>> WE CANNOT DECLARE VICTORY YET. THE GREAT INFLATION IS NOT OVER UNTIL THE FED SAYS IT IS. >> OUR EXPECTATION IS INFLATION WILL BE CONQUERED OVER TIME.
>> THE NOTION THIS IS INHERENTLY INFLATIONARY ECONOMY IS NOT OBVIOUS TO ME. >> FINANCIAL CONDITIONS HAVE TIGHTENED TO SOME EXTENT BUT IT IS IN THE BANKING SECTOR WE ARE SEEING MOST OF THE TIGHTENING. >> THIS IS "BLOOMBERG SURVEILLANCE." LIVE FROM IMF SPRING MEETINGS IN WASHINGTON DC WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. JONATHAN: WHAT A FANTASTIC WEEK FULL OF BRILLIANT CONVERSATIONS. LIVE FROM WASHINGTON DC, GOOD MORNING. THIS IS "BLOOMBERG
SURVEILLANCE." ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ. CO. YOU DOWN TO RETAIL SALES IN 30 MINUTES FROM NOW -- COUNTING DOWN RETAIL SALES IN 30 MINUTES FROM NOW. BREATHING SOME LIFE INTO THE BULLISH VIEW ON THE EQUITY MARKET, EQUITY FUTURES THIS MORNING A TOUCH NEGATIVE OFF OF THE BANK OF -- BACK A BANK EARNINGS.
BANK EARNING SO FAR, SO GOOD. JP MORGAN OUT OF THE GATE GETTING TO WANT TO A GREAT START. THE STOCK UP ALMOST 6% IN PREMARKET. CITI OUT MOMENTS AGO. LISA:
BIDDING PRETTY MUCH -- BEATING ACROSS THE BOARD. ONE POINT $3 TRILLION OF DEPOSITS. WE WILL GET THE COMPARISONS HERE YEAR-OVER-YEAR IN A MINUTE. YOU ARE IN THE EXTENSION OF THE GAIN IN CITI SHARES IS ONCE AGAIN THE BIG BANKS ARE THE PORT IN THE STORM AND WERE SEEING THEM CONSOLIDATE THEIR POWER AND THAT PERHAPS IS THE STORY OF THE MORNING. JONATHAN: IF YOU LOOK AT THESE NAMES WOULD YOU HAVE WE HAD A BANKING CRISIS IN THE LAST MONTH? TOM: NO. THEY'RE GOING TO DO EVERYTHING THEY CAN TO UNDERPLAY THIS. THEY'RE GOING TO PAY HOMAGE TO
THE BANKING CRISIS HAPPENING WITH SMALLER BANK AMERICA. AS A RULE OF THUMB, WITH CITIGROUP YOU MOVE THE DECIMAL TO THE LEFT AS THEY DID A TIN-ONE REVERSE SPLIT WHEN THEY WERE STACKED ON THEIR BACK -- FLAT ON THEIR BACK. CITIGROUP IS NOT JP MORGAN. CITIGROUP IS NOT A BANK OF
AMERICA. CITIGROUP IS NOT EVEN UBS. THEY ARE A BANK IN RESTRUCTURING ROAD. IT IS GREAT TO SEE THOSE NUMBERS. JONATHAN: JANE FRASER MARKET SAW THE THIRD BEST QUARTER IN THE LAST DECADE IN FIXED INCOME. LISA: THAT IS WHAT I WAS WATCHING. I'M THINKING YOU LOOK AT THE VOLATILITY WE HAVE SEEN WITH RATES ALL OVER THE PLACE YOU SEE POTENTIAL DISLOCATIONS. THIS IS WHEN BANKS DO THE BEST. YOU HAVE MARKET BANKERS MAKING
BANK AND IT IS WHAT WE SAW WITH CITIGROUP. IT HIGHLIGHTS THE DISSONANCE BETWEEN CREDIT CRISIS DISCUSSIONS AND WITH THE BANKS ARE DOING WITH THEIR BALANCE SHEETS. JONATHAN: THERE'S AN EXTRA LEVEL OF DETAIL WE NEED. JP MORGAN STILL UP MORE THAN 5%. A BEAT FROM JP MORGAN. A BEAT FROM WELLS FARGO. NEXT WEEK MORGAN STANLEY, GOLDMAN SACHS ON DECK.
EQUITY FUTURES UNCHANGED ON THE S&P 500. YOUR NEXT STOP FOR THE MARKET, U.S. RETAIL SALES AND WE'RE LOOKING FOR A SOFT RETAIL SALE PRINT WITH 10 YEAR UP A SINGLE BASIS POINT. 300-4562. ALONGSIDE US, AT THE GLOBAL HEADQUARTERS, MOHAMED EL-ERIAN. GOOD MORNING. MOHAMED: GOOD MORNING. CAN WE STOP CALLING IT A BANKING CRISIS? IT WAS NOT A BANKING CRISIS. JONATHAN: TELL ME WHY. MOHAMED:
A BANKING CRISIS IS A CRISIS OF THE BANKING SYSTEM. A FEW BANKS CALLED OFF-SITE AND BADLY SUPERVISE WENT DOWN THE. THE BIG BANKS ARE JUST FINE. WE SEE THAT. THE BIG BANKS ARE BENEFITING FROM THEY'VE GOT TWO THINGS, NOT ONLY ARE THEY VIEWED AS SAVED, THEY HAVE DIVERSIFIED BUSINESS MODELS. YOU SAW WHAT HAPPENED. SUDDENLY IT IS THE NARROW BANK THAT IS RISKY AND UNIVERSAL BANKS THAT ARE RESILIENT. JONATHAN: IF IT WAS NOT A CRISIS, WHY DO YOU THINK OFFICIALS NEEDED TO USE SYSTEMIC RISK EXCEPTION? MOHAMED: IT CREPT UP ON THEM AND THEY WENT TOO FAR.
I UNDERSTAND WHY THEY DID IT. I EXPECT I WOULD HAVE DONE IT TO. JONATHAN: DO YOU THINK THEY POST SYSTEMIC RISK? MOHAMED: THE DEPOSIT RUN AT A PRESS THEM A LOT -- AT FIRST REPUBLIC SCARED THEM A LOT. IT WAS A FAILURE OF'S SUPERVISION -- OF SUPERVISION. LISA: LET'S SAY THIS IS NOT A BANKING CRISIS. DO NOT RISE TO 2008 OR 1980 SCENARIO BUT IS IT A CREDIT CRUNCH THAT WERE GOING TO SEE IT EVOLVE? MOHAMED: WE ARE GOING THROUGH A MAJOR TRANSITION WHICH HAS MADE SOME BUSINESS MODELS INCREDIBLY STRESSED.
WERE GOING TO SEE THAT. WE'RE GOING -- NOW FOCUSING ON THE BANKS. WE TALK ABOUT COMMERCIAL REAL ESTATE A BUT IT GOES BEYOND THIS. WHEN YOU CHANGE WHICH IS A GREAT PARADIGM AS QUICKLY AS WE DID IT WILL CATCH PEOPLE OFF. SOME PEOPLE ABLE TO GET BACK ON
SIDE, OTHERS HAVE BUSINESS MODELS THAT DO NOT ALLOW THEM TO GET BACK ON SIDE. SOME OF THE SMALLER BANKS HAVE THAT ISSUE. THEY HAVE HIGHER FUNDING COSTS. DEPOSITS HAVE BECOME MORE FLIGHTY THEY'RE GOING TO HAVE TO CONTRACT AND THEY'RE MAKING LOANS THAT THE BIG BANKS WILL NOT MAKE. WE'RE GOING TO HAVE A REDUCTION IN CREDIT CONTRACTION. JONATHAN: WE HAVE A TALK ABOUT THE
FEDERAL RESERVE. HE WAS TALKING ABOUT SOME OF THE BLAME LYING IN THE FEET OF THE FEDERAL RESERVE. TO CALL OF MONETARY POLICY OFFICIALS FOR THEIR ROLE IN SOME OF THE INSTABILITY. WHERE WOULD YOU STAND ON THAT?
MOHAMED: IT IS IMPORTANT TO KEEP CENTRAL BANKS IN -- THEY ARE VERY IMPORTANT. I'M A HUGE FAN OF CENTRAL BANKS. IT IS IMPORTANT TO HAVE SOME ACCOUNTABILITY IN THE SYSTEM BECAUSE THAT IS THE BASIS OF POLITICAL INDEPENDENCE. NO ONE WANTS TO-YEAR-OLD THE POLITICAL INDEPENDENCE OF CENTRAL BANKS -- ERODE THE POLITICAL INDEPENDENCE OF CENTRAL BANKS ABOUT A CENTRAL BANKS HAVE TO OWN THEIR MISTAKES TO ENJOY SOMETHING IMPORTANT FOR THE SYSTEM AS A WHOLE, THE ABILITY TO MAKE POLICY WITHOUT HAVING TO GO TO COMMERCE. JONATHAN: ONE FED OFFICIAL SAID THE MOVE FROM ZERO TO CLOSE TO 5% IN 12 MONTHS WAS NOT THE PROBLEM WITH THE BANKING SYSTEM. DO YOU THINK THAT HAS ANYTHING
TO DO WITH IT? A DECADE OF ZERO INTEREST RATES AND GOING FROM 0% TO 5% LIKE THAT? MOHAMED: WE HAVE THREE STAGES OF THIS TRAGEDY. STAGE ONE WAS TO LOSE FOR TOO LONG. IN MARCH WHEN THE INFLATION PRINT WAS 7.5% THE FED WAS STILL INJECTING LIQUIDITY INTO THE ECONOMY. WE SHOULD'VE STARTED TIGHTENING POLICY SIGNIFICANTLY A YEAR AGO.
