Banking Turmoil Continues to Create Uncertainty

We've seen it down the most in three years and the cost of ensuring its debt against default rising in a sell off. Though that city grow battalists describe as irrational Clock two ticking up bids for Silicon Valley, Bridge Bank, APM, Wall Street Time tonight meantime shares a First Republic. We continue to wonder about what's next for this one. It's down about ninety percent year to date. So our next guest has been following and covering the bank sector for decades.

He was a go to for many of us here at Bloomberg during the Great Financial Crisis, still is a go to when it comes to things in the banking world. Chris Whalen is institutional risk analyst at Whalen Global advisors, an investment banker who focuses on the banking, mortgage, finance, and fintech sect sectors. He's authors, let's try that again, author of several books. Chris, you have quite a resume.

He's worked at the New York Fed, up on Capitol Hill, a bear Stearns at crawbonn Rating, at Institutional Risk Analytics. This is why we have him here on this Friday. He joins us on the phone in New York City. Chris, really grateful for you for joining us on what's been a busy, busy week. We all learned and leaned on you during the two thousand and eight bank and mortgage crisis. Are there any similarities to today and to then? No,

it's actually quite different, Carol, and hello Hello. For decade, the FED made it so the credit credit didn't matter, so you didn't have to call me. Right, Yes, on market didn't matter. The Fed took it off the table, right, and now it's back on the table in a huge way. Would compare this more to December twenty eighteen, which was a crisis in the money markets, except this time the

crisis is really measured by the ten year treasury. So if you go back to the third quarter when the banks reported that really ugly number for unrealized losses on their securities, and people finally started paying attention to that, and they said, oh, you know, eight hundred billion dollars, that's a lot of money. Right, It got better than a fourth quarter because we had a bond rally. This

quarter is going to look a little better too. But the problem hasn't gone away because during twenty twenty twenty one, we packed three quarters of the mortgage market into a range of about two and a half three percent in terms of coupons. So if you know you own a Jenny May three and the fed rais has fed funds six points, what happens to that security? It trades in the seventies. And this is why pranks are having a problem. Now.

Forget about the securities, which we can see. It's called accumulated other comprehensive income, and it's a number that's negative right now, a big number. Well, everybody's worried about the loan book too, because they have the same problem. The loans from that period when we were fighting COVID are now deep underwater. Twenty points underwater. You write, you have a note doubt that you put. I believe it was

yesterday and you. By doubling the fed's balance sheet between twenty twenty and twenty twenty one from over four trillion to now nine trillion to nominal dollars, the FOMC has injected vast amounts of market risk into the US banking system. Okay, that's a lot of risk. So do we yet know how this ends? Well, the FED is going to have to drop rates, Carol, very simply. And I'll tell you why.

The small banks out there, who are trying to hold the most important customers they have, which is their business customers, are fighting a losing battle because let's say I'm paying them two percent now on their balances, and I'm even arranging ways to give them yield on their ESK grows, the payroll balances, stuff that normally we don't pay interest on, right, But they can get four percent on a tea bill.

And so they come into the office, they sit down with you, and they say, Carol, I can get four percent on a tea bill, why should I keep my money with you? Powell and the FED have been insensitive to the fact that they execute monetary policy through the bond market. And when they did QWE in twenty twenty and twenty one, not only did they cause a problem for the banks, but they tied their own hands. And

yet they want to pretend that they didn't. You see, right now, if you look at the ten year, it's headed back to three percent. What should the FED be doing right now, Carol? They should be selling mortgage backed securities. They should peg that ten year to about three and a half and say to the desk in New York if it goes below three and a half cell. When I worked at the FED, we could do things like that.

But the FED today is so bureaucratic and so assified that not only do they not know what's going on in the markets, but they model liquidity. You know how they model it versus GDP. Okay, the GDP model is not going to give you the answer you want. Right right, I'm going to get you into just come on in. Yeah, Chris, I was eager to hear from you about this because when I've been speaking with portfolio managers looking more longer out,

some of them are thinking. When they're looking and seeing where certain banks are trading at even brokerages, they're kind of eager to potentially step in and start buying. But what concerns them, and you brought it up, is that yield curve. How much more pain do you think even though we've seen some steepening happening there, do you think that really forebodes for banks right now? Well, like I say, until the Fed relents and has a discussion not only

with us in the market, but with Congress. And I think they have avoided doing this because they don't want to talk to Congress. They think they can make decisions on their own. They're wrong. The biggest problem with the today is hubris. They have to realize that they are not allowed to make certain decisions, and when they don't have any answer, or if policy is tied their hands in some ways, they need to go back to Capitol

Hill and get some guidance. You know, what they've done to the bond market, frankly, is almost bordering on the criminal because it'll take generations to fix this. I'll give you an example from my own world. I have a three percent mortgage to sitting in a Fanning may Pool. Right. That mortgage will not be in the money again in my lifetime unless we drive rates down to nothing. We'd have to drive rates back down to two percent for

that three to be refinanciable. But Chris helped me out because part of the conversations in the narrative that we've certainly been having is that the low rate environment that we had was the abnormal environment that that's not typical. So how was the fad supposed to kind of come out of that and get back to a more normal rate environment. You can't. I mean, Ben Bernankey in the early conversations with the FOMC about quantitative easing, basically told

them this. He said, once you put down this road, you can't come back. And it doesn't matter whether you talked about the balance sheet and reducing the size of the balance sheet. If you take too much liquidity out, the market seizes up because they got used to it. You know, you gave them five six trillion dollars that

they didn't have before. Also, the price aspect of this, as we've discussed earlier, is very difficult to deal with because if three quarters of the mortgage market is locked up in these low coupons, not only is it impossible to fundness paper, you know, SOFA is at four and a half percent today. That means, you know, figure reposit at the point above it. How do you finance a Jinny May two? You don't. And the volatility of these low coupon securities because so much of the repayment is

back ended. Right. You guys know this at Bloomberg better than everybody at low coupon securities. We're of all little bit of high coupon security. So nobody wants to own this paper, honestly. You want you want a solution, We'll fix us next week. The Fed should buy all that paper back wow wow, Okay, yeah, par, they should buy it all back at par. And then they have to go up to Capitol Hill and say, we were trying

to deal with a Dickey situation. We had people on the hill scream and do something, do something, save the economy, right, and we did, But now we have a mess. Well, what do you think Janet Yellen and Jay Powell and other regulators who are now meeting in an unscheduled meeting and we expect something out from them, do you any indications of what they're talking about? Because it does feel like there's been some shoring up in the markets for

whatever reason. Yeah, they keep trying to throw solutions, but every time the FED takes a step, they create another problem. You see, they have a very blunt instrument. And honestly, you know, I deal with a lot of federal agencies in Washington. The Biden administration has the weakest team in terms of financial market knowledge and experience that I can

remember in my lifetime. You know, the people I worked with at the FED in New York, like Paul Vulker and Jered Corrigan, they knew markets, okay, they knew how to clean up masses, and they also understood the limits of monetary policy. And again, remember the FED executes monetary

policy in the bond market. So if you go big, which is what they did after twenty eighteen because they didn't want another liquidity crisis, right, their inventions were good, But by doing that today that three trillion dollars of mortgage backed securities that they own is really bigger than their treasury portfolio. If you measure the duration, it's more like twelve to fifteen trillion dollars. And that's one reason why that ten year note doesn't want to go above

four percent. The FED owns all the duration and they don't hedge that book. It's entirely passive. So they've done structural things to our marketplace that will literally take generations to facts. And I'm very concerned about this. I think that we need to put some limitations on what the FED does. When the FED gets to those limits, they've got to go back up the Capitol Hill and have a public conversation. They can't do this behind closed doors.

Because I want to bring jessin because we're talking in the break about what we're hearing from some of the FED speakers are former, if you will, and what they are talking about where the FED is going. Looking at Jim Bullard earlier this morning talking about a peak potential ternal rate a on five point six percent, it's interesting because you were talking about how you think the FED should cut rates. What sort of implications could there be if we don't actually see that from the Fed and

what that means for equities. Well, if the FED takes rates up to where Jim Bullard has just said, then look out, I think we're going to have a meltdown in the banking industry. See what's happening right now is even if you ignore the price action in these securities, a lot of banks are underwater on some of those paper and so the treasurer of the bank's going to walk into a room at some point screaming and saying,

you got to sell this paper. Now, I have to reinvest at a higher rate or we're going to go out of business. And then when you have instability on the funding side, that makes life even more complicated. So the clock is ticking, and the Fed can provide all sorts of liquidity measures and everything else, but they're going

to expand their balance sheet, as we've already seen. I think, honestly, there's a kind of a false conversation, a false narrative in the US that's somehow we can keep inflation low. The society loves inflation. Come on, you know, we have to get to the point where we can actually get Congress to fix Humphrey Hawkins. Drop the full employment part of the mandate. And let's remember the third manddate. But

we never talk about, which was stable long term interest rates. Okay, in the old days when inflation was a problem, when I was a kid, were worried about such things. We don't do that now because everybody just assumes we could do whatever we one. You know, the dollar one after two thousand and eight. You can see this on the Bloomberg what happened to swaps dollar fixed floating swaps that went into a discount. There's no other country in the world that has that gift, Okay, but we have it.

So we keep pushing the limits on spending, on deficits and everything else, we're going to lose that. We're going to be like everyone else. So I think that this conversation about inflation versus growth has got to come back to Washington, go back up the Capitol Hill and say, how can we give the Fed a mandate that they can actually accomplish, Because let's be fair, the two percent target for inflation is a joke, which is we're not

going to get back there. Yeah, and we've had a lot of conversations about that that that doesn't make sense. We've also talked about, you know, Chris, and I don't know how you think about what this means for the

US dollars specifically. We've got a great Simon White did a great column on Bloomberg and he just talked about the dollar being the liability of the central Bank, and if we continue to see what we're seeing in terms of what feels like, you know, certainly moral hazard for banks that he talks about further erosion of the dollar's value, and that how that would really kill the purchasing power that we've seen of the US currency over the last century.

I mean, there's so many implications, so I don't know the complicated message. There is not one answer here, and it's very important to state that. And we got to realize that folks at the FED are trying very honestly and I think in a very genuine way to do their jobs. But imagine sitting behind those closed doors dealing with what they're looking at today. So what don't we hear from What would you like to hear from Janet Yellen?

What does she need to say? Maybe today? I think she needs to announce she's going back to the private life. Meet another Secretary of the Treasury. And I got the candidate, Sheila Bear, a nice you know, progressive Republican from Kansas who could easily be confirmed by the Senate tomorrow, who understands finance. There's only two people at senior agency levels in Washington today that know what's going on. What is Marty Grumberg at the FDIC who's most senior regulator in

the system. And the other is Sandra Thompson over at the FHFA, who's a veteran at the FDIC, worked at Resolution Trust, worked at Goldman Sachs. These people know what's going on. The rest of this cast of characters are politicians. Well, they really don't have the shoes for this. During the crisis, we know Jamie Diamondt Well, first of all, has gone up and talked with the Treasury Sector Secretary this time around.

During the crisis, I think there was a lot of conversations, as you well know, between government and the banks and the private sector, if you will. Is any of that happening now that you're aware of, Not as much as it needs to happen. You know, when I worked at the FED, we always talked to the people in bank supervision. They don't do that now. FED governors never talked to the people down the hallway at soup and reag and say how is our policy impacting the financial markets? How

is our policy impacting banks? They never asked that question. So I think there's a level of isolation and a lack of information in this data dependent central bank of ours that's really something we need to work on. They need to know how their policies are going to affect the bond market. You know what happens if this ten year goes below three percent and we're sitting here talking about low Yeah, now you're right and looking at the

two year as well, where that's treating. When you're talking about the potential pain that could be on the way, Chris, what other cracks are you seeing beginning to emerge under the hood when it comes to financial institutions right now, Well, anyone who owns bonds would leverage has a problem, so

reads other types of investment vehicles, private funds. Anyone who applies leverage to these here to four risk free securities, right Treasury is the mortgage bacts is really in a tough spot because they have to make a decision to way. You know, let's say we have this rally. Now the ten year is your benchmark, by the way, for pain on all of these securities. If we get down to three percent, that may be a big zelly opportunity the cleanhouse, not that rid of all of this stuff and go

buy higher coupon securities. That may be an opportunity. But I think for a lot of little banks. For example, they don't have the capital to take the losses. And there are some agencies like the federal homelan banks who own this collateral. Two we don't talk about that. So the Fed has put stress on the system as they have pursued monetary policy. But they forgot that if they moved things too quickly and too much, you know, six points, really,

then everybody's insolvent. Is there an investment play for you right now? Oh, I've been buying bank stocks. I bought some cs which was clearly a mistake, but I'll keep it and buy some more ubs. They are the last man standing in Europe. What abouts of these regional banks? I bought Western Alliance. That was one of my favorites. I wrote about them two years ago. They went up two hundred percent during the motgage boom thanks to J. Powell.

They had bought a portfolio company from Apollo called a Marahome, which is one of the most efficient conventional lenders in the country. Really good team, by the way, And I'm looking at New York Community Bank. I've been following them for years. They just bought some of my friends at Flagstar Bank, which is a large mortgage player, second largest

warehouse lender in the country after Chase. So there's a lot of deals out there, you know, but you know what, it teams me and I have to wait for deals to result. The policy mistakes. Which banks are you staying away from? Don't want anything to do with? Well, look in twenty I sold all my common and I went and put my financial allocation into bank preferreds so my feet wouldn't get wet, I would higher up to capital structure. I'm starting to nibble on some of these common situations.

So because I love Western Alliance or one of the great mortgage shops in the country, Wholesale Bank New York Community Bank, I think is very interesting because they just bought all those assets from Signature. When you buy assets from the FDIC, they have no cost basis. Okay, yeah, so why not I'm yum, So that's going to be very creative for them. I believe Chris just got about forty five seconds JP Morgan City, Goldman be of ay,

they're fine. Well, Goldman doesn't have to mark the market problem because they're a broker dealer, but they have a funding problem. As I've written for my subscribers, because they have to go out and compete with Ally in American Express and everybody else for broker deposits. They don't really have a strong core deposit base. And I've always argued that David and the boys should go buy a bank, go buy key. They love commercial real estate, love commercial

real estate, you know. But the other guy, the other big guys. Twenty seconds left, they're not worried about. The US Bank is the strongest of the top five. You know. They're the little money center, but very well run. I don't I don't bother with the others except to bother preferred Raincome listen, so appreciate it. You took me back, and it was so good to reconnect. No, we're got to do this to getting Carol. We can't wait another decade.

Deal deal, deal, not another crisis. All right, Chris, well and be well. Have a great weekend. Chris is, of course institutional risk analyst at Whale and Global Advisors, as I said earlier, worked for the New York Fed, work for Bear Stearns, worked in up on Capitol Hill. But a great voice for us to check into on. Certainly this Friday with a lot going on, this is Bloomberg

you're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the Ion Radio app, and the Bloomberg Business App, or watch us Live on YouTube. I was just bringing up a Bitcoin clothes today. Yeah, we're just below twenty eight thousand, although we did see it pop above that like it was I think early on Monday.

For the first time since June. We have also seen jess I feel like the largest digital coin, Bitcoin and some crypto stalks come back to life this week a little bit. We definitely have because there was a particular point when you were looking at the span over the past couple of weeks, we're going to surge more than

thirty percent. So now the past couple of days seeing it come back to reality, like you were talking about, still below thirty thousand, now close to twenty eight thousand, but still it was on a tear despite what was going on a lot of these banks. The past feet was kind of interesting, right with the volatility. All right, So let's get to our weekly crypto segment. We reach out to Thomas Kralow. He is Carlow. Excuse me, an investor, influencer and trader, founder and CEO of Carlo Enterprises. He

joins us via zoom from Dubai. Thomas, good to have you here on this Friday. Tell us what you make of some of the trade this week when it comes to cryptocurrencies and bitcoin in particular, and even some of the equity plays. Yes, hello everyone, Thank you very much

for having me. Very happy to be here, and quite frankly, this has been one of probably best weeks so far in a very long time when it comes to bitcoin, and that is because of you know, bitcoin following global liquidity, and we were saying Japan injecting liquidity, so with China and US was taking the liquidity out of the system. But now in light of the collapse of the banking system, we're actually seeing it come back. So those of us who are actually into crypto, this is just a fantastic time.

So let's take a step back because not all of our audience may be familiar with who you are, So tell us about how you came to invest in the crypto space and how long you've been doing it, and talked to us a little bit about the trades that have been of interest or productive for you specifically. Sure, Well, I've been into crypto space for a couple of years now.

I have a about ten year background in retail trading, but then recently I've transitioned intesset management as well and founded my own hedge fund and a venture fund and

one of the best. I mean, venture fund is probably not that relevant to the current market conditions, but when it comes to the recent place we're once we actually figured out that the banks are collapsing and that people are going to be losing faith just like in two thousand and eight in the banking system, and just the only difference that this time they're going to have an alternative, which is bitcoin. And this has given us an incredible opportunity to go all long on bitcoin. So and so

far it's played out really well. Actually are still longer, and many would argue it's still early in the game. We've had three banks collapse. You know, we're watching so I think, and many that we've talked to say, it's not like oh eight. I was curious, Thomas, how much money have you actually made in the crypto space, and how specifically have you made that money in crypto what kind of corners of the marketing crypto. Well, in krypto space,

really there is different ways of making money. Certainly one of the best, the biggest income that I've had was by simply building a regular portfolio over the assets I believed in back in two and nineteen and writing this cyclical wave of crypto. And how much money did that portfolio make? Well, in percentage terms, it was two thousand percent, but money wise, sadly at an entry with a million dollars, so the profit was just a little north of a

million dollars. So but for me it was still quite substantial considering that I didn't expect this kind of a return and now was definitely in the early phases of bitcoins. So how has that evolved to these other coins where you think of maybe some of these more riskier wines like doge coin, but then also there's ethereum. But are those coins that you're treating as well for sure? Yeah,

this is something that you know. As part of my hedge fund strategy, our main objective is to reduce the risks, which is very strange to say about crypto, and also to outperform bitcoin returns. So certainly there are when it used to be all about you know, crap coins so to speak right now. Actually, there are quite a few projects older that offer quite incredible utility and purpose behind them,

Like Ethereum. You don't have to go forward to find one that actually has it's as a lot of people say, it's ultrasound money, and it's by far more technologically advanced than bitcoin. But every project, I would say, as it's pros and cons. It's all just depends on what kind of thing you enjoy most. I suppose last year, when cryptocurrencies came under a ton of pressure, how much money did you lose? Well, quite frankly, since I'm not just

an investor, I am also a traitor. So for one, I know how to hedge my risk and how to actually play the market to the downside. That's for one. And number two, my portfolio that I've put together in two and nineteen, I sold it about a couple of weeks before the Chinese fought, before China actually buying band mining, which took bitcoin down to thirty thousand from sixty thousand.

So for I didn't really lose that much. I'd say I started buying back into bitcoin when it was going back down forty k thirty K, so I started dcaing, So it's not really about losing money. It's more off I feel like it is though, is it you don't want to lose money? Yeah, it's it's very difficult to time the bottom. Who is trying to time the bottom usually doesn't really enter at all. So I guess it look like to your point, what's the time horizon you're

looking at here? Right? Like? Are we talking a few five years, ten years, a couple? Like? What is the trade for you? Because when you think about portfolio managers, they obviously have a particular time horizon. And what's the top right right? Is there another near term top? Yeah? For sure, yes. So when it comes to our for Cralo Capital as an example, or time horizon is a minimum of three years. So everything else is just market frequencies that I certainly enjoy as a retail trader for

my personal interest and sports interests so to speak. But for our hedge fund, we certainly have We don't use any leverage, and we just DCA into the s as we believe in. So usually it's a three year time horizon for sure. Well, so in the last couple of weeks, how have you been trading the crypto space for our fund, not very because the last time we actually bought into bitcoin was at seventeen thousand dollars. That was the last point when we were actually buying into it. For now,

I'm holding my horses, so to speak. I want to see as to how the whole situation with the banks is going to play out and subsequently also regulation. So for now we are happy with our positions. But when it comes to my personal retail trading, then I certainly am enjoying my long trade, but I'm not looking forward to flipping it short just as off yet despite the actual finance suspending withdrolls right now, which is still a big fear. But for now, I'm still long for my

personal retail trading side of things. What specific level for bitcoin are you watching for a threshold to see when it's reached its near term inflection point versus stocks? Yeah, I think that's the most important point. Well, we have to consider also all the regular indicators which actually point to the fact that bitcoin is probably has decoupled from SMP five hundred and NASTAC and any high risk as set all there, and is outperforming those assets for obvious

reasons in gause of the banking collapse and stuff. But I think that the most important point in the price for bitcoin for us to actually, you know, kind of start celebrating is thirty thousand dollars and we are fighting fiercely for it right now. We're well close to it. So I say, once we clear thirty k with large amount of volume, that would be something to consider as

true reversal my opinion. So we have seen bitcoin outperform not just stocks, but also when you're looking at the commodity space, what specific risks are you looking at to see if it could up in that particular trade in the near term, right So I would say that there are a few systemic risks when it comes to bitcoin, a certainly with the current just the narrative itself. There was also the narrative risk, which actually has been brought down to close to zero right now because of the

again fall of the banks. But one of the biggest risk scrollingly as we stand is number one regulatory So that could translate into for example, band of binance and subsequent potential crash of binance, which will just be acuciy stomach risk. But besides this, the most biggest one I think is tether. So if Tether the issue or of you is DT were to be receiving a well's notice and subsequently cease to exist at some point, this could definitely set us back five or even ten years, something

as crazy as that. So these are two biggest things. All right? Can I leave it there? Hey, Thomas, thank you, Tamas. Thomas Carlo, He's chief executive officer of Carlo Enterprises. Joining us via zoom from Dubai. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play

Bloomberg eleven thirty a journal. Yeah but you let me drive? Oh no, no, no no, no home honey, please, I'll do the riding gravels. I want to drive. It's good question. This is the drive to the globe. Concimmulate thing. Well, Brier up, shove it on on Bloomberg Radio. All right, everybody, Just about seventeen and a half minutes left in today's

trading session. Kal Masser along with Bloomberg's Jess Met and we are live in our Bloomberg Interactor Broker studio, streaming on YouTube and Bloomberg originals and stocks holding onto their gains of the session. It's not gangbusters, but mind you, everybody, we are well off our loads of the session. And Jess, we've got continuing to see that to year note well below four percent, right, and that has again been the

key indicator. And clearly also when we're talking about under the hood for the SMP five hundred, the search for income continues again today when you're looking at the leaders, you alies in real estate once again at the top, both of those sectors up more than two percent in the SP five at telling trade. All right, so let's get to it and let's get to our drive to the closed. Guest Dantadoria is back with us Cocio of the Independent investment advisor investnet PMC, joining u s VA

Zoom from Pennsylvania. Dana, nice to have you back with justin myself. How do you see the trade right now? Thanks for having me. Yeah, it's really interesting to me. You know, what's the sort of the dichotomy right now going on in markets, the fact that we're seeing such resilience and at the same time, you know, banks are really under a lot of pressure. Every new day brings another bank to kind of get the focus and be

looked at. And you know, on the one hand, you could say, well, regulators are successfully you know, calming markets at at a higher level. I think it's hard to it's hard to kind of listen to comments that, hey, the banking sector is resilient, all will be well, um, when you're talking about a business that kind of relies on confidence, right, and you know it just even even banks that don't have the troubles that in general were brought on by the rate increases, um, you know, are

going to get looked at sequentially. I think. So interesting dichotomy and markets, for sure, Dana. What I'm really curious about is whether or not most of the pain has already been priced in when we're looking at US equities holding up last week as well as this week. Yeah,

you know, it's it's a great question. And obviously the market is or it would appear anyway that the market is expecting, given given fixed income rates, expecting that the FED will have to pivot and therefore, um, you know, the markets will get their their FED put put back into place. Um. You know, it's hard to to square that with the fact that you have more jobless claims down. I mean, certainly the unemployment rate not ticking up um and we're not seeing you know, and these things take

it back with a lag. So it's not to say that we won't, but we're not seeing yet the kind of movement in these numbers that would cause the FED to say, hey, mission accomplished, we need to stop. So my thought is that we may well not have another rate increase, particularly as we see how this banking crisis unfolds. But a pivot just you know, seems hard to expect where we stand today. We just had Chris Whalen, on institutional risk analyst over at Whale and Global Advisors. He's

somebody who understands the banking sector, the financial sector. He we talked to him a lot during the O eight financial crisis. He's an investor looks for some opportunities within banking. What's interesting is he said the FED needs to cut rates right now, and he also said it's time for the FED to just accept that inflation is going to run hot. It's just the way it is, and we'll

be okay. Do you agree in terms of the trade because right now, yeah, you know, take at the banking sector and we were starting to I feel like, do okay, even though you know inflation still ran hot. How do you see that. I see a pause as being in order. I was on with your colleagues a few days ago before the pen made its decision. I expected the twenty five. Sure enough, we got it. I think everybody kind of

thought we're probably going to get it. I would say a pause might not have been the worst thing even before then. You know, the problem is that this type of policy, this monetary policy, it affects with a lag number one, number two, You're you're only impacting or your most strongly impacting interest rates sensitive parts of the economy. So you're trying to defeat inflation with you know, this one sort of it's a hammer kind of situation, and

everything therefore has to become the nail. So I think a pause would absolutely be in order. I know the Fed is concerned about stopping bill policy, absolutely certain about inflation running too hot. We have to consider that inflation may not come out around two percent long term at

least not for the for the near term. Now, the caveat to that is if we're running at you know, year over year inflation higher than three percent, four percent, etc. Of course we you know, we have to keep tackling that. But sort of waiting for the effects of what's already been done before we continue to raise seems like a good policy option for me. So Dina has this trade specifically on Wall Street shifted from, as we know, last year's trade of inflation to now the recession trade. So

we had been there for sure. I think, you know, there was some indications for a long time of peak inflation, and absolutely the market turned its focus to Okay, you know, we're heading now towards the likelihood of recession, if not in twenty twenty three, in twenty twenty four. Obviously markets are leading indicators. You know, the impact has not yet hit the job market. That usually takes place though significantly

after a tightening cycle begins. So the expectation is that we are going to feel the pain of this um you know. Interestingly, again, the interest rate sensitive sectors like banks, financials, you're seeing it happen pretty quick, and uh, you know not, I guess not surprising in hindsight, right, given such abrupt and strong increases over time or over the course of a year. But yes, I think the trade has to shift to recession and we're absolutely looking at that going forward.

All right, So when do markets repriced for that recession? And then what's what's your what's your what's your strategy ahead of that or at this point? And we've got about a minute to go, so quickly, um, you know, margins coming in for companies right earning seasons that increasingly demonstrate the fragility you're seeing, for example, tech margins coming in and yet tech is going strong. My quick in the one minute is, um, I don't view tech as

being the defensive sector that we've all converted it to. Mentally, traditional defensive sectors are a better place. You know, an environment like this, consumer staples a countercyclical, higher dividends, lower beta, healthcare you know, largely counter cyclical and more attractively priced standard you know, sort of fundamental quality indicators and even low volatility indicators more than tech. Would you might play? All right, really appreciate it, Dana, have a good weekend.

Dana di Oria, she's co chief investment officer over at Investment, joining USBA Zoom from Pennsylvania. This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcast. Listen live weekday afternoons from three to six easttarning, on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg German lovem