1 00:00:00,120 --> 00:00:04,360 Speaker 1: Bloomberg is now on your dashboard with Apple CarPlay and 2 00:00:04,360 --> 00:00:08,160 Speaker 1: Android Auto. It gives you access to every Bloomberg podcast, 3 00:00:08,280 --> 00:00:11,560 Speaker 1: live audio feeds from Bloomberg Radio, print stories from Bloomberg 4 00:00:11,640 --> 00:00:14,920 Speaker 1: News in audio form, and the latest headlines of the 5 00:00:14,920 --> 00:00:18,600 Speaker 1: click of a button with Bloomberg News. Now it's free 6 00:00:18,680 --> 00:00:21,439 Speaker 1: with the latest version of the Bloomberg Business App. That's 7 00:00:21,680 --> 00:00:24,400 Speaker 1: the Bloomberg Business App. Get it on your phone in 8 00:00:24,440 --> 00:00:27,760 Speaker 1: the Apple App Store or on Google Play. Just download 9 00:00:27,800 --> 00:00:30,560 Speaker 1: the app, connect your phone to your car and get started. 10 00:00:30,960 --> 00:00:34,400 Speaker 1: And it's all presented by our sponsor, Interactive Brokers. 11 00:00:35,400 --> 00:00:38,600 Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 12 00:00:38,640 --> 00:00:39,800 Speaker 2: my co host Matt Miller. 13 00:00:40,200 --> 00:00:44,279 Speaker 1: Every business day we bring you interviews from CEOs, market pros, 14 00:00:44,320 --> 00:00:48,200 Speaker 1: and Bloomberg experts, along with essential market movin news. 15 00:00:48,720 --> 00:00:51,839 Speaker 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever 16 00:00:51,960 --> 00:00:55,080 Speaker 2: you listen to podcasts, and at Bloomberg dot com Slash podcast. 17 00:00:55,560 --> 00:00:58,880 Speaker 2: It's Thursday, so Sunday, you know, Merger Monday. But there's 18 00:00:58,920 --> 00:01:03,320 Speaker 2: a trade out there in the shale business and we've 19 00:01:03,360 --> 00:01:07,200 Speaker 2: seen a lot of consolidation in the patch out there 20 00:01:07,319 --> 00:01:09,840 Speaker 2: in really the last couple of years, and we have 21 00:01:09,880 --> 00:01:13,800 Speaker 2: another deal here APA to buy shale oil driller calland 22 00:01:13,840 --> 00:01:16,759 Speaker 2: Petroleum for four point five billion dollars. And we want 23 00:01:16,800 --> 00:01:21,399 Speaker 2: to talk shale. We talk with Vince Piazza. He is 24 00:01:21,480 --> 00:01:24,480 Speaker 2: our energy analysts for Bloomberg Intelligence. Hey, Vince, I know 25 00:01:24,520 --> 00:01:28,080 Speaker 2: you've been busy recently kind of parsing through all these 26 00:01:28,240 --> 00:01:31,560 Speaker 2: M and A trades in the shale patch here in 27 00:01:31,600 --> 00:01:34,560 Speaker 2: the US. Talk to us about what APA is. What 28 00:01:34,680 --> 00:01:38,920 Speaker 2: is APA doing here with this acquisition of Calent Petroleum. 29 00:01:39,080 --> 00:01:42,080 Speaker 3: Yeah, well, look in the Permian, Paul, and by the way, Paul, 30 00:01:42,360 --> 00:01:46,240 Speaker 3: happy new here to you and yours. What we have 31 00:01:46,440 --> 00:01:53,480 Speaker 3: here is a jump ball for acreage in the Permian. 32 00:01:53,720 --> 00:01:58,720 Speaker 3: And we've seen this across several years. It paused and 33 00:01:58,760 --> 00:02:02,680 Speaker 3: then kicked up again most recently. But this is really 34 00:02:02,720 --> 00:02:08,280 Speaker 3: about larger players looking to gain scale and smaller players 35 00:02:08,600 --> 00:02:11,959 Speaker 3: looking at the environment in front of them. With higher 36 00:02:12,040 --> 00:02:16,480 Speaker 3: rates and big guys getting bigger, there's really not a 37 00:02:16,520 --> 00:02:19,640 Speaker 3: lot of room for them. And you know, we cover roughly, 38 00:02:19,800 --> 00:02:23,040 Speaker 3: we follow roughly fourteen to fifteen names in the Permium 39 00:02:23,400 --> 00:02:27,240 Speaker 3: that are below five hundred thousand net acres and they 40 00:02:27,280 --> 00:02:30,240 Speaker 3: need to do something. They need to do something to 41 00:02:30,280 --> 00:02:35,200 Speaker 3: survive or to put themselves up for sale and callan did. 42 00:02:35,680 --> 00:02:41,800 Speaker 3: And we see this as a continuation of consolidation for 43 00:02:41,919 --> 00:02:46,200 Speaker 3: scale and asset concentration. These guys are selling a commodity. 44 00:02:46,240 --> 00:02:50,560 Speaker 3: There's very little differentiation. The way you gain efficiency, the 45 00:02:50,600 --> 00:02:55,680 Speaker 3: way you gain productivity is to be big, to have scale, 46 00:02:55,800 --> 00:03:00,680 Speaker 3: to have concentration across your region. And in case it's 47 00:03:00,680 --> 00:03:03,440 Speaker 3: the Permian, we've seen a lot of M and A 48 00:03:03,680 --> 00:03:06,840 Speaker 3: in the Permian on the oil side. We haven't seen 49 00:03:06,960 --> 00:03:09,560 Speaker 3: a lot on the gas side. I think that's where 50 00:03:09,560 --> 00:03:13,040 Speaker 3: the real story will be in twenty twenty four. You know, 51 00:03:13,240 --> 00:03:16,600 Speaker 3: natural gas has likely bottomed. In twenty twenty two, we 52 00:03:16,760 --> 00:03:21,040 Speaker 3: should see better conditions, better balances. We should see more 53 00:03:21,080 --> 00:03:24,360 Speaker 3: consolidation in the gas side as well, especially with the 54 00:03:24,440 --> 00:03:27,480 Speaker 3: curve of the way it looks, and we'll probably see 55 00:03:27,520 --> 00:03:30,760 Speaker 3: that more in the Hainesville and also in the Marcellos. 56 00:03:30,919 --> 00:03:35,240 Speaker 3: But what this really tells us is there is scarcity value, right, 57 00:03:35,280 --> 00:03:40,080 Speaker 3: and so you are bidding up smaller operators, MidCap operators, 58 00:03:40,400 --> 00:03:44,640 Speaker 3: operators that were privately sponsored, and the pe shops need 59 00:03:44,720 --> 00:03:48,200 Speaker 3: to monetize these investments to recycle that capital as well. 60 00:03:48,480 --> 00:03:53,320 Speaker 3: So you're seeing small, mid sized pe back names selling out, 61 00:03:53,680 --> 00:03:57,480 Speaker 3: and you're seeing publicly traded names also selling out, especially 62 00:03:57,520 --> 00:03:59,760 Speaker 3: in an environment where you have higher rates. In the 63 00:03:59,800 --> 00:04:03,880 Speaker 3: case accoun, they were one of the higher levered names 64 00:04:04,720 --> 00:04:07,560 Speaker 3: of the companies that we follow. So, you know, I 65 00:04:07,600 --> 00:04:10,480 Speaker 3: think it is reality coming to call on them and 66 00:04:10,600 --> 00:04:11,800 Speaker 3: other smaller operators. 67 00:04:11,840 --> 00:04:13,960 Speaker 2: Yeah, I mean, I'm just you know, Bloomberg, it's got 68 00:04:13,960 --> 00:04:16,200 Speaker 2: some good reporting here, just summarizing what's happened so far. 69 00:04:16,320 --> 00:04:19,919 Speaker 2: Just recently, in October, Excellon Mobile reaches sixty billion dollars 70 00:04:19,960 --> 00:04:23,359 Speaker 2: deal to buy Pioneer Natural Resources. Chevron followed it up 71 00:04:23,400 --> 00:04:26,200 Speaker 2: with a fifty three billion dollar agreement for Hesse Corporation, 72 00:04:26,240 --> 00:04:28,880 Speaker 2: and in December, Occidental Patrolling mcgreed to acquire Crown Rock 73 00:04:28,960 --> 00:04:31,000 Speaker 2: for a ten point eight billion So, Vince, as you say, 74 00:04:31,279 --> 00:04:33,919 Speaker 2: a lot of deals getting done here, talk to us 75 00:04:33,920 --> 00:04:37,680 Speaker 2: about just the natural gas market in general, you know, 76 00:04:37,720 --> 00:04:39,400 Speaker 2: because when we talk about energy, we tend to talk 77 00:04:39,440 --> 00:04:42,839 Speaker 2: about oil more than that gas. Here, talk to about 78 00:04:42,839 --> 00:04:44,880 Speaker 2: where we are in that market today. What's the outlook. 79 00:04:46,360 --> 00:04:51,080 Speaker 3: Well, the outlook right now, just given the backdrop for 80 00:04:51,200 --> 00:04:55,039 Speaker 3: weather and the rather mild temperatures that we've had here 81 00:04:55,080 --> 00:04:59,200 Speaker 3: early on in the winter season, it's been it's been 82 00:04:59,240 --> 00:05:01,960 Speaker 3: a tough go for natural gas. You know, we would 83 00:05:01,960 --> 00:05:04,480 Speaker 3: have thought we would have seen a better bid into 84 00:05:04,520 --> 00:05:09,320 Speaker 3: the winter, but with a very mild December and a 85 00:05:09,360 --> 00:05:12,440 Speaker 3: little bit turning here in January as of cooler at 86 00:05:12,480 --> 00:05:15,400 Speaker 3: tempts settle in. But it's been a pretty tough go. 87 00:05:16,279 --> 00:05:19,640 Speaker 3: But then again, it's better than where we were last year, 88 00:05:19,800 --> 00:05:24,520 Speaker 3: where we saw NAT gas go below two dollars very briefly, 89 00:05:24,600 --> 00:05:27,320 Speaker 3: but we think we're past that point. We think twenty 90 00:05:27,400 --> 00:05:31,640 Speaker 3: twenty four bounces will likely tighten. You know, right now 91 00:05:31,680 --> 00:05:37,240 Speaker 3: we're in this mix of this two sixty two fifty spot, 92 00:05:37,400 --> 00:05:40,520 Speaker 3: but we think that things will improve. There is a 93 00:05:40,640 --> 00:05:47,359 Speaker 3: structural secular trend, and that is toward LNG exports. The 94 00:05:47,600 --> 00:05:51,440 Speaker 3: US has grown its export capacity, it will continue to 95 00:05:51,520 --> 00:05:56,560 Speaker 3: grow this export capacity through twenty twenty through twenty thirty, 96 00:05:57,040 --> 00:06:00,599 Speaker 3: and we think this is a net positive to pull 97 00:06:01,000 --> 00:06:04,760 Speaker 3: the excess capacity that we have in the US into 98 00:06:05,120 --> 00:06:08,680 Speaker 3: the European corridor and in the Asia corridor. You know, 99 00:06:08,839 --> 00:06:11,520 Speaker 3: last year we had a lot of flows go into 100 00:06:11,520 --> 00:06:16,359 Speaker 3: the European corridor, just given the fact of Russia and 101 00:06:16,400 --> 00:06:19,760 Speaker 3: the Ukraine War and what that meant for energy security. 