The Fed, Bank of England

some informed analysis and judgment. That's why we're bringing Neil Grossman. He's a co founder and former CIO of t k n G Capital. So Neil, we kind of had a little bit of some dueling testimony yesterday with FED Chairman Pale Secretary Yellen. What's your takeaway from the Fed's balancing act of way, I got to fight inflation, but I've also got a shaky, maybe banking system out there. How do you think he did yesterday? I think he tried to flip thread the line as best as he could.

I think the approach to saying, look, we still have an inflation problem and we're not going to give up on that's important. I think that's going to transmit confidence to the market over time. But he also is willing to say a few things. Obviously he's aware of the

banking issues. I think he sort of threw SVB under the bus a little bit, but he was willing to say that some of the consequences not only of what they're doing directly with rates, but the consequences of the impact of credit tightening and other things that are now beginning to flow through the economy are going to have an impact as well. And I think ultimately what they're trying to do is slow the economy sufficiently to cut demand and that will take pressure off prices, and I

think that's what he's hoping is going to happen. I'm gonna actually guess that if you've watched what's happened to commodity prices in the last few weeks, I mean, oils drop significantly, some of the others that you're likely on top of the po to you on your comparisons, that we're going to occur anywhere anyway that between now in the summertime, you're going to see some of the edge

come off of prices. And the risk is that they take that as success too quickly, but I think they're going to find that there is a benefit that it's about to start to appear well, Neil. One of the major pieces of commentary from like Barclays, from Moodies, from a lot of people who are calling for a pause was that the Federal Reserve doesn't necessarily need to tighten credit conditions further because the lending practices that are coming in the next few months are going to do the

job for it. To what extent is that true? What kind of timeline are we looking at there? I mean, I think it's going to happen somewhat quickly, but they're they're going to always be offsets. For example, last time we were talking about, Yeah, weren't you just here about the mortgage issue, right? Yeah, Interest rates have fallen rather

significantly in the last three weeks. You're likely to start to see, for example, refinancings show up, and you're probably likely to see to the extent that borrowers can buy homes. The drop in rates is going to make homeownership more affordable. That's running through the credit system as well. But on the other side of the coin, smaller businesses like you're just talking about biotech. I've actually been paying a lot of attention to the biotech space from now a couple

of years. You're watching that anti fungal stock. Well, yeah, I'm gonna I'm gonna have to go check that myself. But the maybe we should send it to Washington now. But the interesting thing is if listening in I listened to at least one or two biotech calls a week, and it's been apparent if you actually look at how our biotech industry funds itself, their currency of exchange is their equity. And companies have great ideas, they spend years trying to produce great drugs. Yeah, and along the way

they have to keep issuing stock to fund themselves. Well, the ratepe process has made the value of that stock sixty eighty percent less valuable. And if you've looked, it's the market for fundraising in biotech in the last year is almost shut down. So it's actually a microcosm of what you started to see in the broader tech space. Yea, and yes, so for all these little companies that all the all the tech startups, they're the same, They're they're

the same. MONI a fan of biotech stocks. I always say they're they're binary, right, Your drug either works or a dozen that extermines your future. And that's why the hedge funds love them. Uh Neil, How serious is this banking problem in this country? How concerned are you about it? Um? That's a hard that's a very hard question to answer at them. I think the problems with the smaller banks will have a very interesting economic impact. By the way, for whatever it's worth, I was on the board of

a community bank, which was quite interest thing. I think if we go and look at this, though, again, this is going to all fall back on the FED. The bottom line is the central Bank in the United States taught people to ignore risk, to believe that that they

were never going to do anything too much. The fact that we got interest of inflation to eight percent before anyone even bothered to dissent and then was told I think that when we started hiking last year in what was it marches, that they were going to that their projections called for rates to peak at two and a half or two and three quarter percent in the fall, and that was all that was going to be done. Nobody the SVB didn't react, and you know, you're gonna

have to look at the balance sheets. Traditionally, banks we worry about credit risk. We don't under seem to understand that rate sensitivity irrespective of credit is a big deal. SVB was extraordinarily exposed to move into long rates with very well we would consider very high credit quality. Well, let me ask you about that really quickly, because you just said you were on a board of a community bank,

and I've been dyne asked somebody this. When you are hedging duration risk from a market's perspective, it seems like a fairly simple trade. Right, You shorten your short the front end of the curve, and it feels pretty easy, and your perpect yields go higher. Why is that so hard if hedging costs aren't spiked. Well, well, two things. First of all, there's look, you can hedge every risk on a book. Yeah. Right, By the way, I also ran a very long long day and interest rate swap book.

If you hedge, if you hedge anything everything, you end up with no profit that to begin with. Yeah, but you don't only hedge the short The short end is your funding source in general. Yeah. The long end, or the longer duration historically is where you're making your investments traditionally steep yelk curve, positively slowly you'l curve. Is why

banks do it this way. They borrow short term and by the way you can have you can have a floating rate liability that that has a longer data maturity, which is something they probably should have been thinking about. You invest out the curve, you have positive carry, YadA, YadA, YadA, if you're going to ignore the hedging risk what you did out there and we were very cognizant, I mean every board meeting was talking about where you wanted to have your risk hedged and with these again, this is

where I think some of the problems came. As short rates went up, the cost of their tradition, their major money. Remember they have ten billion twelve billion of capital. They had one hundred and eighty billion dollars of deposits. Deposits are almost alway and I don't know what their Federal Reserve fellow Homelown bank borrowings look like, but deposits are

basically tied to short rates. Now, demand deposits have very low interest payments, but traditional deposits pay interest, and as interest rates go up, that means the value of the carry to your long investments keeps going down. Yeah, and they just got caught between the fact that they were misheaged, they were losing revenue stream and at the end of the day, the real problem with SKVB is they had four billion dollars or so of insured deposits. I'm going

to just divert for one second. One of the things I've been listening to everyone talking about which has driven me crazy is this argument that people shouldn't have to have to A very popular man, Neil Grossman, is sorry about that, that that we shouldn't have to think about The average person shouldn't have to think about the risk they're taking with deposits. Well, you don't. Two hundred and

fifty thousand and below no thought process. But this company had very concentrated, large sized deposits with sophisticated institutions who should have had known something about this, But it was easy for them to realize that they had a problem. The money moved very quickly, and when you lose let's say thirty percent of your deposit, that means that that amount of money that was supporting your investments is gone.

You have to sell investments, and that's how you get a run on the bank and a massive drop and against Capito Sinish about thirty seconds left here. The FED fund futures market is pricing in rate cuts. Do you believe the Fed will cut rates in twenty twenty three in the absence of a stock crash? No? Okay, right, or some or some truly existential event that creates a situation they have no choice. Look, I don't think by the end of the year you'll have reached anywhere near

his two percent target. And even if you do it, you need to have it reach and be shown that it's stable. So I think the answer is going to be and the markets will begin to accommodate and function. The question is is if something structurally wrong out there that we can't see that creates that type of thing, that we're going to start to see the economy slow. But that's not necessarily. I'm not refinancing my mortgage anytime, SHO. I got you, all right, Neil gross because I'm not

going to do it. So I got a four in front of it. Neil Grossman, co founder and former CIO of t k NNG Capital, joining us here in our Bloomberg Interact, a broker studio. You're listening to the dam Ken's her Line program Bloomberg Markets weekdays at ten. AMI's Daring on Bloomberg dot Com, the I Heart Radio app

and the Bloomberg Business App. We're listening on demand wherever you get your Podcastle's looking at this market here, just kind of moving up higher, get, you know, kind of retracing a little bit of some of those losses we saw yesterday. Where do we go from here? Let's check in with somebody who does this stuff for a living, Jackie Bowie. She's a managing partner ahead of em EA for Chatham Financial. She's located in London. So Jackie, thanks

so much for joining us here. How do you put in context yesterday's trading versus what we've seen so far this morning? Kind of a kind of one eighty to return. How are you guys looking at it? Yeah, well, they think the markets have seen a lot of turmoil and fear in the last a few weeks with the banking situation globally and with the big central banks announcements We've had, you know, yesterday with the Fair and then today with the Bank of England and nothing particularly scary coming out

of that. I think there's definitely a little bit of a relief in the markets, and we see across the intrast rate market too, which when the Fed made their statement yesterday and again Bank of England literally out in the last hour or so, the market reaction has been pretty muted. So it maybe just feels like a little bit of a sigh of relief that we may be through some of the difficult and turmoil and the risk

of financial instability that we've had in the last few weeks. Well, speaking of that financial instability that we've seen in the last few weeks, how long is that going to continue? It feels like when you're looking at these markets, they're still moving pretty volatily. If the banking crisis is indeed, dare I say it over or without chinxing it, how

much longer can we expect that this is going to happen? Well, if we believe what the central banks have been telling us in the last few days with their announcements, we should be fairly comfortable that we've we've seen the worst of it. With regard to you, it's not likely to have further contained a contagion and spread throughout throughout the

rest of the financial industry and across other banks. If you read some of the announcements from the Bank of England today, they were very clear in trying to reinforce the message about the liquidity positions that are in place and overget the global central banks have continued to support the liquidity in the markets and through the global slop lines, which you know they've said they'll continue that through the

end of April. So there's a definite coordinated attempts to try and allay fears in financial markets that there is more to come. And yeah, and I guess that they interest rate moves from the central bank. So the FED raising last night and the Bing of England raising today for National Bank also race today. So did there no

region central bank. So the markets that are probably interpreting that to say, well, actually they don't seem overly concerned about the financial instability and continue to be focused on their inflation targets and using monetary policy to meet those inflation targets. Hey, Jackie, as the head of em EA at Chattam Financial, I'd love to get your opinion on credits with ubs. What's your take now that we have a couple of days of hindsight about that transaction and

more importantly about the health of the banking sector across Europe. Sure, well, I think we're all still digesting the actual structure of that transaction, and clearly there's a lot of issues arising around how it was structured with regard to the situation with certain bondholders, certainly from the clients that chats and advise. What we're focused on is trying to understand how you

bs will actually absorb credits waste. You know, it's not a small institution that it's a huge, you know, systemically important, which is why it was rescued the way the way that it was. So we're still just trying to understand what the exposures are for for UBS as they take that bank on. We've focused on the derivative markets, of course, so that's where our main focus will be. But I think, you know, even at a very basic level, you're taking out one huge lender in the market, So does that

mean that in lending is going to be tighter? And we're already seeing in credit conditions tightening across the European banking sector as it stands at the moment. So I think there's some concern that it will reduce credit capacity in the market. But again there isn't any director read across to other European banks, Jackie. Let's go a little bit more international here and talk about the Bank of England.

Some expectation here, This could be that their potential last right hig the ECB not really showing signs of slowing down. What is it or who I should say is the most hawkish central bank in the world right now, because I just can't tell, so probably we would say the ECB. So the European Central Bank, So they raised fifty basis points last week and continue in their statements to be pretty hawkish with regard to how much further in those

right rises could be. And actually, if you move away from what the central banks are telling us in their statements and look at what the market is pricing, you would also come to that conclusion. There's an expectation from the market that they said would is going to start cutting weights they said, not saying that, in fact that they're saying the opposite, and the same with the Bank

of England. But on the ECB side, for the European for the Rose Zone, there is no expectation that those rates are going to start coming back down the other side, so certainly most hawkishness still coming from and the European Central Bank. I would say, Jackie, what was your takeaway from a very active afternoon in US markets yesterday with a Secretary of the Treasure yelling speaking, and of course we had the conference press conference and statement by FED

Chairman Jpal What was your takeaway from that collectively? Well, I would say that the language in the statement was definitely softer, and I think the market took that very positively, you know, signaling that they are coming to the end of the tightening cycle. And again you can get into the real granularity of the exact words that were used,

and I think the exact quote was there. Maybe some additional firm may be appropriate, you know, just that slightly software language and certainly gates the markets and confidence that the central banks are not very focused well, that they're not using the financial instability as a reason to change

the monetary policy direction. Well when it comes to monetary policy direction, though, it also feels like everyone is expecting this to be the end of the tightening cycle, but inflation still hasn't come down By the margin that I think a lot of central banks are looking for. Could we potentially see, instead of cuts in the back half, a reacceleration of that hawkish monetary policy. I think that's

definitely a possibility. And in quite the UK have their inflation numbers yesterday morning and they surprise to the upside. And the concerning trend within that is that it was the code inflation, so food pricing. Everyone's been talking about that, the increased cost of salads in Europe and the shortages

and some of the food items. So we started to see the improvement and inflation globally due to the fall and the energy prices, but that's been substituted by increases in core core inflation, which is more of a more of a concern, you know, And I guess in the US there's an expectation that, well, what's you know, the feder forecasting, of course, since the inflation to decrease back down to about three point six percent by the end of this year and then start to get back to

that two percent target by the end of twenty twenty five. There's a lot of things that have to go in the right direction for that to be achieved. So yeah, I agree with you. I don't think it's completely outside the realms of possibility that that cup and interest rates, if it comes, might come a little bit too early before inflation is completely under control. All right, Jackie, thank

you so much for joining us. We really appreciate getting some of your time and your perspective on these markets. Jackie Bowie. She is the managing partner ahead of EA at Chatham fan Chell, based in London. I appreciate getting some of her time. You're listening to the tape. Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, tune in app, Bloomberg dot Com, and

the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty. Let's piece together for these banks out there. Pretty you know, we had maybe listen to Chairman Pall yesterday and Secretary yelling. I'm not sure I heard the same kind of message in terms of the support for the banks out there. So I want to really get a sense of what the experts think. And Alison Williams is certainly one of those she's a

senior banks analyst for Bloomberg Intelligence. So, Alison, what did you take away from again that dueling testimony yesterday from FED Chairman Powell and Secretary Yelling about how they view kind of what's going on in the US banking system. So I think the one thing that I'd be consistent is that they you know, they are sending trying to send a message of confidence in the system in terms of the FED focusing on um fighting inflation and its job.

As as to Yellen's comments, I mean her comments that they're not looking at blanket insurance, I think does not roll out other types of actions, and I think, you know that maybe what's taking so long, if you will, We've seen a lot of different people speaking um, politicians, advisors to politicians about how they're looking about thinking about

the issue a blanket Uh. You know, obviously a blanket insurance of all deposits would solve all of you know, would make people feel better, but that also causes international ramifications than to you know, all the other countries have to do that or risk deposit flight, and also be extremely expensive because the banks do pay for that insurance. And ultimately that would be passed on to customers. You know, there's also the tough part about, you know, the legality

around implementing that, about being able to change that. And so what I think that UM regulators are more trying to think about, our politicians are trying to think about, is you know, is there a way to try to target the area where the concerns are. And so it's not at the biggest banks this time. They're they're benefiting from a flight to safety is the presumption and some of the reports that we see, and it's not the smallest community banks. It's really this sort of center regional banks.

And a lot of the issue there is that you have these banks serve small and medium businesses and a lot of the uninsured deposits they have relate to these businesses. So it's not like your average consumer that can diversify and put some money here and there. It's generally, you know, the a company that works with their lender and has all their operating cash in one bank. And so I

think that's that's the question. How can those relationships be preserved and yet at the same time give people comfort that those deposits u won't be flighty Alison do we or should we expect more consolidation in the sector. It feels like this idea of acquisitions from First Republic and extra financing, it really is a result of kind of

the baky turmoil that we've seen. But moving forward, does this almost incentivize consolidation, I mean, it's consolid This is a problem that doesn't necessarily solve the issues, if you will, because that the main issue across all the banks, right is that you know, these health to maturity portfolios and the deposits supporting them, and so you know, if you if you are just adding balance sheets together, it doesn't make a difference until you you know, unless you get

to that level of the big secure banks. So First Republic is obviously the one that everyone's watching, and at the biggest banks are not allowed to acquire beyond ten percent, So there could be a question about the next tier of banks that you know, are these I think regulators might want to see some uh, some of these maybe smaller banks combine where it's not necessarily um I guess needle moving to the extent that the deposits aren't necessarily

needle moving UM. But that also reverses the you know, it's it doesn't. It doesn't say much for the incentive for the larger regional banks to do these deals. So so hopefully that may clear. I mean, I don't think that small regional banks combining necessarily fixes or addresses the fundamental issue. We certainly with the banks that were see I think, you know, obviously banks buyers are able to get those assets at attractive levels and make those attractively

economic or make it attractive economics. But First Republic one has to presume that people are have looked at it, or there's been discussions and somehow the economics and perhaps the views of buyers versus sellers are not aligned. And so I think it does. You know that there is sort of a degree of negotiating power involved, and we think the First Republic does stay volatile until you know,

they figure out a longer term solution. Alison yesterday, on a interview with David rubin Sein from Carlisle Group Cities CEO, Frasier warns that mobile money is quote a game changer for bank runs. People can just click on that. Is that a widespread fear within the industry or is a recent phenomena? How did you take that? So you know I'd say to two things that actually maybe three things

about you know that the environment today. First, UM, you know, Jane Fraser is right that the digital does make it much easier for people to UM move deposits from from one bank to the other. UM. The other thing that a lot of people are are talking about social media and you know ten that stoke fears UM, you know, the the equivalent yelling fire in a crowded theater, and

so it is that also a factor UM. But the third thing I would point to is that again what the where the issues are are more sort of these chunkier corporate deposits UM. And so there's there's also a focus on sort of the specific nature of some of the banks that are UM, that work sees and that

people have concerns around. You know, if you have if you're catering to one very specific segment of clients and those clients are all in touch and interrelated and all behave the same way very quickly, does that certainly increase your risk? So, Alison, we've got about thirty seconds here. I have to ask what comes next for the banking sector. Is the worst of it behind us? I think I think there's potential for volatility until we get some kind of solution on the deposit front. I do think it's

tricky for regulators. They need to walk a fine line in terms of doing enough to avoid people having fear and not do too much that it actually stokes those spheres. But you can but you can see from the stocks and again, since we're really since the issue really is sentiment that sort of tipping things one way or the other, and that has the potential to drive reality. As long as you can have this volatility, I think that I think that the regulators do you have to think about

doing something to study those fears. All right, Alison, thank you very much once again for taking the time out of your busy day and getting us up to speed on the latest state of the US banking environment. Alison william she's his senior Global Banks and Asset Managers Analysts for Bloomberg Intelligence, located our Princeton University Princeton office down

there in Princeton, New Jersey. You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am eastering on Bloomberg dot com, the I Heart Radio app, and the Bloomberg Business app we're listening on demand wherever you get your podcast. Well, we heard some pretty tough talk I think for FED Chairman Pal yesterday, as tough as you could probably be in terms of In addition, you know that twenty five basis point increase and they're

going to continue to fight inflation. That's going to be job number one. But the markets not buying it. Here looking at the FED funds futures here, so let's see where we might be going from here in terms of the rates. We do that with Jennifer Lee, senior Economist and managing director be More Capital Markets and Jennifer again, you look at the FED futures, Fed funds, few futures markets. They're pressing in right creases like starting in like fifteen

minutes from now. I mean, how do you square that with the rhetoric we hear from not just FED Chairman j Pal, but also Christine Legard at the ECB a couple of weeks ago. You know, it's uh, I can't. I can explain it. First of all, good morning, and if I can, just before I'm going to answer that, I have to say that you guys gave me a

good chuckle. I need a chuckle earlier a few minutes ago, when you're talking about the different ticker symbols with with with wolf and I just remember the one called move from from I don't know how many years back, could you're in the commodity boom anyway into that um anyway. So it's it's it's difficult to to you know, thread the needle on this, but I think it's just their way of installing some sort of calm, you know, saying that we have to you know that, don't re mind,

don't forget to the market stats. We will have our other focus besides financial stability, of course, by fighting inflation and you know, and Leaguard's UCB, the governing Council, it has probably been one of the most hawkish ones surprisingly of the year and they still remain very hawkish. Um um.

The one of their own hawks, Eel from the Netherlands, was just still the wires talking about, you know, the great hike coming in May, and I think with the said yesterday, you know, I think he did the right thing with the twenty five basis point where he hike and he's seeing less than that would have made them look soft, to be quite frank, you know, and so it's still putting in that twenty five basis great hike and warning that you know, some of this credit tightening

is going to do some of the jobs for them, but you know, again saying that inflation was too high. And I thought that was kind of interesting in that press not doing the press conference, but in the actual statement itself, when they just put very simply that inflation remains elevated. You know, Um, can't get any clearer than that. Well, Jennifer, I I feel like that seems to be the consensus view that the right upcoming regulations are going to kind

to do some of the Fed's job for it. But I have to ask, aren't some of these tighter banking standards and regulations also uh subject to congressional approval, which we know are super speedy as always in Washington. Um, Yes, and then yes for sure. So that that is going to be another way of tightening a little bit more, and it's going to make you know, probably the sector a little bit more nervous, you know, knowing that they're going to be watched a little closer and they'll probably

have to put a little bit more of a side. Um. So all of this combined is going to help, you know, tighten financial conditions a little bit more. Of course you can't tell from today, but you know, each day there's so much volatility, but you know, whatever the end game is going to be, we're probably going to see tighter conditions.

And this is why you know he's they're they're banking for just probably one more you know, as of right now, just one more great hike um and then and then letting see um and playing and stepping to the side to see how things play out. But what is the timeline on that though, to my point about the congressional kind of um approval that it's going to take to

enforce those standards, that could take a while. And I wonder to what extent if waiting for that kind of credit tightening or that kind of regulation, perhaps isn't the anticipation that's going to do the FED shop for it, or are you going to see that kind of kick in. I don't know next year. Oh, you know, that's that's that's a tough question to answer. I don't think anyone's going to expect anything to to happen overnight, let alone

by the end of the year. But I think you know with at this point, it's going to be you know, watching data with the FED and um and again if the if the data remained very strong, um, you know, then the FED could start speaking hawkishly again. Um. You know, they're going to take it. You know, as Christine Legar was saying, meeting, my meeting, and everything's going to be data dependent. Like at one point last week, I think people are asking, you know, does the data even matter anymore?

And I believe I said yes, and I still hold to that because at the end of the day, it's how the economy is going to fair and that's what's going to drive the Fed's decision going forward. And Jennifer, I wonder what where we are in terms of that recession talk these days. I mean, I look at the initial jobs claims today, another print below two hundred thousand jobs market. The jobs market remains pretty darn strong here. What is your recession call here? As we look forward

to the next several quarters. So we haven't changed it in a while. We're still looking for that the contraction to kick in, probably around I'm going to say mid year, but it's probably gonna be Q two in Q three, that's where we have our negative prints and then a little bit of a rebound in the fourth quarter, and we're still looking at about point seven percent goals for this year, but certainly off to you know, four hundred

and whatever basis points of great hikes. Obviously it's starting to take its toll, but that job market remains so tight still. Those initial claims, you know, it's it's unvoisable how low they are right now. But at some point you're going to start business start seeing businesses pull back cool a little bit on their hiring intentions, you know. But again, we still have to work off of those ten million job openings out there before we start you know,

getting into the bone. Well, in terms of the layoffs, again, I want to ask about the lag because it feels like the labor market is still incredibly tight. If you hear what some of these companies are saying, they're not all laying off people, some are actually hiring. And I have to ask what is going to pop first, the housing market or the labor market. Well, the housing market has started to seem like it's finding a bottom, you know,

with mortgage rates. I'm still high, of course, but you know, but they're you know, but they're you know, they seem to be cooling off a little bit, so that's helping. And of course we've seen some pretty decent housing releases over the last few weeks. I'm not going to acknowledge too much of what we thought today from new home sales because there's such a big downal revision to the prior months. The housing seems to have stabilized somewhat. The

job market remains strong. But again, as you say the layoffs, I mean, um also just layoff announcements, and then it takes time to filter system some people what could be, you know, laying off one job and going on into another. UM. So I think it's going to take a little bit of time as well. But again with this expected pullback, with rates still heading higher, and with so much talk now about you know, something more than a mild contraction, you know you're going to start seeing some pullback I

think in business hiring intentions. Jennifer, As an economist, how are you viewing some of these you know, banking challenges out there, some of these small regional banks in the United States, the credit Swiss, the UBS issue. As an economists, how concerned are you about the maybe the US banking system,

maybe the global banking system. UM, okay, you know, I think I am a little concerned just given that regional banks, you know, um I still make up a fair share of the credit process, especially in the commercial real estate side.

But obviously we know we are in better shape than we were, you know, back in two thousand and eight, with more regulations, with so much more regulations in play, and of course we're probably going to see a little bit more on that front now, um, but at least see a lot of these you know, as we all know, has been very specific to these specific to these particular banks.

But unfortunately, it's all about confidence and making sure you have confidence the entire financial industry or financial sector, which is critical. And that's probably why you know, we saw defense ticking in the line about how resilient the US banking system is. The Bank of England did that as well this morning again to instill common confidence in the entire financial system. Who is the more important player in these next days, arguably weeks. Is it J Powell or

is it Janet Yellen? Woo um can see, well that's a good question. Well, Janet Yellen sort of dalls a lot of the Hope yesterday when she you know, said that she's sort of kaiba or poopoo the idea of that blanket deposit coverage. But um, you know what, I think it's gonna be both. Can I say both? You know, because obviously you know, they always say that they CANTA. They're not going to influence moneteer Paul see from the

from the Treasury fed share Powell. You know, it's not going to see the government how to do their job either. So I think both of them have to book, you know, hand in hand in many ways. And the fact that you know they know each other so well is probably going to be helpful as well, um, you know, to help things stabilize and in still more common financial markets. Jennifer, you're up in Toronto. Love to just get the latest from you on kind of your view of the Canadian economy.

How's the average Canadian industry feeling about things? Um? Well, I think so far the data have been pretty decent so far here in Canada. Um and the Vega. Canada actually was the first major central bank to step off the great tightening cycle and step to the sidelines. And uh, and they're pausing. But at the same time, you know, this is all contingent on whether or not the economy continues to slow as the expected inflation starts to cool,

and we actually did see like our latest inflation right. Well, everyone else is still remaining very sticky, especially in the UK. The Canadian inflation rates flowed further um um down to about five point two percent year a year for February, which, by the way, it's exactly how what the UK inflation

radars right now. So I think the banking candle is quite quite comfortable staying on the sidelines, whereas everyone else has still got the feet on the gas a little bit of interns or the breaks in terms of raising rates. All right, Jennifer, thank you so much for joining us. We always appreciate getting your perspective. Jennifer Lee, Senior economist and Managing director at BMO Capital Markets, located up in Toronto, Ontario.

Looking at the SMP five hundred still rated at four thousand level, up about one point six percent, holding on to those games from earlier in the day. The Nastack up two and a quarter percent, so big moves there in the tech heavy Nastack. You're listening to the tape Kens are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tuning app, Bloomberg dot Com,

and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty. Ford Motor Company came out with an announcement this morning that it expects three billion dollar loss on electric car business in twenty twenty three,

breaking it out really for the first time. And they also had kind of what I'm going to call, you know, kind of a teaching if you will, with analysts and investors here in New York to kind of show them because they're changing the way they're presenting their financial statements. I really want to break out and highlight the traditional and internal combustion engine business from their EV business and

our own. Joel Levington is at that meeting. Joel Levington is a global director of Fixed Income Research and to see your auto and industrial credit and us at Bloomberg Intelligence, and Joel's dialing in from this meeting. So, Joel, three billion dollars, that sounds like real money to me. What do you make about some of the losses that Ford is talking about before they break even in several years. Hey, Paul, that might be happier you fee check, but it's a

lot to me. What I would tell you is that I think what people are more concerned about is their target of trying to get to eight percent operating margin by the end of twenty twenty six, more than where they're starting, because that trajectory is really high to scale up that much, to get pricing, to get raw material cost reduction, and to get the design right on new products if you can take a lot of costs out

of the products itself. So I think that's one of the areas of skepticism that was kind of felt in the room during the question and answer session. Well, one of the issues for a lot of these legacy automakers that you simply can't be as cost effective or cost competitive, I should say with Tesla, but one of mate Tesla's major kind of shining qualities is that their supply chain

is far more local and far more domesticated. Is that something that Forward and some of these other automakers can properly address, Critty, That's a great question, and I think it's one that I would say yes, but I don't know if they are ever going to get to the point of matching Tesla in cost or cost capacity, or

design excellence. I think from those points of view, it really makes Tesla of the dominant force in terms of how they're thinking about pricing and where they want their cars to go, and it certainly will give them a competitive Tesla a competitive advantage over traditional linemakers like a Board or General Motors for years to come. So, Joe three billion dollars in losses this year, did they give the street an estimate for when they expect to break

even on this EV business? Yeah, Paul, they expect. Well. They gave a couple of lines of comment on that. The first thing was that their first generation of EV products, they expect them to be towards break even next year, but the business to continue to report losses as they invest in Gen two and Gen three technologies. But really you're seeking kind of like a hockey stick, having to happen somewhere in the twenty five and twenty six time frames.

I think that draws a lot of skepticism. I would also say just a reporting structure itself that they're talking about draws skepticism really because it's while the company is doing it to create transparency in each of the different businesses that it has. By doing that, they're giving up the regional breakouts they have been doing it by region, and so there's also a loss of transparency when you

switch over. And I think there are a lot of investors just from questions that I take as well as analysts just from the questions of the room, that you know, don't like to see data that they had for years suddenly go away. Well, what about other ways of for kind of rewarding shareholders and all Paul loves talk about dividends, which I'm about buybacks as well, which a lot of companies are suspending all of those kind of sweeteners for the investor. Any word on those. They didn't really talk

today pretty about about shareholder rewards at this point. They do have a May twenty second Capital Markets Day where

I think will get more into that. But I would say for a company that is investing heavily basically in a startup business and the ed business, to go heavy, especially on the dividend side, when you're using extraordinarily high amounts of capital expenditures, probably doesn't make a lot of sense to you know, like rapidly grow your dividend or suddenly use a lot of capital for share of purchases, because death financing on an auto is kind of poison

just given a CIX locality in the business. So I guess the issue if I guess them a Ford or GM investors, I guess I should I should not have expectations that my profit margins can be similar to those of Tesla. But I guess why is that? Is that just my cost structure is different? Yeah, totally, Paul, You're one hundred percent right, because if you think about the traditional OEM things like operating multiple businesses or having you know,

a significant amount of product lineups. Uh, it doesn't really fit into the Tesla model. Right. You have four cars and you have high scale volumes, and if you look inside the Tesla, it's designed so it doesn't have a lot of widgets in it. All of that is cost. And that's what I mean in terms of design on the forward side, Like that's going to need to change to be more Tesla like. And that's true for GM and every other manufacturer that's going to compete against, UH,

that's going to compete against Tesla. They're all going to have to shift how they develop products. How can they make their battery packs smaller and more economical to compete

more effectively against the major player, which is Tesla. Of course, Tesla doesn't have a pens, underfunded pensions and OPEV liabilities either that the legacy autos do, which is just another burden that that they have to fees, you know, Joel, I find it so ironic that finally the auto industry has gotten to the point where they can maximize profit on a per unit basis on industrial internal combustion engines,

only producing fifteen million cars, minimizing incentives. It's never been more profitable to make a traditional internal combustion engine car, just at the time when the whole industry is switching over to EV. It's it's ironic, and not in a

good way. Yeah. No, you're totally right. And I think which you'll see from all of the autos, all the main autos, whether they're European or US, is that this mixed shift is really going to constrain their ability to further grow their profitability at least for the next few years. It's going to be a challenge to see that margin go higher, putting aside any cyclical pressure that you're going to feel from what feels like a recession. Maybe not too far ahead of us. Hey, Joel, thirty seconds left.

Your credit analysts, how do you like the bonds here at Ford? How are they looking? Yeah, well, the bonds I'm actually you know, we don't have a biseller hole, but we do have a green versus yellow or red on the bonds. And really, to me, they're a combination of defenses, highly liquid bonds with a company that wants to get back to investment greed, but that none of that is priced into the bonds right now. I think that's something that they could achieve within the next two

years and maybe even the next eighteen months. So if something like that happens, there is the potencil see the bond tighten further right, All right, Joel, Great stuff, Really appreciated Joe Levington. He's a global director Fixed income Research, senior Auto and industrial credit analyst at Bloomberg Intelligence. You're listening to the tape cans are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune

in app Bloomberg dot Com. And the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg eleven thirty smooths app on Apple Today. Apple to spend one billion dollars a year on films to break into cinemas. That's interesting. And then Apple considers bidding for English football

streaming rights. That's interesting because that's big bucks. Does this mean for Apple they started to do a little bit more than just dip their toe in the content business. Let's check in with an expert or in house expert. Githa Ranganathan is an analysts Senior analyst at Bloomberg Intelligence covering global media. So, Gita, you and I have seen Apple kind of dip its toe from time to time

into programming, even into sports programming. When you see Apple on this one billion dollars a year to break into into the cinemas, what does that tell you? They definitely are looking to be taken much more seriously. I think Paul, both in Hollywood and in the streaming world. So you know, Apple obviously has made its big streaming four rate. It's

been out there now for years with its product Apple TV. Plus, but I don't think they've really made a big dent in terms of number of subscribers, right they probably they haven't actually officially disclosed any numbers, but they have probably about twenty two forty million subscribers. Those are the estimates.

You compare that to the global leader Netflix two hundred and thirty million subscribers, or even a Disney Plus which has a hundred and sixty two million, So they are they obviously have a long way to go in terms of scale. So I think what they're really looking to do here is kind of just double down in terms of their commitment to media, in terms of their commitment

to content. Remember this is pocket change for Apple. I mean they have over one hundred and sixty five billion dollars just in cash and create about you know, one hundred and one hundred billion in annual free cash flow. But they're really looking, I think, to be taken much

more seriously. And Gita, I think it's really interesting because what I think of, especially in the pandemic, and how much pressures and you know this well, Paul, the cinemas that went through and then you think of Sale the Top Gun last summer, right, that movie grossing over a billion dollars second best. What are you looking at those

sales behind Avatar last year? But Kita, when you're looking at what Apple is doing here, what exactly are they seeing And do you think that they're expecting that we're going to see any type of full recovery here after all the pressure that the cinemas went through during the pandemic. Yeah, that's a great question, and that's something that we've kind of been grappling with. You know, this questions just been this lingering fear about whether the box office will ever

go back to its glory days. And really the magic number that we're looking here in the US is, you know, eleven billion dollars. So last year we made about seven point four billion, so still kind of thirty five percent short of that number. This year, it looks like we're heading to about eight and a half billion, so, you know, slightly better than last year, but still again not at that mark. And really there's so many factors at play here.

I mean, one of the things of Jess and Paul has been that, you know, there hasn't really been enough product. I mean, we've seen some of these streaming services kind of push a lot of their titles directly to their streaming services, so that's been one thing. And then the COVID you know, pandemic obviously caused a lot of production delays. It takes about two years in general to make a movie. Obviously production was completely shut down, so we're kind of

seeing a lot of these releases pushed out. And so with Apple kind of making this commitment, kind of following in the footsteps of Amazon, I think it really is a big vote of confidence just for the theatrical model and for box office in general. I'm not sure I can answer your question on whether they can make a full recovery, but I think, you know, we're definitely inching closer to that eleven billion mark just kind of with

this commitment. So, I mean, Keith, when I see this story about Apple wanted to release films into theaters, I think they want to be eligible for the Academy Awards. I think they're looking for, you know, getting that pad on the back from Hollywood. It might too cynical there, not at all. I think you're absolutely right. In fact, they actually did one did win the Best Picture Oscar, while they go with quota yea, you know, so they

have kind of got some critical acclaim. They're obviously, you know, definitely they want to kind of go after, you know, the awards. You're absolutely right, But I think they're also kind of trying to see if they can generate box office because if you look at Quota, yes, it did very well in terms of critical acclaim in terms of awards, but it only generated about two million for them in the box office. And so I think when they make a bigger commitment and a bigger splash, I think that

generates some additional revenue for them as well. So, Keith, let's step back just a little bit. Media in general. You know, the industry is really doing a multi year pivot from the traditional distribution model of cable TV and satellite, where we all knew what the economics were and they were pretty darn good, to now a streaming dependent model where a we don't know the economics really and kind of what we do know it doesn't seem to be as good. What are investors doing? Do you even get

your phone calls picked up either? Does anybody even want to ever meet with you to talk about media stocks? They are they have fallen a little bit out of favor.

I do agree with you, Paul on that, but I think, you know, most of the media companies now have kind of realized that they're readjusting their strategies and kind of cost rationalization has kind of become this big focus, not just in media, but I think in all of tech, and definitely I think Netflix has realized that, you know, Disney has realized that there's a huge cost cutting program going on to Disney right now. So all of that is kind of now working its way into kind of

the streaming bottom line. And obviously we're seeing Netflix kind of generate pretty healthy profits when it comes to the streaming business. You know, Disney is still a few years out, but I think they are all kind of definitely normalizing the content budgets for sure, and then there's not this mad chase for subscribers, you know, at any cost anymore. So I think we're going to see a little bit of a shakeout, but I think in one to two years we are going to see a much more clear

path to profitability. So I wouldn't count out media just yet. On the flip side of that, I was curious your thoughts on whether we should expect to see more technology and growth companies. When we're thinking about Apple as well as Amazon, like you were mentioning if more will invest to produce movies in cinemas. Oh absolutely, I think just as we see. I mean, this is the perfect time for Apple and Amazon to kind of double down. They know that legacy media companies are pulling back, they know

that they're very cost conscious. Financial discipline is you know the key mantra right now at all of these companies. So this is really the time for them to go after the movies, to go after sports rights, and that they're doing exactly that. What's the latest on Netflix here? I see the stock is a big mover up today. Just pointed that out to me. What's is generally the call on Netflix these days? So again with Netflix, it's going to be a little bit of a choppy outlook

when it comes to subscribers. They're no longer issuing subscriber guidance. So the big thing that we are waiting for with Netflix is really this whole new password sharing crackdown that is supposed to debut in the US in the next few months or so. And really what then that does is well, they might buy something, there might be some you know, initial I think resistance from from subscribers. I think at the end of the day, what we're getting down to is that our poo number and really see

a react ration in revenue growth. And I think that's really where the narrative is kind of heading. So again, a little bit of subscriber shopping is but I think Matt Nedwig going to see good revenue reacceleration towards the end of the year. All right, Keithan, thank you so much. I always appreciate getting the update with you. I think I've cut off my kids off my camp, but I don't know. I have a sneaky suspicion that they're still shamming on my trying to get strict to fall. I

know I'm trying to help out Netflix. Here Keithan Ranganath, and she covers all things media. She's a senior analyst at Bloomberg. Can tell he's one of the best on the street on the media space. I recommend reading her at BET I go on the terminal. 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 on Fall Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio