This is the Bloomberg Surveillance Podcast.
I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and 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.
Joining us now with the shifts of Vita Supermanian head of Equity and Quantitative Strategy at BABA, give me the quant angle on how we lift up well above four thousand. What's the quantitative place we're in right now?
It gets us out to a bull market.
Yeah, Well, so we looked at a variety of signals, and first of all, narrow breath is not a precursor for doom and gloom. So I just want to get that out.
There that Zanne Saunders agrees with that as schwall.
Yeah, I think it's it's kind of a false negative. And then when you look at valuations right now, they look high, which is another reason nobody wants to buy stocks. But valuations generally look high when you're in an earnings recession, which we are in right now, and I think that when you look at the equity risk premium for stocks, it could actually go lower. And our call is the riskiest asset class in the world right now is the risk free rate, basically treasuries or the bubble. That's the
epicenter of the bubble. Everyone's been buying treasuries and pushing interest rates down to close to zero and now we're working through that. But if we are in this sticky inflationary environment, do you really want to be in cash or bonds? Don't you want to be in stocks that participate in inflation. So that's our call, and I think that stocks are kind of, you know, reviled right now
because everybody's worried that we're going into a recession. Think about it, We've been positioning for this recession for like six quarters, right So we're now at a point where the average money manager or individual investor is mostly in defensives, more over weight defensives and cyclicals than we've seen since two thousand and eight. So I feel like this is
another setup for a cyclical rally. You know, forty three hundred isn't that far away from where we are today, So we're not being you know, heroes in terms of the cap weighted benchmark. But I do think that you can make money by owning some of these unloved cyclicals that aren't necessarily going to get roiled by you know, what looks to be, you know, not such a bad recession. I mean, our economists are basically forecasting zero point eight percent peak to trough declines and GDP not bad.
Not bad. So let's get to it. Let's not bury the lead forty three hundred is not the headline. It's an equal way S and P five hundred calls. It's leaning into cyclicals for the cyclic calls. Just go through what industry groups, industrials, banks. What is it about the cyclic calls right now that you like?
What I like about them is that nobody wants to talk about them. That the recession that we're heading into isn't that bad. And we are at a point where cyclical set vectors have actually become higher quality. And I know this sounds crazy to say, but if you look at energy, metals, even financials, right the big global regulated banks, these companies have been forced to get disciplined because they've
been starved of capital for a very long time. We've been in a decade where nobody wants to invest in commodities or metals, or mining or banks, and these companies had to basically get discipline figure out how to become self sufficient. And today I would argue that they're higher quality than a lot of these so called secular growth plays that have just had a free ride from cheap capital globalization. Like all of these sort of low quality sources of growth.
Let's talk about the other side of that call, especially given the equal weight is going to deliver double the gains of market cap weighted, which I think is fascinating and raises real questions about your tech call. And is it just simply trading sideways allowing this cyclicals to sort of gain and lifting the index, or does that mean that they sell off? I mean, are they basically going to go opposite each other?
So I think there's a way that big tech can do all right during this period, and that's if these companies start to shorten their duration risk. And what I mean by this is a lot of these big tech companies offer great growth way out in the future, so they're going to get hurt harder by changes in the cost of capital. What some of these companies are doing is acknowledging that they're too big to grow as quickly,
so they're returning cash and shortening their duration. I think that's the way that we can start investing in big tech again, is if we start getting more money upfront. And maybe that doesn't happen for a while. And I know it's heresy to say that some of these companies are going to initiate a dividend. All the growth investors that I talk to are like, what are you talking about. That's unthinkable, But you know, look at a lot of these tech companies in the past that have initiated dividends.
They've rallied on the news. I think that this is one of those those themes where as we move forward the market, my trade sideways. Tech companies figure out how to navigate higher inflation, a higher cost of capital. Some of them go away. Some of them already have gone away. Smaller banks I worry about, but big banks I think are still in a very good capital position. So those are some of the things.
Because it's a wide netted Bank of America. Are people cautious, so they gloomy? I mean I'm getting back and forth here in the world like the world's coming to an end, We're all going to die versus Well, that's what they're saying. But they're actually long Apple's.
Well there, collective Apple.
Yeah, I mean they're probably long big tech because it's dangerous not to be in those stocks, and those stocks are seen as defensive. I don't agree. I think those stocks are actually more cyclical. But I will tell you the mood is very gloomy, and I think that bears are just waiting for that downturn. But the one thing that makes me think we're not going to get a downturn is that the question we get most frequently is I have capital, I'd like to put it to work.
Should I wait until the debt ceiling is behind us? Or do something now? And if everybody's asking that question, we're probably not going to see some major downdraft. That's our call.
You think that some kind of debt agreement does deliver a pretty strong relief rally based on that, well, yeah.
I think that.
And I think that the reason the market hasn't sold off as much is that there is this sense, even when you listen to the most bearish investors. We all kind of think that they're going to get a deal done, right, I mean, that's the base case, So why bother selling if the base case is resolution?
The psychology this moment I find fascinating. If you've made the call already and you're in the market, great. If you're on the sidelines and you're in cash, you're so nervous right now, sevida, because you believe that you're the guy that's going to get sucked in last right, right right, I mean enough, and they're going to smash into the downturn of course.
Yeah. Well, here's the thing. If if you look at asset allocations, they're more overweight bonds than stocks that we've seen since O. Wait, so I think that there's less selling pressure. If you look at our own client flows, individual investors have been selling for the past four weeks. We actually saw big spike in outflows that would indicate almost capitulation like levels of selling. So I think that, you know, folks have basically braced themselves for this calendar date,
this X date. And it's it's not necessarily.
That people loving Savita talking here.
I got stock recommendations, I mean, whalen emails good morning, Whalen, thank you for emailing.
Whaleen emails in and says, go along.
Fender f n d R. It's long Fender emailed in. Tell mom the Bryant Tyler, Bryan and Bryant pinky strat.
Five seven hundred dollars.
Whal good call.
Yeah, we'll ask Sam.
Oh Savita thank you this. Yeah, it's a bit of sup reminding the Bank of America. Granikfull Yer of AHF Investments running the following. If the X state really is June one, we're in trouble because there simply may not be enough time to write the deal into legislative language. Then give law makers time to actually read it. If the X state is around June sixth or seventh, there may be time to reach an agreement.
TK.
Pretty scathing from Greg this morning.
Get out the calendar and someone that's known the calendar of Washington for decades and decades, mister Valier briefs this this morning here on May twenty third. I've been calling it next week Tuesday somewhere in the zeitgeist. Last night, Greg Valier, I saw people talking about next week is suddenly upon us?
Is it?
Yeah, we're getting there. Tom I've been very negative, as you know, but I think that the caps, these spending caps, are really crucial. That Democrats have agreed to spending freeze, that's a big deal. So I think we're not going to defall, however, a big caveat. I don't think they can get it done in time. I think there's going to have to be an extension of a week or two because there's a lot of members in both parties
that need to be persuaded. But we're getting there. We're getting a little bit closer.
Which can kick down the road is best for Americans? Is it a shorter term one where they fix us in two weeks or do we want it can kick down the road and to say September.
You really don't want to go into September tom I think that's going to be annoying to the markets. The longer this thing sits out in the sun, the more it's going to attract flies. So I think that we've got to get something done, and I think it can be done, but there's going to probably have to be a short term extension.
It's definitely already annoying to markets and far beyond, and it seems like there's been a shift in rhetoric away from job botting the other side with fiery threats of a default to something of a nature reflecting the fact that nobody wants to have the US default. Is this a political shift on both sides to basically say, look, we're not going to do this, We're not holding the US hostage, We're just trying to negotiate in good faith.
Well, I think there's a growing feeling on Capitol Hill this could be a pox on both your houses if we don't get anything. I think the level of discuss toward Congress will increase, if that's possible. So no, I think both sides want to get this done. Both sides genuinely do not want to see that defall. What is annoying to me is that at the very last minute they've brought up revenues. We're going to talk about taxes now. That seems to be an issue that just complicates things.
Let's talk about that, especially given the fact that tax receipts tax income this year was so far below what the US was expecting. Part of the reason why the X state perhaps is a bit earlier than other people had been projecting is this because of a lack of investment in the IRS. Is this because of loopholes, Is this because of tax code, or simply because the economy isn't doing as well as people had previously thought.
Well, there are a lot of variables, Lisa, and I would say that the one that could snag this whole thing is a proposal to cut back dramatically on the IRS funding, as you mentioned, If they did that, that could drag this thing well into the summer. But I'd say they're there. They probably have at least half of the deal done, so the odds continue to improve slightly that we'll get a deal in a week or two.
What happened to all of the intransigent members of both parties, basically the ones on the right who have been saying, we're not going to pass any kind of increase in the debt limit. We're going to mandate all sorts of cutting over our dead bodies. That was sort of the platform that they ran on. And then on the other side, people pushing back on Biden and saying, why are you even negotiating, You're giving in far too much and you're
looking weak. How much are you seeing those two sides willing to come to the table and actually vote for a plan that is hashed out between McCarthy and Biden.
It's a really good and it's a big wildcard right now that couldn't both parties hold their members. I think McCarthy's done a pretty good job at holding Republicans. I think a lot of Democrats don't want to be seen as contrasting with Joe Biden. So I say, in both parties, there's a resignation that they're going to have to get this done.
Okay, Gregor, I want to see gow me here.
I was thunderstruck in the early early morning yesterday of the Telegraph of London having is its lead headline, the opbed from the Washington Post on elderly presidents, of course led by President Biden. The study that the Washington Post did, what was the ramifications inside the Beltway of the post study of many older presidents.
Well, I think a lot of people think this has been overdone. But we see overnight Hillary Clinton, who is late seventies, saying that, yes, I understand Joe Biden is real old and this could be a liability. You know, it's an issue that is not going to go away. But as I point out to people Donald Trump has a birthday in about a month, he turned seventy seven.
Greg, don't you think, though, this is just a way of avoiding the actual elephant in the room. It's not about age, it's about mental acuity. Why don't we actually have that discussion. Not all seventy year olds are created equally, not all eighty year olds are created equally. In fact, I know some ninety year olds who were as sharp as some of the sixty year olds that I know. Greg, why don't we having a proper conversation about this topic?
Well, you're right, and you guys mentioned a few minutes ago. Henry Kissinger turns our hundred today and he's still really sharp. So you're absolutely right, John. I think that's the big issue. But it's going to be a blood object used against Joe Biden whenever he says something in articulate, whenever he looks frail. It's an issue He's not going to be able to avoid.
Greg.
Value of a Jeff Investments, Greg, thank you appreciate itself. Around the trail, let's get to j D from Avacuil.
Good morning, good morning.
I'll give you two views. Bank of America constructive, JP Morgan, not at all. Why are giving the team right now? Somewhere in between?
So think about it. Everything has been in between for the last seven months. Uh, this is one of these times, John, where the signal and the noise are incredibly difficult to pars and that there are times where there just isn't that much information from the price. And what it comes down to is we are waiting to see if one year's worth of incredible, incredible tightening, I mean really historic is going to have the effect, and we're seeing, you know,
minor parts of that effect. So for us, essentially, what it comes down to is we do expect a recession to begin sometime in the second half, and for the equity market that means down first and then likely back up.
Essentially, here take.
The Heymen dynamics of a Hymen recession. It's in your note talking about some real gloom here in the first quarter twenty twenty four, and also his call of dramatically lower inflation getting out there under three percent, and you've got SPX forty one fifty. How are you going to frame equities forward given a Hymen recession and a Hymen disinflation.
So that is where actually, when you think about it the long term, which we as investors have been guilty of perhaps not thinking about. Given the fact that these seven most difficult months of sideways actions, the view twenty four and thirty six months out is literally unequivocally positive because of the fact that inflation is likely to fall below three percent sustainably.
Have we worked through the stimulus potentially dollars stimulus during COVID. How far are we down in that?
So if you look in terms of the excess savings on the part of computer consumers, you're really only about halfway through. And I think that, again is one of these things that we failed to appreciate, is this idea that there was so much money put into the system, both monetary and fiscal, that it's really still working its way through. And then the question is, and this is both given the market action, a glass half empty and
a glass half full view. The glass half empty view is, my goodness, if we could have had that banking problems of the last several months in an environment where stimulus is still working through, maybe that's not so good. Glass half full is that the stimulus is so profound that it's going to engineer this adjustment that we've had.
This is the tale of two narratives, whatever you want to justify the data with.
So how do you.
Really work in an environment where you can basically come up with it whatever story you want to You might as well be happy and just go with stocks. Right.
Look, we think you need to say invested. We think this is an alpha extraction time and defensive sectors have worked and then they've not worked. AI, as we all know, seems to be the overriding principle right now. We, like others of the last half hour, concerned that there's too much concentration there, and we do think that there is a bit of catch down to do, given the fact that small caps have underperformed the way they have. But
you really need to stick to your ding. And the interesting thing about this environment is with rates where they are, if you want to hedge your portfolio, it's extremely cost efficient to do so.
I've heard that before. So let's pick up on that point in just a moment. I just want to finish on the poor breath point. It's poor breath actually any indication of how much oxygen is left in a rally, because I feel like people complained about the breadth that is stock market and the ball market of the last ten years, and it carried on why can't this continue?
Well, look, so it can continue provided that we get that sort of glide path in terms of the stimulus that we were talking about a few minutes to go wearing off. It's just our view that first of all, this whole rate cut talk forget about it. Sure they're not. So there is some repricing in our view that needs to occur based on that misperception.
That the market happened in that Judy, and I think what's interesting for me is that we've repriced yields ower at the front end, taken back some of those rate cuts, and this Nastak's still fine. So can you explain to me what the relationship is between what's developing in the bond market and what's happening in stocks.
So the relationship is again this question of the time before the recession. Remember we've had a lot of excitement around AI in these last two or three months, and what investors are sort of harping back to is the nineteen ninety eight yield curve inversion. I saw something this morning that said, best start to the Nasdaq since nineteen
ninety eight. Well, two things happen. First, you had a roaring bear market in nineteen ninety eight, and then if you got defensive, you gave up three hundred percent gains and then over the next year and a half. So that's the conundrum that people face, and they don't want to let go, and that's perhaps the right decision.
Your shop is going to do the most eagerly anticipated daily call in about ten minutes with mister Hymen. I want you to call us here. The message from your shop to people in cash scared stiff.
So the message is is that it's okay to be in cash for now, but if you're thinking long term, you need to be prepared for that time where you need to shift assets. But that isn't coming until we get inflation sustainably lower, which again the path to get there is through an economic slowdown.
Jillian, final question, you touched on it. I just want to squeeze it in optionality, do you want to hedge to the upside to the downside? Where do you want to take advantage of we things a christ at the moment?
Well, that actually comes down to you know, one's own portfolio prep look at your portfolio, think about how you feel. And we always say for the retail investor is when the market's going here, and we do think you're at the upper end of the range here. We don't think this is a breakout. But if you have FOMO options are cheap enough that you can buy upside in themes. Like the rest of the world, we actually prefer portfolio hedges with the S and P five hundred, where you
can sell upside to finance downside. And it's very as I said.
Costa, there we go, brilliant, Jenny, and that was wonderful. Thank you, sir. Do you want to talk about it tests? I think I want to take a pass pass in the money what I've ever called.
Torsten Slock joins, the chief economist that Apollo Global Management, Torston, I want to get to your spectacular chart today, which is lit up on Twitter right now. But I got to follow up on Lisa's note there on non farm payrolls. I'm gonna give you a should phrase, where should non firm payrolls be?
Well, given that during the pandemic that was thrown five trillion fiscal stibulus on the economy and five trillion fit balance sheet expansion. It's not a surprise that when you throw ten trillion at a roughly twenty trillion dollar economy,
drawing that out of the economy is taking time. So that's why, in some sense it's not surprising that it's taking time to get all this liquidity back, and therefore that is taking time to get household saving strong down, to get corporate saving strong down, and therefore, to your question, to get non found payrose to really slow meaningfully, we just need to go through a period before we get that slow down that we have.
So let's double barrel. You've got non firm payrolls coming down at some point. Your spectacular chart today shows the miscall of recession, doom and gloom, drawing it out, drawing it out, folks. I'll put it on Twitter here when I can. Let's dovetail those together to get to where you think we're going to get. Is it just a smooth linear progression or is it going to be either a jump condition or even more brutal discontinuous.
What's it going to be?
This is absolutely critical because before when the FIT was just hiking rates twenty five basis points, they were looking around saying how is the economy doing? Okay, we go another twenty five and once we get through that process,
that was all very smooth and gradual. But the challenge is that we have now over the last few months, added a banking crisis and tighter credit conditions, and a banking situation where banks are seeing much less demand for commercial real estate loans, must less demand for c any loans. Those indicate us are now at two thousand and eight levels.
Those things raise the risk exactly as you're saying, Tom, that we may have that nonlinear slowdown over the coming quarters where tighter credit conditions may be accelerating the slowdown in the economy.
This is the key debate. Is this recession delayed or recession interrupted? And we're looking at data and is there anything to give us any indication ahead of it or do we just have to wait and see what mystery box awaits us?
Absolutely, because the challenge is if we threw central in at the economy, sucking that out again is going to take time, and how do I weigh that in my concitative model purpose of the US economy. We're on the one hand, we had huge stimulus that's still stimulating and at the same time, the FED is trying to slow
things down, and we have tieder credit conditions. So the market thought, and that's what the chart is showing today, that the recession would have come like six months ago, but now it's taking a longer time to take that tentrillion out. But what we do know is that the FED is very very keen on getting inflation down from five percent to two percent, and as long as that's the case, the FED will continue to step on the brakes.
The FED will continue to slow down earnings growth, and the FED will continue to slow down hiring.
There's been this sort of conundrum baked into the market where certainly people are rethinking whether there was actually a banking crisis, perhaps taking that away from the equation a bit, and you're seeing yields creep higher, and it hasn't really taken a bike at a bite out of tech valuations. Do you think that there really has been an economic sea change resulting on artificial intelligence, resulting from some of the shifts in allocations of people's pocketbooks.
I do think that very importantly.
First of all, inflation is still way too high red to to the fed's target. So importantly, the FED will look at inflation at five and say we have to do more to get inflation at least key rates at these levels for a longer time, to get inflation down. And there are two reasons for that. Namely, first of all, housing is beginning to recover. That's putting up where pressure and housing as usual makes up forty percent of the CPI basket, so that's lifting potentially inflation down the road.
And the other thing is also that wage inflation is also coming down too slowly. In other words, ways average our learnings that four and a half percent is not close to the two three percent week before the pandemic. So that raises the risk to your question, Lisa, that inflation will be sticky. And if invation is sticky, that does mean that tech and growth and venture capsal and particular growth. You mean, if it's trying to slow down growth, that should mean that growth should not be performing.
Well, you're right, tech cute.
David Rosenberg publishes moments ago out of Toronto and Sticky Inflation, and he goes all Newtonian on us, and he looks at first and second derivative, what's the derivative right now of the disinflation that we're seeing and at what level do you have to get We're at where you've got legit second derivative convexity down to a lower level.
Yeah, there are two problems inflation and will get the new numbers on PCE, but that will just be the rivetive of the CPI we just got. But the problem is infasion is at five and five is not two, and most importantly live is not four. It's not four either, and therefore five is not even moving down to two. If you look at the six months change, the three months change, the twelve months change in core CPI, it's
still moving sideways. So yes, it is true to say that maybe owners cull and rent and housing inflation could be coming down eventually. But with a lot of indicators in housing, traffic of perspective, buyers is going up, existing home sales is going up, new homes is going up, home buyer confidence and hope builder confidence is going up. Even number bits per home has also been going up.
So that's all telling you that if CPI, in particular the housing component starts to go up, inflation will indeed turn out to be more sticky.
Listen and I hang on every word. You publisher could kill us, but we hang on it. And one answers. Mortgage rates back up six point x percent suddenly six days, seven days, eight days worth seven point zero four percent thirty year bank rate this time with mortgage rates going up.
What's it mean?
So at this point is not only mortgage rates that have been driving the housing markets also that jobs have still been strong and wage growth has still been strong. So on the scale here that has clearly been dominating what has been happening to mortgage rates, and that's why housing has started to show a recovery.
The fact that they are more bits per home.
Sold now than there were six months ago is just stunning when you think about where morgage rates are. So that means that we will get to that infliction point, and through earlier discussion, where we might get that sharper slope down where it no.
Longer be be like what Friday or Monday.
Oh no, so this may be several months down the road because again remember both the banking sector tightening conditions and also morgus rates at these levels. Eventually the Fed will succeed with getting inflation down, and we should not doubt their commitment to getting inflation back to two percent, which takes.
Us back to where we started in a sense. This ten trillion dollars of stimulus that was pumped into the economy and the uncertainty of where we are in terms of breaking it down and pulling it out of the economy. Do we have a sense of how much was sucked out and how much just keeps getting circulated in terms of wages and bigger incomes that go into spending.
Absolutely, that's a really key question because the only way we can really get a good handle of that is to try to look at the data for how much savings is left across the income distribution.
The feed has quality data for that.
Some of the banks, City Bank and Bank of America have data that also on the private level. And the conclusion is still today you have both for high, middle and low income groups, still a higher levels of savings at these cash in checking accounts than what you had
in the fourth quarter of twenty nineteen. So the answer to your question is we still need some more time before that excess savings has been worked down to a lower level, and that's when we also made a little begin We've seen you spoke about this Earlier, we've seen some of the credit card data showing some signs of weakness. You're also seen at Bloomberg Screen restaurant performance in DEX
also beginning to roll lower a bit. So there are some early signs of maybe consumers are beginning to hold back, and delinquasy rates also in particular for lower fical scores are also beginning to go up. So yes, there's some early signs of cracks for the US consumer. But it's still exactly the question you're asking. Pretty difficult to get an exam firm handle on what is the timing, but it is coming. No one should doubt that there is ESSI is on the horizon.
There's a big debate about what caused the inflation. Was it this question of some structural changes with people exiting the work workplace and just perhaps reglobalization or deglobalization, and how much was just modern monetary theory failed that essentially, Yes, if you do just print money, you're going to get more inflation, and that's essentially what happened. I mean, how much can you parse out these two things?
Yees?
So if you throw tentrall in that the economy no wonder that you get some inflation and if you're at the same time lower the capacity of the economy being lower the supply side. If capacity starts rinking, you both have more demand and you have less supply. That's a recipe for inflation going up. So now we're trying to balance that by pursuing demand that by hiking rates, and supply chains are coming back, so that means supply is coming up to get the economy more on balance. So
that you have talked about this for many years. The tailor rule, if I look at my Bloomberg screen says the fit funtrates to they should be nine.
That's obviously not where we are.
But if we are so far away from the fedscal of inflation and unemployment that we still need more to do to get to the point where there's more balance between supply and demand.
Chicago's by way of Austria, M two has been a study. Most people say, ignore M two doesn't have recent academic validity.
I'm sorry. M two took off like a moonshot and it's cratered. What's it mean?
So I would look at him too as a reflection of the tentrillion that was thrown in terms of accurcate demand that came along, and M two is indeed now collapsing, but that's because the FET is trying to withdraw Equaly, the FED is trying to really slow the economy down, and we should in equity and credit mark. It's not under estimate the commitment that the FET has to slow down earning's growth, slow down hiring. The whole idea from the FET is to slow down consumption, slow down cap
e spending. That's a very very strong commitment to saying we need to slow the economy down in order to get inflation down from five to two percent, to.
Put a bow on it. And the follow up on what you said with the tailor rule and a possible nine percent FED funds rate, which a lot of people say is implausible at this moment, how mispriced do you think where funds rates should go in order to slow this economy to bring out some of this ten trillion dollars.
Of simil well.
I think, as Tom was saying, that's exactly the debate on the air form C at the moment, some many firm C members are saying we no only longer need to hike more and others are saying, but wait a minute, maybe we do need to hike more, because maybe the transmission mechanism is saying that Moyes needed. So I do think for sure at least we will need to have rates elevated for a lot longer than what markets up pricing.
The economist James Diamond, I believe that. I believe he said he's a little leery on quantitative tiding right now. I mean, is that the heart of the matter that I is gonna have to blink and lose QT.
So well, there's a lot of discussion about what is the sequencing of how do we actually tighten policy. And here at this point, if you think that it is needed to get long rates further up to say, cool the housing market down.
You've been driving them up.
Torston slock Alone's answers to a four to forty two year yield and a thirty year bond four or four percent.
Yeah, I mean this is what we've seen. This grind higher as people really rethink because the.
Recession has been delayed and if this delayed more, well, okay, if it's not coming, maybe race do need to go up a bit more.
I get the chart on Twitter it's clearly the chart of the day. His Torston sluck of a power global man.
Fantastic conversation coming up right now with our colleague and good friend, Francine Lanquist, sitting down with the CEO of Standard Charted at the Qatar Economic Forum. Hello friend, Hi John, Thank you so much.
I am delighted to speak to Bill Winters. We'll talk about them ago little least, we'll speak about markets, and we'll speak about everything in between.
Bill Winters, thank you so much.
Great to be.
Here for joining us.
We'll talk about the banks, and we'll talk about potential takeovers or not if stand a chart in the second. But what do you worry most about the markets? Is the debt ceiling? Is it a banking crisis? Is it FEDS policy mistakes?
I mean, right this minute, I'm not worrying about it too much because I think things feel actually in a reasonable stasis in the world. Of course we're worried about the dead ceiling, but I heard the reassuring comments both from President Biden and Speak McCarthy yesterday.
I have to think these guys know what they're playing with.
So I'm okay that I think this is the structural resistance of inflation to come back down. That's the biggest concern, not right at this moment, but just as that plays out over time. What's economic growth look like.
I've been very impressed by the resilience in the US, in Europe, and.
Of course this region, the Middle East is booming, Asia is booming, India is booming despite higher interest rates.
So it thinks, feel okay, Well, if you look at the debt ceiling, even if we have a resolution, are we playing with fire? Does it actually put to the US as reserve currency? As I know, leader's free world at risk?
Look, I mean we've been the politicians in Washington have been playing with the debt.
Ceiling for decades and you know, so far there's not been an accident. Of course, every time it happens, we wonder, you know, given how crazy the politics is in the US right now, is this going to be the time? But the fact is, the treasury, the treasury markets are behaving well. Credit markets are behaving well. So the market is not pricing yet a bad outcome here.
There's a lot of money in the Middle East. Do you think they're after a bank like yours?
Look, I think everybody in the world would love to own a piece of standard Charter Bank because it's a strong bank.
We're doing well.
We've got this super interesting foot train across Asian Middle East, in Africa, So.
You're a takeover.
We're cheap.
So we're cheap over target.
Like I say, if somebody wants to to come and say, we can add more value to this bank than what you're doing today, where you're drawing at double digit growth rates, profits at substantially higher you can have an idea on how to do something better.
Please let us know. We'll come in.
But is there The fact is we're a global bank today, We're adequately scaled for the environment.
We're growing quite nicely. That's all I'm focused on.
Okay, if you look at regulators in you know, in the UK and elsewhere, would they be ready for takeover of a large systemic bank by you know, Middle Eastern money.
Well, I noticed that there was a takeover of a large systemic bank in Switzerland a few weeks back, and it.
Happened in a weekend. So I guess that means it's domestic.
In the right in the right circumstance, regulators can get things going.
I think the it's very pressive to see how the various.
Investors in the golf. We're sitting here in Qatar today. I just had a panel discussion with the head of the Qatar Investment Authority. That's a very impressive investor with a truly global perspective, a lot of experience investing, and I think these the various countries on the golf. Of course, they are accumulating savings right now and they're diversifying their economy.
So that's why we're here.
That's why we're investing so much capital into the Middle East because we see these huge opportunities to connect that capital with all the opportunities in Asia and vice versa.
So do you need to have a bank to do that? No, you need to have a bank like us. It's prepared to play that bridging role.
What's the hardest thing being the bank right now? Is it how to deal with China?
Great?
At the moment, I think everybody's very focused on liquidity.
So even though we are we as a bank, and I think the banking industry broadly.
Is extremely liquid and will remain.
Liquid even after we go through a period of quantitative tightening or whatever. But the rules changed when Silicon Valley Bank went busted and then Credits Feees went through its from while a week later, and so everybody's looking.
Hard at whether the deposits are as sticky as we thought.
I think that that that, as so many things have made it through these testing prayers, will the industry will be fine here?
I'm sure Center Trubor.
Will be fine.
So that's the immediate concern, I think.
In the longer term from a banking perspective, of course, we've always got an eye on the East West tensions. But you know, the best thing that happens to our business is we keep trade levels very high, which is what they am record record levels of trade between China and the US, just as an example. But China is accelerating its pace of opening up, opening up as capital markets, and for a bank that's structurally a connector, that's a good thing.
That's a good thing.
And how can you be sure that it's opening up for real without a step forward to step backwards, because we're sometimes hearing mixed messages from the Chinese authorities.
I think when you look over really over the decades now, China has been sort of race ahead, consolidated a bit race ahead. I think that's quite normal the structure. China is part of the global economy in a very, very big way and wants.
To remain part of the global economy in a big way.
In order to do that, they need to liberalize the arrangements for capital and goods and services moving in and out of China.
That's been a steady objective for decades.
Now it's accelerating at the moment, I think for all the reasons around the geopolitical tensions, and I think it.
Will continue to move forward.
But will they take time from time to time to consolidate, maybe just pull back a little bit before moving forward.
Of course, But when you talk about deposits and actually liquidity, do we need to look at depositors base at some of the banks?
Is there too much concentration so are we going to see more.
Regulation and is that regulation warranted or could it.
Be like wrong write this, It's a big question.
I think it's very clear that there were some deposit bases in particular in the US, although some would say credit serace as well, that were too concentrated, and we know that the market was merciless with those players. We know that in the US, the fed now is but a term funding facility in place.
It's not a.
Guarantee of the banking system, but it is a very very substantial backstop.
So I don't think we're gonna see any more prices.
But I think everybody's looking to say, okay, let's think again about how sticky those deposits are.
But free.
At the heart of it is banking is a confidence business. And if we're going to have a fractional reserve banking system technical term meaning you borrow, you.
Check deposits, and you turn them right.
If we're gonna have that system central banks, we're gonna have to accommodate that with transparent liquidity facilities.
For healthy banks.
But does mobile banking change anything because we used to have to q op and actually get to we stuff to marke up.
But I'll tell you the moment that there was a queue in front of Northern Rock in two thousand and seven, the bank was done so in fact way in some ways that might even be worse because it was visible.
It was a news story. So the mobile banking means everything goes a bit faster.
But bank runs are bank runs, and as soon as you lose confidence, it's hard to get it back.
Does the end of credit sueeze actually mean that you get market share in Asia?
On look, I mean credit Suiece's business is being distributed across the market. The UBS acquired a lot of it, but UBS was already they have four hundred pound gerilla, so they can't they can't retain everything that came in from the Credit Suaese.
Some of the money had moved before.
Obviously, there's almost over two hundred million dollars of outflows before that.
That money all went someplace and it's not all going back to UBS.
So yeah, we're picking up We're picking up rms so relationship managers, we're picking up asset center managements, we're picking.
Up some loan market share. That's how much.
We had twenty billion dollars of inflows last year and another five or so billion into our private bank in the first quarter of this year, which in the overall scheme of credit suitese is not a big deal for center Chutter.
It's it's material.
We talk about the UK almost every day, as you know, it could do better, it needs to do better. There's not enough investment do worry about the UK and London specifically as as a capital market.
I'm a big believer in the UK right. It's a fundamentally resilient place. I think Bridgie Tunak and government are doing the right things right now. Of Course politically they've got they've got a challenge, given they've given everything that we've been through.
But I think the country is doing the right thing, is incredibly resilient.
I think the fact that that we've not had an actual drop in economy or negative economic growth, no recession, quite impressive given them the buffetting and the economy. But there's an inflation problem, there's a I think there's there's some all sorts of challenges around corporate governance which which have to be worked through.
Okay, well we'll have to get you back on to talk about that, Bill, Thanks so much, Bill Winter's there a standard charged with that, John, and that'll send it back to you in New York and we'll have plenty more drive day.
Hey, Frank, seeing wonderful work has always fran scein Lacquay there with Bill Winter's of standard Challe it's sitting in them at least at the Kata Economic Forum.
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