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Silicon Valley Bank, Jobs Day, and Markets · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. And we check the
• 0:22
  Speaker 1: markets s I v P no B si v B. Right,
• 0:27
  Speaker 1: that's the ticket for boy yep, yep, and you go
• 0:30
  Speaker 1: pop that in the terminal. They're still not trading. They're
• 0:32
  Speaker 1: still halted for volatility. Yeah, and that's not that's not boy. No.
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  Speaker 1: So we're looking at this stock right now. I'm not trading.
• 0:37
  Speaker 1: I want to get a sense of is this how
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  Speaker 1: much is this as SVB specific or how much is
• 0:43
  Speaker 1: it broader to some of the banking system in general,
• 0:45
  Speaker 1: maybe on the regional side. And so when we want
• 0:47
  Speaker 1: to talk regional banks, there's only one person to talk to.
• 0:49
  Speaker 1: That's Herman Chant. He's a senior analyst. He covers US
• 0:52
  Speaker 1: regional banks and fintech for Bloomberg Intelligence. He's in our
• 0:55
  Speaker 1: Bloomberg Interactive Broker Studio today. He covers SVB. Herman, so
• 1:00
  Speaker 1: much for joining us here. Give us your sense of
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  Speaker 1: what's happening in SVB and specifically, I think people ultimately
• 1:07
  Speaker 1: want to get to a sense of is this more
• 1:09
  Speaker 1: SVB specific given their business, their customers, or is it
• 1:13
  Speaker 1: maybe a little bit more endemic in the regional banking space.
• 1:17
  Speaker 1: What's your thought, sure, Paul, we do think it's more
• 1:20
  Speaker 1: specific to SVB. Svb's being affected by a classic bank run,
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  Speaker 1: which is wrapped in a tech bubble which formed during
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  Speaker 1: the pandemic period. Startups during that period we're raising a
• 1:34
  Speaker 1: boatload of capital from ventor capital companies and doing IPOs
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  Speaker 1: at extravagant valuations, and that bubble is popping. So in effect,
• 1:44
  Speaker 1: you're seeing deposit outflow because of the tech bubble releasing
• 1:48
  Speaker 1: that's affecting SIVB specifically because they specifically cater to the
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  Speaker 1: startup community and Silicon Valley. We'll walk us through then,
• 1:58
  Speaker 1: kind of how we got here from a yield perspective,
• 2:00
  Speaker 1: because my understanding and correct me if I'm wrong, keep
• 2:02
  Speaker 1: me honest here is that a lot of these banks,
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  Speaker 1: I mean, they're lending for the long term, correct, And
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  Speaker 1: this is a bank that did not diversify in the
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  Speaker 1: way that say, some of the other bigger banks would
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  Speaker 1: have sure, So in a lot of ways, SBB was
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  Speaker 1: a victim of their own success because of the positive
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  Speaker 1: inflows that happened during the pandemic. Billions of dollars came
• 2:21
  Speaker 1: in and they invested all of a lot of that
• 2:24
  Speaker 1: liquidity into securities when interest rates for zero. So we're
• 2:28
  Speaker 1: thinking about yields on that investment portfolio about one and
• 2:32
  Speaker 1: a half two percents now with rates worthy are today
• 2:35
  Speaker 1: the value of those securities has declined dramatically, and there's
• 2:40
  Speaker 1: a duration mismatch with the posts coming out, and your
• 2:45
  Speaker 1: securities are sticky on the balance sheets. So that has
• 2:49
  Speaker 1: necessitated a bid to sell these securities to inject some
• 2:53
  Speaker 1: liquidity onto the balance sheet. And the market was spooked
• 2:55
  Speaker 1: by this. What do the regulators do here? Herman? I mean,
• 2:59
  Speaker 1: you see NBC's reporting that SVB tread race from capital failed,
• 3:04
  Speaker 1: now looking to sell themselves. How do you think this
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  Speaker 1: plays out to the regulator step in? Does another bank
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  Speaker 1: step in a by SVB? How did these typically play off?
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  Speaker 1: So the best case scenario is SBB somehow finds to
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  Speaker 1: raise this capital and assuages the fears that's going on
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  Speaker 1: in the marketplace. If that doesn't happen, then most likely
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  Speaker 1: the regulators need to step in and force a sale
• 3:27
  Speaker 1: to a larger institution that is viewed to be more stable. Well,
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  Speaker 1: I think what a lot of people don't realize is
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  Speaker 1: that SVB is actually a member of the SMP five hundred,
• 3:37
  Speaker 1: and that is a really big deal when you talk about, Yeah,
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  Speaker 1: a lot of people known. It's pretty interesting because and
• 3:43
  Speaker 1: frankly full admitting everything. I didn't know that either until
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  Speaker 1: a couple of days ago. But I think what it
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  Speaker 1: speaks to is this idea of is this as some
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  Speaker 1: sort of repeat of the two thousand and eight kind
• 3:55
  Speaker 1: of Lehman Brothers moment. A lot of people bracing over
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  Speaker 1: the weekend to see if it is. Do you think
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  Speaker 1: it is any parallels there? The hope is that there's
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  Speaker 1: the contagion risk is stable, and we see this as
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  Speaker 1: really a SVB specific issue. We talked about in our
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  Speaker 1: research that you can find on the terminal about svb's
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  Speaker 1: large unrealized losses on their portfolio, and no other bank
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  Speaker 1: in our coverage universe has that same unrealized loss that
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  Speaker 1: they're sitting on, So these paper losses can become economic
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  Speaker 1: losses if deposits run out of the balance sheets, and
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  Speaker 1: that's what the fear is with SBB. The hope is
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  Speaker 1: that deposits within regional banks stay a bit more stable
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  Speaker 1: going forward because they don't have these issues with the
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  Speaker 1: startups burning through cash. Who might be a potential buyer
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  Speaker 1: for SVB? Do you think, yeah, it's it's probably one
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  Speaker 1: of the larger institutions. If we're talking about larger regionals,
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  Speaker 1: we could definitely see somebody like P ANDC or Truist.
• 4:54
  Speaker 1: Some Canadians could be interested, like in RBC, and then
• 4:58
  Speaker 1: you've got If that doesn't happen, then you can lean
• 5:03
  Speaker 1: on the largest banks in the US. We're talking about
• 5:05
  Speaker 1: you know, b of A and JP and Morton And
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  Speaker 1: what about the how much are they really going to
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  Speaker 1: be paying for it? I mean, no one really wants
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  Speaker 1: to touch this bank, I imagine afterwards, and I believe
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  Speaker 1: their stock. I mean a couple of days ago, stock
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  Speaker 1: is at like two sixty six or something like that.
