Banks, Powell, Crypto, and Jamie Dimon (Podcast)

asset managers. I don't want to start, Alison. I don't want to start with Credit Swiss because it's too depressing from my former employer, and that thing is just a disaster city. Great article in the Bloomberg Terminal City adding maybe doubling staff in Paris, and in this article they talk about more and more investment banks any more and more staff to Paris. Now it's a great city, one of the world's all time great cities. I get it. But is this just another movement of people post Brexit

from London to the continent. I believe that is um the case. And we did hear this, you know, from from a lot of bank managements in recent years about some of the changes that we've we've been they'd be making. Um and I think that this is just sort of a continuation of moving some headcount out of London. So what is it when when you think about these big global investment banks, Allison, you know, the JP Morgans is the cities of the world. Where is London in the

global picture? I mean there was a time back and I'll tell you where London is. It's in a lower tax regime than Paris. Yes, I mean, are the most important players really going to move to a place that you know threatens like ninety percent income tax? It just seems like too much of a problem for me. Paris is a great city to visit. I adore the French, but um, you know, they're just too unpredictable in terms of how much money they're going to take from you

if you live there. Well, I guess that's that's perhaps viewpoint of the employees, right, But I think from the bank's perspective, you have to go where the clients are and if the clients want their trades to be done in Paris, Um, you know, that's that's that's really the movement that's happening. I mean, I remember five years ago when the clients wanted their trades to be done in Frankfort, and bankers said, like, we'd rather work at a gas

station in London then go to Frankfort. I remember when Goldman Saxe was pushing people to move there, go to Munich, and I think like Hugh pill went there and then his administrative assistant refused to come with him, Like nobody wanted to go to Frankfort exactly. So I mean, I guess Paris has a bigger draw with the louver and stuff. Um. I think Paris has some baguettes, yes, exactly, No, but I just can't imagine that the big money really goes there. London, Alison,

London is still the financial hub of Europe, isn't it correct? Yes, yeah, So it's not to say that, it's just it's you know, it's all sort of I guess degrees or it's all relative um and just you know, with Brexit, you just have to have a presence in more than one place, um. And so you know, some might have picked Frankfurt, and so I might pick Paris. If if you're Bloomberg, you doubled down on London and built the most amazing office building in the city of London, which is smoking on true.

But that was before Brexit. Ye still headcount there. We doubled down fingers crossed and then hoops um. Let me ask about Credit Sweee because I was pretty amazed that David Harrow sold the rest of his stake. I mean this, if if anybody had a solid long term backer, it was Credit Sweee and and David Harrow. And now they're gone. Does that mean it's over? I mean, obviously it's it's not a good thing to lose, you know, your biggest

backer for a long time. And in some to some extent, it may explain, you know, some of the weakness in the stock over the past couple of months. Obviously there's there was a lot of reasons kind of going into

the capital raise. But I think that this just goes to again, I think that the key concern is that there has to be some type of studying, you know, And I saw that Harrow had made comments I believe in in the ft at the end of last year when he had cut sort of his stake in half, just talking about the fact that you know, other banks were generating capital. You know, kartz Sweet is still in

a lost position. It needs to show sign of setting and it just it just one could argue, you know, with some investors that the sort of lack of catalysts the upside or stopping them from getting in. But for a very big investor to get out, I think that really does you know, sort of sort of cast out on what's next for this bank. So, Alison, I look at the holders section here on the Bloomberg terminal hd AS. It gives you the stockholders, the Saudi National Committee, you know,

the Cutter Investment Authority are the two big shareholders. Is there a point where the Swiss government needs to get involved in terms of ownership? Yeah, Their their capital ratio is one of their strengths at the moment. They are going to obviously eat into that with some of the losses that are expected in one queue and for this year. So I think that that does give them some breathing room.

I think, you know, you know, it's the fact that there are other the two anchor investors now are you know the sovereign sovereign wealth funds which have you know, generally can have a much longer investment horizon just maybe speak to the fact that this is sort of a longer term story. And I guess to the point I said before that there are sort of no near term catalysts, and I think that investors do want to see some sign of stability, especially in terms especially in terms of

the wealth flows. I think that's that's the most important. We management talked about some green shoots. You know, they said that they've been talking to a lot of clients, et cetera, et cetera. But you really need to see that turn. You need to see that the client confidence has studied. All right, Alison, thank you so much. We really appreciate it. Alison Williams, she covers the global investment banks, all the big banks for Bloomberg Intelligence. Anna, thanks so

much for joining us here. Well, you are out front. We really appreciate being the beneficiaries of that called hang on. She also said there was one hundred percent chance of a recession. Really well, I might think I think this year, because it's not fair Anna to say there's a one hundred percent chance of a recession at any time in the future. Yeah, you've got you've got a time stamped and in fact, just to be clear. It's the model

model that's as this one hundred percent recession. So our holistic judgment has been in between seventy to eighty percent chance of recession, and we were talking about twelve months ahead. So we built this model that we wanted to tell to tell us be able to send a signal whenever recession probability spike for each of this month for this year, and the model says that recession is with spiked to one hundred percent probability starting in September of this year.

It's been sending a pretty steady signal for most guilt, so it's still saying that. It's still saying that. In fact, when we updated it using January's data, it is even even We also rely on a lot of other models to yield curves. We looked at various yield curves, including the one that Chair Powell likes to use, which is the four spreads between three months and eighteen months, that actually saw an increase in recession probability in January because

all the yield curves in further in January. So so but our you know, overall judgment is that there's of course twenty to thirty percent chance at least of no recession this year, but as you said, it's just a matter of time. If there's not one this year, then it's just been pushed back to next year. Well, when you say your model, are you talking about chat GPT. No. In fact, if you asked chat GPT to predict anything, they like to take they like to not answer directly

to say they're not a prediction model. On the one hand, and then on the other hand, Right, it's learning, you know, how to speak like an economist, and so you know, when we think about a recession scenario, you know, it's it's awful hard to do. If you take a look at the labor market there, how do you and we're going to get some more jobs data this week, how do you square up kind of this strong, really strong labor market and again concerns about the economy going forward. Yeah,

so we looked deeply into this. First of all, the very strong January port. You have to remember that it's actually it's a story not about firms busily hiring left and right. It's more of a story of firms retaining workers. Because if you look at the non seasonally adjusted figures, it's all like decrease in hirings. It's just that the decrease in January is less than the decrease decrease in

the typical January. And so a second we were looking at these war notices, which is that you know, the Labor Department in this country require employers to file these layoff warnings if they are going to layoff workers. And a lot of these high profile layoffs that we read is ADUs back in January, you know, Amazon, Google, Microsoft, Goldman. We know that tech Sectors has already laid off one hundred k at least of workers. How come it doesn't

show up in the initial claims? While the answer is because most of these layoffs have not even become effective yet. By laws, employers have to give at least sixty day notice, and in New York, in fact, employers have to give ninety date notice. So many of these announced layoffs will only be translated to actual layouts where people will go file unemployment claims in March. So we're expecting that there will be some picked up in initial unemployment insurance claims.

So how many if you get one hundred thousand layoffs, how much does that translate into in terms of claims for unemployment insurance because we've heard that only anecdotally, I should point out, but we've heard that people who get fired, especially from tech, have like two or three job choices where they can go instantly. Yeah, I've heard that too anecdotally, but I think data wise, so I think that an answer it will be less than the one hundred k

that's an announced layoff. And furthermore, anecdotally, I've heard that tech workers might not be eligible for a claims because they are foreign or they haven't worked for more than six months. But I think the point is that the data we have been receiving just do not reflect the softening that had indeed happened in December and January, and we just have to wait for a couple of months to see and I think the FED is aware of this.

And furthermore, there's the weather effect, and you know, we try to quantify it, and you know, there's also a fat paper that try to quantify it, and it turns out that weather tends to warm. Weather tends to boost employment in the months that the weather is warmer, and this effect is especially pronounced in spring. So if we have a very warm spring, then we're likely going to see a stronger employment too, but this effect is going

to wash out throughout the year. So with seasonal adjustment the way that it works, we have stronger employment now seasonally adjusted if weather it's warmer, but later in the year it will be more negative than usual because of that. You know, many of the hiring was posed ford. So I also don't affect. I don't expect the strong employment to last. Furthermore, I don't want to, you know, go into weather forecasting, but you know, forecasting economics is part

of my job and it is related to weather. And you know, the weather people are now saying that El Nino is likely going to start this summer. And so you know, we had a warm winter here in the in the East coast because of La Nina. But El Nino what it brings a lot of precipitation to the south and flooding of this, so we are we're probably looking at a second half of this year with a lot of you know, weather precipitation that could campen economic activity.

So ANA given that backdrop, you know, now we have in the marketplace people looking at you know, the Fed walks saying fifty basis points might be back on the table at perhaps the next meeting. Is that something you guys are looking for, that's not our baseline, And I expect that Powell will say that everything was on the table.

They certainly don't want to roll it out if we do have a very very strong HEBI report and a jobs report, say, I mean, of course, if a jobs report of four hundred k was Friday, or a CPI print of core of point six percent, would I think that would put fifty basis point on the tables as a baseline. But right now twenty five basis is still our baseline. But I think Powell will just leave the door open for anything in his testimony this week. What do you think about long and variable lags? You know,

how long are we talking about? I know Danny Blanchflower I think, in commentary to the Bank of England said he works typically on eighteen to twenty four months. Is that still accepted as how long and variable? How long the long and variables are? Yeah, this is definitely the

debate happening within the central length circle. If you believe that the lags are short, and I think there are evidence to show that the financial conditions are now the lacks of financial conditions very short as a three months only three to six months. Then it means that the tightening from the past FED hikes has already peaked, and that would be a case for further more longer path,

steeper path of FED rate heights going forward. But I also think that there's evidence that there's some part of monetary policy that has very long legs, and that has to do with like equities and dollars, those have twelve months legs still, but certainly the financial conditions part have a very short leg. All right, And I thank you

so much for joining us. Always appreciate getting your thoughts I want to talk about to me, this China story has really captured my has really fascinated me my attention this morning and last night as I was reading it. The disappointment with economists about their five percent growth target I find interesting, not only because you know we would be jealous of a five percent growth target, but also I think it means more than just a slowdown in

your global growth expectations. It means also a slow down your inflation expectations. We haven't seen the reopening provide US with boosted prices for commodities, metals, oils, etc. Yet I want to bring in Everett Millman. He's the chief market analyst at Gainesville Coins. We talked to him about obviously silver and gold coins and virtual digital coins as well.

But Everett, just in terms of the of the commodities impact of the reopening of China, in terms of you know, demand from the Chinese after the end of the COVID zero policy, have you seen a big move in prices across the metal that you watch, Not yet actually, And I think that you've kind of hit the nail on the head with the uncertainty surrounding China's reopening. We've also seen some pretty big intra day volatility for crude oil

prices and the US dollar. So all of that does weigh on the commodity space and it simply makes the landscape more uncertain and more difficult for producers to kind of plan ahead. So I think all of that is that play here. How important is that part of the world when it comes to gold? For example, I know India is huge, right, what about the Chinese? Did they contribute to price moves in gold, both for industrial purposes

or for you know, consumer purposes? Certainly, so China not only has a major over the counter gold market that mainly is dealing in gold jewelry, but it also with the Shanghai Gold Exchange, does exert more pricing pressure over the gold market than it has in the past, and we do often see kind of seasonal flows that when prices are falling in the gold market, China steps in as a major buyer, not just official purchases, not just the government or the People's Bank of China, but also

just the general public. So as time has gone on, we've seen that China has more and more of an influence over the price of gold, and I do suspect that's one of the reasons we've seen the gold price hold up even though broader markets have offered better opportunities as gold has kind of trended sideways in twenty twenty three. So Everard, I'm looking at global commodity prices here on the Bloomberg terminal GLCO. I look at silver really gets my attension off eleven and a half percent year today.

What's going on in the silver market, m yea. And not only is silver down, but in terms of like the broader precious metals complex, it's usually a somewhat bearish sign if the silver price is lagging gold, and that's essentially what we've been seeing lately. As far as the weakness we've seen in silver, there's usually a strong floor beneath the silver price based on the all in sustaining costs kind of the cost of production from silver miners.

Right now, that's around twenty dollars and ounts, just below where we've been trading. But I think an interesting thing to keep in mind is that most silver that is produced each year doesn't come strictly from silver mines. It is produced as a byproduct of other mining operations, mainly nickel. So in those cases, the all in sustaining cost for those miners is actually it's far lower. It's closer to

about fourteen dollars announced. So I would not be shocked to see if there is another sell off in silver, that we could see prices fall back near that cost of production, which I think is below what most market participants are actually expecting. Is there still a concern that some of these markets are manipulated? I don't need to.

I don't mean to drag up some kind of zero hedgestyle conspiracy theories, but in silver, I mean it was true, right, The Hunt Brothers got busted, and there are major Wall Street banks that have settled on these kind of manipulation probes. Is there concern among traders that there's still a problem with the silver market or others? I would have to say that, you know, where there's smoke, there's fire in

these kinds of cases. And although you know, the credibility of such claims as obviously dubious, as you pointed out, in the same way that foreign exchange markets like forex trading of currencies has some of those problems, I think the same is true of silver and gold that because it functions sort of like money, you do see manipulative trading behavior that although on ethical it certainly it doesn't

rise for the level of criminality. All of those cases you mentioned have been settled out of court, so it's it's at least a narrative that concerned some investors and kind of pushed them away from getting involved in the golden silver markets. But um, I think the best way to think about it is that it would be very similar with really any any currency trading. Um you can manipulate currencies up and down relative to the trading volumes

and similar things happen in golden sils, even bitcoin. Even bitcoin, I think perhaps of the highest probability that that kind of thing happens. And we need to keep in mind with the fallout from the STX scandal, traders on those on those crypto exchanges were entering into contracts for for bitcoin trades when there was no bitcoin being custodied. Um, so you can call that really supply manipulation of bitcoin as well. What if we step back, Everett, what's kind

of the big global commodities call of the moment right now? Well, I think it's the call right now is probably sideways until the end to the year because it's going to be very dependent on the reaction function from the Fed and central banks. Higher interest rates they're usually not great for gold, but they do tend to drive copper and industrial commodities higher. So I think everything is going to

depend on central bank policy. Do we get higher interest rates for longer or is that you know, once expected pivot going to come sometime in the second half of this year or perhaps next year. It's all about interest rates right now, and the gold call, I mean, as we head into what some expect to be a recession, do you want to buy gold into that? I would say so, but perhaps the gold bowls shouldn't get too excited. Gold will be kind of caught between those two forces.

Of it yields nothing, and we want to protect ourselves in case the world collapses, correct, correct, and preserve preserve purchasing power and in the event that, you know, a local currency collapse. So just thirty seconds bitcoin, Yeah, you're

nay at this point. Right now, I think Bitcoin is at least looking better than the other cryptos, but of course regulation and the amount of bad press that the crypto space gets generally, I think it kind of ironically it boosts bitcoins appeal, if only because it is the one kind of most noteworthier and most trusted crypto. But the rest of the space I think is obviously in pretty bad shape right now. All right, good stuff. Everett Milman,

chief market analyst for Gainesville Coins. Want to get to our next guest, Dan sam And. He's a partner and analyst at New Street Research. He covers the USC He leads to the US Internet team there. He recently joined New Street. Before they had a long career at what I know is Bank of Montreal. The market now knows is BEMO Capital Markets. And Dan's been covering the Internet space since really the inception of the Internet. And Dan,

thanks so much for taken a time to join us. UM. I know you've recently ramped up coverage once again here in New Streets. What's your thirty thousand foot call for these Internet names here? They had such a great run, you know, over the last decade, but now there's definitely some some headwinds for the sector and for some individual names. They love to get your perspective. Yeah, no, thanks for having me on, guys. I'd say thirty thousand for view.

So we launched our coverage New Street right here at the beginning of the year. The January third was published date. And you know, look at our title of our original industry report was borrowing from the famous Wren Buffet line, right, be greedy when others are fearful, because you know, what we saw was the sector trading essentially at decade lows, right that we hadn't seen it trading this this this cheaply relative to the SMP five hundred for for over

ten years. And look, as you said, lots of good reasons for that post COVID hangovers, having more regulatory and policy pressures than we've seen in the past, and probably this this big idea of increasingly you know, amongst the big players, uh, you know, and this crosses more into to some of the other stuff that that I don't cover, like Apple and Microsoft, but you know, these megacap tech stocks starting to swim in each other's lanes a little

bit more and compete with each other. So, you know, we definitely sort of frame you know, us Internet as it's it's not a pure growth sector anymore. It's more of a garp sector now. And we can talk a little bit more about the shift to focus on profitability in various groups. But but it's but we thought it was still very attractive to look at these names over a longer term basis, notwithstanding that lots of fear around macro and recession that could impact them as well, But

we just found the valuation too attractive. It worked really well out of the year. They pulled back a little bit out of earnings, but still find the group attractive for long term positions. What what is web three, Dan? Do you is it more than just like marketing or a whole bunch of gen z kids push to pretend they have a career. Is it really something that we're going to finally understand at some point and be able to sync our teeth into. So it's a good question.

I mean, I think it's a series of things that whether you go from cryptocurrencies to virtual reality and augmented

reality and we can you know, talk about metaverse. You know, there's even some elements of you know, just just businesses like like Twitch at Amazon for example, you know, video gaming and gaining sort of the next level of you know, watching streamers and things like that, sort of creating this sort of digital environment much more significantly than versus what we think of as Web two point zero, which was you know, not something as immersive, still something on screens.

Right If Web two point zero is probably mostly the web on a mobile screen, you know Web one pointzo is it on a desktop screen. Originally, Like I said, these are more virtual faces and things like virtual currencies. I still think it's pretty tough to pin it down to sort of one specific thing right now, but I think a few of those things are floating around. And look, I think notwithstanding that cryptos come back a lot and

had its own challenges. I mean, I do believe over the long term that you know, things like virtual reality and augmented reality will be more significant. But yeah, probably not the great big title wave of impact in the near term just yet. Hey, Dan, I see that you have buy ratings on the two big digital advertising plays Meta Platforms and Halpha bit Facebook and Google for US old timers, definitely some macroeconomic headwinds there. There might be

some regulatory overhang. What's your call on those two names? So you know, this goes back to, like I said, what our positioning was for the sector to start was we wanted to be more aggressive, and you know what that means in our space. You know, even though Internet is a consumer space overall, it's relatively cylical in general. You know, when you want to be greedier, you want to get along more than digital advertising names where they

are a little bit more cyclical. And so you know, Facebook, I'm an old timer, I still mostly got to you know. But Meta was one name that we had function upgraded as we came over to the new shop and set up here at Dustry and you know, and and office. It's worked worked really well to start the year. Um, you know, basically that was our view as we started was that, you know, especially still the fourth quarter. We

saw this with fourth quarter results quite choppy. My expectations are still really for the first and second quarter to still be pretty choppy. U in the in the digital at economy. But that, oh it sounds like the telecommunications for this Internet analysts or not up the snuff. Yeah, telecoms are still as bad as they were in the nineties. Yeah. Pros once told me, Um, you know, cell phones are like the bane of talk radio. Yeah, you know, the

old landline. I don't have a landline, and it's no bueno. Yeah. I don't have a landline either. Actually, Um, but I my cell phone has I think never dropped a call. But the cell phones of people who call in for radio or television drop every three or four tries. So I don't know what the problem is. In any case, I was hoping to ask Dan about, Um, what happens when you put AI in your name? Does that automatically

get a buy rating? Yeah, doubles your multiple I guess, um, Dan Salman, he is a partner an analyst at New Street Research. Hopefully he can get him back on get him back some point. Maybe we can get him in the studio. Where's he from, Eric, where's he calling it? Yeah? All right, oh wait, we got him back. Yeah we got Dan, We got you back. Okay, Hey, Danny there, bud Well. Eric keeps saying he's there, hey there there.

We can hear you. You're cutting out intermittently, but you should come up to the studio seven thirty one Lexington Avenue. You can take the five of the six. We'll do that. I'll do that properly next time. Um. I think also the magic or lack there of a Wi Fi calling is letting us here. But but but lonter short on the big you know, ad driven names is I think the risk to those names is there is a deep, extend consumer recession and where you look where employment levels

are right now, unemployment is still relatively low. I know we're seeing tons about layoffs from these companies and other tech companies, but across the economy unemployment is still pretty low. So we think the risk of an extended consumer recession is still you know, manageable, and that you know, we want to have exposure online advertising. If that's the case, all right, Dan, thanks so much. Next time, we will get you in the studio here we'll feed you some snacks.

It's all. It's a trip worth making. Dan Simmon, partner and analysts at New Street Research, longtime media analysts on the street at Bemo Capital Markets, talking about his new coverage on the internet. Still pretty tell you. He's got seven stocks under coverage right now. He's got five buys buys on Amazon, Meta Alphabet, Snap and Match, and he's got neutral on Trade Desk and Netflix. He's got a neutral on Netflix. So interesting. So we'll get Dan back,

all right. I still think, you know we have. We just got through earnings. Earnings matter, I know that, but it just seems like this market continues to be held hostage by the feeder reserve and and what it will do. I wonder what they really smart people are doing these days, like the quant people. The people do like math and stuff. Yeah, I like to stay away from that as much as I can. My Moon Nurani joins us here. He's co founder of quant Insight. He joins us in our Bloomberg

Interactor Broker studio. He's based in London, but he's in New York getting into trouble this week's We appreciate him taking a few minutes so mama, would I wonder how you got at a quant shot up? How you guys, how did you do last year in twenty twenty two and to sixty forty? Portfolio got crushed? And then how do you look at twenty twenty three and going forward? So last year it became so what we do is there are lots of conflicting stories and narratives in markets,

and it can get quite confusing. What we do is we ask the data what's going on. We have algorithms that interrogate all the data about the economic data, what the Fed's priced to do, stress in China, the dollar or energy prices, and it finds the pattern and the pattern last year February March was very clear, and that was real rates was the driver. The daily moves we were seeing in equity markets were all explained by shifts in real interest rates in the US. Real interest rates

went up, the market went down. As we got towards the end of twenty twenty two, the relationships started to shift and the algorithms were telling us, actually, rates aren't that important anymore. What matters now is the real economy. So twenty twenty two was all about the FED. Twenty twenty three going in was okay, what impact is the FED going to have? We had. Of course, everyone's screaming about the inverted yield curve recession is imminent. We haven't

seen that recession yet. And one of the reasons the stock market is doing okay is because it's keying off the real economy data now and the credit data. And actually, if you look at the credit cycle and you look at credit spreads, they're not screaming distress yet. So the equity markets okay. What's really interesting is in the last three weeks, the machine is telling us that actually rates

are starting to matter again. But there's another complicating factor that's entered the equation in the last two months, and that's China. And what the machine is saying is that we've got two forces pulling in different directions. On the one, FED terminal rates continue to rise, bad for equities. Number two, a lot of the price action in equities is keying off indicators of China, GDP growth, copper prices, basically China indicators,

and that's driving markets higher, particularly in Europe. That's why we're seeing Europe out performed the US. Are you concerned about the China news we had over the weekend that they only and I'm using air quotes here, expect growth of five percent. I guess that's relative to what they would normally forecast low for a post pandemic economy. On the other hand, it doesn't seem like such horrible news

to me, considering they won't be driving inflation at much either. Yeah, I think you know what you have to look at with China is the swing They went from around analyzing two percent real GDP growth to now five percent real GDP growth. And the way China is impacting is not only the demand that's coming out of China, which is hitting Europe a bit more. Europe is a bit more leverage to China growth, but the impact that China is

having on commodity prices. And the big problem for the FED is that China growth is creating another massive problem for them because the more China stimulates, the higher commodity prices go. That's not good for headline inflation. It'll feed through to wage growth and core inflation, and it's forcing the FED higher and higher and higher all the time. Personal view, I think we headed above six percent terminal rates. Okay, all right, that's it's two six percent or above six percent.

I think if China continues to grow above six percent. Wow, all right, so that's all. That's a call rate there with a capital C And what do you do with a backstop of that type of interest rate call? What are you guys doing with your capital these days? Well? Step one is poke it in short term cash. Step two, don't be along the bond market for the time being. Step three weight for the buying opportunity that will come.

Because we know that six percent plus rates is going to drive a recession in the ECB four percent plus rates is going to drive a recession in Europe. Equity markets are very focused on earnings recession, so equity markets will head south. But I think it's second half of the year. And what's caused the huge delay is China. By the way, just to capital BOE is five because I like four or five six That works for me. Yeah,

that sounds about wrong. Yeah. So in the city of London with all the financial people, the ones that haven't left to go to Paris, which we have a story about that because our brekfit. You're not consensus, are you? You you sound more bearished than consensus. We don't. We don't key off consensus. We asked the data. We're quants, remember, right, right? And so I mean do you really have money? Like, what's your cash position today relative to maybe where you

normally like to be. I'm, you know, around eighty percent cash. Wow, dude, it's pretty defensive. Yeah, it's been good. Well, look, when are you gonna know when to put that cash work? What's what are some of the signs that you or your model um is gonna you know, suck off the Bloomberg term a along? Go? Oh, now it's time to buy credit sprints rs high yield credit sprints. So we have the default data for January US bankruptcies. It was significantly higher than Q four last year. A couple of

days ago we got the data for February it was higher. Again. Credit spreads are still reasonably unworried. When credit spreads start to turn higher, and that will be implying higher default rates in the US, that is going to be the

catalyst for equity markets to turn south. And when implied default rates getting towards the six seven eight percent, which is pretty high and a lot higher than the three percent now, that will be somewhat close to the bottom of the equity market, and so that's I mean, you're keying really off of it a material recession? Is that how you guys think about it? Well, given the current regime? Yes, okay? Interesting, So any sense like do you have a sense of timing?

Assist is a twenty three event? I think it's late twenty three. And what's delaying it? Because let's face it, if you asked everyone a year ago, fens are going to go to four and a half or five? Yes? Right, what do you think is going to happen to the US economy? Everyone would have said to desire pasta well Q one real GDP now casting in the US is around one and a half percent positive real GDP growth.

We haven't had that disaster. Bonmarket's been, you know, sitting so well a six percent or six and a quarter percent. I think I think it will once the China impulse has faded. Okay, but you know they China data today again, growth a little bit slower than expected. Okay, not good for the global economy. But the silver lining is perhaps

less inflationary pleasure pressure globally. Is that enough of an offset or I don't think it is because There's a really interesting piece of research from the San Francisco FED recently that split out the current core inflation into the US into its demand driven or cyclical component, and it's a structural component, and they found that forty percent of current core inflation in the US is actually structural. So

what this means is makes life. It makes life much tougher for the FED because it means they're gonna have to squeeze the demand side even more to compensate for the fact that there's this structural and that's driven by demographics, baby boomer retirement. You know, offshoring has become on shoring, more expensive labor at home. Geopolitics, free trade is sort of dying. We've moved to secure trade, managed trade, fair trade.

There are a lot of structural factors that is driving core inflation in the US, and that makes the FED job even hardest. It's well, the good news, Mark Mood, is that Jerome Powell is going to testify in front of the smart, well informed, capable people of the US Congress over the next two days. So I'm sure they're going to do everything they can to help solve the situation. What is the fiscal answer, Well, I don't think the US can really embark on any kind of fiscal expansion.

And one you know, one question, and particularly kind of in the retail in can they clamp down? Are they partially to blame? I mean, is there they overdid the fiscal stimulus. We know this and that that took the inflation genie out of the bottle, and the FED is left dealing with the issue. And the issue is particularly acute because if you look at the amount of government debt, not just in the US but all developed economies over

this whole COVID crisis, it has increased dramatically. So the problem for the FED is they cannot afford to lose their inflation fighting credibility because if they lose the credibility, then the bond market is you know, global bond investors

are going to demand much higher yields. We saw what happened to the guilt market when there was a credibility issue with the lizt Trust government, and the US just cannot and the Eurozone just cannot afford long term government bond deals to rise, which means that FED has to be one hundred percent clear to the market that their inflation fighting credibility is strong. This is a good car. I'm glad he made a trip over from London. Yeah, please come over more after we'll go there and you

take us to your favorite pub. Mahoudnarrani, co founder quant Insight, given us his thoughts. All right, right now, let's bring you our interview with JP Morgan, c EO Jamie Diamond. He sits down with Bloomberg's Ed Hammond. Let's go to that conversation right now, Jamie Diamond, Ed Hammond, right now, thank you so much. Obviously, we would like to welcome now also our listeners on Bloomberg Radio as well as our viewers on Bloomberg TV. And I should say we're

not sitting down, we're standing up. We're here in Miami, Jamie. Great to be back, Great to be with you, Great to be standing What are you worried about? Great? Great to be here, by the way, so thank you. But they are't worry the most about if you go, it's Ukraine, it's oil gas. So the leadership of the world, and

you know our related with China. I mean that that is much more serious, like the economic vibrations we all have to deal with on a day to day basis on the Ukraine question that we talked about it a lot. Obviously a year ago, very shortly after the war had started. Do you think now a year in that the West has become sort of somewhat neured to the idea of a conflict of discale on its borders And if so, does that worry it? No? No, it looks a little bit like people are neured to it. But I think

that's a little bit of mistake. I read a report the other day that there when the war goes to one year, it lasts normally last ten. But this is a major land war in Europe and a freedom democratic nation. You know, the hundreds of thousands of casualties are ready on both sides, and so I think we we don't

know how this is going to end. We know what direction it is going to take, and it's affecting global relationships, so Ukraine Russia then as oil gas, food of how it's hurting poorer countries, and it's royally trade relationships between America, China and the rest of the world. So this is a probably the most serious geopolitical thing we've had to deal with since World War Two? Would you We'll see a future way people going to could potentially re enter

the Russia MAKA as a business. I mean a very premature to say, you know, I think if there is a one day maybe, but it's very possible that woman happened in our lifetime. And you mentioned US China relations obviously not at that best right now, particulity posts the balloons. I want what role you see business playing in trying to sort of moderate those relations and try and keep them as good as possible. Well, you know, it's really the government. The government has to set the rules and

fear what they want to do. But I think it's a fair complaint about government and business that we probably should have started resetting this ten years ago and we didn't. I don't like a choir was billed milk and all that. But going forward, the government and I think they're doing a good job thinking through what is national security? So I think it's semiconductors, earth, penicillin, certain drugs, What is

unfair trade? And then you know, at one point you sit down and have a very serious conversation the Chinese government. You know, we remember Secretary Blincoln was on his way over there to do that. And then the balloon, but at one point they'll do that, and business is a peripheral player in that. So I think I think business will help give advice on how to do things. If you're gonna have an outbound investment controls how you said

that way, that works a huge bureaucracy. And so so far all the conversation had been quite rational about it. I mean, JP Morgan obviously has a significant business in China. I'm sure that the government that would listen to you. What are the conversations you have just about sort of trying to, as I say, trying to maintain as cordial

relations as possible between the two nations. I mean, you know, for us, we're there and like I said, you know, we're we're basically taking a backseat or American government in this one, and we're gonna we're obviously have to do whatever the American government asked us to do, and we're trying to engage in their courage of their own government and with the Chinese government and what those things should be. You know, I'm hoping cooler has prevailed here. But this

is why Ukraine is so important. This can cause it to go in a bad direction rather quickly. So uh, you know, everyone's got to be some little cautions you talk about our government. Let's talk about the FED for a moment, obviously, I just want to talk about the FED for a moment. I have half a dozen posaic questions I can ask you about the FED. I think

I know the answer to many of them. Start trying to find one fairly easy one is, you know, when do we get to say we're landing, be that hard landing or a soft landing sort of when does that begin to a cup? You know, forecasting the future is, as you know, very complicated. The consumer still has a lot more money in their checking accounts than before COVID.

They're spending ten percent more than last year, forty percent more than pre COVID, and it looks like they'll have excess point to spend roughly until the end of the year. And at that point or you can say, is it a little bit of a cliff? Is a soft landing? And also QT has nar start to bite That also is gonna happen at one point, probably later this year, and you know that's when you're gonna know what these

things do. But you weaken still have a soft landing and the other thing about all this economic forecasting is Russia Ukraine. I mean that can change it dramatically and very very quickly. Do you think absent Russia Ukraine we will have a soft landing. I think it's still possible, but I would I look at possibilities all possible possible.

I think mild recessions possible, harder recessions possible. Is a good chance that inflation will come down, but not enough by the fourth quarter that may actually have to do more. And I think a lot of things that happened in the world, think of the bigger trends are inflationary. You know, infrastructure spending, the IRA Act less, any trade with you know certain parts of the world, we bringing trade back

into America. Those things are all the green transition is going to take a lot of capital to all those things kind of have inflationary attributes that are very different than we've been through the last twenty years. I'm gonna come back to the consumer point in a second. But last year you talked about and your letter this sort of confluence of three major effects. It's qt the America rebounding from a sort of post COVID economy, fedly, strongly

and then oversee the wall as well. You talked about them sort of leading us into an unprecedented period. How do we get out of that period? You know, it's it's diplomacy. I mean, that's why this is not you know, we always talk about uncertainty in the economy and the incertainty, but I call it normal uncertainty. The weather is, you know, we know what the west, there's life. That's why these things are different. Qt coming out of COVID, the war in Ukraine. I think it's been pushed out a little

bit further. I would have thought we'd be dealing with this a little bit sooner, but it does look like some of that stuff it's coming to fruition at the end of this year. Russia, Ukraine, we sussif we don't know, I think it's wrong. It's didn't predict because if you look at the history of wars, they've been pretty much unpredictable and how they play out, and which ones affect the global economy, and how they took a lot of wars they didn't affect the global economy, but they were

literally in very small parts of the economy. This is not in a small part of the economy, and this is a European nation, it's Russia, and it's oil and you know, major oil and gas supply and food supply around the world. So this is a whole different attribute

to it. But then why does the consumer, particularly here in the US, remain, as you say, fairly bullish there Over a period of time, their home pride has been going up, jobs a plentiful ways of going up to the lower end, which I think it's a good thing. They've got a lot of money to checking account. You know, Uh, stocks generally been had gone up for ten or fifteen years. The consumers, if you look at today, in great shape. But I'm telling you that's going to end at one point.

But even if we go to recession, then the consumer is entering a recession better shape, far better shape than they didn't know eight you know, no way when we went to that recession knowing did own employment go through the roof. But their home prices are dropping dramatically, jobs are disappearing, the stock market is way down. So this one is a little bit better than that. One of the sort of narratives that it's fairly popular at the moment.

It's the consumer doesn't like uncertainty. I would even though as far as saying it's it's sort of one of these false axioms, that's you know, that's payble the thought now that you know, when it's times are uncertain it consumer freaks out. They stopped spending, They stopped doing the things that the consumer needs to do to keep the economy going. That doesn't seem to be the case here. The consumer's done pretty well through uncertainty, through COVID, through

the wall, through everything else. So I wonder what when we get to this point of you know, the wallet being hit and the consumers saying we're gonna stop spending. Is it just reality catching up with them? Is this some kind of deflection point? Where is it just that they run out of money? I early is destroyed by COVID, including quote uncertainty. So you have, you're obviously correct confidence consumer covers is dropping it. But I think your pocketbook

trump's confidence. But they have a lot of money, they tend to spend it. And you see here like look at the travel in Miami and the building and the optimism around. But if you ask me how they're doing, it's very good. And then they tell them they're not comed by the economy. So jobs are plentiful, wages are going up. I mean, what, that's what's really affecting them.

You know, when they wake up the morning, they feel pretty good about that, and then they read the paper and of course you can get a little depressed and views at the end of this year. What's towards the end of this year that sort of begins to tell it looks but it looks like the excess cashle be disappearing. And then but the jobs are still there, so you could That's why he said you could have a soft landing.

So now Jeffrey Epstein, obviously hey specter continues to haunt the global elite and most recently JP Morgan have been sort of caught up in it. How has that made you feel? I can't talk about litigation, but you should you should know that a JP Moore, we got top experts, including some of the best people that come out of the DOJ, etc. Who review and make judgment decisions like this, and we've they've generally do a very good job. But how does it make you feel? As the CEO of

JP Morgan as a figureheads for the bank. It's unfortunate, but it's life. And look, we're here in Florida. We have to talk about politics because we always talk about politics. Obviously we're into census. It's back yard. What do you make of his if you like hands on approach to business and is that something you would like to see more of in even higher office? Solution an approach the sentence. Look, I know, like I've learned and listen and read and

stuff like that. You know, it's it has got a little complicated between business and government and stuff like that. But but you know, anyone here knows that I'm a full throated, red blooded American patriot supporter free enterprise. So you know, I hear the complains on both sides, but you know you listened to learn from them. I don't worry that much about it. And we've been We've loved Florida. We're growing in Florida left and right. You know, small businesses,

large companies. We've got. I've got how many total employees we have for you. I'm on my way to Tampa. We've got you know, major operations there Orlando, major operations were opening branches and so the mayor just joined us in a small business event we did here we're very pro pro Florida. And this is long dates at Florida. This isn't part of the sort of recent influx of capital in Florida or financial wild and Florida packs. I

think they've been great. I mean, you know, if you were running the state, you know you should be thinking, how can I make this date off good? Well off my people. So Florida likes business. They want you to come. You know, you come to Florida, you see the opting Texas is the same way. You know if I was some other states. If you think about why do people like going to these dates, it's their tax is is their pro business. They want better life for the people.

It's not necessary some of the parts we've talked about. So you know, we now have more employees in Texas than the New York's day. You know it should have been the way, but Texas loves to be there. I mean, you go through there optimistic. They're optimistic here pro American optimistic business. No. Unfortunately, No. Every year there's a sort of tech topic to jur that we talk about last year as a metaverse, and I think we talked briefly about you appearing in a non physical form in the

lobby of the METS verse. This here, it's uh, it's AI. I asked chat GPT what I should ask Jamie Diamond. I was hoping he would come up with a really smart answer. I wouldn't need to write any of my questions. I could get it to do the whole interview for me. So so it didn't. Unfortunately, it asked what would I asked Jamie Diamond about AI and what it meant for the future of investment. Let so AI is real. This is not great total, that's not cryptn't this is a

technology which is staggering. Already lose three hundred AI. We have thousands of people of thousand involved data, machine learning, natural language process saying, we have two hundred people in AI research labs. But we're already used to do risk fraud, marketing, prospecting, and it's the tip of the iceberg. So you know,

to me, this is this is extraordinary. And the other thing to keep in mind there's good use, but bad guys are going to use it too, So it's a little bit of arms race and how you have to use it to protect your company and protect your clients, protect data, etc. And we're fully engaged and the other thing you have to keep about AI. You need to be in the cloud to use the compute power fundamentally that you need for AI. And so that's why the cloud,

digital AI, they're all kind of related that way. What was behind the decision to ban chet chpt on the on the trading float on company owned devices. That's why you could do it in your own device, but we also lab people use it within our own firewalls, so we didn't take it away just you have to go within our firewall to use it, and it was just for control purposes and riskpers There's no wasn't a statement

of any time before we end up. I want to get on celebriage finance obviously that's in large part why way, Hey, it's still about the conference. One of the things Stavid Morgan still at the moment it's very interesting is lending from its own balanced sheet and direct lending. If you're like, at the moment, I think it's ten billion dollars is what's been allocated? How big can that business get? So,

you know, I mean, it's amazing. And this is when you look at something like this for reviewers American capitalism, there are two thousand investors here from around the world. Hundreds of companies still inventing ideas and growing and expanding, both in the US and overseas. It is, it is extraordinary. So direct lending, you know, obviously one of the biggest lenders out there, but a lot of people here are

also huge lenders. So you know, I meet with them all, and you know, direct lending away from banks to become equally in size and something. Think of those heals as competitives there and there. You know that's a lot, but we deal with competitors and collaborators all the time. So

we do direct lending and all. It is fundamental if you're viewers, you know, unitron quicker, more flexibility, and certain type of covenants not necessarily cheaper for the borrower, by the way, so you gotta look at it all things. So we've done I think ten million forty deals. We could do a lot more, and you know we can work with partners or some of the deals, etc. But we'll do what we need to do to compete. Feel someone pass to ask you about succession. You get asked

about it all the time. I'm not going to do that, but I am interested. You talk a lot about the need for sort of unified responses to global conflict. You talk a lot about things that are needed domestically, whether it's better health, better education, raising wage inequality or reducing i should say wage in equality. It seems very obvious that you could go into public office if you chose to when you leave, Jake Mulgan, it's that's something we

can expect. I'm not going to go into public service. I love what I do here. You know you mentioned succession.

I enjoy it. I think you should practice it a little bit before you go into it, and I mean I feel that I do here's a huge contribution to my country, My clients are around the world, etc. And the other thing about succession, you got you guys already know who that we have a lot of potential successors, so you can add right about it frequented exactly, so you know, I couldn't answer that you already know, all right, Bil,

Jamie Diamond, great conversation. Thank you so much for having us, and with that guy, I'll tide it back to you in New York. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with 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