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Bank CEOs, Oil, and Rate Cuts · Bloomberg Intelligence

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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: Every business day we bring you interviews from CEOs, market pros,
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0:55
Speaker 2: There's a lot going on Souper to Washington. We've been
0:59
Speaker 2: totally ripping up this screw. As Tom Keenan would say,
1:01
Speaker 2: Joe Matthew He is our go to voice for Bloomberg
1:04
Speaker 2: Radio and television down in Washington, DC. He joins US,
1:08
Speaker 2: as does Mick mulroy, co founder of the Lobo Institute
1:11
Speaker 2: and former Deputy Assistant Secretary of Defense for the Middle
1:14
Speaker 2: East at the US Department of Defense. Former US Marine
1:18
Speaker 2: Infantry officer for sixteen years. We thank him, of course
1:21
Speaker 2: for his service. Joe, let's start with you, McCarthy. What
1:25
Speaker 2: do you make of it? I know you're gonna tell
1:27
Speaker 2: me that you guys down in DC were expecting it.
1:29
Speaker 2: Simone and I totally were not yet by surprise. So
1:32
Speaker 2: what does it mean.
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Speaker 3: I won't go that far. Okay, I do, by the way,
1:36
Speaker 3: I'm bouncing back if we can fix that. But I
1:37
Speaker 3: know it's got to be a heck of a day
1:39
Speaker 3: if you call me twice, yes, in one day. But yet, Look,
1:43
Speaker 3: there were questions about what he was going to do
1:45
Speaker 3: because he had not announced his plans for re election,
1:49
Speaker 3: and so a little bit difficult. Sorry about that. It's
1:52
Speaker 3: so yeah, not a massive shocker knowing he had not
1:56
Speaker 3: announced his plans. Thank you for that, But the timing
2:00
Speaker 3: is what blew me away. Gone by the end of
2:03
Speaker 3: the year. That's a lot different than saying you're not
2:05
Speaker 3: going to run for reelection, and following yesterday's news, Patrick McHenry,
2:09
Speaker 3: the Chair of the Financial Services Committee, who was acting Speaker,
2:12
Speaker 3: Remember he was slamming the gavel and anger just a
2:14
Speaker 3: couple of months ago, or I guess it was weeks
2:16
Speaker 3: at this point, he just announced that he's leaving the
2:19
Speaker 3: House as well. So you put these two together and
2:21
Speaker 3: it's two major retirement slash resignations for the Republican conference
2:26
Speaker 3: in the House, and it tells us a lot about
2:27
Speaker 3: the chaos that we've been seeing.
2:29
Speaker 4: Nick, does this have any impact on the overall discussions
2:33
Speaker 4: that we expect to see happen and negotiations we expect
2:37
Speaker 4: to see happen both around Ukraine AID as well as
2:40
Speaker 4: AID for Israel.
2:43
Speaker 5: Yes, I think it does. Actually, I think a lot
2:45
Speaker 5: of the people that are retiring are people that at
2:48
Speaker 5: least initially were very supportive of Ukraine AID in the
2:53
Speaker 5: role that the United States has played in getting the
2:56
Speaker 5: world together to get behind them. So as you see
2:58
Speaker 5: these individuals get replaced, the concern will be that they're
3:02
Speaker 5: going to be more inclined with I guess the far
3:05
Speaker 5: right of the Republican Party that now sees this as
3:08
Speaker 5: something that we shouldn't be doing. I obviously would disagree
3:12
Speaker 5: with that, but I think these shifts may have an impact.
3:14
Speaker 5: You're already seeing it, and you're also seeing and I've
3:17
Speaker 5: been up there to brief many fence sitters, if you will,
3:21
Speaker 5: you're also seeing them say that as we get closer
3:24
Speaker 5: to the election that this is going to be even
3:25
Speaker 5: harder to pass this one hundred plus billion dollars in
3:29
Speaker 5: support to Ukraine. So the quicker we can do this,
3:32
Speaker 5: the better, and before a lot of these individuals are replaced,
3:36
Speaker 5: is also a good thing.
3:37
Speaker 2: Hey, Mick, we're still waiting comments from President Biden about
3:40
Speaker 2: the funding including Ukraine. Give us your updated view of
3:44
Speaker 2: how critical additional funding for Ukraine is because it's, quite
3:48
Speaker 2: frankly and unfortunately for them, the events in Israel have
3:51
Speaker 2: kind of taken Ukraine off the front page. Just give
3:53
Speaker 2: us an update from your perspective.
3:57
Speaker 6: That's a good point.
3:57
Speaker 5: I haven't talked about Ukraine in over a month, so
4:00
Speaker 5: that should say something.
4:02
Speaker 6: I do think.
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Speaker 5: You know, we have to remember this is somewhat of
4:05
Speaker 5: a David and Goliath type scenario. We forgot that. But
4:08
Speaker 5: if you go back to the beginning of when what's
4:10
Speaker 5: Russian invaded. Everybody expected this to be over in weeks
4:13
Speaker 5: and keep to fall and everything. Look where we are now,
4:16
Speaker 5: where it's a counter offensive, counter offensive for the Ukrainians. Yes,
4:20
Speaker 5: it has stalled. Yes it's very difficult, but it's an
4:23
Speaker 5: entirely different situation. And part of that is because of
4:26
Speaker 5: the support that's come to them from Europe and from
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Speaker 5: the United States, with the United States being the leader
4:31
Speaker 5: in that. If we failed to support them this one
4:35
Speaker 5: hundred billion plus dollars, they're going to be in a
4:38
Speaker 5: serious situation. This is largely a war of attrition. Now
4:42
Speaker 5: it's in inches, but Ukraine is on the offense and
4:45
Speaker 5: it really needs the munitions to be able to take
4:49
Speaker 5: on and go into the defenses that Russians have built
4:52
Speaker 5: over many many months before this counter offensive start. If
4:55
Speaker 5: we pull out now, that is a big problem for
4:59
Speaker 5: the Ukrainians. Could this could then start, the type could
5:01
Speaker 5: start turning and we could see the Russians start gaining ground.
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Speaker 2: Boy, all right, here's just a quote today from President
5:07
Speaker 2: of Zelenski of Ukraine. Quote. We have a realistic action
5:10
Speaker 2: strategy and it is our efforts with your support, that
5:13
Speaker 2: can ensure Ukraine's success on the ground. Zelenski said in
5:16
Speaker 2: a speech to G seven leaders, including President Joe Biden,
5:19
Speaker 2: during a virtual meeting Wednesday.
5:21
Speaker 4: Yeah, Joe, what's your sense of how much political support
5:25
Speaker 4: that can be a drawn up for Ukraine? Because it
5:29
Speaker 4: does seem like when you you know, if you look
5:31
Speaker 4: across the majorities of these two chambers, you know probably
5:36
Speaker 4: if you could just put the resolution on the floor,
5:39
Speaker 4: they'd get passed. But you know who can be pulled
5:43
Speaker 4: on the fence.
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Speaker 3: What you just said is correct. If you put Ukraine
5:46
Speaker 3: funding on the floor of the House, we already saw
5:48
Speaker 3: it happen with standalone Israel funding, it would pass, and
5:50
Speaker 3: it would pass with bipartisan support. The question is procedure
5:55
Speaker 3: in this case and exactly what the Speaker of the
5:57
Speaker 3: House can get away with with a actured conference. Look,
6:02
Speaker 3: Kevin McCarthy just left for a reason. Mike Johnson has
6:06
Speaker 3: to figure out a way around this. Here he says
6:08
Speaker 3: that he supports getting this done, he does not want
6:10
Speaker 3: to do it, by the way, all in one pop.
6:12
Speaker 3: This more than one hundred billion dollar request that President
6:15
Speaker 3: Biden made. He wants to have bills on Israel, Ukraine,
6:18
Speaker 3: Taiwan separately on the floor, and he wants Ukraine tied
6:23
Speaker 3: to border funding, border security changes in asylum law, something
6:27
Speaker 3: that has eluded lawmakers for decades. The prospect of getting
6:32
Speaker 3: that done in the next couple of weeks is not
6:34
Speaker 3: looking really great, which is why it's likely this is
6:36
Speaker 3: going to turn into something next year. The White House
6:39
Speaker 3: says they're out of time, they're out of money. But
6:42
Speaker 3: until this can be taken care of on the border,
6:44
Speaker 3: something that Republicans and Democrats can swallow, it's not likely
6:48
Speaker 3: going to happen.
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Speaker 2: Hey, Mick, you know, probably a week or so ago,
6:51
Speaker 2: we spoke with the Admiral Strevetis, former head of NATO,
6:54
Speaker 2: and he made a point. He had just returned from
6:56
Speaker 2: a trip to South Korea, and he felt like, what's
6:58
Speaker 2: gonna What probably and is likely to happen in Ukraine
7:01
Speaker 2: is some type of trade land for peace, much like
7:05
Speaker 2: it happened in Korea. Is that a scenario now that
7:08
Speaker 2: it appears that it's become more of a kind of
7:11
Speaker 2: drawn out situation here militarily.
7:15
Speaker 5: Yes, I think the Admiral is right. I think that
7:17
Speaker 5: is something that will be looked at and probably is
7:19
Speaker 5: already being looked at, But ultimately it's going to be
7:22
Speaker 5: up the Ukrainian people. President Zelinski said he's going to
7:25
Speaker 5: need a referendum when it comes to giving any land away,
7:28
Speaker 5: but there needs to be something in return, and I
7:31
Speaker 5: think that will be of course peace, but also potentially
7:34
Speaker 5: NATO membership. If I was in their shoes, I wouldn't
7:37
Speaker 5: want to give any territory away unless I had absolute
7:40
Speaker 5: assurances security wise that this wasn't going to happen again.
7:44
Speaker 5: And one way to do that is to get into NATO,
7:47
Speaker 5: which of course then gives them the Article five protection
7:50
Speaker 5: if they're ever attacked again. So I don't know where
7:53
Speaker 5: that stands right now, but I know that those discussions
7:55
Speaker 5: are ongoing. And as this to your point of your question,
7:58
Speaker 5: as this goes into this kind of stalemate, it's going
8:01
Speaker 5: to be more and more likely because the stalemate means
8:03
Speaker 5: nobody's really gaining a lot, doesn't mean people aren't dying.
8:07
Speaker 5: So it is it is still incumbent on both sides
8:10
Speaker 5: to look at what they can do to end this
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Speaker 5: in a way that's at least acceptable to both both countries.
8:16
Speaker 4: Are the Ukrainians optimistic that at any point that there
8:21
Speaker 4: can be a sort of breakthrough, an end to the stalemate.
8:24
Speaker 4: I know that, you know, throughout the spring, in the summer,
8:27
Speaker 4: you know, there were moments where they said yes in
8:30
Speaker 4: the next couple of weeks. But has that kind of
8:33
Speaker 4: optimism's gone away?
8:37
Speaker 5: So I don't think the optimism has gone away from
8:39
Speaker 5: the Ukrainian people. I think they're in it to the end.
8:42
Speaker 5: You know, there was just one story that was out
8:44
Speaker 5: there about the Ukrainian soldier that called in all of
8:48
Speaker 5: the artillier on his own position because it was about
8:50
Speaker 5: to be overrun, and of course killed all the Russian
8:52
Speaker 5: troops that were about to overrun his positions. But that
8:55
Speaker 5: those kind of things really indicate to me is somebody
8:57
Speaker 5: spent a lot of time in conflicts. People that do
9:00
Speaker 5: that don't generally lose wars. They'll go to the end.
9:03
Speaker 5: And I think that's what really is that kind of
9:06
Speaker 5: power that the Ukrainian people have. They are tenacious and
9:08
Speaker 5: they're never going to give up. And Russian people, I
9:10
Speaker 5: think realize that they've lost so many They've lost more
9:14
Speaker 5: people in this conflict that we lost in Vietnam if
9:18
Speaker 5: you think about the time difference in that. So this
9:20
Speaker 5: is something that I think really is that factor that
9:24
Speaker 5: you can't duplicate, you can't buy. It's ingrained in the
9:27
Speaker 5: Ukrainian people to keep fighting. I do think once the
9:30
Speaker 5: summer hits again, in all the weapons systems that we've provided,
9:33
Speaker 5: and a lot of the advanced ones that we're training
9:35
Speaker 5: them on now, like the F sixteen, they will start
9:38
Speaker 5: gaining some terrain. So Russia is going to be very
9:41
Speaker 5: concerned when all that comes together and there's a and
9:44
Speaker 5: they really start pushing in the spring.
9:47
Speaker 4: Can we shift to the conflict in the Middle East? Now?
9:51
Speaker 4: Israel appearing to draw some criticism, increasing criticism, I would
9:56
Speaker 4: say from the Biden administration. We saw some restrictions on
9:59
Speaker 4: v is first, really settlers involved in violence in the
10:03
Speaker 4: West Bank come into play yesterday. How much of a
10:09
Speaker 4: divide is how much criticism truly is the Biden administration
10:14
Speaker 4: placing on Israel? And you know, is it truly intensifying
10:19
Speaker 4: or are these just little bits and pieces that we see.
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Speaker 5: So I do think it's intestifying. I think at first
10:26
Speaker 5: and still today, the United States is the most significant
10:30
Speaker 5: partner to Israel. And I think any country that was
10:33
Speaker 5: attacked like they were on October seventh, what have as
10:36
Speaker 5: their objective to destroy the entity that did that in
10:40
Speaker 5: this case Hamas so militarily degrade them to a point
10:43
Speaker 5: where they're not combat effected. But the way they went
10:47
Speaker 5: about it, especially in the shaping part of this operation,
10:52
Speaker 5: the shaping phase where it was significant bombing in areas
10:56
Speaker 5: to essentially destroy tunnels, but there are in urban areas
11:00
Speaker 5: brought down the multiple buildings at the same time. That's
11:02
Speaker 5: why we're seeing this level of civilian casualties at the
11:05
Speaker 5: fifteen thy sixteen thousand. Now, I think at first that
11:09
Speaker 5: was all said behind the scenes. Now you're seeing more
11:11
Speaker 5: and more public statements that they expect Israel to shift
11:15
Speaker 5: tactics so they can reduce the amount of civilian casualties
11:18
Speaker 5: because this is just not acceptable in their view in
11:22
Speaker 5: many military analysis view, but also a need to address
11:26
Speaker 5: the humanitarian catastrophe that's happening right now because they can't
11:29
Speaker 5: get enough humanitarian aid into gods. So I think you'll
11:32
Speaker 5: see the United States, of course stick with our partner
11:34
Speaker 5: in Israel, and they're objective, but also really push them
11:38
Speaker 5: to do in a manner that doesn't completely alienate them
11:41
Speaker 5: from the rest of the world and make our job
11:43
Speaker 5: in supporting them more difficult.
11:45
Speaker 2: So I mean in terms of that objective which was
11:48
Speaker 2: originally stated by Israel, complete annihilation of Hamas, Is that,
11:54
Speaker 2: even in practicality possible? I mean, how do you eradicate
11:59
Speaker 2: a terrorist organization. It's not like, you know, defeating an
12:04
Speaker 2: army of a state. So does that need to be rethought.
12:09
Speaker 5: Yes, especially if you put it as eliminate Hamas. Right,
12:12
Speaker 5: So we know at the CIA, I spent twenty years there,
12:15
Speaker 5: all my colleagues, all the military, we spent twenty years
12:18
Speaker 5: trying to defeat al Qaeda in its offshoots. Right, you
12:23
Speaker 5: can't defeat philosophy. In fact, oftentimes if you're heavy handed,
12:28
Speaker 5: you create more of the problem what they're trying to do.
12:31
Speaker 5: And I think when you get into talking to the
12:33
Speaker 5: idea of seniors, which I do, they're trying to destroy
12:38
Speaker 5: their military capacity. They realize the philosophy itself is not
12:42
Speaker 5: something that can be destroyed, but to reduce their weapons stashes.
12:47
Speaker 5: They're especially precision guided, their soldiers, their leadership, Capture their
12:51
Speaker 5: leadership and destroy these tunnels, which gives them a lot
12:54
Speaker 5: of military advantages. That's what they're really trying to do.
12:57
Speaker 5: I don't think anybody there thinks that they're going to
12:59
Speaker 5: destroy the eye biology and that either HAMAS or something
13:02
Speaker 5: like AMAS isn't going to continue. They just want to
13:05
Speaker 5: reduce the threat to it's manageable. And then the question
13:07
Speaker 5: is going to be what comes next, because if the
13:09
Speaker 5: international community doesn't come up with some kind of security
13:12
Speaker 5: and stabilization force that's acceptable to both, then the IDF
13:16
Speaker 5: is going to stay there long term, and that's going
13:17
Speaker 5: to be a lot of international pressure to change that.
13:20
Speaker 2: All right, Nick, thanks so much for joining us. Mick mulroy,
13:23
Speaker 2: he is co founder of the Lobo Institute. He's absolutely
13:26
Speaker 2: our go to voice on so many of these geopolitical
13:29
Speaker 2: issues given his experience at the US Department of Defense, CIA,
13:34
Speaker 2: the United States Marine Corps. I mean, the guy's done everything,
13:37
Speaker 2: so we really appreciate getting a few minutes of his time.
13:41
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13:54
Speaker 2: So let's get back to the discussion of the banks here.
13:56
Speaker 2: Chris Whalen is at Whaling Global Advisors. He knows a
14:01
Speaker 2: thing or two about these banks. Chris, let's just start
14:04
Speaker 2: with the testimony down to Washington, DC. What are in
14:09
Speaker 2: the banks really want as it relates to this latest
14:12
Speaker 2: round of potential regulation.
14:16
Speaker 6: I think they want to kill it, delay it, and
14:20
Speaker 6: force the FED and the other regulators to do their homework.
14:24
Speaker 6: You know, as Jamie Diamond eluded and several others eluded
14:28
Speaker 6: Senator Kennedy. There's no prior art this analytical framework that's
14:34
Speaker 6: in this rule. They didn't do the work, and this
14:37
Speaker 6: breaks the process that we've had with BOSEL going back
14:41
Speaker 6: twenty years and more. It says, you know, we're going
14:45
Speaker 6: to test it, we're going to argue about it, we're
14:47
Speaker 6: going to publish it so we can see all the work,
14:51
Speaker 6: and then we're going to adopt it. They're not doing that.
14:53
Speaker 6: And this is part and parcela what you see throughout
14:55
Speaker 6: the Biden administration in many areas like housing, where I
14:59
Speaker 6: spend most my time, where they come up with these
15:02
Speaker 6: crazy ideas that are clearly unworkable, but they're doing it
15:06
Speaker 6: for political reasons. You know, for example, they want lenders
15:10
Speaker 6: to use two different credit scores now for lending. It's
15:14
Speaker 6: arithmetically impossible, and so the FHFA, which regulates Fanny and
15:19
Speaker 6: Fanny told them the average to two scores, which is crazy.
15:25
Speaker 6: But that's what we're dealing with now. So you guys
15:28
Speaker 6: at Bloomberg understand what's involved when you start mucking around
15:32
Speaker 6: with credit scores in the world of Shakestea income, that's
15:35
Speaker 6: not a trivial thing. But the Biden people are going
15:38
Speaker 6: for it because they want talking points. You can see
15:42
Speaker 6: that Cherick Brown is having a tough time politically. Yeah,
15:45
Speaker 6: you spent five minutes talking about the TV ads about
15:49
Speaker 6: bossl do you imagine, right?
15:53
Speaker 7: Exactly?
15:53
Speaker 2: So all right, we're waiting. That is, we're waiting for
15:55
Speaker 2: President Biden. He's going to be scheduled to make some
15:58
Speaker 2: comments shortly on and the apackage to Ukraine when that
16:02
Speaker 2: and when he does come, we will bring this to you.
16:05
Speaker 4: You know, you were talking, Chris about sort of the
16:08
Speaker 4: unworkability of some of these proposals, but you know, haven't
16:11
Speaker 4: we seen European regulators do something quite similar. Where are
16:17
Speaker 4: the differences here and where is there potent potentially room
16:23
Speaker 4: for a compromise between the banks themselves and between regulators.
16:28
Speaker 6: Well, the European situations Timona is very different because you
16:32
Speaker 6: don't have middle market banking in Europe. The governments take
16:36
Speaker 6: all that business. So the big banks basically are banking
16:41
Speaker 6: larger corporations, government entities, and then they go offshore and
16:45
Speaker 6: they compete with city for example, you know, the markets.
16:48
Speaker 6: So their approach to things like housing is they don't
16:52
Speaker 6: like housing. They don't like the idea of single family homes.
16:56
Speaker 6: So the Bossil rule from years ago reflects the US
17:01
Speaker 6: missed that one and it was unfortunate. Now they're going
17:05
Speaker 6: after it even more, things like mortgage servicing rights. I
17:08
Speaker 6: don't think the two perspectives are really compatible at the
17:11
Speaker 6: end of the day. The Europeans treat business, treat banks
17:15
Speaker 6: as second class citizens, and they don't even think about,
17:19
Speaker 6: you know, starting new banks and that sort of thing.
17:22
Speaker 6: In the US, our bond market has been our strength,
17:25
Speaker 6: the fact that we have private credit markets, and you know,
17:28
Speaker 6: our banks still are very important players in that, but
17:31
Speaker 6: they're much less involved. You know, I doubt many people
17:35
Speaker 6: on the Senate Banking Committee realize that eighty percent of
17:37
Speaker 6: all residential mortgages today are underwritten and serviced by non banks.
17:44
Speaker 2: The you know, that's that Cinneria I wanted to go
17:46
Speaker 2: to private credit. It's now a one point five trillion
17:49
Speaker 2: dollar business that kind of sprang up right after the
17:52
Speaker 2: Great Financial Crisis. Now, the concerns seemed to be when
17:55
Speaker 2: people are getting concerned about the lack of transparency, the
17:58
Speaker 2: lack of regulation from that market. Can you give us
18:01
Speaker 2: your thoughts there?
18:02
Speaker 6: Yeah, Jamie Diamond and the other witnesses alluded to this,
18:06
Speaker 6: which is at more than half of the private credit
18:08
Speaker 6: market is now conducted by non banks. These are funds,
18:13
Speaker 6: These are other types of entities ups that are not
18:16
Speaker 6: particularly transparent. You know, when a private reap, for example,
18:20
Speaker 6: calculates net asset value, there's no rule for how they
18:24
Speaker 6: do that, so you know, it's, to say the least,
18:28
Speaker 6: it's hard to judge what's going on inside these entities
18:31
Speaker 6: and the banks financed them. So that's why a couple
18:35
Speaker 6: of the witnesses referred specifically to that and said do
18:38
Speaker 6: you want more of that? And that's the real question
18:41
Speaker 6: before both the Senate and the bank regulators. Do you
18:44
Speaker 6: really want to go down this road? Because the capital
18:47
Speaker 6: rates are so punitive that no US large bank would
18:51
Speaker 6: want to be in residential mortgage at all. Think about that.
18:55
Speaker 6: No condo loans. You know, that's largely a big bank market.
19:00
Speaker 6: The little banks don't do much business there.
19:03
Speaker 4: But you know too that at the same time stability
19:06
Speaker 4: within the broader financial system. This was always one of
19:09
Speaker 4: the arguments by hedge funds and private equity firms that
19:12
Speaker 4: you know, well, banks shouldn't be in some of in
19:15
Speaker 4: some of this business, we're pulling some of the risk
19:18
Speaker 4: out of, you know, the financial system.
19:22
Speaker 6: And I agree with that. Operationally, we want non banks
19:25
Speaker 6: to take care of mortgages. They're much better at it,
19:28
Speaker 6: much better orders of magnitude, more efficient, and it's good
19:32
Speaker 6: to have the commercial banks as the lenders. They are
19:35
Speaker 6: essentially the gatekeepers, right. But you and I both know
19:39
Speaker 6: that if a money market funder rolled over, the government
19:42
Speaker 6: would intervene. This is why I said was doing two
19:45
Speaker 6: trillion dollars of reverse repost a year ago. They essentially
19:50
Speaker 6: had to come in and save the money market funds
19:52
Speaker 6: from getting zeroed out when t bills were very low. Today,
19:57
Speaker 6: that problems reversed itself in Yellen's issuing a lot of
20:00
Speaker 6: tea bills to facilitate that. Right, But long term, I
20:04
Speaker 6: think the non bank sector is going to have to
20:06
Speaker 6: live with the interest rates like everybody else, and I
20:09
Speaker 6: think the long end of the curve will be higher
20:11
Speaker 6: than it is today. That's going to normalize, right, That'll
20:14
Speaker 6: be a different world for non banks, particularly because they
20:17
Speaker 6: funds in the bond market. Unless you're a read and
20:20
Speaker 6: you can sell stock, most other non banks have to
20:23
Speaker 6: put out high yield term debt raise capital, and then
20:27
Speaker 6: the banks do all the secured financing for them. So
20:30
Speaker 6: if you're a fund whatever, it is right right night,
20:33
Speaker 6: you know, but it is such an important part of
20:35
Speaker 6: the economy. I like the partnership with the banks doing
20:38
Speaker 6: the wholesale work. I think it's better for them. Okay,
20:41
Speaker 6: they don't want to face consumers now, all.
20:44
Speaker 2: Right, Chris, thanks so much for joining us. Chris Whalen,
20:47
Speaker 2: chairman of Waling Global Advisors.
20:49
Speaker 7: You're listening to the tape cats are Line program Bloomberg
20:52
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20:56
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20:59
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21:08
Speaker 4: Talk to somebody who.
21:09
Speaker 2: Does this for Living Quincy Crosby, she's achieved the global
21:12
Speaker 2: strategist for LPL Financial. She joins us Quincy, what do
21:16
Speaker 2: you make of the last four or five weeks? That
21:18
Speaker 2: was the heck of a November four all these markets.
21:22
Speaker 8: Well, it was, And what the beautiful part of it
21:25
Speaker 8: is is how perverse the markets can be. Because what
21:29
Speaker 8: happened was we were in October and by the time
21:33
Speaker 8: we got to the end of the October, nobody believed
21:36
Speaker 8: in seasonality. Nobody believed in November or December seasonality. Nobody
21:41
Speaker 8: believed that this market could actually enjoy an important rally.
21:45
Speaker 8: And then on November first, almost like clockwork, we get
21:49
Speaker 8: the Treasury announcement, which was positive for the markets in
21:53
Speaker 8: terms of funding needs a little bit lower. And then
21:56
Speaker 8: the Fed at that afternoon meeting right after the Treasury announcement,
22:00
Speaker 8: for the market interpreting it as at dubbish pivot that
22:05
Speaker 8: they're finished. Then added to all of this is the
22:10
Speaker 8: most important narrative, and that is that the market is
22:13
Speaker 8: convinced that the FED is going to cut rates even
22:16
Speaker 8: as early as March. This part of that narrative is
22:21
Speaker 8: I think completely what the market is focused on. However,
22:25
Speaker 8: when we see these yields coming down, we always look
22:28
Speaker 8: at the pace of a direction, how quick or how slow.
22:32
Speaker 8: It has been very fast, coming from five percent on
22:35
Speaker 8: October nineteenth all the way down to today, it's been
22:39
Speaker 8: very quick. How about that. It is screaming a difficult economy,
22:45
Speaker 8: a difficult backdrop, a perhaps a pride for help from
22:50
Speaker 8: the Federal Reserve, which is sticking to its narrative. No,
22:53
Speaker 8: we're not going to cut rates. The market is saying
22:56
Speaker 8: you're wrong, and you know it. And so it's going
22:58
Speaker 8: to be interesting to see what the Fed has to
23:00
Speaker 8: say next week.
23:01
Speaker 4: Well, we have before we get to next week, a
23:04
Speaker 4: big week of economic data, culminating with the jobs report,
23:09
Speaker 4: and we have very disparate signals coming through. Is the
23:13
Speaker 4: data bad enough to warrant some of what we're seeing
23:18
Speaker 4: in interest rates WAPs? You know, the Fed cuts next year,
23:21
Speaker 4: or our investors getting ahead of themselves.
23:25
Speaker 8: Well, they're probably getting ahead of themselves. But again, when
23:28
Speaker 8: you look at the treasury market and you see the
23:31
Speaker 8: rates coming down that quickly, it typically is underpinned by
23:36
Speaker 8: a growth scare. I mean, you don't usually see rates
23:39
Speaker 8: coming down that quickly. When rates moved up dramatically to
23:43
Speaker 8: five percent. Jennert Yellen said, well, the term premium, it
23:48
Speaker 8: is based on the fact that the economy is so strong. Well,
23:51
Speaker 8: now that we're going in the other direction, doctor Yellen,
23:54
Speaker 8: I wonder what she has to say now about how
23:56
Speaker 8: strong the backdrop.
23:58
Speaker 4: Is hold up though? Direction we saw it wasn't third
24:02
Speaker 4: quarter GDP point two percent annualized. Are we truly going
24:05
Speaker 4: in the other direction?
24:07
Speaker 8: Well, right now, the same forecaster, the Atlanta Fed GDP
24:12
Speaker 8: now that had it almost nailed at five point one
24:15
Speaker 8: five point two percent for the third quarter is looking
24:18
Speaker 8: at one point three percent right now. Of course, tomorrow
24:21
Speaker 8: is going to Friday is going to make an important
24:23
Speaker 8: difference in terms of what it has for December. But
24:26
Speaker 8: the fact is it's not a recession. It may not
24:29
Speaker 8: be stellar, but it's not a recession. But again, this
24:33
Speaker 8: persistence of the market saying the Fed is going to
24:36
Speaker 8: cutreates it doesn't end. In fact, if anything, it's been intensifying.
24:41
Speaker 2: All right, So, Quincy, it's it's December. It's time to
24:43
Speaker 2: start looking towards the year ahead. Here, what are you
24:46
Speaker 2: telling your clients about twenty twenty four.
24:49
Speaker 8: Well, our view is that, first of all, to end
24:52
Speaker 8: this year. We like the fact that we're seeing some consolidation.
24:56
Speaker 8: Even though it's this meandering between positive negative terity, it's
25:00
Speaker 8: moving sideways. That's pretty healthy. It should lead us to
25:03
Speaker 8: a rally toward the end of the year. However, we
25:07
Speaker 8: don't want it to be completely overbought going into next
25:10
Speaker 8: year because that sets the stage for more of a
25:13
Speaker 8: market pulling back as the market figures out how is
25:17
Speaker 8: the economy growing? Is it slowing too much at this
25:21
Speaker 8: stage is still a question mark. We're still in positive
25:24
Speaker 8: territory in terms of GDP forecasts, so we're looking at quality. Actually,
25:30
Speaker 8: we're looking at large cap growth, and we think that
25:34
Speaker 8: is the place to be, particularly if you're in companies
25:36
Speaker 8: that have strong balance sheets. That's how we're looking at
25:39
Speaker 8: the beginning of next year. We do think a recession
25:42
Speaker 8: may hit. It could be a technical recession, just as
25:44
Speaker 8: we had over a year ago. But the fact is
25:47
Speaker 8: we do see a slow down and then you're listening.
25:50
Speaker 7: To the tape. Catch our live program Bloomberg Markets weekdays
25:54
Speaker 7: at ten am Eastern on Bloomberg Radio, Tune it up,
25:57
Speaker 7: Bloomberg dot Com and the Bloomberg Business app. You can
26:00
Speaker 7: also listen live on Amazon Alexa from our flagship New
26:03
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26:04
Speaker 9: Just say we were marveling earlier at the Russell two thousand,
26:11
Speaker 9: the only index that's actually moving today, up eight tens
26:15
Speaker 9: of one percent.
26:16
Speaker 4: Are you seeing breath coming back into this market in
26:20
Speaker 4: twenty twenty.
26:21
Speaker 8: Four, Well, most likely we will unless the market and
26:26
Speaker 8: the backdrop is very weak, because we know that what
26:29
Speaker 8: happens is the market narrows and the money goes into
26:33
Speaker 8: those big, big, megaatech names because they are seen as defensives.
26:38
Speaker 8: The Russell two thousand, I watch it as a bellwether
26:41
Speaker 8: because I'll tell you, as soon as it believes that
26:44
Speaker 8: the economy is slowing too much, that market just pulls
26:47
Speaker 8: right back down. It is granular. It is probably the
26:50
Speaker 8: most important bell weather of the economy, the real economy
26:55
Speaker 8: that we have, because but it will move quickly. And
26:57
Speaker 8: so I think it's great that it's moving higher because
27:00
Speaker 8: at this point it's suggesting that the economic backdrop remains constructive.
27:05
Speaker 8: The banks twenty percent of banks, twenty percent industrials, and
27:09
Speaker 8: you've got buyer checks in there. The banks are moving
27:12
Speaker 8: and that's why they're moving higher because rates are coming down.
27:15
Speaker 8: But the economy is still solid according to the Russell
27:18
Speaker 8: two thousand. That will probably change as we move into
27:21
Speaker 8: it a more difficult environment in twenty twenty four as
27:25
Speaker 8: the market absorbs still the higher rates.
27:29
Speaker 2: You know, it's interesting, Quincy. Just another part of the
27:32
Speaker 2: market that's just been running all over the place is
27:34
Speaker 2: the energy market. WTI crewde oil is down four point
27:37
Speaker 2: two percent today. We're not below seventy dollars a barrel.
27:40
Speaker 2: I mean, I've said it once, I'll say it again.
27:42
Speaker 2: I'm so glad I didn't. I could never be an
27:44
Speaker 2: oil trader. The volatility just crushed me. What do you
27:48
Speaker 2: make about the energy space? I mean, is it too
27:50
Speaker 2: much volatility for you to look at or how do
27:52
Speaker 2: you guys think about that?
27:53
Speaker 8: No, no, we look at it, and having worked in it,
27:56
Speaker 8: I actually enjoy this. There's trouble in the OPEC plus
28:04
Speaker 8: cartel in their oil patch. Obviously they couldn't come out
28:08
Speaker 8: with a deal an announcement. But nonetheless the companies make money.
28:12
Speaker 8: The cash flow is strong. But the fact is here
28:15
Speaker 8: in the United States, I'm getting two ninety nine. By
28:18
Speaker 8: the way, in Charlottesville, Virginia. You got to come down
28:20
Speaker 8: here to fill out really nice. But the point here
28:24
Speaker 8: is America is producing more oil thirteen million barrels a day.
28:29
Speaker 8: It's a record that's not good. You want to see
28:32
Speaker 8: a pullback now. The thing I worry about, by the way,
28:35
Speaker 8: is the Saudis have done this in the past, flood
28:38
Speaker 8: the market with oil in order to push out our producers.
28:41
Speaker 8: They've done this in the past. I don't think they
28:43
Speaker 8: would do it now. What they really want are deeper
28:47
Speaker 8: cuts and habit could co join with Russia and the
28:50
Speaker 8: African States and come out with a very strong production cut. Remember,
28:55
Speaker 8: they need about seventy eight bucks a barrel, even though
28:58
Speaker 8: it's not much to get the oil out and find it.
29:00
Speaker 8: Because they have a very large benefit program, welfare program,
29:05
Speaker 8: and then and then they're building cities, they need higher
29:08
Speaker 8: oil prices. And I wouldn't put it past them to
29:12
Speaker 8: try to negotiate a very deep, not voluntary, but a
29:16
Speaker 8: very deep production cut, not not flood the market with
29:19
Speaker 8: oil to get us out. But they've done it before.
29:21
Speaker 8: I don't think they'll do it again.
29:23
Speaker 4: Yeah, and I should mention for our listeners here. Quincy
29:26
Speaker 4: is a former US diplomat and was posted as an
29:28
Speaker 4: energy at TACHE. The US and the embassy in London.
29:32
Speaker 4: So interesting perspective there. You know, how does that How
29:37
Speaker 4: does cheaper prices at the pump play out for the
29:42
Speaker 4: American consumer, which many companies have been calling out as
29:46
Speaker 4: a little bit constrained at this point.
29:49
Speaker 8: Well, absolutely, obviously it helps. But here's here is one
29:54
Speaker 8: of the most fascinating parts of this. You would think
29:57
Speaker 8: that US consumer expectations a future inflation would come down
30:02
Speaker 8: based on the lower oil prices because there's a very
30:04
Speaker 8: high positive correlation between the consumer gasoline prices and by
30:09
Speaker 8: the way, how they look at the administration. However, what
30:14
Speaker 8: we saw in the last University of Michigan Consumer Confidence Report,
30:19
Speaker 8: the component that looks at future inflation, Americans came out
30:23
Speaker 8: and said, well, we acknowledge that inflation has come down,
30:27
Speaker 8: but we expected to climb higher. The FED does not
30:30
Speaker 8: want to see this because what happens is this psychology
30:34
Speaker 8: becomes intact, it becomes unanchored actually from the FED standpoint.
30:39
Speaker 8: And it is fascinating because last time go around, when
30:43
Speaker 8: the Strategic Petroleum Reserve was pushed out into the tanks,
30:48
Speaker 8: Americans said, inflation is coming down, and even Biden's approval
30:53
Speaker 8: ratings actually ticked up, but not this time.
30:56
Speaker 2: All right, Quincy, thank you so much once again for
30:59
Speaker 2: taking some time to chat with this. Quincy Crosby, Chief,
31:01
Speaker 2: a global strategist for LPL Financial.
31:05
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