102 00:06:20,040 --> 00:06:23,040 Speaker 3: So the US was a buffer for that. We will 103 00:06:23,040 --> 00:06:27,120 Speaker 3: continue to be a buffer for that. LNG export capacity 104 00:06:27,240 --> 00:06:30,720 Speaker 3: gains will be a structural story that we'll hear more 105 00:06:30,760 --> 00:06:34,159 Speaker 3: of and that will tighten balances for US. In the US. 106 00:06:34,560 --> 00:06:38,320 Speaker 3: You also have gas in the power stack that has 107 00:06:38,400 --> 00:06:42,240 Speaker 3: gain share and that will continue to be stable over 108 00:06:42,240 --> 00:06:45,320 Speaker 3: the next year or so. We will continue to gain 109 00:06:45,400 --> 00:06:48,240 Speaker 3: share there as well on the industrial side. So you 110 00:06:48,360 --> 00:06:51,360 Speaker 3: have both a cyclical story, which is the weather component 111 00:06:51,960 --> 00:06:54,680 Speaker 3: that we can control, but there is also a structural 112 00:06:54,720 --> 00:06:59,120 Speaker 3: component to it that does provide longer term growth for 113 00:06:59,360 --> 00:07:03,080 Speaker 3: natural gas, not just as a transition fuel, not just 114 00:07:03,200 --> 00:07:08,640 Speaker 3: as a bridge fuel, but as a key component within 115 00:07:09,720 --> 00:07:12,840 Speaker 3: the energy complex, the energy portfolio. 116 00:07:13,640 --> 00:07:16,680 Speaker 2: Hey, Vince, you know, it's interesting that the US has 117 00:07:16,720 --> 00:07:20,520 Speaker 2: become a net exporter of oil here and a lot 118 00:07:20,520 --> 00:07:22,720 Speaker 2: of probably a lot of our listeners probably aren't aware 119 00:07:22,720 --> 00:07:24,640 Speaker 2: of that, particularly the ones I kind of remember back 120 00:07:24,680 --> 00:07:28,360 Speaker 2: in the seventies when we had those oil emergencies and 121 00:07:28,400 --> 00:07:31,559 Speaker 2: shocks here, and a lot of that's due to the shale. 122 00:07:31,640 --> 00:07:34,040 Speaker 2: Can you you're the expert on shale, You're the expert 123 00:07:34,080 --> 00:07:37,080 Speaker 2: on fracking. Can you explain to us, when these fractors 124 00:07:37,520 --> 00:07:39,480 Speaker 2: blast in a bunch of this water into the rock, 125 00:07:39,840 --> 00:07:42,360 Speaker 2: what comes out in terms of oil versus natural gas? 126 00:07:42,400 --> 00:07:43,440 Speaker 2: How does that typically work? 127 00:07:44,560 --> 00:07:47,960 Speaker 3: Yeah, So, in a place like the Permium where most 128 00:07:48,000 --> 00:07:50,520 Speaker 3: of the M and A activity is occurring, not only 129 00:07:50,560 --> 00:07:53,200 Speaker 3: do you have your crude oil, but you also have 130 00:07:53,320 --> 00:07:57,120 Speaker 3: what's called associated natural gas or associated gas. You know, 131 00:07:57,240 --> 00:08:00,280 Speaker 3: typically you will have something to the effect of two 132 00:08:00,400 --> 00:08:03,520 Speaker 3: thirds liquids, you know, one third gas. That gas has 133 00:08:03,560 --> 00:08:07,679 Speaker 3: to go someplace, and it has been a big boon 134 00:08:07,800 --> 00:08:12,600 Speaker 3: to a place like the Permian, which is the third 135 00:08:13,000 --> 00:08:18,640 Speaker 3: largest producer of natural gas as a standalone basin, which 136 00:08:18,680 --> 00:08:20,920 Speaker 3: is really incredible when you think about we're really drilling 137 00:08:21,440 --> 00:08:25,920 Speaker 3: for crude oil in that basin. But what we have 138 00:08:26,040 --> 00:08:29,960 Speaker 3: here is a plethora of natural gas, and the export 139 00:08:30,040 --> 00:08:36,600 Speaker 3: market is the most likely area for it to move 140 00:08:36,640 --> 00:08:39,960 Speaker 3: through in order to balance. In order to balance these 141 00:08:40,120 --> 00:08:44,120 Speaker 3: markets in general, no matter where you drill, you're going 142 00:08:44,160 --> 00:08:48,559 Speaker 3: to drill some natural gas if you're drilling for crude 143 00:08:48,559 --> 00:08:53,160 Speaker 3: oil as well. So when we do talk about natural gas, 144 00:08:53,320 --> 00:08:57,480 Speaker 3: it is a default to talk about crude oil as well, 145 00:08:57,559 --> 00:09:01,080 Speaker 3: since that is the driver of what we come up 146 00:09:01,120 --> 00:09:05,480 Speaker 3: with when we also drill for natural gas and oil, 147 00:09:05,600 --> 00:09:08,600 Speaker 3: so it is the thing that stirs the drink for 148 00:09:08,640 --> 00:09:10,200 Speaker 3: the natural gas market as well. 149 00:09:10,640 --> 00:09:13,120 Speaker 2: So you know, I guess we all kind of got 150 00:09:13,160 --> 00:09:16,240 Speaker 2: a little bit more smarter on liquified natural gas when 151 00:09:16,559 --> 00:09:19,640 Speaker 2: Russia did invade Ukraine and that really cut off the 152 00:09:19,640 --> 00:09:22,840 Speaker 2: supply of Russian gas to Europe. And we've got a 153 00:09:22,840 --> 00:09:24,719 Speaker 2: lot of it, but it's not easy to transport. Is 154 00:09:24,800 --> 00:09:28,199 Speaker 2: you got to do this whole liquification process. How is 155 00:09:28,240 --> 00:09:29,760 Speaker 2: that whole part of the industry developing. 156 00:09:31,160 --> 00:09:36,640 Speaker 3: It's developing very rapidly. We're growing capacity. We have become 157 00:09:36,800 --> 00:09:41,440 Speaker 3: a key exporter to only Europe, but also to Asia. 158 00:09:42,080 --> 00:09:44,800 Speaker 3: One thing that is quite key for us here in 159 00:09:44,840 --> 00:09:47,640 Speaker 3: the US. And we saw this last year as well, 160 00:09:48,040 --> 00:09:52,400 Speaker 3: our ability to adapt quickly and move those move those 161 00:09:52,520 --> 00:09:56,480 Speaker 3: molecules into the market that needed it the most. We 162 00:09:56,480 --> 00:10:00,240 Speaker 3: were saved by a relatively warm winter in Asia, were 163 00:10:00,280 --> 00:10:05,600 Speaker 3: able to move those molecules into Europe to help them 164 00:10:06,160 --> 00:10:12,720 Speaker 3: restock their storage. We have here in Europe relatively stout 165 00:10:12,840 --> 00:10:19,560 Speaker 3: storage at well over eighty three percent fulfilled, and so 166 00:10:20,040 --> 00:10:23,640 Speaker 3: for this winter at least, natural gas storage is not 167 00:10:23,679 --> 00:10:27,080 Speaker 3: going to be an issue and We've done an exceptional 168 00:10:27,160 --> 00:10:29,839 Speaker 3: job in the European Union has done an exceptional job 169 00:10:30,320 --> 00:10:35,920 Speaker 3: refilling its capacity to deal with any uncertainty that would occur, 170 00:10:36,559 --> 00:10:39,880 Speaker 3: not only on the warfront, but also in terms of 171 00:10:40,200 --> 00:10:45,559 Speaker 3: weather as well. So natural gas in the US being 172 00:10:45,600 --> 00:10:50,200 Speaker 3: exported to other countries has been a key contributor to 173 00:10:50,320 --> 00:10:55,120 Speaker 3: how we are looking to balance our market here in 174 00:10:55,160 --> 00:11:01,200 Speaker 3: the US. And you know right now, with your being filled, 175 00:11:03,360 --> 00:11:07,640 Speaker 3: the Asia market is looking quite quite attractive, and it 176 00:11:07,679 --> 00:11:11,800 Speaker 3: is more profitable to move those molecules into Asia relative 177 00:11:11,800 --> 00:11:12,880 Speaker 3: to the European market. 178 00:11:13,240 --> 00:11:15,920 Speaker 2: Vince, great stuff, great tortois force there on the energy 179 00:11:15,920 --> 00:11:19,880 Speaker 2: space that guests Vince Piazza, senior industry analyst covering the 180 00:11:20,000 --> 00:11:23,400 Speaker 2: energy space. We've got a great energy team, a global 181 00:11:23,640 --> 00:11:25,959 Speaker 2: energy teams. You have to look at energy on a 182 00:11:25,960 --> 00:11:29,040 Speaker 2: global basis, and that's what Bloomberg Intelligence does. We appreciate 183 00:11:29,080 --> 00:11:31,280 Speaker 2: getting some time from Vince Piazza here again some more 184 00:11:31,400 --> 00:11:34,280 Speaker 2: m and A in the natural gas spase here in 185 00:11:34,280 --> 00:11:37,440 Speaker 2: the US in some of those shale basins, as Vince 186 00:11:37,520 --> 00:11:39,200 Speaker 2: was saying, there's a lot of demand there and there's 187 00:11:39,200 --> 00:11:42,160 Speaker 2: a need for scale, particularly from some of these smaller companies. 188 00:11:42,200 --> 00:11:46,880 Speaker 2: So again saw another deal today APA to Bai shale 189 00:11:46,920 --> 00:11:51,440 Speaker 2: oil driller calend Petroleum for four point five billion dollars. 190 00:11:51,440 --> 00:11:52,160 Speaker 2: So good stuff there. 191 00:11:53,520 --> 00:11:56,920 Speaker 4: You're listening to the team Ken's our line program Bloomberg 192 00:11:56,960 --> 00:11:59,960 Speaker 4: Markets weekdays at ten am Eastern on Bloomberg dot Com, 193 00:12:00,440 --> 00:12:03,560 Speaker 4: the iHeartRadio app and the Bloomberg Business App, or listen 194 00:12:03,640 --> 00:12:05,760 Speaker 4: on demand wherever you get your podcasts. 195 00:12:07,600 --> 00:12:09,880 Speaker 2: Here's something that I don't do. I don't TikTok. 196 00:12:10,360 --> 00:12:10,600 Speaker 3: I know. 197 00:12:10,679 --> 00:12:13,600 Speaker 2: It is just a monster of a social media platform, 198 00:12:13,640 --> 00:12:16,319 Speaker 2: particularly with the younger demos, and really a competitive threat 199 00:12:16,360 --> 00:12:19,200 Speaker 2: to a lot of the existing social media platforms out 200 00:12:19,240 --> 00:12:22,280 Speaker 2: there from certainly an advertising perspective and maybe even a 201 00:12:22,520 --> 00:12:25,760 Speaker 2: e commerce perspective. And we've done some research in Bloomberg 202 00:12:25,800 --> 00:12:28,439 Speaker 2: Intelligence on this, Man Deep Singh, he's our senior tech 203 00:12:28,480 --> 00:12:31,839 Speaker 2: analyst for Bloomberg Intelligency. Man's our global tech team, which 204 00:12:31,880 --> 00:12:33,720 Speaker 2: I'll tell you is one of the best tech research 205 00:12:33,760 --> 00:12:35,040 Speaker 2: teams on the street. 206 00:12:35,200 --> 00:12:35,800 Speaker 4: B I go. 207 00:12:36,679 --> 00:12:38,280 Speaker 2: I know I just said that about our energy team, 208 00:12:38,280 --> 00:12:40,680 Speaker 2: but that's also true with our tech team as well. 209 00:12:40,720 --> 00:12:44,000 Speaker 2: We have folks Europe, North America, Asia, pretty much everywhere 210 00:12:44,040 --> 00:12:45,720 Speaker 2: you need to be, So Man Deep, talk to us 211 00:12:45,760 --> 00:12:49,720 Speaker 2: about TikTok here. I mean, my basic knowledge of these 212 00:12:49,720 --> 00:12:51,880 Speaker 2: social media platforms is just get as many people as 213 00:12:51,920 --> 00:12:53,440 Speaker 2: you can on your platform and then to try to 214 00:12:53,480 --> 00:12:57,240 Speaker 2: monetize them by selling advertising, trying to get them to 215 00:12:57,280 --> 00:13:00,120 Speaker 2: buy stuff. What's TikTok strategy here? 216 00:13:00,559 --> 00:13:03,719 Speaker 5: Well, so they've done exactly that in terms of, you know, 217 00:13:03,800 --> 00:13:07,400 Speaker 5: getting to one hundred million daily plus daily active users, 218 00:13:07,480 --> 00:13:11,520 Speaker 5: monetizing the ads a fifteen billion dollar rund rate. And 219 00:13:11,600 --> 00:13:14,400 Speaker 5: there is a real risk the fact that we're going 220 00:13:14,480 --> 00:13:18,200 Speaker 5: into an election year, this company could be banned. We've 221 00:13:18,240 --> 00:13:19,640 Speaker 5: been talking about it forever. 222 00:13:19,880 --> 00:13:22,560 Speaker 2: They ban could be banned in the US, Yes, because 223 00:13:22,600 --> 00:13:23,640 Speaker 2: of its Chinese ownership. 224 00:13:23,679 --> 00:13:27,440 Speaker 5: Big yeah, Okay, yeah, And that's been the case, you know, 225 00:13:27,720 --> 00:13:31,040 Speaker 5: in terms of a risk for the last couple of years. 226 00:13:31,280 --> 00:13:33,680 Speaker 5: Hasn't happened, but we know this is an election year 227 00:13:33,800 --> 00:13:36,840 Speaker 5: and so there will be more focus on that. And 228 00:13:37,080 --> 00:13:40,240 Speaker 5: the fact that they announced this e commerce play, to me, 229 00:13:40,320 --> 00:13:44,240 Speaker 5: it suggests they want to be out there for the 230 00:13:44,320 --> 00:13:48,599 Speaker 5: small businesses because these are the companies that will advertise, 231 00:13:48,800 --> 00:13:52,280 Speaker 5: that will create their storefront on TikTok. And once you 232 00:13:52,400 --> 00:13:55,480 Speaker 5: have merchants on your platform, it gets all the more 233 00:13:55,520 --> 00:13:58,199 Speaker 5: hard to ban such a platform because people are actually 234 00:13:58,280 --> 00:14:01,840 Speaker 5: generating revenues. Strategy that seems to be the play here. 235 00:14:01,880 --> 00:14:05,480 Speaker 5: But we know social commerce hasn't been successful in the US. 236 00:14:05,559 --> 00:14:09,080 Speaker 5: Take a look at Facebook. They tried Facebook shops, Instagram 237 00:14:09,120 --> 00:14:12,680 Speaker 5: shops never really took off. And so the play here 238 00:14:13,000 --> 00:14:15,640 Speaker 5: is something that hasn't worked out in the US because 239 00:14:15,960 --> 00:14:19,040 Speaker 5: the buying behavior of US consumers is very different from 240 00:14:19,080 --> 00:14:22,200 Speaker 5: the Asia consumers where social commerce has been successful. Do 241 00:14:22,360 --> 00:14:25,160 Speaker 5: you in which is the TikTok eqaluent is a two 242 00:14:25,240 --> 00:14:27,960 Speaker 5: hundred billion dollar GMV business in China. 243 00:14:28,160 --> 00:14:31,200 Speaker 2: So social commerce that's a kind of kind of a 244 00:14:31,240 --> 00:14:33,680 Speaker 2: new term for me. But that's basically just taking social 245 00:14:33,720 --> 00:14:38,400 Speaker 2: media users Facebook, whatever in this case TikTok and having 246 00:14:38,600 --> 00:14:41,920 Speaker 2: them and drive I guess e commerce off of that platform, 247 00:14:41,920 --> 00:14:45,440 Speaker 2: getting them to start buying stuff, and then TikTok will make. 248 00:14:45,400 --> 00:14:49,160 Speaker 5: It, yeah, finishing the transaction within your social media app. 249 00:14:49,200 --> 00:14:51,280 Speaker 5: So right now they show you an AD and that 250 00:14:51,800 --> 00:14:55,600 Speaker 5: takes the user traffic to the e commerce website. In 251 00:14:55,640 --> 00:14:57,720 Speaker 5: this case, the experience is in app. 252 00:14:57,760 --> 00:14:58,840 Speaker 2: It makes a ton of sense. 253 00:14:58,880 --> 00:15:00,920 Speaker 5: I mean, it makes for a good buying experience if 254 00:15:00,920 --> 00:15:03,360 Speaker 5: I can do things within the app as opposed to 255 00:15:03,440 --> 00:15:04,440 Speaker 5: going to another app. 256 00:15:04,480 --> 00:15:07,320 Speaker 2: So why hasn't it worked here in the US, do 257 00:15:07,320 --> 00:15:07,640 Speaker 2: you think? 258 00:15:07,800 --> 00:15:11,120 Speaker 5: Because think of how an e commerce website works. You 259 00:15:11,200 --> 00:15:15,720 Speaker 5: need logistics, you need payments, you need sourcing, you need inventory. 260 00:15:16,080 --> 00:15:19,160 Speaker 5: Social media companies aren't doing that, okay, and Amazon is 261 00:15:19,200 --> 00:15:22,200 Speaker 5: doing that. They've built so many warehouses just for doing that. 262 00:15:22,240 --> 00:15:25,880 Speaker 5: They have their own delivery. So e commerce requires all 263 00:15:25,920 --> 00:15:29,160 Speaker 5: these things. And for TikTok they're likely going to partner. 264 00:15:29,440 --> 00:15:33,160 Speaker 5: So they have already partnered with Shopify and Walmart. They're 265 00:15:33,200 --> 00:15:36,200 Speaker 5: gonna look for more partners. Obviously Amazon has done the 266 00:15:36,240 --> 00:15:39,120 Speaker 5: same with other social media companies. Who would have never 267 00:15:39,360 --> 00:15:42,480 Speaker 5: imagined Amazon partnering with Meta and Snapchat. 268 00:15:42,520 --> 00:15:45,400 Speaker 2: They've done that. So what's the we need talk to 269 00:15:45,520 --> 00:15:48,640 Speaker 2: the folks in the e commerce world. What's the feeling 270 00:15:48,720 --> 00:15:51,760 Speaker 2: about the ability of bite Dance slash TikTok to actually 271 00:15:52,640 --> 00:15:53,960 Speaker 2: has some success here in the US? 272 00:15:54,800 --> 00:15:58,160 Speaker 5: Very unlikely at least from my lens, given you know, 273 00:15:58,720 --> 00:16:02,560 Speaker 5: you need to match that Amazon experience that people have 274 00:16:02,880 --> 00:16:05,560 Speaker 5: in the US right two day prime shipping, one day 275 00:16:05,640 --> 00:16:08,760 Speaker 5: prime shipping, and so for them to do it, one 276 00:16:08,840 --> 00:16:11,040 Speaker 5: they need the merchants on the platform. They need to 277 00:16:11,120 --> 00:16:13,880 Speaker 5: offer a lot of stuff. But look, they appeal to 278 00:16:13,920 --> 00:16:16,960 Speaker 5: the younger demographic. We know TikTok appeals to that ten 279 00:16:17,040 --> 00:16:21,640 Speaker 5: to twenty five year olds and they can adopt a 280 00:16:21,680 --> 00:16:25,360 Speaker 5: new platform much more quickly than other consumers. So I 281 00:16:25,400 --> 00:16:28,880 Speaker 5: wouldn't be surprised if they use incentives to drive that 282 00:16:28,960 --> 00:16:31,600 Speaker 5: e commerce shift. But in the end, there is a 283 00:16:31,640 --> 00:16:34,320 Speaker 5: political bend to it, and the reason why they're doing 284 00:16:34,360 --> 00:16:36,680 Speaker 5: it is just to make sure they have a lot 285 00:16:36,720 --> 00:16:40,040 Speaker 5: of small merchants on the platform, which increases their odds 286 00:16:40,040 --> 00:16:42,120 Speaker 5: that they won't be banned in the US. 287 00:16:42,160 --> 00:16:44,040 Speaker 2: All right, So for those folks that aren't really that 288 00:16:44,160 --> 00:16:48,480 Speaker 2: familiar with the business of TikTok, bike Dance, which owns TikTok, 289 00:16:48,520 --> 00:16:51,320 Speaker 2: aims to grow the size of its US e commerce 290 00:16:51,320 --> 00:16:54,680 Speaker 2: business tenfold to as much as seventeen point five billion 291 00:16:54,720 --> 00:16:56,840 Speaker 2: dollars this year, according to people familiar with the matter, 292 00:16:56,920 --> 00:17:01,200 Speaker 2: posing a bigger threat to Amazon Dot So that's laying 293 00:17:01,240 --> 00:17:01,960 Speaker 2: it out there. 294 00:17:02,160 --> 00:17:04,679 Speaker 5: Yeah, I mean, it's an ambitious goal, but we know 295 00:17:04,840 --> 00:17:08,600 Speaker 5: the US e commerce market is huge, so it's still, 296 00:17:08,680 --> 00:17:11,280 Speaker 5: you know, less than five percent of the overall e 297 00:17:11,280 --> 00:17:13,320 Speaker 5: commerce market that's out there. 298 00:17:13,080 --> 00:17:16,480 Speaker 2: And TikTok was last year on track to a master 299 00:17:16,520 --> 00:17:20,960 Speaker 2: around twenty billion in global gross merchandise value, with Southeast 300 00:17:21,000 --> 00:17:23,680 Speaker 2: Asia contributing the bulk of the sales through its platform, 301 00:17:23,680 --> 00:17:25,840 Speaker 2: Bloomberg News reported. So now they're saying, okay, so they 302 00:17:25,840 --> 00:17:28,560 Speaker 2: have a success, Yeah, some success in other parts of 303 00:17:28,560 --> 00:17:30,280 Speaker 2: the world. Now the question is can they do it 304 00:17:30,320 --> 00:17:32,360 Speaker 2: here in the US. Yeah, and you talk to Amazon, 305 00:17:32,400 --> 00:17:34,399 Speaker 2: They're like, they're a fly. We're not even worried about it. 306 00:17:34,400 --> 00:17:34,960 Speaker 2: It's that's the case. 307 00:17:35,320 --> 00:17:38,200 Speaker 5: I think Amazon did pre empt that. So in December 308 00:17:38,280 --> 00:17:41,800 Speaker 5: they announced this partnership with Meta, with Snapchat, with Pinterest. 309 00:17:42,320 --> 00:17:46,080 Speaker 5: That didn't happen so far. So Amazon and the other 310 00:17:46,119 --> 00:17:50,000 Speaker 5: social media platforms want to partner with these e commerce 311 00:17:50,000 --> 00:17:53,600 Speaker 5: platforms because in the end, this is the next leg 312 00:17:53,720 --> 00:17:57,639 Speaker 5: off the offline to online shift, the video shopping, the 313 00:17:57,720 --> 00:18:00,720 Speaker 5: live stream shopping, which you have seen play out in 314 00:18:00,840 --> 00:18:05,000 Speaker 5: China and the Asian regions where TikTok has had some success. 315 00:18:05,040 --> 00:18:06,639 Speaker 2: All Right, I can't let you out of here without 316 00:18:06,680 --> 00:18:11,240 Speaker 2: talking about AI whatever that is generative AI market. This 317 00:18:11,359 --> 00:18:14,560 Speaker 2: is your research, dude. Generative AI market appears set to 318 00:18:14,600 --> 00:18:18,119 Speaker 2: reach one point three trillion by twenty thirty two. What 319 00:18:18,160 --> 00:18:18,920 Speaker 2: are you talking about? 320 00:18:19,440 --> 00:18:22,640 Speaker 5: Well, so what we saw last year was a bumper 321 00:18:22,880 --> 00:18:25,840 Speaker 5: year in terms of what Nvidia showed us, you know, 322 00:18:25,920 --> 00:18:29,560 Speaker 5: their data center sales. So I don't think anyone can 323 00:18:29,600 --> 00:18:32,280 Speaker 5: write off such forecasts now after what we saw with 324 00:18:32,520 --> 00:18:35,240 Speaker 5: video last year. But look, it's going to happen in phases. 325 00:18:35,320 --> 00:18:38,440 Speaker 5: Right now, we are still in that infrastructure phase where 326 00:18:38,520 --> 00:18:42,280 Speaker 5: chip companies are seeing that demand, and more so around 327 00:18:42,320 --> 00:18:46,080 Speaker 5: you know, the accelerator chips, the GPUs. Not every type 328 00:18:46,080 --> 00:18:49,120 Speaker 5: of chip is in demand. Now you're seeing memory companies 329 00:18:49,160 --> 00:18:52,000 Speaker 5: see that AI demand, and gradually you are going to 330 00:18:52,040 --> 00:18:56,800 Speaker 5: see other types of infrastructure really get replaced. Within data centers, 331 00:18:56,840 --> 00:18:59,960 Speaker 5: we are going through a massive data center refresh cycle, 332 00:19:00,359 --> 00:19:03,520 Speaker 5: and then it will trickle through applications. The real disruption 333 00:19:03,960 --> 00:19:07,679 Speaker 5: will be in how we use our application software because 334 00:19:08,000 --> 00:19:10,600 Speaker 5: AI is going to redefine the way we use software. 335 00:19:10,640 --> 00:19:11,520 Speaker 2: And that's the. 336 00:19:11,880 --> 00:19:14,520 Speaker 5: One point three trillion component over ten years. 337 00:19:15,040 --> 00:19:16,680 Speaker 2: Here's some more numbers, because you guys have a lot 338 00:19:16,680 --> 00:19:19,960 Speaker 2: of numbers in your research generative. AI may expand to 339 00:19:19,960 --> 00:19:23,120 Speaker 2: about ten to twelve percent of the total IT hardware, 340 00:19:23,640 --> 00:19:27,080 Speaker 2: software services, AD spending and gaming markets by twenty thirty 341 00:19:27,080 --> 00:19:31,800 Speaker 2: two from less than one percent. Based upon the bi calculations. 342 00:19:32,160 --> 00:19:35,080 Speaker 2: That gives you some sense of kind of the growth here. 343 00:19:35,280 --> 00:19:38,840 Speaker 5: Yeah, and that's the disruptive element. We're not talking about 344 00:19:38,840 --> 00:19:44,000 Speaker 5: companies finding new dollars to put in generative AI. You 345 00:19:44,040 --> 00:19:47,520 Speaker 5: are going to see some existing spend being migrated to 346 00:19:48,000 --> 00:19:52,640 Speaker 5: generative AI for good reasons because of productivity. Copilots make 347 00:19:52,720 --> 00:19:56,280 Speaker 5: you more productive, the workers more productive, and that is 348 00:19:56,320 --> 00:19:59,000 Speaker 5: why companies are going to move some of their existing 349 00:19:59,040 --> 00:20:00,960 Speaker 5: spend towards these any eye tools. 350 00:20:01,160 --> 00:20:03,440 Speaker 2: You guys wrote a research report on this, right, Yeah, 351 00:20:03,640 --> 00:20:06,040 Speaker 2: where can you? I can get a Bloomberg terminal users? 352 00:20:06,080 --> 00:20:08,439 Speaker 2: I mean basically, this report tells you everything you need 353 00:20:08,480 --> 00:20:12,080 Speaker 2: to know about AI. Yeah, get it onto the report, 354 00:20:12,240 --> 00:20:15,560 Speaker 2: sixty page report. BI go gets you to Bloomberg Intelligence. 355 00:20:15,680 --> 00:20:17,760 Speaker 2: That's where you can find it. Yeah, anywhere else for 356 00:20:17,880 --> 00:20:22,080 Speaker 2: like the non subscriber, the non Bloomberg people, Oh, they. 357 00:20:21,920 --> 00:20:25,720 Speaker 5: Could reach out to the media folks, and I'm sure 358 00:20:25,760 --> 00:20:26,920 Speaker 5: they can share something. 359 00:20:26,800 --> 00:20:29,080 Speaker 2: Because I'm telling you, folks, a lot of people, as 360 00:20:29,080 --> 00:20:31,800 Speaker 2: we all know, in twenty twenty three, AI was not 361 00:20:31,880 --> 00:20:35,720 Speaker 2: just the tech story. It was a US global marketplace 362 00:20:36,000 --> 00:20:37,679 Speaker 2: story that you have a lot of the gains we 363 00:20:37,720 --> 00:20:40,520 Speaker 2: saw in the equity markets in twenty twenty three, that 364 00:20:40,680 --> 00:20:42,359 Speaker 2: weight loss drug. So and I know we've got a 365 00:20:42,359 --> 00:20:45,880 Speaker 2: weight loss report out there. The GLP stuff from Sam Fizzelli. 366 00:20:45,960 --> 00:20:48,760 Speaker 2: So again some great stuff coming out of Bloomberg Intelligence. 367 00:20:48,840 --> 00:20:51,000 Speaker 2: Check it out on the Bloomberg terminal, big Man Deep 368 00:20:51,000 --> 00:20:52,760 Speaker 2: saying thank you so much for joining us. He's a 369 00:20:52,800 --> 00:20:56,520 Speaker 2: senior analyst for technology Bloomberg Intelligence. He's in the studio. 370 00:20:56,560 --> 00:20:59,200 Speaker 2: He's in the office on like of some management level 371 00:20:59,200 --> 00:21:01,600 Speaker 2: folks at BI. But take note of that who comes 372 00:21:01,640 --> 00:21:03,159 Speaker 2: in and who doesn't, Man Deep sing. He is our 373 00:21:03,240 --> 00:21:06,560 Speaker 2: senior guy on technology, along with anorog Rana, doing our 374 00:21:06,560 --> 00:21:07,320 Speaker 2: global coverage. 375 00:21:07,320 --> 00:21:10,200 Speaker 4: Here you're listening to the tape. Can's our live program 376 00:21:10,280 --> 00:21:14,200 Speaker 4: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, 377 00:21:14,400 --> 00:21:17,080 Speaker 4: the tune in app, Bloomberg dot Com, and the Bloomberg 378 00:21:17,119 --> 00:21:20,240 Speaker 4: Business App. You can also listen live on Amazon Alexa 379 00:21:20,280 --> 00:21:23,600 Speaker 4: from our flagship New York station. Just say Alexa play 380 00:21:23,720 --> 00:21:25,680 Speaker 4: Bloomberg eleven thirty. 