THE SECOND PROBLEM IS AFTER THIS WHOLE LONG PERIOD THE FED MISCHARACTERIZE INFLATION SO WE LOSS NINE MONTHS OF POSSIBLE POLICY ADJUSTMENTS. WHEN YOU STARTED LATE YOU END UP GOING HIGHER AND STAYING THERE FOR LONGER. THAT IS THE LOGIC. THAT IS WHY TIGHTER MONETARY POLICY IS IMPORTANT. THE INTEREST RATE CYCLE HAS
BEEN MISHANDLED. HIS HAND -- IT IS HAD AN IMPACT OF WHAT WE ARE SEEING OF FINANCIAL TABLETS AND ALSO WERE GOING TO SEE IN ECONOMIC TURBULENCE. TOM: THERE IS A SPECTACULAR STAINED-GLASS WINDOW AT CAMBRIDGE OF A VENN DIAGRAM. IT IS A REMARKABLE WINDOW. THERE ARE 42 CIRCLES AT THE IMF AND THEY ARE TRYING TO FIND A VENN DIAGRAM OF POLITICS, ECONOMICS, DEBATE THAT GETS TO A COMMON THEME. I CANNOT FIND THE COMMON THEME THIS TIME AROUND. WHAT IS IT? MOHAMED: I WAS SURPRISED WHEN YOU SAID THESE ARE ALL THESE ISSUES AND NO COMMON THEME. THERE IS ABSOLUTELY A COMMON
THEME AND IT IS A WORLD OF DEFICIENT AGGREGATE SUPPLY. WE HAVE GONE FROM DEMAND TO A WORLD OF DEFICIENT AGGREGATE SUPPLY. YOU GET INFLATION. YOU GET INTEREST RATE HIKES. I COULD GO DOWN THE LIST. IF YOU UNDER RESPOND TO THAT SHIFT, THE YOU START TAKING ALL SORTS OF ISSUES. TOM:
THE BOTTOM LINE IS THERE'S TOO MUCH MONEY OUT THERE AND NOT ENOUGH INVESTABLE OPPORTUNITIES ON A GLOBAL BASIS. WE HAVE BEEN THIS WAY FOR A WHILE. IS IT A GENERATIONAL ISSUE WHERE WE NEVER ESCAPE THIS TRACT OF TOO MUCH MONEY CHASING, NOT ENOUGH CONSTRUCTIVE IDEAS? MOHAMED: WE HAVE TOO MUCH MONEY. BUT I WOULD LOVE TO DISCUSS IS THE NOTION THAT WE DO NOT HAVE ENOUGH INVESTMENT OPPORTUNITIES. READ GOING THROUGH MAJOR
TRANSITION. ENERGY TRANSITION IS A MAJOR OPPORTUNITY. THE MARKET FAILURES MEAN WE HAVE NOT BEEN ABLE TO TAKE ADVANTAGE OF THIS IMPORTANT WINDOW IN INVESTMENTS. IF YOU HAVE A LONG DISCUSSION
ABOUT WHAT THE U.S. HAS DONE AND NOT UPSET THE EUROPEANS BUT THEY ARE RIGHT THERE TRYING TO ADDRESS MARKET FAILURES TO HAVE MORE PRIVATE PARTNERSHIPS TO INVEST IN AN AREA THAT IS UNDER INVESTED. TOM: BRILLIANT IDEA. CAN HE RUN THE PORT AUTHORITY? JONATHAN: RAISING A REALLY IMPORTANT ISSUE. IT IS NOT WITH THE BENEFIT OF HINDSIGHT. GERMANY AND EUROPEAN COUNTRIES HAVE THE LUXURY OF INCREDIBLY LOW INTEREST RATES.
10 VET DID NOT MAKE THEM -- IT DID NOT MAKE THE MOVE TO INVEST IN THE WAY THEY SHOULD HAVE. TOM: -- JONATHAN: WHEN HE LEFT THE GERMAN FINANCE MINISTRY AND A SET OUTSIDE AS IT WAS SOMETHING TO CELEBRATE. IT WAS A FAILURE OF POLICY OVER THE LAST 10 YEARS. TOM: ARE WE GOING TO SEE IN BRITAIN AGAIN WITH THE SHOTS WE DID IN OTHERS? BRITAIN IS SO KIND BUT WITH AUSTERITY. MOHAMED: BRITAIN HAS BECOME COMFORTABLE
WITH LOW GROWTH. WE HAVE THREE ISSUES. MICHAEL SPENCE HAVE BEEN WORKING ON THIS FOR A WHILE. ONE, INADEQUATE GROWTH MODELS. WE HAVE TO RETHINK HOW WE GROW.
TWO, INADEQUATE DOMESTIC POLICY IMPLEMENTATION AND THREE, INADEQUATE GLOBAL POLICY COORDINATION. THOSE ARE THE THREE BIG AREAS. THERE ARE SOLUTIONS TO ALL THREE. THAT IS THE GOOD NEWS BUT WE
HAVE TO FOCUS THE DISCUSSION. JONATHAN: THIS CONVERSATION IS NOT OVER. MOHAMED EL-ERIAN LIFE FROM THE INTERNATIONAL MONETARY FUND GLOBAL HEADQUARTERS. COMING UP WE CATCH UP WITH THE
CEO CLEAR HARBOR ASSET MANAGEMENT. FROM WASHINGTON THIS IS BLOOMBERG. LISA: KEEPING YOU UP-TO-DATE WITH NEWS AROUND THE WORLD. THE U.S. IS PRESSING THE NEED FOR ALLIES TO COORDINATE AGAINST ECONOMIC COERCION NOT JUST MILITARY THREATS. THIS IS AS JAPAN PREPARES TO HOST TOP THE MEDICS FROM A GROUP OF SEVEN NATIONS AMID HEIGHTENED TENSIONS WITH CHINA. U.S. AMBASSADOR ST. CLOUD THAT EQUATION PIECE IS IMPORTANT.
CHINA SAID TO BE A KEY FOCUS OF DISCUSSIONS AT THE MEETING. CHINA'S MEGABANKS ARE PLANNING AT LEAST 40 BILLION OF ON SALES KICKING OFF A MAJOR FUNDING PUSH TO COMPLY WITH THE GLOBAL CAPITAL RULES BY EARLY 2020 FIVE. BLOOMBERG HAS LEARNED INDUSTRIAL AND COMMERCIAL BANK OF CHINA AND HIS THREE CLOSEST RIVALS ARE PLANNING TO TAP DOMESTIC DEBT MARKETS TO SELL A NEW CATEGORY OF TOTAL LOSS CAPACITY BONDS. MITSUBISHI UFJ FINANCIAL GROUP WEALTHY CLIENTS LOST MORE THAN $700 MILLION ON THE CREDIT SUISSE GROUPS. PURCHASE TO THE JAPANESE BANK BROKERAGE WITH MORGAN STANLEY. JAPAN'S LARGEST BANKING GROUP IS HOLDING MEETINGS OF SENIOR OFFICIALS TO LOOK INTO THE MATTER AS IT REACHES OUT TO ROUGHLY 1500 CLIENTS LOST A COMBINED $717 MILLION.
SUPREME COURT JUSTICE CLARENCE THOMAS AND RELATIVES SOLD THREE GEORGIA PROPERTIES THAT INCLUDE THOMAS'S BOYHOOD HOME TO GOP MEGA DONOR MARLENE CROW IN 2014. PRO PUBLIC ASSESSED THOMAS DID NOT LIST THE REAL ESTATE -- SAYS THOMAS DID NOT LIST THE SALES OR REPORT THE TRAVELS THAT OCCURRED OVER TWO DECADES. GLOBAL NEWS POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM LISA MATEO. THIS IS BLOOMBERG. >> ONE THING THAT SEEMS TO BE OFF OF THE TABLE AS MONETARY POLICY ROLE IN CREATING FINANCIAL AND YOU HAVE TO BELIEVE THREE CRISES IN TWO DECADES IT HAS TO HAVE PLAYED SOME ROLE. WHAT ABOUT QT?
IT WASN'T THAT APART WHAT WE ARE IN NOW AND THAT IS WHY WE NEED ORGANIZATIONS LIKE IMF TO START POKING. THEY'RE HESITANT TO COMPLAIN ABOUT CENTRAL BANKS OF THE INDUSTRIAL WORLD BECAUSE THOSE GUYS ARE MORE ECONOMIST AND THE IMF AT SOMETIMES. JONATHAN: CAN I PICK UP ON THOSE COMMENTS? THIS LINE RIGHT HERE, ON THE LACK OF CRITICISM OF THE FEDERAL RESERVE, THEY ARE VERY HESITANT TO COMPLAIN ABOUT CENTRAL BANKS IN THE INDUSTRIAL WORLD BECAUSE OF THOSE GUYS HAVE MORE ECONOMISTS THAN THE IMF SOMETIMES. WHAT DO YOU MAKE OF THOSE COMMENTS? TOM: HE IS ENJOYING HIS INDEPENDENCE. HE WAS ON FIRE. LET ME EXPLAIN WHY HE GETS CREDIT.
THERE WERE 4300 BOOKS WRITTEN ON 2007, 2008, AND A THOUSAND NINE. WHEN I DO COLLEGE LECTURES I GO SHUT UP AND READ FAULT LINES AND IT IS THE CONCISION. EVERYBODY GOT A DIFFERENT ACT. HE IS FINANCIAL ECONOMICS WHICH IS ALGEBRAIC CONCISION. JONATHAN: JUST WRAP UP STEADY, -- CITI, WE ALSO GOT MOHAMED EL-ERIAN ALONGSIDE US THIS MORNING IN THE STUDIO AT THE IMF HEADQUARTERS. I GOT TO GET YOUR RESPONSE TO
THAT. WHAT YOU MAKE OF THAT? THE LACK OF CRITICISM OF THE FEDERAL RESERVE? MOHAMED: HISTORICALLY THE IMF IS HESITANT TO IN ANY WAY CRITICIZE THE FEDERAL RESERVE, THE ECB BUT HE FINDS IT EASY TO CRITICIZE CENTRAL BANKS IN DEVELOPING COUNTRIES. JONATHAN: WHY? MOHAMED: LOOK AT THE VOTING POWER IN THIS INTUITION. THE GET WHAT SUPPORT YOU NEED
TO GET THINGS THROUGH -- LOOK AT WHAT SUPPORT YOU NEED TO GET THINGS THROUGH. TOM: WE ARE GOING TO CONTINUE THIS DISCUSSION. DIRECTOR OF EQUITY RESEARCH AT CF A AND DECADES OF EXPERIENCE IN USE OF CASH AT THESE MAJOR BANKS. WHAT IS A FEATURE USE OF CASH, ARMAMENT YEARS AGO HE SAID THIS IS WHAT THEY'RE GOING TO DO THEIR DIVIDEND INCREASE. WITH REVENUE JOIN TODAY CAN YOU MODEL OUT A THREE OR FIVE YEAR PERSISTENT USE OF CASH TO HAVE BEEN TO SHAREHOLDERS AT THESE BANKS? AARON: THEY DO NOT HAVE CONTROL BECAUSE REGULATOR'S HAVE A BIT TO SAY ABOUT CAPITAL LIKE DIVIDENDS BUT THEY ARE INVESTING IN TECHNOLOGY.
