Banks, Markets, Connecticut, and FedEx

but we'll schedule out of you. One of the best bank analysts, international bank outlet analysts in the world, and she works for us, so that's a bonus. Plus, she loves talking about credit sweets. There is no one who prefers talking about credit sweets more than Alison Williams. All right, Alison, we had a just more going on, A million ways we can go. As Matt was say, let's start with credit squeez. Is it going to survive the weekend? Well,

it's it's it's gonna be tough. We think that we think that you know for sure, and regular just have said that they're closely monitoring the situation. They have to be in discussions with the bank. I think that the moves that we saw this week were meant to study sentiment and assure investors. Um, the stock is telling us today that that hasn't necessarily helped. I think that there's there's two things. One is the liquidity and soundness of

the bank. And I think that the SNB coming out and sank Swiss National Bank we have to differentiate because they also have the shareholder SNB. But um, you know that's yes, so they borrow the fifty four billion, or said they were going to borrow the fifty four billion. Credit swis from the government. The government has said, or the regulator has said, you know they are there. They're

there to backstop the liquidity. But you know, to us, the issue with Credit Swiss is, you know, you have to study the confidence, you have to study the flows. You have to because that that really is their core business. And the move was meant to study client sentiment. The investor sentiment is telling you that they're not assured. I mean, there's so many ways we could go with this. First of all, when someone asks you if you're going to increase your investment in a bank in which you already

owned ten percent, don't say absolutely not. Don't be vehement about the fact that you're never going to give this bank any more money again, because that's a bad idea. I guess the most important questions, though, Allison, are why would you work for this bank? I mean, clearly it's because you can't get a job somewhere else. Why would you have your money at this bank? Do you really trust that it's going to continue? And then why would

you trade with this bank? There are already very important, large national banks that are cutting that relationship off, so I can't imagine how it goes on and in anything like the same form. Well, let's start with your last point with regard to trading and counterparty risk, because I think that that's the issue that we've probably gotten the

most questions from investors about this week. And we certainly saw to your point, when their largest investors so that they weren't going to add additional investments that people you started to see that in the stocks of some of the biggest US banks. But when we look at that, you know, the two things that we think about are one,

this isn't a new situation. It's been a couple of years, and you know, we would expect that the counterparty risk management departments of these banks have been managing down their exposures accordingly. And then secondly, if we look at the trading operations, which is something that we've discussed, I mean, they're a shadow of their former self. And that also tells you just that their activity with banks globally has

slowed a bit on that front. So certainly there are still relationships out there we would expect, but that those exposures have have been mounaged down in terms of a counterparty if we and I guess I would like and it's if we look back to what happened with bear Stearns and Lehman, I think, you know, counterparties with Lehman were sort of on high alert beginning with m bear Stearns,

which happened actually this month, several several years ago. But by the time when you know, when Lehman eventually went under, the issues really related to you know, money markets that held investment in leaning. It was less about sort of remaining counterparty risk. Yeah, that's kind of what we learned. Boy, Just as even as a neophyte boy, if you have if you lose confidence in the marketplace and counterparty risk comes into play, it's almost a game over. Alison on

Credit Swiss. Is there anything more the government can do? Really? Um? I mean, I'm not even sure how to map out a scenario, you know where this scene kind of survives. I don't know. Did they take control of the bank, Can they force a sale to UBS? I buy the way. We'll discourage the use of the word merger because there's no way anybody's coming together with credit suite as an

un part. Yeah, that's true. So I think I think that you know, when when we think about the government, I mean, and it's been very interesting just seeing what's happening both in the US and in Europe as as the government is trying to assure investors and certainly that the size and nature of credit suitezes is not comparable to the banks that failed in the US or First Republic,

which investors are also worried about. But the connection is market sentiment and you have, you know, regulators in both of these countries trying trying to you know, stabley sentiment at the specific bank, but then also more broadly, and you know, as measures don't work, you have to try different things. I think when we think about credit suis um. You know, for for years people have talked about it as you know, as you said, a merger partner. Now

it's you know, more of a takeout candidate. What exactly happens? I think when we think about, you know, what what the bank looked like today versus a couple of years ago. Um. Again, there their trading operations are have a shadow of their former self. Um. The Swiss bank unit is what the Swiss government is going to want to protect. And then we have the wealth business, which I think you know a lot of people will think is a great fit with UBS, But what we've seen with UBS is they're

