WEBVTT - Surveillance: Fed Signal with Betsy Duke 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.080 --> 0:00:31.480 This is a joy. 0:00:31.280 --> 0:00:34.159 Because this is the person to lean forward to on 0:00:34.320 --> 0:00:37.960 small banks and the Federal Reserve System of America. Elizabeth 0:00:38.000 --> 0:00:40.920 Duke is a former governor. She is a former chair 0:00:41.000 --> 0:00:44.040 Wells Fargo, and far more importantly, in the middle Ladies 0:00:44.880 --> 0:00:48.400 was at the Bank of Tidewater. We welcome the gentle 0:00:48.440 --> 0:00:52.680 lady from the Bank of Tidewater as well. Betsy, you lived, 0:00:53.000 --> 0:00:58.160 you live the eighties banking crisis. Is there an analog here? 0:00:58.400 --> 0:01:01.800 Is there a similarity to what you and Isaac and 0:01:01.920 --> 0:01:03.120 McTeer went through. 0:01:04.520 --> 0:01:06.880 So I think the situation with the banks today is 0:01:06.959 --> 0:01:10.080 much more similar to the savings and loan crisis than 0:01:10.120 --> 0:01:12.480 it is to what happened in two thousand and eight. 0:01:12.640 --> 0:01:15.520 So I think that's a good analogy. But I don't 0:01:15.560 --> 0:01:19.000 see it getting nearly that bad. The savings and loan 0:01:19.040 --> 0:01:23.440 industry got caught flat footed because prior to that, deposit 0:01:23.520 --> 0:01:28.480 rates had been capped, so and their business model was 0:01:28.520 --> 0:01:31.759 to make long term mortgage loans. So when the cap 0:01:31.800 --> 0:01:34.560 came off of interest rates and vulkars started raising rates, 0:01:35.000 --> 0:01:38.680 the savings and loans ended up upside down. Those that 0:01:41.440 --> 0:01:44.040 so some of them had an earnings problem. Others decided 0:01:44.040 --> 0:01:46.399 they would solve the earnings problem by going out and 0:01:46.440 --> 0:01:50.520 loading up on high interest rate commercial real estate mortgages, 0:01:50.760 --> 0:01:52.960 and they ended up with a credit problem. I just 0:01:53.040 --> 0:01:55.920 don't think it's that widespread in the banking industry today. 0:01:56.160 --> 0:01:57.960 So Bett, did you agree with what we heard from 0:01:58.040 --> 0:02:00.960 Richard Kaplan that this is just the beginning and that 0:02:01.000 --> 0:02:03.080 there is going to be significantly more distressed or do 0:02:03.080 --> 0:02:04.400 you think that it's more nuanced than that. 0:02:05.080 --> 0:02:06.720 I think it's much calmer than that. 0:02:06.800 --> 0:02:07.240 Actually. 0:02:07.600 --> 0:02:10.720 I think what happened with Silicon Valley and with Signature 0:02:11.280 --> 0:02:14.200 is that the FDIC and the regulators got caught flat footed. 0:02:14.280 --> 0:02:17.560 They just weren't expecting it, but they have recovered. I 0:02:17.600 --> 0:02:21.040 think really well, if you look at First Republic over 0:02:21.080 --> 0:02:24.120 this weekend, that except for the size that was business 0:02:24.120 --> 0:02:26.760 as normal for the FDIC. 0:02:27.000 --> 0:02:28.960 At this point, Betsy, do you think that the risk 0:02:29.280 --> 0:02:32.560 for the FED is not moving enough, not hiking enough, 0:02:32.720 --> 0:02:35.400 or perhaps discounting some of the weakness That could just 0:02:35.440 --> 0:02:37.960 be the beginning of what we will continue to see 0:02:37.960 --> 0:02:39.320 with the lag effects taking hold. 0:02:40.320 --> 0:02:42.160 So I think, first of all, I think the FED 0:02:42.200 --> 0:02:45.320 has a better sense of what's going on within the 0:02:45.360 --> 0:02:47.880 banking industry, so they have a better sense of how 0:02:47.919 --> 0:02:52.960 many potential concerns there are out there. But the bigger 0:02:53.000 --> 0:02:56.480 issue for the FED has been convincing markets that they're 0:02:56.520 --> 0:02:59.600 serious about inflation, that for and a half percent inflation 0:03:00.160 --> 0:03:03.799 is not acceptable, And