This is Bloomberg Business. Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
We're justking a great little conversation with Jenny Sorain here in our studio ahead of her story because it is among the most right on the Bloomberg. It's also the Bloomberg Big Take. It's about the hot money that is scorching regional bank profits after they were losing lots of deposits. So let's get into it. The who, what, where and why with us is Bloomberg News Finance reporter Jenny Sorain in our Bloomberg Interactive Brokers studio. So great story, Thank you,
amazing story. So tell us what's going on and what is hot money?
So hot money is the word that regulators like to call broker deposits. And these are basically deposits that banks get whenever they use a third party to go out and a deposits for them. The reason that regulators don't like them is, you know, these brokers are typically connecting these banks with wealthy individuals, big corporations that are just looking for a better rate on their cash, and so that means as soon as a better rate comes along,
this money is quick to depart. So regulators really do view it as kind of a more risky way to fund yourself. And on top of that, it's a lot more expensive than the kind of core deposits banks you know have relied on for so long.
Why do I mean, I've been thinking about this since last night, so I read your story and it's been on top of my mind. For one thing, because I'm already angry about the FHLB story, right, But then I was thinking about broker deposits and how exactly do they work. On the one hand, it seems they could be very simple and benign, right like my bank offers certificates of deposit where I get very high interest rates if I promise to keep the money locked up there for a long time.
But that's different from a broker deposit, isn't it.
So in some cases, a broker deposit can be a certificate of deposit. It all depends on if there's like a third party kind of sitting in between you and the bank and so there's these networks that will connect, like I said, like wealthy individuals or big corporations to all these regional banks that are in need of more liquidity.
And so that's that's really I think the kind that that regulators don't like because there's not that like direct relationship that a consumer would have with the bank, and so they don't feel anything about moving their money. And you're right that it is really good for consumers. I mean, this is a way for folks to get the rate that they should be getting probably on their cash. But for the banks, it's it's really expensive. It's really you know,
pinging their profits, putting pressure on them. And so it's sort of a yeah, a tale of two cities, as it were.
How much more expensive is it?
I mean, over the last year, interest expenses have risen twelvefold and.
As a result, and that's putting it lightly by the way, because a lot of banks that like me and Carroll probably use banks that we're paying less well less than one percent inflation, right, it's right interest, and these broker deposits are probably paying five percent plus the banks need to give the broker a cut.
Yeah, yeah, so these yeah, exactly, So this is you know, around five percent is kind of the going rate these days. And yeah, I mean a year ago, most banks weren't paying anything like, well well below one percent on core deposits. So these are much more expensive. Interest expenses are going up. You've already heard from a number of regional bank executives warning that, you know, the profits that we thought we were going to have this year, that's not looking likely anymore.
Can I ask you something, our is private credit loaning money? Do we know if private lenders are actually loaning money?
I think so for the most part, this is really you know, the cash that a company has on its balance sheet. They and for the past year have probably been hearing, you know, us talking about interest rates going up a lot, and they were earning less than one percent on that cash. And so now they've kind of woken up. They've realized, hey, I'm getting charged more for my loans. I need to be making more of my deposits.
And so you're just seeing a lot of these customers finally kind of wake up and say I need to make more. On top of that, we had three regional banks fail, you know, at the start of the year, and so anybody who was sitting on large piles of uninsured cash. We're also like, I need to find a network that allows me to get more insurance on this cash.
So you know what I'm saying, right, those private credit funds, Like I'm just curious if they're taking some of their funds and throwing it in a bank for a little bit and then just pulling it when they want.
It, that's a great Actually, that's a really good question. I don't know, it's because it's like.
I guarantee like five percent. Yeah, it's for like a month or two, right, Yeah, truly, if they haven't put it to work, that's very good. So next story exactly.
So I wonder if regulators are going to crack down, and maybe not on broker deposits, because, as you point out, they've been around for a while, regulators don't love them, but they haven't done anything about them yet. On the other hand, we're just now seeing the light shone on the FHLB issue, and we're right ahead of an election year, so it seems like the perfect time to crack down on this like one hundred year old institution.
Yeah. I think the bigger way that we'll see crackdown is like I think First Republic is actually a really good example where they didn't get seized and you know, ultimately fail because of some big rush on deposits. It was more of a slow bleed and they were replacing that slow bleed with these more expensive forms of funding.
And so ultimately, when regulators sees them, they were like, you know, this has everything to do with the fact that your borrowing costs have gone up in such a manner that you were no longer you're structurally unprofitable, and you're no longer able to operate in a safe and
sound manner. And so I think you'll start to see regulators, you know, really taking that seriously and saying, you know, if you've had to backfill this you know, you know, slow and steady decline and deposits with these more expensive forms of funding, we're going to take notice and we're gonna you know, show So you.
Think they're gonna shut down.
More banks, I hesitant to say that. I think more banks are aware that that is that's the risk here, Yeah, exactly, that's what That's what I think is this next phase of the regional bank turmoil is you know, we're not seeing these big sudden rush on deposits anymore. It's really this slow bleed that is more worrisome in a way and could honestly affect a lot more lenders.
Well, one of the things I loved in your story is you talked I guess it was specifically somebody quoted the chief financial officer at Western Alliance, I guess about current liquidity. I mean, are we not getting a clear picture of the bank's liquidity picture as a result because of this, money can be yanked very quickly.
I think that's what regulators fear, and that's they actually do have really stringent rules around broker deposits that they're not viewed as favorably as like the typical core deposit that a bank will have, and so that's why regulators have long hated them. You don't get broker deposit numbers and earnings. You get them in call reports weeks later. Even the data that we based our story off of this is all first quarter data, and really this was an issue only in the last two weeks of the
first quarter. So even now it's just the tip of the iceberg really coming out, and I think the second quarter data that we get in the coming weeks and months, that's going to be a lot more worrisome.
So, I mean it makes sense. I'm from Ohio, my whole family is from there. You always have views.
Huntington Bank or Park National or one of these you know, local regional banks, and we're unlikely to move our money out of there because it's part of who we are, right But these broker deposits, how likely are they to shift from one bank to another.
Or be polled?
So some of the hope is that because more folks are doing this because they want more FDIC insurance on their deposits, the hope is actually that they wouldn't need to move as much because as long as you know, whatever regional bank is still offering five percent, even if that person can get five point two percent by you know moving, really they're there for the FDIC insurance and so it should be fine. But we really don't know.
I mean, this is kind of a new era where it's a lot easier to move your money than it ever has been before. I mean, that was one of the big issues we saw with Silicon Valley Bank. So a lot of exactly on your phone and it's you know, hundreds of thousands of dollars move. So it's just it's hard to know. And I think that's also why regulators have so much anxiety around this issue, is you really don't know what consumer behavior will be like, given how much tech has evolved since the last crisis.
Jenny, about forty five seconds left here. So with more earnings just around the corner, we've already gotten warnings as you guys, as you write in your story about from M and TV, from Columbia Financial, from Fifth Third Bank Corps, should we expect that there could be some not so great earnings releases in that in the next round of quarterly earnings. I'm just thinking about for our audience who's thinking about investing and maybe have been looking at this space.
I think yes, I mean, I think a lot of these regional banks have already started to kind of prepare
investors for this new reality. But I think we'll hear a lot more comments like that in the coming weeks as banks kind of come to terms of the fact that they might have set guidance in January that you know, wasn't anticipating a bank crisis in March, and you know, further rate hikes, and so I think You're going to see a lot more kind of you know, honesty and transparency from these bank executives as they realized the extent of the problem.
Hot money. What's the matter is.
Fifth Third Bank Corps Latin for?
What?
Is it like the Marine Corps?
Did I say it again?
I always say in a core corp? All Right, I can't help it. It's like this hang in my head, fifth Third Big Court.
This has been going on for twenty years. Jack, Yeah, I do don't.
Yeah, I know. It's you know, just some things you just got to accept. Yeah, what I am Jenny Sarying, great story. It's a Bloomberg big take. It is among our most read on the 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 iHeartRadio app, and the Bloomberg Business App, or watch us live on YouTube.
A little bit.
You used to just that movie, No, not The Bodyguard. There's actually a movie like on her.
No, it's actually well done.
It's really well done. Anyway, I digree The Biggest Little Farm. I haven't seen that yet.
You should see that.
Have you seen air, Yes, have you seen the what's going on with treasury yields today?
Yeah? Very cool?
I mean fourteen basis point jump right in the ten year yield and Bill Dudley out with the column saying he thinks the ten year should be about four and a half percent rather than what are we looking at right now?
Three eighty four?
Uh yeah, I think so, I just head it up there, let me just pull it up. But bun got a ten yere at three eighty five? Is that what you're looking at the tenure? Yeah? Three hundy five? All right, So let's see because we, as we said, swap markets now indicating you know, we're looking at what two rate hikes by the Fed by year end. So let's try
to make some sense out of it with us. Lucky for us in studios Ben Emmons, he's senior portfolio manager, head of fixed income over the wealth management firm New Edge Wealth, and he's here, as we said in our Blue Work Interactive Brokers Studio.
Hello, Hello, Hi Carol, it's great to meet you.
It's nice to meet you. I've heard a lot about you.
Hi, thank you.
So make sense of today's moves? Is this logical? Is this where we should be and in terms of what we're seeing along the Treasury curve.
Yeah, I think it's logical, and there's actually two reasons why. So obviously the GDP data surprise. But you know, as Matth was starting the segment off the bally of the curve, underperformance.
That tends to happen.
The ball mar could recognized strong growth. The five year part sells off the most. That's I think if very logical reaction. The auto reaction is that Powell overnight puts in a speech that there could be two or more rate hikes. That really caught a lot of people's attention because he endorsed the dop lot the day before in the Penelt and Cintra saying it could be more rate hikes meaning I'm saying what the forecast is showing you.
But if you say two or more, if you look at that dop lot, anything beyond where the median is, which is five point six two five percent, are those three little dots on the top that are.
Six to six and quarter percent different?
Huge difference.