taking a lot of those flows without the combination. So um, and I think it circles back to your earlier point it, you know, is what will regulators do in terms of forcing the issue or trying to help you know, some kind of combination that can protect the Swiss unit And really that's the unit that's important to their economy and the system that they oversee. All right, Allison, thank you

as always for helping out here. Alison Williams Senior Global Banks and Asset Manager for Bloomberg Intelligence, and not only that, she was recently promoted to be co director of Research for the Americas for Bloomberg Intelligence. So she's got to now manage, along with her partner, you know, more than one hundred and fifty analysts, which is like hurting cats. I mean, these people take a lot of work. It's a lot of work, but she's up to it and

she does a great job. She's got great experience on Wall Street, and she's been indispensable here as we try to figure out what's going on in the banking space, not just in the US, but overseas as well, focusing really on credit Swiss. You're listening to the team. Ken's her live program, Bloomberg Markets weekdays at ten am Eastern Bloomberg, the r Heart Radio app, and the Bloomberg Business App.

We're listening on demand wherever you get your podcast. We actually know a couple of people in the rates business. Erica Aidelberg, she covers the mortgage back security business for Bloomberg Intelligence. She joins us here on our Bloomberg Interactive Broker studio, so a double gold star for being in the studio on a Friday. And Ira Jersey, he's a US interest rate strategist. I'm just gonna guess he's mailing it in from home, but so Erica, since you're here, Um,

we're gonna go with you first. We may not even talk to to you, know. Um. So in this bank quote, I'm not gonna call it a crisis, although many people do. John Authors has said, don't call it a crisis yet. I'm I'm with John. I'm with John. But there's turmoil. Does that mean banks pull back? Can I not get my jumbo mortgage for this the Matt Miller estate up in Westchester? I mean, what are we seeing in a

mortgage part market? Yeah, we are actually saying, according to the data, that I've seen banks pulling back on credit, and that was before this latest turmoil as we're calling it now. The mortgage credit availability index that the NBA tracks, which is depending on a mix of variables, is at decade lows. So that could make it harder. The one

sector that's interesting, by the way, that's fascinating. So even as I look at the bank rate thirty year mortgage index just as my benchmark, and it has come down, it bounced back up in the last couple of days. But even if that rate is lower, mortgages still may not be available. Banks may not be giving out loans even if you could get them for cheaper, it definitely could tighten credit. Yeah, and I think this latest turmoil is going to make that even more of an issue.

That being said, the jumbo credit index actually is the one sector that hasn't fallen quite as much as Fannie Freddie Jenny, you know, standard conventional mortgages. And I think that's partly because for better for worse, that is already a very high credit product, and the larger loans are more attractive for banks to originating than a lot of

types hold on their balance sheets. So and a lot of those are actually in adjustable rate mortgages, which do have a better asset liability mix with the bank's balances. But bottom line financial conditions have tightened substantially since the failure of SVB Ira Jersey. Is that going to make a difference to our federal Reserve? It's ours yours again and iras Paul Okay. Is that going to make a difference to our Federal Reserve when they meet to decide

whether or not to raise rates. Yeah, it absolutely will, I think in part because the Fed is worried about, you know, the financial sector and some of the knock on effects that you could have if you have additional

bank failures and credit tightening even more. That being said, I still think that you know, with some of the lending facilities that they've they've used, there's a big a lot of people worrying about the fact that the discount window is over one hundred and fifty billion dollars in usage. It's probably just from a couple of institutions. They're worried that that show is a signal that there might be

wider systemic risk. But I think that what the FED will will do here is say, look, we're gonna we're gonna hike twenty five baits points because inflation is still a problem. But we're also going to continue to have liquidity facilities as needed and encourage banks to use the existing liquidity facilities in order to stop any runs on additional banks that might have some liquidity issues. Well, they

sure are doing that. You don't need to encourage them, right, They've already used the discount window like more than they did at the height of the Great Financial Crisis. Yeah, And I think that one of the issues that the FED had at the height of the financial crisis, or even at the very beginning, was trying to convince institutions

to use some of the existing facilities. So they created all of these other you know, alphabet soup of facilities like the TOFF and the TAFF and all of these other facilities that ultimately where the discount window brought to you, right, instead of people actually using it. So so we actually just put out a note just about an hour ago talking about the fact that that the usage of the discount window might show that there's a little less stigma today than there was in say two thousand and seven,

when it probably should have been used the first time. UM. And because of that, you know, there is this backstop for uh, for bank liquidity that that hopefully will be used in times of need, not in times of you know, to try to avoid that that crisis level UM that could potentially rear up and and and there is risk here for for sure. And that's one reason why I think people are still skittish about about markets and why the Federal Reserve had to step in create another new facility.

What's the new acronym BTFP or whatever. Yeah, yeah, So it's the it's the the Bank Term Financing Program. And so so what that allows is for banks that own treasury and agency securities UM to basically fund them for a year UM and not have to worry about UM, you know, whether or not they have to go into the open market. Well, the best part about that is they can do it at par even if they're trading at seventy or eighty cents, right, you get one hundred? Yeah,

I mean that's that's like a consent. That's like a great free lunch, isn't it, Erica? These are mortgage backed securities, right, So what are they trading at right now? If you go out, are some of them trading at a lot less than par? Yeah? A lot of them are trading in the load of mid part. So of course you know they're money good. So ultimately they're worth par if

you want to call it that, UM. But right now, if you had to trade him on a market market basis, because they were low coupon securities that were issued when rates were lower in twenty twenty one, in twenty twenty, they are trading in a much lower dollar price because it's a lot of lower coupon than you'd get for a current coupon today. So Eric, I know you got a no doubt, you know, calling out that the bank's mortgage backed security demand falling. Ira, No, I'm also talking

to Erica. Oh Erica, okay, okay, sorry, sorry, So Erica talks to us about the banks MBS demand here, what's going on there in the marketplace? Well, even prior to this current um what do we call it? At it tomorrow? In this current turmoil, bank demand had been falling all year. Part of the reason that it's been following is because

their deposits have been falling. I think there's also, um, you know, lower reserves they need to invest want to invest, but mostly it's the deposit base had been falling all a year. It had risen sharply at the beginning of the pandemic, as savings that had risen, and you know, people had pandemic cash to spend, and then their securities holdings had gone up abruptly. Both of those have been declining as cash reserves and cash balances have been fallowing.

Cash deposits. By the way, I thought you were I didn't know you're going to Aidelberg. I thought you were confusing Jersey with Kazatski. You know, because a lot of times Eric Kazatski joins us here on Newnies and it's kind of the same universe. But um, Jersey, let me ask you about what the FED does in relation to

what the ECB did. I was on the IDEs of March, sitting at home and the throes of COVID hallucinations, reading Ben Emmon's note about the two thousand and seven two thousand and eight parallels, and I was like literally terrified about what was happening. And then we got the news that the ECB raised rates fifty basis points, and I felt a real sigh of relief because to me, it's like, if they can raise rates in this environment, it must not be that bad. Is the FED going to want

to send some kind of similar message. Well, I think they do, and that is that they're still an inflation fighting mode, right, And even if they do pause, I think what one of the things that they'll say is that they're not going to be cutting interest rates early, right, And I think that that's you know, we went from pricing pricing cuts this year to pricing no cuts, and now we're back to pricing a significant amount of cuts

before year end. And I think if the Federal Reserve says, and I think this is something quite frankly, the FED probably needed to do over the last two meetings and say these are the circumstances. These are the necessary but not sufficient conditions for what would make us cut interest rates. Number one is inflation is at you know this level.

Number two is that um, you know, the unemployment rate starts to go up, right, and those are that's their mandates, right, and so you would need to have, um, you know, those necessary conditions in order for them to cut Now we kind of know that, but the set hasn't explicitly set it. So until they do, they won't um going back to the funding programs. And I think this is the important thing, right, the central banks with the lender of last resort, not necessarily um you know, the the

arbiters of which institutions are supposed to survive. Right. So the so the thing is when when you have an issue where there's a bank with good assets, right, and this is this is the point here. If you have a bank with good assets, we're just going to leave it there because we have to. But I get what you were saying to Yeah, you're listening to the Take Cancer our Live 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 listen live on Amazon Alexa from our pledge New York station. Just say Alexa play Bloomberg eleven thirty. I want to get right to our next guest, David Dindy, CEO and co founder of Atomic Invest. Right, here's the dude. He gets his bachelor's and chemical engineering from Stanford, all right, so that he's a geek in my mind immediately. Then he gets a masters in chemical in computational and engineering. So

