WEBVTT - Earnings, the Fed, Credit Suisse, and Midterms (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.840 at Bloomberg dot com slash podcast. Earnings coming up. We've 0:00:22.840 --> 0:00:26.079 had the banks, we've had some tech. Tech wasn't very good, 0:00:26.200 --> 0:00:28.840 Thank you very much, Silicon Valley. Now we're gonna get 0:00:28.840 --> 0:00:31.000 in some of the big insurance companies and let's get 0:00:31.000 --> 0:00:33.320 a preview what we might see. Matt Palozoli, he's a 0:00:33.360 --> 0:00:36.920 senior analyst covering insurance for Bloomberg Intelligence. He's here in 0:00:36.920 --> 0:00:40.400 our Bloomberg Interactive Broker studio because he is a professional. 0:00:40.479 --> 0:00:42.760 He is in the office. Matt, what do we need 0:00:42.800 --> 0:00:45.760 to look for here in these big insurance companies. We've 0:00:45.760 --> 0:00:48.480 got a rising interest rate environment. How does that play 0:00:48.520 --> 0:00:50.600 through in the earnings? What that you're gonna be seeing? 0:00:50.920 --> 0:00:53.920 So for the insurance companies, UH, they make a lot 0:00:53.920 --> 0:00:56.840 of their income on investment income, So they invest their 0:00:56.880 --> 0:01:00.760 premiums and UH they get the with the float, and 0:01:00.960 --> 0:01:04.319 with rising interest rates, they're invested almost and fixed income. 0:01:04.360 --> 0:01:08.679 So it's kind of just all all upside from here. 0:01:08.680 --> 0:01:11.200 It's all upside from here. Put then the perspective with 0:01:11.400 --> 0:01:13.840 the rate hike that you're now potentially seeing, we're looking 0:01:13.880 --> 0:01:16.240 at seventy five bases points priced into the market. Walk 0:01:16.319 --> 0:01:18.520 us through, at least for the people like me who 0:01:18.560 --> 0:01:21.319 don't know insurance as well as you do, how that 0:01:21.360 --> 0:01:24.759 actually affects the bottom line for likes of Geico for example. 0:01:24.880 --> 0:01:28.160 Sure so, uh, Like I said, they get premiums in, 0:01:28.400 --> 0:01:32.400 they invest them in high quality fixed income and generate 0:01:32.400 --> 0:01:35.399 investment income. So the average duration of the portfolios is 0:01:35.400 --> 0:01:37.679 about four years, so it's not instant. It takes time 0:01:37.720 --> 0:01:40.959 for the portfolio to run over um, but the investment 0:01:40.959 --> 0:01:43.520 income goes up, you know, pay taxes on it and 0:01:43.560 --> 0:01:46.600 go straight to the bottom line. All right, Our good 0:01:46.600 --> 0:01:52.320 buddy out in Omaha, Nebraska, Warren Buffett, uh Bertrad Hathaway. 0:01:52.320 --> 0:01:54.920 They're reporting numbers. They do it on a Saturday. First 0:01:54.960 --> 0:01:56.840 of all, what's up with that? Why did they do 0:01:56.880 --> 0:01:59.040 it on a Saturday? Paul, You are a cell side 0:01:59.040 --> 0:02:01.320 analysts like we were, are used to working on the weekend. 0:02:01.920 --> 0:02:04.680 They do it on the weekend so that there's kind 0:02:04.680 --> 0:02:08.240 of no market reaction until one day. I guess they 0:02:08.240 --> 0:02:10.120 could do it after the close on a day, but 0:02:10.120 --> 0:02:12.160 they like to do it and give quote, you know, 0:02:12.200 --> 0:02:14.799 give the market time to digest. So he still does 0:02:14.880 --> 0:02:17.880 the big rents out the arena and and all the 0:02:17.919 --> 0:02:20.800 Warren Buffett acolytes go out there to kind of hear 0:02:20.919 --> 0:02:22.960 him and Mr Munger speak and all that kind of stuff. 0:02:23.000 --> 0:02:24.919 Is that's still the case. That is the case that 0:02:24.960 --> 0:02:28.799 happened already, so that that's the annual meeting. That's with 0:02:28.919 --> 0:02:31.480 earlier results. So we're just talking third quarter results because 0:02:31.480 --> 0:02:34.560 there's no no call or anything anything anything there that 0:02:34.560 --> 0:02:36.320 we should been to look out for. Like I mean, 0:02:36.320 --> 0:02:38.600 for war Buffet, it's always what are you gonna do 0:02:38.639 --> 0:02:40.960 with the cash? Where's the next big deal? Now? I 0:02:41.000 --> 0:02:44.280 know they bought this reinsurance company, Allegheny. They just closed 0:02:44.280 --> 0:02:46.320 a week or so ago, So that closed that was 0:02:46.360 --> 0:02:49.360 announced earlier. I don't think they're doing anything big in 0:02:49.400 --> 0:02:52.880 the near term. They've been bulking up on Occidental stock, 0:02:53.240 --> 0:02:56.360 so with the warrants that they have in the ownership already, 0:02:56.400 --> 0:02:59.240 they have about thirty of the company, and they've got 0:02:59.240 --> 0:03:04.960 approval to own for my favorite Berkshire Hathaway company because 0:03:04.960 --> 0:03:08.280 they own a lot in in a massive portfolio into 0:03:08.360 --> 0:03:11.440 every sector. Sorry, Darry Queen, do they really Yeah? Oh 0:03:11.480 --> 0:03:14.359 I didn't know that. Okay, well it's not Terry Queen 0:03:14.440 --> 0:03:16.239 is not my favorite candy mine is. Are you gonna 0:03:16.320 --> 0:03:18.360 keep guessing all of the compass? This could take out 0:03:18.400 --> 0:03:22.680 the rest of the show. BNSF Railway that is I 0:03:22.720 --> 0:03:24.919 think the most fascinating. When we were covering the rail strike, 0:03:25.280 --> 0:03:27.040 one of the companies at the heart of the issue 0:03:27.320 --> 0:03:31.280 was BNSF. Any any thoughts there. It's interesting to me 0:03:31.320 --> 0:03:35.520 that they're investing more in the kind of occidental BNSF. 0:03:36.200 --> 0:03:39.559 It's kind of investing stuff, you know. Well, it's very industrials. 0:03:39.560 --> 0:03:43.400 It's very it's very warm, Buffett, very wet. So so 0:03:43.440 --> 0:03:46.320 they have a big energy business besides their investments in 0:03:46.400 --> 0:03:49.640 Chevron and oxy um so on the insurance analyst. But 0:03:49.680 --> 0:03:52.680 I know a little bit about railroads. Um. The thing 0:03:52.720 --> 0:03:59.760 about um their volumes went down this quarter, so they 0:03:59.800 --> 0:04:04.360 were moving less stuff. But uh, their revenue gets boosted 0:04:04.440 --> 0:04:09.400 by fuel search arches, right, which seems a little uh paradoxical. 0:04:09.440 --> 0:04:11.360 But they actually can. Their revenue will go up because 0:04:11.360 --> 0:04:14.280 they pass across that that fuel costs. So I think 0:04:14.400 --> 0:04:17.000 revenue goes up, but volumes were down for Burlington Northern. 0:04:17.120 --> 0:04:19.800 Hey man, I'm looking at the SMP five Property and 0:04:19.839 --> 0:04:26.200 casualty insurance sub industry gets level four index. So the 0:04:26.240 --> 0:04:29.120 insurance stocks have done they're really at perform the market. 0:04:29.200 --> 0:04:31.640 What's the when you talk to institutional investors today, what 0:04:31.640 --> 0:04:33.640 are they saying. They are saying, we've kind of made 0:04:33.640 --> 0:04:35.400 our money, we're done, or we have more room to go. 0:04:35.680 --> 0:04:38.080 So I was like coming out of the third quarter, 0:04:38.960 --> 0:04:42.120 I wasn't I wasn't inspired. Um, these stocks have done well, 0:04:42.160 --> 0:04:45.680 they're kind of good inflation hedges. Generally for commercial insurance, 0:04:45.720 --> 0:04:48.359 people have to buy it no matter what. UM. But 0:04:48.600 --> 0:04:51.279 that story may have played out a little bit through 0:04:51.320 --> 0:04:55.560 the year. UM the margin outlook is not if anything, 0:04:55.600 --> 0:04:58.239 it's it's negative revisions going forward. So I can see 0:04:58.279 --> 0:05:01.560 why it might have stalled out. What about the impact 0:05:01.640 --> 0:05:04.599 of Hurricane Ian very quickly, how much damage does that do? 0:05:04.920 --> 0:05:07.240 That was big? We think about sixty billion dollars for 0:05:07.279 --> 0:05:10.880 the industry. It's gonna cause Berkshire several billion UM, but 0:05:11.320 --> 0:05:13.920 very manageable and it might actually re accelerate some pricing. 0:05:14.279 --> 0:05:17.480 What's the explained to me? The reinsurance business, I'll give 0:05:17.480 --> 0:05:21.719 you twenty seconds to reinsurance business is insurance for insurance companies. Uh. 0:05:21.760 --> 0:05:25.640 It protects you, protects your top layer if you have 0:05:25.760 --> 0:05:28.800 a giant loss. So you say, okay, if I lose 0:05:28.839 --> 0:05:30.960 a billion dollars and I want the reinsurance company to 0:05:31.000 --> 0:05:32.960 take five hundred of it and I pay them a fee. 0:05:33.279 --> 0:05:36.479 And companies need that, specifically smaller ones in Florida, but 0:05:36.760 --> 0:05:38.640 everyone can use it as a bit of capital management. 0:05:38.640 --> 0:05:40.440 And is there any backup for the reinsurer or is 0:05:40.440 --> 0:05:43.680 that the government? There's retro reinsurance, which is reinsurance for reinsurance. 0:05:44.839 --> 0:05:46.880 Do we cover those companies? We cover some of those 0:05:46.880 --> 0:05:48.960 two most of them sell both of it. All right, 0:05:49.400 --> 0:05:51.919 gets done at insurance business. All I know is I 0:05:52.040 --> 0:05:54.599 just it just comes out of my check and I'm like, okay, whatever, 0:05:54.640 --> 0:05:58.040 I guess I'm insured. I guess I'm covered at the 0:05:58.040 --> 0:06:01.080 extent of my knowledge of instecturance. Is it so anyway? 0:06:01.080 --> 0:06:03.600 Matt Palozola, he knows it a lot better. Thank thankfully, 0:06:03.960 --> 0:06:06.719 he's a senior annalyst coming the property casualty insurance sector 0:06:06.760 --> 0:06:10.680 for Bloomberg Intelligence looking at this market here kind of 0:06:10.720 --> 0:06:14.480 just really not much conviction one way or the other. Uh. 0:06:14.600 --> 0:06:17.920 Kind of punched on the SP five today. Uh, and 0:06:17.960 --> 0:06:20.040 we'll see how well we get out of the FED tomorrow. 0:06:23.960 --> 0:06:26.880 All right. Sam Fazelli, he's in the Bloomberg Interactive Broker 0:06:26.920 --> 0:06:30.080 studio that is caused for celebration. He's the head of 0:06:30.120 --> 0:06:32.840 European Research. He's a pharmaceutical analysts. But the only time 0:06:33.000 --> 0:06:34.520 Critty we've ever wanted to talk to him over the 0:06:34.600 --> 0:06:37.479 last three years has been about COVID. But he actually 0:06:37.520 --> 0:06:39.760 has a day job. He actually does stuff. Yes, he 0:06:39.800 --> 0:06:41.760 actually has a day job. He's like one of the 0:06:41.800 --> 0:06:45.599 best pharmaceutical analysts in Europe. Uh, he's been doing it 0:06:45.640 --> 0:06:48.039 for decades. So now we can get back to just 0:06:48.240 --> 0:06:52.160 nuts and bolts pharmaceutical analysis. And these are mega companies. 0:06:52.200 --> 0:06:55.040 They do deals all the time. Another deal got done today. 0:06:55.640 --> 0:06:59.200 Let's talk about Sam. Some of the big companies reporting 0:06:59.279 --> 0:07:02.800 numbers here, So let's talk about Eli, Lily Viser. What 0:07:02.839 --> 0:07:04.600 are you seeing from some of these big companies. Because 0:07:04.640 --> 0:07:06.919 they they are global companies, they have to deal with 0:07:06.960 --> 0:07:09.560 the stronger dollar. UM what are you seeing from some 0:07:09.560 --> 0:07:12.200 of these big farmer companies. Yes, so all of them 0:07:12.200 --> 0:07:15.520 are obviously suffering is perhaps the right or wrong phrase, 0:07:15.560 --> 0:07:17.600 but suffering from the strength of the dollar. But but 0:07:17.800 --> 0:07:20.920 you saw that in Viser's case, it didn't really matter 0:07:21.000 --> 0:07:23.480 because it seems like governments wants to still soak up 0:07:23.520 --> 0:07:26.720 as much COVID vaccines as possible. So if you look 0:07:26.760 --> 0:07:29.640 at their beat today and look at their guidance rays 0:07:29.800 --> 0:07:31.920 which of course has got the stock up about three percent, 0:07:33.040 --> 0:07:35.920 is pretty much all to do with the community vaccine 0:07:36.480 --> 0:07:39.840 um and that's through government orders. Let's not forget this 0:07:39.880 --> 0:07:41.400 is not available to you and I to go and 0:07:41.440 --> 0:07:43.840 just buy in the shop. So which vaccine is community? 0:07:43.960 --> 0:07:48.080 It's called these covid vaccina. Okay, it's a catchy name, 0:07:48.080 --> 0:07:53.280 community rights better than some random exactly unpronounceable drug names. 0:07:53.320 --> 0:07:56.080 So that's been what's driving that stock. I mean, the 0:07:56.160 --> 0:07:58.680 dollar was really not a story for them, of course 0:07:58.720 --> 0:08:00.760 it is. It is impacted where it's a story for them. 0:08:01.160 --> 0:08:03.640 Lily was interesting because the stocks down four it was 0:08:03.680 --> 0:08:06.400 down a bit more the earliest up and the only 0:08:06.400 --> 0:08:09.640 reason they missed or they've reduced guidance is because of dollar. 0:08:10.080 --> 0:08:13.200 Now I would usually see through that, right, Whereas the 0:08:13.320 --> 0:08:17.080 base business for Lily is amazing. They've done a phenomenal 0:08:17.160 --> 0:08:19.960 job in bringing new drugs one after the other. And 0:08:20.080 --> 0:08:22.760 of course today Munjaro is the one that everyone's looking at. 0:08:22.840 --> 0:08:26.280 What is actual new diabetes drug with the best efficacy 0:08:26.280 --> 0:08:30.480 you've ever seen and it also helps you drop twenty pounds. 0:08:31.160 --> 0:08:33.240 So this is the drug that everyone's figured trying to 0:08:33.240 --> 0:08:35.160 figure out is it a ten billion or a fifteen 0:08:35.240 --> 0:08:38.080 or a twenty and some people have got some random 0:08:38.160 --> 0:08:40.520 numbers out there are a hundred billion market potentially for this. 0:08:40.720 --> 0:08:44.120 Such best advocacy you've ever seen for diabetes drugs yet 0:08:44.280 --> 0:08:48.319 interesting phenomenal, phenomenal HD and something science related, So I 0:08:48.360 --> 0:08:52.079 guess something sciences. Yes, But that stock poll, if you 0:08:52.080 --> 0:08:54.240 look at the multiple and you look at how far 0:08:54.280 --> 0:08:56.839 it's up this year and what the expectations are, I'm 0:08:56.840 --> 0:08:59.280 not surprised it's giving up a little today, but at 0:08:59.320 --> 0:09:01.360 the end of the day it is one of the 0:09:01.400 --> 0:09:05.000 best growth stories, similar to what we also see for 0:09:05.080 --> 0:09:08.480 astro Centco in Europe across farmer Alright. So when I 0:09:08.559 --> 0:09:10.920 look at so that that's Lily and we'll get to 0:09:10.960 --> 0:09:14.360 a big big sector column a second, but fightser with 0:09:14.559 --> 0:09:18.160 it's got such a big lift in their sales from 0:09:18.200 --> 0:09:20.680 the COVID drug. I'm looking at the f A function 0:09:20.679 --> 0:09:23.680 on the Bloomberg terminal, forty two billion of revenue in 0:09:24.520 --> 0:09:28.599 exploiting to eight billion, going to a close to a 0:09:28.679 --> 0:09:31.920 hundred billion this year, and then it drops pretty significantly. 0:09:32.280 --> 0:09:34.680 So if I'm an investor in Fighter, do I want 0:09:34.679 --> 0:09:38.160 to be anywhere near a story where I've got revenue 0:09:38.000 --> 0:09:42.160 declined significant declines. So that's the toughest thing. I've just 0:09:42.280 --> 0:09:44.320 come off the call, which is still going on, okay, 0:09:44.320 --> 0:09:47.080 and that is the question what's gonna happen in three Now. 0:09:47.120 --> 0:09:48.880 I put my neck on the line saying that I 0:09:48.920 --> 0:09:50.959 think vaccines are not going to do anywhere near the 0:09:51.040 --> 0:09:54.400 numbers have done this year next year, partly because I 0:09:54.400 --> 0:09:56.280 think people are just going to get over the idea. 0:09:56.360 --> 0:09:59.000 But they are doing clever things. Are you're combining it 0:09:59.080 --> 0:10:02.360 with the flu vaccines who just get one shot, and 0:10:02.400 --> 0:10:05.840 they're talking about pricing which is five or six times 0:10:05.920 --> 0:10:08.640 higher than numbers that have been charging governments, so you 0:10:08.679 --> 0:10:10.640 can make up for a lot of volume loss so 0:10:10.640 --> 0:10:12.480 I don't have to pay for they if I get 0:10:12.480 --> 0:10:15.000 a COVID shot next year. Next year. I mean, do 0:10:15.080 --> 0:10:18.240 you mind taking five to one percent of the cash 0:10:18.240 --> 0:10:19.760 you carry with you and pay you a hundred bucks 0:10:19.760 --> 0:10:23.000 for it? Probably not no, okay, but but you and 0:10:23.040 --> 0:10:24.760 I are not the people who catch for this. Right 0:10:24.800 --> 0:10:26.400 at the end of the day, you need the volume. 0:10:26.600 --> 0:10:28.800 And this is the problem that most people have right now. 0:10:29.120 --> 0:10:31.920 They don't know how to model. They've been saying, look, 0:10:31.920 --> 0:10:33.560 we'll give you as much of a guy that's possible. 0:10:33.760 --> 0:10:35.920 We have to wait till the twelfth of December when 0:10:35.960 --> 0:10:39.520 they have their they have an R and dcoll or 0:10:39.880 --> 0:10:42.840 the Endless Day. So okay. Well, speaking of the COVID vaccine, 0:10:42.880 --> 0:10:44.839 one of the major drivers this morning, at least in 0:10:44.880 --> 0:10:48.040 the pre market, was rumors that potentially China might be 0:10:49.040 --> 0:10:52.640 reconsidering their COVID's real policy. At some point, um tom 0:10:52.720 --> 0:10:55.680 Orlick a Bloomer Economics came up Bloomber Surveillance and said, 0:10:55.760 --> 0:10:57.840 the timeline of that is not going to be tomorrow, 0:10:57.880 --> 0:10:59.200 is not gonna be next week, It's going to be 0:10:59.240 --> 0:11:01.959 at the early if this is indeed true once again 0:11:02.080 --> 0:11:05.520 on UH confirmed rumors at the at the moment will 0:11:05.559 --> 0:11:08.600 be the first quarter of is that the time frame 0:11:08.679 --> 0:11:12.480 you would agree with. Yeah, I mean, look, the president 0:11:12.520 --> 0:11:15.320 ge doubled down or the company of the country has 0:11:15.320 --> 0:11:17.720 doubled down on the on the zero COVID. The problem 0:11:17.760 --> 0:11:22.240 they have is you cannot avoid deaths and infections even 0:11:22.280 --> 0:11:26.240 if you vaccinate the people, because not everybody responds to 0:11:26.280 --> 0:11:30.080 the vaccine. And also you have a situation where some 0:11:30.120 --> 0:11:32.280 of the vaccines will never give you the kind of 0:11:32.320 --> 0:11:34.360 protection that you want, even the ones that we have here. 0:11:34.760 --> 0:11:39.480 So whether I don't think that's driving the vaccine names here, 0:11:40.600 --> 0:11:42.959 because they've had the opportunity to have these vaccines in 0:11:43.400 --> 0:11:46.880 China for two years, over two years with BioNTech or Moderna, 0:11:47.679 --> 0:11:50.160 I think the Chinese are likely to be waiting to 0:11:50.200 --> 0:11:55.520 get something more regional, something that they have made, get 0:11:55.559 --> 0:11:57.560 that through to the market. So to that end, let 0:11:57.600 --> 0:12:00.560 me ask you a science question. Um, can't they just 0:12:00.640 --> 0:12:03.920 go and get a Visor vaccine, moderna vaccine they've being 0:12:03.960 --> 0:12:06.680 a Chinese government and scientists and just reverse engineer it 0:12:06.720 --> 0:12:09.959 and say, hey, we've now got our Chinese vaccine. Yeah, 0:12:10.040 --> 0:12:11.600 I mean, I don't think it's as easy as that 0:12:11.640 --> 0:12:15.599 because so there's so many steps involved in this manufacturer. 0:12:16.240 --> 0:12:18.920 You could try and make something similar to it. But 0:12:18.920 --> 0:12:21.320 what it will be identical or not? Who knows. I 0:12:21.360 --> 0:12:24.640 mean even the two vaccines are not identical between fis 0:12:24.679 --> 0:12:27.160 it right? Right? All right? So let's step back here. 0:12:27.679 --> 0:12:30.040 You're talking to your big institutional investor clients all over 0:12:30.080 --> 0:12:32.840 the world. What are they saying about Big Farmer? Do 0:12:32.920 --> 0:12:35.520 I buy it as a or is this something that 0:12:35.559 --> 0:12:37.679 it's already been a nice safe haven for me. I'm 0:12:37.679 --> 0:12:41.120 going to rotate out into some more maybe cyclical stuff. Yes, 0:12:41.200 --> 0:12:43.680 So really I want to bounce that back at you. 0:12:43.920 --> 0:12:46.520 Do you see the cyclical stucks moving? Because if that's 0:12:46.559 --> 0:12:49.000 the if the day that that people start making that decision. 0:12:49.360 --> 0:12:53.559 The defensives, including Parma Industrial, just put up its best 0:12:53.880 --> 0:12:56.679 month of October since nineteen seventy six, so there was 0:12:56.720 --> 0:13:00.440 a lot of like Caterpillar had some great numbers last week, 0:13:00.480 --> 0:13:03.560 you know, and and conversely the big tech companies, uh 0:13:03.600 --> 0:13:06.440 that I know well had some disappointing numbers. So maybe 0:13:06.480 --> 0:13:09.880 it's already starting to happen a little bit. Um you know. 0:13:09.960 --> 0:13:11.960 I don't know, but I think if I'm a big Farmer, 0:13:12.040 --> 0:13:14.200 I just think it's such a great place to be 0:13:14.200 --> 0:13:17.920 because they're big, they're growing um, lots of free cash flow, 0:13:18.640 --> 0:13:20.760 dividends and things like that. I'm just not sure what's 0:13:20.800 --> 0:13:24.280 the bear case for Big Farmer is always a part 0:13:24.360 --> 0:13:27.600 of my portfolio. I think that that pretty much makes 0:13:27.600 --> 0:13:30.920 sense to me because they have a phenomenal innovation that's 0:13:30.960 --> 0:13:34.120 going on, which is feeding off the fantastic work that 0:13:34.120 --> 0:13:37.040 scientists have been doing. That is, that is not the issue. 0:13:37.080 --> 0:13:39.199 The thing is, if you're talking five to ten years, 0:13:39.520 --> 0:13:41.600 there's very little doubt for me that that you need 0:13:41.679 --> 0:13:46.600 to have some exposure to Farmer because that is, there's 0:13:46.720 --> 0:13:50.320 always been cash generative. Even if the Inflation Reduction Act 0:13:50.640 --> 0:13:53.080 eventually bites the way that it's been doing, they have 0:13:53.160 --> 0:13:57.240 ways of getting away from its impacts. But really, I 0:13:57.280 --> 0:13:59.760 think this is definitely the case short term trading. Is 0:13:59.800 --> 0:14:02.280 that for the discussion, what are you drinking in the 0:14:02.400 --> 0:14:08.760 bordo these days? What did I have? I had a 0:14:08.840 --> 0:14:13.240 nice bottle of Villefery. Alright, two thousand and one sounds 0:14:13.240 --> 0:14:15.959 good to me. San Fazelli had of European Economic Research, 0:14:16.240 --> 0:14:24.360 Bloomberg Intelligence. All right, let's talk banks. Pretty We love 0:14:24.440 --> 0:14:27.000 talking banks and big global banks. We've seen some pretty 0:14:27.040 --> 0:14:29.880 solid numbers out of most of them. Uh, certainly the 0:14:29.960 --> 0:14:31.480 U S banks, But I want to break it down 0:14:31.480 --> 0:14:32.760 a little bit. I also want to talk about Credit 0:14:32.840 --> 0:14:37.320 Swiss my former employer, Alison Williams, senior global banks analysts. Also, 0:14:37.360 --> 0:14:39.920 what's the latest on Credit Swiss here? I mean yet 0:14:39.960 --> 0:14:43.640 another restructuring here. I kind of hear some M and 0:14:43.720 --> 0:14:47.960 A noise out there? What's the latest? Yeah, it's interesting. 0:14:48.000 --> 0:14:50.920 I mean I'm not I'm not sure why the M 0:14:50.960 --> 0:14:54.480 and A noise is surfacing today when they've you know, 0:14:54.480 --> 0:14:58.160 sort of made their announcements. They've they've already made the 0:14:58.280 --> 0:15:02.520 choice to UM dilute the current shareholders, shore of capital 0:15:02.560 --> 0:15:04.880 and sort of move on. And I think it's going 0:15:04.920 --> 0:15:08.840 to be a tough slog for the bank from here. UM. 0:15:08.920 --> 0:15:11.600 But you know, if if not now, I'm not sure 0:15:13.040 --> 0:15:15.760 when I guess if you will on on M and A. UM. 0:15:15.800 --> 0:15:18.880 I think that just given it a restructuring and things 0:15:18.920 --> 0:15:22.640 are chopping, maybe there continues to be UM noise around 0:15:22.680 --> 0:15:25.040 the bank. But I think that a lot of the 0:15:25.120 --> 0:15:29.240 rumors that sort of get circulated are UM. You know, 0:15:29.280 --> 0:15:32.080 it would be very difficult to come through fruition. So 0:15:32.320 --> 0:15:36.600 for example, credit suits combining with any other major bank, 0:15:37.400 --> 0:15:42.800 