So the bomb marker is edging here a bit about Okay, we're getting core PC tomorrow, which, by the way, Powell also floated in the speech saying likely to be four point seven percent, which is the number that forecasts tomorrow. You know, that's too high inflation, and with the growth number today being this strong, means that inflation like that stays high, and that means yes that maybe not only two high rate hydred may have to be more. I think that's the reaction to it.
So what do you think about the underlying economy though, Ben? I mean, we got some good numbers today on the economy, but.
They're very backwards looking.
Right, we're talking about first quarter GDP and personal consumption. First quarter core PCE in fact, was revised down. Does the economy look good to you here or do we need to see earnings to really judge that.
You do need to see earnings to judge it. And there it's corporate profits, right, we were at least too and they were down for the first quarter. So there's one one I guess, softness in the economy. But what stood out to me that number was that the housing market is coming through the data. You know, the fixed structures is one component was actually much higher. So it does tell you that rates are not finding everywhere. You know, it's footprints in order to slow the economy truly down.
We would have otherwise had a number that would have not been this two percent or so, it would have been downside surprise. So I think backward looking data. But it is an economy that's on his feet and resilient and that's the worst right and therefore growing stronger than potential.
Then could we theyll get potentially what you know, like a rolling recession. We saw housing take a hit, go back what a few months, go back last year right as rates started to tick higher. So could we that at this point people like I got to buy a house or something. Could we see that there's just going to be different parts of the economy so that it won't be felt so severely.
Yeah, because if you if you could say no, yeah, I don't like to say that, but you probably have a good point. You know, we come out of a pandemic and we're getting a big inventory correction first, then it spills over to the housing market. Then we're seeing an auto is a big correction, and then we probably see at some point that the travel leisure chector will slow down. It's going to be no, it's sound unstatable to mend but it's going to taper off at some points.
And obviously we have seen on the manufacturing side quite contraction, but it doesn't feel the traditional Mber recession definition really because we haven't seen unemployment rate going up so quick so fast that it makes you really wonder like, Okay, we're having a lot of layoff announcements, we're having layoffs, but it having no really material impact on widespread unemployment. I think that's the key missing agreement.
So is the issue.
You know, corporations are sufficiently financed better than they have been in the recent past, and households have bigger bank deposits, people have you know, thirty year fixed interest, fixed rate mortgages. So basically these long and variable effects are taking even longer to make a difference.
Yeah, and maybe not what you ate us said that it takes twenty five years like in Japan, but it's definitely taking longer because in an air off QE actually generate all the benefits you just describe math. You know, if you have, indeed companies that have been able to refinance their debt at double the maturity that they had pre financial crisis, if you have corporate sorry households that are better positioned in terms of savings and bound sheet. Why I had only a cover more than two thirds
of the economy. So interstrates will take time to work through the system. Interstates will take time also to actually change people's behavior ultimately. I think that's the other part of it. You know, we haven't seen really a significant change of Oh I'm looking at treasury yields now over five percent, say I'm going to really pair back and to sit at home and say if that's not really what was happening.
And we've actually seen money coming into the equity markets.
Right, people are comfortab with the last one.
Let me ask you something in terms of the Fed's dual mandate. Right, you've got inflation, and you've got the jobs market. Might have fed as much as we are, Like, I don't know if they're going to get back to two percent. Might the FED more likely have to abandon in terms of more weakness and pain in the job market because maybe there's just demographics going on. I've had family members who would have been still working, but you know, at the pandemic hit and they're like, you know, I'm
going to go in an early retirement. I keep hearing stories about you know, companies wanting to bring back older workers because teenagers aren't taking jobs and so on and so forth that they used to. Is there we don't have immigration like an aging of the population. Is there a chance that demographically there are some macro forces going on that are going to keep a tight labor market going for longer?
Have you take a very simple metric of the labor force participation rate, you're looking at that twenty year history. You're seeing the blow that happened in two thousand and eighth of yes, big fall in that labor force participation because people were sidelined and did not come back into the labor force and then being either discouraged or early retirement.
And we had the same blow again in twenty twenty, only that labor force participation rates went down just as much like interust rates went down, same with so with big trough pig trough. So it will take a lot to get more and more people back into labor force. In other words, current rage is running somewhere three and a half four and a half percent range. We'd have to probably double to get people really pulled back in. And then there's still groups of people that say, like
you know what, I got enough money to retire. I don't want to go back into this, and I think this economy could become way too cyclical or I'm uncertain about it, or I have other things to do and I don't want to want to.
Work, so it could stay strong, Yes, I.
Think so, I think if we're dealing with a demographic effect that we've had in Japan, Yeah, only Japan has you know, at least ten years ahead of us with them.
So the Fed has to then keep raising rates, and you know, by Dudley's math, we could see treasuries hit four and a half percent on the tenure. At what point do you say, okay, now I want to lock in these rates.
Yeah, you know, one that we do get a decisive change in that core inflation number. Right, So if the core PC number tomorrow and subsequent months shows really decline and never getting more more confident like okay, fat, you are winning this game, You're going to bring that infratirate indeed down.
Then you want to buy treasuries. You do want to buy a treasure. At what point do you start to go out further out on the curve.
So what happens then is that as that core number starts to decline, the yucur starts to steepen, right, the two yield starts to decline, and that that is the moment to do that. That's actually when you want to extend from short maturity bonds to low maturity bonds, because you're going to not only getting the price return and out of long term bonds, but so the real return because if inflation starts to decline, even if normally yields to decline, you're getting a better real return.
So then do we see money coming out of the equity side of things at that at that point.
So I think that the yukur of inversion not having an impact on the stock market is interesting. Right the stock market set like at least this year, that is
the case. Stock market says like okay, restrictive policy is sufficient that it brings that infrati rate gradually down, means that profit margins don't collapse, and means that not all the pricing power all of a sudden gets sucked down and therefore the equity market doesn't get a factored so much by that inverted you curve that, which I think signals this really type policy to get infation and a
glidepath down. But if you think of the of the the switch that we're probably going to see in the future in the fixed income market, if you're getting able we call bulls deepening, meaning the two yields has a really decline much faster than the tenure yield. That's a signal of real economic weakness. I think that's a signal of fat You have to indeed start truly pivoting and moving to a different policy stance that would I think be taking negative better stubmre But.
Is I mean pals has years out?
Do you agree?
Yeah, so that's interesting.
Quickly we got twenty Yeah, so if you.
Believe that you're not going to hit the target until twenty twenty five, you're going to stay in this very type policy inverted you curve and therefore we may not see much change at this point and therefore you cannot exten duration so easily as you see today.
What I'm just glad we had that.
In day I know we talk about thank you, Thank you, gl pleasure. Ben Emin's senior portfolio manager, head of fixed income over at New Edge Wealth. Here in our interactive broker studio, I'm Carol Master along with Matthew Miller, and you are listening and watching Bloomberg Radio.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter 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.
All right, Well, Bloomberg recently releasing some data from Provident Bank. They did a national survey, Matt and they found sixty seven percent of small to medium sized business owners and execs believe a recession is likely in twenty twenty three. And I got to say, you run a small business, it ain't easy.
Yeah, No, for sure.
It's really especially with credit conditions tightening. You know, if you can't get alone and you have to go to private credit, you're going to have to pay more for that. We've talked about and one of the biggest problems I think for small business owners is not access to capital.
I would guess labor.
You know, finding people to hire, depending on what you're doing on this issue can be a huge issue.
That's why a lot of them are actually being very flexible with working conditions right now. But even harder I think from the get go is finding funding to start one in the first place. And our next guest knows about that a lot. We're delighted to have with us. Elizabeth Gore, president and CEO of Hello Alice it's a free platform designed for and buy small business owners, and she joins us on Zoom in San Francisco, designed for
and buy small business owners. I don't know that I've read that so well.
So I understood it perfectly.
I'm not understanding anything on this Friday. No, it's Thursday, Elizabeth. Nice to have you here with Matt and me.
Great.
That sounded good to me.
Tell us about what you guys are up to and how you got here and how.
It all Startedly, we're very proud of Hello Wallis to be the largest community serving small business owners. We have one point three million small business owners who are acts capital on our platform and most importantly, really understanding their financial health.
All right. So are they healthy right now?
That's a great question, you know. I have both the sense of optimism but also a stark reality check. We have five times the amount of businesses right now launching in our country than the last twenty years. So both with folks coming out of COVID and wanting more flexibility, and then also the amount of layoffs that folks decide well, you know, and I'm going to pursue my dream. Finally,
there is a lot of businesses opening. Additionally, we have mostly women and people of color launching those businesses, which
is very exciting. The reality check I have is getting access to capital in the first twenty four months of that business is very hard, particularly getting loans, and so most small business owners are relying on operational credit, which can also be very challenging, particularly if you think of women who've been in the care economy who don't have access to get credit history US veterans coming home without
credit history. So our job at Halo Wallis is ensure they get that equable access to credit that they need.
Well, that's a really good point.
How do is care economy a phrase that I didn't know what is that?
So if you really look at women who stepped away from the workforce to take care of their children, take care of elder care, their community around them, they're in COVID. There was a big step back with women in the workforce or running their own business. It was a real necessity during COVID. So if you think of that two to three year gap maybe and their credit history, it has an impact of what they can apply for now.
Yeah, that's really worsome. And we saw that, right, I think Elizabeth, we thought the pandemic was going to be kind of freeing for women, right, this flexibility of being able to work at home, and then all of a sudden it was like, yeah, you can, but you'll just got to take care of the kids and your mom and your dad or your grandparents.
Like.
It was a lot placed on women and it really put I think a lot out of them in terms of being able to either pursue their careers or start a business. So tell us, first of all, where do you guys get your funding to help others?
Absolutely so, at Hello Allis we run a thirty million dollar grant program that comes from both government philanthropy as well as enterprise companies. We also distribute credit and secured credit. That is our own program at Hello Wallis in partnership with MasterCard. And then we're also working very hard on equitable loan access, so we have a loan center here
with ninety two lenders. We follow the lender's bill of rights to make sure that there's no predatory lending and that ranges from banks to CDFI's And now we are launching a significant fund that is also helping small business owners put forth collateral. If they don't have that credit history, then they will need to actually access some kind of credit enhancing tool to make sure that they can apply for traditional credit.
Community Development Financial Institutions fund A head to look up CDFIs in terms of that they're out there, sorry, head to check, Thank you Google, I get it.
So is I mean you go beyond just giving money, right, you also educate and help people with I just wonder what the biggest problem is for these businesses once they get over the funding hurdle, the initial funding, what problems are they facing?
So I can't underscore I can't skip over access to capital, by the way, just being the number one problem for these business owners. And again, whether that's credit, whether it's loans, whatever that may be, once that does happen, and actually their financial acumen is really important. So what is my
business health? Could not be a more important topic for all of us in this country to talk about right now, most small business owners are very good at providing that pet care, being your child care provider, or that coffee shop or that art that they're selling. Most of us do not have business degrees. So what we do at Hello Wallis is provide a business health score, which is
super easy. It lets you come in fill out a specific survey on everything from you know, what is your credit to your cash flow situation, and we really help you navigate that business plan and understand your financial health. Just because you have the money in the bank, how are you spending it? You talked about employees, When can I approachally hire that first fte? How am I paying my taxes? So we really equate access to capital and financial health together.
And is that really the key to success? I always think about it because we talk often about the number of people who start small businesses and then they don't work out. Is it the access to capital the number one thing that keeps somebody going or is it you know, as Matt was talking about, and you were talking about financial acumen or financial literacy and understanding kind of all the things and just got about thirty seconds left here.
Yeah, financial literacy is the number one so we again we say your business financial health is more important than even accessing that capital. The number one place to get capital is from your customers, from those receipts, So that is really critical.
All Right, we're gonna leave it there. Hey listen, thank you so much of a great holiday weekend. Elizabeth Gore. She's present in CEO of Hello Alice. If you want to find out more, you can find them on the net the internet. Hello Alice dot.
Com, Twitter at Twitter is hellolics dot com? Right or sorry, Twitter is at Hello Alice.
Yeah, i'd say, but yeah, if you just google Hello Alice, you'll find it. It's really interesting.
Now.
I always think about it because we did see a lot of people starting small businesses during the pandemic. But you just wonder, you know, how they're doing and what they need. But kew things.
The amount of new businesses started. She said that in the last what twenty.
Years, a lot. It's a lot.
All right.
You are listening and watching Bloomberg Business Week Carol Meser along with Matthew Miller. It is Thursday, This is BusinessWeek. This is Bloomberg Radio.
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 iHeartRadio app and the Bloomberg Business app, or watch us live on YouTube.
Oh yeah, there are there are folks out there taking the money and running. When you hear that, you know, the Heist Issue. It's just it's here everybody. It's happening for the last five years. It's a double issue Bloomberg Business Week. We look forward to it. It's stories of intrigue, thievery, scheme scams, good guys and bad guys, and it's really just great summer reads. And Matt and I have been funny looking at having had some fun looking over the issue.
So let's get an overview of the Heist Issue. It is on newsstands, online at Bloomberg dot com, Slash BusinessWeek, and of course on the Bloomberg terminals. So let's get to it with Bloomberg BusinessWeek Features editor Jeremy Keener on zoom in New York City. Hi, Jeremy, also the editor of Bloomberg Busin this week, til weber right here in our Bloomberg Interactive Broker's studio. This is a fun issue.
Oh, it's one of my favorites of the year and we go cover to cover In in heist, there are you know, sortied tales, there are cliffhangers, there are ongoing mysteries. There are bank rubbers who are bad guys, or a bank rubbers who are maybe not bad guys. It's got it all. Jeremie Keane puts it all together. We wrote these stories out over the course of a week. We've still got a little bit more to give you tomorrow, which.
I say it is like, so.
If BusinessWeek kind of shark week, this is it.
I think it's so cool.
And but the thing is, when I first thought about it, when I first heard the concept, I thought cool because I want to someday be part.
Of a heist, right.
I think we all you might regret that we all sort of do. But some of these thieves are really bad people. Like we talked about one of the stories yesterday made me very angry, like who steals benefits from the poorest people in America?
Sad?
Right, Yeah, And what feels really challenging about that one is all it would take is the government to put a little chip in a card and it would protect But because it's still a swipe and we all know how vulnerable those ATM cards can be. Like some of the most vulnerable people don't have anybody having their back. So the stories go in many, many, many different directions. Like I said before, Jeremy Keene is the architect of the issue and decide what goes what's not in the issue.
One little fun fact, I know you read this one already. Jeremy did a story wrote for almost a year now. Jeremy, you've been working on this thing, right, put put a filter in place to basically track all the crazy weird stuff that has been stolen since our last heist issue a year ago. Jeremy, what was your single favorite thing on that list?
I think that would have to be the eight foot statue of Gary the gorilla was stolen from a garden center in Scotland. And one of the nice things when you drink, you drill down into the into these news of the weird type stories, and one of the things that's great is there's always additional little nuggets that are great.
And one of my favorite things about that one was was after police asked people to call in with tips, people were saying, oh, I spotted this eight foot gorilla statue going down the highway, and they pointed out that in fact, it was Gary's twin brother that was made by the same company, but not Gary. Gary remains missing.
What about the Morgue, Oh yeah.
That's I mean, that's really quite a story. That's that's ongoing. In fact, I think one of some of the main people were just just pleaded not guilty in court a couple of days ago. This was that Harvard Medical School. The main morgue manager has been accused by the government of running a trafficking ring in cadaver parts, allegedly selling them to to other people who are using them. In one case, the allegation is in in I think art might be a strong word for it, but some pretty grim crafts.
And hey, one man's trash is another man's treasure.
Law and order for you know episode, it's really cool.
So I'm going to do a thing here. One of the things I'm going to link this story another story.
You ready for this?
Yes, there was an Oscar Mayer wienermobile that lost a part. Matt, do you know what part it lost? It was stolen by thieves.
I'm the steering wheel.
It was the catalytic converter.
Ah, Yes, because of the platinum and palladium.
Inside, so they got that whole patch continued on to its scheduled event. I'm going to link this story to another one that was all about catalytic converter thefts, and we went big on this one. It's one of the longest stories we've ever published, and definitely in the HIGST issue by I just.
Tell you quickly, we don't call it the Oscar Mayer Wiener Mobile anymore.
Oh it's been there's a new politically correct name.
It's I think they really They renamed it the Frank Mobile.
Okay, well, yes, yeah, so the Frankmobile lost its catalytic converter. That relates directly to this other story we did. We have for the past couple of years keep seeing these headlines about all these catalytic converter thefts that have been happening across the country, and the parking lot after parking lot thieves were going in saws alls, climbing under vehicles,
removing catalytic converters. And it turns out that was all because there are rare earths inside the catalytic converter that could be basically reprocessed, and thieves were making thousands of dollars off of them, based on the model, could be much more lucrative than others. What Evan showed wasn't just the trees that this had been happening in one off's all over the place. There's a forest of a story here. Tulsa Police Department brought down half a billion dollar crime
ring that was built on your catalytic converters. I don't know for sure if the frankmobiles ended up there or not. That didn't affect into that narrative. But Jeremy, what was so impressive to you about about that story?
Well, it was not just you know, first of all, it seems like almost every everybody you know knows somebody who's had the converter off their car stolen because they've become so valuable over the past five or so years, maybe longer. But it was also really fascinating to see the kind of illicit supply chain and the way that it ran, you know, through supposedly this a chop shop in New Jersey and then and then carrying on too Asia and possibly in Japan.
I believe it was was it is like a scene out of remember the show Fargo. Yes, it's like a whole season of Fargo baked into this magazine article. For you, Jemy, what was another favorite of yours.
Of articles in the Yeah, I think certainly one of the ones that stands out is the sneaker story that that also went live today that looked at what what looked what looks like something like a Ponzi scheme for sneakers, almost the you know the yes they they essentially we had somebody who is taking options bets on sneakers. So when a when a coveted sneaker was about to be released four months down the road, one of the big
shoe companies made an announcement. This is Michael Malexa Day of Zade Kicks had a business where he'd say, okay, we can place your orders now. This is how much we'll charge you, and in four or five months, we'll send you your shoes at the price, at a price that you know might be about what the company is selling them for. But because sneakers are now resold and their values go up depending on how hot they are, if you can lock in a good price early on,
you're going to be pretty excited. So he was selling people these pre sales and eventually he reached a shoe that was so hot as the Air Jordan cool Grade eleven. I believe that that they couldn't. He had so many orders that it was going to be impossible to fill them, and the whole business came crashing down. He himself had to what basically went to the US attorney and said, you know, I'm in over my head, and he.
Went into hiding for a while, right yeah, I.
Mean because he was look ahead.
So many people mad at him, and we do not want to mess with sneaker sneakerheads want their Air Jordans, and when they don't get them, they get very mad. So what's interesting about this one is he had like sixty thousand boxes worth of shoes, right Jeremy, and they're in the process of liquidating them.
Still.
The trial he got postponed actually to see how much they can actually make off his inventory that he did have.
He's in bankruptcy proceedings and they have a receiver who's sent like going through the warehouse getting basically recovering as much value as it can. You can buy some of the sneakers on eBay, So.
I'll mention the other one that I like, you're ready for this one.
I'm amazed by the way just keep they go for such a high amount of money.
They're such cheap, kind of trashy.
We've been playing on stock x a little bit.
Anyway, how scare you? I mean, look, some sneakers are very cool. I'm not saying that.
I'm just saying they're very inexpensive to make and often sewn together by like kids in Malaysia, I know.
So it's unbelievable.
Did they go for tow But then as you learned an air you know, my son steps into them and they go to a different place.
Right, So that was a great, great, great movie.
Okay, So the other story that I just while we were talking about the heist issue cover to cover beat reads We're trying to steal your summer here. The other one I will bring up that we also published today is about the Rhino.
Yeah, but this is another one that's just bad people do this kind of stuff.
Well, okay, so the rhino is now worth more dead than alive because of the value of its horn, which gets can get about forty thousand bucks in the black market.
All this trade is illegal.
So the effort that we write about in the story is the good guys tranquilize rhinos in Africa now, many of which are in Kruger National Parks South Africa. Tranquilize them and then actually take a chainsaw and remove the horn rhinos. Okay, turns out horn just like your fingernail. It's going to grow back. Takes about five years to do so, and in that time you can keep the rhino alive because it's not enticing a poacher.
Right versus poachers who were just killed them, right for them.
To just let it go exactly. So pretty frightening stuff to think about how endangered the African rhino is now become because of the interest in poaching, but also this you know, unexpected effort. And the story goes through a lot of different characters who are all wrapped up in this, from the people who have gigantic reserves. To even keep them runing alive, they have to have security forces and so that's part of the reason why it's so expensive.
I'm always curious, Jeremy, And forgive me, I think I said Keener at the beginning, but I'm just having a Friday Bran Jeremy Kean, So what is this? That's my nickname Okay, so I'm just going to think, so, what's what's the process when you guys are putting this together. I think I've talked to Joel about it in the past, but I mean I can imagine just the stories coming at you guys, because it's just such a cool way of telling a story. I feel like each one is cinematic in its own right.
Absolutely, And you know, some of it is not long after we put the last one to bed we start thinking about, Okay, an idea will come in. Maybe we know it's going to take four or five months to report out, and right there, okay, great, let's lock it in. And it's you know, it's an issue where we have a lot of great people at Bloomberg News who are working on, you know, different stories and finance and crypto in supply chain thefts that that come our way, that
that we think this is a great enterprise story. We want to go along on it and go deep. Maybe there's a video component, you know, so that kind of landing happens as we go along. It's also one that freelance contributors often are eager to work on because crime stories are there's really a lot of fun material to
dig into sometimes or just dramatic material. And you know, the other thing is, even just as I've been gathering a little quirky stories for for that one spread that we talked, we talked about off the top, other ideas come out that that could be longer, you know, longer features that we might want to assign down the road.
So it's something that we, you know, we start thinking about year round, and we think about different formats that we can do things that we have a great comic in this issue and it's right breakdown about a jewelry heist in Los Angeles, so.
So much much in the in the in the heist week that we live through here, we look forward to this one like it's truly like do you.
Worry about glorifying some heists to kind of encourage people to want to do it?
But I think about so okay, counterpoint here. Another story that we published today is about this bank robbing Brazilian gang called the PCC that came out of prison, right and it is truly like a story out of the movie Heat or something like it. And they're actually inspired by Hollywood films and that's how it informed sort of how they go about doing what they do. I'm gonna say that those are more on the bad guys skill.
There's also an interesting bank robbing story from Lebanon where people are stealing back the money that they put in the bank and can't get out because of capital country for Dad's operation. There you go. So it's a very grey area and I, you know, enjoyed giving you these stories so that you can steal your summer with a bunch of ice stories.
Where's the van, Where's the van? Joe Webber, Jeremy Keane. It is an incredible issue. It always is. It's the heist issue. It's a double issue on newstands tomorrow, online at Bloomberg dot com and on the Bloomberg terminal. Thanks guys, a journal.
No, how about you let me drive?
Oh no, no, no, no, who's going to drive?
Honey?
Please, I'll do the driving, gravels.
Let's mate, I want to try it.
Try it's a good question.
This is the drive to the Globes.
Dot com for me.
I think we'll buy an I'm on Bloomberg Radio.
All right, everybody, we've got just under eighteen minutes left in today's trading session. Time to get to it. Carol Mester along with Matthew Miller in for Tim Stanovich, as you know here on Bloomberg Business Week with us as
Sonya Meskin, she just walked in our studio. She's head of US Macro at bny Mail and Investment Management here in our Bloomberg Interactive Brokers studio on a day where stocks aren't doing a whole heck of a lot, What really is the stories, what's going on when it comes to the treasury curve and what we're seeing in the move up in yields. Sonya, you do look at big US macro stories what it means for the investment environment. So what do you make of this move up in yields?
Yeah, you know, it makes a lot of sense to me. Atally, I would say it's consistent with our view of potential upside in inflation remaining still at least in core. And I think that the Central bank talk, both from the Federal Reserve officials today and the ECB are consistent with the move higher in yields.
Did you see Bill Dudley's piece today? He wrote for Bloomberg Opinion and said he thinks treasuries should be about four and a half percent in the I guess medium term because of well a few reasons, the premium should be higher. Inflation he thinks is going to be two percent or more in the future, and the FED has to keep raising rates again.
That makes a lot of sense, the term premium that has been suppressed quite a bit in the previous cycle, but of course now uncertainty around inflation remains elevated, and we see it not just in the market based measures, we also see it in survey based measures. For example, the Michigan Consumer Survey, inflation expectations are quite dispersed, a bit more so than in the previous business cycle. And I think that's very consistent with what Bill Dudley said about the term premium.
And oh, way, did you work for Bill Dudley before?
Correct?
Okay, I thought I knew you were at the New York Fed. I didn't know when it was so.
But I do agree with him independently of how we worked for him.
Not just agreeing with her former boss.
Perhaps he actually got this from me.
Well, what's the risk then, in terms of financial assets?
I think the risk is really frankly inequities, and I think I'd be quite cautious about and very mindful of equity selection process here, because higher term premium and higher real rates are not necessarily equity's friend unless we can, of course, maintain very healthy rates of real growth. Right.
What if we get that soft landing right and we don't see some kind of significant recession either deeper wide.
You know, we had GDP for the first quarter revised up to two percent today. That's exactly big revision. We were looking at one point three percent. I know it's backward looking, but still it's kind of exciting.
It's actually really exciting given where stocks war and where expectations for the recession were in the certain fourth quarters of last year. Remember what stocks were doing then, Yeah, and then instead of getting a recession, we've got a pretty healthy GDP print, right.
I mean, I was talking to Jess Mattin about this today from our stocks team, and she has been pointing out to Carol on me over the last few days, we thought earnings were going to drop eight percent and change in Q one.
Now they didn't. They fell but only three percent.
And now we're about to get into Q two earning season, and we're looking for earnings to drop another eight percent if we have another you know, big beat that like we did before, I mean, maybe this will be a soft landing.
I do think that there may be a disconnecting fact between what the old the negativity that's been priced by analysts formally into earnings expectations, and what the market is actually pricing in right now.
But do you have faith in consumers that they keep spending, idea they're going to be hurt maybe because of higher school payments or just things still costing a lot and making choices. Ex are cheaper now, ex are cheaper well siter loans for both, but they've also had a lot of money thrown at them post pandemic, and we keep talking about okay, home balance sheets are still pretty strong, but does that still continue.
That's a big question yes, because the consumer is really propelling all of this. It's a huge tailwind to potential you know, issues with across banks and credit, et cetera.
I think that are you guys making a bet yet on why the consumers start to fall apart.
We're expecting the consumer to potentially soften when the excess savings run out, which have been sturdier I think than.
People had feared as well.
But we also think that look most of the segments where excess savings have run out or close to our segments with there's lower I think wages are technically lower. These are lower skilled potential workers, but that's also where we have the tightest labor markets in a long time and where wage growth has been the most robust.
Usually real conflicting data around the consumer, right because there's still over a trillion dollars in excess savings. On the other hand, they're putting consumers are putting a lot more on credit cards. We're starting to see delinquencies, especially in.
The auto loan area.
So I don't know what I need to have on my dashboard, But what do you look at to sort of gauge the health of the consumer.
I think credit cards are that you mentioned are really really important area to look at. And if you guys looked at the Streuss test, the bank stress test results they came into it today, credit cards were one of the major areas of risk, and I think that that's a very good gauge to look at going forward. Now, of course, the delinquencies are coming off with very very low levels, and it's very difficult to say, well, when
is this going to tip over? And potentially tip over into a recessionary kind of levels.
But yeah, that's a good area to look at. What might we be missing or what is the thing that when you guys sit down with your team and say, okay, you know, we think we've got it, but don't forget to keep a watching this is it regionals?
Is it?
As you said, the credit card debt?
What is it?
I think it's private credit actually, because that's an area where there's less pop look data available and it's very hard to triangular what's going on there.
What specifically are you concerned about? We are kind of in on that.
Well, that may be an unknown unknown In fact, right, everyone was very concerned about CIRE earlier this year. The issue with cre is that it's it may it's not as obviously as big as the mortgage business was in two thousand and eight in terms of commercial real estate. You're talking yeah, yeah, commercial real estate.
Sorry.
But on the other hand, there may be other areas that are where there's even less publicly available data that are still within private credit and some of.
The what exactly is the concern because people have been getting in big time to private credit, and I guess the problem is the loans that they made prior to this interest rate rise. Those are floating rate loans, so they're the borrowers are maybe going to go bust on mass?
Is that the worry?
I think that maybe one of the worry. Yes, I would agree with that. I think that a lot of the private credit intermediors and credit providers may act actually have fairly robust processes in place to protect themselves against the media default, and they can potentially turn out lending. But who can and who can't is a difficult question.
So like real estate top tier, probably okay, everybody below it maybe not so much. Same thing for private credit top tier, where the screening process is really clean and top top ranked, probably okay, but there might be some other problem. Is it systemic the problems?
Well, that's another big question, right, How systemic would it be if it were to actually tip over into you know, crisis type levels?
Done?
Yeah, it's pretty exciting.
I mean, I hope obviously that this doom doesn't happen, right, I don't want.
To see that.
But it's it's so opaque, you know, we don't get the data that we need to feel comfortable in private credit.
Exactly exactly well, it's the whole thing with the higher rate environment, the higher we go right, as we talked about that, as the water goes out, you find out, right, But who doesn't have on screening trunks how.
It goes I think that's what it is. I can't remember every Core corp.
This was fine, Come back soon, Sonya Mescid, she's head of US Macrover at bny Mellon Investment Management. In studio.
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 Eastern 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 journalone