so I think the Fed has 0:03:03.840 --> 0:03:08.120 to be careful not to signal any any movement toward 0:03:09.440 --> 0:03:12.040 this this ray cut that the markets are expecting that 0:03:12.040 --> 0:03:14.440 the Fed continues to say they don't see. 0:03:14.600 --> 0:03:17.280 Betsy, always wonderful to hear from you, particularly given your 0:03:17.320 --> 0:03:20.080 experience of the Federal Reserve. Next week, we've all been 0:03:20.120 --> 0:03:23.800 waiting for this release of the Senior Loan Officer Opinion Survey. Betsy, 0:03:23.840 --> 0:03:26.440 when you're on the FED, do you have advanced information 0:03:26.480 --> 0:03:29.440 of what is in that report? Will they know basically 0:03:29.520 --> 0:03:31.880 what's going to be released next week when they meet today. 0:03:33.880 --> 0:03:36.080 I don't if it's a week from today, I don't 0:03:36.120 --> 0:03:39.560 think they'll have it today. But the sluice is a 0:03:39.800 --> 0:03:43.800 very very soft data point. It sort of tells you, 0:03:43.800 --> 0:03:46.840 you know, directional, but it doesn't give you any hint 0:03:46.880 --> 0:03:53.960 on magnitude. So I think it will give them some information, 0:03:54.120 --> 0:03:56.920 but I'm not sure that will be enough information. I've 0:03:57.040 --> 0:04:01.600 seen any clear signal yet that of credit is doing 0:04:01.640 --> 0:04:02.800 any of the Fed's work for it. 0:04:02.920 --> 0:04:07.800 What would you look for that signal? Then, Betsy, start. 0:04:07.560 --> 0:04:11.000 To look for it in consumer credit tightening up possibly, 0:04:12.280 --> 0:04:15.520 and particularly some of these lenders to consumer credits, so 0:04:15.960 --> 0:04:20.680 the FinTechs or the non bank mortgage companies. If you 0:04:20.720 --> 0:04:23.640 start seeing stress in those companies, that's where I'd looked 0:04:23.680 --> 0:04:23.960 for it. 0:04:24.360 --> 0:04:24.720 Betsy. 0:04:24.760 --> 0:04:27.200 There's a bank out there called the Bailey Building and 0:04:27.279 --> 0:04:30.479 Loan and it was something you and I studied carefully. 0:04:30.680 --> 0:04:32.560 I think you were at Old Dominion when you studied 0:04:32.560 --> 0:04:35.840 the Bailey Building and Loan from It's a Wonderful Life. 0:04:35.920 --> 0:04:40.719 They didn't have cell phone, Betsy, yourself, No, well, yeah, 0:04:40.760 --> 0:04:42.279 that's true. I'm talking about myself. 0:04:42.279 --> 0:04:46.840 But the answer, Governor's the basic idea here is they 0:04:46.839 --> 0:04:49.599 didn't have cell phones in their hand. How does the 0:04:49.640 --> 0:04:53.000 behavior of the Bank of Tide Waters of twenty twenty 0:04:53.080 --> 0:04:56.839 three change given the digital media you didn't have to 0:04:56.880 --> 0:04:58.919 live with that. 0:05:00.080 --> 0:05:02.359 The panic is still the same thing. And if you 0:05:02.400 --> 0:05:05.120 go back to the savings and loan crisis, before one 0:05:05.160 --> 0:05:08.440 of those institutions closed, it was pretty well telegraphed that 0:05:08.440 --> 0:05:11.760 that was an institution that was in trouble. We took 0:05:11.800 --> 0:05:15.400 over some branches from a failed thrift, and it was 0:05:15.440 --> 0:05:17.920 remarkable to me that some of the uninsured deposits had 0:05:17.960 --> 0:05:22.000 actually stayed, even though it was pretty obvious for years 0:05:22.320 --> 0:05:26.320 that the institution was in trouble. So the smaller banks, 0:05:26.360 --> 0:05:29.640 their deposits are really pretty sticky. And what's happened as 0:05:29.680 --> 0:05:34.360 the FED expanded its balance sheet overall, bank deposits grew enormously, 0:05:34.600 --> 0:05:37.880 grew much faster than loan demand, and so banks were 0:05:37.920 --> 0:05:41.280 stuck trying to balance excess deposits. What you're seeing now. 0:05:41.320 --> 0:05:43.920 A lot of what you're seeing now is the natural flow, 0:05:44.120 --> 0:05:48.400 although it's happening quickly back from bank deposits into money 0:05:48.400 --> 0:05:49.599 market funds and that sort of thing. 0:05:49.680 --> 0:05:51.680 Ben see what of our themes on the show today 0:05:52.000 --> 0:05:54.919 led by John Ferrell, the gentleman from Britain who was 0:05:55.000 --> 0:05:56.800 stunned at the political. 0:05:56.240 --> 0:05:58.880 Input and not stunned in the federal reserve system. 0:05:58.960 --> 0:06:03.000 Not stunned, don't mischaracterize excuse, We're not stunned. I think 0:06:03.000 --> 0:06:04.000 it's irresponsible. 0:06:04.400 --> 0:06:09.200 Okay, well, let's talk about the irresponsibility here in green Span. 0:06:09.279 --> 0:06:11.560 We are looking at which SANDWICHI who was eating on 0:06:11.640 --> 0:06:15.719 FED Day. Now we've got politicians of both persuasions weighing in, 0:06:16.240 --> 0:06:18.680 should they now? 0:06:18.720 --> 0:06:24.720 The FED has always been just absolutely resolutely non political, 0:06:26.279 --> 0:06:29.560 but the political forces are always out there with opinions 0:06:29.560 --> 0:06:31.560 on what the FED should do, whether it be in 0:06:31.640 --> 0:06:37.640 supervision or regulation or monetary policy. I think the political 0:06:39.360 --> 0:06:43.080 environment has more to do with the regulatory and supervisory 0:06:43.080 --> 0:06:46.159 policy and how they react than it does monetary policy. 0:06:46.520 --> 0:06:50.719 I've never seen any in my experience with the FED, 0:06:50.800 --> 0:06:54.200 any reaction to political pressure on the monetary policy side. 0:06:54.320 --> 0:06:56.360 Bessie Tug, thank you. It's going to catch up with 0:06:56.400 --> 0:06:58.080 you as always. Let's do this again. 0:07:02.000 --> 0:07:02.400 Right now. 0:07:02.480 --> 0:07:05.320 Bruce Casman joins us with JP Morgan, the chief econdoms. 0:07:05.520 --> 0:07:07.760 Bruce, I want to go larger with you right now, as. 0:07:07.680 --> 0:07:11.560 Your mandate of your wonderful Weekly Prospects. On Friday, the 0:07:11.600 --> 0:07:16.440 IMF stunned with a five year view of tepid global growth. 0:07:16.640 --> 0:07:20.880 The fact is, moments ago, West Texas Intermedia, the banner 0:07:20.880 --> 0:07:22.960 I have is sixty nine point six to zero, and 0:07:23.040 --> 0:07:26.480 right now we're already at sixty nine point five seven. 0:07:27.000 --> 0:07:27.520 Is oil? 0:07:27.720 --> 0:07:31.600 One of the one metrics leading us to a global slowdown? 0:07:31.720 --> 0:07:33.080 Is the IMF called for. 0:07:35.000 --> 0:07:39.080 I don't think right now oil, given everything that's happening geopolitically, 0:07:39.160 --> 0:07:41.360 given how the market is segmented, I don't think it's 0:07:41.400 --> 0:07:43.840 telling you very much about growth directly. 0:07:44.640 --> 0:07:45.760 I'll put more weight on. 0:07:45.720 --> 0:07:48.240 What we're seeing in terms of the survey data, the 0:07:48.280 --> 0:07:51.760 high frequency indicators. It's telling us that the US is 0:07:51.800 --> 0:07:54.160 pretty sluggish here and is probably lagging the rest of 0:07:54.160 --> 0:07:57.160 the world. But global growth is actually picking up as 0:07:57.160 --> 0:07:59.520 we move through the first quarter and into the second, 0:07:59.680 --> 0:08:02.760 with China and Western Europe doing quite well. 0:08:03.000 --> 0:08:03.200 Well. 0:08:03.480 --> 0:08:04.200 Versus is critical. 0:08:04.240 --> 0:08:06.000 I'm going to rip up the scripture that Lisa and 0:08:06.080 --> 0:08:08.320 John Kerry the weight on the FED and all that's 0:08:08.360 --> 0:08:12.679 going on today, reaffirmed the JP Morgan call on China 0:08:13.120 --> 0:08:14.320 twelve months forward. 0:08:14.560 --> 0:08:18.520 There's some doubt about the Chinese economic expansion. Do you agree? 0:08:19.280 --> 0:08:21.520 Well, I think there's plenty of doubt about where China 0:08:21.600 --> 0:08:23.120 is going to be over the medium term, but I 0:08:23.120 --> 0:08:25.280 don't think there should be much doubt about the fact 0:08:25.320 --> 0:08:27.840 that this is an economy, that it's reopening, that it's 0:08:27.840 --> 0:08:31.040 got very depressed levels of activity, and that it's got 0:08:31.040 --> 0:08:35.880 policy makers which I wouldn't call supportive, but they're definitely 0:08:35.920 --> 0:08:39.400 moving away from what had been quite restrictive policies last year. 0:08:39.440 --> 0:08:41.079 I think we're going to see about six and a 0:08:41.080 --> 0:08:44.120 half percent China GDP growth this year. At some point 0:08:44.160 --> 0:08:45.680 that's going to fade, but I don't think it's going 0:08:45.720 --> 0:08:48.440 to fade till some time later this year, and we 0:08:48.520 --> 0:08:50.600 still have quite a few months here of China strength 0:08:50.600 --> 0:08:51.160 ahead of us. 0:08:51.320 --> 0:08:53.920 Bruce, let's get back to the topic and the Federal 0:08:53.920 --> 0:08:55.880 Reserve a little bit later. The language and their statement 0:08:55.920 --> 0:08:58.680 from their last meeting, the committee anticipates that some additional 0:08:58.679 --> 0:09:02.000 policy firming maybe appropriate. We're going to get that additional 0:09:02.000 --> 0:09:05.160 policy firming today. How do you expect the language it's 0:09:05.200 --> 0:09:07.040 going to change? If you expect it to change at 0:09:07.080 --> 0:09:09.360 all in this statement, I. 0:09:09.360 --> 0:09:11.760 Think it's going to change to be more equivocal. Instead 0:09:11.760 --> 0:09:14.880 of talking about some additional policy firming, I think they'll 0:09:14.880 --> 0:09:20.440 talk about any additional firming will be dependent upon, and 0:09:20.480 --> 0:09:23.760 then talk about both the economic conditions as well as 0:09:24.080 --> 0:09:26.599 its assessment of financial conditions. So it's going to be 0:09:26.600 --> 0:09:30.440 an equivocal hawkish bias. It's not going to point directly 0:09:30.520 --> 0:09:33.280 to tightening. It's going to keep the conversation though on 0:09:33.320 --> 0:09:34.640 the possibility of tightening. 0:09:34.880 --> 0:09:36.400 Do we have a sense of the balance of risks 0:09:36.480 --> 0:09:40.280 right now, Bruce, in terms of inflation reaccelerating versus a 0:09:40.280 --> 0:09:43.199 financial market crash or just an economic crash with like 0:09:43.240 --> 0:09:46.280 effects just starting in the regional banks being the opening salvo. 0:09:47.320 --> 0:09:49.600 So, as you noted, there's a lot of risk here. 0:09:49.679 --> 0:09:52.960 There's inflation which is still elevated and is showing quite 0:09:52.960 --> 0:09:56.760 a bit of persistence. There is stress in the financial system. 0:09:57.640 --> 0:09:59.559 And I think we should put also in the mix 0:09:59.679 --> 0:10:02.640 is that everything that we see is telling us that 0:10:02.679 --> 0:10:06.240 we have a pretty underlying strong private sector here. This 0:10:06.320 --> 0:10:08.880 is not a private sector which is fragile, and the 0:10:09.360 --> 0:10:13.199 way these things interact is going to be very. 0:10:12.360 --> 0:10:13.360 Interesting to see. 0:10:13.400 --> 0:10:15.280 From our own point of view, we think the economy 0:10:15.320 --> 0:10:18.320 is less likely to slide into recession. In the near term, 0:10:18.559 --> 0:10:21.200 we think inflation is not going to come down, and 0:10:21.240 --> 0:10:22.800 we think the FEDE is going to pause in the 0:10:22.840 --> 0:10:26.240 face of these uncertainties, and how that plays out six 0:10:26.280 --> 0:10:29.480 months from now becomes really an interesting story. We do 0:10:29.520 --> 0:10:32.720 think the credit drag will be material and start to build, 0:10:33.000 --> 0:10:34.800 but we don't think inflation is going to come down 0:10:34.840 --> 0:10:37.960 by itself. So the case for FEDE easing here anytime 0:10:38.000 --> 0:10:40.040 in the near term, I think is not that strong. 0:10:40.280 --> 0:10:42.440 But put aside the easing for a second, even just 0:10:42.480 --> 0:10:45.320 staying with rates above five percent, there is a question 0:10:45.360 --> 0:10:47.160 at a time when you see the job openings come 0:10:47.200 --> 0:10:49.280 down at a record pace, when you see this idea 0:10:49.760 --> 0:10:53.400 of smaller banks that are facing an existential threat, as 0:10:53.440 --> 0:10:55.679 people try to game out what that credit stress will 0:10:55.720 --> 0:10:58.920 look like, how do you get the sense that inflation 0:10:59.160 --> 0:11:00.480 is still the pre eminent concern. 0:11:01.600 --> 0:11:03.960 Well, obviously it's not a preeminent concern that the FED 0:11:04.040 --> 0:11:06.160 is going to be pausing with run rates on inflation 0:11:06.240 --> 0:11:08.760 well above four percent. So I think what you're seeing 0:11:08.760 --> 0:11:10.880 from a FED and what you'll see today is a 0:11:10.920 --> 0:11:13.720 FED that is worried about inflation, but is balancing it 0:11:13.760 --> 0:11:17.800 against the backdrop of concerns about financial stability, as well as, 0:11:17.840 --> 0:11:20.600 of course the idea that it's moved a lot very 0:11:20.640 --> 0:11:23.320 fast and it may be desirable to take a pause. 0:11:23.360 --> 0:11:26.400 This is not a FED that is focused entirely on inflation. 0:11:26.520 --> 0:11:30.160 Far from it, perst I see compare and contrast to 0:11:30.240 --> 0:11:32.720 two thousand and eight. Last night I saw an inflation 0:11:32.840 --> 0:11:37.080 adjusted bar chart of the Washington Mutual and Company dibaccle 0:11:37.120 --> 0:11:40.240 of two thousand and eight inflation adjusted out to the 0:11:40.360 --> 0:11:44.200 number of banks we've seen recently that are troubled as well. 0:11:44.600 --> 0:11:47.360 When does the FED blink? I mean, how far does 0:11:47.360 --> 0:11:52.160 that barchart have to grow up for twenty twenty three before? 0:11:52.280 --> 0:11:54.840 When the facts change I change at the FED. 0:11:55.840 --> 0:11:58.280 Well, let's just say, first of all, the FED has blinked. 0:11:58.960 --> 0:12:03.120 Powell at his Congression testimony talked about raising the terminal 0:12:03.200 --> 0:12:05.800 rates significantly. They didn't do that. 0:12:05.920 --> 0:12:07.559 They're now moving towards a pause. 0:12:07.600 --> 0:12:10.480 I think we've gotten a shift of about fifty basis 0:12:10.520 --> 0:12:13.080 points from the FED in terms of guidance here, which 0:12:13.280 --> 0:12:15.800 isn't based on what we're seeing in the economic data. 0:12:15.840 --> 0:12:17.960 So I think the FED has shifted. I think to 0:12:18.000 --> 0:12:20.960 get the FED to think about easing in an environment 0:12:21.000 --> 0:12:23.480 where inflation is as strong. We need to see growth 0:12:23.520 --> 0:12:26.760 break or we need to see a generalized financial crisis 0:12:26.760 --> 0:12:28.960 take place, neither of which do we think is going 0:12:29.000 --> 0:12:30.120 to happen anytime soon. 0:12:30.679 --> 0:12:34.080 I'll take your point verus on a generalized financial crisis 0:12:34.080 --> 0:12:36.480 and we don't see that. But to go back to 0:12:36.559 --> 0:12:41.000 Maynard Kanes, when the facts change, the FED will change. 0:12:41.200 --> 0:12:43.040 How close are we to. 0:12:42.800 --> 0:12:47.200 That, given FDIC, given Senator Warren and all the other 0:12:47.240 --> 0:12:50.600 distractions of today. There's a point here where Vice Chairman 0:12:50.679 --> 0:12:53.520 bar says to Chairman Powell, we've got. 0:12:53.320 --> 0:12:56.839 A problem, right, and I think we're seeing the FED 0:12:56.920 --> 0:12:59.560 operate on its liquidity facilities. I think we're seeing the 0:12:59.600 --> 0:13:03.240 FED move to a pause an environment which they otherwise wouldn't. 0:13:03.600 --> 0:13:05.920 The question you're asking is is the FED going to 0:13:06.040 --> 0:13:11.000 preemptively ease without the economy having shown that damage. I 0:13:11.040 --> 0:13:13.360 would also just note here that in terms of the 0:13:13.400 --> 0:13:17.079 way financial markets are functioning more broadly, they're still functioning 0:13:17.160 --> 0:13:19.760 quite healthy. There's a lot of credit being issued in 0:13:19.760 --> 0:13:22.240 the market, there's a lot of private funds of equity. 0:13:22.679 --> 0:13:25.000 We're not seeing spillovers to the dollar and the rest 0:13:25.000 --> 0:13:28.640 of the world. I think we have a significant risk here, 0:13:28.679 --> 0:13:30.960 and I don't want to ignore that risk, but I 0:13:30.960 --> 0:13:32.920 think you're in a need to see that risk realized 0:13:32.920 --> 0:13:35.600 in a far more tangible way before you get to 0:13:35.640 --> 0:13:37.880 talk about the FED actually easing here. Of course, if 0:13:37.880 --> 0:13:40.240 the economy breaks and we're sitting here on Friday with 0:13:40.280 --> 0:13:43.920 a negative payroll report will change the conversation. But I 0:13:43.960 --> 0:13:46.360 don't think that's the I don't think that's the likely 0:13:46.679 --> 0:13:48.640 path we're going to see in the economic data. 0:13:48.760 --> 0:13:52.160 Hi, Bryce credit cans Shall we quote it? Said Chris Casman. 0:14:03.400 --> 0:14:03.719 Right now? 0:14:03.760 --> 0:14:06.880 And this is a joy David Chevarini who's been doing 0:14:06.960 --> 0:14:09.480 bank analysis and he's one of the few people out 0:14:09.520 --> 0:14:13.240 there at webbush who's not only looked at bank analysis, 0:14:13.280 --> 0:14:16.800 brought it over to the new technology of bank analysis, 0:14:16.960 --> 0:14:19.600 quite expert to talk about these names, particularly on the 0:14:19.600 --> 0:14:22.200 West coast, new to so many of us on the 0:14:22.240 --> 0:14:25.000 East coast. David, welcome to the show. And my answer 0:14:25.040 --> 0:14:27.080 here is I love in your research note you talk 0:14:27.120 --> 0:14:33.360 about rebounding deposits. Do you have deposit dynamic visibility on 0:14:33.480 --> 0:14:34.720 these smaller banks? 0:14:34.720 --> 0:14:36.760 Do you know what's going on or is it a mystery? 0:14:38.440 --> 0:14:42.600 Yeah, so it's a little bit of a rebound from 0:14:42.640 --> 0:14:45.360 the standpoint of a lot of depositors that were spooked 0:14:45.560 --> 0:14:48.800 in early March have come back to a few of 0:14:48.880 --> 0:14:51.360 these banks, and Western Alliance is the one that has 0:14:51.880 --> 0:14:57.800 seen the biggest rebound of deposits post quoter end, where 0:14:57.840 --> 0:15:01.360 they had seen six billion of deposits outflow, and then 0:15:01.400 --> 0:15:05.680 they've since rebounded by about two billion, so a third 0:15:05.720 --> 0:15:07.960 of those deposits have come back, and I think it's 0:15:08.360 --> 0:15:11.640 a bit of handholding of their customer base to bring 0:15:11.680 --> 0:15:13.880 them back in. And then the other thing that they've 0:15:13.920 --> 0:15:17.920 done is that they've increased the amount of insured deposits 0:15:18.320 --> 0:15:20.960 on their balance sheet and they're using a service called 0:15:21.360 --> 0:15:26.640 insured cash Sweep deposits. So basically it's a way it's 0:15:26.640 --> 0:15:30.720 a network of banks that basically can swap deposits to 0:15:31.000 --> 0:15:34.920 increase the level of insurance within their interestity. 0:15:34.960 --> 0:15:37.200 Interesting, David, I look at this and the zeitgeist this 0:15:37.280 --> 0:15:39.680 morning is clearly to the shorts. It's like George Soros 0:15:39.680 --> 0:15:43.880 and Drunken Miller nineteen ninety two with a Bank of England. 0:15:44.040 --> 0:15:46.440 The shorts are jumping from bank to bank to bank 0:15:46.800 --> 0:15:49.480 and all of your experience, is there a way that 0:15:49.640 --> 0:15:54.080 management can adapt to push against short selling within their institution. 0:15:55.960 --> 0:15:59.160 Yeah, there's not much you can do other than execute 0:15:59.480 --> 0:16:02.600 on your business plan, because it seems as if, you know, 0:16:02.760 --> 0:16:06.240 one approach would be okay, put out more information, put 0:16:06.280 --> 0:16:09.800 out more data to try and ease concerns. But many 0:16:09.840 --> 0:16:12.800 times that backfires, and we saw that happen, you know, 0:16:12.960 --> 0:16:16.160 just last March, because then investors start to think if 0:16:16.160 --> 0:16:19.640 a bank management is coming out to defend their numbers, 0:16:19.960 --> 0:16:23.640 then investors may think that there is an underlying problem. 0:16:23.840 --> 0:16:26.600 So I would say, you know, management teams ought to 0:16:26.640 --> 0:16:30.280 just execute on the business strategy, talk to their depositors, 0:16:30.760 --> 0:16:33.960 keep them calm, and then let the numbers play themselves 0:16:34.000 --> 0:16:37.720 out later on, and then take initiative like Western Alliance 0:16:37.720 --> 0:16:40.960 has done, like PacWest has done, to increase the level 0:16:41.000 --> 0:16:45.080 of insured deposits within the banks to lend some stability 0:16:45.120 --> 0:16:46.280 to the whole platform. 0:16:46.320 --> 0:16:48.640 But David, this is no longer a crisis of confidence 0:16:48.800 --> 0:16:51.040 with respect to whether you're going to get your money back. 0:16:51.080 --> 0:16:53.800 It's also just people moving their money to places that 0:16:53.880 --> 0:16:56.520 yield more the where they can get more return, and 0:16:56.560 --> 0:16:58.120 we can see that from some of these banks that 0:16:58.200 --> 0:17:00.760 have to offer significantly higher rates and say the JP 0:17:00.880 --> 0:17:03.120 Mortgans of the world in order to get people into 0:17:03.200 --> 0:17:07.640 their CDs. Does this create an existential crisis for banks 0:17:07.840 --> 0:17:10.879 that now are facing an incredible disadvantage in terms of 0:17:10.880 --> 0:17:12.879 funding costs and landing capabilities. 0:17:14.280 --> 0:17:17.320 Yeah, I would agree with that, And our overarching kind 0:17:17.359 --> 0:17:20.960 of theme for the group is caution. We did a 0:17:21.040 --> 0:17:24.360 bulk downgrade in June of twenty twenty two for exactly 0:17:24.400 --> 0:17:27.160 the reasons that you just brought up, and so we 0:17:27.240 --> 0:17:30.880 are expecting that interest margin pressure to continue to weigh 0:17:30.960 --> 0:17:31.440 on the group. 0:17:31.520 --> 0:17:31.680 Now. 0:17:31.720 --> 0:17:36.080 We did see this stability and the immediate aftermath of 0:17:36.680 --> 0:17:39.160 SVB going down signature bank going down, but I think 0:17:39.160 --> 0:17:41.840 the narrative is going to shift back to what you 0:17:42.000 --> 0:17:45.520 just mentioned about funding pressures as well as credit quality, 0:17:45.640 --> 0:17:49.080 because we are seeing that the FED is likely to 0:17:49.200 --> 0:17:52.320 have another height today and that's ultimately going to result 0:17:52.320 --> 0:17:55.280 in a slowing economy and rising credit costs. So we 0:17:55.359 --> 0:17:58.760 do remain cautious overall for the group. We do highlight 0:17:59.000 --> 0:18:01.239 a few names that we that we like on a 0:18:01.280 --> 0:18:04.160 relative basis, but unfortunately, we do think that the group 0:18:04.200 --> 0:18:06.080 is going to be under some pressure over the next 0:18:06.080 --> 0:18:07.199 twelve to eighteen months. 0:18:07.359 --> 0:18:11.359 We heard from fallas former FED president of the Dallas 0:18:11.400 --> 0:18:15.200 Fudger Reserve Kaplan overnight, and he was talking about how 0:18:15.240 --> 0:18:18.640 he expects this to become a really significant problem for 0:18:18.680 --> 0:18:21.760 the regional banks. How much are you expecting an SNL 0:18:21.880 --> 0:18:26.480 like consolidation in this system, regardless of whether it's systemic 0:18:26.560 --> 0:18:28.480 or not, just that we're going to see tie ups 0:18:28.600 --> 0:18:30.359 unlike what we've seen in forty years. 0:18:31.640 --> 0:18:36.160 I don't think it'll be as bad as the SNL crisis, 0:18:36.720 --> 0:18:40.040 but I do expect consolidation to occur. And I think 0:18:40.040 --> 0:18:44.000 that the FED would react much more quickly if things 0:18:44.119 --> 0:18:47.520 did start to get so extreme that it could start 0:18:47.560 --> 0:18:50.160 looking like an SMNL crisis. And what I mean by 0:18:50.160 --> 0:18:53.200 that is the FED would probably look to pivot quickly 0:18:53.359 --> 0:18:57.080 and kind of cast aside their inflation target and really 0:18:57.119 --> 0:19:01.440 bring down rates to stem it. There is potential if 0:19:01.440 --> 0:19:04.600 the FED did not pivot, there is potential to see, 0:19:04.760 --> 0:19:06.439 you know, a crisis truly developed. 0:19:06.640 --> 0:19:08.840 Hold on a second, that's significance. You're saying that if 0:19:08.880 --> 0:19:11.480 we see more banks go out of business, that this 0:19:11.560 --> 0:19:13.879 Federal Reserve will just do a one to eighty and 0:19:13.920 --> 0:19:16.920 start cutting rates, regardless of whether inflations actually come down. 0:19:18.240 --> 0:19:21.359 I would think so you know, my base case is 0:19:21.400 --> 0:19:23.960 that we've seen all of the banks that are going 0:19:24.000 --> 0:19:27.399 to go under have gone under. But if by chance, 0:19:27.480 --> 0:19:30.320 we do start to see a domino effect start to 0:19:30.359 --> 0:19:33.880 occur and instead of four banks going under, we have 0:19:34.119 --> 0:19:36.560 you know, ten banks going under, and I think the 0:19:36.560 --> 0:19:39.240 FED would have no choice but two but to pivot. 0:19:40.640 --> 0:19:43.400 John from work emails in David and he says, ask 0:19:43.480 --> 0:19:45.479 him what your single best buy is? I mean, come on, 0:19:45.560 --> 0:19:48.280 this is the ultimate straw hats and winters. What's a 0:19:48.440 --> 0:19:51.920 Chevalini single best buy in this banking disaster? 0:19:53.200 --> 0:19:53.400 Yeah. 0:19:53.480 --> 0:19:57.520 So one bank that got a sweetheart deal through this crisis, 0:19:57.600 --> 0:20:01.080 New York Community Bank. You know, they acquire certain assets 0:20:01.119 --> 0:20:05.040 and deposits from Signature Bank, and that puts them in 0:20:05.160 --> 0:20:09.200 really good position to grow their balance sheet, to really 0:20:09.760 --> 0:20:13.359 cross sell into that deposit base and really generate good 0:20:13.400 --> 0:20:17.560 earning seccretion. We're expecting twenty percent secretion from that, and 0:20:17.600 --> 0:20:19.399 tangible book value accretion. 0:20:19.160 --> 0:20:19.800 Was a bit better. 0:20:19.840 --> 0:20:22.200 So New York Community Bank is one that we put 0:20:22.200 --> 0:20:24.159 on the best ideas less recently. 0:20:23.960 --> 0:20:31.199 David Shevarini with us with Webbush joining us now on 0:20:31.320 --> 0:20:35.160 oil and rita'son co founder director or research and energy aspects. 0:20:35.200 --> 0:20:37.920 I get the girl slowdown story or Marita, I want 0:20:37.920 --> 0:20:40.960 to go to a British phrase elasticity, which I can't stand. 0:20:40.960 --> 0:20:44.200 Americans are like, say what, And the answer is, I'm 0:20:44.200 --> 0:20:49.639 going to use responsiveness. What is the responsiveness of oil 0:20:49.840 --> 0:20:54.640 to a China slowdown? I mean, in a global slowdown? 0:20:54.720 --> 0:20:58.840 A stag part of this debate, what is the responsiveness 0:20:59.119 --> 0:20:59.960 of oil demand? 0:21:00.040 --> 0:21:05.880 And I mean, obviously tom oil demand is driven by 0:21:05.920 --> 0:21:09.639 economic growth, So in China in particular has been the 0:21:09.680 --> 0:21:12.760