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  Speaker 1: Shares are now I think below sixty How much do
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  Speaker 1: you pay for SVB? Well, yeah, THATSB unfortunately is not
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  Speaker 1: in a situation to leverage that they're strong franchise outside
• 5:32
  Speaker 1: of what's going on today, so it would be unfortunately
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  Speaker 1: a price that is not that would be unhelpful for
• 5:39
  Speaker 1: existing shareholders. All right, let's step back from SVB and
• 5:43
  Speaker 1: look at your coverage more broadly. Regional banks, how are
• 5:47
  Speaker 1: they situated here in this you know, like a rising
• 5:50
  Speaker 1: interest rate environment. I thought that was good for banks
• 5:52
  Speaker 1: that interest margin, but I look at the SMP regional
• 5:55
  Speaker 1: bank indecks fifty two weeks low here. So talk to
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  Speaker 1: us about the environment for regional banks right now, right,
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  Speaker 1: So fundamentally things are strong. Profitability has increased in twenty
• 6:06
  Speaker 1: twenty two because of the rising rate environment that you
• 6:08
  Speaker 1: talked about, so margins have expanded. Credit quality is still
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  Speaker 1: very benign, as consumers are still paying off their loans
• 6:16
  Speaker 1: and commercial customers are really healthy. What's really happening is
• 6:21
  Speaker 1: there's a focus on deposits and liquidity risk, which is
• 6:27
  Speaker 1: the name of the game these days, and also the
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  Speaker 1: paper losses on the investment securities where all these banks
• 6:33
  Speaker 1: bought a lot of investment securities during the pandemic when
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  Speaker 1: rates or zero. There's a headline here crossing the Bloomberg terminal.
• 6:41
  Speaker 1: Jenny Yellen saying that the Treasury is monitoring a few
• 6:44
  Speaker 1: banks amid issues at SVB, so something that we are
• 6:47
  Speaker 1: going to keep our eyes on. But I want to
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  Speaker 1: really kind of harp back on a word you used, liquidity.
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  Speaker 1: I think it's a concern we had about six months
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  Speaker 1: ago when the Federal Reserve had just started their tightening cycle.
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  Speaker 1: Is liquidity something separate from SVB that banks should be
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  Speaker 1: worried about here? Um, yes, I think, And nobody wants
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  Speaker 1: to be in SBB shoes right now. So what likely
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  Speaker 1: will happen going forward is the banks are going to
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  Speaker 1: pay up more for deposits to keep their deposit urs
• 7:14
  Speaker 1: in their balance sheets. So you're going to see rising
• 7:18
  Speaker 1: deposit costs to keep deposits stable. Where we in terms
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  Speaker 1: of I like private credit is something that's become an
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  Speaker 1: amazing growth business. It's fascinated me. How did the regional
• 7:27
  Speaker 1: banks view the private credit business as a competitive threat? Right, So,
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  Speaker 1: the private creditor companies have come in and frankly, regional
• 7:38
  Speaker 1: banks have seed a chair. So that's one of the
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  Speaker 1: reasons why we think regional bank credit quality will hold
• 7:44
  Speaker 1: in in the upcoming pending downturn because regional banks have
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  Speaker 1: really derisked their balance sheets during the credit crisis, and
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  Speaker 1: you've seen new entrants that come in, like private credit
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  Speaker 1: BDCs that have taken share from the typical regional banks,
• 8:02
  Speaker 1: which has helped the regional's lower risk their loan books.
• 8:07
  Speaker 1: All right, good stuff. Herman Chan, Senior analyst. He covers
• 8:09
  Speaker 1: the US regional banks and fintech for Bloomberg Intelligence. Specifically,
• 8:13
  Speaker 1: he covers a Silicon Valley bank, so he is our
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  Speaker 1: absolute in house go to expert on SVB. And the
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  Speaker 1: news today that again the stock has halted pending news.
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  Speaker 1: It was indicating down about sixty percent after losing sixty
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  Speaker 1: percent of its value yesterday. Some real ongoing concern issues.
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  Speaker 1: Jobs market solid, I mean, any way you look at it,
• 8:35
  Speaker 1: people that want to get a job or getting a job.
• 8:37
  Speaker 1: We had some good jobs number today. Carol Schleife joins us.
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  Speaker 1: He's a chief CIO of BEMO Family Office located in Minneapolis.
• 8:47
  Speaker 1: A great town. I love Minneapolis. Maybe not in February
• 8:51
  Speaker 1: or January, but otherwise a great town. Kyle, thanks so
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  Speaker 1: much for joining us here in our Bloomberg Interactive Brokers studio.
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  Speaker 1: He saw the jobs numbers today. How do you think
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  Speaker 1: this FEDER reserve is gonna react, and what do you
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  Speaker 1: tell your clients? You know, the difficulty for the FED
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  Speaker 1: and for investors today is they really wanted clarity out
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  Speaker 1: of this job's number, and they got more confusion because
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  Speaker 1: parts of it were strong, parts weren't as strong, and
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  Speaker 1: so looking through that, so now we're going to be
• 9:18
  Speaker 1: waiting breathless for the CPI numbers next week and each
• 9:21
  Speaker 1: bit of data. So I think the FED will they
• 9:25
  Speaker 1: Chairman Paul told us earlier this week they'll take it
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  Speaker 1: in totality. So there's a lot of other factors to
• 9:30
  Speaker 1: look at, but you're right, the overarching is that it's
• 9:34
  Speaker 1: a very strong jobs market. People can get jobs if
• 9:37
  Speaker 1: they want them. We saw some interesting things going on
• 9:40
  Speaker 1: in the construction markets, not so much some of the manufacturing,
• 9:43
  Speaker 1: but construction, and it plays into one of the themes
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  Speaker 1: that we've been talking about a lot, which is this
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  Speaker 1: industrial renaissance. But the FED has a lot to pass through,
• 9:52
  Speaker 1: and I think they're going to look at how much
• 9:55
  Speaker 1: stress is already being placed on the credit markets too,
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  Speaker 1: and what's going on in the fringes there, and and
• 10:01
  Speaker 1: not wanting to disturb things. So it was really interesting
• 10:04
  Speaker 1: watching the futures market go from earlier in the week
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  Speaker 1: price in a two thirds expectation of a fifty basis
• 10:10
  Speaker 1: point and now we're back down to about a third. Yeah. Well,
• 10:13
  Speaker 1: in twenty four hours we went from while pricing, is
• 10:17
  Speaker 1: a market getting that wrong? I'm not sure. I think
• 10:21
  Speaker 1: what the market is getting wrong is they're paying too
• 10:22
  Speaker 1: much attention to all this short term stuff and not
• 10:25
  Speaker 1: stepping back and looking at overarchingly. We've got a very
• 10:29
  Speaker 1: solid economy going on here. We're trying to pull some
• 10:32
  Speaker 1: of the inflation, the post pandemic inflation out of it
• 10:35
  Speaker 1: and level that off. That's been fitful. I heard some
• 10:39
  Speaker 1: commentator fed official last night talking about there was this
• 10:43
  Speaker 1: misperception that it was going to be a really even
• 10:46
  Speaker 1: path to bring it down, and it's not. It's fitful,
• 10:49
  Speaker 1: and that's what we're seeing. We're seeing it in the data,
• 10:51
  Speaker 1: we're seeing it everything else. But the market is missing
• 10:54
  Speaker 1: the fact that you still do have a lot of
• 10:56
  Speaker 1: strength under the economy. You've got a lot of spending
• 10:59
  Speaker 1: teat up in some really important areas that will help
• 11:03
  Speaker 1: stabilize things intermediate and longer term, and you do have
• 11:06
  Speaker 1: strong growth globally as well, because there are a lot
• 11:09
  Speaker 1: of central banks there that have backed off their increases
• 11:12
  Speaker 1: are went to pause for a bit. So given that
• 11:15
  Speaker 1: you know, rising interest rates not so good for risk assets,
• 11:20
  Speaker 1: yet underlying economic activity remains pretty darn decent. What are
• 11:24
  Speaker 1: some of the sectors in the equity market that you
• 11:27
  Speaker 1: guys are more open to. I think the interesting thing
• 11:30
  Speaker 1: is is if you look broader in the equity markets,
• 11:33
  Speaker 1: there's places in industrials and materials and manufacturing which haven't
• 11:37
  Speaker 1: been at the top of the heap in terms of
• 11:39
  Speaker 1: SMP sectors for years, and so looking at some of
• 11:42
  Speaker 1: those because when you actually passed through the last round
• 11:45
  Speaker 1: of quarterly earnings reports, there was a lot of record
• 11:48
  Speaker 1: backlogs in some of that that plant and equipment we're
• 11:51
  Speaker 1: putting out there. The manufacturing. Heck, even when I was
• 11:55
  Speaker 1: on the interstate waiting to get to the airport a
• 11:57
  Speaker 1: couple of days ago, I've never in forty years of
• 12:00
  Speaker 1: commuting that interstate's seen as many plant parts out there
• 12:05
  Speaker 1: and road construction parts. Even though we're one hundred inches
• 12:08
  Speaker 1: of snow in Minneapolis there, still they're still queuing up
• 12:12
  Speaker 1: for plant for road construction all the way around, and
• 12:15
  Speaker 1: so the industrial sectors the more there's an interesting way
• 12:20
  Speaker 1: to play it. And some of the tech names will
• 12:22
  Speaker 1: play in this newer environment to where we're rebuilding in
• 12:27
  Speaker 1: the infrastructure, we're going to be putting cybersecurity in um
• 12:33
  Speaker 1: really sophisticated artificial intelligence in places the migration to the
• 12:38
  Speaker 1: web continues, you'll be putting sensors in all those plants.
• 12:41
  Speaker 1: So there's ways to play it, but they're a different
• 12:44
  Speaker 1: way than than we've seen. I think over the last decade.
• 12:48
  Speaker 1: Are you worried at all about the SVB news? How
• 12:50
  Speaker 1: are you processing that? I think we're processing it the
• 12:54
  Speaker 1: bigger broader. We're definitely watching for cracks in the in
• 12:58
  Speaker 1: the credit market. It'stant to remember that we're not in
• 13:02
  Speaker 1: the same environment we were in Oe No. Nine and
• 13:04
  Speaker 1: that the subsequent to that there were a lot of
• 13:07
  Speaker 1: rules and regulations for the banks in general. But we're
• 13:12
  Speaker 1: watching for pressure because credit markets and the access to
• 13:16
  Speaker 1: credit is one of the first places you get it.
• 13:18
  Speaker 1: And you've had the FED pulling pulling money supply out,
• 13:22
  Speaker 1: you know, for the last couple of decades. Basically we've
• 13:26
  Speaker 1: had central banks around the world putting, putting liquidity into
• 13:29
  Speaker 1: the system. Now they're pulling it out, So that's not
• 13:32
  Speaker 1: going to be a nice linear process either. So we're
• 13:35
  Speaker 1: processing it very carefully by spending a lot of time
• 13:38
  Speaker 1: talking to the managers and the folks that we have
• 13:42
  Speaker 1: that are watching those markets to see if there's other
• 13:44
  Speaker 1: signs of stress in those markets, and so far it's
• 13:47
  Speaker 1: pretty orderly. What do you guys saying about the fixed
• 13:50
  Speaker 1: income market? We have a big, big moves in the
• 13:53
  Speaker 1: yield curve today the two year off twenty five basis points,
• 13:55
  Speaker 1: but it was just a couple of days ago you
• 13:57
  Speaker 1: could park your money into your paper and get five
• 13:59
  Speaker 1: percent return. How are you guys thinking about fixed income
• 14:03
  Speaker 1: which had such a bad bed year in twenty twenty two. Yeah,
• 14:06
  Speaker 1: we have had a lot of clients said have Our
• 14:09
  Speaker 1: recommendation has been to focus on the core fixed income
• 14:12
  Speaker 1: and to stay shorter on the curve. We've in specific
• 14:15
  Speaker 1: not even gone out to the belly of the curve
• 14:17
  Speaker 1: farther up because of that volatility that you're seeing. You've
• 14:20
  Speaker 1: seen that ten year round trip in big jumps between
• 14:23
  Speaker 1: last year and this year. And the unique thing is
• 14:26
  Speaker 1: is for a lot of clients that are more nervous
• 14:28
  Speaker 1: about markets in particular, this is the first time in
• 14:31
  Speaker 1: a decade and a half you have been paid to
• 14:32
  Speaker 1: sit in cash. Well, speaking of that, I mean, it's
• 14:35
  Speaker 1: the real yield that we're really looking at, which brings
• 14:37
  Speaker 1: me to this the benchmark note, it's pretty simple. We
• 14:40
  Speaker 1: were at four percent I want to say, forty eight
• 14:42
  Speaker 1: hours ago. Again, the repricing year is as kind of
• 14:45
  Speaker 1: mind boggling. Now we're at three sixty nine on the
• 14:47
  Speaker 1: ten year. Now. It feels like a lot of that
• 14:48
  Speaker 1: is simply coming from perhaps the intra day flight to
• 14:51
  Speaker 1: safety they got off the SBB and arguably the FED repricing.
• 14:54
  Speaker 1: But how high can the ten year go if the
• 14:57
  Speaker 1: Fed still has some room to run. I don't think
• 15:01
  Speaker 1: we necessarily put pagan number on there. We'd be hard
• 15:05
  Speaker 1: pressed to say it's going to go much higher than
• 15:07
  Speaker 1: it has in here and watching it pull back, that
• 15:10
  Speaker 1: four percent seems to offer an awful lot of resistance,
• 15:14
  Speaker 1: if you will, in terms of hitting that level and
• 15:16
  Speaker 1: coming back. But we're going to you know, it's really
• 15:18
  Speaker 1: interesting that you could build out a one and a
• 15:21
  Speaker 1: half or two year treasury ladder and yield close to
• 15:23
  Speaker 1: five percent on that and The nice thing is is
• 15:25
  Speaker 1: then you've got the opportunity every three months when something
• 15:28
  Speaker 1: mature is to say do I put it back into
• 15:30
  Speaker 1: that market? Do I keep it in cash? So I
• 15:32
  Speaker 1: put it farther out on the curve, Carol, that's sixty
• 15:35
  Speaker 1: forty portfolio that a lot of us grew up on
• 15:37
  Speaker 1: just got crushed last year and really called into question
• 15:40
  Speaker 1: here at BEMO, at the family office that you guys
• 15:44
  Speaker 1: are at, how do you talk to your clients about
• 15:47
  Speaker 1: just portfolio construction. These days we are in the camp
• 15:51
  Speaker 1: or we don't think the sixty forty portfolio is dead.
• 15:54
  Speaker 1: It it didn't perform last year, and you have to
• 15:57
  Speaker 1: pull last year and look at it and contact it's
• 16:00
  Speaker 1: been eighty or ninety maybe a hundred years since you've
• 16:03
  Speaker 1: had both stocks and bonds down double digits in the
• 16:05
  Speaker 1: same year. That's hopefully a historical anomaly that we're not
• 16:10
  Speaker 1: going to see for another eighty ninety one hundred years.
• 16:13
  Speaker 1: But we're expecting more normalized sorts of returns out of
• 16:17
  Speaker 1: both stocks and bonds this year, and we do expect
• 16:20
  Speaker 1: that fixed income, especially at the shorter end, has seen
• 16:23
  Speaker 1: the bulk of that volatility or seeing inflation start to
• 16:26
  Speaker 1: level off, and so having you know, there's a lot
• 16:30
  Speaker 1: of reasons why people want to own fixed income, not
• 16:32
  Speaker 1: the least of which is for current income, but it's
• 16:34
  Speaker 1: also to provide that stability in the portfolio. And we
• 16:37
  Speaker 1: still think it serves that purpose. You just have to
• 16:39
  Speaker 1: be careful. It's one of the reasons why laddered portfolios,
• 16:43
  Speaker 1: or having managers that run laddered portfolios and can be
• 16:46
  Speaker 1: nimble going between taxable and non taxable makes a lot
• 16:51
  Speaker 1: of sense. All right, thirty seconds here walk us through
• 16:55
  Speaker 1: the case for buying tech at the moment, Oh, walk
• 16:59
  Speaker 1: through the case for buying tech. I think at the margin,
• 17:02
  Speaker 1: there are pieces of tech that makes sense to fully
• 17:05
  Speaker 1: write off or go full barreled into a particular industry
• 17:09
  Speaker 1: as in our style. It's part and parcel of a
• 17:11
  Speaker 1: diversified portfolio. And there's places within tech as I mentioned,
• 17:15
  Speaker 1: there's censors, there's artificial intelligence, there's movement to the cloud,
• 17:19
  Speaker 1: all of those plays. So having either good managers or
• 17:22
  Speaker 1: names that are diversified in their own portfolios and how
• 17:25
  Speaker 1: they're dealing with it, because we're not going to walk away.
• 17:28
  Speaker 1: We're not going back to the green Tabar paper that
• 17:32
  Speaker 1: I started my career on We're definitely going to keep
• 17:36
  Speaker 1: deploying technology, all right, great stuff. Carol Life joins us
• 17:41
  Speaker 1: here in our Bloomberg Interactive Broker studio. Carol's the CIO
• 17:44
  Speaker 1: of BEMO Family Office located in lovely Minneapolis, Minnesota. Again,
• 17:50
  Speaker 1: I always talking about Milwaukee being pound for pound maybe
• 17:53
  Speaker 1: one of the best towns for money management. Minneapolis is
• 17:56
  Speaker 1: not far behind. They got a lot of smart people there,
• 17:58
  Speaker 1: all the x IDs and Alliance folks all over town.
• 18:01
  Speaker 1: So some good stuff there. Kylerslife joining us. Jobs market
• 18:08
  Speaker 1: is Assistan remains incredibly resilient. Let's get a look down
• 18:12
  Speaker 1: under the hood. We can do that with Tom Gibbo.
• 18:13
  Speaker 1: He's a founder and CEO of La Sound Network. LA
• 18:16
  Speaker 1: Sound Networkers, a national staffing, recruiting and culture firm focused
• 18:20
  Speaker 1: on temporary and contract staffing as well as direct higher search.
• 18:23
  Speaker 1: Tom blow Away number here. Tell us what we need
• 18:26
  Speaker 1: to know. Can I get a heck? Yeah? Yeah, And
• 18:29
  Speaker 1: we got three hundred and eleven thousand job We're having
• 18:33
  Speaker 1: the same conversation every month. We are, I mean what
• 18:36
  Speaker 1: we've got. What we've got is an economy that companies
• 18:41
  Speaker 1: still believe that there is momentum moving forward. We're seeing
• 18:48
  Speaker 1: it is driving it. Healthcare is driving it. We're still
• 18:51
  Speaker 1: seeing people spending money the people have. While while individual
• 18:56
  Speaker 1: debt and credit is very high, there's also billions of
• 19:01
  Speaker 1: dollars in people's home equity that they haven't tapped into
• 19:04
  Speaker 1: that doesn't get talked about nearly enough. And this economy
• 19:08
  Speaker 1: is going to keep going, and then we have the
• 19:10
  Speaker 1: infrastructure package. It's finally going to get started going this year,
• 19:13
  Speaker 1: and I think we're going to have a really good
• 19:15
  Speaker 1: twenty twenty three. But it's still the headline number is
• 19:19
  Speaker 1: still very hot. Is there eleventh payrolls number that has
• 19:23
  Speaker 1: beat expectations and not my small margin. I understand that
• 19:26
  Speaker 1: the wages are coming down. That's why you see the
• 19:28
  Speaker 1: market perhaps not taking this as as much of a
• 19:31
  Speaker 1: negative as they have in the past. But I'm confused
• 19:34
  Speaker 1: about the trajectory here. The trajectory is not getting better.
• 19:37
  Speaker 1: Does this kind of lead to some sort of very
• 19:41
  Speaker 1: fast drop in jobs very quickly? What do you mean
• 19:45
  Speaker 1: the trajectory isn't getting better? We keep adding jobs every month, right,
• 19:48
  Speaker 1: So for the federal reserve, that's still extremely tight. Labor market.
• 19:51
  Speaker 1: O oh, the correct correct for what the Federal Reserve wants. Well,
• 19:55
  Speaker 1: I think what it shows is is all those years
• 19:59
  Speaker 1: that we were running this economy on zero interest rates,
• 20:01
  Speaker 1: we didn't need to and that was really the big
• 20:05
  Speaker 1: It's more about what the mistakes we made than the
• 20:07
  Speaker 1: mistakes we are making. And what this is showing is
• 20:10
  Speaker 1: that interest rates can go up another fifty basis points
• 20:14
  Speaker 1: or seven. You know, eventually what's going to happen is
• 20:16
  Speaker 1: we're gonna get to a point and then the market
• 20:19
  Speaker 1: will slow and jobs will go down, and then they'll go, oh,
• 20:21
  Speaker 1: we knew this was going to happen, Well, we didn't
• 20:24
  Speaker 1: know what was going to happen in that time. Eventually,
• 20:27
  Speaker 1: there is the straw that breaks the camel's back, and
• 20:30
  Speaker 1: this is what you get when you go into a
• 20:32
  Speaker 1: soft landing. A hard landing would be adding one hundred
• 20:34
  Speaker 1: and fifty basis points. They're not doing that. The market
• 20:37
  Speaker 1: is allowing it to happen at this pace because it
• 20:41
  Speaker 1: can handle it. You know, it's funny when the market
• 20:43
  Speaker 1: dictates what the naysayers want it to do, they're unhappy.
• 20:47
  Speaker 1: When the market goes counter, they're unhappy. It is every
• 20:51
  Speaker 1: once in a while you got to look at things
• 20:52
  Speaker 1: and say, we're in a pretty darn good situation. The
• 20:55
  Speaker 1: market's really really strong. The set is trying to appease
• 21:00
  Speaker 1: a soft landing because inflation is really high. But what
• 21:04
  Speaker 1: we've seen is gas prices didn't continue on that trajectory.
• 21:08
  Speaker 1: People aren't talking about the cost of eggs as much anymore,
• 21:11
  Speaker 1: and his interest rates go up. We're starting to see
• 21:14
  Speaker 1: people realize everyday, people realize that things aren't so bad,
• 21:18
  Speaker 1: and eventually they're going to stop talking about working remotely
• 21:21
  Speaker 1: and all these nonsense issues, and we're going to ease
• 21:25
  Speaker 1: into a normal standard economy that has some good months
• 21:30
  Speaker 1: and some bad months, and it'll settle down for a
• 21:33
  Speaker 1: period of nine to eighteen months like it always does,
• 21:36
  Speaker 1: and then we'll get a huge bowl market that'll come
• 21:38
  Speaker 1: in twenty five through twenty nine. Hey, Tom, help me
• 21:42
  Speaker 1: out with this Jolts number. I have a hard time
• 21:45
  Speaker 1: figuring out. You know, it came into ten point eight
• 21:48
  Speaker 1: million or something like that. Before the pandemic it was
• 21:50
  Speaker 1: five million, six million kind of on average. What all
• 21:54
  Speaker 1: these people doing well? I think it was funny. I
• 21:58
  Speaker 1: just had this conversation with the group of CEOs. If
• 22:01
  Speaker 1: we took away every unprofitable gig platform, so uber and
• 22:10
  Speaker 1: lift and instacart and all these companies that don't make
• 22:13
  Speaker 1: money in door Dad, and all those people were back
• 22:16
  Speaker 1: into the job force. I think you'd have that number
• 22:19
  Speaker 1: be extremely low. What we've seen is is we've seen
• 22:23
  Speaker 1: workers who were middle income forty to eighty thousand dollars
• 22:27
  Speaker 1: a year, people that have said, you know what, I
• 22:30
  Speaker 1: don't want to be stuck in a office doing these
• 22:34
  Speaker 1: things all the time. I want more flexibility, even if
• 22:36
  Speaker 1: I'm making the same amount of money or working more Onwards,
• 22:39
  Speaker 1: they're doing job share and they're they're piecing it together,
• 22:43
  Speaker 1: and that's really the challenge. I believe that's what's happened.
• 22:47
  Speaker 1: There's two things. There's that and then there's the lack
• 22:49
  Speaker 1: of immigrants coming into this country, not just south of
• 22:52
  Speaker 1: the border, but as the people coming in from other
• 22:54
  Speaker 1: countries to do some of the technical jobs. If we
• 22:57
  Speaker 1: can loosen up some of the immigration stuff, I think
• 22:59
  Speaker 1: we're going to see a lot of our problems solved
• 23:01
  Speaker 1: as well. And what about the wage stuff. Does that
• 23:04
  Speaker 1: include wages? Yeah? You know, wages is an interesting issue,
• 23:09
  Speaker 1: right because it categorizes all of the different levels together.
• 23:15
  Speaker 1: For the most part, and there's such a big difference
• 23:18
  Speaker 1: between salaried and hour lead and how that plays into
• 23:21
  Speaker 1: the scheme of things. We had the municipality that we're
• 23:24
  Speaker 1: raising minimum wages before COVID, and then during COVID, and
• 23:29
  Speaker 1: then when you had the hourly explosion from Target and
• 23:32
  Speaker 1: Amazon and Walmart and that stuff, that that that falsely
• 23:36
  Speaker 1: increased the hourly wages are believed to be falsely So
• 23:40
  Speaker 1: I think that those numbers aren't accurate either. I think
• 23:42
  Speaker 1: we focus as a society probably too much on the
• 23:45
  Speaker 1: BLF wage numbers because that's really market dictated, and when
• 23:49
  Speaker 1: there's low unemployment, those numbers are going to go up
• 23:51
  Speaker 1: no matter what if companies need to fulfill it. So
• 23:53
  Speaker 1: I don't I don't worry about the wage and the
• 23:56
  Speaker 1: participation raised. Really the interesting battle that whether this country
• 23:59
  Speaker 1: has been Kistan for a long time, and until we
• 24:03
  Speaker 1: have something solved about daycare and about unemployment and social
• 24:08
  Speaker 1: benefits like that, we're not going to see an increase
• 24:10
  Speaker 1: of more than a half a percent or so of that.
• 24:12
  Speaker 1: Any time you mentioned immigrants, legal and illegal, what are
• 24:15
  Speaker 1: the the you know, the hirers, the hiring managers that
• 24:19
  Speaker 1: you talk to. I mean how big of a problem
• 24:21
  Speaker 1: is that, because it just seems like a lot of
• 24:23
  Speaker 1: the you know, job openings I see are ones that
• 24:26
  Speaker 1: would typically be filled by immigrants, And is there any
• 24:31
  Speaker 1: sense that that is going to loosen in any time
• 24:34
  Speaker 1: going forward? Well, the problem is we don't have the
• 24:37
  Speaker 1: Americans who are out of work or can't find jobs,
• 24:40
  Speaker 1: or the skill gaps have passed, and by they don't
• 24:42
  Speaker 1: want to do the job. And then the media, not
• 24:45
  Speaker 1: trying to paint that picture, but has painted this thing
• 24:48
  Speaker 1: that we're the service level country and those jobs are
• 24:51
  Speaker 1: are are are not great jobs. And so now what
• 24:55
  Speaker 1: used to be done either by Eastern European immigrants coming
• 24:59
  Speaker 1: over or people from South America or Central America or Africa,
• 25:04
  Speaker 1: different continents coming over here, and the laws are so
• 25:07
  Speaker 1: tight that we can't do that. And people say, oh,
• 25:10
  Speaker 1: we're going to have the New Deal revolution, Well, gets
• 25:12
  Speaker 1: who built this country in the New Deal? Immigrants? Immigrants.
• 25:16
  Speaker 1: So if you're gonna get trillions of dollars in infrastructure
• 25:19
  Speaker 1: package and you think that it's not going to be immigrants,
• 25:22
  Speaker 1: they're going to build this thing and we're trying to
• 25:24
  Speaker 1: stop it. We're not repeating history in the good way,
• 25:27
  Speaker 1: we're creating our own and that's a negative for the
• 25:30
  Speaker 1: country in the economy. I think we have a real
• 25:32
  Speaker 1: problem there, Tom, I want to go big picture for
• 25:35
  Speaker 1: a moment again and talk about some of the intangibles,
• 25:38
  Speaker 1: things that you can't really quantify, things like paistically for example,
• 25:42
  Speaker 1: or maternity lead or things like that. How do you
• 25:45
  Speaker 1: like factor that in to your job's view? Well, I
• 25:51
  Speaker 1: think when you you know there's a certain we're always
• 25:53
  Speaker 1: going to have population and reproduction, right, You're always going
• 25:57
  Speaker 1: to have maternity leads and and sometimes paternity leave and
• 26:01
  Speaker 1: different things along those lines. The challenges is do not
• 26:07
  Speaker 1: always do people want to re enter the workforce after
• 26:10
  Speaker 1: having a baby. The question is do families want to
• 26:13
  Speaker 1: have somebody else raising their children? And that is a
• 26:17
  Speaker 1: social issue, not an economics or a job issue. And
• 26:20
  Speaker 1: people always want to focus on that because, oh, what's
• 26:23
  Speaker 1: the maternity leave. But the real answer is does the
• 26:26
  Speaker 1: family want the mom or the dad to re enter
• 26:31
  Speaker 1: the workforce at a full time capacity? And that's not
• 26:34
  Speaker 1: always the case, but that's get skipped over to say, well,
• 26:37
  Speaker 1: we need to have better leave. But the real question
• 26:40
  Speaker 1: is do people want that in a perfect world? Not
• 26:42
  Speaker 1: everybody wants to come back and work after having a baby,
• 26:45
  Speaker 1: and we've got to realize for society that sometimes you
• 26:48
  Speaker 1: do it because you need the money, and sometimes you
• 26:51
  Speaker 1: do it because you want the career growth. And we
• 26:54
  Speaker 1: just have this. We're in this infection point as a
• 26:56
  Speaker 1: society that some people think careers and work and satisfaction
• 27:00
  Speaker 1: from that are negative and bad. And I don't agree
• 27:03
  Speaker 1: on that. I'm not signing up for that philosophy. Do
• 27:05
  Speaker 1: you guys know from having me on every month? Is
• 27:07
  Speaker 1: that work work and the sense of accomplishment that we
• 27:11
  Speaker 1: get as human beings if you enjoy what you do, yep.
• 27:15
  Speaker 1: Helps drive the human spirit and makes the family life
• 27:18
  Speaker 1: that much better. All right, always a broad view of
• 27:21
  Speaker 1: the labor market. We always appreciate that. Tom Gibble, he's
• 27:24
  Speaker 1: a founder and CEO of less Out Network. All right,
• 27:29
  Speaker 1: let's talk about rates here. What is this Federal Reserve
• 27:32
  Speaker 1: gonna do here? We had a big, big jobs print
• 27:35
  Speaker 1: here today we're waiting on CPI. The question is twenty
• 27:38
  Speaker 1: five basis points fifty basis points do they cut at
• 27:41
  Speaker 1: some point in twenty twenty three? Let's check in with
• 27:43
  Speaker 1: pre A Misra Managing director and global head of rate
• 27:46
  Speaker 1: strategy at TV Security. She's got an opinion. So we
• 27:49
  Speaker 1: saw the good jobs print today. Any takeaway for you
• 27:53
  Speaker 1: as to how it may impact this Federal Reserve che So,
• 27:58
  Speaker 1: I think the jobs market strong. I mean, wages came
• 28:01
  Speaker 1: in a little weaker than expected, but a three hundred
• 28:04
  Speaker 1: eleven thousand number after the five hundred so that we
• 28:07
  Speaker 1: had last month, it's telling you that the labor market strong.
• 28:09
  Speaker 1: It's tight. Even the wages were a little bit weaker.
• 28:12
  Speaker 1: You know, the year over year wages are running high.
• 28:15
  Speaker 1: So I think the labor market strong. And what that
• 28:17
  Speaker 1: tells me is that the Fed is going to keep hiking. Now.
• 28:19
  Speaker 1: Chapaul earlier this week brought up the idea of going
• 28:23
  Speaker 1: high at a fastest clip. I don't know if this report,
• 28:28
  Speaker 1: you know, pushes them to hike fifty I think we're
• 28:30
  Speaker 1: waiting for CPI for that, but I think hiking to
• 28:33
  Speaker 1: a five fifty five seventy five, I think that is
• 28:37
  Speaker 1: our base case that they're going to have to keep
• 28:39
  Speaker 1: hiking because it's hard to see inflation get back to
• 28:42
  Speaker 1: two percent with the labor market as tight as it
• 28:45
  Speaker 1: is running currently. Preol let's talk about the trade here
• 28:48
  Speaker 1: I felt like earlier in the week the trade jure
• 28:51
  Speaker 1: was flatteners, and you saw that inversion in the two
• 28:53
  Speaker 1: tens gets I think negative one ten at one point.
• 28:57
  Speaker 1: That quickly turned around as we stars kind of repricing
• 29:01
  Speaker 1: for fifty verses twenty five? What does that mean for
• 29:04
  Speaker 1: the ten year yield three seventy three? On that note,
• 29:07
  Speaker 1: do we get sustainable above four? I don't. I mean,
• 29:11
  Speaker 1: I can we get there, and we did last week
• 29:15
  Speaker 1: in a short period of time, knee jerk. Can we
• 29:17
  Speaker 1: get above four? Wee can? But I think it's I
• 29:20
  Speaker 1: think treasuries are cheap. Anything above three seventy fives away
• 29:23
  Speaker 1: right at that level I think is not going to
• 29:26
  Speaker 1: be sustained. Because the stronger the economy is today, I
• 29:30
  Speaker 1: think the FED has to keep rates or take rates
• 29:33
  Speaker 1: to more restrictive levels and then keep it there for longer.
• 29:36
  Speaker 1: The greater the odds are of a hard landing, and
• 29:38
  Speaker 1: the ten years should be pricing in you know, a
• 29:40
  Speaker 1: longer term view. And if we have a hard landing
• 29:43
  Speaker 1: next year, the Fed's cutting rates, I think a ten
• 29:46
  Speaker 1: year close to four percents going to look very cheap.
• 29:48
  Speaker 1: So I don't think we should sustain close to four
• 29:51
  Speaker 1: percent ten year rates. I mean, even if they go
• 29:54
  Speaker 1: fifty or they go twenty five, I think as long
• 29:58
  Speaker 1: as the FED is on the path of, you know,
• 30:01
  Speaker 1: continuing to hike, I know, people tend just want to
• 30:04
  Speaker 1: stay away from bonds at that point. I think that's
• 30:06
  Speaker 1: when you're supposed to be buying further out the curve
• 30:09
  Speaker 1: bonds because you're protecting against recession risks. Per what's the
• 30:13
  Speaker 1: thinking about. I mean, there's there's a school thought out
• 30:15
  Speaker 1: there that says the FED either has gone too far
• 30:18
  Speaker 1: or runs the risk of going too far. That, in fact,
• 30:22
  Speaker 1: given that seventy percent of the US economy service based,
• 30:25
  Speaker 1: raising indust rates really doesn't affect you know, the price
• 30:28
  Speaker 1: of food that much, for example, how do you think
• 30:32
  Speaker 1: about that? Is that does the FED in fact run
• 30:34
  Speaker 1: the risk of going too far? I think they're already restrictive,
• 30:38
  Speaker 1: and they're not ending right now, so I think they're
• 30:41
  Speaker 1: going to take rates even more restrictive. I hear your
• 30:44
  Speaker 1: point that they can't move lots of prices, but they
• 30:47
  Speaker 1: can and they will slow the economy. The you know,
• 30:50
  Speaker 1: the inflation is a very broad based metric right now,
• 30:54
  Speaker 1: across the board, there's rise in prices. So how the
• 30:57
  Speaker 1: FED is going to have to bring inflation down, especially
• 31:00
  Speaker 1: because it can't control a lot of the other parts
• 31:01
  Speaker 1: of inflation, would be to slow the labor market down.
• 31:05
  Speaker 1: I think it's the intended consequence of FED tightening is
• 31:08
  Speaker 1: to tighten financial conditions, weaken the economy, impact consumer spending,
• 31:12
  Speaker 1: and then those inflation numbers start to come down. I
• 31:16
  Speaker 1: keep being told why interest rates don't matter anymore, or
• 31:18
  Speaker 1: they matter. They matter to some parts of the economy
• 31:21
  Speaker 1: a lot more than others, and so we're seeing the
• 31:23
  Speaker 1: intersensitive sectors slow down. I think with enough of time,
• 31:27
  Speaker 1: the economy I think needs time, not more hikes, but
• 31:30
  Speaker 1: we're going to get more hikes from the FED. I
• 31:33
  Speaker 1: think later this year you'll see a more broad based
• 31:35
  Speaker 1: impact of these rate increases across across the economy. Are
• 31:40
  Speaker 1: cuts a twenty twenty three story or twenty twenty four story.
• 31:45
  Speaker 1: You know, Cuts is going to be really tricky because
• 31:47
  Speaker 1: it needs inflation some way close to three percent. I mean,
• 31:51
  Speaker 1: I know the FED says two percent is their target,
• 31:53
  Speaker 1: but I think if inflation gets closer to three they
• 31:56
  Speaker 1: can somewhat take a victory lab But it also needs
• 31:59
  Speaker 1: the unemployment. I think closer to five. So for your
• 32:03
  Speaker 1: question for twenty three, you have to have a huge
• 32:06
  Speaker 1: increase in the unemployment rate for cuts to be in
• 32:09
  Speaker 1: the Fed's thinking. So we're in the twenty four rate cuts.
• 32:13
  Speaker 1: In fact, we have the first rate cut only in
• 32:15
  Speaker 1: March of twenty four, but then we have very aggressive
• 32:17
  Speaker 1: rate cuts because once the unemployment rate is closed to four,
• 32:20
  Speaker 1: I think the Fed won't be shy. They'll be cutting
• 32:22
  Speaker 1: at fifty, cutting quickly to try and bring some accommodation
• 32:26
  Speaker 1: into the into the market. On the CPI print, we're
• 32:30
  Speaker 1: expecting on Tuesday the consensus on a month to month
• 32:33
  Speaker 1: growth of zero point four percent. It's a little bit
• 32:35
  Speaker 1: lower than the prior month zero point five percent. What
• 32:38
  Speaker 1: are you guys looking for at your shop? We're actually
• 32:42
  Speaker 1: looking for point five because some of the goods inflation
• 32:45
  Speaker 1: related decline seems to be reversing, especially with used car
• 32:48
  Speaker 1: prices and some of the other things like shelter cost
• 32:51
  Speaker 1: services at shelter all that is staying strong. So we
• 32:54
  Speaker 1: have a point five which is why I think that
• 32:57
  Speaker 1: fifty basis point hike in March is very much alive,
• 33:00
  Speaker 1: because point five is going to be a much stronger
• 33:02
  Speaker 1: same pace as last month. I think there's going to
• 33:04
  Speaker 1: be a big debate at the FED whether they move fifty. Now,
• 33:07
  Speaker 1: what about the two year ye old? Prea, how high
• 33:10
  Speaker 1: or low do we go on the two year? Yeah,
• 33:13
  Speaker 1: I think the two year is close to capping out
• 33:17
  Speaker 1: around five percent. But you know, the risk is not
• 33:20
  Speaker 1: a risk reward is not great in the front end
• 33:22
  Speaker 1: because if you get a point five on CPI actually
• 33:25
  Speaker 1: our foecast, you see the labor market strong and some
• 33:28
  Speaker 1: of the financial contagient fears slow down. The FED can
• 33:31
  Speaker 1: keep hiking and can push out the market, can push
• 33:34
  Speaker 1: out the timing of cuts, so the two year can
• 33:37
  Speaker 1: sell off more than that five percent. That's why I
• 33:39
  Speaker 1: prefer being further out the curve. I think risk reward
• 33:42
  Speaker 1: is better because I don't see a breakup of four
• 33:45
  Speaker 1: really sustained bases, but a breakup of five on twos
• 33:48
  Speaker 1: is possible if the you know, the data is strong,
• 33:52
  Speaker 1: because this FED is very data dependent. Yes, it is
• 33:54
  Speaker 1: all right, We really appreciate your time. Prea Misra, Managing
• 33:58
  Speaker 1: director and global head of Strategy at TD Securities. Before that,
• 34:02
  Speaker 1: she was doing this rates things at Bank of America
• 34:05
  Speaker 1: Merrill Lynch and then before that Lehman Brothers. So lots
• 34:07
  Speaker 1: of experience looking at the rates, looking at the FED,
• 34:11
  Speaker 1: and again, as Preas said, this is a FED that
• 34:13
  Speaker 1: is data dependent, and we've got a lot of data
• 34:16
  Speaker 1: for this Federal Reserve to parse. Markets been kind of
• 34:21
  Speaker 1: all over the place here today trying to digest economic data.
• 34:25
  Speaker 1: And the better than expected non farm payrolls came in
• 34:29
  Speaker 1: pretty strong. And then on the other side, he got
• 34:32
  Speaker 1: a bank, the sixteenth largest bank in the United States
• 34:34
  Speaker 1: by assets, it's now gone under. You know that does
• 34:38
  Speaker 1: not happen every day, So investors are trying to put
• 34:40
  Speaker 1: all that together. We want to check in with a professional,
• 34:43
  Speaker 1: and to do that we check in with Chance finukan
• 34:45
  Speaker 1: CIO and partner at Oxbow Advisors. So Chance, kind of
• 34:49
  Speaker 1: a wild day today with lots of information for investors
• 34:52
  Speaker 1: to kind of parse. What's your takeaway here, You're right,
• 34:56
  Speaker 1: this has been a wild day or a wild couple
• 34:58
  Speaker 1: of days. I think the couple of things that we
• 35:01
  Speaker 1: look at, first off, the payrolls report, I think that's enough,
• 35:05
  Speaker 1: even though it's a bit mixed between the payrolls being
• 35:08
  Speaker 1: higher than expected for the tenth straight months while the
• 35:10
  Speaker 1: unemployment rate rising was a negative and wage growth being
• 35:13
  Speaker 1: a bit lower than expected. We think the federal still
• 35:16
  Speaker 1: focus on the positive parts of that report so they
• 35:19
  Speaker 1: can continue to raise rates, which is going to be
• 35:21
  Speaker 1: a more difficult environment for financial assets. But on the
• 35:24
  Speaker 1: point of the SMVP financial going into receivership, what really
• 35:29
  Speaker 1: stuck out to us is we think this is going
• 35:31
  Speaker 1: to cause banks to tighten lending standards even further than
• 35:35
  Speaker 1: they already have. In January, banks forty five percent of
• 35:39
  Speaker 1: banks reported that they were tightening lending standards to large
• 35:42
  Speaker 1: and mid market businesses. And historically going back decades, when
• 35:46
  Speaker 1: you see a percentage that high, you're either in a
• 35:49
  Speaker 1: recession or heading into a recession. And if they're going
• 35:52
  Speaker 1: to tighten standards even further to try and get their
• 35:55
  Speaker 1: houses in order, that's going to slow down economic growth
• 35:58
  Speaker 1: even further and make it harder for us to try
• 36:01
  Speaker 1: and turn things around as an economy. Because you know,
• 36:03
  Speaker 1: it's interesting when you look at or when I look
• 36:05
  Speaker 1: at least SVB, I just see a concentration risk that
• 36:10
  Speaker 1: had to be number one on the risk factor for
• 36:12
  Speaker 1: any investor creditor there, and it in fact came home
• 36:15
  Speaker 1: to roost. I'm not sure. If it's anything more than that, yeah,
• 36:20
  Speaker 1: we'd agree. We don't think this is a systemic risk.
• 36:24
  Speaker 1: That was something that they clearly if you looked across
• 36:26
  Speaker 1: the top two dozen banks in the country, they had
• 36:29
  Speaker 1: the most risk. And really, when you look at a
• 36:32
  Speaker 1: bank when they're adding deposits at the rate that SVB,
• 36:36
  Speaker 1: their deposit based tripled in two years from twenty twenty
• 36:39
  Speaker 1: to twenty twenty two, and then they had to put
• 36:41
  Speaker 1: all of that deposits into mortgage backed securities and things
• 36:46
  Speaker 1: that have really fallen off. They just were in a
• 36:49
  Speaker 1: very difficult spot and did not handle it well. We
• 36:51
  Speaker 1: don't think other banks are in as bad as shape,
• 36:54
  Speaker 1: but I think it is going to cause other banks
• 36:56
  Speaker 1: CEOs to be more cautious and just make sure that
• 36:59
  Speaker 1: they don't have the same risk. And the one thing
• 37:01
  Speaker 1: they are fighting is we are seeing with large banks
• 37:05
  Speaker 1: that deposits has started to come down a little bit
• 37:07
  Speaker 1: in recent quarters, and they're going to have to continue
• 37:10
  Speaker 1: to raise the rates they're willing to pay customers on
• 37:13
  Speaker 1: those deposits, which is going to cause further compression in
• 37:16
  Speaker 1: their net interest margins, and then they're gonna have to
• 37:18
  Speaker 1: really try and manage their books with those securities they
• 37:21
  Speaker 1: own that are sitting on losses that they haven't had
• 37:24
  Speaker 1: to recognize yet in the market. But it's just going
• 37:27
  Speaker 1: to make it a difficult time for them to get
• 37:28
  Speaker 1: through this period and chance, I guess, just you know,
• 37:31
  Speaker 1: twenty twenty two was brutal for equity investors. For fixed
• 37:34
  Speaker 1: income investors, there's no getting around that. Twenty twenty three
• 37:37
  Speaker 1: it's kind of an up and down. Good January, bad February.
• 37:41
  Speaker 1: So far in March kind of treading water a little bit.
• 37:42
  Speaker 1: I mean, how do you think about putting money to
• 37:47
  Speaker 1: work in this market? The first thing we noticed with
• 37:52
  Speaker 1: how strong the market opened in January this year for stocks,
• 37:56
  Speaker 1: we didn't anticipate this, but you take the opportunities that
• 37:58
  Speaker 1: the market gives you. We actually shifted more of our
• 38:01
  Speaker 1: portfolio for our clients equity portfolios into defensive sectors like
• 38:05
  Speaker 1: healthcare or gold royalty businesses, and we're starting to see
• 38:09
  Speaker 1: consumer staples pulled back a little bit there. We actually
• 38:12
  Speaker 1: shifted more into that, which is good to have a
• 38:14
  Speaker 1: little bit more consistent cash flow businesses with great balance
• 38:18
  Speaker 1: sheets on days like today and yesterday. So we think
• 38:21
  Speaker 1: that's been the place in the equity market that we've
• 38:23
  Speaker 1: kind of just been trying to make sure we retain
• 38:25
  Speaker 1: some balance in the portfolios. But then more broadly, we're
• 38:29
  Speaker 1: seeing a lot more opportunities for income investors that we're
• 38:32
  Speaker 1: not there in recent years, where you've got short term
• 38:35
  Speaker 1: treasuries were yielding up to five percent, and then you
• 38:38
  Speaker 1: actually have some other investment grade securities, whether it's preferred
• 38:42
  Speaker 1: stocks or reats or MLPs, and even a few common
• 38:46
  Speaker 1: stocks that are yielding six or seven percent, And as
• 38:50
  Speaker 1: inflation continues to come down a little bit over the
• 38:52
  Speaker 1: course of the next few months, we think that'll actually
• 38:55
  Speaker 1: be a decent way to maintain purchasing power while you
• 38:58
  Speaker 1: wait to see what happens here with the equity market
• 39:02
  Speaker 1: and if some better opportunities pop up in the future.
• 39:05
  Speaker 1: So you know, on the equity front here, I mean,
• 39:08
  Speaker 1: one of the areas that had such a great run
• 39:10
  Speaker 1: last year was energy, and I'm looking at W T
• 39:13
  Speaker 1: I COUD oil here it's still seventy six seventy seven
• 39:15
  Speaker 1: dollars a barrow kind of where it's been. Has that
• 39:17
  Speaker 1: trade been played out or is there more room to
• 39:20
  Speaker 1: grow on energy. We pulled back on our energy position
• 39:25
  Speaker 1: last year and are really just only invested in a
• 39:28
  Speaker 1: few of the pipeline businesses where their cash flows are
• 39:32
  Speaker 1: not dictated by the fluctuation in the oil price. So
• 39:35
  Speaker 1: that's a better place to be with an energy right now,
• 39:38
  Speaker 1: we think that the problem they have is their year
• 39:41
  Speaker 1: over year comparisons. You're going to see their cash flows
• 39:44
  Speaker 1: come down from the middle of last year, and especially
• 39:48
  Speaker 1: with their cost inflation increasing. You saw that with the
• 39:51
  Speaker 1: Devon Energy report last month that the cost of labor, materials,
• 39:55
  Speaker 1: everything's just shooting higher if you're an EMP company, and
• 39:59
  Speaker 1: we think that lead to some further deterioration and energy
• 40:02
  Speaker 1: prices just for cyclical reasons. We think investors have been
• 40:06
  Speaker 1: trying to stay invested in the energy sector because they
• 40:09
  Speaker 1: see the structural opportunity because there's just not enough drilling
• 40:14
  Speaker 1: right now to bring new resources out of the ground,
• 40:17
  Speaker 1: and that could lead to a recovery in the oil price.
• 40:21
  Speaker 1: But right now we think the economic slowdown is a
• 40:24
  Speaker 1: bigger factor, and so we're maintaining some caution and just
• 40:27
  Speaker 1: waiting for a better entry point. So one of the
• 40:30
  Speaker 1: sectors that has just been the leader, the leader of
• 40:33
  Speaker 1: this market for a decade plus has been technology. But
• 40:36
  Speaker 1: you know, how do you think tech performs in a
• 40:39
  Speaker 1: high interest rate environment? It really was a tough slog
• 40:41
  Speaker 1: in twenty twenty two, it was, and especially for some
• 40:45
  Speaker 1: of those very high multiple like a high price to
• 40:49
  Speaker 1: earnings ratio stocks or stocks that had no earnings. It
• 40:52
  Speaker 1: was a really terrible year in twenty twenty two, just
• 40:54
  Speaker 1: with interest rates rising and everyone wanted to start seeing
• 40:58
  Speaker 1: free cash flow generated sooner rather than and later. Our
• 41:01
  Speaker 1: advice would be a really focus on the companies that
• 41:04
  Speaker 1: have high profit margins and great balance sheets. So some
• 41:07
  Speaker 1: of the more mature tech businesses that you think can
• 41:11
  Speaker 1: continue to generate consistent cash flow through this period. You
• 41:14
  Speaker 1: know they'll be able to manage through things. Okay, wait
• 41:17
  Speaker 1: for those types of businesses and buy them evaluations you
• 41:20
  Speaker 1: think are attractive. We wouldn't advise trying to catch any
• 41:23
  Speaker 1: of these newer tech companies that still don't have any
• 41:26
  Speaker 1: profits to report. All right, Chance, thanks so much for
• 41:29
  Speaker 1: joining us. Always appreciate getting your perspective. Chance Finukan, he's
• 41:32
  Speaker 1: a CIO and a partner in Oxbow Advisors, giving us
• 41:36
  Speaker 1: his thoughts on these markets. Thanks for listening to the
• 41:39
  Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
• 41:43
  Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm
• 41:47
  Speaker 1: Matt Miller. I'm on Twitter at Matt Miller nineteen seventy
• 41:50
  Speaker 1: three and on false Swhee, I'm on Twitter at pt Sweeney.
• 41:54
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 41:56
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