Don't Underestimate The Fed, Hooper Says

thoughtful pieces. He's not just going own stocks, you know, go go go. He's really tried to construct a theory to stay in the stout at the year as one of the biggest equity market bulls on the street out of all the strategists. We said, and I just wonder whether we've hit his price target already. Julian and Manuel at BT I G jointing us right now, Jillian to have you with us. Just want me through that what do you cite to clients after the runny we've already

had to just stout a year. Well, our theory has been that this could be a year where you know, first of all, the backdrop is twenty plus percent. Years like we had in tend to be followed by positive years. That maybe counterintuitive. The average gain is around sort of sort of twelve to fourteen So from our point of view, in an environment where as we've said numerous times, the public has not really fully engaged in the equity markets. You look at flows. Flows have been going into money

market funds. Flows have been going into bond funds very consistently for the last five years. Um, this could be the year where you get upside beyond our thirty four fifty price target based on the public actually becoming an active buyer of stocks. So our messages, you know, it's it's been a very good two weeks, it's been a very good four months. A stay patient, uh, you know, don't be aggressive buyers into moves this far, this stretched, because you could have a pullback at any time, but

just be patient. Well, message a retail now, Julian, let's talk about it. Tom and I started the program by discussing valuations. How much higher could they go? If you look at this market right now and you have a retail client sitting in front of you that's missed down on this rally of the last twelve months or so, and they ask you, what's the one valuation metric at the moment that you're looking at that says green light?

Get back in good old fashioned price earnings. Okay to us at what we expect sort of equality eighteen and a half to nineteen times. Uh, it feels high, But if you look at the last thirty years of history, it's really only slightly above mid range UM. And in a backdrop where we do expect long end yields to gradually creep higher UM, that is not necessarily at all ahead when, And in fact we would argue it's a tail when because the absolute level of rates are low.

And again we do think there could be this psychology shift to the extent that you start poking above two percent in the ten year yield in the US and and and zero above zero in in the German tenure yield, that the psychology becomes even more pro Would you know, I I want to pick you up on the forward multiple If you take the thirty year history as an example, isn't that skewed by the excesses of two thousand, Bio six Bio seven as well? And if you look at

the last ten years in this bull market. Eighteen and a half times forward earnings is the upper range of evaluations, isn't it based on the last ten years. But again I think for us we've looked at it sort of Cold War essentially, the thirty years prior to nine and post Cold War UM and and you can sort of best fit the data. But from our point of view, sort of Night nine onwards really repre sense the time when the embracing of equity investing is something that's permeated

popular culture and permeated the average person's portfolio. That sort of justifies where we're thinking. You're just joining us now, Julian Emmanuel with his b T I G. He's in the interactive broker studios at our world headquarters, Lectington and fifty nine John fare and I asconced, I say it investsco our annual visit to the good offices of Investo here in a vibrant downtown Manhattan, Lower Manhattan. We're thrilled to with us coast to coast and worldwide as well. Julian,

I want to go back to March of nine. This is a few years ago and in Barns, Tom Gelvin, the legend of d LJ talking a price to sells. I love the article dowst sixteen thousand question mark. I mean, explain the punditry of the market and the strategy of the market versus just being in the market and participating in nineteen ninety nine, what is that twenty I can't keep you twenty one years ago, twenty one years ago down?

Thank you and Galvin And Galvin nails it by saying, you know, extrapolate out they're gonna get the sixteen thousand by two thousand six with Bony bullis absolutely nailed the call. Should we just throw all this away, Julian and just own stocks for the long term? Well, we will go with that tried and true saying it is never different

this time. And part of what we're looking at is if we do get to a point of you know, real public enthusiasm sort of you know, that irrational exuberance that clearly we saw at the end of in the beginning of two thousand and you'll know if there is significant multiple expansion um that would be a caution sign to us. Okay, what's a bt I G exuberance meter this morning? I mean, is the irrational out there are we are we rationally bullish, So in the short term

there is definitely a little bit of froth. But when we look at the medium and the long term, what's fascinating to us is the options market is actually telling you that the degree of caution, particularly over the election term, is very, very high. This is really important. What you just heard from Julian Emmanuel there, thank you so much. Julian Emmanuel would be t I g to get thank you, and I've lost on on the screen here. I can't see it through the plates of avocado. I I lost there.

We are futures up, eight down, futures up seventy, Ellen may and go away, which means you've got to get back in at some point. Do you want to sound generally go away and go away and maybe look things down for a little What I mean? These are important decisions, and I would suggest that research shows it's not the selling action, it's a getting back into the market action. If you've missed this, Ronny, I think it's really difficult

to find a point in entry right now. See see Christina how he says that with meanness because he knows I'm in the triple leverage all cash fund. Shall we introduce Christina Probably we're in her house. Okay, we're Christina Hooper welcoming us today at Invesco. We're thrilled to be here. She is the head of it all, the chief global market strategists. And she has one of the coolest degrees in America, which is if you are minted in labor

economics high above Cayugas rotters. That is really really cool. It's one of the most prestigious degrees in America to have a master's and labor economics from Cornell. We take that academics to the full and imployed America right now, knowing that John and I are number one emails and messages and handwritten letters from people is no, it's not fully employed. Well, I think what we're seeing is the

effects of having a very week job recovery for so long. UM. When we think about the post global financial crisis environment, it's one in which really the job recovery lagged everything else. And so yes, now we're at full employment, but we're in a different kind of employment environment, one in which there are more UM folks who are deriving income from multiple areas of employment, you know, pulling together, you know,

sort of a task grab at economy. And so of course we've seen really unimpressive wage growth for years now. So so this is a very different environment than a typical um labor recovers. More wank economic questions, John's joint to ask you about, you know, the market of nine seven on the delt. We're on the delta. I don't do that, okay, I'm on one more question in debt? Does tepid wage growth go right over to inflation? Is the reason Chairman Paul struggling within relations simply because of

an odd labor economy with tepid wage growth. I think that's certainly part of the problem. I know that for Janet Yellen it was a very big focus, right, She had that uh you know, nineteen point labor conditions indicator that she would use because there is, you know, a school of thought that believes that wage growth has so much to do with inflation. So what's the basic argument I hear from you at the moment, Because the recovery has been shallow, it can go on a whole lot longer.

I think, so, um, it's certainly going to be a somewhat modest recovery. I think we're going to see a little steam loss this year, but we'll probably at the end of the year, uh see growth at about two in the United States. I think this is a time where we're going to see uh, you know, an improving growth environment in Asia e M, especially China. I think people comfortable this year in a way they weren't twelve months ago. That the biggest risk this year is not

economic risk, it's market risk because of valuations. Coming into a year where we've already had a massive rally and we tried to eight seen plus times forward earnings. Your message to people at the moment, Tom and I have asked multiple people about it over the last week and already this morning. If people missed now on this rally over the last twelve months, was the one metric you look at right now that says green light come back in Well, I think it's looking at long term returns.

That we know that, especially when we look at valuations, they are not predictive over the shorter term. Yes, over the long run, valuations are predictive of performance, but you can have extended valuations for an extended period of time. Uh And And the reality is that the biggest issue that most of the investors face is not participating in the equity market. But this is really really important. When you said it goes to the heart of all of

financial study and academics. Ratios don't matter short term, then what does? So? What does? Certainly what we're seeing in this environment, the dominant factor has been and continues to

be central banks, particularly the FAT. I think we can't underestimate the power of the FED, especially when it came out and made very clear in the fourth quarter of that the bar is extremely high on raising rates after giving markets three insurance cuts uh in environment when many where many could argue that there were they weren't necessary. I'm going to ask you this question because your General Council is going to get angry at me and cut

off the avocad of toast. John Ferrell instead said, I'm going to ask you, since what is it the job of the Central bank to support equity markets? For the last ten years, they've decided that financial conditions matter a whole lot more and that they're in the driving seat

for financial conditions. Let's have some sympathy with the idea back end of in December of that year, of the primary market for credit in the United States completely seizes up because people are worried about the economy and the Fed. Fed's got a job to do. They've got to get the money markets back open, and that was the job they had to do that in the financial crisis. And I'm not saying things we were as bad as that twelve months ago. I'm sutadly not even going there, Christina.

But the FED season is their job to support financial conditions. The argument I would make at this point is that do they really need to be supporting financial conditions to the extent they are at the moment. Well, that's a great question. Uh, they believe it is, and it's within their purview. You know, one could argue that if you poorted J. Powell to the Bank of England there would be a few insurance cuts there too, just given the

high level of economic policy uncertainty. But it is certainly within the purview of the FED to define its role and and focus on financial conditions. And there's a good argument for it in that in the United States, at least, the fortunes of the stock market tend to be somewhat correlated with the fortunes of the economy. If you're just joining us, John Fair on time, Keene. One of our favorite efforts of the year to wander downtown and the dark frozen warning, it is cold, it is cold. It's

always find it colored downtown. Then in midtown that's the wind water, just Hudson River, you know, Washington across the downtown the college. Is this the second time? Police? The police picked up the entourage your on the Bentley and said, why is he downtown? Christina Huper here, she is our chief global market strategist in Investco and we're thrilled to be with investco this morning. What are the fist fights right now in your strategy meetings in Investco? What's the

biggest point of debate? Because one of the hallmarks of Investco. She get in the room and everybody argues some houses do that, but Investco is codified constructive argument. What's a single argument right now at Investco. Well, one of the conversations that we've had, um uh, you know, quite frequently sort of an extended debate has been about where are we going to see strong growth this year? And certainly the US there have been question marks. We've even debated

how much volatility we expect to see this year. How much economic policy uncertainty we'll see. Keep in mind we've got US presidential election where there is just no no visibility on who the Democratic candidate is going to be, so uh, you know, some of us expect a fair amount of volatility this year, especially if we see um more progressive candidates. When high profile primaries, you could see short term sell offs in particular industries that are expected

to be more heavily regulated. UM. But I think there's general consensus and and a lot of excitement around Asia e M, particularly China that that's a really important topic. We'll cover that with Investco this morning. Are you still very quickly here, are you still international based overweight international with your expertise, Well, we are definitely UM more bullish on asia EM. We're we're very selective outside of the US UM modestly bullish on the US UM, but where

we would focus is Asia EM, especially China. Christina Christina Christina Hooper, she is chief global market strategist And let's go question of the moment. George Evans is exceptionally qualified to answer the question. His world has been asleep for ten years. It woke up in Q four. Now what which is his head of global equities and portfolio manager

for Investco, and I have your international growth fund. We simply asked him about finally international investment has come to like, let's look back quickly here, George, with all your decades of experience, how far behind was the international investment in the last two, five, even seven years. What if you go back to the early seventies, that was a basically flip flopped every two to four years between between US

leadership and non US leadership. The last uh twelve years has been absolutely exceptional, with the SMP leading the a every year but one. So we are way due for a sort of an inflection point to turn towards international. Why did that happen, What effected the change, and what was in all the textbooks you and I read about a cyclic field to it to a structural shift to buy US or a structural shift to not choose to

buy international. Well, I think the first thing to point out is that the the US sort of had leadership and a lot of the key global sectors over the last ten years, so I think the fangs by attach things of that nature. The other thing was the US did a much better job in grappling the problems with the financial system post global financial crisis, which the Europeans

really failed to do. I think the third thing to point out would be that the emerging markets, A lot of the emerging markets are very much led by commodities. We had that huge commodity boom two thousand two to the end in two Chinaman. But also you know, all of Latin America, all of Africa, a lot of Southeast Asia's commodity oriented. So you just can't get away from that.

So where are we now after a queue for was it a pup that will fade away or is there something substantial here to allocating more to international versus wheld we've been for a decade. Well, I think there are a few things that are very supportive. The first thing is that if you look at the dials of risk, a lot of those risk dials that were up through the basically the third quarter of last year have come down.

So Europe is much more oriented towards global trade, and global trade was clearly negatively affected by the trade spat which lasted a year and a half. So global trade getting better is really good for more open economies Europe and Asia. Uh, the second thing is that you've got really good valuations. We've got risks that everyone's been aware of, particularly around Brexit, which are likely to be resolved in

very short order. So risk down valuations are good, and you've got the potential for an acceleration of g d P in a lot of these more open economies. Can I buy the George Evans world by buying multinationals? That used to be a game in itself. So, I mean, the thing that everyone's got to realize is that pretty much every index is a multinational index now. So about more than fifty of the revenues and earnings of the SMP come from outside, more than I did not know

that I thought it was less. So you have very much an international orientation of most of the big companies. Extra financials um in most of the world. So the US has many excellent global companies that are addressing global growth opportunities. There are excellent global companies that happen to be based in Europe and Japan. So if you want to buy luxury goods, which is a really good sector, you've basically got to be in Europe. Now. Loui Viton

is European. I didn't reached more as European Louis vite is buying Tiffany really, um so there's a huge opportunity for uplift there. What is it about luxury which explained to me the mob, I mean, I mean we talk about Apple and the rest. Do you look at the ratios of luxury is out of kilter? Is what we

see in selected thing and tech stocks. Luxury is a very very good area to invest because there's incredible growth dynamic which is like to last a long time, and they are really profitable because in many cases the prices the product, so they're able. You know, if you go into an air Miss store, No, that would never happen wearing about Boti folks. Okay, if you went into an air Miss store today, five years ago, ten years ago, they're all lots of very expensive goods and really the

only thing that really changes is the price. So they just moved the price up about two to every year. No fashion risk, fantastic. George Evans with us with Investco is a creator into Friday and the weekend and what I'm going to do this week into salvage going away to Switzerland for one week. I'll talk Gucci Garden in Florence. I mean you look at luxury goods and the branding of it in those valuations. You mentioned Tiffany in the takeout in Van Cleave at fifty seventh and fifth Avenue

and all that. The branding seems to be exquisite and on the revenue stream there do we underestimate the persistency of the revenue stream whether it's Gucci Garden or Tiffany at Fifth Avenue. Well, Uh, the the amazing thing with luxury goods is the degree to which emerging market consumers

are buying luxury its. So over fifty percent hasn't abbed with the China slowdown thet There was a there was a bit of an ad when they had that Austarity package when people weren't allowed to gift each other ten and twenty thousand, thirty thousand dollar watches and things like that. But there's a relentless growth in the addressable market as emerging market consumers get wealthy. So over fifty of the

sales of luxury goods emerging market consumers. The more unequal the incomes are in any country, the more people like to signal where they are on the TOTEM Pole, So Scandinavians, you know, lower lower propensity to buy luxury goods. People from Brazil, Russia, China, very high propensity to buy luxury goods. So there has been, as it's been an incredible sort of revenue growth over the last ten twenty years, which we think is going to go on. Uh, the returns

on capital employed are very very high. Is this sector over or under owned by institutions? I mean, this is a raging debate on ample and the rest right now, but but is it over owned? I haven't sort of looked at the top ownership, but I you know, I think that you know, this is clearly a sector which has on a global basis, it is fantastically profitable, great growth dynamic, and I think there's going to be you know, it's one of those sectors where there's going to be

consistent buying pressure. Okay, one final question, and we're going to have you back here to really go into some of the idiosyncrasies that we see at worldwide. Is the United States of America part of international investing? If you buy international, do you bring in the United States? You to really stay discreet from that. So international investing world means everything but the US. So the term global is everywhere. So our global funds have forty two in the US.

The international funds are completion. So that's anywhere, but the US. George Evansworth, US is fascinating. We're gonna come back and some of the indiosyncrasies, I know Paul Sweeney's got questions, and some of the unique and eleven and economies as well. Is it wy to speak to Margaret Brennan the history that we have observed in the last forty eight hours. I could do it one hour conversation Margaret with you. You're going to enjoy a one hour discussion face the nation.

See it on CBS Sunday morning. You could hear it on Bloomberg Radio Sunday afternoon. Margaret, I'm going to cut to the chase four inch headlines in the Times, in the Post. As a certain elite riveted. Is the rest of the nation engaged in what we're seeing in Washington?

You know, I think when you see John Roberts, Chief Justice in Supreme Court, getting sworn in, and you see the decorum enforced centers not being able to speak on the floor, it's a good reminder of what we're watching being historic and not just the usual Washington fighting with itself moment. I think sometimes it's hard for the rest of the country to believe that or get perspective on it, because it just always seems like the part of bickering

is constant. But our country has literally hardly ever done this before. This is the third time, um, and so I think it is worth pumping the brakes, taking a moment and saying this has tremendous gravity. You just said the House of Representatives, is you a vote to no confidence in the present, And now you have the Senate debating his removal, even though we know it is far from likely to get two thirds of the Senate to

vote to do that, to eject the president. This is politically damaging, It is lasting, and it is politically a huge moment. In the Washington Post, folks with a terrific article on the background of the Justice during impeachment hearings and on Justice Roberts is, Well, Margaret, what is the back and forth between the senator from Maine and the Senator from Kentucky. What will be that back and forth

in the coming days? Well, this gets fundamentally to the question of whether the Senate trial will allow for witnesses and evidence to be introduced. How Democrats acknowledge that their investigation was incomplete. In fact, one of the articles of impeachment is obstruction of justice because the president attempts to block witnesses and to not hand over documents. So the hope had been in the Senate for Democrats that they'd

be able to get that handed over. Susan Collins of Maine has indicated that she does think maybe it's worth hearing from some of these people with firsthand knowledge, like John Bolton, the former National security advisor to the President. And so she's indicating that when it comes up for a vote, uh, that she might be actually voting alongside Democrats to say, I want to hear exactly what it is that happened from somebody who was in the room,

because we haven't heard from any of those firsthand witnesses. Right, Republicans complain about that process in the House not involving firsthand witnesses. Now some Republican senators say, okay, well let's hear from some of them. Now, Um, that's the fight.

Mitch McConnell, the Republican leader in the Senate, wants to help the White House get what it has set out as their hope for the fastest impeachment trial in American history, that it could be just a matter of a quick few weeks rather than drawn out eleven weeks or more as it was during John's period of trial. Margaret News yesterday, the General Accountability Office says that the White House broke the law and withholding aid to Ukraine. How important is

that to the whole impeachment process. Well, it's not as material as saying new evidence, but it's a it's an exclamation point on a on a talking point that Democrats are are using to say, Look, this wasn't the President

making a Palacey choice on his own. This was essentially him trying to overwhelm the uh sending powers that remember of Congress has the power of the purse and the will and intent of Congress, when they had already allocated these funds um and so that there was this withholding of money that had already been allocated in a way

that is a violation of law. So it certainly helps the Democrat makes their point that this isn't just a political witch hunt, that there is actually some um, you know, relevant legal and constitutional um issues here, but it's really things like text messages and documents from individuals like Left Harness, who as the business associate indicted UM, business associated really Giuliani, and that kind of evidence that many Democrats would like

to see introduced in the Senate trial. Margaret Brown, and tell us about Face the Nation Sunday morning. We will be digging into a lot of this with one of the top Republican leaders, Senator John Cornyn of Texas. We will press him on exactly what the public can expect and what we will see because not all of this

will be done in front of the camera. Um. We will talk to him about how it will be proceeding on Tuesday, and we'll also talk to essentially one of the prosecutors, Gerry Nadler, Democrat from New York, chairman of the Powerful House. Interesting. We'll talk to him about the strategy. And we have Gary cone Um coming on to talk about the economic outlook and what that might mean to the president's re election. Very good, Margaret, Thank you. On CBS.

See it Sunday morning on the CBS television network here at on Bloomberg Radio. We did that two pm in New York, Washington and Bloomberg one or six one Boston Newbery Report. That's Face the Nation this Sunday at two Bloomberg Radio. In this odd time and with the raging debates of the weekend, it is important to speak to Mr Whalen because he wrote a jewel of a book years ago, Inflated, How Money in Debt Built the American Dream.

This is one of those books where you opened up Noi Rabini wrote the introduction, and Paul you opened it up and you go yeah, yeah, yeah, And it was abs absolutely riveting on the financial history of the country of the nation going back two hundred years. An extraordinary book. And Chris Whalen's got a twisted perspective Paul Sweeney on where we are exactly. Chris Whalen, thanks for so much for joining us. Chris as the chairman of Whaling Global

Advisors and co founder of Institutional Risk Analytics. All right, so we had Goldman, Sachs, Morgan, Stanley, JP, Morgan, Bank of America, a whole bunch of the big money centers. They seem pretty good easy comps. What's my takeaway? The takeaway is at the consumer side did much better than the institutional side. The bank's side, if you will, of JP Morgan, it's only half bank. Uh, it's having a tough time. And that interest income fell again, which is

a legacy of the normalization of the money markets. Right. On the other hand, the banks, the investment banking, trading, all of that did well. Uh, good volumes on more, they get a gain on sale on every mortgage they sell into the agency market. So you know, all of those things were good. But the thing I cautioned and have been cautioning people on for two years is that after the FED pushed down the cost of funds so dramatically, it had to come back and we're still only at

eight percent where we were before the crisis. But the banking industry is bigger, so there's still a huge subsidy embedded in cost of funds. And as they lose that over time, Uh, you're gonna have spreads squeezed. Give us. I want to go ask you something about regulations. I know, post financial crisis, a whole series of regulations layered on top of the financial services industry. Uh, you know, having negative impact on the returns that those banks can generate.

Are we at a point in time where we can expect meaningful rollback of some of those regulations. I know there's been some talk about it in the last six or twelve months. Well, I hope, led by Randall Corals at the Photo Reserve Board, they try and rationalize them. You know, you're ago people got together in Washington, the different regulatory agencies, and they had lunch and they said, what do we want? What has Congress told us? And how do we implement that in a rational way, because

you don't want to hurt business. You know, all this fuss, for example, about non bank companies posing systemic risk, okay, which is pretty silly, uh, you know, misses the fact that we have a banking system that pretty much has a monopoly on short term funding. Years ago, when we were kids, mortgage companies could sell pass through as the money market funds. But we don't let them do that anymore.

So what we've done with each crisis is diminished the freedom and diminished the utility of the markets, thinking that that will protect us. And so you saw the most recent experience with RepA. And yet the strange thing is we still is. My good friend Ralph Deilchi likes to remind we have a shortage of collateral even though the

Treasury is issuing moroward amounts of debt. You know, Chris Whalen, your charm has been you've not been a critic of the bank banks, but you've been very aware of balance sheet risks, almost old school risk. And you've also said I want to participate in the banks. You've done that through preferred shares after a bang up year and the Keith Briett index out near where it was two thousand six. Can you be comfortable owning the common shares of these

two big to fail banks? Can you be comfortable with their preferred securities with a greater yield? Or does of course Gray Whalan cut it and run no No. I own US Bank common and preferred. I owned City Trumps the nine and three quarters, which are wonderful. I owned Bank America preferreds by and large. I view the equity right now is pretty pretty well valued. You know, JP

is almost two times. But I want to be clear, Christmas, you get hit like a pinata by people saying you're anti bank owned bank paper even while you're looking at the dynamics inside banks. Correct, But I am anti big bank and I'm anti sloppy badly directed bank. Smaller institutions like US Bank Corps, which has always maintained the same size, they refuse to get bigger. They like half a trillion dollars that lets them sleep at night. Are you suggesting

James Diamond should not get bigger. I don't think the big guys need to get larger. But ironically, as our system grows in terms of debt and liquidity, which the entire world uses to function, this is the great conundrum. Uh, you know that that will change. Banks have to get bigger in a way. They have to expand, the currencies expanding. But Chris, you look at their operating income build out over the last five years, and I know they're going

to build. I mean, you're gonna get an entire floor on Park Avenue when they build a new skyscraper, right. I don't know. You know, I've had a few institutions contact me about getting back in the game, but I'm affiliated with Cohen and Company, and a neat thing about those guys is they provide mortgage finance. We run a ten billion dollar plus book of agency securities and whole loans.

And what do you see there? Well, well, you saw the repot crisis, we saw instability in the middle of a month, which is supposed to not happen, and these were the early warning silence that should have told the Fed that we had a problem. This is back in June and July. By the time everybody came home from holiday, you know, in September, it was too late to fix it. Chris. I'm looking at your institutional risk analysis note recent one and I see a chart hair the I r a

bank deadpool. I'm a little nervous to ask what that is. I'm assuming I don't want to be on that list. Yes, those are four banks Deutsche, HSBC, Goldman, and City that have underperformed. You know, the financials are as expensive as they have ever been, and I think the only Goldman of that group is now at book value. Um the rest are at a discount. And that tells you a couple of things, but particularly their efficiency in creating revenue.

Look how efficient Wells Fargo still is. Those guys make money even though they're under a out US bank. Amazing performance for an institution. It's large. But once you get really big Bank of America, for example, who by the way, I applaud this quarter they rallied you know interesting story time you like this. Jamie Diamond went long duration last December. He wrote it down. But it looks like Bank America

missed that trade. And yet by the fourth quarter they had rallied and they dropped their cost of funds when everybody else's funding costs is going on. That's the inside baseball from Chris Whalen about the business is still being done like it used to be done. Chris, let's let's let's shift gears here a little bit. I want to talk about wealth management. James Gorman is the glory god

of the moment. We will speak with Mr Gorman, Ian Davos, I was really looking forward to a set of important interviews with Moynihan, Corbett, Gorman and Mr Solomon over In goldn Sachs. But tell me about wealth management, Chris, because it used to be an afterthought, and now it seems like everybody wants to, in honor of the late Mr Marin be like Pain Webber, do wealth management do net worth blah blah blah. Can those margins actually be sustained if everybody wants in the pool? I think it can,

but it's certainly competitive. So when Goldman, for example, says that they're going to go in and essentially take share in that market. That's a tough proposition. Many banks ups, a number of them made the decision, much like Morgan Stanley, to go all in on the advisor side because there's a low risk and the investment banking side. Dudes were not top tier investment banks, to be fair, but they knew to get it. But come on, this is on a microeconomic basis. It's like the way you're in your

book Inflated, you explain into the financial crisis. It's about those seven You either make money there you don't. Oh, come on, I'm suggesting, Mr Whalen. There's too many players. Everybody's going to dive in a in a somewhat perfectly competitive milieu, can wealth management sustain these ginormous twenty five percent margins in the mainstream fat portion of it? Two smaller accounts know, but there is a clientele out there that wants high touch and as you know, I know

a certain lovely redhead from Uruguay who's in that business. Um, and I you know it can be done in it? What is this? A sales kid always have to put a plug in for the white well that's good. You always say good morning to Mrs Whalen as well. Paul Sweeney. You know you're a high net worth kind of guy, Paul, You've been following this for years. Can they maintain those

Gorman like margins. That's a great question, Tom, because you hear it from you know, Morgan Stanley's Tom mentioned made a big push under Gorman, you know, several years ago, taking Morgan Stanley from a swashbuckling trading culture to more

of a you know, a wealth management credit. Swiss at the same time gets out of it, and they're both still in banking, but in in spots where they really have a comparative advantage structured finance for credit Sweetz Gorman, for example, has a great aircraft business, big aircraft leasing deals. Morgan Stanley is the first stop. So they picked their spots.

But it's not like the old days when the broker tried to do everything, gave away lots of stuff, and those were the days, Tom, Those are those were the days. Chris Whale and thank you so much, greatly appreciate it today with Whale and Global Advisers and important conversation, always controversial conversation on the American banking system. Thanks for listening

to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio