Brean's Tchir Says Deutsche Bank Not a Systemic Risk (Audio)

at eleven forty eight. NEZ stacked down forty one, a drop there of eight tenths of one percent down, Industrials down one fifty eight, a decline there of nine tenths of one percent. The tenure of four thirty seconds yield one point five six percent, Gold up to thirty then scaining two tenths of one percent of thirteen twenty one and crude oil West Texas Intermediate advancing one point four percent now up sixty five cents of arrel forty seven seventy one On w T I, I'm Charlie Pellet. That's

a blue Bread business flash. Thank you very much, Charlie Pellett. It's time now, for the e t F Report. It's brought to you by Withem, Smith and Brown c P, a s audit, tax and advisory services helping you and your business be in a position of strength. Experience the within way by visiting Withem dot com. Let's go to Catherine Cowdery for our Exchange Traded Funds report. Smart beta and factor e t s are becoming increasingly popular among

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Bloomberg Radio. After the central role that big banks played in the last financial crisis, people could understandably nervous one of the world's biggest banks finds itself with its stock falling and people wondering about the future of the bank. Will Deutsche Bank's problems rise to the level we saw just some seven eight years ago. Peter Cheer joins us, now a head of Macro stress a g at Breen

Capital here in our New York studio. So you watched all the signals so closely, Peter, you watched stocks, you watched derrivatives, the market. Is it really all that concerned yet? No? I don't think it's that concerned. I think today was one of those examples where we saw a headline hit about collateral issues or people pullying some collateral out of Deutsche Bank in terms of their prime brokerage business, and that led to us all off in markets. I think

that was very quickly, you know, stopped and changed. And when I look at this right now, I don't think there's a systemic risk being posed by Deutsche Bank. Peter Scherer, Let's put Deutsche Bank just to the side. Per minute, you make any money less quarter this quarter, we've been

doing okay. One of the things we caught early on was we shifted a lot of our investments to live ard based, so we took advantage of this rise on live or, we shifted to leverage loans, we shifted out of high yield, so we've been a little bit more on the conservative side and we've pushed away from the yield based investment. Why did the liveboard rate move in your favor? You know, I think there were two things

going on. One, there's all this regulation that's going into full effect on the teenth of October, which means money markets have less ability to you know, invest in anything other than T bills. So there's a cost that's been associated with that. I think the other part is ICE itself. So ICE actually controls live or now and how it's

calculated in intercontinental exchange. Yes, um, And so what they've been trying to do is make it more of a market based benchmark rather than just banks submitting where they want to. It's still is in that process, but as it shifts, I think that will have a permanent fact to make live or higher. It's a good thing for everyone, right, No one wants to go through another round of lawsuits

associated with live or. Everyone wants to say that it's a clean, very fair and market you know, neutral index. And as that occurs, I think that's pushed live or higher to get rid of some of the artificial lowness of it. But of course, let's don't have library be a problem. Let's don't have big banks get themselves in trouble and have to pay millions of dollars of fines. And of course that's one of the reasons why Deutsche

Bunk is under pressure and people are concerned. Why did you just say that this is not anywhere near rising to the level of systemic risk. So I think a couple of things, first and foremost, any for all banks we've seen a big pull back in terms of these bilateral swap trades. A lot of that counterparty risk that was extremely prevalent in two thousand and seven, two thousand and eight, even in two thousand and ten eleven when the European banking crisis was in turmoil, has been pulled back.

It's not exchange traded, so I think it's much better managed. There's fewer potential surprises from that sort of a situation arising. Then beyond that, I think the reality is that no regulator will allow another Leman type moment. So we already have the ECB steps in. They've already provided a lot of funding to banks. They will provide more funding to banks. No bank will get into trouble because they can't fund themselves overnight or short term, because the central banks will

provide for that. And then I think the governments at some level, they may extract a big pound of flesh to do so, but at some level they will step in to protect the institutions in the systemic risk. No

one wants to even test another Leman type moment. All right, how just been trying to get this live ard number for you, so you can just we can put it into some kind of a context here, because you know, taking a look at what's going on right now in the bond market, you gotta you know you got buying right, I mean you got buying at the long end, the short end, I mean the thirty year is up nine

thirty seconds to point to seven. You take a look at the tenure, we're talking about one point five five also a bid higher four thirty seconds now looking at liboru the fixes what one year live or at one point five five right, So you're almost the same as where you are on the tenure. So we've been looking to get people into one year live or type of paper. A lot of its home equity related and where you get that pick up and you give up and you

don't have to take the interest rate risk. At the same time, I think, from a personal standpoint, anyone out there who has a home equity line of credit of any form or any sort of arm should be looking what it's benchmarks against. And if it is against libor, you're now paying much more than maybe if you roll

this into fixed or some other or things. So I think from a personal level, you're supposed to be checking, look, is your home echory loan tied to live or if so, maybe you want to re examine whether floating is the right sense or whether you want to move to a different floating rate benchmark. Of course, rates at a lot of global forces that determine broadly where rates are heading

central banks. But I'm particularly interested in your thoughts on OPEC because you, like others, are maybe a bit skeptical of where that's going. Yes, I think they had to announce some sort of plan. I think they felt the pressure to announce a plan because they wanted to control this recent slide again that we're seeing in oil. I'm sure also they wanted to detract a little bit from the fact that, you know, the U S was embroiled in legislation that would allow victims to sue Saudi Arabia.

So I can't believe that it's a coincidence that they announced this plan at the same time that's coming out. Will they live up to these standards might don't I doubt it over time, right, I think their whole goal is to keep oil supported, and my view from a macroeconomic standpoint has been that oil will somewhere be in that forty to fifty five dollar range this year, and I think this just adds to that support. Maybe you'll

trade up a little bit more. But as soon as it gets higher, it gets closer to fifty, we'll see selling pressure come in. We'll see cheating within the OPEC nations. I think as it gets down to forty, supply comes off the US and the OPEC members can say the right things to push it back. Trades you wish you had made during the quarter. You know, I was too pessimistic on the treasury market. I did not think the treasury market would rally to these new levels we backed

up to, you know. You know, I think I'm seeing signs that the central banks are pulling back a little bit from KIWI, that maybe even the Bank of Japan's hinting at pulling back from KWI or seeing what way, like they're not buying something that they might buy less of or just stay the same amount in a world where everyone's been conditioned to see more and more buying, and I thought, we're seeing a little bit of signs

of inflation, a little bit more hockey fed. So that's one thing I've definitely missed is what was the October fourteenth, the note that you want to offer, just in terms of because we've been talking about that on taking stock for a while. It has to do with money market funds that many people treat as if they are bank accounts, but they are not by any means bank accounts. They

are not by any means bank accounts. Having said that, so this is all about breaking the buck, and there's all sorts of rules now to ensure that money market funds can have some else variations and value. I have not done the work. I saw some good work. I'll

try and dig back up. But someone showed to me that the worst money market fund during the time the crisis would have had a price of like spot nine seven, so it would have lost maybe three cents on a market market basis, and that's back when you were getting four percent yields, so it's probably less than three weeks

or a month's worth of interest. So some of this, again, I think we're trying to fix problems that were never as big of a problem, and I am concerned that the solutions are going to cause new problems that we're not going to be prepared for. How about another date coming up November eight. There's a lot of analysis being done in notes that saying you know, you better be ready, put your head down, getting a very defensive position because

there could be a lot of volatility. And I think people don't just mean stock depending on who gets elected, you know, I think that's a risk. I think we see that every election cycle, traditionally VIX actually rises coming into October of or sorry into during October of election cycles. There's a part of me that wants to be a little bit more optimistic here that we are more likely to get a surprise. And as a Canadian, I actually don't vote um, so I'm not opinionated in terms of that.

I would like to see if the Democrats win a little bit pullback on the rhetoric towards regulation. I think we actually do need less regulation both in our industry and across the board, and I would like to see that to be the surprise there. And ultimately, you know, there's that old joke about the scorpion the frog, and the scorpion stings the frog while giving them a ride across.

That's what course scorpions do, they staying. While Donald Trump is a builder, ultimately the thing that he knows how to do is borrow money and build, so I think we'd be Some people will actually be surprised by his ability to get infrastructure spending going all right, thank very much. Peter Cheer. He is the head of macro strategy at Bring Capital. We're going to take you through to the close. Next on taking stock and this is Bloomberg. H