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