381 00:21:26,680 --> 00:21:28,919 Speaker 2: All right, let's check in with Ed Harrison. Why do 382 00:21:28,960 --> 00:21:31,000 Speaker 2: we do that? Because he's a senior editor Bloomberg News. 383 00:21:31,040 --> 00:21:34,200 Speaker 2: He's a smart person, has a ton of experience here 384 00:21:34,240 --> 00:21:36,760 Speaker 2: covering the markets, and he's got a great column that 385 00:21:36,800 --> 00:21:39,080 Speaker 2: a lot of people feel like is they must read 386 00:21:39,440 --> 00:21:43,320 Speaker 2: the Everything Risk, a column for Bloomberg News. His latest 387 00:21:43,320 --> 00:21:45,080 Speaker 2: one is this twenty twenty four is risk is a 388 00:21:45,119 --> 00:21:48,000 Speaker 2: hot US economy? What do you mean by that? Ed, 389 00:21:48,320 --> 00:21:50,320 Speaker 2: Senior Editor, Bloomberg News, joins us Ed, what do you 390 00:21:50,400 --> 00:21:53,840 Speaker 2: mean by the twenty twenty four risk is a hot 391 00:21:54,359 --> 00:21:55,120 Speaker 2: US economy? 392 00:21:56,280 --> 00:21:57,800 Speaker 6: Hey? Happy new year to you, by the way. 393 00:21:57,880 --> 00:21:58,200 Speaker 2: Cheers. 394 00:22:00,040 --> 00:22:03,120 Speaker 6: I think the risk is that everyone really is expecting 395 00:22:03,200 --> 00:22:07,600 Speaker 6: soft landing, Yes, but really they're expecting that soft landing 396 00:22:07,640 --> 00:22:12,040 Speaker 6: to be associated with enough softness to get rate cuts. 397 00:22:12,040 --> 00:22:14,040 Speaker 6: In fact, in the bond market, we have one hundred 398 00:22:14,080 --> 00:22:18,280 Speaker 6: and forty basis points of cuts that are being priced in, 399 00:22:18,600 --> 00:22:21,480 Speaker 6: and we're already saying that as soon as March we 400 00:22:21,520 --> 00:22:24,080 Speaker 6: could have a rate cut. That's what the pricing for 401 00:22:24,160 --> 00:22:28,520 Speaker 6: the market is. If the economy is too hot, and 402 00:22:28,600 --> 00:22:31,560 Speaker 6: right now we have GDP now at two point five percent, 403 00:22:31,960 --> 00:22:34,439 Speaker 6: that's too much for those kind of rate cuts to 404 00:22:34,480 --> 00:22:37,160 Speaker 6: come through. And so if you have to look at 405 00:22:37,240 --> 00:22:41,880 Speaker 6: where the path of least resistance is right now, it's 406 00:22:41,920 --> 00:22:46,520 Speaker 6: towards lower yields generally. But this is going to be 407 00:22:46,560 --> 00:22:49,800 Speaker 6: a huge headwind against that, and therefore that's going to 408 00:22:49,840 --> 00:22:52,560 Speaker 6: be the pain trade yet again this year. 409 00:22:53,000 --> 00:22:57,240 Speaker 2: So is there a reasonable call here that the Fed 410 00:22:57,359 --> 00:23:01,080 Speaker 2: kind of knows all that and therefore they may hold 411 00:23:01,200 --> 00:23:03,840 Speaker 2: back a little bit and push the rate cuts to 412 00:23:04,080 --> 00:23:06,760 Speaker 2: mid or later in the year to try to, you know, 413 00:23:06,840 --> 00:23:07,679 Speaker 2: kind of avoid some of that. 414 00:23:08,960 --> 00:23:11,440 Speaker 6: Yeah, I mean, I think that that's what the teta 415 00:23:11,520 --> 00:23:13,399 Speaker 6: tet that you're gonna have in the beginning of the 416 00:23:13,520 --> 00:23:17,040 Speaker 6: year is the Fed versus the markets saying, yes, we're 417 00:23:17,040 --> 00:23:19,080 Speaker 6: gonna cut rates, but how much are we gonna cut 418 00:23:19,080 --> 00:23:22,080 Speaker 6: them by? With the with the market really you know, 419 00:23:22,200 --> 00:23:25,560 Speaker 6: front running these these rates very aggressively. But you know, 420 00:23:25,640 --> 00:23:28,159 Speaker 6: to a person, I think that the Fed officials have 421 00:23:28,200 --> 00:23:32,440 Speaker 6: been saying over the last several weeks that yes, that's right, 422 00:23:32,520 --> 00:23:34,399 Speaker 6: we're gonna do it in Q three, We're gonna do 423 00:23:34,400 --> 00:23:37,879 Speaker 6: it in Q four, not in Q one. Maybe at 424 00:23:37,920 --> 00:23:40,720 Speaker 6: the end of the second quarter. It all depends on, obviously, 425 00:23:40,800 --> 00:23:42,959 Speaker 6: what the data say. And I think that this has 426 00:23:43,040 --> 00:23:47,879 Speaker 6: all been spurred on by that December dot plot that 427 00:23:47,920 --> 00:23:50,480 Speaker 6: we got, which so seventy five basis points have cuts 428 00:23:50,560 --> 00:23:53,560 Speaker 6: more than we'd seen in the September dot plot, and 429 00:23:53,600 --> 00:23:57,400 Speaker 6: then a very h you know, some people would say 430 00:23:57,480 --> 00:23:59,920 Speaker 6: dubvish pow in the press conference after that. 431 00:24:00,400 --> 00:24:03,160 Speaker 2: Yeah, we saw that. And as you've called out before, 432 00:24:03,280 --> 00:24:04,639 Speaker 2: in the bond market, we had a you know, the 433 00:24:04,640 --> 00:24:07,320 Speaker 2: ten year treasure, which, as Tom Keane likes to say, was, 434 00:24:07,400 --> 00:24:10,200 Speaker 2: you know, fifty a cup of coffee ago was five percent. 435 00:24:10,440 --> 00:24:11,800 Speaker 2: We traded it all the way down to like three 436 00:24:11,800 --> 00:24:13,600 Speaker 2: and a quarter percent on the tenure. We packed it 437 00:24:13,640 --> 00:24:15,400 Speaker 2: up a little bit here now at three point ninety 438 00:24:15,440 --> 00:24:18,399 Speaker 2: seven percent, So you know, maybe the market's trying to 439 00:24:18,440 --> 00:24:21,199 Speaker 2: adjust here. I guess the next big data point is 440 00:24:21,200 --> 00:24:23,639 Speaker 2: can be the non farm payrolls tomorrow. 441 00:24:24,119 --> 00:24:24,359 Speaker 4: Yeah. 442 00:24:24,440 --> 00:24:29,679 Speaker 6: I mean I'm with the FX raids team, and we're 443 00:24:29,720 --> 00:24:32,480 Speaker 6: anticipating that hotly, you know, especially because we had the 444 00:24:32,520 --> 00:24:35,760 Speaker 6: ADP data that came out today that was higher than expected. 445 00:24:36,000 --> 00:24:39,359 Speaker 6: We also had the jobless claims data, both continuing and 446 00:24:39,440 --> 00:24:42,800 Speaker 6: initial claims were lower than expected. So there's a lot 447 00:24:42,880 --> 00:24:47,080 Speaker 6: of angst, if you will, about where we're positioned in 448 00:24:47,160 --> 00:24:51,520 Speaker 6: the bond market visa VI that that job support, Because 449 00:24:51,600 --> 00:24:54,840 Speaker 6: if the job support is hotter than expected, exactly as 450 00:24:54,840 --> 00:24:57,760 Speaker 6: I'm saying, that's the pain trade. Yep, then you could 451 00:24:57,840 --> 00:25:01,280 Speaker 6: see the a big reaction to that. 452 00:25:01,560 --> 00:25:03,440 Speaker 2: So what are your sources saying out there in terms 453 00:25:03,440 --> 00:25:06,440 Speaker 2: of the positioning in the marketplace. I guess in twenty 454 00:25:06,480 --> 00:25:09,160 Speaker 2: twenty three, a lot of the quote unquote smart money, 455 00:25:09,200 --> 00:25:11,600 Speaker 2: the hedge funds, you know, had a net short position 456 00:25:11,680 --> 00:25:15,679 Speaker 2: out there on the treasury market. You know, on the 457 00:25:15,880 --> 00:25:18,040 Speaker 2: other side of that trade was long term investors like 458 00:25:18,080 --> 00:25:20,320 Speaker 2: mutual funds like Warren Buffett saying, you know, I'm going 459 00:25:20,359 --> 00:25:23,520 Speaker 2: to show up at every auction and keep buying US treasuries. 460 00:25:24,000 --> 00:25:27,040 Speaker 2: Where do you think kind of the smart faster money 461 00:25:27,080 --> 00:25:29,000 Speaker 2: may be with treasury positioning right now? 462 00:25:29,880 --> 00:25:34,080 Speaker 6: Well, you know, that's that's an interesting question because ultimately, Matt, 463 00:25:34,160 --> 00:25:37,760 Speaker 6: I think that we've seen such a big move that 464 00:25:37,800 --> 00:25:39,840 Speaker 6: you would think that the shorts would move in. But 465 00:25:39,880 --> 00:25:42,919 Speaker 6: I think people are now they're unwinding their lungs and 466 00:25:42,920 --> 00:25:45,760 Speaker 6: we're moving to sort of a more neutral position. We 467 00:25:45,800 --> 00:25:47,760 Speaker 6: haven't gotten to the point where there are a lot 468 00:25:47,800 --> 00:25:51,639 Speaker 6: of people who are starting to reanimate the shorts yet. 469 00:25:51,800 --> 00:25:55,320 Speaker 6: I think that's when we would see a bigger move 470 00:25:55,440 --> 00:25:57,760 Speaker 6: to the upside for ye deals if we got that, 471 00:25:57,840 --> 00:25:59,320 Speaker 6: But we weren't seeing that yet. 472 00:25:59,359 --> 00:25:59,639 Speaker 4: Now. 473 00:26:00,280 --> 00:26:02,480 Speaker 6: As a result, I'm thinking that you know, we're sort 474 00:26:02,480 --> 00:26:04,359 Speaker 6: of in a range bound mode at this point, with 475 00:26:04,480 --> 00:26:06,840 Speaker 6: four percent sort of the sweet spot within that mode. 476 00:26:07,040 --> 00:26:09,840 Speaker 6: You know, BED funds at five to five sort of 477 00:26:09,920 --> 00:26:13,480 Speaker 6: limits how much upside you can have because you curve 478 00:26:13,480 --> 00:26:15,680 Speaker 6: would be too inverted. But then at the same time, 479 00:26:15,720 --> 00:26:19,040 Speaker 6: how much higher can you go from here? I don't 480 00:26:19,080 --> 00:26:21,520 Speaker 6: think that you're gonna get more than up to four 481 00:26:21,600 --> 00:26:25,080 Speaker 6: twenty five, four thirty five at the max. So we're 482 00:26:25,160 --> 00:26:27,960 Speaker 6: kind of in this this this this range where four 483 00:26:28,000 --> 00:26:31,119 Speaker 6: percent is really kind of a sweet spot for the 484 00:26:31,160 --> 00:26:32,359 Speaker 6: market at this point in time. 485 00:26:33,160 --> 00:26:37,359 Speaker 2: W IRP GO World Interest Rate Probability Function on the 486 00:26:37,400 --> 00:26:41,160 Speaker 2: Bloomberg terminal kind of tries to forecast where the Fed 487 00:26:41,200 --> 00:26:43,840 Speaker 2: will go with a rates based upon FED funds futures. 488 00:26:44,600 --> 00:26:46,800 Speaker 2: I don't know, it's pricing it up to six rate 489 00:26:46,840 --> 00:26:51,280 Speaker 2: cuts this year, you know, starting I don't know what 490 00:26:51,440 --> 00:26:52,960 Speaker 2: I mean, how do you feel about that? As a 491 00:26:53,000 --> 00:26:56,440 Speaker 2: market just to ahead of itself and maybe not once again, 492 00:26:56,480 --> 00:26:59,960 Speaker 2: I'll say, underlying once again not paying attention really or 493 00:27:00,080 --> 00:27:01,280 Speaker 2: listening to FED chairman Pale. 494 00:27:02,480 --> 00:27:05,119 Speaker 6: Well, you know, it's it's a good question about what 495 00:27:05,160 --> 00:27:09,439 Speaker 6: the market's doing collectively. I mean, basically, you're you're trying to, 496 00:27:09,840 --> 00:27:14,880 Speaker 6: you know, give your winners room to breathe. Uh. And 497 00:27:14,960 --> 00:27:17,280 Speaker 6: you know, when the when the FED basically gave a 498 00:27:17,320 --> 00:27:20,560 Speaker 6: green light in December, the people who were bullish in 499 00:27:20,600 --> 00:27:23,520 Speaker 6: the market, they posted to the max. And there hasn't 500 00:27:23,520 --> 00:27:26,080 Speaker 6: been any push There hasn't been enough pushback, and we 501 00:27:26,119 --> 00:27:29,320 Speaker 6: haven't had enough data, we haven't any had any FED 502 00:27:29,400 --> 00:27:32,760 Speaker 6: meetings to dispel the notion that you could get those 503 00:27:32,880 --> 00:27:36,680 Speaker 6: six rate cuts, So people are putting those positions on. 504 00:27:37,119 --> 00:27:41,240 Speaker 6: I think that as the data come in, likely those 505 00:27:41,280 --> 00:27:44,560 Speaker 6: six rate cuts will get paired back to a more 506 00:27:45,440 --> 00:27:48,840 Speaker 6: manageable number. The only way that you're going to get them, unfortunately, 507 00:27:49,680 --> 00:27:52,680 Speaker 6: is if you have a recession. I think then you're 508 00:27:52,680 --> 00:27:54,880 Speaker 6: actually going to get more than one hundred and fifty 509 00:27:54,920 --> 00:27:57,680 Speaker 6: basis points of cuts. And I know that. I think 510 00:27:57,720 --> 00:28:01,919 Speaker 6: it's Wells Fargo is the one. No, No, it's it's TD. 511 00:28:02,760 --> 00:28:06,200 Speaker 6: They're the ones who are predicting two hundred based points 512 00:28:06,200 --> 00:28:06,679 Speaker 6: of CODs. 513 00:28:06,720 --> 00:28:11,440 Speaker 2: Wow. Wow, Yeah, that would suggests something's askew with there 514 00:28:11,480 --> 00:28:13,600 Speaker 2: in the economy. Hey, thanks so much for joining us. 515 00:28:13,920 --> 00:28:16,880 Speaker 2: Ed Harrison, he's a senior editor for Bloomberg News. Got 516 00:28:16,960 --> 00:28:20,160 Speaker 2: tons of experience in the markets, He's also former diplomat 517 00:28:20,240 --> 00:28:23,320 Speaker 2: at the US State Department. How about that, So he's 518 00:28:23,359 --> 00:28:26,160 Speaker 2: kind of got a varied experience, a great worldview looking 519 00:28:26,200 --> 00:28:28,840 Speaker 2: at these markets here as part of our Bloomberg News team. 520 00:28:28,840 --> 00:28:30,359 Speaker 2: Appreciate geting a few minutes of his time. 521 00:28:31,000 --> 00:28:34,640 Speaker 4: You're listening to the tape Cansur live program Bloomberg Markets 522 00:28:34,680 --> 00:28:38,080 Speaker 4: weekdays at ten am Eastern on Bloomberg Radio, the tune 523 00:28:38,120 --> 00:28:41,080 Speaker 4: in app, Bloomberg dot Com, and the Bloomberg Business App. 524 00:28:41,120 --> 00:28:43,920 Speaker 4: You can also listen live on Amazon Alexa from our 525 00:28:43,960 --> 00:28:49,000 Speaker 4: flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 526 00:28:50,000 --> 00:28:52,600 Speaker 2: Let's talk a little bit of ECONOMICUS. We've got some 527 00:28:52,640 --> 00:28:55,320 Speaker 2: breaking news here. Michael McKee joins us. Michael, what's happening 528 00:28:55,320 --> 00:28:57,080 Speaker 2: with our friends and your Saint Louis Fed. 529 00:28:57,720 --> 00:29:01,640 Speaker 7: They are getting a new boss, really, Alberto Mussalam. He 530 00:29:01,720 --> 00:29:05,960 Speaker 7: is a PhD economist and has worked on Wall Street 531 00:29:06,640 --> 00:29:08,880 Speaker 7: for a significant amount of his career, also at the 532 00:29:08,880 --> 00:29:12,280 Speaker 7: IMF and also at the New York Fed. He was 533 00:29:13,200 --> 00:29:16,440 Speaker 7: most recently the non executive chair at the Man Group 534 00:29:16,480 --> 00:29:18,000 Speaker 7: and a member of the board at Feddie Mack. He 535 00:29:18,040 --> 00:29:21,280 Speaker 7: says he'll resign those two positions. He was the CEO 536 00:29:21,360 --> 00:29:25,320 Speaker 7: of Events Asset Management and he was a managing director 537 00:29:25,360 --> 00:29:28,959 Speaker 7: and partner at Tutor Investment. So he has got a 538 00:29:28,960 --> 00:29:34,959 Speaker 7: broad Wall Street background and it looks like some experience 539 00:29:35,000 --> 00:29:37,880 Speaker 7: at the FED. So he has straddled both worlds. 540 00:29:38,000 --> 00:29:40,880 Speaker 2: So when of a bank regional bank gets gets a 541 00:29:40,920 --> 00:29:44,400 Speaker 2: new head, how do how do you kind of view it? 542 00:29:44,200 --> 00:29:46,040 Speaker 2: Is there a period of just kind of get to 543 00:29:46,040 --> 00:29:49,320 Speaker 2: know each other, figures thing things out, or and is 544 00:29:49,360 --> 00:29:52,000 Speaker 2: this new FED present given I guess authority over some 545 00:29:52,040 --> 00:29:53,720 Speaker 2: period of time or how's that work? The transition? 546 00:29:54,480 --> 00:29:58,320 Speaker 7: Well, Jim Bullard has already gone. He left class August 547 00:29:58,320 --> 00:30:04,440 Speaker 7: and he's now at Purdue University. Now the first vice 548 00:30:04,480 --> 00:30:07,480 Speaker 7: president for the Saint Louis FED takes over and represents 549 00:30:07,520 --> 00:30:09,880 Speaker 7: the Saint Louis FED at all the FED meetings and 550 00:30:10,360 --> 00:30:14,680 Speaker 7: things like that. Kathy O'Neil. She is not voting this year, 551 00:30:15,400 --> 00:30:20,200 Speaker 7: so it's not an issue. She presents what information she 552 00:30:20,280 --> 00:30:26,360 Speaker 7: has to the FED and takes part in the discussions. 553 00:30:27,160 --> 00:30:31,160 Speaker 7: He is going to take over starting in April April second, 554 00:30:31,280 --> 00:30:33,120 Speaker 7: so he will miss the first two meetings of the 555 00:30:33,240 --> 00:30:36,560 Speaker 7: year and then begin to take part. He doesn't vote 556 00:30:36,640 --> 00:30:38,160 Speaker 7: until twenty twenty five. 557 00:30:38,360 --> 00:30:41,720 Speaker 2: Okay, what's the historically, what's the role of the Saint 558 00:30:41,760 --> 00:30:45,120 Speaker 2: Louis Fed ben They have a rep reputation. 559 00:30:44,800 --> 00:30:47,760 Speaker 7: Well, it evolved. It was known as one of the 560 00:30:47,840 --> 00:30:53,080 Speaker 7: kind of monitorist banks where the money supply and that 561 00:30:53,120 --> 00:30:57,640 Speaker 7: sort of thing mattered a lot. But under Jim Bullard 562 00:30:57,880 --> 00:31:02,160 Speaker 7: that went away as monitorism sort of died out when 563 00:31:02,200 --> 00:31:05,040 Speaker 7: it became hard to tell exactly what was money these days. 564 00:31:05,320 --> 00:31:15,040 Speaker 7: And then the President Bullard rather sort of became one 565 00:31:15,080 --> 00:31:19,040 Speaker 7: of the think leaders leaders at the FED. He came 566 00:31:19,120 --> 00:31:21,600 Speaker 7: up with the idea of regimes where you didn't change 567 00:31:21,600 --> 00:31:25,880 Speaker 7: monetary policy unless the whole regime of the economy changed, 568 00:31:26,760 --> 00:31:29,400 Speaker 7: and he was one of the first to really get 569 00:31:29,480 --> 00:31:35,040 Speaker 7: dubvish going into the going into COVID and coming out 570 00:31:35,120 --> 00:31:39,160 Speaker 7: of the Great Financial Crisis. So that's kind of their reputation. 571 00:31:39,280 --> 00:31:42,400 Speaker 7: We'll see what mister Musalem very goos to say. 572 00:31:42,400 --> 00:31:44,560 Speaker 2: All right, sage news for this FED watcher. Saint Louis 573 00:31:44,600 --> 00:31:48,440 Speaker 2: FED names ex tutor and New York FED executive as President. St. 574 00:31:48,560 --> 00:31:53,200 Speaker 2: Louis the Gateway to the West. Alberto Musalem is now 575 00:31:53,360 --> 00:31:54,560 Speaker 2: its new president. 576 00:31:54,880 --> 00:31:58,520 Speaker 4: You're listening to the tape Cancer live program Bloomberg Markets 577 00:31:58,560 --> 00:32:01,960 Speaker 4: weekdays at ten am Eastern on Bloomberg Radio, the tune 578 00:32:02,000 --> 00:32:04,960 Speaker 4: in app, Bloomberg dot Com, and the Bloomberg Business App. 579 00:32:05,000 --> 00:32:07,800 Speaker 4: You can also listen live on Amazon Alexa from our 580 00:32:07,840 --> 00:32:12,880 Speaker 4: flagship New York station, Just say Alexa play Bloomberg eleven thirty. 581 00:32:13,960 --> 00:32:16,880 Speaker 2: I've been hearing a lot of people fund manager, strategist 582 00:32:16,920 --> 00:32:18,680 Speaker 2: when they talk about twenty twenty four and maybe some 583 00:32:18,720 --> 00:32:20,840 Speaker 2: of the sectors that we should be looking at. They 584 00:32:20,840 --> 00:32:25,360 Speaker 2: say banks. Now, I think they mean like JP Morgan, 585 00:32:25,440 --> 00:32:27,960 Speaker 2: Bank of America, those types of things. I'm not sure 586 00:32:27,960 --> 00:32:31,280 Speaker 2: they're talking about the regional banks, the community banks that 587 00:32:31,400 --> 00:32:33,800 Speaker 2: really had some problems in the beginning of last year. 588 00:32:34,080 --> 00:32:35,959 Speaker 2: So I wanted to flush that out. And there's only 589 00:32:36,040 --> 00:32:38,920 Speaker 2: one person to do. That's Emily. That's Herman Chan. He 590 00:32:38,960 --> 00:32:42,720 Speaker 2: covers all of the regional banks for Bloomberg Intelligency Joints 591 00:32:42,760 --> 00:32:45,400 Speaker 2: US here in our Bloomberg Interactive Brokers studio. So, Herman, 592 00:32:45,480 --> 00:32:48,200 Speaker 2: is it too early to go back into regional banks yet? 593 00:32:48,200 --> 00:32:50,120 Speaker 2: Because I know you were very good at telling us 594 00:32:50,640 --> 00:32:53,760 Speaker 2: it's an earnings problem. It's an earnings challenge for these banks. 595 00:32:54,120 --> 00:32:56,840 Speaker 2: It's not necessarily a credit risk problem, it's an earnings problem. 596 00:32:56,880 --> 00:32:58,360 Speaker 2: So where are we right now? 597 00:32:58,920 --> 00:33:02,520 Speaker 8: The market's been pretty optimistic. You've seen a big rally 598 00:33:02,520 --> 00:33:04,800 Speaker 8: in regional banks over the past couple of months to 599 00:33:04,920 --> 00:33:07,560 Speaker 8: end the year, and that's really driven by interest rates, 600 00:33:07,640 --> 00:33:12,400 Speaker 8: right The markets now expecting you know, five six rate 601 00:33:12,440 --> 00:33:15,800 Speaker 8: cuts in twenty twenty four, which would help alleviate some 602 00:33:15,880 --> 00:33:20,000 Speaker 8: of the earnings issues, the revenue issues from higher funded costs. 603 00:33:20,000 --> 00:33:23,440 Speaker 8: So that's really what's driving the rally. It remains to 604 00:33:23,440 --> 00:33:26,520 Speaker 8: be seen if that will hold, but it's more optimism 605 00:33:26,600 --> 00:33:28,240 Speaker 8: on rates more than anything else. 606 00:33:28,920 --> 00:33:30,400 Speaker 2: So I see, I'm just kind of looking at my 607 00:33:30,400 --> 00:33:33,280 Speaker 2: Bloomberg chart, you know, just from the lows back and 608 00:33:33,280 --> 00:33:37,320 Speaker 2: I guess late October the spider s and P Regional 609 00:33:37,400 --> 00:33:40,800 Speaker 2: Banking ETF, which is kr E, is the ticker up 610 00:33:40,800 --> 00:33:43,160 Speaker 2: about a thirty three percent. So again that nice rally 611 00:33:43,160 --> 00:33:46,480 Speaker 2: you were talking about, where are we in terms of evaluation? 612 00:33:46,960 --> 00:33:49,560 Speaker 2: Is there still room to grow here? Do we still 613 00:33:49,600 --> 00:33:51,320 Speaker 2: have earnings risk? How do you put it all together? 614 00:33:51,440 --> 00:33:51,680 Speaker 4: Yeah? 615 00:33:51,720 --> 00:33:56,400 Speaker 8: Sure, so evaluation is still fairly you know, attractive. We 616 00:33:56,400 --> 00:34:01,160 Speaker 8: were towards that that October timeframe. We're about one times 617 00:34:01,200 --> 00:34:04,360 Speaker 8: tangible book value on injusted basis, which is historically the 618 00:34:04,400 --> 00:34:07,800 Speaker 8: traf levels. So now we're a bit higher than that. 619 00:34:08,960 --> 00:34:11,440 Speaker 8: The revenue picture and the oarnings picture is going to 620 00:34:11,520 --> 00:34:16,920 Speaker 8: be a wildcard with credit quality, right, So if the 621 00:34:16,960 --> 00:34:20,160 Speaker 8: market's correct that we see rate cuts, the NENDI just 622 00:34:20,280 --> 00:34:22,959 Speaker 8: margins for the banks could improve in twenty twenty four. 623 00:34:23,360 --> 00:34:27,400 Speaker 8: But what's still in flux is really what's happening with 624 00:34:27,440 --> 00:34:30,360 Speaker 8: credit quality. Are banks going to see higher loan losses 625 00:34:30,400 --> 00:34:33,879 Speaker 8: from areas like commercial real estate, particularly office commercial real estate, 626 00:34:34,000 --> 00:34:37,440 Speaker 8: multifamily commercial real estate. So those are the questions that 627 00:34:37,640 --> 00:34:39,560 Speaker 8: still remain unanswered for twenty twenty four. 628 00:34:39,800 --> 00:34:44,160 Speaker 2: So in terms of the commercial real estate exposure, is 629 00:34:44,200 --> 00:34:46,040 Speaker 2: it at the JP Morgans of the world or is 630 00:34:46,040 --> 00:34:47,719 Speaker 2: it at the M and T banks of the world. 631 00:34:47,960 --> 00:34:50,400 Speaker 8: Yeah, sure, so it's more at the M and T 632 00:34:50,520 --> 00:34:54,920 Speaker 8: banks at the world and increasing and higher as you 633 00:34:55,040 --> 00:34:58,239 Speaker 8: go lower in scale and size for banks, right, So 634 00:34:58,680 --> 00:35:01,960 Speaker 8: the smaller community banks have more commercial real estates, and 635 00:35:02,080 --> 00:35:06,680 Speaker 8: it sort of grows as you become a large regional bank, 636 00:35:06,760 --> 00:35:10,640 Speaker 8: and then the banks like JP Morgan have more diversification. 637 00:35:10,880 --> 00:35:15,320 Speaker 8: So it really we parse the numbers looking at office 638 00:35:15,320 --> 00:35:18,360 Speaker 8: commercial real estate. It's about two percent on average for 639 00:35:18,520 --> 00:35:21,000 Speaker 8: the banks that I cover, the large regional banks, so 640 00:35:21,040 --> 00:35:25,600 Speaker 8: it's a fairly manageable exposure. It really does create a 641 00:35:25,640 --> 00:35:29,640 Speaker 8: lot of headline risk, and when you see a when 642 00:35:29,680 --> 00:35:32,239 Speaker 8: the bank's reported in the fourth quarter, for example, there 643 00:35:32,239 --> 00:35:36,080 Speaker 8: are a couple of flagged non performing loans in office 644 00:35:36,120 --> 00:35:38,160 Speaker 8: commercial real estate, so let's spook the market a little 645 00:35:38,160 --> 00:35:40,480 Speaker 8: bit for banks like ZIONCE and P ANDC for example. 646 00:35:40,760 --> 00:35:43,320 Speaker 2: Right, all right, so where are we in terms of 647 00:35:43,360 --> 00:35:47,840 Speaker 2: the earnings recovery for these banks? Have we seen trough earnings? 648 00:35:47,840 --> 00:35:49,520 Speaker 2: Do you think ors are still risks to the estimates 649 00:35:49,520 --> 00:35:49,879 Speaker 2: out there? 650 00:35:50,000 --> 00:35:53,800 Speaker 8: Yeah, I think that's going to be a good question 651 00:35:53,960 --> 00:35:56,480 Speaker 8: for banks heading into earning season over the next couple 652 00:35:56,520 --> 00:35:59,400 Speaker 8: of weeks. The banks have talked about, even before the 653 00:35:59,480 --> 00:36:02,319 Speaker 8: expectation and of rate cuts in twenty twenty four, that 654 00:36:02,719 --> 00:36:06,560 Speaker 8: Nandager's margins would stabilize because there hasn't been any rate 655 00:36:06,640 --> 00:36:10,520 Speaker 8: hikes in recent quarter. So that's something that's been beneficial 656 00:36:10,600 --> 00:36:14,239 Speaker 8: for banks to stabilize their margins and not have their 657 00:36:14,239 --> 00:36:17,480 Speaker 8: funding costs increased like they did in most of the 658 00:36:17,480 --> 00:36:20,480 Speaker 8: twenty twenty three So that's helpful. And if you do 659 00:36:20,560 --> 00:36:24,400 Speaker 8: get rate cuts that would even alleviate some of the 660 00:36:24,440 --> 00:36:28,000 Speaker 8: pressures of higher deposit costs and banks happening to pay 661 00:36:28,080 --> 00:36:33,080 Speaker 8: up to attract deposits into regional banks. 662 00:36:33,360 --> 00:36:36,920 Speaker 2: All right, M and A. I bumped into my buddy 663 00:36:37,000 --> 00:36:39,240 Speaker 2: on the train today. He's an M and A banker 664 00:36:39,320 --> 00:36:43,960 Speaker 2: for an investment bank that specializes in banks. He has 665 00:36:44,719 --> 00:36:47,760 Speaker 2: deferred his retirement for a while, much to his wife's chagrin, 666 00:36:48,200 --> 00:36:49,920 Speaker 2: because he thinks he's going to print money over the 667 00:36:49,960 --> 00:36:52,600 Speaker 2: next couple three years putting these banks together on the 668 00:36:52,680 --> 00:36:56,719 Speaker 2: MNA front. I mean, I guess what I learned during 669 00:36:56,719 --> 00:36:59,560 Speaker 2: the regional bank crisis from last year from reading your research, 670 00:36:59,640 --> 00:37:03,320 Speaker 2: is that there's four thousand regional banks around the country. 671 00:37:03,640 --> 00:37:05,399 Speaker 2: I don't know if that's a big number or small number. 672 00:37:05,360 --> 00:37:07,919 Speaker 2: It seems like a lot. It seems like maybe there's 673 00:37:08,040 --> 00:37:10,440 Speaker 2: ripe for some consolidation. How do you think that plays out? 674 00:37:10,480 --> 00:37:13,319 Speaker 8: Yeah, we do think there's there's it's an industry that's 675 00:37:13,400 --> 00:37:19,160 Speaker 8: very ripe for consolidation. That will happen over time. Regional banks, 676 00:37:19,160 --> 00:37:22,480 Speaker 8: in particular the ones that I cover, are facing higher 677 00:37:22,480 --> 00:37:29,480 Speaker 8: regulatory scrutiny, tougher regulatory costs, so that all entails a 678 00:37:29,600 --> 00:37:33,359 Speaker 8: need for scale, and the banks have talked about that collectively, 679 00:37:34,080 --> 00:37:38,320 Speaker 8: me saying that when costs are higher, especially on the 680 00:37:38,360 --> 00:37:40,840 Speaker 8: regulatory side, you need scale to really absorb some of 681 00:37:40,880 --> 00:37:44,680 Speaker 8: these costs. And so that's something that the banks are 682 00:37:44,719 --> 00:37:48,200 Speaker 8: open to. Really, it depends on a couple of factors. One, 683 00:37:48,960 --> 00:37:52,719 Speaker 8: the regulatory response for M and A. The Biden administration 684 00:37:52,800 --> 00:37:55,400 Speaker 8: has been pretty cautious on bank M and A and 685 00:37:56,040 --> 00:38:00,120 Speaker 8: and you've seen the FED be very slow in and 686 00:38:00,200 --> 00:38:05,560 Speaker 8: approving bank deals over the past several years, So that's 687 00:38:05,640 --> 00:38:09,000 Speaker 8: a factor. It creates a lot of uncertainty for the banks, 688 00:38:09,200 --> 00:38:13,560 Speaker 8: for the buyer and acquire to deal with an elongated 689 00:38:13,640 --> 00:38:19,560 Speaker 8: regulatory approval process. And number two, interest rates. When rates 690 00:38:19,680 --> 00:38:21,759 Speaker 8: were as high as they were, it does create a 691 00:38:21,800 --> 00:38:24,520 Speaker 8: bit of a challenge in putting the two banks together 692 00:38:24,560 --> 00:38:27,120 Speaker 8: when you mark to market the target's balance sheet. So 693 00:38:27,400 --> 00:38:29,640 Speaker 8: the merger math doesn't make sense right now. But if 694 00:38:29,719 --> 00:38:32,120 Speaker 8: rates do come down even more, I think you'll see 695 00:38:32,160 --> 00:38:35,160 Speaker 8: more and more conversations and potentially that's a twenty twenty 696 00:38:35,200 --> 00:38:35,680 Speaker 8: four event. 697 00:38:36,120 --> 00:38:36,440 Speaker 6: All right. 698 00:38:36,440 --> 00:38:39,560 Speaker 2: So if I'm looking at this group here, do I 699 00:38:39,680 --> 00:38:42,680 Speaker 2: stick with what I consider to be the high quality ones? 700 00:38:42,719 --> 00:38:44,799 Speaker 2: I'm thinking again, an M and t A P and 701 00:38:44,840 --> 00:38:48,000 Speaker 2: C bank the names I know or maybemight go down 702 00:38:48,040 --> 00:38:50,680 Speaker 2: to some of the smaller cap names and maybe I 703 00:38:50,760 --> 00:38:53,239 Speaker 2: get some better valuation here. How do the clients you 704 00:38:53,239 --> 00:38:54,319 Speaker 2: talk to, how are they playing it? 705 00:38:54,440 --> 00:38:57,160 Speaker 8: Yeah, I think at this point you're you're seeing some 706 00:38:57,320 --> 00:39:01,640 Speaker 8: more appetite for some of the banks that felt more 707 00:39:01,719 --> 00:39:05,120 Speaker 8: challenges in twenty twenty three. So banks like KeyCorp, like 708 00:39:05,239 --> 00:39:08,640 Speaker 8: Comerica just got an upgrade earlier today from an analyst 709 00:39:09,719 --> 00:39:14,239 Speaker 8: Western Alliance. Those are banks that were a bit more 710 00:39:14,320 --> 00:39:16,600 Speaker 8: challenged by the rate backdrop in the falloff from the 711 00:39:16,680 --> 00:39:21,600 Speaker 8: SVB and First Republic signature failures, and you've seen more 712 00:39:21,640 --> 00:39:24,640 Speaker 8: of a bid for those banks over the past few months. 713 00:39:24,640 --> 00:39:28,879 Speaker 8: So that's something I would point to as something to 714 00:39:28,400 --> 00:39:29,279 Speaker 8: look at. 715 00:39:29,560 --> 00:39:31,040 Speaker 2: The good news is we haven't had to talk to 716 00:39:31,080 --> 00:39:34,200 Speaker 2: you much yet, and that means we haven't had much 717 00:39:35,120 --> 00:39:39,160 Speaker 2: or anything really any notable failure or stress in the 718 00:39:39,160 --> 00:39:41,280 Speaker 2: regional bank business. So with a little bit of hindsight, 719 00:39:41,320 --> 00:39:45,480 Speaker 2: can we say this was kind of a handful of 720 00:39:45,480 --> 00:39:48,960 Speaker 2: one off kind of issues or is there something that's 721 00:39:49,000 --> 00:39:50,520 Speaker 2: going to have to change in the industry level? 722 00:39:50,680 --> 00:39:53,520 Speaker 8: Right, I would point to the fact that the banks 723 00:39:53,520 --> 00:39:56,879 Speaker 8: that did fail that I mentioned earlier, they had very 724 00:39:56,920 --> 00:40:01,280 Speaker 8: different business models. They were fast growing. So I think 725 00:40:01,520 --> 00:40:04,359 Speaker 8: what we learned from the turmoil last year is that 726 00:40:04,480 --> 00:40:07,919 Speaker 8: it's maybe an oxymoron to say you're a fast growing bank. 727 00:40:08,000 --> 00:40:10,840 Speaker 8: Maybe you don't want to be that because you're introducing 728 00:40:10,880 --> 00:40:12,560 Speaker 8: a lot of risks to your balance sheet when you 729 00:40:12,600 --> 00:40:17,280 Speaker 8: do that, risk to potential deposit flight when things go awry, 730 00:40:17,600 --> 00:40:20,560 Speaker 8: and interest rate risk, especially when rates were lower and 731 00:40:20,600 --> 00:40:24,480 Speaker 8: you were, you know, burdening your balance sheet with with 732 00:40:25,320 --> 00:40:29,760 Speaker 8: securities that then were underwater when rates rose. So that's something. 733 00:40:29,920 --> 00:40:34,120 Speaker 8: Those were the lessons learned, And the other regional banks 734 00:40:34,120 --> 00:40:37,919 Speaker 8: in my coverage universe are much more stable in their 735 00:40:38,440 --> 00:40:43,480 Speaker 8: in their strategies and business management and balance sheet management practices. 736 00:40:43,560 --> 00:40:47,480 Speaker 8: So I think what happened was the the banks that 737 00:40:47,560 --> 00:40:50,000 Speaker 8: had tougher business models were flush out. 738 00:40:50,680 --> 00:40:52,960 Speaker 2: Penn State, you're Penn State, Grab. How how did you 739 00:40:53,040 --> 00:40:54,240 Speaker 2: grade the season? 740 00:40:55,719 --> 00:40:58,799 Speaker 8: I would say a bit of a disappointment going heading 741 00:40:58,840 --> 00:41:01,399 Speaker 8: into the season, we wanted to win at least one 742 00:41:01,400 --> 00:41:04,000 Speaker 8: of the games against the big two Ohio State or Michigan. 743 00:41:04,320 --> 00:41:07,840 Speaker 8: That we failed that. Unfortunately, our offense let us down. 744 00:41:08,160 --> 00:41:11,000 Speaker 8: Our defense was actually the number one defense from the 745 00:41:11,120 --> 00:41:11,600 Speaker 8: in the nation. 746 00:41:11,800 --> 00:41:13,560 Speaker 2: I don't know if we have a quarterback. I'm still 747 00:41:13,600 --> 00:41:14,160 Speaker 2: not convinced. 748 00:41:14,640 --> 00:41:15,239 Speaker 7: Yeah, he's a. 749 00:41:15,200 --> 00:41:17,160 Speaker 8: Five star guy, but he seems a big jitter. 750 00:41:17,400 --> 00:41:20,440 Speaker 2: Is Dan Ives, who's a huge supporter. He's been No, 751 00:41:20,520 --> 00:41:22,400 Speaker 2: he's our guy, He's guy. I'm like, I'm just not 752 00:41:22,480 --> 00:41:25,439 Speaker 2: sure he's our guy. I don't know. I have to see, 753 00:41:25,440 --> 00:41:27,799 Speaker 2: but anyway, I mean, the good news is with the 754 00:41:27,880 --> 00:41:29,560 Speaker 2: new teams coming into the Big Ten, we only have 755 00:41:29,600 --> 00:41:32,080 Speaker 2: to play Ohio State Michigan only once, right, you know, 756 00:41:32,080 --> 00:41:34,720 Speaker 2: we don't have to play both each in the season, 757 00:41:34,800 --> 00:41:38,960 Speaker 2: so that'd be good news. Herman chen Bank, analyst Bloomberg Intelligence. 758 00:41:39,120 --> 00:41:39,840 Speaker 2: This is Bloomberg. 759 00:41:40,040 --> 00:41:43,120 Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can 760 00:41:43,160 --> 00:41:46,920 Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever 761 00:41:47,040 --> 00:41:50,760 Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter 762 00:41:50,960 --> 00:41:52,879 Speaker 1: at Matt Miller nineteen seventy three. 763 00:41:53,320 --> 00:41:55,720 Speaker 2: And I'm Faull Sweeney. I'm on Twitter at pt Sweeney. 764 00:41:55,840 --> 00:41:58,480 Speaker 2: Before the podcast, you can always catch us worldwide at 765 00:41:58,520 --> 00:41:59,239 Speaker 2: Bloomberg Radio.