THEY ARE INVESTING IN ARTIFICIAL INTELLIGENCE. THEY ARE GLOBAL BANKS WHICH MEANS ASSETS ARE FLOWING IN, NOT OUT OF THE LARGEST BANKS. WHAT WE WILL SEE IN THE FUTURE IS AN ENVIRONMENT WHERE YOU MAXIMIZE PROFITABILITY IN SLOWER GROWTH ECONOMY. AGAIN WHAT WE HAVE LEARNED TODAY FROM THE LARGE BANKS NET INTERESTS AND COME, THE HIGHER RATES YEAR-OVER-YEAR IS ASTOUNDING BUT THAT WILL BECOME A MORE CHALLENGING IN THE SECOND HALF OF THIS YEAR. THE OPERATING BUSINESSES NEED TO PERFORM AND GROW TO YOUR QUESTION. LISA: DID WE LEARN ANYTHING TODAY ABOUT WHAT WE ARE GOING TO HEAR FROM THE SMALLER REGIONAL BANKS GIVEN PNC DID COME IN BETTER THAN EXPECTED BUT THESE ARE THE BIGGEST OF THE SMALL ONES. KEN: OUR FINANCIAL TEAM ARE LOOKING
AT EVERYTHING CLOSELY, BUT AGAIN THE SMALLER BANKS HAVE A DIFFERENT RISK PROFILE IN TERMS OF FLIGHTY DEPOSITS, THE ABILITIES TO BE DIVERSIFIED AND ALSO HAVE A BUSINESS WHERE THEY CAN CONTINUE TO LEND. THE SMALLER BANKS LEND IN AREAS LARGE BANKS DO NOT WHICH IS COMMERCIAL REAL ESTATE OR CONSTRUCTION ACTIVITY OR A SMALL -- TO SMALL BUSINESSES. THEY PLAY A VITAL ROLE IN U.S. ECONOMY BUT IT IS A POSITION. JONATHAN: DO YOU WANT TO WEIGH IN, QUICKLY? TOM: WE ARE IN DENIAL GOING BACK TO 1833 ABOUT HOW YOU RUN A NATIONAL BANKING SYSTEM. U.S.
MODEL IS UNIQUE, CHERISHED IN THIS WASHINGTON, TESTED EVERY 5, 10, MAYBE 15 YEARS. IT IS POSSIBLE ANSWER AS TO ROD CASSIDY TALKED ABOUT WE'RE GOING TO COME OUT OF THE MARGIN WITH FEWER BANKS. 4000 DOWN TO 3000. JONATHAN: IF YOU GO TO SOME EURO TOWN -- RURAL TOWN IN UNITED KINGDOM, THERE ARE NO THANKS. YOU GET A SMALL TRUCK THAT WILL PULL UP THE PEOPLE DO THEIR DAILY BANKING AND THEN THE TRUCK DISAPPEARS. TOM: I KNOW YOU WANT TO GET BACK TO THE FED DISCUSSION BUT LESS ADDRESS IT, IS THE CANADIAN MODEL BETTER THAN THE U.S. BOTTLE IN BAKING GATEAU YOU SAT
ON THE CHAIR -- IN BANK AND? IS A FIVE BANK MODEL BETTER THAN WHAT WE ARE DOING HERE? MOHAMED: THAT IS A HARD QUESTION. EVEN IF IT WERE A BARTER MODEL, WE ARE NOT GETTING THERE. -- A BETTER MODEL, WE ARE NOT GETTING THERE. THE BETTER QUESTION IS WHAT
HAPPENS TO REGULATION. YOU MAY GET A REGULATORY OVERREACTION TO WHAT IS HAPPENING. JONATHAN: I WOULD SAY THE BETTER QUESTION IS WHO FOR? WHO IS IT FOR? IS CANADA BETTER? WHO FOR COME THE BANKS, THE BIG FIVE, THE INDIVIDUALS WHO HAVE TO BANK? I KNOW THERE ARE MANY BRITS WHO ARE THINKING IT IS NOT GOOD FOR ME.
MOHAMED: WHEN SILICON VALLEY BANK IN U.K. IT WAS TAKEN OVER BY HSBC, I WAS DOING A PANEL IN CAMBRIDGE AND THERE WAS A VENTURE CAPITALIST THERE. THERE WAS A STARTUP PERSON THERE.
I SAID WHAT WAS YOUR REACTION? HE SAID I WENT THERE AND THEY REJECTED ME. I WANT TO SILICON VALLEY BANK AND THEY GAVE ME THE LONG AND I AM A CLIENT AT HSBC. TOM: THAT IS BRILLIANT. THAT IS IN THE ZEITGEIST. JONATHAN:
I THINK THAT IS WHY SOME PEOPLE WERE ALMOST BEMUSED THAT THE INDIVIDUALS, I WOULD SAY HAD SOME PART IN BLOWING UP SVB, THAT WAS THE BANK ABOUT BANK THE COMMUNITY. THEN THEY EXACERBATED THE BANK RUN IN THE WAY THEY BEHAVED. I WILL NEVER UNDERSTAND THAT. THEY LOOK SMART BECAUSE THE
BANK COLLAPSE AND THEIR MONEY WAS NOT IN THE INSTITUTION ANYMORE BUT ULTIMATELY, THEY WERE SCREAMING FIRE. LISA: WHICH RAISES THE QUESTION, THIS IS NOT A BANKING CRISIS. IT IS A BANKING TRIMMER AND YOU SAID IT IS SOMETHING ELSE. DO YOU THINK IMF HAS BEEN TO NEGATIVE AND THINKING THIS AND RUN WITH IT AND SAID THE ACTIONS OF A COUPLE BAD ACTORS CAN BE EXTRAPOLATED OUT TO EVERYONE? JANET YELLEN OF THE TREASURY IS MORE RIGHT. MOHAMED: I HAVE BEEN CONSISTENT ON THIS FROM DAY ONE EVEN WHEN BLOOMBERG ECONOMICS CAME OUT AND SAID U.S.
RECESSION 100% PROFITABILITY. THERE IS NOTHING CERTAIN ABOUT U.S. RECESSION. TODAY WE CAN AVOID IT. THE PROFITABILITY HAS -- THE PROBABILITY HAS GONE UP.
THIS ECONOMY IS FUNDAMENTALLY SOUND. IT IS FUNDAMENTALLY SOUND. WE GET IN THE WAY OF IT. WE TRIP IT UP. I DO NOT KNOW IF HE SAW THE ECONOMIST COVERED THIS WEEK? IT IS TRYING TO EXPLAIN WHY IS THE U.S. ECONOMY SURPRISING TO THE UPSIDE AND WHAT ARE THE LESSONS TO LEARN FROM THAT. JONATHAN: DO YOU BELIEVE IN OF THEIR YOU TAKE THE OTHER SIDE OF THE ECONOMIST COVER? MOHAMED: THAT WAS THE REACTION I GOT WHEN I PICKED IT UP ON TWITTER. JONATHAN: I'M SURE IT WAS.
HAVE YOU SEEN THE MAGAZINE COVER? U.S. ECONOMY, WRITING HIGH. TOM: THE HEART OF THIS, THREE RATIOS WITH SIX OPPORTUNITIES, AND WE BREAK IT DOWN TO PRODUCTIVITY. EVERY CONVERSATION WE HAVE, IN MORNING TV WE DO NOT TALK MUCH ABOUT IT BUT YOU GET TO PRODUCTIVITY. MOHAMED: WE HAVE NOT INVESTED ENOUGH IN PEOPLE. OTHERS THAT ENABLE
PRODUCTIVITY. THAT THE MISTAKE WE MADE FOR THE LAST 20 YEARS. JONATHAN: RETAIL SALES COMING UP IN FIVE MINUTES TIME. JOBLESS CLAIMS YESTERDAY IT WAS A BIT HIGHER THAN ANTICIPATED. PPI A LITTLE BIT SOFTER.
ECONOMIST ON WALL STREET LOOKING FOR A NEGATIVE PRINT ON RETAIL SALES. CATCH UP WITH ETHAN HARRIS AND WE GET MOHAMMED VIEW ON U.S. ECONOMY AND WHAT THE FED BECAUSE THAT'S HOW DATA. JONATHAN: RETAIL SALES DATA SECONDS AWAY. GOING INTO IT, EQUITY FUTURES TOTALLY UNCHANGED. ON A SINGLE NAME BASIS, JP MORGAN FLYING AFTER BEATING FIRST QUARTER ESTIMATES AND RAISING THEIR GUIDANCE FOR NET INTERESTS AND COME I GUESS THE FINANCIAL SECTOR A LIFT THIS MORNING.
JP MORGAN UP 5.8%. CITI UP 2.3%. GETTING RETAIL SALES, WE ARE LOOKING FOR A SOFT PRINT, YOU GET IT EVEN SOFTER PRINT. HERE IS MIKE MCKEE. MICHAEL: AMERICA'S STAYED HOME AND THE WARNINGS WE GOT FROM CREDIT CARD COMPANIES ARE COMING TRUE.
RETAIL SALES HEADLINE DOWN 1% COMPARED TO A .4% DECLINE MONTH BEFORE. RETAIL SALES X AUTO DOWN .8% AND THAT IS COMPARED WITH A .1% DROP THE MONTH BEFORE. THE CONTROL GROUP WHICH IS WHAT ECONOMISTS WATCH DOWN .3%.
ALL IN ALL, IT IS NOT A GOOD REPORT ON THE RETAIL SALES NUMBERS. WE NEW AUTOS WERE BAD AND NOW THE REST OF IT LOOKS BAD AS WELL. THE IMPORT PRICE INDEX DOWN .6% AND X PETROLEUM DOWN .6%. GOOD NEWS ON THE INFLATION FRONT BUT NOT GOOD NEWS THE CONSUMPTION FRONT. I WILL LET YOU CHECK THE MARKETS TO FIND OUT WHERE THE SPENDING WAS DURING THE MONTH OF MARCH. JONATHAN: YOUR EQUITY MARKET BASICALLY
UNCHANGED ON THE S&P 500, SLIGHTLY NEGATIVE EVEN WITH BETTER-THAN-EXPECTED NUMBERS ARE THE FINANCIAL SECTOR. THE BOND MARKET, YIELDS A BIT HIGHER. TWO YEARS NORTH OF 4%. 10-YEAR 348. LISA: THIS MAKE SENSE TO ME BUT HOW MUCH BECAUSE GAS PRICES WERE LOWER? GAS DOWN 0.3% VERSUS ESTIMATE DROP OF 0.6%. ARE WE SEEING THE NOMINAL EFFECTS OF GASOLINE PRICES DROPPING IN THE FACE OF A POTENTIAL DECLINE IN THE ECONOMY? JONATHAN: YIELDS UP. TOM: IF YOU ARE STILL THERE MICHAEL WHEN I LOOK AT RETAIL SALES, HOW DOES THIS RETAIL SALES RAPIDLY ADJUSTS TO ONE GDP? MICHAEL: WE GET AN UPDATE OF THE ALLIANCE OF FED GDP TRACKER IN A COUPLE OF HOURS BASED ON THIS MONEY -- ATLANTA FED GDP TRACKER BASED ON THIS DATA.
PEOPLE HAVE THOUGHT THE FIRST QUARTER WAS BETTER THAN ANTICIPATED. JAMIE DIMON THIS MORNING SAID CONSUMER SPENDING HELD UP. GOOD POINT ABOUT GASOLINE AND THE NOMINAL PRICE.
GASOLINE SALES DOWN 5.5% DURING THE MONTH. THERE CERTAINLY A PRICE IMPACTED THEIR. FOOD PRICES DOWN .1%. NOT SO BAD THERE. FOR ELSE DID WE SEE MOVEMENT? CLOTHING STORES DOWN 1.7%. YET TO BE CAREFUL WITH THE EASTER AFFECT THIS TIME OF YEAR. GENERAL MERCHANDISE DOWN 3%. DEPARTMENT STORES DOWN 2.5%.
THERE ARE NEGATIVES IN THEIR BUT MAY HAVE TO DO WITH FALLING ENERGY PRICES AS WELL. JONATHAN: GOOD POINT. MIKE MCKEE ON THE LATEST RETAIL SALES. I THINK THE POINT YOU MADE IS IMPORTANT. AT FIRST LOOK YOU GOT HEADLINE WHICH DELIVERS A MESS. YOU LOOK TO THE MARKET AND YOU SEE YIELDS HIGHER ON TWO-YEAR BY SIX BASIS POINTS. NORTH OF 4%. GO THROUGH IT FOR EVERYONE. LISA:
YOU HAVE THE HEADLINE NUMBER DROP OF 1% VERSUS THE EXPECTATION OF 0.5% AND THEN IF YOU TAKE A LOOK AT A PIECE COMPONENTS YOU STEP OUT AUTOS, HE STRIPPED OUT GAS AND IT IS ONLY AT OF 0.3%. THIS IS WHY PEOPLE ARE TAKING A LOOK AT THIS AND SAYING IT'S NOT NEARLY AS WEAK AS EXPECTED. HOW LONG WHEN WE PAID -- PLAY NARRATIVE LET, YOU HAVE SOFT LANDING HARD LANDING AND EVERY BACK TO SOFT LANDING? HOW LONG BEFORE WE GET BACK THERE? JONATHAN: WE HAVE TO WAIT AND SEE WHAT HAPPENS THERE. CAN I CALL IT A BAKING SHOCK? LISA: TREMOR. JONATHAN: WE STILL HAVE TO WAIT AND SEE TO WHAT EXTENT FINANCIAL CONDITIONS ARE GOING TO TIE-IN THE. THAT SPEAKS TO NEW APPROACH FROM THE FEDERAL RESERVE
WHOEVER IMPLIED ONE MORE INTEREST RATE HIKE THEY STOP AT 5.1%. THEY'RE NOT GOING TO BE IN A RUSH TO DEVIATE FROM THE GUN IS DELIVERED. TOM: MOHAMED EL-ERIAN AND JOHN NOW THEY BRING IN ETHAN AREAS -- -- ETHAN HARRIS. YOU HAD A BANK OF AMERICA WILL ADJUST TO THIS ECONOMIC DATA. WHAT IS YOUR THEME ON THE AMERICAN ECONOMY, YOUR FOCUS IN YOUR FRIDAY AND WEEKEND WRITING FOR MONDAY MORNING? ETHAN: I AGREE WITH A COMMENTARY. IF YOU LOOK AT THE CONTROL MEASURE WHICH GOES UNDER GDP ESTIMATES IT WAS SLIGHTLY BETTER-THAN-EXPECTED. THE REST OF THE REPORT WAS
CONSISTENT WITH WHAT OUR OWN DATA WAS TELLING US IN THE OVERALL WEAKNESS OF THE NUMBER AND THE SECTORS THAT WERE WEEK. WE NEED TO BE CAREFUL HERE. WE STARTED THE YEAR OFF WITH A SOLID DATA EVER GETTING A PAY BACK IN TO MARCH. THE QUESTION IS THIS THE BEGINNING OF THAT SLIDE INTO RECESSION.
I AM LEANING IN THAT DIRECTION. THERE IS WEAKENING FUNDAMENTALLY GOING INTO THE ECONOMY, SOME OF IT GAS PRICES WHICH ARE NOT RELEVANT HERE. BUT THERE IS FUNDAMENTAL WEAKENING AND THIS IS BEFORE THE STRESS IN THE BANKING SYSTEM. THE CURVE UNCLE IN THE BANKING SYSTEM OCCURRED. THAT IS THE NEW NAME. IT IS HAVING AN IMPACT ON LENDING.
I DO THINK THE ECONOMY WILL SLIDE INTO A WILD RECESSION AT SOME POINT IN THE THIRD QUARTER. TOM: I'VE GOT TO ASK THE OBVIOUS QUESTION. YOU HAVE ACCESS MANY WOULD SAY TO THE GREATEST AMOUNT OF KNOWLEDGE ON THE AMERICAN BANKING SYSTEM YOUR TEAM DEVELOPMENT.
WHEN YOU TALK TO THE BANKING BANKERS, THE RETAIL BANKERS, COMMERCIAL BANKERS AT THE BANK OF AMERICA, HOW DOES THAT INFORM YOUR ECONOMIC ANALYSIS? ETHAN: WE TALK TO ALL THE BUSINESSES. LOOK AT OUR PROPRIETARY DATA, PARTICULARLY THE CAR DATA IS QUITE USEFUL FOR PREDICTING THINGS. IT IS WAY TOO EARLY TO TALK ABOUT EXACTLY HOW BIG OF THE SHOCK IS TO BANK LENDING FROM THE RECENT BUT WE REALLY NEED TO FOCUS ON REGIONAL AND SMALLER BANKS. WE HAVE TO WAIT AND SEE. I DO NOT THINK BANK OF AMERICA IS NECESSARILY THE RIGHT PLACE TO SEE WHERE THE TIMING IS GOING TO COME FROM. LISA: KERFUNKLE.
DOES THAT WORK FOR YOU? MOHAMED: I CANNOT PRONOUNCE IT. WHY IS IT THE TOP THAT LEADERSHIP PUSHES BACK AGAINST YOU IN STEPPING INTO RECESSION? ETHAN: IT IS LOCALLY INCORRECT FOR THE FED TO COME OUT AND SAY WE WERE TOO LATE HIKING AND WE ALLOWED INFLATION TO SPIN OUT OF CONTROL. AND WE ARE GOING TO FIX IT BY CREATING A MILD RECESSION. IT IS HARD FOR THEM TO MAKE THAT STATEMENT IN THIS POLITICAL ENVIRONMENT.
WHAT THEY HAVE DONE INSTEAD IS TALK ABOUT -- FIRST THE STAFF FORECASTING A MILD RECESSION THEN THEY TALK ABOUT DOWNSIDE RISK, THEY TALK ABOUT THE LANDING ZONE. GETTING EVER SMALLER, NOW THE SIZE OF A POSTAGE STAMP. THEY DO NOT WANT TO FULLY ACKNOWLEDGE ACTUALLY THIS TIME AROUND RECESSION IS GOING TO BE MAINLY A CENTRAL-BANK STORY. I HEARD YOUR EARLIER COMMENT ABOUT THE ECONOMY BEING FUNDAMENTALLY HEALTH AND I AGREE WITH THAT. THE PROBLEM IS AGGREGATE DEMAND IS TOO HIGH.
AGGREGATE SUPPLY IS NOT THAT GREAT. SOMETHING'S GOT TO REBALANCE HERE AND IS THE FED RATE HIKES DURING THE ECONOMY OFF. MOHAMED: LET ME ASK YOU MORE ON THIS. WE HAVE A DIFFERENCE BETWEEN FED STAFF AND EFFECTIVE LEADERSHIP. WE HAVE A DIFFERENCE BETWEEN
FOREIGN POLICY GUIDANCE AND WHERE THE MARKET THINKS THE RATES ARE GOING TO GO. HOW LONG CAN WE LIVE WITH THESE DIFFERENCES? ETHAN: THEY WILL GET RESOLVED WHEN THE FED SHOWS -- THEY SAY WE DO SLIDE INTO RECESSION IN THIRD QUARTER, AT THE FED 62 THE CURRENT NARRATIVE WHEN THE BOND MARKET IS GOING TO HAVE TO ADJUST TO REALITY. THE PROBLEM WITH THE BOND MARKET NOW IS IT IS USED TO LOOKING AT RECENT BUSINESS CYCLES WHERE THE FED CUT QUICKLY IN THE FACE OF RECESSION. THE FED CUT BEFORE RECENT RECESSIONS. THIS IS DIFFERENT. IT IS A MINI VERSION OF THE 1980'S WHERE THE FED DID NOT BACK OFF FROM TIGHTER MONETARY POLICY FOR A LONGER TIME BECAUSE THEY WERE TRYING TO GET INFLATION UNDER CONTROL.
THEY WOULD RATHER DO IT WITH AN EXTENDED PERIOD OF WEAKNESS. PERHAPS A MILD RECESSION WERE FORECASTED FOLLOWED BY A WEEK RECOVERY AND CHIP AWAY AT THE INFLATION PROBLEM THEN HAMMER THE ECONOMY AND CREATE A MAJOR RECESSION. I THINK THE BOND MARKET IS WRONG. I THINK THE FED IS GOING TO DO WHAT THEY ARE SAYING IN THEIR PROJECTIONS. JONATHAN: WONDERFUL TO CATCH UP WITH YOU. GRID CALL. -- GREAT CALL. ARE YOU SICK OF THIS? MOHAMED SARE'S ANGER, TAKING OUR JOBS.
-- MOHAMMED STARTS TO ANCHOR, TAKING OUR JOBS. TOM: I LOVE YOU CAN GO ENGLISH FOOTBALL AND AMERICAN FOOTBALL. JONATHAN: JUST LIKE THAT. TOM: IT IS A RARE GIFT. LISA: I WANTED TO KNOW YOUR RESPONSE. THAT WAS QUITE A QUESTION.
HOW LONG CAN THIS DISSONANCE IN THE FED GO ON? MOHAMED: I THINK EITHER THIS RIDE. THE FED IS GOING TO IMPOSE IS VIEW -- I THINK ETHAN IS RIGHT AND THE FED IS GOING TO IMPOSE ITS VIEW. THE CODE ABILITY IS SO LOW THEY CANNOT RISK -- THE CREDIBILITY IS SO LOW.
THE MARKET IS MORE LIKELY TO COME UP TO THE FEDERAL RESERVE THAN THE FEDERAL RESERVE GO TO THE MARKET. TOM: WHAT IS FASCINATING THE BANK OF JAPAN GOT IT WRONG WHAT SEEMS NOW A LONG TIME AGO. IT'S ALL THIS THEORY IMPACTED BY THAT SINGLE MISTAKE THE BOJ MADE IN 2003? DILUTED RAPES, -- THEY LIFTED RATES. MOHAMED: I WILL ALSO CITE THE ECB, COMING OUT OF THE GLOBAL FINANCIAL CRISIS, THEY DO NOT WANT TO BE EMBARRASSED AGAIN. THEY HAVE BEEN EMBARRASSED SEVERAL TIMES.
WE HAVE HAD THE INFLATION MS. CALLED. THERE HAS BEEN A SERIES AND WE NOW HAVE EVIDENCE THAT UNDER THIS FED VOLATILITY DURING THE MARKET VOLATILITY DURING THE PRESS CONFERENCE IS AS HIGH AS IT WAS PREVIOUSLY. TOM: THAT IS BECAUSE IT MCKEE'S QUESTION. JONATHAN: THAT WAS THE ANNUAL REVIEW. TOP JOB.
MOHAMED IS GOING TO STICK WITH US. ERIKA NAJARIAN JOINS US IN THE NEXT HOUR. LOOKING FORWARD TO THIS CONVERSATION AT UBS TO TALK ABOUT BIG BANK EARNINGS AND BIG BANK EARNINGS SO FAR, SO GOOD. EQUITY FUTURES NEGATIVE. THIS IS BLOOMBERG. LISA: KEEPING UP-TO-DATE WITH NEWS AROUND THE WORLD. U.S. GOVERNMENT STRUGGLING TO EXPLAIN HOW A 21-YEAR-OLD MAN IN JUNIOR POSTS IS IN A POSITION TO ALLEGEDLY LEAK A MASSIVE TROVE OF DOCUMENTS RELATED TO THE UKRAINE CONFLICT. JACK TEIXEIRA, CYBER SPECIALIST
FOR U.S. AIR FORCE NATIONAL GUARD WAS ARRESTED IN MASSACHUSETTS AND SCHEDULED TO BE ARRAIGNED U.S. DISTRICT COURT IN BOSTON TODAY. NEW YORK TIMES REPORT HE WAS THE LEADER OF A CHAT GROUP WHERE THE DOCUMENTS BEARS APPEARED. IN A EXCHANGE BY GERMANY'S FOREIGN MINISTER SAID TAIWAN'S DESTABILIZATION WOULD BE A POET HORROR SCENARIO. ANY CHANGE IN HOW MY STUDIES WOULD BE UNACCEPTABLE. AGING HAS RAMPED UP MILITARY
DRILLS AROUND TAIWAN IN RECENT MONTHS. CHINA WARNED ABOUT THE RISK OF FALLING DEBRIS NEAR TAIWAN THIS WEEKEND FOLLOWING A PLANNED SATELLITE LAUNCH. A NO-FLY ZONE WILL BE IMPOSE TO THE NORTH OF THE ISLAND. A SETBACK FOR BOWLING JUST AS IT RAMPS UP PRODUCTION OF THE MODEL THAT IS A MAJOR CASH COW FOR THE COMPANY. U.S.
MANUFACTURER IS POSITING DELIVERY OF SOME 737 MAX JUST TO ADDRESS A PRODUCTION ISSUE ON THE REAR END OF AIRCRAFT. SHARES FELL AS MUCH AS 5.3% AFTER BOEING SAID IT EXPECTS DELIVERIES TO THE CLIENT IS IN YOUR TERMS. GLOBAL NEWS POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES.
>> OUR FORECASTS ARE SNIPPY ONLY BETTER THAN THE IMF FORECAST BUT I SHOULD SAY LAST YEAR WE WERE THE FASTEST GROWING ECONOMY IN G7. WE ARE CONFIDENT ABOUT THE UK'S LONG-TERM PROSPECT. >> XIAOMI HUNDRED RECOGNIZE WE HAD A SUBSTANTIAL UP GRADE -- JEREMY HUNT WOULD RECOGNIZE WE HAD HAD A SUBSTANTIAL UPGRADE WE HAVE NOT GONE AS HIGH AS SOME OF THE OTHER FORECASTS. BUT WE HAVE SEEN THINGS ARE BETTER THAN EXPECTED IN THE U.K.
JONATHAN: THAT WAS AS MEDIATING A CONVERSATION AT A BILL BURCK. -- THAT WAS IS MEDIATING A CONVERSATION AT A BLOOMBERG. TOM: HE DID THE LONDON OLYMPICS. HE'S PROBABLY DOING THE CORONATION AS WELL. I REVIEWED IT YESTERDAY. FIND A COACH, I GUESS I JUST BROUGHT IN HERE AS WELL. JEREMY HUNT IS AN INTERESTING GUY. HE'S A DIFFERENT SECRETARY OF
TREASURY. JONATHAN: HOPEFULLY WE CAN CATCH UP WITH HIM NEXT TIME. INTERESTING MOVES IN THE MARKET AND GOOD MORNING TO YOU. J.P.
MORGAN CAME OUT EARLIER, WAY BETTER-THAN-EXPECTED. RAISING THEIR GUIDANCE AS WELL. YIELDS ARE FLYING BY 15 BASIS POINTS. I TALK ABOUT A TIGHT RANGE FOR A TWO YEAR TREASURY. WE ARE BACK TO 4.1%, HIGHER 14 BASIS POINTS. LOOK AT RETAIL SALES ONCE, LOOK AT IT TWICE AND STRIPPED OUT ENERGY. LISA:
THAT HAS KINDA OF BEEN ALL THE DATA. IS THIS THE BIG STORY, THE HEAD FAKE ENERGY PRICES GOING DOWN WHICH CAUSES A FEELING OF DISINFLATION THAT WAS FASTER THAN IT WAS. WE HAVE THESE HEADLINES FROM FED GOVERNOR CHRIS WALLER SAYING HE FAVORS MONETARY POLICY TIGHTENING MORE CONSISTENTLY AND RATES ARE GOING TO HAVE TO REMAIN HIGHER FOR LONGER BECAUSE THE PROGRESS ON THE CORE -- A GHOST OUT THE SEGMENTS -- HE GOES TO STRIPPING OUT THE SEGMENTS AND IT IS NOT GONE FAR ENOUGH. WHERE DO WE SEE RECONCILIATION? BOND MARKET GO TO THE FED OR THE FED GO DOWN TO THE BOND MARKET. JONATHAN:
MIKE MCKEE YOU HAVE BEEN WORKING THROUGH THE HEADLINES. WHAT YOU SEE AND GOOD MORNING. MICHAEL: A HAWKISH SPEECH FROM CHRISTOPHER WALLACE TODAY. HE IS NOTING INFLATION DID COME
DOWN A LITTLE BIT IN THE CPI BUT I DID NOT IMPRESS THEM. HE THINKS IT IS WAY TOO HIGH AND HE NOTICED THE FED HAS RAISED RATES TO DAMPEN AGGREGATE DEMAND BUT CONSUMER AND BUSINESSES SHOWING RESILIENT AND HE SAID THIS GROWTH WOULD MEAN SO FAR, TIGHTER MONETARY POLICY AND CREDIT CONDITIONS ARE NOT DOING MUCH TO RESTRAIN AGGREGATE DEMAND. HE SAYS THERE'S MORE WORK TO DO. RATES WILL HAVE TO GO HIGHER AND STAY THERE FOR LONGER. IT SOUNDS AS IF HE IS SAYING WE COULD GO MORE THAN ONCE AT THIS POINT AND THAT MAY BE WHAT IS HELPING CONTRIBUTE TO THE TWO YEAR YIELD RISING THIS MORNING. HE IS ON THE HAWKISH SIDE. AUSTAN GOOLSBEE IS A VOTER THIS YEAR, CHICAGO FED PRESIDENT SAYING WE HAVE TO ADDRESS INFLATION AND GET IT DOWN.
ALTHOUGH HE SOUNDS LESS HAWKISH. HE HAS BEEN THE MOST DOVISH OUT THERE LATELY SAYING THERE HAS BEEN PROGRESS MADE. RIGHT NOW, LOOKS LIKE GOVERNOR WALLER IS LEADING THE HAWK PARADE. JONATHAN: MIKE, THANKS FOR THAT. HERE'S THE LATEST MOVE IN THE BOND MARKET UP 14 BASIS POINTS ON THE TWO YEAR. 4.1% ON TWO YEAR YIELD THIS MORNING. TOM: IT IS FASCINATING. MOHAMED EL-ERIAN OUTFRONT SUGGESTING QUARTERS AGO WE NEEDED SOME FORMER INTEREST RATE REACHING THAT MR. WALLER IS STILL TRYING TO CATCH UP TO.
YOUR COMMENTS ON AN INFORMED ECONOMICS SAYING WE GOT TO KEEP GOING. MOHAMED: WE HAVE A 5.6% CORE INFLATION RATE AND IT IS NOT COMING DOWN, YOU HAVE AN INFLATION PROBLEM. YES HEADLINE CAME DOWN TO 5.1 BUT OF COURSE WHAT PEOPLE LOOK
AT IT. -- BUT CORE IS WHAT PEOPLE LOOK AT . THE DEBATE OF WHETHER WE SLIP INTO RECESSION IS GOING TO FADE RELATIVE TO THE DEBATE OF HOW DOES THE SYSTEM ADJUSTS TO HIRE FOR LONGER. THAT IS GOING TO BE THE KEY ISSUES. FOR THE MARKETPLACE IS WITH THE
BE TECHNICAL IS DOMINATING FUNDAMENTALS BECAUSE THERE'S GOING TO BE QUESTIONS OF SOME OF THE BUSINESS MODELS, THE RELIABILITY OF THE BUSINESS MODELS. TOM: ONE OF THE BOMBSHELLS REPORTED SAYING WILL NOT GET BACK TO 2%. SOMETHING IN THE VICINITY . WILL BE IN A PANEL HERE WITH US IN THE PEOPLE IN COUPLE OF HOURS AND THE CORE DEBATE IS -- HE CALLS IT THE NEUTRAL GOLDEN LOCKS. -- THE NEUTRAL GOLDILOCKS.
MOHAMED: I AM IN THE CAMP HIGHER THAN WHAT IT HAS BEEN IN THE PAST. THE KEY ISSUES IS NOT WHETHER WE BRING DOWN INFLATION. IT IS AT WHAT COST? LISA: WE'RE TALKING ABOUT THE FED TRYING TO REGAIN HIS CREDIBILITY. WE HEARD FROM CHRIS WALLER A HAWKISH TONE.
TWO-YEAR FAR BELOW THEIR EXPECTATIONS. HOW CAN THE FED REGAIN THAT WITH ACTIONS WITHOUT TAKING RATES TO 5.5%? MOHAMED: WE HAVE A PROBLEM OF ANALYSIS, FORECAST, COMMUNICATION AND ACTIONS YOU LOSE CONTROL OF THE TWO YEAR YIELD. TWO YEAR YIELD IS NOT SUPPOSED TO BE DOING WHAT IT IS DOING. I DO NOT THINK WE QUITE APPRECIATE WHAT IT MEANS TO HAVE THAT VOLATILITY AT THE FRONT END OF THE CURVE. IT MAKES CASH MANAGEMENT COMPLICATED.
THE TWO YEAR YIELD IS SUPPOSED TO BE ANCHORED BY THE FED. IF YOU SEE WHAT IT HAS DONE, OVER THE LAST SIX WEEKS WE HAVE HAD A HIGH OF 5.08 AND A LOW OF 3.58%. JONATHAN: THAT IS A SAYING. MOHAMED: IT IS. IT, CASE CASH MANAGEMENT. -- IT COMPLICATES CASH MANAGEMENT. LOOK AT THE TECHNICALS OF THE MARKET. JONATHAN: YOU SAID THE FEDERAL RESERVE
HAS BEEN FROM A SOURCE OF STABILITY TO A SOURCE OF VOLATILITY. WE HAVE A FEW MINUTES LEFT WITH YOU. WE ARE AT THE HEART OF THE INTERNATIONAL MONETARY FUND. MR. TOUCHE AND I KNOW IS CLOSE TO YOUR HEART -- IT IS AN
INSTITUTION I KNOW IS CLOSE TO YOUR HEART. YOU'RE NOT A PART OF THE IMF AND YOU'RE SPEAKING OPENLY ABOUT THE VALUES OF THE INSTITUTION. HOW DO YOU MAKE A ROOM LIKE THIS, THEY WANT TO SIT ON THE STAGE AND HAVE A CONVERSATION MODERATED BY THE SAME ESTABLISHMENT JOURNALISTS WE HEARD FROM A MILLION TIMES INCLUDING TOM KEENE AND THEY WILL ASK THE SAME QUESTIONS WE HAVE HEARD AND THEY WILL COME OUT WITH THE SAME ANSWERS WE HAVE HEARD A MILLION TIMES. HOW DO WE BREAK THE GROUP OF EVENTS LIKE THIS, CONFERENCES LIKE THIS ONE, THE WORLD ECONOMIC FORUM? HOW DO WE CHANGE THIS LOVE? WE SIT AROUND WITH THE HAPPY TALK AND WE END UP WITH THESE DECISIONS THAT CAUSE THESE VOLATILITY. HOW DO WE CHANGE THIS? MOHAMED: BY MAKING AN EFFORT TO HAVE MORE COGNITIVE DIVERSITY. IT STARTS WITH THE FED. I'VE BEEN ON RECORD SAYING THE FED SHOULD PURSUE THE BANK OF ENGLAND APPROACH OF HAVING TWO EXTERNAL INDEPENDENT MEMBERS OF DL FMC -- D FOMC. EOB IS LUCKY.
THE BANK OF ENGLAND HAS A CONFIDENT OF BRINGING IN EXTERNAL MEMBERS. IT IS NOT ALWAYS EASY BUT IT CONTRIBUTES TO COGNITIVE DIVERSITY. THE FED HAS NOT AND THEREFORE YOU CAN GROUPTHINK. YOU HAVE TO START AT THE CORE OF THE SYSTEM.
THESE MEETINGS, THE REAL DISCUSSIONS HAPPENED NOT ONSTAGE, BUT BEHIND CLOSED DOORS. IT'S A DIFFERENT TONE BEHIND CLOSED DOORS THEN THERE IS ON STAGE. TOM: WITH THE MEDIA WE HAVE TODAY AND NOW THE NEW IMMEDIACY OF THE MEDIA, YOU GET BACK TO THE RESCUE CULTURE WHERE ALL OF THESE WELL-MEANING PUBLIC OFFICIALS DO NOT WANT TO BE THE ONE TO CREATE PAIN. CAN WE DO IT PAIN-FREE? THERE'S A BANK WITH A MARKETING SCHEME WRAPPED AROUND A BANKING WRAPPER OUT NEAR SFO.
AND THE BIG BANG STEP IN AND PLENTY OF 30 GAZILLION DOLLARS SO THERE'S NO PAIN? JONATHAN: TO THE POINT OF RESCUE CULTURE, WHO GOT WIPED OUT IN THE LAST MONTH OR SO? INVESTORS. TOM: SEVERAL HUNDRED MILLION ON ONE OF THE JAPANESE BANKS. JONATHAN: WE'RE TALKING ABOUT THE FAILURE OF REGULATORY OVERSIGHT, MONETARY POLICY. WHO LOST THEIR JOB? WHERE IS THE ACCOUNTABILITY OF THE PEOPLE WHO ARE ATTENDED THE EVENT LIKE THIS? THERE IS NONE.
CHAIRMAN POWELL GOT -- CHAIRMAN POWELL FELT INFLATION AND GOT IT TWO TERM. TOM: YOU HAVE TO ASK WHO IS GOING TO BE HARMED. VERY SIMPLY, THE SWISS OUTREACH OVER THREE BANKS IN SWITZERLAND BECOMING ONE BANK IN SWITZERLAND OVER 20 YEARS IN THAT. THE SWISS PEOPLE ARE THEY THE LOSERS? MOHAMED: THE BIG LOSERS ARE THE PEOPLE WHO ARE LESS FORTUNATE TO BEGIN WITH. INEQUALITY OF INCOME, WEALTH, AND OPPORTUNITY IS WHAT SUFFERS IN A WORLD LIKE THIS. JONATHAN: WELL SAID AND THANK YOU FOR BEING GENEROUS WITH YOUR TIME. MOHAMED EL-ERIAN.
CAN YOU DOWN TO THE OPENING BELL , EQUITY SLIGHTLY NEGATIVE. ERIC NELSON JOINING US FROM THE IMF IN THE NEXT HOUR. >> WE CAN'T DECLARE VICTORY YET. THE GREAT INFLATION IS NOT OVER UNTIL THE FED SAYS IT IS. >> OUR EXPECTATION IS INFLATION WILL BE CONQUERED OVER TIME. >> THE NOTION THIS IS INHERENTLY AN INFLATIONARY ECONOMY IS NOT OBVIOUS TO ME.
>> EVEN THOUGH FROM THE VERY FRONT IT SHOULD BE SOFTER. >> FINANCIAL CONDITIONS HAVE TIGHTENED AND IT IS IN THE BANKING SECTOR THAT WE ARE SEEING THE TIGHTENING. JONATHAN: CLOSING OUT THE LAST HOUR OF COVERAGE FROM WASHINGTON, D.C., FROM OUR AUDIENCE WORLDWIDE, GOOD MORNING, GOOD MORNING. THIS IS "BLOOMBERG SURVEILLANCE." HOUND KEENE, LISA ABRAMOWICZ, AND JON FERRO. EQUITIES -.2%.
A LITTLE EARLIER, WE HAD RETAIL SALES UNDER TWO YEAR YIELDS. GOVERNOR WALLER LAID IT ON THICK WITH HAWKISH FED SPEAK. LISA: BASICALLY WE HAVE TO RAISE RATES FURTHER AND KEEP THEM LONGER, REITERATING A TONE WE HAVE HEARD FROM JOHN WILLIAMS OF THE NEW YORK FED. WHAT CAN THEY DO TO GET THE
MARKET TO BELIEVE THEM? WE ARE SEEING TWO-YEAR YIELDS OF BUT NOT UP WITH A ARE WANTING THEM. JONATHAN: EARLIER THIS MORNING, THE NUMBERS FROM JP MORGAN. Q1, A WAY TO EXPECTATIONS WITH JP MORGAN BEATING AND DELIVERING THE RACE TO GUIDANCE AND THAT WAS THE UN-EXPEDIENT -- UNEXPECTED PIECE OF THIS. TOM: IS BOOKED -- WE SPOKE ABOUT THE COMPLEXITIES.
A STUDY DONE WAS SO IMPORTANT AND THE PICKED IT UP, THE BLOOMBERG FINANCIAL CONDITIONS INDEX AND MOMENT AGO IT WENT FROM A NEGATIVE STATISTIC OVER 202 A POSITIVE. THAT IS NOT WHAT JAY POWELL WANTS. IT IS SIGNALING A TREND OF ACCOMMODATION WITHIN THE SYSTEM. PART OF THAT IS JP MORGAN AND OTHER BANKS, BUT MOVING AWAY FROM THE PUBLISHED, INVISIBLE RESTRICTION THE CENTRAL BANKS DESIRE. JONATHAN: WE HAVE TO BE VERY CAREFUL ABOUT DRAWING CONCLUSIONS ABOUT WHAT IS GOING ON IN THE BANKING SYSTEM AND THE MAJOR PLAYERS. THERE'S SOME CONCLUSIONS BEING DRAWN ALREADY THAT THE MAJOR BANKS HAVE BENEFITED IN A MASSIVE WAY FROM WHAT ARE WE CALLING IT THE TREMOR? LISA: BANKING CURVE UNCLE -- THE BANKING CURV FUNKLE.
SMALLER COMPANIES ACCOUNT FOR THE MAJORITY OF THE EMPLOYMENT IN THIS COUNTRY AND SMALLER COMPANIES RELY ON REGIONAL BANKS. WE ARE SEEING THE BIGGEST BANKS AND COMPANIES STRONG. THE QUESTION IS, IS THE GAINS WE HAVE SEEN IN THE STRENGTH IN SOME OF THE BANKS COMING AT THE EXPENSE OF SMALLER MONTHS OR IS IT A GOOD READ ON WHAT IS POTENTIALLY BENEFITING ALL FINANCIAL PLANNERS? WE JUST DON'T KNOW YET. JONATHAN: THINGS HAVE CALMED DOWN WHEN YOU LOOK AT THE KIND OF NUMBERS OUT OF THE FEDERAL RESERVE OF THE BANKING SYSTEM. THINGS ARE MORE STABLE. WE CAN CONCLUDE AND SOME WENT AS FAR AS SAYING, YOU COULD CALL THE LAST MONTH A CRISIS BUT THIS SHOULD ULTIMATELY LEAD TO TIGHTENING OF LENDING STANDARDS. LISA: KNOWN IS SUGGESTING THAT IS NOT
THE CASE AND MY QUESTION IS, ARE YOU GOING TO SEE A CONVERGENCE WITH BIG BANKS CONSOLIDATING POWER AND STRENGTH AND NOT INDICATIVE OF THE WEAKNESS THAT WILL COME WITH THAT CREDIT CONTRACTION? TOM: THE THEME OF THE PANEL I AM GOING TO BE DOING IS THERE ARE THINGS WE CAN'T SEE. JEROME POWELL CAN'T SEE THEM AND OUR ESTEEMED GUESTS CAN'T SEE THEM. IT IS HIGHLIGHTED WITH ONLINE SALES WERE FLAT BUT STILL UP 14% YEAR-OVER-YEAR. I WOULD SUGGEST THE MISTREAT FOR EVERYONE WITH THIS MEETING AND IN THE BANKS IF THE TECHNOLOGICAL OVERLAY, WHAT EACH AND EVERY DAY WHAT TECHNOLOGY IS DOING TO US IN BUSINESS AND GOVERNMENT. JONATHAN:
ALSO THE INEQUALITY BETWEEN THE LARGER AND SMALLER BUSINESSES. NUMBERS IN THE LUXURY PLAYERS HAS BEEN PHENOMENAL. TOM: READING THE FIRST REPORTS FROM BLOOMBERG AND INTELLIGENCE IS ITS SAID THAT THESE DYNAMICS WERE TO BECAUSE OF CHINA TRAVEL.
THIS IS AN INTERIOR RECOVERY BY CHINA WRAPPED AROUND THE CHINESE NEW YEAR. I KNOW YOU CELEBRATED EXTENSIVELY. IN THE CHINESE NEW YEAR, YOU HAVE TO GO BUY A NEW SCARF. THAT IS WHAT IT COMES DOWN TO, AN INTERIOR SUCCESS, NOT ABOUT THE TRAVEL, TRAVEL, TRAVEL. LISA: EVIDENTLY YOU BUY HERMES NERVES AND BOWTIES. TOM: I'VE GOT ONE ON TODAY. JONATHAN:
VERY ON BRAND. AARON KENNON IS WITH US NOT WITH CLEAR HARBOR ASSET MANAGEMENT. TALK ABOUT THE NUMBERS WE GOT EARLIER IN THE DATA SPECIFICALLY. WHAT ARE YOU TAKING AWAY FROM RETAIL SALES AND FROM GOVERNOR WALLER? AARON: I THINK THE RETAIL SALES DATA, I THINK LISA HIT THE NAIL ON THE HEAD, A LOT OF ENERGY WOVEN INTO THAT.
IF YOU LOOK AT THE BROADER SCHEMATIC OVER THE LAST WEEK OR TWO, THE DATA DETERIORATED, WHETHER IT IS THE PMI DATA ON THE MANUFACTURING SIDE WE SAW A WEEK AGO MONDAY OR IT WAS THE RAILROAD CAR DATA WE HAVE BEEN LOOKING AT. THERE ARE PLENTY -- IS PLENTY OF REASON TO BE CAUTIOUS ON THE ECONOMIC FRONT. ECONOMIC ACTIVITY HAS BEEN ON THE WEAKER SIDE. AS IT PERTAINS TO WILDER AND MR. GOOLSBY OF CHICAGO, CLEARLY -- WALLER AND MR. GOOLSBY OUT OF CHICAGO, CLEARLY THE LAST THING THEY WANT TO SUGGEST IS THE WORK IS DONE THEY MAY NOT BE DONE. THEY MAY BE IN THE EIGHTH INNING AND THE MARKET FEELS THAT THEY ARE IN THE BOTTOM OF THE NINTH AND THE ONLY HAVE A RATE HIKE OR 22 MBAPPE IS THE CHALLENGE OF THE FED AT THE MOMENT, TO -- OR HIKE ANOTHER, AND THAT IS THE CHALLENGE OF THE FED AT THE MOMENT.
THE LAST NINE MONTHS OF CPI ON AN ENDLESS BASIS IS ONLY 3.25%. THE PRIOR SIX MONTHS THROUGH JUNE 2022 WAS 10%. INFLATION TRENDS MOVING IN THE RIGHT DIRECTION. THE FED KNOWS THAT BUT DON'T WANT TO CALL THE ALL CLEAR SIGNAL YET. LISA: DO YOU FEEL LIKE YOU HAVE A CLEAR SENSE OF WHAT THE BANKING SCENARIO REALLY IS AFTER GETTING THE EARNINGS OF GP MORNING -- JP MORGAN AND WELLS FARGO? AARON: THE NARRATIVE IS CORRECT, LOOKING AT MEGABANKS AND REGIONAL AND TRYING TO DEDUCE TEA LEAVES OUT OF WHAT HAPPENS IN A WEEK OR TWO FROM NOW WHEN WE START TO SEE THE REGIONAL BANKS REPORT. I THINK THAT WILL BE A HUGE BIFURCATION IN REGIONAL BANK EARNINGS. .
WE WILL SEE SEVERAL DOZEN BANKS MORE STRESSED THAN THE VAST MAJORITY OF THE BANKING SYSTEM WITHIN THE REGIONAL BANKS. WE HAVE STILL HUGE LEVELS OF DIVERSIFICATION WITHIN REGIONAL BANKS AND DEPOSITS MOSTLY INSURED. THAT IS THE GOOD NEWS OUT OF THE REGIONAL BANKS. THE BAD NEWS IS WE SAW THAT IN EARNINGS. DEPOSITS ARE DOWN. IF YOU HAVE A WEALTH MANAGEMENT ACCOUNT AT JP MORGAN, YOU ARE PROBABLY PUTTING CASH IN POSITS, BUT T-BILLS. I THINK WELLS FARGO HAD TO DROP 7% YEAR-OVER-YEAR.
WE WILL SEE DETAILS -- TALES OF TWO STORIES NEXT WEEK. TOM: YOU HAVE A WONDERFUL FIXED INCOME HERITAGE, THE ENDOWMENT TAUGHT US YOU HAVE TO BE IN THE MARKET TO FIND SUCCESS. WHAT I WANT TO KNOW IS WHAT IS THE ENTHUSIASM RIGHT NOW FOR EQUITY MARKETS. I DON'T SEE MUCH ENTHUSIASM IN GREATER AMERICA FOR OWNING STOCKS. AM I RIGHT ABOUT THAT? AARON: YOU POINTED SOMETHING OUT AND WHETHER IT IS HERE OR IN EUROPE, THINK ABOUT THREE MONTHS AGO, WHILE TO INTO THE NEW YEAR AND THINKING EUROPEAN EQUITIES WOULD BE OUTPERFORMING U.S. EQUITIES WHILE ENERGY PRICES HAVE COLLAPSED IN THAT EUROPE, ALLOWING FOR INDUSTRIAL TIGHTNESS TO NOT JUST SURVIVE BUT NOW FLOURISH AGAIN. SPEAKING TO FUNDAMENTALS, THIS
IS A POINT OF CAUTION FOR ME. THE EQUITY RISK PREMIUM IS AT 190 BASIS POINTS. ENTERING A LIGHT TO MODERATE RECESSION, THAT WOULD PEEK OUT OVER 400 BASIS POINTS. WHEN YOU LOOK AT EARNINGS FOR THE S&P 500, THAT IS 19 TIMES THE MULTIPLES BEFORE THE MARKET OPENED THIS MORNING. WELL ABOVE 25 YEAR AVERAGES AND CERTAINLY NOT MULTIPLES DURING A RECESSION. IF YOU THINK WE ARE ENTERING A RECESSION, THE CURRENT MARKET DYNAMIC WITHIN EQUITIES WOULD SEEM TO BE OVERPRICED.
IF YOU THINK WE CAN AVOID ONE, THEN MAYBE WE ARE CLOSER TO FAIR VALUE. JONATHAN: THAT IS THE JUDGMENT CALL. AARON KENNON FROM CLEAR HARBOR. THE S&P 500 DOWN .2%. THE STANDOUT MOVE, YIELD HIGHER BY 10 BASIS POINTS, A LITTLE NORTH OF 4% ON A TWO-YEAR. A 10 YEAR UP TO LET'S CALL IT
2.50. LISA: ALL THINGS BEING EQUAL, BASICALLY THE MARKET IS CAUGHT BETWEEN. ROCK AND A HARD PLACE WITH THE EARNINGS WITH THE BANKS. IF THEY DO WELL, DO THEY HAVE TO HIKE? JONATHAN: DIANA AMOA WILL BE JOINING US SHORTLY FROM KIRKOSWALD ASSET MANAGEMENT. WITH EQUITY FUTURES DOWN A LITTLE BIT, COUNTING DOWN TO THE OPENING BELL 20 MINUTES AWAY IN NEW YORK CITY. THIS IS BLOOMBERG. LISA: FROM NEWS AROUND THE WORLD WITH THE FIRST WORD, I'M LISA MATEO.
XI JINPING MET WITH LULA --. IT SHOWS IMPORTANCE TO BOTH COUNTRIES. IT SENT A MESSAGE HE WON'T PICK SIDES IN THE U.S. FIGHT AGAINST THE TINY -- CHINESE TECH GIANT. AS THE ABORTION PILL PLAYS OUT IN COURTS, PROVIDERS HAVE ANOTHER DRUG THEY CAN USE. IT IS PRIMARILY AN ULCER
MEDICATION BUT ALSO USED IN CONJUNCTION IN 98% OF MEDICAL ABORTIONS IN THE U.S. INCOME USED ON ITS OWN AND HEALTH PROVIDER SAY THEY WOULD PRESCRIBE IT. ADVOCACY ORGANIZATIONS AND CHILDREN'S EXPERTS CALLING ON META TO TERMINATE PLANS THAT IT IS ALLOWING TEENAGERS INTO ITS VIRTUAL WORLD. SOME ARGUE THAT YOUNG PEOPLE COULD FACE HARASSMENT AND PRIVACY VIOLATIONS IN THE VIRTUAL REALITY AT WHICH IS ONLY IN THE EARLY STAGES. OPEC-PLUS PRODUCTION CUTS LIKELY TO DRIVE UP OIL PLACES AND INFLICT MORE PAIN ON CONSUMERS ALREADY SQUEEZED BY HYPERINFLATION. IT'S AS GLOBAL OIL MARKETS WILL TIGHTEN MORE THAN PREVIOUSLY EXPECTED FORCING HEAVY INVENTORY WITHDRAWALS IN THE SECOND HALF OF THE YEAR. GLOBAL NEWS 24 HOURS A DAY,
ONLINE AND AT QUICKTAKE ON BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I'M LISA MATEO, AND THIS IS BLOOMBERG. ♪ >> WE HAD THREE STAGES OF THIS TRAGEDY. STAGE ONE WAS TO LOSE FOR TO LONG.
SHOULD'VE STARTED TIGHTENING SIGNIFICANTLY YEAR AGO. THE SECOND PROBLEM IS THAT AFTER THIS LONG PERIOD, THE FED MISCHARACTERIZED INFLATION. YOU END UP GOING HIGHER AND STAYING THERE FOR LONGER. OF COURSE THE INTEREST RATE CYCLE HAS HAD AN IMPACT ON WHAT WE ARE SEEING IN TERMS OF NOT ONLY FINANCIAL TURBULENCE BUT WHAT WE WILL SEE IN TERMS OF ECONOMIC TURBULENCE. JONATHAN: JUST BRILLIANT MOHAMED EL-ERIAN OF BLOOMBERG OPINION. WHAT IS THE JOKE, SOMETHING LIKE OTHER THAN THAT HOW WAS THE PLAY MISSES LINCOLN? LISA: EXACTLY.
