We Are Being Choked by Regulatory Environment, Stefanski Says

co host Lisa Abramowitz. Each day we bring you the most important, noteworthy, and useful interviews for you and your money, whether you at the grocery store or the trading floor. Find the Bloomberg P and L Podcast on iTunes, SoundCloud and at Bloomberg dot com. A rising rate environment, what's that going to do to the real estate business to homeowners? Let's find out from Mark Stefanski. He's the chief executive of Third Federal Savings and Loan. Mark, thank you very

much for being with us. Just start us off by telling people a little bit about a Third Federal Savings and Loan. Okay, yeah, good morning, Thank you for having me on the show. Uh yeah, My parents started Third Federal back in n My dad frantically invented the home mortgage business, and so I'm second generation. We do business in twenty three states. Now we have stores in Ohio

and Florida. Uh. Yet we we do business in twenty three states via the Internet and direct mail, and we make more home mortgages than anyone else in the state of Ohio. We mark. We were talking earlier with our Bloomberg News colleague about some concerns among some congressmen that there are insufficient opportunities to provide credit for small and mid sized businesses. I'm wondering from your vantage point, you have a really good view into Middle America, do you

feel that this is the case. Well, I do think that the regulatory environment is hampering uh those kinds of loans and that kind of expansion in the economy. Uh Uh, well, it's just DoD frank in itself requires Uh let's say, for a homeowner, if you own your own business, Uh, the ability to repay is a huge, huge issue because you have to show that you have uh W two's and you have to have tax returns to show your income to prove that you can pay for for the mortgages.

And that's ten percent of our business. And it's really hard to get those people qualified because not everything is always shown on in a W twoe form or on their tax returns, and people who or their own businesses are very very uh stuck right now and trying to get home owns. And that's the middle class that's in Middle America that everyone's been saying, well, it has to grow, it has to grow, but specifically that Styman's the growth

in in that particular area. Have you been able to I mean you're based in Ohio, as you said, I mean, have you been able to make your concerns and these challenges known to the officials that maybe could could affect some kind of change. Well, uh, right now, No, it doesn't matter because all those concerns fallen deaf ears. Uh yeah,

because that Frank has has taken over the industry. And uh well, I think right now, I think everyone in the industry, and I think the general public is more optimistic given given the new president and the the push for a more of a are less emphasis on regulation. I think that that's going to be very helpful. But but to to try to appeal to the regulatory body, or to Congress, or to anybody, it's it's falls on deaf or has fallen on deaf ears, especially in the

last eight years. Mark can you just sort of square something for me, because there I just want to contrast what you're talking about as far as credit conditions being too tight with a lot of fears of excessive froth in other parts of the credit market. You've seen that in corporate credit and uh, just this week the Federal Reserve eyeballed commercial real estate as a potential new area

of froth. Do you think that that this is an accurate description of the sort of bigger credit markets or do you think that these are just completely bifurcated markets at this point? Well, I think that regulators, regulators, um, they don't know what they don't know, so they're always looking for the next next big thing to hit. And and I can't honestly say that one the regulatory environment

has guessed, they've guessed right. It's usually they do a very good job of cleaning up the mess after something's happened. And uh, that's that's you know, that's what's happening with Don Frank. Yet there's unintended consequences where you know, big banks are basically the targets, but it's trickled down into all the banking and all the mid science banks, all the small banks. They're being choked. We are being choked

by the regulatory environment. Uh. And it's to the detriment of the economy and detriment of people that once qualified at the third Federal for example, in qualify because we had a change our criteria based on the demand that you're seeing. Is the economy operating at a two g d p or is it operating at slower than current expectations. I think it's a little slower um. However, I think it is better. We were very very stagnant there for a long time. I think there's optimism in the air.

I think the when the Fed moves on an interest rate, whether it be up or down, that gets people excited. And I think the anticipation of the Fed would like to see the Reserve raised interest rates three times this year. You know they could, and I don't think it's going to have a dramatic effect then on the on the market consumer. Really why is that? Well? I just think that psychologically people right now are in a real good place.

People are very optimistic. So when when the raises rates a little bit against people more excited that they might go up further. So you get more volume coming in but frankly, I don't see how those those changes in interest rates going dramatically, you know, affected the consumer demand for for homes. I just don't think that it's going to move enough to put people that much out of

the market. And think about it, when most of us were growing up, interest rates of seven eight nine percent were norm and I've been around long enough, I saw fifteen percent um that was horrific, and and now down to four percent. People are complaining that the right so might go up to four and a half or something for a thirty or fixth rate mortgage. That's not so bad.

Although you know, some people have said that in the in the wake of these incredibly low interest rates that we've had since two thousand and eight, uh, that housing prices and commercial real estate prices have gotten away from themselves, and that as people, as the FED raises rates and as borrowing costs rise, we're going to see a sort

of deflation of these bubbles. From your experience so far, do you observe a slowdown in demand or anything that suggests that there is a weakening in the housing market now? In fact, I think it's quite the opposite, because I think a lot of it, whether it be UM in any sector of the economy tends to feel to be feeled by UM UH perception UH and and consumer confidence. So I think the consumer confidence right now is pretty darn good, as good as it's been in the last

eight to ten years. And I think that's going to go a long way. And of course we'll find out in the next four years how good that optimism will will hold. I want to thank you very much for spending time with us. Mark Stefanski is the chief executive of Third Federal Savings and Loan and you know, Lisa that his parents, Ben and Jerome they started fifth third Federal Savings alone. They started in nineteen thirty eight with

just fifty dollars in initial capital. We've heard a lot of news overnight about President Trump's conversations with the Australian and Mexican UH leaders, and some of the language has been, uh sort of sort of incendiary, uh, to say the least. I want to bring in Marty Shanker, who heads the Washington bureau for Bloomberg News, and Marty, I want to start with, UH, what your take is on what we've heard overnight, is the US removing itself from its longest

standing allies or is this just bluster? Well it would appear so. Um, but Donald Trump tweeted just a little while ago, you know, not to be concerned about his tough talks with our closest allies, and you know, uh, And Tim O'Brien has an interesting viewpiece today in which, you know, this notion of Trump having this grand plan and all of us in journalism trying to figure out just where everything fits. And he says, that's a fool's

Errand this is coming from his gut. It's spontaneous. He feels he's doing the things he said he would do once he got elected. And he feels the US has been just too nice to the rest of the world, friends and foe alike. So he's going to do things his way. Hey, Marty of fair disclosure? How long have we? I mean, I I gotta say everything I learned. I think I learned that your knee at the Wall Street Journal I'm not not and I was just twelve years old, right, Yeah,

well we were both in short pants. You know. It's been a long trip, Yes, it has, um what in your bones and your gut? All right? You talked about the president's gut. You're a journalist through and through in your gut, what what is going on and what needs I mean, you can't do this on a regular basis in twy not well, that's my question. In other words, something's got to give. Well, look there there, it's been like two weeks he's been president. He does he had

very few members of his cabinet in place. That's being you know, we just saw Rex Tillerson at the State Department, and you know he was he's basically keeping the council of his closest adviser Steve Vannon, uh and others. Um. And he hasn't had the benefit of, you know, real time communication with people, with experienced people who are respected

in their fields. And I think he has not been able to And he's always said he likes to hear dissident opinions, and by all accounts he's a great listener in private. And so I think that things can very easily be more moderate nature going forward. But I do think his impulsiveness will never go away. And um, for those of us who say to ourselves, this is going to slow down eventually, I think he got to guard

against that. I think that he that he has decided this is the way he wants to communicate, and in fact, this is the way he wants to express policy, and he's going to continue to do that. What's the color that you're hearing from the Republican establishment in Congress and beyond, Well, they are steadfastly behind him. Uh, you know, I don't know.

I have stated privately that I think that his support among the Republicans is razor thin um, and that he it's a tenuous relationship, but it is a solid one um for for now. I think the immigration uh proposals that he had tested that relationship and the Republicans lined up pretty solidly in favor of perhaps not the messaging but the policy itself. So and and the majority of Americans support it too. So I think the Republicans are going to stand by their president until such time as

they themselves are threatened in terms of re election issues. Marty, can you just give us a reality check? Some people here the rhetoric of President Trump saying he's going to invade uh Mexico in a conversation that the White House now says was just a tough talk and a joke. Um, at what point, just taking this to its extreme. At what point does this lead to a real military altercation? Well, I think we're pretty far away from that. And I think Donald Trump got a stark example of what military

confrontation means with the first death under his watch. And uh, you know, by all accounts, that is a very sobering moment for anyone, and especially a president who ultimately is responsible for all military activity. So I do think that a lot of these conversations, when they're put in print for in text, look a lot more vitriolic and our cast without context, without the nuance of actual conversation, and I think people tend to overreact to that. Let's turn

to our allies for just a second. Phone calls with Prime Minister Turnbull in Australia. What's been your any details you can shed anything you can No, I mean, we have not been able to stand up that communication. You know, that was broken by the Washington Post in great detail. And you've got to assume someone who was privity to those conversations decided to leak it because they were concerned

about it. Um. Just to be clear, it was a conversation where President Trump allegedly said, uh that it was the worst conversation that he had all day and basically threatened him with the refugee agreement that they had, that that the US previously came to with Australia, right and and and the Australian leader Turnbull later said, look, you know he was dismayed about the league and that the actually be the ending of that conversation was courteous, but

be that as it may. Donald Trump came out and said, you know, don't worry about my tough talk. He has decided that he is keeping his promise. America comes first. He was very upset about this immigration deal and he was going to let turn Bill know, and he did. Got to affect businesses, yes, right, I mean you know you kind of I know, you stopped there on the political side, but then you gotta turn your attention and say, okay,

so what are the effects here? Because you may be able to run a government as you just described it, but it's very hard to run a business. No, it's totally skill. And that's why this meeting with CEOs tomorrow is kind of in my task about it critically important. Well, this is his business council. These the people he asked to advise him. On policy and everybody from Jamie Diamond to Jane Metti, and it's very it's going to be very interesting. The tenor of what that meeting is going

to be. Will they come in and say, Mr President, you're wrong on immigration, you're wrong on trade, you're wrong on taxes, or are they going to sit with hands folded and listen to Donald Trump say this is the way it's going to be. Um And you know they're from all parts of industry and banking and finance, so it's going to be interesting if they even have a unified message to give him. Well if if they do, or even if they don't, we're gonna be covering it.

Marty Schanker, thank you very much, Senior Executive editor, Global Economics and Government for Bloomberg News. P and L is brought to you by proper Cloth, a leader in men's custom shirts. At proper cloth dot com, ordering custom shirts has never been easier. Create your custom shirt size by answering ten easy questions, select from over five fabrics to suit your personal taste. Shirts start from eighty five dollars and are delivered in just two weeks with proper Cloths

perfect fit guarantee. Remakes are completely free and expert staff are standing by to help. For premium quality, perfect fitting shirts, visit proper cloth dot com custom shirts made Smarter. I want a story of innovation of how to look at the world today, makes sense of it, and then find an investment uh that is somewhat reliable. I want to bring in Paul more League, Global head of Market Economics

and Chief Economist for North America at BNP. Pariba, Paul, where do you begin when you start with assessing your economic outlook? Beginning with the facts has a pretty good place to start. Where we've been and look at, you know, basically where the surveys are telling us we might go next, and what the settings of policy are. So you know

the surveys currently look for the US look pretty perky. Well, let's look can we just like piece of the part just because I know tomorrow we're going to get the big payroll report number that will help people at least the confirm or deny their trajectory projections. You know, compare all that, but as an economist, just run through it.

For US, GDP is running at at what we got a print at one point nine the last quarter on what are we running at now well, you know the Atlanta Fed he's saying for Q one day lateist GDP now forecast he's three point four. Okay, so we're three okay, So let's just say that Atlantage Fed GDP forecast three point four for Q one for unemployment four points where four point seven, and you know, we're pretty flat, maybe a bit of a downward trajectory for the unemployment rate

going forward. Um, you know, labor participation rate moves or just I think I think it's going to be pretty flat more or less. But you know that if even if you've got growth of just two, that's above potential because the leather force is increasing by say half a point per year, productivity in the year to Q four was only one percent, so maybe productive potential is one and a half. So if we're running at two or above,

unemployment should keep drifting down. Not very quickly because there are far fewer people out there than they used to be, but it should be drifting down, all right, and for and for at least I know, you want to know about inflation, because inflation is all about bonds. Yeah, I mean, well, I was just coming cost here. Well, yeah, I mean beyond that. I mean, but I'm trying to look into

the crystal ball. Nobody can predict the future. I'm wondering, do you feel like you're less confident than you've ever been before with your predictions or do you think that people are overreacting to some of the macroeconomic and the political backdrop and that there is a very clear road ahead.

I think people, you know, I think we've seen a tendency for the markets just after the November elections to one run off in one direction, and recently people are kind of extrapolating things in the other direction, because I think the technical term is they're walking back their estimates right here, driving with the rear view mirror. Maybe, but you know, it's difficult to come out with very firm expectations about where we're going to go on trade and

physical and all these sort of things. So little spots of information that you get a very valuable because it's all you've got, but there's a tendency to extrapolate them. I think. So. Do you think that people have over inflated their expection expectations for inflation to your point, Pim, No,

I don't think so. I think, you know, if you look globally where we're going on a inflation inflation is going up, and you see that in the producer price index in China, for example, You've seen it in Europe, you see it here. We've got a unique labor costs print just today of one point nine for the business sector, and the core measure of inflation that the FED likes is one point seven. So it's very likely to go up.

And you know, one thing I would say about the Fed statement yesterday was that previously they said we believe inflation will rise, yesterday they said inflation will rise. So they sound more confident about their prediction of inflation. So what does that What does that mean for investors? Does that mean their bonds are are a bad better? Three rate hikes one rate, one rate hike a quarter. Well, I think you know, many people at the FED have said two or three rate hikes this year, and I

think that's reasonable. The market is pricing about chance of march. I think that's probably too low, but I think the market will probably pricing a bigger chance, particularly we get strong pay rolls tomorrow, that probability he will go up. But I think the fade ideally would like to see what exactly are the fiscal plans, what exactly will growth be, And it won't get that to the second quarter. And

that's why I'm a bit skeptical about March. Given this backdrop, what do you think is the one single best asset class for this year. I'm not an asset allocator. I'm just a humble economist. And so what's your biggest contrarian bet? Well, I think you know, the biggest contrarian bet is that we're going to see more more growth in the global economy and probably more growth in the US economy over

the next two years than people expect. And I think that's partly becost the momentum coming into this year is pretty strong globally, and you know, US manufacturing looks very good despite the strong dollar, and we yet to see fiscal stimulus. Thank you very much for joining us. Poor mortem rely look forward to having you in the future. He is the head of Market Economics and the chief economists for Baten Pete Party Bop. Matt Levine Bloomberg View columnist.

He wrote a really terrific column talking about how, first of all, a lot of people dismissed President Trump's rhetoric pre his election as simply talk and that he wouldn't actually come through on that, and that now people are realizing, well, perhaps they were mistaken. Um, first, can you just talk about what you've observed about how the reaction has been shockingly surprising when he's come through on a lot of what he said. Yeah, there's like, there's two things going

on here right. One is that people listen to what he said and thought he didn't mean it. And so Trump talked about cracking down on trading immigration throughout the campaign. Those were his focuses, and people sort of assumed he would turn out to be a conventional Republican president and interested in economic growth and tax cuts and deregulation and things like that. And since the inauguration, it's been pretty clear where his focus is, and it's exactly where he

said it was. So I think some of the business leaders who were expecting a very conventional, uh presidency are getting this very unconventional, anti trade, anti immigration presidency. Well, but why wouldn't potentially this end up being just as good for them as they thought if he does go ahead and follows through with cutting regulations and cutting taxes. I mean, why wouldn't this be a benefit. Well, one thing is that a lot of business groups were not

um so happy about the trade stuff. You know that we live in a global economy and a lot of American businesses are multi national companies, and so they're going to lose that by the correctown and trade. But the other thing that's happening is that, you know, even if eventually we come through on the deregulation and tax cuts that businesses want, I think that they underestimated the risks of just sort of the instability of the Trump presidency.

And you saw that with the executive order last weekend. It's one thing to say we're gonna cut back on or or even eliminate refugee programs, but what happened is that they eliminated them while people with valid visas were in the air. They told Green card holders that they couldn't come back to the country, and then after a sort of weekend of controversy, some of that was was

walked back. And so what you have is this totally um sort of whimsical policy making process where real people are getting caught up in these decision making, in these decisions that don't really have much um UH process or

thought behind them. And I think what companies are realizing is that that affects them to write like the rule of law is pretty central to running a big multinational company or running a big company in America, and you need to have some predictability instability, And what they're seeing here is an administration that is not really interested in

those norms and is willing to create a lot of instability. Well, Matt, let me just push back a little bit here, because if you read speeches that at the time candidate at Trump was crossing the country, I believe, in fact, there was one in Gettysburg, Pennsylvania where he laid out very specifically what he planned to do if elected president. And I would imagine, I mean, I want to know who are these people that are so surprised? First of all,

because if you've I mean, he's not. It's not as if he's deviated during the campaign from you know, the set program of whether it is trade policy, whether it is UH financial regulation, or you know variety of things. Um, how do you respond to that? Well, first of all, I would disagree that he laid anything out specifically or clearly, right, I mean, you have every policy position he took He still he took out every policy position at some point

during the campaign. You know, right now there's pushback from the White House saying that the immigration order is not a Muslim ban. But of course during the campaign he put out a press what he's saying, we'll have a Muslim ban. So it's not really clear what he said. We're not in a court of law here. I mean, this is not not you're not not parsing each things. I'm just saying that he's set out pretty clearly what his policies were going to look. I agree with that.

I think I think there is a constituency. And you know, like the sort of leading light is Anthony Scaramucci, who's a Trump advisor, who sort of gave interview saying he's going to make smart trade deals and and not have a Muslim ban, and and and do all these things that that are more conventional Republican policies. And I think that some of the people in that sort of New

York financial circle heard that. But the other thing that I'm saying is that even even leaving like policy disagreements aside, what I think people are surprised by is the just sort of haphazard, uh nature of the Trump administration where there's not a lot of respect for process or for the rule of law, and that is what I think is going to become more concerning. You know, you have companies that say, look, you know, trade is trade policy

is one thing we can disagree substantively. But having a president who is going to attack companies that disagree with him politically, either by tweets or by uh, you know, suggesting that the Justice Department hold up mergers of of media companies he doesn't like, which is something he said that a little history well, right, right, I mean then you've got to be a little bit informed that this is something that there are many images of of even

executives tangling with the US government. Right, well, but this is but I think that that Matt, you raise a point that cass Sunstine of Harvard made as well, which is sort of there has to be the sense that the rule of law is a consistent and reliable way of an application of law, and if it's sort of arbitrarily crafted or targeted to target specific companies or specific issues,

it doesn't work. Yeah, I mean, you you what you what you want is a sort of predictable, uh environment in which to operate, where you can kind of know that your investments will be respected and paid off. And I think that's what people are worried about right now. Great point and great column. Thank you very much, Matt Levine. Look forward to having you more in the future. He is a columnist for Bloomberg View. You can follow him on Twitter at Matt underscore Levine. His columns stability is

good for business. Trump's whims threaten it. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always

catch us worldwide on Bloomberg Radio. P and L is brought to you by proper Cloth, a leader in men's custom shirts, with proprietary smart sized technology and top rated customer service. Ordering a custom shirt has never been easier. Visit proper cloth dot com to order your first custom shirt today.