This is the Bloomberg Surveillance Podcast.
I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business app.
Should we get to our guests with sure?
Choose around the table with this usually on the other end of a camera, Anahan, it's been a fit to see in person. Thanks for bamdas from whilst fago as Tom just moves his autosport magazines.
Away from a movement. You want to read a card table? You have Aston Martin coming up? Do you watch your one?
I do we spoke of Ballou's Hamilton List.
You're a Mersiti son, an't you? We'll catch up with Aston Martin later this how we'll talk about Fernando, who's rumored to be dating Taylor Swift.
But Fernando is, oh my word, so far behind in the gossip.
On the gossip, the rumor that Fernando is dating Taylor Swift, that's a story for another time. The wels Fanco Equity strategist joins us now to talk about stocks and a hand. You're and a team Chris Harvey leading the way for equities at WEWES looking for a ten percent correction at the headline sm P five hundred. What is it that you see that's going to lead to that correction?
We're seeing really margin compression. We think that earnings are slowing, and right now where earning's projections are as we go through Q one reporting, they continue to believe pretty much a flat growth year over year for the S and P five hundred, we think that's too optimistic. So we're bringing our EPs number down about ten percent contraction and EPs growth. We think that's very reasonable in an environment that you expect GDP growth, slowing consumer and still inflationary pressure.
So you put that in, you tack on still a pretty reasonable multiple of eighteen half That brings us lower.
How does tech absolutely crushing it over the last week factor into your.
Cod Absolutely something we're watching, but we think that it's getting a little ahead of itself. Right now you are seeing as well, why is that running ahead of itself? The yield markets you're down with the ten year round three a half. That is a move already expecting FED cuts. The market is expecting cuts after this meeting, and again
that's just too soon for us. I think that realization and people having to move forward or out their expectation for monetary easing is going to make things a little tougher in this summer.
To challenge your mathiveness at Yale, and I'm thinking now seeing Tela, the great quant finance guru, on the tail risks out there. If I look at the tails of the distribution, the risks of the distribution good and bad out to next year, can you see them or is it as opaque as you've ever seen?
I certainly think there are things top of mind, actually, and that's what's got things so interesting. We know what to look at, which is not sure how to weigh each one. For example, we're looking at the commercial real estate space that's been a hot topic. What's going to happen if those loans can't get renewed? Another one is student loans. How does that impact consumer spending if student
loans don't get dismissed. We're looking at these kind of factors and as well, what if the FED really doesn't start cutting. What if they just pause and hold Because.
Of the litany of worries that all of our listeners and viewers have, there's got to be a good side of this, and that the SPX is recovered from a great bear market. We're back to negative three percent whatever it is, twelve months trailing. You're basically saying, take the summer off and take the rest of the year off.
Right when you.
Take the summer off under Anahan Wells Fargo economics, do you go to cash? How do you take the summer off?
Based on your.
Forty two hundred call, I think actually, rather than go full cash, we're not that bearish yet. We do think you can weather through this by looking at those secular growers. I still think there's opportunity. And you look in the cab good space as well, for example, and you're seeing that volumes are actually holding up, and all other sectors, especially even in something like staples like food area, you're
seeing volumes shrink. So there'll are opportunities to keep that growth to plow through what could be that rough summer we talked about.
And know it's difficult to identify specific names with you so I'm going to be delicate about asking this question. Are the cloud name secular grower is still oh?
Well, you know, as someone who believes in that technology and certainly uses it and believes in the computing power of it, I do still think that there's growth opportunities. But like we said, especially with the software spin tech itself overall has had such a hot run, It's not somewhere where I'm ready to really pour in the investments now.
So what is a secular growth story that you do want to get behind at the moment.
So besides the cop good space where we do like as well, media and entertainment, and now again that too has had a great start to the year. We still think that it's attractive. We still think there's opportunities, and a lot of it is thinking about where consumers will continue to spend even as they have to tighten the belt, and part of that is really in the experiences in the services that they can enjoy.
Can we get an extra level of detail here, is this Tom spending more money on streat gaps? What exactly you're talking about?
It could be him watching a more f one and spending there. That certainly is true. There is that push. But again it's more of what is going to relatively outperform when people start pulling back on their spending, pulling back on the revenge travel spending year, talking about how those prices in airlines are still expensive.
So you think the airline story is done? Is can I go that far? Do you think it's done?
I wouldn't say it's done, but it's not somewhere where if I had cash to put to work, where I would rotate into right.
Now, Okay, that sounds like it's done.
You know, I look at the Wells Fargo economic call, and you know your economics team looking at where GDP is. Is there enough nominal GDP to keep this game going? To me, that's the heart of the matter. How do you fold in Wells Fargo economics into your equity analysis.
So our expectation for actually GDP growth is just above one percent for this year, but pretty much a flat twenty twenty four, and that is concerning. But I think the sharpest pain points where we see the most GDP contraction is four Q and one Q. Four Q this year and the beginning of next year is going to be the toughest drop in GDP. But that doesn't necessarily align with when we expect to see the toughest earnings contraction.
Okay, just to be specific about that, just final question, when is that Ernie's contraction. What's the window that you and a team you're looking for.
We think, really it's this year, and we think it's already occurring. You already have been seeing those margins come under pressure and you've seen that four Q last year earnings came in a little lower than projected. I think that continues and these are the quarters now where it's going to be toughest. That realization is what's going to push equity multiples and equity levels lower.
And a hand of Wes Faga and a great to do this in person. Wonderful, really good to see you. Thank you. The team at West Fago looking for a ten percent correction in the next three to six months off the back of earnings.
Where the snow and he's helped us so much.
I think of Ken Leon over at CEFII, Michael Mayo when we can dress him in Gerard Cassidy up early in London, had a US bank equity strategy at the Royal Bank of Canada, and we welcome him this morning, Gerard, I'm gonna go to the PowerPoint. I thought it was really quite nicely done by JP Morgan. I'm service massage by his staff of forty two. And buried at the bottom was an internal rate to return guestament of twenty percent.
You and I aren't going to go to an iterative discussion of the equation, but I fell off my chair. Is this really an IRR twenty percent? Is it that lucrative for Fortress Diamond, Tom?
It is?
And thank you for having me on the program from London here, And I would point out that one of the reasons the internal rate of return is so strong is that in an agreement with the FDIC, which is very common the FDIC, when they sell these banks out of receivership, we'll take a law sharing agreement with the buyer. As a result, when you have one of those laws sharing agreements, the amount of capital that the bank is
required to hold against those assets goes down. And that's one of the reasons the IRR is as strong as it is.
What kind of pop do you calculate, JP Morgan will get if interest rates actually come in, if we disinvert, if we get ourselves back to some form of normal interst rate structure. To me, it's an incalculable delta. It's just a huge number if they get the markets to cooperate, you.
Know, and Tom, you really put your thumb on it, because if you go back to ninety four ninety five, and I'm not suggesting we're going to have that Goldilocks economy we had in ninety five, but Greensman took rates up from three to six percent and we didn't have a recession, and then he started cutting rates in ninety five. The bank stocks were up fifty five percent that year.
So if we don't have a big recession as many people think we are going to have, the credit problems for the banks will not be that severe and rates will start coming down probably next year.
You and I studied at the altar of Henry Kaufman. He was so kind to me when I first joined Bloomberg. Mister Cassidy. Henry Kaufman is quoted by John Authurs, Folks, Matt Levine, John Authors. Read them today if you're part of Global at Wall Street. Mister Authors talks about Kaufman is a quasi public utility. Is that what we've gotten now with a combination of JP Morgan and Bank of America.
Are they a public utility?
Tommy, You know, I wouldn't refrain too much from saying that, but other than to say the financial utilities, and that's not a negative that it's a positive. If we could have banks that consistently pay their dividends through the cycle and also deliver you know, mid to lower teens ro return on tangible common equity, those are very attractive returns, So you could call them financial utilities, in my opinion.
Great for Shahoudis. I want to it's great for customers.
Jared.
Let's talk about that the deposit that they're assuming JP Morgan from First Republic. You asked about this on the call yesterday, Jared, how do those deposits repriced? Did you get some clarity on that.
John, What happens normally in bank failures. Quite often the acquirers are able to renegotiate down those rates of interest on those deposits, not the term CDs. Those are contractual. But that was the reason for the question, because that makes the deal even more attractive. To know, JP Morgan and quite often, and I'm not saying this happened with First Republic. But quite often what happens when these banks head into receivership they have to pay up for deposits
to bring money in. That's why the buyers get to reprice them downwards. What makes it more profitable for the buyer.
I left the way that Jeremy Bonnham, the CFO of JP Morgan, addressed this. Listen to this language. I think the reprice experience will blend over time into the rest of our deposit franchise. Do you know what that means?
Tom?
Their deposits and their rate of return will come down to zero over time because I've got JP Morgan, John, They're not paying much for deposits and they don't need to. Jod, I was wondering yesterday whether you thought they were downplaying to some extent for pr reasons, just how profitable this deal might be for JP Morgan, John.
I think you said it well.
I think it's an extremely profitable deal for JP Morgan.
Their size and their strength gave them the advantage. We wrote last night in our research note on this transaction that the prior to transactions, the loans were marked to market to about seventy seven cents on the dollar and in the case of JP Morgan yesterday they marked them to eighty three cents on the dollar, so they didn't have to be as aggressive as maybe some of the other bidders who were bidding on this, and that was an advantage they had.
There's the math, folks, you get it from Joad Cassidy, not from us. We go to the pros and John, you got a bond at par or a loan at par down to seventy seven cents and JP Morgan paid up where the others.
So, Jared, I've got experience of dealing with distressed institutions Washington Mutual bad Jamie, time has been that done that, Judge, you addressed that question as well. Why is this so different and why in five years want me to be sitting care rethinking everything we've just said in the last twenty four hours.
John, the major difference in Jamie Diamond addressed this yesterday to my question as well, which is this was a deposit flight deposit run problem. It was a classic duration
issue of long assets on duration short umfunding. This was not a credit problem, and that and First Republic had pristine credit and I would suggest that this is a very different situation As a result, it's not as risky for JP Morgan and the others because this is a mismatch of assets versus liabilities, and they're now going to benefit from the marketing of market of those assets and the yields that that creates.
George wonderful coutage. As a wise, I'm going to see you in London as well, Jared Cassidy that of obviously Capital Marcus. Thank you Jered.
Right now and this is a joy.
As John and I continue our coverage of this banking crisis, it pays to have somebody with real worlds experience. He is global Currency's an interest rate strategy at Australia's Macquarie, but far more Terry Weisman is something that has lived what so many other people are doing. I want to go back to Alan Schwartz, David Malpass, John writing you emishioh and it blew up in March of two thousand and eight at bear Stearns. From your distance, but your
tangible experience of collapse. How is JP Morgan different in two thousand and eight than JP Morgan is in twenty twenty three.
Let me instead speaking about JP Morgan, Tom, let me just talk about the banking pastor generally, thousand and eight was I think qualitatively different than the situation we're seeing now for the banks in the United States. In two thousand and eight, you had a situation where the primary problem at the banks was the asset side of the balance sheet. It was generally a situation where there were too many mortgages that went bad too quickly. That's an
asset side problem, it's a collateral side problem. What we're seeing now is different. What we're seeing now primarily is deposit flight. In other words, it's a liability side problem. It's lack of confidence in the banks. Yes, it may be lack of confidence in the banks because people are worried about their ability to continue to honor their obligations, their liabilities, their deposits. But nonetheless, this is a crisis that has started from the liability side, and I think
that makes it qualitatively different. It actually makes it easier for entities like the Federal Reserve to solve because the Federal Reserve has backstops. It could come in and replace the liability side that the banks are losing. Right if at the one dollars deposits leaves, the bank can simply go to the FED and borrow from on the Prime Credit Facility or from the new BTFP and get that dollar back, rebuild its base of liabilities, and continue to
do what it's doing. So I think this is qualitatively different than two thousand.
And eight, And can interest rates assist government institutions? And can interest rates assist JP Morgan here by getting the win behind him over the next one two and five years to make this easier.
There's nothing better in promoting confidence than economic growth, nominal income growth, certainly, because obligations are typically in nominal terms. But if you can't get nominal growth, you might as well just get real growth. I guess the question comes down to do lower interest rates help growth? I think they do right. If the Fed were to lower interest rates these days, certainly you would get some inflation, presumably,
but that would be coincident with nominal growth. It would help corporations, bank and every obligator in the economy honor those obligations, honor their debts. I think that would reduce the amount of financial stress in the economy.
Let's talk about something that's not promoting confidence. The debts samely divide down in Washington, people are already exhausted about it, and negotiations haven't really even started to get going. Now, Terry, you've got a different view on this. Can you just walk us through piece by piece? And we have time to do this, so just go through peace by piece. Why you think this can get addressed.
Well, first of all, we've had examples of a debt sealing crisis in the past before and they have found resolution. Now, I'm not going to say that this is the same, but I think the differences today are political, they're not really economic. Why do I say that, Because Kevin McCarthy wanted the acclamation of his party to become speaker, and
he had to make certain promises. And among the promises he made, given that this was January and we were already coming up against the dead ceiling, Janet Yellen had said so in January, one of the promises he made was that he wasn't going to back down with respect to getting out of the administration what he wants in terms of spending cuts if he's going to go with
a debt sealing increase. Unfortunately, he got the speakership, and now he painted himself in a quarter because he made that promise to his caucus, and he can't really back out that easily. So now you have a a stone heartstone coming up against a hard wall, etc. You've got two intransigent sides. I actually think that we might come down to the wire, and I actually think that the way we may resolve this is not to the traditional means of a debate and negotiation that results in a compromise.
I think we may approach a crisis. But I think the cleaner solution here I get to if we don't get to a political resolution, is simply for the US Treasury to continue to do what it's doing, i e. Issue debt and get challenged in the courts by the opposition. Now remember they've already passed the spending, so there's some legal basis for the view that they have to issue the debt to support that spending, because that was a
bill that was passed. But what happened to that that point, well, I think it will go immediately to the Supreme Court. I think the Supreme Court could issue an injunction. I think the Supreme Court has legal basis for doing that. They have amended fourteen Section four says the debt of the United States will not be questioned, and that's a legal basis for telling the administration you can do what
you want. And if that happens, by the way, it'll put the debt ceiling situation on ice forever because now you have a clean, clear judicial ruling.
So that's a clean that's a clean way to do it. There are other there are there's no sound to clean. Let's just say, well, well, look, I.
Mean, I mean, I mean to come in here and and and have the Supreme Court, which is coequal to the other two branches of government, and effectively say no, this is our perview.
No outcome would be clean. Show the process not so well.
It can happen the course of forty eight hours. You don't really need, you know, a lengthy hearings on the part of the Supreme Court. They have the Constitution right there. They can read what's Amendment fourteen. Section four says. It's very clear to me. You should read it yourself. I mean, it's it's it's undeniable that this is not something that's constitutional to let the to let to let intentionally let certainly intentionally let the payments go unpaid. There's another way
to do this. Of course, the Treasury has you know, hundreds of billions of gold in storage right at Fort Knox. One way to do this is simply to issue gold certificates to the Federal Reserve and have the Federal Reserve continue to fund uh the the the government's operations through this period.
That's a solution.
Look, there are a few workarounds. People have proposed these. You can go on the web and you can read them, and they tap it to be cleaner than the messy situation we might get ourselves into the next few weeks.
This is a dissertation, folks, and the history of debt coming out of World War two. Terry, how much of this is almost religious in nature. We have a culture in this America. I'm going to generalize it's Calvinists, but that's unfair to the gentleman from Switzerland.
Debt is bad and.
Heil Broner and Bernstein wrote a classic monograph on his thirty years.
Ago, debt is bad. We've got to get rid of debt, and then we don't do we right?
I mean to me, there's a whole cultural overlayer that's unspoken.
Yeah, Debt in support of investment, debt in support of assets being created in the economy. Debt in support of more productivity by way of that is good. Debt in support of more spending without a common amount of SA savings on the other side is bad, especially when that debt rises to a point where the income that's generated by the spender is no longer sufficient to honor that debt, to support that debt, to support the obligations of that debt implied by that debt. So I think I think
debt is perfectly fine. It's an aspect of the capitalist economy with limits, right. It depends where it's where it's going, it's what activity is it's supporting effectively.
So let's get to the market question. Is there any risk? What is the risk outside of the so called at risk securities in the tebo market? What is that risk? What does that look like?
Well, look, a lot of people say that if there's a miss payment on a principle principal payment or missed coupon payment, that Moodies will put the US in the fault, or S and P will put the US in the fault and then that will trigger CDs payments on the swaps. I think that is not realistic, and I say that with the fact that unlike a corporate bond or a
corporate obligation, US treasuries don't have cross default provisions. If I do not, If I, as the US Treasury, do not make a payment on a single bond, it does not accelerate the payments on every other obligation that the US Treasury has. Yes, you can say, maybe that bond has defaulted, but the corpus of debt has not defaulted. There's no, there's no there are no cross cross default provisions.
And that's tricky because you have to think of a default as something different, and movies would have to think about it as something different than they would if the similar thing happened for a corporate issuer. And that's tricky. That calls for a judgment call at that point. And it's not too clear to me that even if a payment is skipped that movies will go that far. Because it has that out, they can avoid calling the fault. We could avoid going to triggering the CBS.
What would that mean for things like collateral Treasuries used as collateral for all types of things. What would that mean?
Well, look, the collateral, the value of the collateral is only as good as the price of the collateral. So to the extent that we're talking about a few pips change in the price of those treasuries, Yeah, you'll demand more of them to support whatever repoactivity or lending activity you're trying to sponsor. But in the final analysis, as long as the treasury bill has value in dollars, it'll serve as good collateral.
Right thirty seconds Martin's Place, Sidney, Australia, Macquarie Group. Do you still believe in the Pacific rim expansion?
Oh?
I don't necessarily believe in the China expansion long term and structurally, I mean yes, China's undergoing a nice recovery these days. It's hindered somewhat by the slowdown in demand coming out of Europe in the US, but domestic demand in China is good and that's enough to keep China's engine moving forward for another year.
Beyond that.
Structurally speaking, you know, you have a demographic problem in China, you have the demise of globalization. These are the things that are going to slow the Asia Pacific story beyond this year.
Wait, py Am, I early this week surprised to see it. Try Wiseman, thank you. Now, I'm really placed to say it's Mike Crack, the team principle for the Ashton Martin F one team. Might wonderful to have you with a Sam Blombag TV and Bloomberg Radio. I have to say, Mike, this wasn't what I was expecting last year when I heard the news that Sebastian Vader was leaving and Fernando Alonzo was stepping in. To see you second in the
Constructors Championship is quite something, Mike. What's let that turn around for you and the team?
Well, to be honest with you, I didn't expect that either, to make such a big step. But we tried to develop our car as much as we could last year, and during the year we made subs central progress, but it was never enough to pick the big points and move forward in the championship. So yeah, by the end of the year, the car was in a much much better place and we were much more competitive and we
took another step over the window. And because everything is related in this sport, it could also be that some other competitors have not made the step that they wanted and it brought us to the place we are in now, and yeah, we are quite happy to be there.
Might well, get to the business of all of this in just the moment. Can you tell me how important it's been to bring Dan Fallows, the technical director on board to as the modern F one.
Yeah, that is one of many recruits that we had lately all across last year, and they have been very, very complimentary to great workforce that we were already having. So all in all, I think they came together as a great group, get all the strength out of everybody, and you see the resultant track.
Finally, I look, Mike at the extraordinary original that each race is different in American baseball. We compare Fenway to schavaz Ravine and other baseball parks. The distance from Baku to Miami in terms of the actual track is just extraordinary to me. How much is the adjustment for you in what ten days to go from Azerbaijan to Florida.
Well, it is. First of all, it's a huge logistics efforts to bring the whole, the whole circus over to the US. But in that short time then you have to adjust basically everything, not only the clocks, but you have to bring the cars adopt cast to the layout of the Miami circuit because it's substantially different, and then we need to get used to the temperatures, to the heat and all the things that are different. So it's quite a substantial exercise for everybody.
You know.
I look at Red Bull as a leading team now, and the two drivers really go and add it second by second, tenth of a second by tenth of a second. And the relationship of your two drivers is absolutely extraordinary. The veteranal Alonzo with Stroll, and granted I get the idea that Dad's helping out as well, but Stroll seems like he's really earned the stripes. Explain the relationship of your two drivers is they go into Miami.
Well, they are, first of all, they are great drivers, but they're not They are great human being, is very mach sure, and great teammates, and they they help us a big, big time to work as a team much much more than other teams too very often, and you see with other teams there is a fierce rivalry between teams and teammates, which at times is even ending in accidents.
At the circuit. Between these two cars, I think we are fortunate to have two such great drivers that have understood that this is a team sport and that the rivals are out there with the different colored cars than ours, and we need to gether at every possible opportunity to to do better than the others.
Mike, have to be honest with you, and this is my perspective. The Miami racetrack looks absolutely terrible, and I've got to say, and maybe you've got to be more diplomatic because of the position you're in. I think it's a worry for long term fans of this sport that the emphasis on breaking the United States of America and wanting to sacrifice the quality of the racing to do so. Mike, do you share those concerns?
No, I do not share these concerns because I think the racetrack in Miami has everything that is that every that the normal modern Formula one race teck has to have. It has straight with the rs zons, it has high speed corners, it has some low speed corners, it has been completely resurfaced, and I think the heat that we will have over the weekend will add a lot of difficulty to cool the cars, but mainly to also keep
the tire management under control. So all in all, I think we are for a great weekend and great racing.
Well, clearly the future is bright for the spot. The attention has got off the back of the Netflix series has just been absolutely phenomenal. To get my partner in crime, Tom Keane on board to folks and I for one has been a pleasure for me over the last twelve months or so. Mike, I want to talk about things further down the road. There's always been a relationship between
the F one team and the road car. Ferrari is a great example of that over the years, more recently as the martl again talking about the same thing, I want to understand the tension ten years out when as the Martin and the road car is fully electrified by twenty thirty s, where does that leave as the Mard and F one and the relationship between the F one team and what goes into the road car.
Well, that is a very good question, and the same applies also to all the other brands. The one that you were just mentioning. I think F one is currently working heavily into carbon net zero, into going more sustainable by twenty thirty, which is much less than in ten years time. So by twenty twenty six we will run only on sustainable fuel. We will substantially increase the amount of electric power that we will deliver to the car.
It will be around fifty to fifty. So the from Lomer cars are already hybrids, but the electric part will will increase and it will complement the road car fleet by these developments.
How will that take place if you're going to retain to some degree the internal combustion engine and the road can won't.
Well.
I think lately the developments in artificial orses or how you call them, sustainable fuels is adding or is massively increasing life of the combustion engine, and it has been also classified like that. So from that point of view, I think Form one can be a great participant or great catalysts to the road cup business to make these nice cars that we have today sustainable and be able to run them for longer.
I sense from what you're saying, Mike, that you don't think everyone ever becomes fully electrified, and actually to some degree you can go some way to preserve in the internal combustion engine on the road. Is that right?
Well, that's a good question. I think the combustion engine will you have is time for the next ten years for sure, but ultimately it will fade out and for one, will not be with the combustion engine in say, twenty years from now. I will doubt that.
Mike oh reporters in London, they're like, okay, enough talk about Taylor, Swift and the rest of it. What's the relationship with Honda going to be out to twenty twenty six? So we're going to see some drama is Honda tries to climb into Formula f one.
We are quite happy with the powertrain power unit manufacturer that we have at the moment. We have a lot of on our plate at the moment for twenty twenty three, twenty twenty four to make further progress, and we are not really too much into twenty twenty six at this stage.
Just for the pit passes for Miami seven thirty one Lexington Avenue, we got the code. I've got the zip code.
For Mike one zero zero two to two.
Okay, I'll buy tell Alonzo.
I'll buy the Globe Trotter lug if you can get us into the pits.
My thanks for this, I appreciate it.
Mate. We could be there with Taylor.
Good luck for the weekend. We're not going to Oscar that time. Thank you.
And there are the trees now with this Economic Policy Research Director Veda partners with great experience on the marble halls of Capitol Hill. When there is a debt crisis, when there is some form of shutdown or jaw boning, how does the budget process change on Capitol Hill.
I think, if anything, it speeds up, it speeds up dramatically. There was a lot of hay made about Secretary Yellen moving the date for the debt ceiling up from June fifth to as early as June first yesterday, but the reality is that nobody does anything until the last minute. Anyway, we got about four weeks to get this resolved.
If those four.
Weeks are in May or June or July or even September, it's not like they're going to start working in advance. I think Speaker McCarthy demonstrated a lot of good will by putting that vote on the floor last week, getting things moving well ahead of schedule, even before Secretary Yellen provided the update post tax receipts. So basically it just burst them into action. We've got four weeks to get
this result. That's plenty of time. We've seen it done in far less and in fact, I would wager that it won't even start to come to an end until we get a twenty second.
So based on that answer, five guys sitting on a couch with Cherry Yellen in the Oval Office on May ninth doesn't have an urgency to it.
Is that what I hear?
I'm happy for the Big four to get in a room. I think that's very important. That is one of the steps in the process. But we have a number of other formalities that also need to be accomplished. Senator Schumer, the majority leader, has scheduled two votes in the Senate or queued them up, at least one on a clean debt ceiling hike with all the Democrats will vote four and one on the House pass built, which some of the Republicans might vote force. And we're still at least
a week away from any concrete negotiations. I want to see some of the Budget committee chairs get called up. I imagine that there will be more than just this one group of Big four that gets called up to the White House. And then, of course we really want to see staff in the room. You guys know this about me, and so to all of our clients. I really care what staff has to say more than anything else.
So I want to see those guys get together, and I would imagine that starts soon and they're able to come together a deal within the next three weeks.
And let's taste that out a little bit more, Henrietta, I don't have a read on this. I've got no idea which way it goes. I'm told by some people to same movie, same ending, won't be any different this time around. I'm told by other people it is different this time, Henrietta, what informs your read on that you mentioned? Staff wok me through it right?
Well, not only have we seen this movie so many times before, but it's almost an exact repeat of twenty eleven. You can even find similar votes from twenty fourteen. In twenty seventeen, we have the exact v act same dynamic where the president is a Democrat, the Senate is controlled by Democrats, and the House is controlled by Republicans. What ends up happening is you see a bill passing the House that's written mostly with the intention of just getting
my majority party in one chamber signed on. That's what they did last week, and now we're going to start moving into the place where staff goes through the fine print and finds three hundred to five hundred billion dollars in deficit reduction, which is the level that Staff advises me. On the Democratic side they're willing to swallow in order to hike the debt ceiling to thirty three trillion, which would get us roughly through call it March of twenty
twenty five, after the presidential election cycle. Those are the kind of minuship points that Staff is focused on. And if you see, those cuts come from things like clawing back COVID relief, reducing service on the debt, fraud, waste and abuse spending, all things that were incorporated as a part of the Republican past bill, but not nearly the three trillion plus number that Speaker mccarthney put on the floor.
That's a non starter. We need to get that down to three hundred and five hundred billion and horse trade back and forth, and that's what Staff will do behind the scenes.
There's going to be a lot of inquisted on, a lot of analysis between now and then. Henryta indulge me in go through this scenario. This is something Terry Wiseman of Macquarie mentioned in the last hour. He said this and this is a quote from him. If we approach a crisis, I think the cleanest solution here, if we don't get to a political solution, is simply for the US Treasury to continue to do to do what it's doing,
i e. Issue debt Henry. So he made the point that they can just go on ignore the political situation and carry on issue in debt and pay their bills. Is that something you can see as a workable solution to this?
No, no offense, but it's just not Congress is going to insist on acting here. I know it looks like they don't want to take a boat, but they react very poorly when any federal agency or otherwise take some of their authority away. That jurisdiction or control is something that you see committees cover it, and certainly the House and Senate look no further than the ways it means for their tax policy bills getting blue slipped, you know,
insisting that they start in the House. They react very poorly when any federal regulator oversteps their bounds and use serves their authority. So I believe Congress will act. I am not concerned about whether they will act. Default is not an option I think investors should, you know, sort of skip over the headlines and see that Kevin McCarthy put that bill on the floor well before he needed to. We've got four weeks to negotiate. I see no real problem here.
Four weeks is enough as far as you'll consent more than enough, I'm going to trice the fight upon us.
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