you know, there's the regulation. The regulations, especially involving crossboater 0:15:42.840 --> 0:15:47.600 regulations would really make it. Um, you know, it's not impossible, 0:15:47.760 --> 0:15:51.760 but close to that, Alison. I heard an analogy this morning, 0:15:51.840 --> 0:15:54.960 I believe I Charlie Wells over our London office, and 0:15:55.000 --> 0:15:57.080 he kind of said the way the buyers may be 0:15:57.160 --> 0:15:59.640 looking at credit sweez or potential buyers, I should say, 0:16:00.240 --> 0:16:03.240 was kind of like going into a suit shop and 0:16:03.320 --> 0:16:05.160 really just going to buy a tie, but then ending 0:16:05.240 --> 0:16:08.000 up buying the whole suit. Is that the way to 0:16:08.040 --> 0:16:11.960 think about this? I mean, I think that you're maybe 0:16:12.000 --> 0:16:15.440 one step farther than that today. Um, you know that 0:16:15.640 --> 0:16:19.040 I think that was the case. And why uh, you know, 0:16:19.120 --> 0:16:21.560 going sort of going into the announcement and so much 0:16:21.560 --> 0:16:23.600 speculation about what will they keep, what will they get 0:16:23.640 --> 0:16:25.800 rid of, what will they keep? You know? Um, but 0:16:25.920 --> 0:16:28.640 I think what what they sort of made clear is 0:16:28.680 --> 0:16:32.240 that you know, they're finally stepping away from some businesses 0:16:33.160 --> 0:16:36.720 that you know are not you know, adjacent to the chie. 0:16:36.760 --> 0:16:38.520 So you need you need a shirt and a collar 0:16:38.640 --> 0:16:40.640 to wear with the tie. Maybe the shirt is very 0:16:40.680 --> 0:16:43.240 integral with how the tide looks, but who cares about 0:16:43.280 --> 0:16:45.240 the pants? The pants are something that you wear but 0:16:45.800 --> 0:16:48.800 don't really impact how the tide looks. And so some 0:16:48.960 --> 0:16:51.160 of the businesses that they are getting rid of, the 0:16:51.280 --> 0:16:54.000 Security chie Product Group for example. You know, it's a 0:16:54.040 --> 0:16:57.640 great profitable business over time, but it tends to have 0:16:57.840 --> 0:17:03.440 its its worst performance in bad time, so that you know, always, uh, 0:17:04.080 --> 0:17:05.960 is not good to to sort of be made more 0:17:06.000 --> 0:17:08.320 that vulnerable and it really has nothing to do with 0:17:08.960 --> 0:17:13.200 their core wealth business. So you know, moving that out, 0:17:13.280 --> 0:17:16.680 moving ownership of that out. You know that it's still 0:17:16.760 --> 0:17:19.000 not finalized in terms of what the terms are going 0:17:19.080 --> 0:17:20.360 to be. I think those are kind of the things 0:17:20.359 --> 0:17:23.200 that people are waiting on, um. But I think they 0:17:23.280 --> 0:17:26.760 are you know, really trying to take a bigger step 0:17:26.800 --> 0:17:29.480 to hone the one the focus. We hear this from. 0:17:29.520 --> 0:17:31.399 You know, we've been hearing this from you know, banks 0:17:31.400 --> 0:17:34.400 like Deutsche Bank and Credit Suites for for multiple years. 0:17:34.440 --> 0:17:36.760 Deutsche Bank finally made the tough move, got rid of 0:17:36.800 --> 0:17:40.440 equities trading, focused on what they're good at, finally getting 0:17:40.480 --> 0:17:44.080 some benefit from the environment. Things are working out for them, um, 0:17:44.119 --> 0:17:47.679 you know, Credit Suites finally making some tougher choices. Like 0:17:47.720 --> 0:17:49.359 I said that the business is good, and I think 0:17:49.440 --> 0:17:51.800 that's why they didn't want to move away from it, 0:17:51.840 --> 0:17:54.640 but they really had to focus on, you know, protecting 0:17:54.720 --> 0:17:57.040 the core at this point, Alison, just real quick thirty 0:17:57.080 --> 0:18:01.040 seconds the Saudi National Bank now it's Credit Swiss as 0:18:01.040 --> 0:18:03.200 the bankrucy pushed back from the U S or Swiss 0:18:03.240 --> 0:18:07.160 governments on this. You know, there's there's obviously a lot 0:18:07.240 --> 0:18:10.680 of headlines around it. I'm not gonna go down that path, 0:18:10.920 --> 0:18:15.040 but um, you know that that's certainly something that's gotten 0:18:15.080 --> 0:18:18.760 intention in terms of who the shareholder is. Yeah, it's 0:18:18.840 --> 0:18:21.040 interesting to see how that plays out. But I guess 0:18:21.080 --> 0:18:24.600 at this point Credit Swiss needs the capital, uh and 0:18:24.640 --> 0:18:27.320 they know the Saudi National Bank. So good to get 0:18:27.359 --> 0:18:30.399 an update on Credit Swiss. Always seems to be in 0:18:30.720 --> 0:18:34.280 the in the news here today. Alison Williams, senior bank 0:18:34.320 --> 0:18:42.080 analyst for Bloomberg Intelligency is based in our Princeton office. 0:18:42.160 --> 0:18:44.919 Jolts numbers can be hire expected. We also had some 0:18:45.000 --> 0:18:46.920 ECO data coming out of the I s M kind 0:18:46.920 --> 0:18:50.240 of showing can continued I guess slow down in some 0:18:50.320 --> 0:18:54.480 of the manufacturing sector from the prior month. So all this, 0:18:54.640 --> 0:18:56.359 I guess adds up for the market saying hey, this 0:18:56.520 --> 0:18:59.520 fed you can keep raising rates. Here a little bit 0:18:59.520 --> 0:19:02.439 here to about that, So, lindsay, Pegsa. She does this 0:19:02.520 --> 0:19:06.040 for a living. She's the chief economist managing director at Stephle. 0:19:06.359 --> 0:19:09.399 So lindsay, again, some eco data today that seems to 0:19:09.400 --> 0:19:11.480 give maybe the Fed some more cover to continue to 0:19:11.560 --> 0:19:14.600 raise rates. How how do you think the next twenty 0:19:14.600 --> 0:19:16.240 four hours you're going to play out for our freed 0:19:16.280 --> 0:19:19.840 to reserve. Well, I think, as you mentioned, the decision 0:19:20.040 --> 0:19:22.640 this week is pretty much already baked into the cake, 0:19:22.800 --> 0:19:26.160 or baked into market expectations. The bigger question is how 0:19:26.200 --> 0:19:30.800 does the Fed frame the economic outlook for future policy adjustments, 0:19:30.800 --> 0:19:33.879 particularly as we come up with that final December summary 0:19:33.880 --> 0:19:38.280 of economic projections. Now, the Fed has consistently revised higher 0:19:38.320 --> 0:19:42.960 its forecast for rates and inflation by nearly two basis points, 0:19:43.200 --> 0:19:45.800 and I do expect that, given the backdrop of a 0:19:45.880 --> 0:19:48.760 still solid labor market, a five decade low in the 0:19:48.800 --> 0:19:52.320 unemployment rate, and a near four decade high and inflation, 0:19:52.720 --> 0:19:56.399 the Fed will continue to revise higher expectations beyond what 0:19:56.480 --> 0:19:59.440 the market is anticipating in terms of that terminal rate 0:19:59.480 --> 0:20:04.399 come twenty twenty three. Well, lindsay, if you're starting to 0:20:04.400 --> 0:20:06.840 see the market really hit consensus, which I want to 0:20:06.880 --> 0:20:08.960 say they did a couple of weeks ago, really, and 0:20:09.440 --> 0:20:12.520 all these investment banks are just now catching up. Cough 0:20:12.560 --> 0:20:16.159 cough Goldman. But I have to ask about why you're 0:20:16.160 --> 0:20:19.280 seeing so much bond market volatility. Then if the consensus 0:20:19.400 --> 0:20:25.520 is tomorrow fifteen December, February in March, well, it could 0:20:25.520 --> 0:20:29.720 be that the market consistently underestimates inflation. We look at 0:20:29.760 --> 0:20:32.520 the Bloomberg data and we see that forecasts are typically 0:20:32.560 --> 0:20:35.119 about fifty to even a hundred basis points below the 0:20:35.200 --> 0:20:39.320 reality of inflation. And looking right now, we're well above 0:20:39.400 --> 0:20:41.880 what the Fed anticipated would be the year end level 0:20:41.920 --> 0:20:44.359 of prices, and even further above, of course, the FEDS 0:20:44.400 --> 0:20:47.719 two target range. So it may be that the market 0:20:47.800 --> 0:20:50.600 is more looking at what it hopes to happen as 0:20:50.600 --> 0:20:53.200 opposed to what the Fed will need to do to 0:20:53.400 --> 0:20:56.719 realistically rain in price pressures, which, if we take the 0:20:56.720 --> 0:20:59.680