaker 12: that's when you know Volka had to bail out Continental

880
00:44:06,880 --> 00:44:10,279
Speaker 12: Illinois eighty four. It's much more like that and that that,

881
00:44:10,360 --> 00:44:12,360
Speaker 12: I mean, what the bottom line for us this market is.

882
00:44:12,800 --> 00:44:15,840
Speaker 12: It's quite tough because it means financial conditions really tightened

883
00:44:15,920 --> 00:44:19,440
Speaker 12: very sharply, and there's a lot more volatility for companies

884
00:44:19,440 --> 00:44:20,279
Speaker 12: and corporates to deal with.

885
00:44:20,800 --> 00:44:23,240
Speaker 1: There's obviously, is I guess to be expected some public

886
00:44:23,640 --> 00:44:26,880
Speaker 1: outcry that there needs to be more regulation perhaps on

887
00:44:26,920 --> 00:44:29,880
Speaker 1: some of these smaller, mid sized regional banks, not just

888
00:44:29,920 --> 00:44:32,439
Speaker 1: the big money centers. What's your view there?

889
00:44:33,719 --> 00:44:35,919
Speaker 12: Oh, look, I mean I think it's Look, so there's

890
00:44:35,920 --> 00:44:37,600
Speaker 12: a great line from a book in the nineteen eighty

891
00:44:37,680 --> 00:44:39,560
Speaker 12: saying that there were three things which led to the

892
00:44:39,600 --> 00:44:43,680
Speaker 12: banking crisis. It's like deregulation, d supervision, and they're not

893
00:44:43,840 --> 00:44:46,560
Speaker 12: dealing with that, you know, decriminalization, of fraud. I think

894
00:44:46,600 --> 00:44:48,919
Speaker 12: this is it's all three have come through the same

895
00:44:48,960 --> 00:44:51,880
Speaker 12: here as well. Of course for the small for the

896
00:44:51,920 --> 00:44:56,000
Speaker 12: MidCap banks who got deregulated, a bit more capital would help.

897
00:44:56,400 --> 00:44:58,600
Speaker 12: As you can tell, I'm European and europe a systemic

898
00:44:58,600 --> 00:45:01,359
Speaker 12: bank is from fifty billion of our WA's obviously it's

899
00:45:01,520 --> 00:45:03,640
Speaker 12: it's been a quarter for a trillion over here since

900
00:45:03,680 --> 00:45:06,239
Speaker 12: the deregulation, so that will need to be reassessed as

901
00:45:06,320 --> 00:45:09,879
Speaker 12: the FED proposals are putting through. But it was also

902
00:45:09,920 --> 00:45:11,879
Speaker 12: a failure of supervision, and I think you know what

903
00:45:12,400 --> 00:45:15,520
Speaker 12: my read of the FED report from last Friday was

904
00:45:15,560 --> 00:45:18,840
Speaker 12: that there were many red and Amber flags which were ignored.

905
00:45:19,120 --> 00:45:21,680
Speaker 12: So this is as much about supervisory practice as as

906
00:45:21,680 --> 00:45:24,799
Speaker 12: about the REGs themselves. And then the other point, what's

907
00:45:24,960 --> 00:45:28,400
Speaker 12: in every crisis is different in flavor. You know, money

908
00:45:28,400 --> 00:45:32,319
Speaker 12: market funds are being subsidized by the FED, which is

909
00:45:32,440 --> 00:45:35,279
Speaker 12: very different from the financial crisis. Forty percent of all

910
00:45:35,320 --> 00:45:37,600
Speaker 12: money market funds are being parked at the FED overnight,

911
00:45:38,040 --> 00:45:40,880
Speaker 12: and the FED is therefore subsidizing the disintermediation of the

912
00:45:40,920 --> 00:45:43,200
Speaker 12: banking system. That has to be looked at as well.

913
00:45:44,000 --> 00:45:47,239
Speaker 1: There's a real economic concern here and maybe we'll hear

914
00:45:47,239 --> 00:45:49,360
Speaker 1: from Fred Trriman J Powell comment on this tomorrow. But

915
00:45:49,719 --> 00:45:52,640
Speaker 1: you know, fed condition, I mean, credit conditions are tightening.

916
00:45:53,600 --> 00:45:55,440
Speaker 1: Do you do you fear that they were tightened to

917
00:45:55,440 --> 00:45:57,560
Speaker 1: such a degree that would have a real negative impact

918
00:45:57,600 --> 00:45:58,320
Speaker 1: on the economy.

919
00:45:59,680 --> 00:46:03,000
Speaker 12: I think so. Look, you know, look, if it was

920
00:46:03,239 --> 00:46:06,239
Speaker 12: just the banking crisis, you know, to have you know,

921
00:46:06,880 --> 00:46:08,759
Speaker 12: such a it's for me, this is equivalent of a

922
00:46:08,840 --> 00:46:10,760
Speaker 12: like a one to one and a half point increase

923
00:46:10,800 --> 00:46:13,960
Speaker 12: in interest rates. It's a very sharp, uh, you know,

924
00:46:14,239 --> 00:46:16,719
Speaker 12: punching the gut for the MidCap banks in terms of

925
00:46:16,719 --> 00:46:19,279
Speaker 12: funding structures, and also for the larger banks. They're getting

926
00:46:19,280 --> 00:46:21,880
Speaker 12: nervous because either they'll have to be acquiring the MidCap

927
00:46:21,920 --> 00:46:24,400
Speaker 12: banks or they'll also start to fret about their own business.

928
00:46:24,400 --> 00:46:27,359
Speaker 12: So it's a very sharp increase. Now, look, there's still

929
00:46:27,400 --> 00:46:30,360
Speaker 12: savings from the pandemic, there's there's other good reasons why

930
00:46:30,640 --> 00:46:34,480
Speaker 12: businesses can prosper. But the tightening of funding conturaled conditions means,

931
00:46:34,520 --> 00:46:36,560
Speaker 12: you know, I do think we slip into recession into

932
00:46:37,080 --> 00:46:39,400
Speaker 12: you know, whether it's the fourth quarter or someone. So no,

933
00:46:39,480 --> 00:46:42,040
Speaker 12: I think I think it's tough. Look, bottom line, we're

934
00:46:42,080 --> 00:46:45,239
Speaker 12: in the early innings of a credit cycle, and you know,

935
00:46:45,280 --> 00:46:48,200
Speaker 12: I think that's the challenges where does this go is well,

936
00:46:48,280 --> 00:46:50,479
Speaker 12: you know, the number one conversation I'm having here at.

937
00:46:50,360 --> 00:46:52,680
Speaker 1: MILCNE and I'm sure you're also been asked to your

938
00:46:52,719 --> 00:46:55,160
Speaker 1: opinion on European banking. We you know, we just had

939
00:46:55,200 --> 00:46:58,360
Speaker 1: the UBS credit Swiss situation go down. I'd love to

940
00:46:58,360 --> 00:47:00,400
Speaker 1: get your thoughts on kind of how you view the

941
00:47:00,480 --> 00:47:02,960
Speaker 1: banking landscape across Europe.

942
00:47:03,360 --> 00:47:06,600
Speaker 12: Well, look, there's you know, so look, I think there's

943
00:47:06,640 --> 00:47:10,279
Speaker 12: two key differences. So the first is we didn't have

944
00:47:10,360 --> 00:47:14,399
Speaker 12: this wave of deregulation. You know, the every major bank

945
00:47:14,440 --> 00:47:17,400
Speaker 12: in Europe has got a capital stack, a stress testing

946
00:47:17,560 --> 00:47:21,200
Speaker 12: and funding so they can withstand you know, a huge

947
00:47:21,239 --> 00:47:23,920
Speaker 12: panic and therefore, you know, and most of them have

948
00:47:24,000 --> 00:47:26,000
Speaker 12: got a lot of insured deposits. I mean, you know,

949
00:47:26,040 --> 00:47:28,520
Speaker 12: one of the banks which failed, like the US banks,

950
00:47:28,560 --> 00:47:30,800
Speaker 12: had a lot of uninsured deposits, which is quite rare.

951
00:47:31,200 --> 00:47:33,400
Speaker 12: But the second, which you know, you you know from

952
00:47:33,480 --> 00:47:35,600
Speaker 12: from the fact how well the US has done over

953
00:47:35,600 --> 00:47:39,720
Speaker 12: the last decade. The QI led to huge credit expansion

954
00:47:39,719 --> 00:47:43,240
Speaker 12: in the States, you know, and some real excesses in Europe.

955
00:47:43,320 --> 00:47:45,680
Speaker 12: We didn't have those excesses, and so there's you know,

956
00:47:45,719 --> 00:47:47,400
Speaker 12: we're not really going from boom to bus because we

957
00:47:47,440 --> 00:47:49,719
Speaker 12: never really had that boom. So I think again, you know,

958
00:47:50,040 --> 00:47:52,480
Speaker 12: you know what was disappointing for Europe in the last

959
00:47:52,480 --> 00:47:55,320
Speaker 12: decade is probably a source of strength now at the moment.

960
00:47:55,239 --> 00:47:57,080
Speaker 1: Here, we got about thirty seconds left, i'd love to

961
00:47:57,120 --> 00:48:00,720
Speaker 1: get your thoughts on the need for cross border bank

962
00:48:00,880 --> 00:48:02,879
Speaker 1: m and A in Europe. A lot of times when

963
00:48:03,000 --> 00:48:04,919
Speaker 1: we see some stress out there, whether it's Deutsche Bank

964
00:48:05,080 --> 00:48:09,560
Speaker 1: or Credit Swiss, I kind of hear that discussion pick

965
00:48:09,640 --> 00:48:10,600
Speaker 1: up some steam.

966
00:48:10,680 --> 00:48:13,640
Speaker 12: What do you think, Look, it's it's possible. Look in

967
00:48:13,960 --> 00:48:16,920
Speaker 12: a crisis, Look, we all turned to home and so

968
00:48:17,000 --> 00:48:20,840
Speaker 12: it's much more likely it's national champions and domestic solutions

969
00:48:20,880 --> 00:48:23,439
Speaker 12: if there are any needs to be done. But you know, look,

970
00:48:23,520 --> 00:48:27,280
Speaker 12: I think we see Europe needs more strong global banks,

971
00:48:27,280 --> 00:48:28,799
Speaker 12: and so it would be it would be helpful, but

972
00:48:28,920 --> 00:48:30,080
Speaker 12: I'm not expecting any soon.

973
00:48:30,360 --> 00:48:31,920
Speaker 1: All right, Hugh, thank you so much for joining us.

974
00:48:31,920 --> 00:48:33,640
Speaker 1: Really appreciate you taking a few minutes out of your time.

975
00:48:33,719 --> 00:48:36,400
Speaker 1: You know you're busy out there at the Milken Conference

976
00:48:36,440 --> 00:48:40,160
Speaker 1: in Los Angeles. That's Hugh Van Steeney's vice chair and

977
00:48:40,200 --> 00:48:42,480
Speaker 1: partner in Oliver Wyman, and before that he was a

978
00:48:42,560 --> 00:48:45,440
Speaker 1: senior advisor to the CEO at UBS, senior advisor to

979
00:48:45,480 --> 00:48:48,279
Speaker 1: the Governor of the Bank of England. He was on

980
00:48:48,320 --> 00:48:51,040
Speaker 1: Wall Street and Morgan Stanley and JP Morgan covering all

981
00:48:51,080 --> 00:48:53,040
Speaker 1: the banks from a global perspective. So we love what

982
00:48:53,120 --> 00:48:54,799
Speaker 1: we could get a couple of minutes of his time

983
00:48:54,800 --> 00:48:57,240
Speaker 1: to talk about, you know what it is the issue

984
00:48:57,320 --> 00:49:00,239
Speaker 1: certainly of today, but really over the last month. Some

985
00:49:00,320 --> 00:49:02,760
Speaker 1: of the question is when you think about bank stress,

986
00:49:03,160 --> 00:49:05,600
Speaker 1: how much will this be an impact on the economy?

987
00:49:05,600 --> 00:49:08,839
Speaker 1: How much will the Federal Reserve factor that into their

988
00:49:08,880 --> 00:49:11,960
Speaker 1: calculus when we hear from them tomorrow. So great to

989
00:49:12,080 --> 00:49:12,919
Speaker 1: check in with you there.

990
00:49:16,640 --> 00:49:19,759
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can

991
00:49:19,800 --> 00:49:23,560
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

992
00:49:23,640 --> 00:49:27,360
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

993
00:49:27,560 --> 00:49:29,480
Speaker 2: at Matt Miller nineteen seventy three.

994
00:49:29,960 --> 00:49:32,320
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.

995
00:49:32,440 --> 00:49:35,120
Speaker 1: Before the podcast, you can always catch us worldwide at

996
00:49:35,120 --> 00:49:36,879
Speaker 1: Bloomberg Radio.