Banks Launch Return of Earnings Season

on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or stream us live on YouTube and Bloomberg dot com. All right, let's talk more bank stocks. See that all right? Well as a whole, you know, they were lower, now they're higher. So this first hour we're looking at a group in a couple of different ways. First up, Carol, this morning's earnings and updates on the business from JPMorgan Bank of American City group that had

stocks moving lower at least initially. Yeah, and after bank stocks, you know, keep in mind, underperforming the broader market last year, there were many who were saying that this group is potentially primed for a bounce higher, and we ultimately are seeing that in this latter half of the trading day. When it comes to bank stocks, KBW Bank Index was up more than nine from December twenty through yesterday, but it's even more now with a bump up today. So

let's get to it. Uh. Anton Shoots is back with us. He's president chief investment officer at Mendon Capital Advisors, joining us via zoom from Florida. Anton, Good to see you, Happy new year, Happy new year. Always happy to be with you. Well, always great to have you here. So quite an interesting day. They came out. Initially those bank names as big bang names were under pressure in the equity trade. They've turned around. Um, as I always like to do and start with you broadly, what jumps out

in terms of what we got from results today? Oh, I think we got kind of what was expected right, sort of maybe near the end of the net interest margin, you know, very weak investment banking, you know, thick. That was okay. Um, it was really the conference calls, I think to turn the stocks because I think that the stocks, you know, unperformed last year. People were really afraid of

bad credit right two thousand seven all over again. And as I've said on your show many times, this is not two thousand seventies are not the dumb bank CEO is making really terrible mistakes of bad products, because they really did in two thousand seven, right, they negative amortization mortgages and they were letting a and it moved. I mean, these guys who run these banks today, they've learned a lot of lessons. They understand risk and risk management, credit underwriting,

and they are not where the bad loans are. Um And what's interesting is obviously maybe the end of the interest rate margin expansion, but they've had that expansion right to go from zero rates to where they are today. Earnings estimates went up all year, yet the stocks went down. Now we may be in a scenario where earnings estimates may actually go down some but the stocks are so cheap relative to where the rest of the SMP is the stocks could actually outperform in value. Has certainly been

showing them. Anton It's interesting because even if this year is looking good, we still saw all of the lenders put aside more money to cover loans that might go bad. How do you read into that? Well, first of all, you know it's this crazy accounting thing called CECIL, So you know the banks will have to buy a model for Moodies, and obviously they have their own models as well. But you know, you have to take in all these factors, and those model based factors tell you that credit is

going to get worse. They're not seeing it, right, It really hasn't happened. I mean, on the margin, we've seen credit get worse than the subcrime consumer. The banks really aren't in that space. We're certainly seeing, you know, on the credit card side, people are spending more than not paying back as quickly, but they're not defaulting. They all have jobs. I mean, I think another big factor is

everybody has a job. Everybody wants a job as a job, and you know, employers are still scrambling to hire people. So what do you make too of you know? One of the things, and no doubt about it that we wanted to see the results and what the you know, how the banks came in. We were really interested in outlooking what the CEO has had to say, Um, any consensus takeaway for you, you know Jamie Diamond. Of course we pass everywhere that he says. But was there any

takeaway for you among the big banks CEOs today? Yeah? I mean he didn't use the word hurricane. You know, Thank goodness, I think he's regretted that word. We we all have, anybody who owns financials regretted that word. But the reality is is, you know, they're all, you know, sort of cautiously optimistic, right. Nobody is negative. No one's going, oh my goodness, you know things are going to be tough now. You know, nobody likes the pressure that's out there.

Maybe the fat is done, right, your prior guests talked about maybe being done. Maybe they're close to done, and and maybe we can engine eer a soft landing. And even if there's a mild recession, banks have outperformed during milder sessions. If you look at that that period and you know, I guess I'm giving my age away, but I ran money in that two thousand period where the dot com bust happened and financials performed very, very well. And you may have that value, you know, out performance

versus growth. You may have that mild recession where banks do not lose a lot of money, they don't lose money at all because their underwriting has been so good. And by the way, the other thing is is, you know we've talked fin techs on your show fin techs don't have deposits, right, the neo banks, they really don't have good deposit, good cost structure. Look at Golden Specs, right, it's is it a bank, Well, you know it's an investment bank and their cost of funds is very expensive.

They've lost a lot of money, you know, for going into this consumer segment. Banks that have true core deposits, checking and savings accounts actually benefit from setting stable funding, from being regulated, and they actually can go back and take market share now because the people who don't have

that funding cannot compete. So go ahead. I was just gonna ask about the American consumer because that's one area that we really like to hear from big banks eos on and oftentimes there's a lot of commentary about it. How would you characterize what we heard from banks CEO is regarding the American consumer their cash position and you know, how much money they have to be able to to pay for stuff that is more expensive. Yeah, I mean, you know, the cash position is still better than pre um.

You know, they're they're they're they're certainly spending, they're not saving a lot. I think that's you know, the savings rate is where we're starting to see some stress, but the cash levels that consumers are still in pretty good shape. You can see it in the credit cards. Like I said earlier, that that they're not paying them off as quickly right there. They're using their cards and they're borrowing and they're not paying them off as rapidly. That's very

different than defaulting. But you know, there's no doubt that at least the consumer has a job, and you know, lack of jobs is what really causes trouble and consumer lending. All right, So we know when we you know, check in with you, you always like the regional bank space. I'm assuming you still do. That's where you know your fund and investments go. Um. What in particular, what's the outlook for regional bankers at this point? Is it tough tough for them in a mild recession? No? No, no,

I mean it isn't. And I think I've talked before about you know, markets that are favorable, right You've seen a lot of people and businesses moved to places like Texas and Florida, uh in Tennessee. So you know those markets can maintain above national growth metrics first of all, you know, second of all, a regional bank, you know, particularly a smaller bank can really know its customers. Right, the underwriting becomes a lot easier than going out and

underwriting very large multinational companies. So you know, you actually can can understand that customers do a better job of underwriting. But I think what's really important is again going back to deposits, and regional banks that are very well funded really can outperform because they can take advantage of these higher rates, right, margins can still rise. You know, I've

got companies in the portfolio the trade it. You know, I have sixt loaned deposit ratios loaner deposit ratios means if they can lend out that other difference to a loan or even buying a security at a higher yield, their margins continue to improve. So you know, those are the types of companies that have become much more valuable

to those that don't have deposits. What's interesting, go ahead, Well, so if you look you look at the northeast, the Northeast, generally a lot of the banks in the Northeast um have loaned deposit ratios that are closer to so they don't they don't have that room. Hey, Anton just got about forty seconds left here. So if you had one name that you know you feel pretty confident about three, what might it be? Um, Well, I'm gonna first bank. FBMS is the symbol. It's one of the largest positions

of my fund. And you know, I think they have that optionality that I really like. I think they're very attractive franchise. I think they do have sixty plus percent loan deposit ratio, so in good shape there. Of the bank is in Florida, in Georgia, so good, good growth, even though their headquarters in Mississippi. And at the end of the day, there's a lot of bigger banks that would love those deposits. Um. But also they've been a very smart buyer. They've added a lot of value to

that company over the years. All Right, We're gonna leave it on that note. He's so great to check in with you and really appreciate on what is obviously a really big day when it comes to big banks. We know it continues into next week. Anton just shoots, excuse me, thank you so much, President and chief investment officer at Mendon Capital Advisers, joining us via zoom from Florida, and you know, once again if I look at some of those names, even something like a Morgan Stanley that reports

next week, it's up one and a quarter percent. And then we have gold Man. Let's see what it's doing as we speak. It's up about eight tenths of a percent. But really those that reported today quite a rally. We're starting to see. This is Bloomberg. These sees Bloomberg Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio. The new issue of Bloomberg Business Week, great way to

spend the Friday the thirteenth. It's out funded at newsstands, online at Bloomberg dot com, slash business Week and always on the Bloomberg terminal. And Tim, let's remind everybody it's the year ahead issue. Yeah, and in the finance section you find this a great story by Max Abel Sandys, Bloomberg News Finance reporter. It's all about the young bankers who got used to smooth sailing and how they now are preparing for a storm. Talk about a sea change.

Max joins us right now in our Bloomberg Interactive Brokers stud to you. You You say young, but it's kind of like anyone under forty. Max Well, I resent the implication because that's because I myself turned thirty eight recently, So I'm you know, my idea of what young is kind of changes. You know, I did not know that, but you look like thank you. But but it's true though. I mean, what we're really saying young is essentially ethan

is some frustrates. What we're really saying is that if you started in this industry, I mean any time after two or let's call it after two thousand nine, you know you have lived through this era where, you know, free money is essentially a fair phrase. Interest rates have been so low by and large since then, and the sailing has been so smooth, although obviously horrible things have happened like but by and large people have lived through an era that is sort of being replaced by something new,

and that's what the story is about. I do feel like it's been an error, right. You could kind of throw money to almost anything it felt like, and things went up, and I feel like now the learning begins for a whole generation on straight ye. So I want to give a shout out to my co reporter Nick Carrela, who was a great, great reporter. He found this guy, Drew Pettitt, who is an analyst at City Group. I want to say he's in Buffalo, New York. Shout out

to Buffalo, New York. And Drew basically realized that his life on Wall Street was so you know, essentially so even keeled that he decided to give himself homework. I think that was the word he used. He decided to give himself homework and read like basically the bleakest books he could find. We we actually didn't print this, but um, I think he I think one of them was black Swan. Um, I think one of them. I have a list, I'll I'll send it to you, the bleak books, books about

bleakness and financial bleakness. And he really wanted to understand, you know, I think at the end of the day, probably this this these are my words and not his, you know, but how to make money, you know, when the times aren't aren't good and money isn't growing on trees, and you know it's I run it. Because the story was inspired Paula Dwyer, and editor who edited a piece for Business Week. Paul Paula Dwyer noticed this. A City

Group executive, um not not one of Drew's bosses. But this is like I think one of the top bankers in London, she gave the speech at a conference late last year where she said, you know, I laugh to myself when I see these young people who are now making managing director. So I think that called out like your thirty two, your thirty three. These people are becoming managing directors at my bank and they've never lived through you know, any anything, but you know, the an era

of easy money. And she I think she really implied that they're going to be in for a rude awakening here in here in we also, do you think that those banks are firms to also want to make sure that these guys have an understanding of like what happens to assets in a very different environment. Yep, it's so true. You know, sometimes reporting is it's not that it's a hassle, but sometimes reporting stories is so hard you bang your head against the wall. And then sometimes, like to the contrary,

things fall into places like so nicely. I was in what we call in the industry, or at least what we're gonna do as an ed board, an editorial board, and I was sitting and listening to um, you know, it sounds boring because he's a regulator. Michael suit so interesting, so much fun hearing him talking is the I think he is the acting controller of the currency, acting controller currency. But the guy was fascinating. And I mean I did not I did not ask this, but I knew, I

knew we were working on the story. And without me saying anything, he said, you know, it's funny because bankers are saying to me. Bankers are saying to me. Michael said, you know, there are all these young kids, all these young kids working for me, and they don't they don't they don't have to deal with all all these crazy things.

Is there this layer of anxiety permeating right now among the bankers that you and your colleagues spoke to, not just because of you know, it's not just burnout that you guys reported on over the last couple of years during the pandemic, but but also look at the news we got earlier this week about Goldman sex upople being laid off. And that's a lot, a lot of peoples, with thousands of people. And it's not just a Goldman either too across the industry. I think anxiety is the

right word. I think anxiety is the right word because for one thing, we're hearing bankers talk about that, But for another, it's the right word because you know, we are not going through um an awful era on Wall Street. After all, remember my story with Hannah that came out not too long ago. These big banks just made a trillion dollars in ten years, a trillion dollars. So these are by and large wealthy world. That's a lot of

money and profit and profit. So you know, I'm not taking out my time of violand um or my violent shape pool to refer to a very old story of mine. But but we are talking about an entuurgy though. That's where people are beginning to worry about just how drastically things are going to change and just how many jobs are going to be lost if this country and the global economy gets into as much trouble as as a lot of people think of mine, No, I think it's

so interesting. It's just like having a generation who's lived in a certain environment and and we're maybe going into a very very different one, and like how do they adapt? How do they function? Um? But I also do wonder, you know, volatility and bad markets are also an opportunity where you can make still money, right, So it's like they've just got to figure all of this stuff out. It's it's really interesting what surprised you most, and you

and Nick doing this story. Well, without kissing up to you, let me just say that what you just said a second ago is so spot on the idea of that. And this was something that I think I had a kind of in co eight sense that this was true, the idea that when times are bad in the global economy or the U s economy, it is bad news for parts of Wall Street, it is good news for other parts of All Street. And Sally big Well, our our teams just in with us. Yeah, you know, Sally,

she helped us sort through the thinking. So it's like, okay, mortgages, you don't want to be in the mortgage business. If interest rates are going up because people are not you know that the business is gonna is gonna dry up and that will have knock on effects. But then on the flip side, it's like net interest margin, you know, which is a fancy way of the you know, the difference between what you are and on loans over here and what you pay the positors over here. You know,

that is good news. If if if rates are going up, that's good news. You don't want what rates to be zero, you know, if you if you're a trader, I bet either a couple of traders listening to this right now and chuckling to themselves because volatility is lucrative. You make money from bolatile markets. It's not bad to be a bank. Well you can, I can make it a lot of different ways, like absolutely, um, yeah, I am curious to

see how it all plays out. And I think it's interesting too, you know, Max that the banks still feel confident to make these people put them in leadership positions knowing that they're going to be maybe going into environment I think about that, right, these guys are gonna be making investment decisions, trying to make deal. I don't know, Like,

I'm curious to see how it plays well. If there are any listeners here who are working for a bank and their bank is like taking them to this new giving them classes on how to deal with calamity, you know, you know who you have to call, you gotta you gotta Levy know about that. Did anybody say that, like off the record, we're in calamity classes. Were on the record, right now. Well, I couldn't tell you if I heard it, but no, I I did not hear about any calamity classes.

But let me you did mention a violent shaped pool an old article that you wrote it from. We'll tweet it out. Ex Bankers upgrade the good Life as violin pools back in. So if you you know, had that deep tease, go check out that story because it's another good one from the team, including Max. But it's some great it's great insight in terms of the Wall Street culture, of the financial culture, in terms of what's to come potentially um and what they're facing. Thank you so much.

All right, have a great weekend. Max tables In he's financial reporter at Bloomberg News, joining us in our interactive broker studio. You are listening and watching Bloomberg Business Week on this Friday, Carol Master Tim Stanovic. We are Bloemberg Radio. You're listening to Bloomberg Business Week with Carol Messer and Tim Stanev on Bloomberg Radio. Well, the largest digital currency by market value, we're talking about bitcoin. Did you see

what's been going on? Yeah, it's higher, it's true. Is it's also on track to have its best week since one. It's up roughly twelve percent or so from the last time I checked. Other tokens have also gained, with an index of the hundred biggest coins adding more than ten and then shares with some crypto related companies up even more, with Bitcoin minor Marathon Digital adding more than sixty percent this week alone. All right, well, it's time for our

weekly crypto segment. Very pleased to have with us Ja Jog, the co founder of say Network, joining us via Zoom from San Francisco. J By the way, former lead developer Robin Hood during the game Stop crisis. I've got about five million dollars in funding that got that over the summer. It was led by multi Coin Capital, with participation from Coin based Ventures, Delphi Digital, and a few others. Jay, how are you think fantastic? Are you doing today? We're

doing well. Thanks, It's good to have you with us. Okay, So for the enough uninitiated, which I will include myself and explain what you do at say Network. Yeah, So my background, as you mentioned, I worked at Robin before this, and I was there when the game Soft crisis happened two years ago. And I'm sure you were falling along with it. It was not handled very well, largely because there was internally a complete lack of transparency around what is happening, right, so that made me much more of

a decentralization. Actually, anything that happens on chain is inherently trustless, inherently transparent, which is why we started building say um. Say is a new leyerl one blockchain, and you can think of it as the plumbing for decentrized exchanges. So basically what we're doing is we're making it as easy as possible for exchanges to deploy and scale by building

on say so. Our mission is to build the best instructure for exchanges, and if we succeed, then the decent tragic chain experience will be identical to that of the centrized exchange treating experience. Hey so, j so hardware software, I mean, is your whole idea of build it and then let everybody else play with it. Yeah, so we're just making open source software from say Labs and we're letting everyone just up around with the work it do

whatever they want to with it. We ask all of our guests when they come on and talk crypto if they were had any exposure to f t X or three errors. Uh yeah, yeah, talked about that at you. Yeah, so directly. Thankfully we were not effected role. All our money was in the odd in a bank account. Um. But it was definitely a crazy time, right, like everything that happened in Tarot, everything that happened with f t X. It's just been incredible that things like this actually happened

in the first place. Um. And it's just been extremely negative for the crypto industry over role. But it really does highlight how decentralization and having things happen on chain are important because, I mean, the biggest issue with FS is it was completely centralized. You needed to trust one entity to do the right thing, and then f t

X case, it looks like they just did not. Alright, So I'm going to ask a stupid question, but I'm sure there's a lot of folks out there or maybe it's not a stupid question, but when you talk about first layer one blockchain, I mean, we're all learning to be fair jay as we go. Uh. And we've talked about this with people who are very entrenched in the world that you know, are in the crypto world, that it isn't the terminology how it all works. We are

learning as we go, So tell us exactly. First layer one blockchain is what how many layers are there? Is this just kind of a beginning layer where everybody can build on it. Just go a little bit deeper for us. Yeah, So generally speaking, there's two layers. There's the layer one, which you can think of is Ethereum, Salana. Basically any of the big block chains doing that you know out there, they're a layer one blob chain. Then now they're starting

to be an emergence of layer two box chains. So this would be things like arbitram optimism, and these are built on top of an existing layer one and their purposes to help the exchange of skill. So what we're doing is we're building that basically ourselves, and you can think of it as being similar to Ethereum or Salana. So who are your competitors out there? Yeah, So the chains that we're generally compared against our chains like Salana and optos, so high performance chains that are meant for

people to be um doing different types of activity. A

lot of it is tied to decentralized finance. Can you give us an example of you know five is from now how you envision people using the platform the chain h five years and now we're successful, then all on chain trading activity or be the majority of it will happen on say, And I also think that the future that I envision for the way that finances is gonna work is that we're going to have to stop relying on these trusted, centralized intermediaries to be involved in every

step of the process. So I think long term there's going to be more for the shift of the macro environmental role to be more decentralized. And I also think that UM within crypto specifically, there's very strong network effects to exchanges, so say it's going to start having a larger market share of exchange trading volume in the future as well. When you talk about intermediaries, you're talking about

the existing you know, financial infrastructure exactly. So what why would someone choose your level one over somebody else's more secure? Is it faster? What's what's the pitch? Yeah, So the biggest thing is we're creating customized infrastructure for exchanges. So

there's this idea of application infrastructure cycles UM. That idea is basically that initially there's some infrastructure that gets created This leads to new applications, some of which find product market fit, and then you now need more specialized infrastructure to support these applications. One example of this would be

the database industry started off with solutions like Oracal. This led to all of the web one and web to applications we know and love, many of which have found product market fit, and that has now led to solutions like data Big Squarehouse, which is customate for AI and m L. I think something identical is going to be happening with box chains. We started started off with ethereum,

that led to an explosion of decentralized applications. Now exchange stable points have found to a degree product market fit, and now we think there's going to be more and more specialized infrastructure or these specific text of applications. And that's why I'm building on top of the general purpose chain doesn't really work because it's not specialized, whereas in the case of say, we've made a bunch of optimizations

to make the experience of treading on substantially better. As prices in cryptocurrency as a whole have come down our last year plus the so called crypto winter, we I've also seen the decline of you know, three Hours Capital and f t X. Of course, at the same time, we're not hearing from companies the same way that we were in the last couple of years when the prices were going up, that they're exploring crypto, that they're exploring the blockchain. We're not hearing analysts asked about it on

earnings calls in the same way either. Do you think this crypto winter and the very public downfall of of f t X has caused permanent damage to the way that people think about crypto. I think it's absolutely caused short term damage. I do not think in the slightest that this is going to be long term negative for crypto overall. If anything, ft X just reinforces that you really need to do things decent life with, so I think long term fts is actually going to be good

for crypto. UM and overall crypto is extremely sickly Like if you look in the past decade, there's always been cycles when things are in the bull market, when everything is very high. That's when there's a lot of traditional companies that are exploring UM, launching things really to crypto, and then afterwards when there's a bull cycle or when there's a bear market, that's when a lot of these companies that haven't launched anything um they might take a

step back. But if you just look at the trajectory of crypto overall, it's still just up into the right. So even though there's these cycles, the overall trend is the crypto is just starting to get more and more option moving forward. And I think it's largely for the reasons that I mentioned initially, right, crestlessness, transparency, permissionlessness. These are really really powerful things, and I think society overall, like people, once they get it, they just become very

strongly tied to these notions. So I think society overall is going to become much more receptive to crypto moving forward as well. We're talking with j jog, co founder of Say Network via zoom from San Francisco. Hey, J, we mentioned that you guys did a funding round uh five million over the summer UM. I am curious that because of f t X in the fallout in the

crypto carnage that we saw in two UM. What has been the funding environment for you and your need you think going forward or do you feel if you need to reach out you can do it in this environment, or maybe not so in our case. We I mean we have a ton of fundways still, Like we raised five million dollars. This was something we announced nag Is, so we're not really facing any negative repercussions from that. I think overall, the market is harder to be raising

right now than it was a year ago. UM. A lot of firms that weren't necessarily in it for the tech, like a lot of venture capital firms that were just there because they thought they could make a group book. UM, those terms have been leaving, So I think it is going to be a little bit harder now to raise

than before. But anyone that builds right now, like this is the ideal time to be building because there's no noise and a lot of the technology, the technology that gets created right now, it tends to be extremely mission driven rather than um just kind of mercenary folks that are trying to make a quick book. So if if what you're trying to build is mission driven, I think you still won't have any problems raising capital right now. What's your exit strategy and timeline? And just got about

thirty seconds. I personally don't have an exist strategy. I mean I'm just having a lot of fun working on to day right now. So I'm gonna keep granding on this for however long I can. How much more do you think you're gonna have to raise? I mean, we have more enough money to launch the main net, So we're gonna be just launching the net and seeing how

community response to that later this year. Can we just quickly twenty seconds, who you're partnering with or who's who's reaching out to you and saying we want to work with you? Just quickly? Yeah? So right now, we have over a hundred projects that are building on top of Stay. So these are all different types of exchanges that are building. So that would be the largest set of partners that we're working with right now. All right, Well, stay in

touch and let's know how things are going. Jay Job, co founder of Stay Network, joining us via zoom from San Francisco on this Friday. I'm rom a journal. Yeah, but you let me drive? Oh no, no, no no, no, hol please, I'll ride gravel. I want to drive. Good question. This is the drive to the globe down on blue Bird Radio to talk. Everybody's seventeen and a half minutes left in today's trading session. Right down to the wire. Yeah, but we're exactly I mean, we are kind of right

down to the wire. Seventeen minutes left. We're seeing Hender. We just heard the numbers from Doug, but they're worth repeating. Up closed out percentage point the nastac hire seven tenths of one percent. Well, the Dow carroll up by four tenths or one percent, and we see some buy like a leg up in the last half hour or so, just kind of rolling over a little bit. So let's

get to it. Joining us once again, Emily Hills, she's founding partner at Bowersack Capital Partners, eight hundred million in nassets under management, and she joins us once again on the phone from Lawrence, Kansas. Emily, good to have you with us. How's it going. It's going well, good to be here. Um, sentiment, Is there a clear direction for you when it comes to where the economy is going,

where the market should go? At this point with regard to sentiment, if we're talking about consumer sentiment, we actually got a little bit of an opportic and we uh in you know, in consumer attitude and the moderation of inflation expectations. But I think the you know, the general consensus on people on market washers is that you know, we're in for a rough And in fact, I was saying just this morning to a client that it's one of the it's one of the strongest. It's a very

strong consensus. It's one of the stronger ones that I've that I've seen in my career, which always gives one pause, doesn't it. Also, though, I love when everybody's like it's gonna be terrible, because it makes me think, Okay, I'm going to be a contrarian. I love it when everybody's like saying, it's bed. Is there any of that thinking going on? Because you know, it's interesting. We had some stories the UK maybe you know, missing a recession, um the I think Germany the same thing, like all of

a sudden, you know, China continues to open up. I know none of this is ever straight, you know, path up or down if you will, but it does feel like there are a lot of metrics coming in, you know, raw data if you will, that is saying maybe it might not be as bad. Well, I agree with you that there it's it's very interesting. There's some real mixed signs, so that if you look back at you know, what was one of the factors that really performed strongly, and

it was industrial. Right, if we were really going into a recession, that sector would not have performed as well as it did. You know, there's this, there's the there's the fact that American consumers are still continuing to spend. And I think one of the key questions here is that clearly the FED or Ran Powell thinks that wages are going to have to fall sharply to unstick core

services inflation. And you know, not everyone agrees with that, and if he's wrong, and if you know, I think I think he believes and most of the you know, the members of the FED agree or believe that, you know, we're going to have that we've done the easy part on inflation and that now we're getting to the sticky part, and that to unstick it, we're going to really have to see unemployment pick up. And you know, that's that

could be wrong. I mean that the person who came right before me on this show was arguing that they were going to be late and then realizing that that, you know, inflation isn't that sticky. So I'm sorry to tell you that I tend to be I tend to actually agree with the consensus, but I am you know, I'm I asked myself this daily, right because when everyone else when when you've got this kind of group think, you do have to step back and question. And I

agree with you that there's some positive signs out there. Well, the S and P five foundered is looking at a second week in a row higher, as we've been saying throughout the program. Today, it's up two point seven so far this week. Emily tested that two under day again. Right, But I know thanks to some some notes from our producer Paul, that that do you think that we could start to see even another decline in stocks? The lake lower because when we start to hear from companies, these

uh investors haven't necessarily priced in profit margin cuts. Yeah, I think we have to remember that, you know, profit margins for US companies are at historic high. And I do think we're going to see during the reporting season some disappointing earnings because these higher interest rates, you know, the Fed bravest interest rates seven times last year, and those are going that those hikes are going to flow through into earnings. And look, I think part of what's

happening here is that the FED. There's so much liquidity in the global economy, and the FED needs to get that liquidity under control. And every time there's the slightest optimistic sign or the FED comes out and says something that the margaret interprets as debbish, you know, then suddenly we've got you know, suddenly we get we have this loosen and which is the opposite of what the FED is trying to accomplishing. I've been saying that throughout. Yeah,

it's happening again. Now. It's a little bit like a bad relationship where you know, no matter what you say, the person just isn't hearing it, you know, and you have to say, what part of no don't you understand? I'm sure it's very frustrating for the fat and I think we may be seeing another one of those. You know, the liquidity is pouring back into the you know, the money is pouring back into the market because there are a few positive signs. So I don't know, what do

you think about that? I like the I like the analogy and thinking about it like a relationship, especially when I think about the FEDS as sort of an actual person. Um I'm wondering, Emily, how much lower you think the S and P has to go. Well, I think we're gonna I think we're going to retest the lows that we saw on some you know, late September, early after and I think there's a school of thought out there

that thinks we're going to go lower than that. I mean, certainly Mike Wilson at Morgan Stanley thinks that I am not that bearish, because I agree that there are enough positive sign is out here out there that would you like a lot of cash equivalents That to me says bear Well, I like cash equivalents like T bills because we're seeing you know, four points, I got egles. There's

real yields, right, yeah, there's really yield there. And so I think, you know, for the first time, the bond the allocation to bonds in our portfolios, my client portfolios over the past three or four years had dropped quite substantially, right, I mean, you you know from down to tend to tend ten to fifteen percent or even low or even lower than that. And I think now that bonds are you know, there's an alternative out there that that Tina

era is over. We've been talking a lot about that that you know, all of a sudden when you look at the yields that you know, SMP five D yield versus bonds, bonds are certainly competitive with you know, potentially without as much risk. Emily. Thank you. Emily Hill, founding partner at Barrassaw Capital Partners. Eight hundred million in assets under a manager, shutting us on the phone from Lawrence, Kansas. Thanks for listening to Bloomberg Business Week. Download the podcast

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