this is a smart fella here. David, thanks so much for joining us. Can you first, David? Paul means that, by the way, in the best, in the best possible. I try to stay away from the numbers. David, talk to us about Atomic invest. What are you guys doing there. We provide wide labeled walt management and treasury services to bangs,

fintex and credit unions. So, for instance, if you have a fintech app that you work from or that you work with that is launching investing, we are on the background serving as the infrastructure partner as well as the regulated entity for them, so that leads me, David to the big question. And if I am a startup that's just gotten a boatload of money from a VC and I put it all in a bank in Silicon Valley, Suddenly last week I wanted to move it quickly to

one of the big four Wall Street banks. Do you help me with that sort of thing? Yes, And actually we helped hundreds of companies over the last six days do exactly that. Wow, just share more context. You know.

Part of our infrastructure also includes treasury management and the ability to open cash management and accounts with banks and custodians like Banking New York Melind who has entered into a strategic partnership with Atomic and so we saw hundreds of such companies looking to open accounts with US and

to transfer their assets into a place that they feels safer. Hey, David, you know here just in Wall Street in New York, we're all trying to get a sense of is this systemic in the banking community or is it specific to the Bay Area maybe some of those depositors and so on. What's the feeling out there in the Bay Area about how bad this is, how bad it could get. What's

a feeling on the ground. The feeling on the ground right now is that the rist and collapse of SVB, Sulfurgate and First Republics percarious situation has emphasized the need for quality, resilience, stability, and corporate cash management. We've also seen that our companies are now elevated corporate treasury management as something that needs to be a key, key competency that needs to be prioritized. And so I think many

people right now. You know, initially the first couple of days where a couple of days of panic, but over the last two or three days, people have been thinking more strategically in terms of how can they have an automated cash management solution that allows them to diversify, strategic to allocate their assets into treasury builds as well as institutions that they feel are safe, like Atomic, So you can help them manage their cash in ways that also

provides returns. Right now, obviously, because rates are up, what about other kinds of problems, David? For example, you know the official limit on insurance is two hundred fifty thousand dollars, but I'm sure that most of the companies you deal with need to have more cash on deposit than that just to operate simple things like payroll. How do you

deal with that? Yes, so most of the companies we deal with have tens of millions, if not hundreds of millions of dollars in deposits, and so the typical FDIC insurance limit of two hundred and fifty just doesn't make sense for them. And so for those companies, we sweep them into a money market sweep that offers up to two point five million dollars of FDIC insurance through a

multi bank program. At the same time, we look to see what their liquidity needs are as well as how much cash they have on hand and structure custom ladders that allow them to put the cash that that might not need in the next month or too into treasuries, which, as we all understand or full you backed by the

US government. That way, if a company has fifty million dollars or one hundred million dollars, they can rest assured that they're cash is either in these FDAC in short sweeps, or is it a security that is backed by the US government in whole. Davids, as founder and CEO of Atomic invest, what have you done with your firms cash? We actually moved our firms cash into our own platform. Prior to these events, we did have a relationship with SVB,

and it's sad to see how things have unfolded. But right now we manage our own cash on our own platform, custodied with a Bank of New York Melon Pershing, and we also now go ahead, please, we also have our own ladder where we keep a small amount of working capital and cash and the rest of it is in

treasury builds and money market funds. So, David, as I understand it, one of the reasons that Silicon Valley Bank was created several decades ago was because small startup companies coming out of the valley the big banks, the existing banks would not bank them. Has that changed at all? I mean, if I take my money out a Silicon Valley bank, am I not going to have the same

problem the I think. The thing that is changing right now as we speak as results to this dislocation is a model away from you know, one bank banking all of these startups like a Silicon Value Bank, to a model where you have an infrastructure provider like Atomic that essentially allows companies to be able to access the services of these larger banks. Without having to contend with, you know, some of the limits or constraints that those larger banks

might have in serving small companies. So I do think that the model will change drastically. I think that it's going to be fintech companies that offer these services to companies powered by infrastructure providers like Atomic in that respect. Happy to go into more detail. Well, just speaking of detail, I got a question that's kind of in the weeds, But we had a story about depositors that move their money out of SVB. But pick you any bank that

does that kind of business. They found out then or they even knew before that they had clauses where they weren't allowed to have access to certain loans if they didn't have you know, specific deposit levels, and then now they're trying to deal with the legal morass of do they put money back in or how do you deal

with that kind of issue. Yeah, some of our clients have covenants that require them to keep their money with the specific bank where they've taken out a venture, where they've taken out ventured debt from, and so we work with them to help them facilitate that and their programs that were putting in place to actually provide the liquidity for those companies to pay out those loans, and we would take those loans instead, at least in a secured

fashion in that respect. David thinks for joining us, really fascinating story. It seems like you're right in your company, are right in the middle of it, David Dindy, CEO and co founder of Atomic Invest, which is really interesting. They're out there in the valley mat and you know, the one of these fintech stories that may become much more central to kind of how a lot of those companies do their banking. Yeah, I think it's absolutely fascinating.

This is one of the companies that's you know, on the ground, on the front lines, helping to move this money around, helping to work with these vcs that we talk about, you know, from this coast in a kind of theoretical way, but they're actually doing the work with them and watching this providing infrastructure and watching this money move around. So I think really cool to get in touch with David for a little bit. Yeah, very interesting

and just getting quick update on these markets. SMP down now one point three percent, kind of plumbing the bottoms of the intra day Trading. You're listening to the Team Cancer Line program, Bloomberg Markets. We Jason ten Am easting on Bloomberg dot Com, the I Heard Radio app, and the Bloomberg Business app. We're listening on demand wherever you get your podcast. This is a treat, folks. We get to speak with Ned Lamont, Governor of the State of Connecticut.

Governor Lamont, thanks so much for taking the time. The conversation here on Global Wall Street over the last ten days has been, you know, kind of the concern we're seeing in the marketplace about some of these banks and what does that mean for the global economy. From the state of Connecticut, s or how are you thinking about your state's economy, your state's soundness of the banking system, How are you thinking about those How has that evolved over the last week or so. Look, we watched it

as carefully. We're a small state. This is obviously, you know, a national issue. Well, this is Connecticut, where the land is steady habits. I you know, there's a little bit of the madness of crowds when you see everybody, um, you know, running to the bank window to get their money out. And I'd like to think that we follow our banks very closely. We have a good, strong relationship there. We know what their asset base is. We haven't seen

any ripples. I do worry that it's going to make banks a lot more cautious around the country and that could impact the economy. Are the banks in Connecticut sound right now? You have full confidence in them? I really do? You know everything I've learned to understand. We have a strong economy, we have a diversified economy, manufacturing, life sciences. They're all growing strong right now. I think that's reflected in the balance seat of our banks. Governor. One of

the discussion points here is regulation. Dodd Frank should their Dodd Frank regulations, which really are They've been rolled back. They were rolled back in twenty eighteen to really just focus on some of the larger systemically important banks. But now we're seeing, geez, maybe some of these regional banks should have some more regulation. What's your opinion there? I think they probably should. You know, um, the smaller banks

are a lot more regional. The more regional and have a sort of a customer base that's a little more narrow. Let's say Silicon Valley Bank was all the innovation and Um, you know media type of investors. So, um, I think you should keep a very close side to make sure that their risk is diversified. Yeah, Governor, I wanted to touch on an issue that we've heard a lot delight at lately ESG, etc. And so forth, as far as underwriters for for debt in certain states, the underwriters are

being held to a new standard. Um. Your view of that, and is it a disservice to the taxpayers the service of the taxpayers of the the banks are involved in their communities and making some you know, donations and contributions to our communities. I don't think so. I like the fact that the corporate community or the banking communities not in Ivory Tower. They're involved in their community. That's what

community banking is. You know, your first and foremost, you've got to make sure you take care of your depositors than your shareholders. But I think they have a broader mission as well. So I think a lot of this ESG has been exaggerated, Governor. What we saw during the pandemic many things. One of the fallouts from it was a lot of people leaving the Tri state area, and for many reasons, but many of them tax related reasons.

Talk to us about kind of how you think the tax situation is in Connecticut and maybe even the region, because if this region in Connecticut in particular wants to remain competitive, is there an argument that they need to be more competitive on a tax basis to something like a Florida, Texas some of those companies that seem to

attract a lot of people and companies during the pandemic. Well, first of all, during the pandemic, we probably had about fifty sixty thousand families move into the state of Connecticut. Unfortunately for New York, a lot of them did come from New York. To your broader point, what I've got to do in Connecticut is make sure people know we have a stable fiscal situation. Remind people that were having the biggest tax cut in the history of the state

is before the legislature right now. So for everybody earning less than two hundred and fifty thousand dollars, you know you're paying probably less in Connecticut than you are in a lot of other states. We do have a progressive tax structure, so we make sure we keep an eye on that compared to other states. But that's not going up a governor, Can we those of us who live in a high tax states expect to start deducting the lead. You're getting everybody's blood boiling with this one, including Paul

and myself. But with the state and local tax deductions. Can we expect that to go back the way it was anytime soon. What's happening on that front. Well, obviously that's a federal determination. That was a tax increase on blue states. Up here in the Northeast, we got hit on that particularly hard because of our property and income tax and capping the deductibility. We put and play something

golo to pass through edity credits. So at least for all those LLCs, we're able to hold them harmless, and it makes it a lot easier they can deduct overall on their balance sheet, even though they can't do it firstally. So we're trying to mitigate that effect as best we can. Governor.

One of the key issues for most states, certainly those in the Northeast, is transportation infrastructure, and just this week, Republican lawmakers in Connecticut legislature by passed the Democratic majority to force a public hearing on a bill to eliminate the highway use tax I know this is something you've is a tax, is a levy. You've support what's going

on in Connecticut with this issue. The highway user fee, just like you have in New York, is paid disproportionately by a big tractor trailer trucks that come right through our state. Many cases, we're just a pass through state. They're going from Massachusetts in New York and beyond. They create a lot of wear and tear on our highways, so they are paying a mileage fee. You know, over time, you're going to find the gas lean tax is less and less of a revenue driver as we move to

all electric vehicles. So I think this mileage fee, which you see on the track and trailers, is one where we can divertify our revenue sources. Everybody thinks we're getting free money from the Feds. Why do you need to be able to pay your own way? But the Feds, you know, we've got to pay twenty or thirty percent. A lot of those grants are competitive, so we got to show our ability to put up our share. But then we can leverage thanks to the Infrastructure bill, you know,

three to one. Yeah, one of the issues we hear about every day. I mean some of the people I work with childcare, especially working moms, single working moms. What's the status of child's care in the state of Connecticut. Interesting you ask them here at a Baringer Ingleheim and rich Field. They've got a childcare facility here which we were celebrating, and so we have the biggest expansion of daycare childcare in the history of the state. It gives the kids the very best head start. It allows mom

and dad to get back to work. We have fewer people, you know, working. I've got to get them back off the sidelines into the game and daycare. Childcare is a big piece of that, making it accessible and making that affordable. So what's the next step in Connecticut and for other states as well well? For us, we're providing a twenty five percent tax credit for new facilities, and for Brenger Ingleheim is subsidizing daycare for their workers here and they've

got a few thousand of them. We're providing a tax credit to help and send them to continue to do the right thing. Governor, many parts of the country are dealing with an opioid crisis in their communities. Can you give us a sense of how the situation is in Connecticut what the state is trying to do to combat it. Again, many parts of the country really really getting ravaged by this.

I can tell you that coming out of COVID, the level of addiction and fatalities related to opioids related to Sentinel has been severe, and we've been addressing that in terms of you know, everything from mental health to narkhan and police and going after those folks who are distributing Sadly Sentinel. It's just it's everywhere right now, and it's so dangerous. So we're coming after that with law enforcement

as well as treatment. Well, what are the state's finances look like right now as I imagine a budget preparation is underway. Yeah, we're pretty solid. We've got fifteen percent set aside as a rainy day fund. Our revenues are holding up pretty well. Our income is up compared to last year. Capital gains is down a little bit, but we had anticipated that, and again that allows us to have the biggest tax cut in history of the state, which I think will be passed in the next ninety days.

Is there an appetite? I just want to get this one because I've asked this every governor I've talked to, is there appetite in your state for anything like pension reform. There's a lot of appetite. First of all, one of the things I've done is because we had a big unfunded pension liability, nobody put money in de pension for the last fifty years. We paid down about eight billion dollars a pension debt in the last four years. That's not reform, but at least it's stableising what was a

bleeding situation. And we're going to have to look more broadly at pension for him as the next you know, budget, as the next employee contract negotiations come up over the next couple of years. We don't pay enough up front. We're having a hard time recruiting young employees. But there's a lot of big backside pension benefits that you get

at a very early age. That's a less value when it comes to recruiting that twenty seven something who's thinking about where they want to go the consulting firm or the Connecticut Department of Education. I want them at our doe. A governor, it's been about twenty year anniversary of the Iraq Ward and obviously impacted so many people here in this country and others. How did it impact you in

your trajectory of your career? Oh? Big time. And I was I had a little telecommunications company and we were wiring up big institutions, and I just thought the invasion of Iraq was a colossal error in judgment. You know, we're going to be great as Liberator is going to pay for itself. So I stood up. I challenged a guy named Joe Laberman, who had the Democratic candidate for

vice president previously. And you know, in a primary here twenty years ago, and I think twenty years later, I think I think most people realized it was a terrible mistake. What it meant in terms of blood, what it meant in terms of treasure. Now, in hindsight, everybody was against the invasion of Iraq, but not at that time, Governor.

One of the issues here on Global Wall Street of Bloomberg Radio and Television, which we talk a lot about, just as kind of over the last week to ten days, with some of these banking issues, it's just kind of brings to light, you know, the venture capital community. I didn't know you've had a business background. Your wife isn't an venture capital business. How do you think that may

be impacted going forward over the next several years. How the banking crisis impacts investment capital and yeah, just venture venture capital and just you know, kind of growth capital for new technologies and so on. Well, I put the lens back. First of all, I think one of the greatest strategic advantages this country has is a liquid capital market, and that starts with investment capital. That starts with the venture capital, in particular seed capital, which is what we're

doing in this state. We've had more new business startups the last three years than we had in the last twenty three years combined. So I really worry about the risk appetite pulling back, and part of that's reflected in the nervousness in and around our banking system. I'll leave it at that. Hey, Governor, you want to make some predictions for the presidential race. Who you support, should Joe Biden run again, and who do you think the Republican

nominee will eventually be. I had the catch right now. I think it will be Biden versus Trump. But you know, I probably said it's gonna be a Clinton versus Boys eight years ago, so I'm not very original. On that, but more importantly, which of you was the big duke supporter in basketball? So I just want to run into the Yukon Huskies. That's where I wanted to go, and

I will make well. I want to prediction there because you have a great coach there and Danny Hurley, he's a New Jersey product, comes from the great Hurley family coaching tree and his brothers also coaching in the NCAA tournament at Arizona State. Of course, his father, Bob Hurley, is a legendary high school coach from Saint Anthony's, New Jersey City. So talk to us about your Yukon Huskies here.

He's done an amazing job. The men's basketball team wasn't winning there for a little while, having had a great tradition under Jim Calhoun. They've got five years of improvement. I think they're one of the certainly top ten teams in the country. They're playing really not well and we got a guy named Gino Oriamo on the other side. When it comes to women's basketball, they're going to be going to the final four. Very good ned Lamont best elucty to Yukon Huskies there. Love to see that program

get back to where it was. You're listening to the tape cats are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in alf Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty. FedEx reported numbers last night, and my untrained eye, they missed numbers. But the stock is up. So this is a story.

It sounds like cost cutting and cost cutting is certainly in vogue for many companies in many different industries these days. You don't have to be just a startup company. You could be a you know, like a company like FedEx. Leek scal he's a sector head, senior analysts. He covers all the freight, transportation and logistics for Bloomberg Intelligence Lee FedEx stock it's up eight point two percent today. What

did the street like? Yeah? I think you know, FedEx has been a company in transition and it's kind of been a while, like people are really expecting them to execute, and what it seems like is management is finally executing. You know, FedEx is probably late to the game in

terms of aligning its resources to demand. You know, ups is kind of was doing that a couple of years ago, but it looked like some of the cost cutting measurements that measures that they've been doing have really started to work. You know, they beat expectations by seventy cents to share,

so they're earning. Their physical third quarter came in at three dollars forty one cents, which was seventy cents above expectations, and that was really, you know, to your point, being driven on the cost cutting side, especially in its ground business and it's eight business, which is it's less than truckload business. And they also guided up, so they raised a full year guidance, so it was implied EPs for

the fourth quarter. Their physical fourth quarter of a four dollars and fifty seven cents to five dollars and seventeen cents, which was well of a consensus of four dollars and twenty three cents. So, you know, people are recalibrating their expectations for the fourth quarter, and I think they're they're they're recalibrating their expectations for physical twenty twenty four UM for FedEx, So you know, I think you're going to see earning festimates from the street to move higher in

the coming days and weeks. Okay, when you cut costs, are you cutting into future growth? I mean there's it's a sort of a fausty and bargain for some companies. No, not really. So they're doing some like temporary cuts, which is you know, really dealing with the demand trends, so maybe like cutting some flights, parking some airlines and things that when demand picks up they can easily get back

into business. And they're also you know, FedEx has always been considered a little more bloated than some other companies, and I think they're just dealing with that bloat um. You know, they announced a bunch of you know, middle management and senior management cuts, um, which which they're doing across the organization. They're talking about you know, you know,

they operate two very separate networks. They operate a ground network and an express network, which is unique because you know, most companies in the courier business they'll have one network, so ups their express and their domestic business is kind

of all in one operations. And you know, FedEx is looking at ways where they can combine those two networks, you know, and gain kind of some of the scale and um and and and and benefit that that will bring and just increase productivity overall, because at the end of the day, you know, these networks were built for B two C commerce and as B to B I'm sorry, they're built for B to B commerce, and as you know, business to consumer commerce or e commerce is picking up,

you know, they need to kind of change the way these accident intensive networks operate. That's kind of where I wanted to go, Lee. Is I think about FedEx and ups and DHL and boy even Amazon, Um, how have the business has changed since the pandemic. It just seems like is there more capacity in the system now? Is the demand at a going to grow from this higher level? Um?

How has it changed? Yeah? So I mean, if you want to talk about like pre pandemics today, so obviously, you know we had a surge in you know, B B two C or e commerce demand as more and more people were you know, stuck at home and not able to get out. You know, that pulls forward e commerce penetration by three or five years. And so what that did is that that really brought a rush into

this lower margin business into their their network. So if you think about it, you know, when you see a FedEx delivery person coming to your house delivering one package, you know, the margins on that it's pretty small relative to them going to a lawyer's office and delivering one hundred packages. Um. So you know, so what they're trying to do is build dnser networks to be able to

you know, lower their costs to deliver um. And so you know, in addition to your questions about what's different, you know, obviously we had you know, very tight labor markets. Those labor markets are loosening a little bit. You know, it's it's a lot easier to find people today was a year ago that you know, some much pressures that

they're casing. But in generally speaking, you know, they just have, um not necessarily reinvent themselves, but just take a look at their networks and figure out, you know, how should they be operating with this new paradigm of you know, more home deliveries versus you know, um, you know, B to B deliveries. What what counts for innovation in this industry? Um, So, there's a lot of things. So there's there's software, so

the acting tracing technologies. They're always constantly improving that. They're trying to figure better ways to route freight. Um they're they're making big investments and automation, so they're trying to get more of their sorting hubs automated, so more and more of their freight doesn't really get touched by people, and if it is touched by people, they charge a

surcharge for that. And that was really you know, one of the things coming off the call last night was that, you know, pricing remains rational across all of its businesses, which is really good. You know, they still can get price increases even if volumes are declining in some of their businesses by mid to high single digits, so you know they'll be able to offset that. You know, they're they're they're earning you know what, we're down by you know,

significant double digits versus last year. Obviously, you know last year was an unsustainable level, but their their revenue was only off by you know, like low single digits. You know, you're still you're still seeing them able to price in this difficult market. Thirty seconds, you cover everything on the logistics fronts. Is the supply chain fixed, the supply chain will never be fixed because there's always changing and always complicated.

But the good news is that, you know, there was a lot of news last year and about you know, the backup at the ports. Well there's really there hasn't been a backup at the ports for quite some time since November, so that's good news. You know, the next wrench in the system could be a strike at you know, FedEx's big competitor, or ups or contract ends at the end of July. That actually might be a near term benefits of FedEx as shippers looks a secure capacity ahead

of the uncertainty. You know, we think there, you know, is a low probability of a strike. You know, we don't we don't think. We don't think it's going to happen, but you know, shippers have to prepare. We were at a conference last week or actually sorry this week, uh, talking to a bunch of shippers and they were telling us, you know that they're they're engaging with other providers to make sure their stuff gets to where it needs to be. All right, I got good stuff, Lee sector Head. He

covers all things logistics for Bloomberg Intelligence. Thanks for listening to the Bloomberg Markets podcast. 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 fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio