Jay Powell, Credit Suisse, and the China Balloon (Podcast)

it had subsided, and maybe it has. This could be a head fake, of course, but still worth talking about with Anna Wong. She's our chief US economists from Bloomberg Economics UM, and she joins us ahead of, of course, the all important interview with your own Palace afternoon. To believe that's a twelve thirty this afternoon. We'll carry it on Bloomberg Radio on Bloomberg Television. Anna, thanks for joining us. What do you think about this slight revival and used

car prices? Is its seasonal? Um? Could it be just an anomaly in the data, because we've had some pretty crazy anomalies thus far with new jobs at it on Friday? Yeah, So Um, you know, we we had slags before that.

The disinflation in particularly cars category might not be a very sustainable one because if you look at the inventory to sales ratios to cars, it's still substantially below the pre pandemic level, which means that the supply, even though the supply demand conditions are you know, getting better, it's still the very very tight. So I I always thought that, um, you know, it's not gonna last. The sharp decline in prices.

What matters more today? Anna, is it the what Chairman Powell may or may not say or deviate from his messaging? Where is it the State of the Union speech? I'm wondering how much of geopolitics needs to be factored in here? Yeah, I think so. Notice that Jerome Power Power that barely talked about China and his press conference last week. So I think he is not going to talk too much

about geopolitics or even Ukraine. I mean, um, you know, so, I think he's going to focus his message on the US labor market because that is the number one driving force of inflation in the US right now, and he's going to you know, perhaps try to, um, you know, be more focused on his message that the FED still has a long way to go, But he said that last week. It's just that it's the conviction in his tone. It's the tone, not the substance that needs to change.

But I doubt that the tone can be changed that much because I think the non farm paywall report last Friday really put a lot more confusion in in the picture of the economy. And you know, and the market is not Verry does not do very well with nulence in the message. And right now, what Powell wants to convey is the nw olence and uncertainty and the economy. So, um, can you convey that without the market thinking is too devish? Can you convey that without the market pricing and rate cuts?

Because you know, he at the last press conference that financial conditions are getting tighter, And I guess if you pick any point in time with which to compare today to uh you could make that argument. But most everyone agrees financial conditions are really loose right now. For a FED that's trying to fight you know, four or five percent inflation, well, you know, the set is looking at a different financial conditions, not an index, but certain variables.

Right if you look at the credit officers survey, it shows that the kind of like the landing standards have been tightening, and that is something that that really cares about. If you know, if it's harder for people to borrow, that is clearly, you know, a more hardening of financial conditions.

That also, the feed is looking at the yield curve, the real rates along the yield curve, and with inflation falling so fast in the last couple of months, it means that the real yields happened staying at kind of what that level has been a couple of months ago. But are they trying to fight inflation through a housing crash or I thought they were trying to affect the

jobs market and they clearly haven't done that yet. Well, you know, most of the economy is driven by consumption, and when consumption slows, then job growth is slow and consumption if you look at the lending standards, That's why I mentioned the lending standards. Uh, it's it's it's hard. It's getting harder for people to qualify for auto loans, it's hard for people to get harder for people to

qualify for housing loans or credit cards loans. So so so I think that that's that's what the FEAT is talking about when they are looking about tightening financial conditions. You know, what does that then mean when it comes to something like the debt ceiling. I don't quite understand how this is even factored in when you're looking at a a period of significant tightening from the federal reserve, and then you have things like expanded TV credits as well,

At what points fiscal policy really factor in here? Well, there's two types of fiscal policy um UM, the federal level and also the state and local level. And at the federal level it's UM, it's actually working towards what the Fed wants things to write. Of course, the depth

ceiling default would be catastrophic. However, at the federal level, UM, you know, if they got a negotiation for UM fiscal cuts as a result of UM, you know, uh, avoiding this death feeling default, then it's actually working towards uh the fat's inflation takes. But however, the states responsibility, right, it would be nice if we just didn't spend willy nilly with with no end in sight constantly, you know, yes,

and and and the infrastruct Sure Bill. The inflationary impact of the Infrastructure Bill is going to kick in this year as well. So, but at the state on local level, and this is something that Powell has said several times already, that they're still flushed with cash. We did a study last year and found that the state and local government have about seven billion in excess net savings UM and that's why you saw a whole bunch of states giving

out the text credit late last year. And that's why some households income growth of so robuff heading into late last year partly, and I think that could explain why consumption could actually be still rather solid in the first quarter, just because there was heading to towards the end of last year. There's just a lot of fiscal spending income coming from the state. Yeah, because I guess the fiscal spending that we saw over the last few years had long and variable lags as well. Did you hear, by

the way, did you hear Danny blanche Flower? Uh? He was kind of ripping on the Bank of England. But his argument makes sense when apply to the Fed as well, that these um this monetary tightening doesn't hit the economy until I think he's had eighteen months to two years later. That's what he was looking at when he was on the Bank of England Monetary Policy Committee. So, um, he's

saying they should already have paused. And I'm sure he believes the same thing about the US because his concern is that a deep recession is worse than you know, the abating inflation picture. Yeah. So um, the eighteen to twenty four months monetary lag is kind of the standard good old textbook lags, right, but it's estimated based on the last one, you know, twenty thirty years of data.

And I think at the FED right now there's a heated debate on how, how, how how much shorter is the lack And it's likely because of the the FED communication style now with the press conference and you know immediately uh doing hand only like using for guidance to guide the market and changing the shape of the yield curve.

That's how that's why the lacks of monetary policy would be much shorter than you know, back in the days when most of the lending and credit conditions in in the in the in the economy is influenced by you know actual uh uh, by by the long lags of when when interest rate would finally rise. So I think I think the lags are much shorter today, and your model had previously predicted a chance of recession which is

pretty high um this year. Do you still see that when you look at your model, Well, the model is showing slightly lower probability of recessions. But our assessment has always been that's not one. But now I would say on the whole it's it's you know, if you ask me what's the probability of twenty four months ahead probability recession, I will still say it's very high, because the SUD

gets to determine whether there's a recession here. If the said think the economy is growing too fast, they will raise rates such the economy will have to fall into the recession. All right, Anna Wong, thank you so much for joining us, Bloomberg's chief US Bloomberg Economics chief US Economists talking to us about really what to expect from Jerome Powell this afternoon. Let's get back though to the equity markets. UH and fixed income focus on the cross

asset UMU the assets. I guess I should say that that we focus on most with Mike Green, he's portfolio manager and chief strategists that simplify asset management and they have UM a suite of e t F s. Mike talked to us about simplify first and tell us about your products. Sure, so Simplified was launched in September to take advantage of a rule change the facilitated the introduction

of derivatives within the et F structures. That creates the opportunity for us to offer products that would offer a core exposure, for example, to a ten year bond or to an smp US large cape equities and then modify that payout by incorporating a derivative overlay associated with it. That was very difficult to do prior to September, and

since September has become much easier. It's allowed us to offer products that we think you're unique and offer benefits to into individual investor portfolios, into the r R a community that services them. So what you've done in E t f s and what others have done over the past few years has really changed the investment landscape UM in a way that makes I think active management more possible with E t s and it ever has been before. How do you see the passive versus active UM argument

right now? Well, so that's a really complicated question. But um, well, because for a long time, right, you know, after this sort of Jack Bogel revolution, and of course that's mute tool funds really and not ets, but everybody was looking to index and keep costs low. And I think e t f s in a way kind of sprang out of that in the late eighties early nineties. But um, now we've seen a lot more nuanced products that aren't as straightforward as those early e t f s, like

the ones from Simplify. Yeah, I think that's I think that's true. And so this is part of the growing ranks of active management e t s UM. The challenge that the industry really faces this is that it has been bifurcated and effectively blackguard, black rock Vanguard and the rest.

And the real challenge exists in the form of obtaining distribution, obtaining shelf space effectively within the retail universe when it is so dominated by the players a black rock vanguard, who through a combination of scale, a combination of lobbying, etcetera, get themselves into a position where any product that they launched can immediately go to scale, immediately become a viable product, etcetera. That's making it very difficult for everybody else in the

industry to to to be straightforward. That's the reason why in this uh, in this case, really it do apply in a sense, right, Well, it's yeah, So it's actually important that you recognize that there is that characteristic that this is an oligopalistic industry that we've seen increasing concentration to the point that candidly, most of my work in the space around active passive and if you google my name or you google any of my work on this,

there's plenty of speeches out there talking about this component. It is actually tangibly beginning to change the structure of the market. Market behavior that we're seeing is increasingly reminiscent of the kind of low float, extreme behaviors that we saw in the ninety nineties associated with the dot com cycle.

We largely put that not at the feet of the FED, which is a convenient scapeboad for this, but actually the changing market structure that's caused by the concentration of assets and those two players, Well, can you elaborate on that the changing market structure? What exactly is changing here? So what's happening is is that you're creating giant pools of capital that only face the market when there is a

net order flow. Right. So, if you're a client of Vanguard, and I'm a client of Vanguard within their index mutual funds, you buy I sell that actually never hits the market. It's simply crossed at N A V at the UM at the end of the day, Right, So that's not actually liquidity. That is how they demanded or required of the market when they are gaining share. It means that every order that they're placing effectively shows up as a buy. It's very few days in history in which Vanguard has

been a net seller, for example. That means they're continually providing liquidity. They're continually creating demand for securities. That's contributing to the general rise and valuation that we've seen over the last forty years. Um. The problem, of course, emerges as they become larger and larger. Those net flows when there's an imbalance have becomes so large now that that

can meaningfully impact market behavior. One of the most terrifying statistics that came out of COVID pandemic was Vanguard quite proudly announcing that less than one percent of their clients had tried to transact in that environment. My reaction to that is, oh, my god, what if it had been too because that would be such a huge number. It's such a huge number. It's an unfathomably large number for a market that is really incapable of meeting some very

basic liquidity needs already. Mike, you've been talking about this for some time. As you said, Um, is there any possibility that regulators take action as we start to see that kind of thing come back? Right? Um, the d o J trying to break up a big company in Google for the first time since mob el Um has has anybody at the sec UM or um in any other part of the regulatory environment stated concerns about the bigness if I can trumpify it of of Vanguard and

black Rock. So I think you're facing similar characteristics and similar challenges that you see in the companies like Google. Right. So Google would argue that they don't have particularly high market share, that they actually compete, you know, with all forms of information gathering, right, whether it's newspapers, etcetera, or all forms of advertising. Those are really disingenuous arguments, as

we all kind of know. Um. You know, Peter Thiel has a book called Zero to One, in which he makes a very clear statement that monopolies lie in order to protect their monopoly. I'd argue the same thing is true within the Vanguard black Rock framework, where you know, ostensibly the market share of Vanguard of black Rock combined is hovering somewhere in the fifteen percent range. That doesn't

appear to trigger the traditional dynamics of antitrust. But within segments of the industry, particularly within things like four oh one case for example, or within target dat funds, which are the fastest growing form of retirement vehicle, those market shairs are dramatically higher. So, for example, most evidence which suggests that Vanguard's marginal market share in other words, the

percentage of each incremental retirement aller is now approaching. Those are just astonishingly large numbers and financial markets and candidly numbers that should be pursued by the FCC in the same way that they're going after Google. Well, speaking of the financial markets, let's talk about today's trade. Specifically, you are seeing equities off by about two tons of one percent.

The bond market again um yields only lower well flat actually right now, when you're looking at the ten uere Yield talk to us a little bit about what the trade is today when we hear from Chairman Powell at twelve, I believe so the real question is how much he's going to push back against the pricing that was correct in large part yesterday, right. So, Um, there's generally been a perception that the bond market is trying to price in a FED pivot in three, that the Fed will

be forced to cut interest rates. I think there's some problems with the math behind that, but the general observation was that the Fed would be done. And that's obviously contrast to the message that the Federal Reserves trying to send. They want to indicate that they want the economy to slow more than it has. It's been complicated, and that's

obviously a bad choice of words. It's been complicated by things like falling oil prices or gasoline prices, which have put additional dollars into the pockets that the American consumer allowed the economy to re accelerate a little bit in the second half of last year. You know, we're now hearing a lot of languages as things like easing financial conditions. I just think it's important for listeners to understand that easing financial conditions just means markets are going up. Mark, Mike,

thanks so much. Love to have you back on. Mike Green there from Simplify Asset Management. So it's a real vodeshift, all right, the vibe shift. I think if you added up the ages of all three of you, it still wouldn't equal me. But it's a pleasure talking to you know the less. Uh. Just so the listeners know, we don't get to a hundred adding up the ages of all three of you. Pretty close. Uh, Jess Meant and Katie Greifeld, thank you so much for joining us. Crety Goute,

You're gonna stick with me. I want to get to Alison Williams right now from Bloomberg Intelligence, because we had if you work at Credit Sweets and you, I mean, like anyone in the whole world are planning, uh, you know, all of your spending on your bonus season and you got the meeting today. Last night you get a message, Oops, meeting canceled. That's got to make you feel like, you know, like you work at Deutsche Bank, Allison. Are they gonna lose every single person who can find a job anywhere

else in banking? Well, my guess is that the delay might only be a matter of days. Uh. You may have also seen the headline that Apollos and talks um to take a spake and steak in the spinoff. Um, so there is a question, you know, does sort of the delay in paying out the bankers have something to do with what might be in the works in terms

of the structure the future structure of the first Boston spinoff. Now, um, we we have seen from the other global of US and banks that it is a competitive war for talent even you know, when things for the bank are going well. Um, so we expect that plays out of credit suite, and we expect that if this is a venture that's that's going forward, that's that's going to be top of mind.

But you know, perhaps there could be something in terms of the future incentives or the structuring of those payments, um, related to someone who is going to take a size of mistake. Is I guess my my best guests, Well, Alison, this is something that we've kind of seen having across Wall Street as well, and I want to say across

some of the European banks. What is the timeline where we get back to some sort of normal when it comes to kind of the big bank bonuses that were used to so define normal, well, we were not worried

about salary cuts and a lot of talent. I think that UM, you know, if we're talking about Credit Suite specifically, I think it's you know, when a bank is going through a tougher time, they're obviously going to have to UM, be creative and you know, a lot a bank always wants to align the incentives UM with long term success.

But that might be UM you know, perhaps even more important UM at credit suite in terms of the fact that you know, when revenue is down significantly, shareholders and other stakeholders such as regulators are going to expect that the expenses reflect that UM. But when there is such a significant decline due to you know, perhaps top of the house and not individual performance, the bank has to

find a way to reward those individuals UM. And I think in fact that that is one of the reasons why they are perhaps looking to ju This s been out because some of the top bankers may be frustrated with UM, you know, paying for some of the UH it's called the missteps, bad risk management, UM, what have you. But some of the bigger costs incurred in other areas

of the firms, such as the trading death. Well, but I mean my initial question still stands, Allison, has anyone who has a decent resume and good credentials, um, you know, and any mobility at all remained at the bank or have they already lost all of the best talent because starting with green Sill and Archagos and through COVID missteps and management reshuffles and you know, all of these different controversies that they've had in Zurich, hasn't everyone already looked

somewhere else and tried to get a job. I mean it's like musical chairs. The music has stopped and is no more chair. Right. Well, you could have said the same thing, I suppose about Deutsche Bank a few years ago. Definitely that I think in general, UM, you know, obviously there the recruiting benefit, if you will, UM, you know,

goes to those outside of the firm. But um, you know, to to the extent that the bank can you know, key in on sort of what they're key talent, and UM seek to at least reward those that they believe will stay with the firm for the long term. UM. People like all different kinds of challenges in their positions, And I think there's also the question of UM, you know, compensation to reflect that just both of both the current

challenges and the future opportunities. To the extent that this UM you know, bankers are looking ahead and looking forward to this potential entity. You know, could you join an entity that gives you award like something like a Molus or lots of these other little spinouts UM that we've had over the years. Could you go to work for an entity where you could be UM rewarded, tied more directly to your deals, but have the backing of a

big bang. I think that that's that's something that one could argue as a unique value proposition for some of these bankers. Alison, there's a story from the Wall Street Journal that Apollo is in talks for Credit Suite First Boston, which we have just been discussing UM. As you mentioned, I gotta admit I did you zone out for a second to deal with something else. But Alison, I want to ask what kind of precedent that sends for a lot of these larger asset management PE companies to kind

of acquire some of these spun off assets. I think, you know, we're gonna have to see exactly, you know, what type of the investment is and what type of role they're going UM to play. UM you know, in terms of the prior SPG structure, product groups spent out where they were spending out UM some of the assets and operations. I think that's that's a little bit different

than what we're looking at here. And so there's there's a few questions in terms of is this unit going to absorb part of the you know, private investment unit that is part of currently part of asset management and will Apollo UM be somehow involved in that? Seems uh, you know, not totally likely unless um Apollo is going to come in and sort of take over those operations. But certainly they have their their own business, their own

UM fundraising efforts. They don't necessarily need uh credit squeez from that respect. UM. So I think I think it's gonna it'll just be interesting to see what exactly the role Apollo is going to play in terms of will they be sourcing any business from this venture? Is it just a private investment? All right? Allison, thanks very much.

Alison Williams there Bloomberg Intelligence head of bank research. He's on top of our bank research globally as well as b I. You can type BI dot com to get all their elephant UH launch pads from your Bloomberg terminal. A lot of our markets talk has been derailed over the last few days by a balloon. UM. If you don't live in a cave, then you will have noticed last week when we started to see UM what is

alleged to be a surveillance balloon floating over Montana. Eventually it got to the coast of South Carolina, where an F twenty two raptor shot it down. The Chinese have said it's a weather balloon from a private company went astray. The US says it's a spy balloon that was trying to look at our stuff, especially the nuclear silos that are all housed around UH there in Montana. Let's bring in McK mulroy right now is the co founder of the Lobo Institute. He's a senior fellow at the Middle

East Institute. But he's also the former Deputy Assistant Secretary for Defense for the Middle East and a former paramilitary operations officer at the CIA. Mick, this is I think such an interesting story. Because it's so weird, like who sends up a spy balloon when they already have satellites staring at the exact same stuff, And why should we care?

I mean, the Department of Defense UM itself said it's not a threat to our physical infrastructure, and they're not getting any super top secret intelligence they wouldn't already have gotten, So what's the deal. So that's something that is in my mind to be determined. Yes, they have satellites all over the world over actually, and probably most of them

focused on the United States. But there's a reason why the Chinese were doing this, and it probably is that this can collect uh and stay in areas longer than satellites can. So I think we really need to exploit the debris that we're getting out of the ocean right now and find out if that's in fact true. And we really need to figure out how we can detect these things earlier so that we can interdict them before they're hovering over you know our I C B M

silos in Montana. But wasn't the reporting. I believe that this has been in play for years now, and internationally as well. I believe there's been balloons detected in Latin America. I think over Bolivia as well. Why is this moment so crucial when it comes to they're everywhere allegedly right, Well, sometimes they might have to go they're going to travel from one place to another, so they might cross over places that aren't significant to get the places that are.

And I think from our perspective, you know, this has to your point, it's happened over multiple years and multiple administration and now it looks like we didn't even know that they happened before. It's probably that we're going back and looking for a signature that we weren't aware of and actually finding them. These balloons might have fit the perfect gap instead of the military is calling it. You know, our Dwayne domain aware in this gap. So it was

something that we had a hard time detect. Hopefully, now that we tracked this thing across the entirety of the United States almost we have now figured out the signature so we can re uh compute, if you will, our radars in our early detection systems so that they will pick these up quicker and we'll be able to say, next time interdicted off the coast of Alaska instead of watching it go all the way across the United States and down they got off the coasts. That's going on.

So I don't want to put you on the spot here, Mick, but we have UM talked to, for example of professor at Johns Hopkins who said, well, he was talking about the technology that we use in ours five balloons, so do we have them too. So to to my knowledge, and you know, I'm just talking about what I know. I'm the open source, not something I knew from my past, we do have all sorts of h collection platforms to include balloons. So there has to be something that these

balloons do. And they're steerable, as we talked about, or as the Pentagon has said, this is a starable. They can put it right over a location that's obviously closer than the satellite and do things like collect not only imagery but signals intelligence so everything that emanates from it. So I'm sure that if we're doing it, there's some value added. That's in addition to spy satellites and obviously human collection on the ground, so that both both countries

of China and the United States like intelligence shot. The reason I ask is that so many UM senators and congressmen went went went on air saying that they were outraged about this, but aren't we doing the exact same thing. So that's that's my point. I mean, countries collect intelligence on their adversaries, and we try to protect our own secrets from our adversaries collecting on it. So I think

we need to do a much better job. I don't know that we need to be outraged, but we certainly do need to protect ourselves in the future from this ever happening. Again, there's an additional factor on this one. In Almo US looks like it was made to embarrass the United States, and it is so visible. It just loggered over population areas. Perhaps we could be I'm not much into be an outrage, but certainly that was intended

to make us at least angry. It looks like uh and and it obviously caused Secretary Blincoln to postpone his script evasion. So they got what they asked. So what does this mean in terms of the tools that we use for surveillance here? Does this then amp up surveillance from both sides or kind of wind it down? Well? And are we amping up their surveillance? Right? Are they are what we want to know is are are they

using our gear to spy on us? So unfortunately, a lot I mean, as we know, uh, a lot of the advanced technological equipment around the world comes to the United States, so they use that. I don't know if there's a way to prevent them from doing that, but it's certainly something we should look into. And as far as the question is that we're gonna amp up surveillance, absolutely, they're gonna take everything they learned for this, are going

to try to never let it happen again. Something we should be concerned about is our pilots that are flying near China in their air space but near China are likely going to start getting her asked on the Chinese Air Force. That happened in the past, it probably will happen again. We need to retain our course. We have all the right in the world of the international air space, and we need to make sure that those those aircraft

are protected fighter aircraft from us. This is in the context of military drills already taking place on both sides when it comes to South China. See how much worse can things get before we kind of get to the ultimate outcome, which is kind of direct combat. So as first, I think we should do everything we can to avoid that. I think the United States will be successful. I'm obviously biased, but it's not going to be in either either countries.

All the world's injury to see a conflict between two superpowers. We already have confidence going off around the world, that would just be devastating. So we need to do everything we can to get back on the diplomatic side and a ray from any on a conflict. But I do think this is gonna heat up the tension when it comes to these kind of gray area uh these these kind of uh intelligence collection wars, if you will, and they will try to start making sure that we can't

do what they just did to us. And so that's going to be something that's continuous. But we do need to make sure that ultimately diplomacy wins. Today, by the way, I saw a memo, um I think NBC News had reported that an Air Force General, Mike Minahan, who's the head of Air Mobility Command, set out a memo to his troops saying, I hope I'm wrong, but my gut tells me we'll fight in that We're actually going to go to war with China, and then he says, you know,

be ready, don't be distracted. UM, you know, make sure you're doing all your training and implementing every every plane you can. Is this just, you think, um, a memo to keep people on their toes or do you think he actually does expect this air Force general a war with China? So I think probably and I don't know, but I think it's probably more likely to make sure that his his troops, if you will, are taking it serious and they will be ready for a conflict whether

it happens, if it does happen. That's what the U. S. Military should be doing. They should they should act as if we're going to have a conflict. They should want a conflict. They obviously don't make the policy decisions to have a conflict, but they have to be prepared. And I think, I don't know, but I think that's what he was he was ultimately doing. The Pentagon has came out into that's not the position of the Pentagon. It's

just this one particular general. But it is something that the military should Our military should always be ready to do. That's their job. So let's let's all hope that he is wrong, including him but that is something that US military should be prepared to do. That's what we expect. Let me finally ask you for a status update on Russia's war in Ukraine. How does that look to you

right now? Because we hear that, you know, the the Ukrainians have made some advances, then they lost some ground, but we've shipped over some tanks or they're in the process of learning how to use those. What what's what's it look like to you? So on the big picture, it looks like there's gonna be a substantial new offensive by the Russians. They have called up to describe many more people into their military and that is something that

the Ukrainians are bracing for. Up to two hundred thousand additional Russian soldiers coming into this light and now they're gonna be equipped. I don't know why they waited until now with some of their most modern wequipies they have, including tanks. So these tanks at your reference, are going to be incredibly important. The Ukrainians can't beat them in numbers, so they're gonna have to beat them on skills. They're gonna have to beat them on smarts, and that's what

they've been doing. So far, but these new tanks, the challengers coming from the UK, the Leopards coming from Germany, and then of course r M on Abrams. They need to get there as fast as possible. There will be absolutely key to defending Ukrainians haritial and also taken back territory the pro Russians from the occupied All right, Nick, great talking to you. Thank you so much for joining us. Always appreciate getting some time with you. McK mulroy there

is the co founder of the Lobo Institute. We're gonna talk a little corporate finance right now from the perspective of a fintech that's trying to make the world a better place. A j Amati joins us. He's head of corporate financing there over at Atomic Financial So Atomic Financial UM is an infrastructure for connecting apps and services to payroll accounts and A j it's great to have you

on the program. You're talking about the delta between what companies can earn on deposits if they have their money at say Chase or Wells Fargo UM, as opposed to what they can earn on a one year treasury and it's massive right now. If you get nothing, if you put your money in a bank, then a one year Treasury is paying more than four and a half percent. That's right, Thanks for having me on the program that UM, and I think that's the issue that we're trying to solve.

The fed UM continues to hike rates so as that the yield curve continues to move up, and so that provides an opportunity Banks continue to pay low interest rates for depositors, so that provides an opportunity for fintech such as Atomic and others to provide accessibility to higher yielding products. So is this something you're doing only for corporate clients? And how much of that difference can you make up?

I mean, if you're if I'm a small business and I haven't a half million dollars sitting with Bank America earning nothing, can you can you give me closer to treasury rates on that and let me maintain the kind of liquidity i'd need as a small business. That's exactly right. So if you're a UM small samme, or if you're a corporate or even an individual UM depositor, you're likely to earn just a few basis points when you're checking count,

maybe slightly more on your savings account. What we do is offer a suite of products, and we don't offer these direct consumers. But what we do is we provide a white and label investing services, and we connect with banks, fin techs, and credit unions so that they can connect with us and then provide these services to their end customers. UM. The yields that we are able to provide UM are very close and sometimes in excess of US T bills.

So right now, you know, anywhere on the curve that you look at up to one year, it's it's roughly four and a half to five percent now and continues to move up. And so we are able to build structures either through money market funds, through T build ladders, or other such instruments and reach four and a half and five yields. So this is really a function of

the Federal Reserve. It's a relatively new phenomenon um in the last couple of months or so at a time when we're talking about when the Fed will go back to quote unquote normal, how long is this dynamic gonna last? It's a good question, I think. Um, there's there's a few ways of looking at it. I think, first of all, the current economic context, most analysts would say, is a tough and challenging economic climate. But what we're doing by

offering such corporate investing products is UM. What we hear from clients is that it's very attractive UM, and it shows that these kind of offerings can continue to grow even in a down cycle. Now, when the FED begins to normalize UM, and it's increasingly look like looking like that's going to be pushed out further further given the very high jobs number that came out last week. But you know, eventually when they begin to normalize, I think

there's a few things to consider. I think one is that it's very unlikely that they'll go back to a zero interest rate environment, as has been the case over the past decade, and so even at a FED funds rate of two to three percent, I think this kind of product would continue to be attractive. And I think second is UH, it's a countercyclical product. So ATOMIC also

provides offerings in the equity space. We're looking at providing offerings in alternative assets, and so as clients shift from perhaps this product to an equity product a few years down the line, we will be there. We have the offerings to switch between these type of products. UM. One of the benefits of putting your money in a bank is it's f d I c ensured. You know, businesses often have a lot more than the maximum limit of two, but consumers maybe don't. UM, so is this product just

as safe? Is it safe or even do you manage to structure it so that it's just as safe as the treasuries that you're investing in. That's right. So, depending on the exact product which a client would invest in, UM, it comes with different types of structure. So for example, we have a sweet product that is FDI ensured UH in more than the typical FDI insurance amount we have. We provide access to t build ladder structures and of course UM those are fully guaranteed and considered safe by

the market. UM. We also offer other products that enhanced field but provide less protection, and so we work with our clients to understand the risk tolerance, to understand their liquidity needs and based on that constructor of product that would UM I think UM provide the safety if they required,

or additional yield if that's what they're looking for. So where if you know, consumers listening to this right now and thinking I would love to have instantly accessible money in a an account that earns four and a half percent. Where can they get that? You say, you don't go to direct consumer, You're a white label UM service that allows I guess other banks and fin techs to do that.

What are what are some of your big clients then, UM, I think it's I think rather than name the specific clients, what I could say is you can the clients could our individuals can contact Atomic and we can put you in touch with some of our partner banks, syntexts, UM and and credit unions that we partner with. UM. Alternatively, they can request this from from their institution that they usually partner with, and then UM their institution can reach out to us so that we can form a partnership

with them. It sounds like a pretty interesting product. I kind of want to use it myself. Yeah, I mean, my financial advisor is always telling us, you've got to have rainy day cash enough that you could cover your bills for six months in the event you get fired or whatever, you know, and UM, I'd rather have that sitting. I'd rather have that earning four and a half percent and easily be able to pull it out, and I

guess this is the idea, right A J. That's exactly right. Um. Both for individuals you need a rady day fund, you want access to it. But for example, we could structure that in a t buil ladder so that you get liquidity on a monthly basis um. And if you needed the entire amount um, we could also provide that to you as well. Um. There might be a small principle hit, but it's largely available. So the liquidity characteristics of this

product is excellent. And again, if you are parked at a bank where you're only earning hand to twenty basis points um, this is a very attractive offering. And that's

I think why our partners sound really excited. You know, we're talking to clients both in the US and even abroad, um, and we haven't touched on the international arena, but we have clients and partner institutions abroad who are gaining access to US both equity and six income markets for the first time, and that's very exciting for them, all right, A J. Thanks so much for joining us. A j Amati there. He is the head of corporate Financing at

Atimic financially. He's also a senior fellow at Harvard. You may have heard of it talking fam talking to us about a product. I think a lot of people are find interesting since bank UH savings accounts rates have gotten so far away from the Fed funds rate um and the question is will they really ever get back there again? Who knows? As Katie Greyfield says, you have to work at Hindsight Capital to have that kind of intelligence. 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 three. Pet Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio