WEBVTT - Surveillance: Long Lasting Credit Tightening 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:31.040 the Bloomberg Terminal and the Bloomberg Business App. First Order 0:00:31.080 --> 0:00:35.720 academics on statistics in Central Limit. Theomor Sobrada Rajapa joins 0:00:35.800 --> 0:00:38.519 us now without Question on debt Our Conversation of the day, 0:00:38.560 --> 0:00:43.279 Head of US Right Strategy at the Derivative Force Society General. 0:00:43.920 --> 0:00:45.560 So I'm gonna cut to the chase and go a 0:00:45.560 --> 0:00:47.599 little bit Matthey here and the equity markets, we talk 0:00:47.640 --> 0:00:50.440 about a collar maybe even in commodity markets, we talk 0:00:50.440 --> 0:00:53.600 about a collar trend of copper, live, catt or whatever. 0:00:54.320 --> 0:00:57.480 What is your world like when the two year yield 0:00:57.600 --> 0:01:02.520 is collared? How do you respond to abandoned trade on 0:01:02.800 --> 0:01:05.160 yield in the derivative space? 0:01:06.040 --> 0:01:10.160 So basically you point as you pointed out, I mean, Tom, 0:01:10.160 --> 0:01:14.720 you have you know, all yields across the curve and 0:01:14.800 --> 0:01:17.640 the treasury market have been very range. Found you're looking 0:01:17.640 --> 0:01:21.360 at a range for two years around four percent maybe 0:01:21.400 --> 0:01:24.520 four and accorded to three seventy five. Same with tenure 0:01:24.560 --> 0:01:27.080 as well. It's been in a very very tight range. 0:01:27.440 --> 0:01:30.240 So really what that tells me, broadly speaking, is that 0:01:30.280 --> 0:01:34.319 there's really no strong conviction in the market on yields 0:01:34.360 --> 0:01:39.800 going either you know, monotonically higher or lower, broadly speaking, 0:01:39.840 --> 0:01:42.040 because of the fact that we're stuck between a rock 0:01:42.080 --> 0:01:43.880 and a hard place. In some respects, the data that 0:01:43.880 --> 0:01:46.760 we've gotten so far has been very very strong. The 0:01:46.800 --> 0:01:50.960 consumer is resilient, the employment pictures is relatively strong, inflation 0:01:51.080 --> 0:01:53.560 is sticky. That would all argue for much higher years 0:01:53.560 --> 0:01:56.320 from your on, But then you have the dead seating overhand, 0:01:56.320 --> 0:02:00.840 the regional banking crisis, as well as rates being policy 0:02:00.880 --> 0:02:04.480 rates being high and sticky, that would argue for perhaps 0:02:04.480 --> 0:02:07.000 lower years over the longer ud. So we're kind of 0:02:07.000 --> 0:02:08.519 stuck in this range because of that. 0:02:08.840 --> 0:02:12.440 When you are stuck, can you model out for higher 0:02:12.760 --> 0:02:14.520 in the case of where we are in the range 0:02:14.600 --> 0:02:17.840 right now, can you model out a bet for a 0:02:17.919 --> 0:02:20.280 higher yield and lower price. 0:02:21.120 --> 0:02:25.120 It's hard because ultimately what you're looking at, especially in 0:02:25.160 --> 0:02:29.120 this environment is for the FED to pause. We're not 0:02:29.200 --> 0:02:34.359 talking about perhaps a pause, a skip, and then another 0:02:34.520 --> 0:02:38.400 height later on this year. Perhaps all that means is 0:02:38.440 --> 0:02:42.440 that if policy is going to remain restrictive for the 0:02:42.520 --> 0:02:45.839 remainder of the year, then that would mean ultimately that 0:02:46.280 --> 0:02:47.880 you're going to see a slow down in the economy. 0:02:47.880 --> 0:02:50.000 That's kind of what the FED wants to achieve in 0:02:50.080 --> 0:02:52.760 order to bring down inflation, and that will ultimately mean 0:02:52.880 --> 0:02:56.799 lower yels. So we have a recession considered at for 0:02:56.800 --> 0:02:59.520 early twenty twenty four. The economy looks relatively robust a 0:02:59.560 --> 0:03:02.320 part of that point on, but then once we do 0:03:02.480 --> 0:03:05.080 go into a recession, the FED is going to have 0:03:05.120 --> 0:03:08.639 to cut greids. So the ultimate destination is perhaps for 0:03:09.000 --> 0:03:12.680 lower yels. The path between here and there is uncertain, 0:03:13.080 --> 0:03:14.800 given the fact that you have a lot of dynamics 0:03:14.800 --> 0:03:16.680 to get through over the short term as well as 0:03:16.680 --> 0:03:17.320 the medium term. 0:03:17.400 --> 0:03:21.040 So Badria mentioned the regional banking crisis is potentially helping 0:03:21.080 --> 0:03:24.120 to drive down inflation or regional banking crisis, it seems 0:03:24.120 --> 0:03:27.639 like it's stabilized. We sweem to swing between it not existing, 0:03:27.840 --> 0:03:30.639 not having ever percolated, and suddenly still being a full 0:03:30.680 --> 0:03:33.080 blown issue that's going to help the FED, which is it? 0:03:33.400 --> 0:03:36.000 So the regional banking crisis, broadly speaking, the headlines have 0:03:36.080 --> 0:03:39.760 definitely abated. You're seeing a little bit more stability in 0:03:39.840 --> 0:03:43.880 the banking sector. But broadly the transmission mechanism from the 0:03:43.920 --> 0:03:48.120 regional banking crisis is going to come from the credit 0:03:48.240 --> 0:03:52.280 crunch or tighter credit conditions. It's going to come from 0:03:52.840 --> 0:03:55.960 a greater regulation if you will, of both the smaller 0:03:56.520 --> 0:03:59.600 mid six as well as the larger banks that would 0:03:59.680 --> 0:04:01.920 broad speaking, would. 0:04:01.800 --> 0:04:02.800 Tighten credit conditions. 0:04:02.800 --> 0:04:05.760 As we progress through the year, you're seeing mortgage rate 0:04:05.800 --> 0:04:09.240 start to rise. You're seeing real yields around one point 0:04:09.520 --> 0:04:13.040 four percent, so that's also risen in the last few weeks. 0:04:12.840 --> 0:04:16.360 So broadly speaking, I think higher yields as well as 0:04:17.160 --> 0:04:21.919 tighter regulatory framework, it should lead to tighter credit conditions 0:04:21.960 --> 0:04:24.280 over the remainder of the years. So yes, it might 0:04:24.320 --> 0:04:26.520 not be a crisis in the regional banking sector as 0:04:26.560 --> 0:04:30.839 of now, but tighter credit conditions conditions I hear to stay. 0:04:31.080 --> 0:04:34.720 Do you believe that right now that's going to perhaps 0:04:34.880 --> 0:04:38.159 constrain yields going forward? That that's really the key feature 0:04:38.240 --> 0:04:41.279 the H eight reports that come out on Friday that 0:04:41.440 --> 0:04:44.960 determine really what that band is the yields can trade within. 0:04:45.440 --> 0:04:48.480 Yeah, I think over the near term yields are definitely constrained. 0:04:48.839 --> 0:04:52.160 You're probably going to see an environment where the two 0:04:52.240 --> 0:04:54.440 year is going to struggle to get past for and 0:04:54.440 --> 0:04:58.719 a quarter percent, because that would imply the market pricing 0:04:58.839 --> 0:05:01.200 out a lot of the cuts are priced in, perhaps 0:05:01.279 --> 0:05:05.040 even starting to price in for hikes at upcoming meetings. 0:05:05.240 --> 0:05:07.679 That doesn't seem to be in the cards. Powell seems 0:05:07.720 --> 0:05:09.680 to be squarely in the in the in the camp 0:05:09.760 --> 0:05:13.039 of pausing rates at least in the June meeting and 0:05:13.080 --> 0:05:15.760 then taking a meeting by meeting thereafter. Uh So, in 0:05:15.800 --> 0:05:17.560 that sort of context, I think two years are going 0:05:17.560 --> 0:05:20.040 to struggle to rise meaningfully from here. And as far 0:05:20.080 --> 0:05:22.440 as the long end it's concerned, it's much more pegged 0:05:22.520 --> 0:05:25.679 to the outlook for growth not just in the US 0:05:25.680 --> 0:05:29.479 but also globally. China has had a good year this 0:05:29.600 --> 0:05:32.240 year for for growth GDP is going to be positive, 0:05:32.520 --> 0:05:34.680 but again for upcoming years, you're looking at a meaningful 0:05:34.720 --> 0:05:36.880 store round and not just US but also global growth 0:05:37.160 --> 0:05:40.240 that should kind of heap the long and pegged and 0:05:40.279 --> 0:05:43.799 then ultimately decline over the coming uh you know, months 0:05:43.839 --> 0:05:45.680 as well as the next year. 0:05:46.000 --> 0:05:48.400 Well fair speak through today. I can't white bulloud, bustic 0:05:48.480 --> 0:05:51.800 daily speaking throughout this morning and the afternoons. Savatra, thank you, Sabato, 0:05:51.920 --> 0:05:53.279 Yeah for that of SLK gen. 0:05:57.800 --> 0:06:01.719 Christopher Marinac joins Director of Golf Jenny Montgomery Scott. He's 0:06:01.760 --> 0:06:03.760 not here to talk bank stocks, he's here to talk. 0:06:04.080 --> 0:06:06.479 We saw okill in the PGA this weekend, and you 0:06:06.600 --> 0:06:10.320 like live next door to Augusta as well. Very cool. 0:06:11.120 --> 0:06:14.279 I mean, give us a little vignette here after this 0:06:14.400 --> 0:06:18.480 spectacular weekend of golf, including a hole in one by 0:06:18.480 --> 0:06:22.960 the PGA pro from California. Give us a picture of 0:06:23.000 --> 0:06:24.440 your Augusta. What's it look like. 0:06:24.760 --> 0:06:26.960 It's the prettiest place on earth, but it's also a 0:06:26.960 --> 0:06:29.960 golf course that actually gets totally taken apart in the summertime. 0:06:30.000 --> 0:06:32.400 So when they close next week, they'll be closed for 0:06:32.440 --> 0:06:35.320 three four months and they'll take the entire place apart 0:06:35.480 --> 0:06:38.120 and redo the greens, redo a lot of things. Certainly 0:06:38.160 --> 0:06:40.080 fix up a few trees that fell. 0:06:40.040 --> 0:06:40.760 Back in April. 0:06:41.200 --> 0:06:44.320 But it's an incredible piece of property. 0:06:44.320 --> 0:06:48.200 It may be a place to relax when you're dealing 0:06:48.240 --> 0:06:50.640 with the bank stocks as well. Are you at any 0:06:50.720 --> 0:06:54.760 point a master's relaxation about the banking crisis or is 0:06:54.800 --> 0:06:57.880 it still very vivid on a Monday morning. 0:06:58.080 --> 0:07:00.279 Well, it's early innings. We have a lot of to go. 0:07:00.360 --> 0:07:02.440 I mean, we still have a recession to find and 0:07:02.480 --> 0:07:05.240 then real estate to work through. And the banks I 0:07:05.240 --> 0:07:07.440 think will continue to make money throughout this whole journey, 0:07:07.440 --> 0:07:09.279 but they certainly have issues to deal with the next 0:07:09.279 --> 0:07:09.840 three years. 0:07:10.080 --> 0:07:14.680 It seems like the move is toward greater capital requirements. 0:07:14.680 --> 0:07:16.520 We're hearing that from Neil Kushkari today and we got 0:07:16.520 --> 0:07:18.760 a little hint of that today from the JP Morgan 0:07:18.800 --> 0:07:21.280 investor day. What did we hear from them? 0:07:21.520 --> 0:07:23.960 Well, jpm morgan talks about their fortress balance sheet all 0:07:24.000 --> 0:07:26.680 the time, so you know their slides are no different 0:07:26.680 --> 0:07:29.880 this morning about that. I think their leadership position in 0:07:29.920 --> 0:07:32.160 the banking industry is second to none, and so they're 0:07:32.200 --> 0:07:34.560 going to continue to remind everybody the capital is king. 0:07:35.120 --> 0:07:36.320 The stress tests come out. 0:07:36.160 --> 0:07:38.080 In about a month and my sense is the Fed's 0:07:38.120 --> 0:07:40.400 going to pass most, if not all, the banks, but 0:07:40.440 --> 0:07:43.200 they're going to politely ask for more comfort capital and 0:07:43.280 --> 0:07:47.120 require banks to raise additional equity, which banks I think 0:07:47.120 --> 0:07:48.680 the banks and the stress test, and then that will 0:07:48.680 --> 0:07:51.600 get pushed down to regional banks. So you know, pretty 0:07:51.640 --> 0:07:53.960 much the rules work that anything that happens at the 0:07:54.000 --> 0:07:56.480 top twenty banks will get pushed down to the next 0:07:56.480 --> 0:07:58.360 twenty in the next twenty, so it kind of falls 0:07:58.360 --> 0:07:59.080 from the top down. 0:07:59.120 --> 0:08:03.040 We talk about the potential for just profitability constraints within 0:08:03.080 --> 0:08:05.480 some of the regional banks. How much will the profitability 0:08:05.520 --> 0:08:09.880 be further constrained and their lending mechanisms be curtailed if 0:08:09.920 --> 0:08:13.360 there is greater carapital requirements foisted on them by the Fed. 0:08:13.600 --> 0:08:15.600 Well, capital is going to naturally improve for the banks 0:08:15.640 --> 0:08:17.760 because of retained earnings, and I think there's a slight 0:08:17.840 --> 0:08:21.200 comeback on their equity securities just because you have natural 0:08:21.240 --> 0:08:24.560 amortization and payoffs of their at HTM and available for 0:08:24.600 --> 0:08:26.920 sale securities. The challenge is going to be that raising 0:08:26.960 --> 0:08:29.920 additional capital to cover what could be a future credit 0:08:29.960 --> 0:08:32.480 cycle in twenty four and twenty five. That's why the 0:08:32.480 --> 0:08:34.800 capital I think goes up. We still have those unrealized 0:08:34.840 --> 0:08:36.680 losses that are not going to go to zero, They're 0:08:36.679 --> 0:08:38.040 just going to get incrementally better. 0:08:38.520 --> 0:08:43.400 But should people buy individual stocks ETFs BKX. What's the 0:08:44.000 --> 0:08:46.160 intelligent way to play this three years out. 0:08:46.240 --> 0:08:48.440 Well, I think a basket of stocks across all market 0:08:48.440 --> 0:08:50.640 caps makes sense. It's not just the large cap I 0:08:50.640 --> 0:08:53.280 think looking at MidCap and small community banks makes a 0:08:53.280 --> 0:08:55.520 bunch of sense. A lot of those are even cheaper 0:08:55.559 --> 0:08:58.040 than the regional banks that have been hit. My sense 0:08:58.120 --> 0:09:00.800 is that there is a real opportunity these companies, many 0:09:00.840 --> 0:09:03.280 of which are trading below tangible book value and tanswill 0:09:03.280 --> 0:09:04.240 book values growing. 0:09:04.360 --> 0:09:06.160 Every now and again, TK and I take a stroll 0:09:06.200 --> 0:09:08.600 at Park Avenue. Brahma doesn't like to be with us publicly, 0:09:09.160 --> 0:09:11.320 and when T and I woke up, this is pretty popit, 0:09:11.440 --> 0:09:14.160 Guys's true, just saying like on air, but not outside 0:09:14.160 --> 0:09:16.160 of the building. We go at Park Avenue and we 0:09:16.200 --> 0:09:19.280 go past the First Republic. On the next corner, the 0:09:19.360 --> 0:09:22.679 next block is a Chase Private Client. Almost immediately true. 0:09:22.920 --> 0:09:25.720 And on those screens in First Republic, they're playing Bloomberg. 0:09:25.720 --> 0:09:27.880 And often't always think of them, because you know, right 0:09:27.880 --> 0:09:29.640 now we're talking about them, and they're looking up at 0:09:29.679 --> 0:09:32.720 those screens and they're watching us talk about them. Can 0:09:32.760 --> 0:09:34.480 you tell me what's going to happen? With those branches, 0:09:34.480 --> 0:09:35.160 does anyone know. 0:09:35.760 --> 0:09:37.880 I think they'll stay the same for probably a year 0:09:37.960 --> 0:09:41.160 or two and quietly change gears, maybe become a second 0:09:41.200 --> 0:09:44.679 GP Morgan office. Maybe they'll become something else. Most likely, 0:09:44.760 --> 0:09:45.880 it's going to be a slow play. 0:09:46.040 --> 0:09:47.600 You don't think they're just going to immediately come out 0:09:47.640 --> 0:09:49.240 with a knife and just cut all these branches and 0:09:49.240 --> 0:09:49.760 close them. 0:09:49.800 --> 0:09:52.040 I don't think so. They gave expense guidance this morning. 0:09:52.040 --> 0:09:55.600 That's the same that they had before, excluding the FRC. 0:09:56.000 --> 0:09:57.760 We heard from Jennet Yellen that there is going to 0:09:57.800 --> 0:10:01.240 be market soolidation akin to that First Republic getting acquired 0:10:01.360 --> 0:10:04.199 by JP Morgan. How much more it is JP Morgan 0:10:04.280 --> 0:10:06.720 still in the business of acquiring or is it going 0:10:06.760 --> 0:10:09.400 to be sort of the other Bank of America, the 0:10:09.440 --> 0:10:10.600 other big banks. 0:10:11.040 --> 0:10:12.920 I think it might be nothing. Actually, I think that 0:10:12.960 --> 0:10:15.440 the consolidation may have already happened, because you have three 0:10:15.480 --> 0:10:18.120 banks that failed in March and April, and that represents 0:10:18.120 --> 0:10:20.920 about four percent of the assets for those big regional banks. 0:10:21.320 --> 0:10:21.480 You know. 0:10:21.520 --> 0:10:23.199 The interesting thing to me is if you look at 0:10:23.200 --> 0:10:25.600 the top twenty five banks in the country, they represent 0:10:25.679 --> 0:10:28.960 two thirds of the assets in the FDIC deposits, So 0:10:29.480 --> 0:10:31.439 why do we need consolidation when you already have two 0:10:31.480 --> 0:10:34.439 thirds held there? So I think the consolidation may be greater, 0:10:34.840 --> 0:10:36.360 mid mid size and smaller. 0:10:36.480 --> 0:10:39.679 So every analyst who comes on talks about the regional 0:10:39.720 --> 0:10:42.920 banking crisis is something that's going to tighten credit conditions 0:10:42.960 --> 0:10:45.679 and actually help the FED. Are you pushing back and 0:10:45.720 --> 0:10:48.360 saying that's not really the case because it's over. 0:10:49.120 --> 0:10:51.720 Well, I'm not sure the crisis really ever happened. I 0:10:51.720 --> 0:10:54.320 think we had mishaps in the month of March with 0:10:54.520 --> 0:10:57.960 these failed banks, but largely those were their own doing. 0:10:58.040 --> 0:11:00.400 I think the rest of the contagion that's been limited 0:11:00.400 --> 0:11:02.480 to pack West Western Alliance, both of which seem to 0:11:02.520 --> 0:11:05.320 be stabilizing. Pack West has positive news out this morning 0:11:05.679 --> 0:11:08.480 on asset sales. I think that the rest of the 0:11:08.480 --> 0:11:11.480 industry is marching ahead. We have seen deposit outflows in 0:11:11.520 --> 0:11:14.200 the industry, for sure, and those may continue just because 0:11:14.240 --> 0:11:17.160 interest rates need to catch up for depositors. But most 0:11:17.160 --> 0:11:20.480 of these banks are lending money, making a profit and 0:11:21.000 --> 0:11:24.319 marching forward. So I think there is credit or tighter 0:11:24.360 --> 0:11:27.800 credit anyways, but it's not as bad and as negative 0:11:27.800 --> 0:11:29.800 as I think headlines have suggested. 0:11:29.559 --> 0:11:32.800 The heritage of Jenny Montgomery Scott is Philadelphia, the mid 0:11:32.800 --> 0:11:35.240 Atlantic States and all the roll up there that happened 0:11:35.240 --> 0:11:38.280 thirty forty years ago. In banking, when do the regionals 0:11:38.320 --> 0:11:42.680 finally act and consolidate? Waiting and waiting and waiting and waiting, 0:11:42.720 --> 0:11:44.200 when do they finally say enough? 0:11:44.600 --> 0:11:47.280 Well, you could see two or three mergers the next 0:11:47.440 --> 0:11:49.600 couple of years, so those regional banks. But I'm not 0:11:49.600 --> 0:11:51.559 sure it's going to be that often. I really think 0:11:51.600 --> 0:11:53.560 it's going to be a lot less than we anticipate. 0:11:53.920 --> 0:11:56.400 The FED has to really change gears at the examiner 0:11:56.480 --> 0:11:57.920 level to push these mergers. 0:11:57.920 --> 0:11:59.440 The last two years mergers. 0:11:59.080 --> 0:12:02.360 Have taken forever close and a handful of them terminated. 0:12:02.440 --> 0:12:04.719 Just ask there's a people thing the examiners. 0:12:05.000 --> 0:12:09.200 Sure, interesting interesting Master's tickets. Have we knat that down? 0:12:09.600 --> 0:12:09.800 Yeah? 0:12:09.840 --> 0:12:11.720 We had Chris is our new friend. 0:12:12.000 --> 0:12:12.560 Okay, good? 0:12:13.040 --> 0:12:15.440 The odds according to Golf died. Just thank you Simon 0:12:15.520 --> 0:12:17.400 for this to garner Master's tickets. 0:12:17.679 --> 0:12:20.120 Isn't one and two hundred that's the one that's through 0:12:20.160 --> 0:12:23.080 the lottery, the lottery whatever they Okay, yeah, I just 0:12:23.320 --> 0:12:25.440 applied last year and we've got to know people. Do 0:12:25.440 --> 0:12:28.840 you know people. Okay, you know Christopher Marrinac, But Chris 0:12:28.880 --> 0:12:29.320 knows people. 0:12:29.480 --> 0:12:30.360 He knows people that we know. 0:12:30.400 --> 0:12:33.560 It's good tonight, It's nice, Chris. Thanks for bambudis Chris 0:12:33.600 --> 0:12:35.040 March gentle Montgomery Scope. 0:12:45.559 --> 0:12:47.080 Let's go to a guest here right now to give 0:12:47.120 --> 0:12:49.240 us perspective here with all the different news flow we have, 0:12:49.280 --> 0:12:53.400 Lisa Hornby's head of US multisector fixed income at Schroeders. 0:12:54.120 --> 0:12:55.440 The yield move that. 0:12:55.360 --> 0:12:57.880 We have lifted up, does it take us up to 0:12:58.000 --> 0:13:02.000 a collar edge, yields up to resistance or is there 0:13:02.040 --> 0:13:04.439 something going on here, Lisa that's original? 0:13:06.400 --> 0:13:08.320 You know, I think the market is still flirting with 0:13:08.360 --> 0:13:12.480 this idea of is there a path where things can 0:13:12.520 --> 0:13:16.640 actually be okay? And certainly resolution on the debt ceiling, 0:13:16.840 --> 0:13:20.760 which was last week's optimism or cause for optimism, is. 0:13:21.000 --> 0:13:22.480 A step towards that path. 0:13:23.679 --> 0:13:25.559 Of course, I think we'll be We'll have some fits 0:13:25.559 --> 0:13:27.839 and starts between now and then, and I don't think 0:13:27.920 --> 0:13:30.360 we'll see the highest end of the ten year range 0:13:30.360 --> 0:13:33.200 where the peaks that we got to last year. But 0:13:33.240 --> 0:13:34.880 I think, you know, I think there could be some 0:13:35.160 --> 0:13:37.559 tactical trading opportunity here for sure. 0:13:37.559 --> 0:13:40.200 What are you doing on duration? We hardly taught touched 0:13:40.200 --> 0:13:42.880 down it this morning, not so much the price move 0:13:43.000 --> 0:13:46.920 or yield move, but the bet you place in maturity. 0:13:48.360 --> 0:13:49.880 Yeah, you know, I think duration. 0:13:50.080 --> 0:13:52.040 I think look, the outlook for bonds in our view 0:13:52.320 --> 0:13:55.960 this year has been compelling. I think we're ten years. 0:13:56.000 --> 0:13:57.840 We're probably looking at a range of three twenty five 0:13:57.880 --> 0:13:59.920 to three seventy five, So we're getting towards that up 0:14:00.120 --> 0:14:04.160 or band. We like tactically trading but airing towards being 0:14:04.280 --> 0:14:08.000 long because our view is for economic deterioration. It's kind 0:14:08.000 --> 0:14:10.720 of a slow burn, but I think that that's where 0:14:10.720 --> 0:14:12.839 we're headed, and so we want to be We want 0:14:12.840 --> 0:14:14.680 to come out the other side of this long but 0:14:14.800 --> 0:14:17.679 understanding this is going to be a volatile market, as 0:14:17.679 --> 0:14:20.040 it really has been for the last four or five months. 0:14:20.120 --> 0:14:22.680 ALESA, where are you seeing that signs of economic deterioration 0:14:23.040 --> 0:14:23.880 at the moment. 0:14:24.480 --> 0:14:27.240 So certainly a slow grind, but we are starting to 0:14:27.320 --> 0:14:31.440 see it. On the consumer side. It's it's obviously very gradual, 0:14:31.480 --> 0:14:34.280 but we have seen credit card balances take up. We 0:14:34.400 --> 0:14:38.120 have seen on the auto loan side, now really across 0:14:38.160 --> 0:14:43.560 the figo spectrum a bit of deterioration. Obviously, jobs still 0:14:43.600 --> 0:14:45.120 remain very very resilient. 0:14:46.120 --> 0:14:46.280 You know. 0:14:46.320 --> 0:14:49.480 One of the things we're watching though closely is small businesses. 0:14:49.520 --> 0:14:52.320 You know, small business surveys have really deteriorated over the 0:14:52.400 --> 0:14:55.840 last I want to say, more than a year, and 0:14:56.280 --> 0:14:59.200 that deterioration, in our view, is probably set to increase 0:14:59.240 --> 0:15:02.080 as credit condition and tightened for these guys, particularly in 0:15:02.160 --> 0:15:04.600 light of what's going on on the regional banking side. 0:15:04.800 --> 0:15:06.880 So that's where we're focused. 0:15:06.920 --> 0:15:08.680 I mean, we have to remember small businesses in the 0:15:08.760 --> 0:15:12.000 US employ on a very large percentage of the population. 0:15:12.120 --> 0:15:13.840 You know, we spend a lot of time talking about 0:15:14.080 --> 0:15:16.960 the gees of the world, but probably ninety percent of 0:15:16.960 --> 0:15:20.160 the businesses in the US are small, small to mid size, 0:15:20.240 --> 0:15:25.040 So their outlook is pretty important and it's not particularly 0:15:25.080 --> 0:15:26.480 compelling when you look at the data. 0:15:26.640 --> 0:15:30.320 We just had Chris Marrinack on over from Jenny Montgomery Scott, 0:15:30.360 --> 0:15:32.440 and he was talking about the regional banking crisis that 0:15:32.600 --> 0:15:35.960 wasn't and so I wanted to get your sense of 0:15:36.120 --> 0:15:38.880 what is happening in terms of the credit tightening. He 0:15:38.960 --> 0:15:41.360 said that regional banks are a much better position than 0:15:41.400 --> 0:15:46.120 people assume. They're not constraining their lending mechanisms all that much. 0:15:46.440 --> 0:15:48.480 Do you see something different or do you think it 0:15:48.640 --> 0:15:52.080 just hasn't happened yet, but just wait and it will. 0:15:52.120 --> 0:15:53.080 I think it's again. 0:15:53.160 --> 0:15:54.920 I think it's a bit of a slow burn, right 0:15:55.000 --> 0:15:57.280 we you know, the cost of capital has gone up, 0:15:57.560 --> 0:16:00.440 These regional banks are under increased scrutiny. I think there 0:16:00.480 --> 0:16:04.240 will be more focus on balance sheet preservation and the 0:16:04.280 --> 0:16:06.480 type of loan making that they're doing, and I think 0:16:06.560 --> 0:16:09.520 certain pockets of the economy will see a little bit 0:16:09.520 --> 0:16:11.400 more stress as a result of that and make it 0:16:11.440 --> 0:16:13.840 a bit harder to access capital. I mean, Tom said 0:16:13.880 --> 0:16:18.120 it before while I was listening in earlier. The cost 0:16:18.160 --> 0:16:21.000 of capital has risen, and that poses an issue, and 0:16:21.520 --> 0:16:23.360 it's supposed to pose an issue, right The FED is 0:16:23.400 --> 0:16:26.880 doing this intentionally to try and slow economic growth, and 0:16:26.880 --> 0:16:29.080 they're doing it, but it takes some time. 0:16:29.400 --> 0:16:32.360 Given how resilient the economy has been has been, and 0:16:32.400 --> 0:16:36.080 given that we haven't really seen the credit stress materialize 0:16:36.080 --> 0:16:38.160 in a way as significant as many people had expected 0:16:38.200 --> 0:16:40.760 at this point. What is the risk that the Fed's 0:16:40.760 --> 0:16:42.680 going to have to tighten further, It's going to have 0:16:42.720 --> 0:16:45.880 to hike again, perhaps even in June, because maybe the 0:16:45.920 --> 0:16:48.760 constraint isn't that great from the regional banks just yet, 0:16:48.880 --> 0:16:50.360 and then it will have to be the slow burn 0:16:50.440 --> 0:16:51.440 that goes on for a while. 0:16:53.160 --> 0:16:55.360 Yeah, I mean the market is certainly flirting right that. Right, 0:16:55.400 --> 0:16:57.600 we've seen the probability of a FED hike at the 0:16:57.600 --> 0:17:00.640 next meeting move very between twenty five and forty percent. 0:17:01.440 --> 0:17:03.080 You know, if we get a debt ceiling resolution in 0:17:03.160 --> 0:17:04.800 the near term, I wouldn't be surprised to see that 0:17:04.840 --> 0:17:08.040 move higher. I think the Fed wants to be cautious. 0:17:08.080 --> 0:17:10.639 I mean, if you listen to Powell's comments last week, 0:17:10.960 --> 0:17:15.000 he didn't explicitly suggest a pause here, but he did 0:17:15.240 --> 0:17:17.920 allude to the fact that, hey, we've done a lot, 0:17:18.520 --> 0:17:21.960 we can potentially be patient and see what the impact is. 0:17:22.280 --> 0:17:25.359 I mean, they are breaking things right, There are more 0:17:26.400 --> 0:17:28.400 you know, look at the move index and where it's 0:17:28.400 --> 0:17:32.119 been over the last year versus the previous several years. 0:17:32.359 --> 0:17:35.679 Things are starting to percolate in the background, and we 0:17:35.720 --> 0:17:38.560 have had if several banks now fell, I don't know 0:17:38.600 --> 0:17:42.119 that that story is completely played out. I think that 0:17:42.160 --> 0:17:45.760 they realize that, you know, there are now some risks 0:17:45.760 --> 0:17:47.960 out there that are becoming a bit more serious and 0:17:48.040 --> 0:17:51.000 so all l Sql. I'm sure they would prefer to pause, 0:17:51.040 --> 0:17:53.119 but we have a lot of data between now and 0:17:53.400 --> 0:17:55.679 the middle of June, their next meeting, so we'll have 0:17:55.720 --> 0:17:56.760 to wait and see. 0:17:56.920 --> 0:17:58.600 Well, let's just finish the Lisa, clearly, you're not going 0:17:58.640 --> 0:18:01.359 to keep on hiking until you see too. Do you 0:18:01.400 --> 0:18:04.280 think we've seen sufficient evidence right now that they are 0:18:04.320 --> 0:18:07.919 sufficiently restrictive or is this a guess based on the 0:18:08.040 --> 0:18:09.880 cunitive tightening that they've already delivered. 0:18:11.400 --> 0:18:15.200 I think it's a great question. My sense is they've 0:18:15.840 --> 0:18:19.920 probably done enough. They might go a little bit further 0:18:20.040 --> 0:18:23.600 because they're looking at data on a leg. If we 0:18:23.640 --> 0:18:25.959 could fast forward six months from now, I said, I 0:18:26.000 --> 0:18:29.400 suspect that inflation will continue to slow and that they 0:18:29.440 --> 0:18:31.879 will get, you know, be closer to their targets and 0:18:31.920 --> 0:18:34.560 growth will be starting to roll over in a more 0:18:34.600 --> 0:18:37.760 serious way. But you know, if we get another five 0:18:37.840 --> 0:18:41.680 and a half percent inflation print, that all bets are off. 0:18:42.359 --> 0:18:45.720 So I think, you know, we Unfortunately, the way monetary 0:18:45.720 --> 0:18:49.720 policy works is with a lag, and so they'll react 0:18:49.800 --> 0:18:52.040 to the data and as it comes in rather than 0:18:52.640 --> 0:18:54.840 you know, six months or twelve months from now, trying 0:18:54.880 --> 0:18:55.879 to see the bigger picture. 0:18:56.200 --> 0:18:59.320 Hey, Lisa, this was great, Lisa Holbe. The Strouders appreciate 0:18:59.359 --> 0:19:05.719 it as always. Michael O. Larry see I've ran et 0:19:05.840 --> 0:19:07.760 on just right now. Michael grit to see in New 0:19:07.840 --> 0:19:11.359 York going to see my sois dollars? It's not, is it? 0:19:11.840 --> 0:19:15.560 So Michael tell me this is that a future still 0:19:16.000 --> 0:19:16.840 or things changed? 0:19:17.960 --> 0:19:20.479 It is the future and things our margin are changing. 0:19:20.560 --> 0:19:22.760 I mean, I think you know we've ordered another three 0:19:22.840 --> 0:19:25.199 hundred aircraft from Boeing two weeks ago, so you know 0:19:25.240 --> 0:19:27.280 we're going to grow from one hundred and forty nine 0:19:27.280 --> 0:19:30.200