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.
So we just talked with the team, right Tim, about KBW Bank Index down almost four percent and it's lows today still down about one point three percent, so we've definitely bounced off the worst levels of the day. Same thing for the SMP Regional Banking ETF. We're talking about the KRE, which was down about four and a half percent of its lows now down about one and a quarter percent.
And of course this was.
All following Moody's lowering its ratings for ten small and mid sized lenders and talking about downgrading maybe some other firms. So a lot going on, reminding us that maybe wait out of the woods yet when it comes to banking here.
Yeah, I think that's certainly fair to say the concerns are higher funding costs, potential regulatory capital weaknesses, rising risks tied to commercial real estate. Those are among the strains that are prompting the review. That's according to what Moody said late yesterday with more very pleased to have with us. Bloomberg Intelligence senior analyst for US Regional Banks, Herman Chan, who joins us in the Bloomberg Interactive broke.
We actually call him King of Regional Banks. And didn't you know that was he anointed March happened?
Okay, king of regional Banks. I'm sorry, sir, I bowed down.
You gotta get the title, right.
Well, it's good to have you. I it was nice to uh to get to meet you a little earlier too in person finally, because I was gone for the regional bank crisis. But I guess I get my own little mini crisis here to you.
That's the question of you're getting the after shocks.
So to what extent is this tied to what we saw in March?
Yeah, I think it's. It's it's double barreled in terms of the failout, the fallout from the banking failures from SBB Signature First Republic, and also it's the aftermath of the higher rate environment that we're currently operating in the Moody's rapport. It's noted in the higher counting funding costs as you're articulated so that's really crimping the profitability of these banks. And also you're seeing a tougher regulatory environment.
The FED is already proposing tougher capital rules and tougher and expected to offer some tougher liquidity rules for the regional banks. So these are all things the banking space has to contend with, and the upshot is just weaker earnings and weaker first line of defense against the expected potential higher charge offs from commercial real estate.
It's a little puzzling to me because and I mentioned this on with our TV colleagues a few minutes ago, this shouldn't surprise anyone, right, So it shouldn't. So we've been talking about the struggles in the commercial real estate market for months, and rates have been high for better part of a year.
Right, it shouldn't surprise folks. We've been writing about all these issues ever since April and May, so it's been on the radar screen of all the folks that cover
banks and write about them on a daily basis. I guess it's just more of a of a recall that the stocks have rallied a bits ever since the May time frame, and this is just a call that's saying we're not totally out of the woodjet, but in my view, it does seem like the issues facing the banks that Moody's articulated it should be pretty manageable, all right, So.
March April, May June like, oh okay, so almost five months for five months later. So I don't know, how do I I have mixed feelings coming if I go back to the Great Financial Crisis and when finally the ratings agencies kind of caught up to all that ailed us, right, so how are we as investors supposed to kind of be like, wait, is most of this still priced in run? Or is it just again like you said, hey, we'll slow down a little bit, Like how how do you read a call like this?
I just go back to some of the clients that we've talked to today and they've mentioned that there isn't really anything new in terms of the call, but it's just reiterating the fact that there are a number of issues in hurdles and headwinds that the banks need to contend with going forward for the next six months, a year, two years.
What are the banks that you most specifically keep on your radar? I think about and you know, just to kind of give you some background, Tim, Like, I feel like during we were leaning on Herman constantly during the regional bank crisis. And what was interesting is I felt like it was a few names that kept popping up.
Obviously Silicon Valley, Blinton Bank, and you know, kind of the ones that really were on everybody's radar, but there were others, whether it was pack West, and obviously we know what happened there, you know, But right, what are the ones you now keep on your radar, either out of concern as possible acquisition targets or what.
Right, So, really, in terms of acquisition targets, the only bank that really is a media on the radar screen after the Packwest announcement is Home Streets HMST is the ticker Bloomberg wrote about them put to atually shopping themselves a couple weeks back. So that's the one that's still sort of floating out there. But the others that were potentially you know, tougher hit a bit harder during that banking turmoil earlier in the year, like a Western Alliance.
They've actually done a really solid job of shoring up their balance sheet and improving their capital ratios, improving their deposit base, so not expecting anything they're going forward because I think they've they've laid out a very credible path of regaining that balance sheet strength that they lost a bit in March.
What's a little surprising to me, Hermann, is that in the S and P five hundred, regional banks are down one point two percent as a whole, but diversified banks, the huge ones Jakie Morgan's, the Bank of Americas like those are down one point one percent. This is it connected? Is it related? Why are they getting hit too?
I think it just shows the fact that there are headwinds across the group going forward. The capital ratios issue and the tougher regulatory environment is something that all of the banks, the largest banks in the United States and the regionals will have to convent tend with with varying degrees, And we're actually not sure.
The city's down one and a half percent. She put Morgan down about two thirds. Yeah, and off their lows. But nonetheless, right.
These are the ones we think, okay, we should be okay.
Yeah, that's right, they should be fine. But we're just in sort of some uncertainty and involved in what's going to happen. Next in terms of how these capital rules really shake out.
Is the real estate exposure still a big deal? Like, what's the top of mind? Is it the interest rate exposure? Is it real estate? Commercial real estate, office real estate? What is it?
Over the next couple quarters, it's it will continue to be the deposit costs on how fast they arise and the mix of deposits are. Will they continue the remix into higher cost forms like CDs. So that's the the earnings pressure that banks are facing. Over the next couple of years. You're going to see the commercial real estate become more and more of an issue. Everybody's talking about it now, but the actual repercussions of credit losses really
hasn't shown up yet at all. For the regional the loans aren't due yet, because the loans aren't due yet, and they can do a little bit of restructuring and kick the can down the road, that sort of thing. So there's some maneuvering that's happening in some tough conversations that are going on today, but the actual losses just haven't hit, So that's going to take some time to really happen for the industry.
What do the data tell us and what do you have at Bloomberg Intelligence that shows where people are keeping their money right now? Because if they're keeping their money in their traditional quote unquote checking account, you know it's paying nothing, right you can quickly move it to one of these neo banks. And this was the problem during
the March banking crisis. Would was like, wait a second, if I can get you know, four and a half percent over at you know whatever American Express or Wealth Front or whatever name the neo bank here, then I'll just you know, take all my money from my checking account. There is that still an issue for the banks that's happening.
So the longer we're in this higher rate environment, the tougher it is for the regionals because ineviably your customer base will start to erode from the traditional checking accounts, and quarter by quarter, month after month, you're going to see those zero cost deposits continue to move to a higher cost rate like the CD or a high yield savings.
So that's something that frankly, the regional banks would love to see rate cuts, you know, potential later this year or next year, just to stem that tide.
We bout down to the King Herman Ted, thank you so much, senior alas for US regional banks.
At Bloomberg Intelligence, 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.
In our Bloomberg Sledding segment today, we wanted to get into Tesla's new chief financial officer, who's actually kind of old when it comes to Tesla.
Because it's like the chief accounting officer also, so.
Pretty big jobs now on his plate.
Huh yeah, yeah, Well, you know, like I said before, Elon Musk has more than one job. So it's like if he you know, if he's the leader and says, okay, well I can be CEO of all these different companies.
Why can't you do a couple of few doings?
Right?
All right, So let's get let's.
Get too because there was some news yesterday that Tesla was replacing its current CFO who was in the job for thirteen years. So tracking it all for us, making sense of it is our own Bloomberg News senior technology reporter downa Hall.
She is on the phone in San Francisco.
So, Dana, it does feel like, first of all, backdrop a fair amount of movement in the executive suite at Tesla. Give us, give us a little bit of background here.
Yeah.
So when when you know, we say executive suite, there's really only four people, there's only four named executives on Tesla's website and in their regulatory filings. And of the four, the CFO is one of them. And Zach Kirkhorn had been at Tesla for thirteen years. He'd been promoted several times internally, and he became CFO four years ago. And Zach is really the person who kind of led Tesla
to profit. He focused a lot on cost, on expanding margins, and it was under Zach that the company kind of like steered through the pandemic, joined the s and P five hundred SADS valuation sore. I mean, he is really beloved by investors. So something happened and on Friday he basically stepped down as CFO. His replacement is an internal candidate, vab Pev viab Pev to today, I'm portraying that NATO policies.
Okay, we're all trying to figure it out to make sure, we get it right, Yeah, fair.
Enough, But then we didn't learn about this until Monday via regulatory filing. So, you know, I think broad strokes, a lot of us are still trying to figure out what exactly happened with Zach and why he left. But we do have a new CFO who's you know, in the job now, but he's also still the chief accounting officer. So to Tim's point earlier, you know, Musk doesn't really
think much of having more than one job. He has, he's running six companies himself, But it is unusual for a company of this size to have the CEO and the CFO be the same person.
Is there any concern about a conflict of interest with the person who sort of signs off on the you know, accounting docs versus the financial docks. I mean, there is a close relationship between accountants and you know, chief financial officers. But at the same time, isn't there good to have some sort of independence there too, I would think.
I mean, I haven't heard any like investors making a huge cry of this. I mean, that would certainly be a concern that I would share, But but I think the broader concern is that you know, CFOs typically have like pretty broad operational experience in the business. Like Zach Kerkorn worked at McKenzie, he studied engineering at Penn. He had been you know, always on the finance team at Teessel, but was just like very much in the weeds about
how the company was running. And you know, the new guy is more of like an account accounta who came up through Price Waterhouse Coopers. And so it'll be interesting to me to see how long he stays in the CFO role.
Jana, he just got We just learned about him yesterday. I know, this is like flashbacks to twenty seventeen Tesla. Remember that when all the it was like every day there was an executive turning over.
Mm hmm, yeah, I do remember, because you were.
The one breaking that news. That's how I remember.
Yeah, And this was and this was a surprise to me. I mean, you know, it really had had seemed like Tesla's bench was pretty stable. Musk was focused on Twitter Slash. Now I guess now we call it X. You know, the company has just had a quarter after quarter profitability, so that the bench at Tesla actually seemed fairly stable. I was not expecting a Zech departure this summer at all.
Is there something about the new CFO and his connection to India that maybe makes it make more sense? I don't know.
I mean, so, you know, Tesla obviously has a lot of markets to expand into. India has always been top of the list all of South America. Another possibility, and we've always been trying to figure out, you know, is Tesla going to enter the India market. His name is on like a filing in India around creating some kind of office there, so he probably has been involved. But I wouldn't read too much into that.
Okay, Well, oh sorry, Carol, go ahead. I was gonna ask against about the backdrop here if we if we zoom out and look at Tesla as a company and where it is right now. Obviously it's it's come a long way, Dana, in the years that you've been covering it, But at the same time, despite all of its successes, it's still kind of clying its way to being really sustainable.
I mean, look at the way that the company has still dealt with recalls, production delays, and that old cyber truck that still isn't on the streets.
Yeah, I mean, I think I think it depends on what you mean by sustainable. Like they have plenty of cash on their balance sheet, and you know, they continue to be profitable, but they certainly have like cut prices in order to move metal, and they are not in They don't have a truck, and I mean Americans really like trucks, and so the longer it takes to get the cyber truck out, the more competitors like Rivian have
time to kind of really own that market. And you know, I mean Elon is sort of famous for introducing products that then take years to bring out. You know, we all thought we'd see the cyber truck this year. Now we kind of learned during the last earnings round that the only ones that they've made or released candidates. So I mean, we're still pretty far away from anything like high volume production.
Forgive me if if we already talked, I don't think we did talk about this, But I mean, Kirk corn I want to go back to him for a second. What he walked away with about almost six hundred million dollars and so as CFO.
But did you not get that out of your first job, Carol, No.
Not even close. But that's okay different different worlds.
But I mean, could it possibly be Dana that he walked away from the Sea job just because I'm set, I'm good, like I'm going to do something else, or could he be ticked off that Meanwhile, what is Elon worth? Because the stock has just taken off in the last decade.
You know, there's always this, there's this sort of joke among Tesla executives and employees that we're working at Tesla's like dog lears, right, So like one year at Tesla is like seven years in a normal company. So Zach put in thirteen years, which is this magnificently long run. And you know, I think he's about to turn forty. I don't know his exact birth date, but he's like Lea, you know, he's like thirty eight or thirty nine. On
the cusp of being forty, I think that. I mean, I don't know how old you guys are, but when I turned forty, that was a big moment for me to kind of take the stock of my life. And to your point, he has done a lot for Tesla. The company is in a good place financially. He's still very young, and I could see him taking on another job at some point as a CEO, I think he's
got the chops to do it. And so there's a lot of theories as to why he left, but you know, I don't have anything solid to share at the moment.
I'm sure those are things you're you're still chasing at this point, Dana, so so always chasing, always chasing. And you know what, if you know why he left, you know how to get in touch with Dana. She's on she's on the platform formally known as X as well. But I don't know not much Dana anymore.
I'm not well. One thing I wanted to ask you we just got about a minute left here, Dana, is I do wonder, like you just said, you know, you turn as individuals, we turn a certain age and we like do sometimes take stock of our of our lives and is there somewhere where Tesla, which is really you know, had the field to itself for a long time and now there's a lot more competition. We were talking earlier with Rivian earnings. You know, I saw two Rivians this
past weekend. I have not ever, i think, seen them on the road. So it's like I feel like, all of a sudden, they're out there there's more competition for Tesla. Is Tesla kind of maybe taking stock a little bit of kind of where its world is now, kind of where it needs to go in a very different environment from where it's been the last decade or so. Yeah.
Probably, I mean it's pret you know, I think I think for so long Tesla Tesla is all about proving to the world that it could make a profitable electric car that consumers really wanted. And they have done that. They have proven that, and now they're you know, they're expanding, They're building a new factory in Mexico, They're going to come out with the cyber truck and the next generation vehicle platform, and they've kind of like they're they're done
being this kind of like scrappy startup. They're part of the S and P five hundred. Now they need to sort of mature as a as an organization. And you know, I think Zach has a lot of institutional knowledge that's kind of going out the door. But you know, his successor also has a lot of inside knowledge. So it's it's not a dramatic change, but the CFO is a big deal. It's a big deal for a company like Tesla.
Yeah, and as you said, the executive suite really only for people.
So it's again some perspective. Hey Dana, thank you.
As always, Bloomberg News Senior Technology put her down a hall on the phone in San Francisco. Shere's a Tesla by the way, app one hundred and two percent so far here in twenty twenty three.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
You guys talked about Zoom yesterday, right, Yeah.
I mean if you think about perhaps the company that most epitomizes working from home, yeah, it's Zoom. I mean it was not just a you know, a COVID stock, but it was also what we were all learning how to use in the early days of the pandemic.
Right.
We talked about it yesterday because even they're telling employees to get back to the office. Carol, Yeah, I know, Zoom. If you live near a of Zoom office, you got to come in a couple days a week. So we've seen Amazon, Chipotle, black Rock, companies as varied as those telling hey, workers, workers, Hey, you got to come back to the office.
Yeah, it's interesting, right, we're seeing that post COVID several years out and how that is kind of yep, they're coming back to the office. The other thing at play, right we see when it comes to how we are working going forward.
Is just the explosion of what the think about AI around artificial intelligence generative AI and what does it mean eventually for work.
Well, fortunately McKenzie is out with a new report that says twelve million workers are going to move into new lines of work by twenty thirty. I guess I'm not saying fortunately that's fortunately there's a report. You know, we'll see if it's fortunately unfortunately that AI is forcing people to move to new lines of work. Very pleased to have with us this afternoon, Quaylon Ellen, Grude, partner at McKinsey Global Institute, joins us via zoom from Minneapolis. A
director and senior partner at the McKinsey Global Institute. Quailan, how are you great?
Great to be with you today.
Well, it's great to have you join us on this. So you know, when did you guys start thinking about the impact of AI on workers? Because I think for a lot of people this is relatively new phenomenon with the explosion of chat GBT last fall.
Absolutely, we've been thinking about the future of work now for about a decade and modeling what does automation due to jobs which are biggest gaining jobs, losing occupational categories. And then to your point, just about six months ago, start a delayer on to automation and COVID nineteen impact the impact of GENAI. So now we've put all of those three things together to say, what do the future of jobs look like in the United States?
All right, so play it out for us, what do they look like? I am a robot, absolutely, yeah, I am a robots indeed.
I think the bottom line is about thirty percent of the activities that US workers do today could be automated away by the end of twenty thirty, so over the next seven years. And that again is through automation, COVID nineteen impact, mostly affecting interpersonal interactions, and THENI GENAI alone, if you just isolate that piece, increase that percentage by about nine or state or nine percent, so up until
about thirty percent of overall activities. There are a lot of jobs that will be fewer, and there will be quite a few more overall. I think it's good news to your point earlier. We will have more jobs in the future, I think is the great news, and those jobs will be higher paying jobs. They will be also higher skilled jobs that on average require higher average education. The tough news, or the tough transition to get there, is we don't necessarily have the workforce today that is
best suited for those jobs of the future. So first, where are we gaining Where are we losing? We are gaining jobs in healthcare, in STEM categories, and in transportation delivery, all of those other areas. We are losing jobs in primarily four big occupations, and those four occupations make up about eighty percent of the job losses between now and twenty thirty. That is customer service, food service, and sales
production or manufacturing and office services or assistants. And you've all seen kind of food chiosks, that fast food restaurants, right, We've seen all of these different elements. But when you add them together, those four our occupations make up eighty percent of the occupational switches, which is about twelve million of them between now and twenty thirty.
So before we get into that, it's a lot. But I've also seen it. I've done it right. I'm at an airport, I order on an iPad and then stuff just gets delivered. I've gone to a retailer here.
Sorry, but I'm what you and I've done this before and sometimes it works.
It's sometimes it's also just terrible, not all the time. Maybe I'm just thinking of Newark Airport. I don't know, no offense.
Oh, come on, I know, pick on the New Jersey.
We've had some fun times there, we have.
But kind of works. O.
God, I don't know.
It doesn't always work.
It's like, no, it doesn't always work.
But I'm amazed at that.
I think how many times I check out at a supermarket, I just and I go there a target, a retailer, tzar you good, Azara, you drop it.
In a bin.
That's amazing.
It shows up. That blows my mind.
It shows up on like unicloide does that too, It's amazing. Yeah, And you.
Check out and you take off the safety you know whatever they what do they call them?
That?
You know what I mean, yeah, the anti theft things, the anti theft things, like I do it all and like somebody's watching you, but it's like WHOA.
So I don't know.
Is the experience better though? That's the thing, like, you know, if speaking of airports, we've done this, you know, we've gone airports together where there's nobody to actually check us in, right, and we're like, you know, we know it's because of cost cuts.
And we're flying business, thank you Blue Berk. We do everything.
But what's the balance here, Quaylon that of actually having like an experience it's better because who cares? If not, who cares? But it's like it's one thing to replace people, it's another thing to replace them with, you know, an inferior product.
And I thought all the companies are about customer service customers first.
Not apparently, And there is absolutely a balance, and there's also a bit of a transition pain point to get there. But I think the alternative is not always great customer service in person. It could be they're understaff, they don't actually have the people, and so the alternative is do you want to wait for ten fifteen minutes to flag somebody down to get your order or do you want to enter it into the iPad or do you want to pay two dollars more for that sandwich or not?
And so I think those are the trade offs that we're really wrestling.
Well, when does the cost come to us?
Because I've go to the supermarket and man, I'm doing all the work, and or I go to the airport and.
They're like, you want an extra bag?
Yeah?
You know, So when does that cost come back to the customer?
I think we've already started to see it right on so many different products. Some of that has been passed along, some of the costs have been kind of captured and improved better efficiency and effectiveness, part which has not then been passed on in higher prices, even though supply chains have been challenged and prices across many categories have gone up, most notably in service and gas areas. I think some of that will flow through over the next few years.
We'll see where it all settles out. But I do think there are automation improvements that are being made and then consumers do stand to benefit from some of that.
Hey, really quickly, thirty seconds, because we've got to story coming up about the lack of workers in the healthcare area. You said we are seeing gains in health healthcare thirty seconds what specifically.
Yeah, frankly across the board, given consumer spending aging in the United States and frankly in many developed countries around the world. So nursing tech in healthcare as well. Overall, I think we'll need quite a few more jobs in those areas well.
That certainly fits into the story that we're going to talk about. Quailan, thank you so much. Quaylan and Ellen Gruge. She is director and senior partner at mckensey Global Institute on Zoom for Minneapolis. Their latest report, Generative AI in the Future of Work in America. It wasn't so bad in new work.
Please please enter your symptoms on this iPad.
Exactly Who do I complain to? That's the thing that bothers me. There's no one ever to complain you.
Please to meet Carol.
All right, I will. This is Blomberg.
Muckle a journal now about you.
Let me drive?
No, no, no, honry please, I'll do the gravel wat I want to try.
It's a good question.
This is the drive to the globe. Well, ja don on Bluebird Radio.
All right, everybody's safe to say we thought the closes is going to be a little bit different, certainly earlier today. We're well off our lows of the session on the equity trade, still down across the board, tim, but yeah, like I said, not as bad as it looked earlier today. And yields have definitely bounced a little bit off their low, especially the two year. But we're still looking at a ten year at about four point zero one two year note with the other four seventy five.
Okay, a lot on the agenda, Carol. We got with today's trade, right, We got the banks, we talked about the move and yields ups. Earnings not so great. Some pharmaceutical company earnings those were pretty good. A couple FED We heard from a couple FED presidents, one voting, one non voting. The big question, what does it mean for tomorrow? What does it mean for the rest of the year, What does it mean for the FED?
I am curious about clarity, and we've got a perfect voice to do it. Understands market cycles has seen several many like like us. Sam Stovel is cfre's chief investment strategist on zoom on this Tuesday in Allentown, Pennsylvania. Sam It is good to have you back. And I do really appreciate the way you analyze the market. We all do,
and you know, relate it to different cycles. So when you look at this cycles, this cycle, excuse me, you know what matters in a day where we feel like we had a dump of news on China and Italy, US banks, a lot of stuff going on.
What matters?
Well, I think a lot of that stuff matters, Carol, But good to talk to you and Tim today. I think investors have been getting the feeling that maybe we've gone a little bit too far with the market advance. The SMP is up twenty eight percent since the October twelfth low. The Nasdaq was up forty six percent through the end of July, and being a reader of this Stock Trader's Almanac and doing my own research, realize that August is the third worst month of the year, second
worst for the NASDAK. But then we have September, which is the worst of the year for both indices. Just from a seasonal perspective, maybe we are entering into a digestion phase, because, let's face it, the Nasdaq was trading at twenty six percent above it's two hundred day moving average, which is a statistical extreme.
So you're saying this is more about seasonality and technicals than actual fundamentals.
I wouldn't go that far, because when you look to the fundamentals, you're seeing, yes, the second quarter earnings did come in a little bit better than expected, meaning they fell a little less than was anticipated. Nine of the eleven sectors are actually showing an improvement in what will probably end up being the conclusion for the second quarter
versus their June thirtieth estimates. And when you look to twenty twenty four, we're still focusing on about a twelve percent year on year rise for the S and P five hundreds. So should we finally get the last rate hike, I think investors will be feeling good because we tend to see a hike, skip, and a jump that takes place after the FED is finally finished.
What about sam about the impact of potentially it seems like the one narrative that feels fairly consistent is higher for longer from the FED, so that even if they stop raising rates, they're going to keep them there for a while. What's the longer term impact of that on the equity trade?
Well, I think You're absolutely right that normally there is a nine month differential between the last rate hike and the first rate cut, and the market traditionally has risen about thirteen percent, along with all sizes, styles, sectors, and
ninety nine percent of the sub industries. But if the FED decides to keep rates elevated for longer, I think they will be doing so if we do not end up falling into recession, and if we do end up with a soft land, which is exactly what they would be hoping for, because the higher rates would ensure that we would end up with a decline in the core PCEE that will likely stick around rather than simply touch the low point and then bounce once again. So I would tend to say that the FED would be very
happy to keep rates higher for longer. But if we don't end up getting thrown into recession, that would be icing on the cake, because if we did fall into recession, the FED would have to reverse course and start to cut.
But is it more likely that we fall into recession if we keep higher for longer, or we'll investors see that like, okay, we're done. We're just kind of marking time until the FED feels comfortable enough to start cutting rates.
Well, I think actually you can say yes to both of those partial questions. First off, if the FED does raise rates for longer, then it increases the likelihood of recession. But at the same time, if the investors realize that the FED will be cutting interest rates, then that could be a reason that the recession might end up being shallower than anticipated. I mean, when we look to all of the other historical reference points, we should be in
recession by now. Whenever inflation has been above six percent, we've fallen into recession. Year on year declines and leading economic indicators have signaled recession earnings, recessions have signaled economic recessions, and so forth. So basically, this would be a one of the few times in which a majority of the fairly reliable indicators did not work.
So it raises the question, Well, actually, I want to go back to something that you said that I've been thinking about a hike, skip and a jump. That's what you said, right, Yes, so we've had the hike, we've had a skip, but we had another hike were you anticipating? So where does the h Where does this end? In your opinion, we think.
It ends in September, they will hike rates one more time, and then they will be on hold until twenty twenty four. Our expectation right now is that they probably will start to cut rates by the end of the first quarter or into the second quarter, and then gradually do so maybe two or three times next year, But that certainly is dependent upon the data. Maybe we do end up
staying higher for longer. But even when we have had a hike a skip, we've had had the jump in the markets, Even with a subsequent hike in interest rates, the market continues to rise, primarily because they realize that the end is year, the end of the hiking process is almost over.
So, Sam, I'm going to go back to what you said.
You know, you talked about earnings of recession usually precedes an economic recession. There are other indicators out there that all point to that we're going to get into a recession. And then you kind of said, but this could be potentially one of those times when the regular signals.
Don't bear out.
Do you actually believe it could be different this time around? And forgive me, I've only got about thirty five seconds.
Left, Okay, I hate to say say this time is different. I do think that maybe we do end up a recession, but it ends up materializing in twenty twenty four rather than when most people had been anticipating it to occur in the second half of this year.
Okay, so in case we get there, but just different in terms of timing, I think.
So I'll add to that all of the plethora of inverted Buel curves and the weight of the potential recession is over one.
All right, cool?
Great, Oh my god, so glad we got some time with you, Sam b Wile Sam Stowell, Chief Investment Strategers over at CFRA. Joining us on zoom in Allentown, Pennsylvania.
This is the Bloomberg Business Week podcast of a little on Apple, Spotify, and anywhere else you get your podcasts. 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 Journal alone.