THEY GOT THE OCCASION ROOM, RAISING RATES, ETC.. THIS IS THE ISSUE, WHY ARE WE NOT HEARING MORE OF THAT HERE? THAT YOU REALLY HIGHLIGHTED IT WELL. THAT SHOULD BE THE QUESTION COMING OUT OF THIS BECAUSE THAT IS WHERE THE FOCUS IS. JONATHAN: FOR A LONG TIME INSTITUTIONS LIKE THE INTERNAL -- INTERNATIONAL MONETARY FUND ARE CRITICAL IN EMERGING ROCKETS. THE FEDERAL RESERVE AND THE
MONETARY POLICY FAILURES OF OFFICIALS AND POLICYMAKERS, WITH FRED VERY LITTLE FROM THESE INSTITUTIONS. TOM: THERE IS STANLEY FISHER AFTER THE CRISIS OF 1998 AND EVERYONE AT SOME POINT HAD TO READ IT AND WAS EXACTLY WHAT HE TALKED ABOUT, WAS THE PRESSURE OF APPEASING THE PEOPLE WRITING THE CHECK FOR THESE INSTITUTIONS IS SO TANGIBLE, I DON'T THINK OUR AUDIENCE UNDERSTANDS HOW THE BOAT HAS FLOATED BY A SELECT NUMBER OF COUNTRIES IN PENNSYLVANIA STREET. JONATHAN: MOHAMMED TALKED ABOUT IT, ETHAN HARRIS DID WITH BANK OF AMERICA. HOW RELIABLE IS THE OUTLOOK FROM AN INSTITUTION LIKE THIS ONE AND FEDERAL RESERVE, AND ETHAN HARRIS, YOU ASKED THE RIGHT QUESTION, WHY IS THERE THE DIFFERENCE BETWEEN WHAT THE FED STAFF IS PROJECTING AN FED OFFICIALS ARE COMMUNICATING? ETHAN HERE SAID IT CAME DOWN TO POLITICS. TOM:
THAT IS ALWAYS TRUE. I THINK CRITICISM IS JUST BUT AT THE SAME TIME IT IS AN INSTITUTION THAT HAS THE FULL TOGETHER LOTS OF DIFFERENT OPINIONS AND PIECE THEM INTO AN AGGREGATE ONE VIEW FROM 150 VIEWS. RIGHT NOW DIANA AMOA IS WITH US FROM KIRKOSWALD ASSET MANAGEMENT AND WE WILL JUMP INTO THE E.M. MARKET DEBATE. I LOVE YOUR NOTE IF YOU GO INTO PORTFOLIO THEORY OR YOU TALK ABOUT THE SHIFT OF ALPHA AND BETA IN E.M. RIGHT NOW. WHAT IS THE CHANGE FOR THE EMERGING MARKETS? DIANA: FROM A TOP-DOWN PERSPECTIVE, THE CONVERSATIONS WE ARE HAVING ARE INTERESTING WHERE YOU LOOK AT WHAT IS HAPPENING IN THE U.S.. IN A 13 OUT OF 20 MAJOR EMERGING MARKETS HAD HIKED BEFORE THE FED WAS STARTING TO . WE ARE ASKING POLICYMAKERS,
WHEN ARE YOU GOING TO START CUTTING RATES BECAUSE INFLATION HAS PETE IN EMERGING MARKETS AND REAL RATES ARE UP. TOM: FOCUS TODAY IS THE DEBT EXTERNAL AND DEBT INTERNAL. WHAT IS THE FISCAL STANCE OF THE E.M. ECONOMY? HOW FRAGILE IS IT? DIANA: IT IS VERY DISPERSED REDUCE OF -- YOU HAVE -- DISPERSED. IN PARTS OF ASIA, THEY DID NOT DO AS MUCH PHYSICAL SPENDING AS YOU DID IN DEVELOPED MARKETS. THERE IS ROOM FROM A FISCAL PERSPECTIVE BUT VERY DISPERSED.
WHERE RECEIPT RUN ABILITIES IS IN THE LOW INCOME COUNTRIES. AND IN THE IMF WE WILL BE SEEING IT. THEY ARE STILL STRUGGLING OF A EVENTS OF THE LAST TWO YEARS. LISA: THERE IS THOUGHT IN INVESTING THAT DURING EIGHT RECESSION, PARTICULARLY IN THE U.S., THAT
THE U.S. IS A BETTER PLACE TO BE THEN THE DEVELOPING WORLD OR EUROPE OR OUTSIDE OF THE U.S. IS THIS TIME DIFFERENT BECAUSE OF THE POLICY DIVERGENCES WITH THE DEVELOPING WORLD GETTING OUT OF HEAD FOR THE DEVELOPED NATIONS? DIANA: I WOULDN'T SAY IT IS NECESSARILY DIFFERENT BUT THE ISSUES COMING FROM DM OR MORE PRONOUNCED THAN WE HAVE SEEN IN PREVIOUS CYCLES. WHETHER WE ARE LOOKING AT LOCI WITH REGIONAL BANKS, THAT WAS A SPECIFIC ISSUE, WHEREAS E.M. WAS MORE INSULATED FROM THAT.
DISCUSSIONS ON THE DEBT CEILING WILL BE ANOTHER VOLATILE PERIOD. . IF YOU LOOK AT DURATION OUTSIDE THE U.S. LISA: YOU FEEL THE GRAVITATIONAL FORCE AWAY FROM THE DOLLAR IN -- THE PAST WHERE YOU THINK RESTRUCTURING WILL BE THAT DOLLAR DENOMINATOR, THEY ARE BOTH COMING INTO PLAY. WE DON'T NECESSARILY SEE A SHIFT AWAY BUT IT ADDS INTO THE BOAT AND JUMP -- LOW INCOME COUNTRIES. JONATHAN:
WE SOMETIMES ASK WHAT IS THE DIFFERENCE BETWEEN DM AND EM DEBT. WHEN THINGS GET BACK TO E.M. -- BAD IN E.M. YOU RUN. ARE WE GOING TO CHANGE THE WEIGHT BE -- WE BEHAVE FOR THE TREASURY MARKET IF WE HAVE ANOTHER DEBT CEILING DEBACLE OR DO WE REACH FOR THE PLAYBOOK AND BY THE DEBT OF THE COUNTRIES THAT ARE DOING BAD THINGS? DIANA: IT IS GOOD TO BE AN INTERESTING SUMMER. IT IS ONE OF THE DATA POINTS THAT IS 30% PROBABILITY YOU MAY BE TALKING ABOUT INTENTIONAL DEFAULT. THAT WAS ONE OF THE PANEL DISCUSSIONS AT THE IMF, A PRETTY HIGH NUMBER. DO YOU WANT TO BUY DEBT WHEN WE
ARE HAVING CONVERSATIONS ON WHO IS GOING TO BE PAYING THAT BILL AND GET A CONCESSIONS TO PAYBACK INVESTORS? I STILL THINK INVESTORS THINKING ABOUT IT WILL HAVE TO EVOLVE. INFLATION IS FALLING SO YOU HAVE THE SAFETY BUT DURATION WILL BE IMMINENT. JONATHAN: I'M RUNNING FUND AND HAVE ASSETS THAT HAVE RISK MITIGATION, TYPICALLY TREASURIES AND YOU ARE SAYING TO DIVERSIFY. WHERE AM I GOING FOR THAT?
DIANA: I WOULD GO FOR SOMETHING LIKE MEXICAN DEBT. LISA: WOW. DIANA: IF THE FED IS FORCED TO CUT RATES, BANK OF MEXICO WILL NOT BE SO FAR BEHIND IN THEN MAYBE SOMETHING IN ASIA WOULD BE MY TWO. TOM: DO YOU HEDGE THE MEXICAN PESO? YOU PROSECUTE THAT UNHEDGED OR HEDGE? DIANA: IF THE LAST 18 MONTHS EVENT HEDGING THE PESO, THAT WOULD BE A TERRIBLE DECISION. TOM: THIS IS REALLY IMPORTANT AND THERE IS A COMPLEXITY ABOUT WHAT TO DO WITH FOREIGN EXCHANGE . DIANA: I THINK YOU KEEP THE FOREIGN EXCHANGE.
CURRENCIES ARE UP FROM 3% TO 8% YEAR TO DATE. IT IS THE DIVERSIFYING VIEW OF WE ALREADY TOOK THE PAIN OF DEPRECIATION. REMITTANCE CAN STRONG AND MEXICO STILL. TOM: ASSIST GOSPEL WHAT SHE IS SAYING. JONATHAN: THIS IS ONE OF -- THIS IS A GOSPEL WHAT SHE WAS SAYING. JONATHAN:
THIS IS ONE OF THE MOST THOUGHT PROVOKING CONVERSATIONS WE HAVE HAD. LISA: YOU BY CURRENCIES AND DEBT IN CHINA AND THE U.S. AND MAKE SURE IF THEIR ATTENTIONS, YOU ARE HEDGED? JONATHAN: WHERE IS THE POLICY RISK? WHERE DO YOU WANT TO BE? >> THANK YOU SO MUCH. ON A MONDAY AS WELL.
CONTINUED BANK EARNINGS. GLOBAL WALL STREET LEANED FORWARD FOR THE DECISION OF ERIKA TO DEER AGAIN. AN EQUITY ANALYST THAT BARELY DESCRIBES THE DETAIL OF THE NOTES. SHE'S ALWAYS ON THE STREET DOING THE SAME BUT IS DOING IT WITH SHOCKING CLARITY. I WANT TO UNDERSTAND. WE TALK HERE AT THE IMF ABOUT
THE SCHOOL SPACE. WHAT IS THE CAPITAL APPRECIATION OF THESE MAJOR BANKS? NOT THE PRICE TARGET PER SE BUT DO YOU SEE THEM WITH A ONE, THREE OR FIVE YOUR UPSIDE? OR IS THE "THERE" THERE NOW? >> THIS IS WHAT J.P. MORGAN SHOWED US TODAY. IF YOU ARE A STRONG BANK, AND THERE WILL BE WEAKER BANKS AS WE THINK ABOUT THE REST OF THE SEASON, YOU CAN WITHSTAND WHAT IS COMING. WE DO NOT KNOW WHERE RATES ARE GOING. RECESSION IS PROBABLY A SMALL PART -- A SMALL PROBABILITY FROM HERE BUT YOU CAN STILL PROTECT YOUR RETURNS IF YOU HAVE STRONG EARNINGS POWER.
THESE KINDS OF BANKS, TO ANSWER YOUR QUESTION DIRECTLY, COULD HAVE UPSIDE AS A MARKET-BASED PREMIUM FOR THE EARNINGS POWER. NOT JUST THE EARNINGS POWER BUT THE EARNINGS RESILIENCE. EVEN IN AN UNPREDICTABLE RATE TARGET AND A RECESSION. TOM: AS YOU STUDY MAJOR BANKS, AND I WANT TO TAKE IT DOWN TO ANOTHER BANKING COVER, AND MR. BLOOMBERG WAS SO KIND TO ME.
M AND T BANK OF BUFFALO. ARE THERE A LOT OF JP SIZED BANKS OUT THERE? ARE THERE A LOT OF BANKS RUN LIKE A SWITCH -- A SWITCH WATCH LIKE INFANCY? >> THERE ARE A LOT OF BANKS THAT ARE EXTRAORDINARILY RUN. THOSE THAT HAVE A LOT OF ASSETS HAVE TO BE WELL-RUN BECAUSE OF THE REGULATORY SCRUTINY THEY WITHSTAND EVERY DAY. THE COMPLEMENT OF HAVING ANOTHER REGIONAL BANK LIKE JAMIE DIMON IS RARE. RENÉE JONES IS PROBABLY IN THE CATEGORY OF M&T. A LOT OF REGIONAL BANKS ARE EXTRAORDINARILY WELL-RUN. TOM:
WITHIN THAT IS THE IDEA OF COMBINATION. IS THAT THE NEXT YEAR? I HAVE A PHRASE, I AM NOT TALKING ABOUT BANKS, BUT THE GREAT ZOMBIE ROLL UP OF TWO TO THREE -- 2000 23. EVEN IF THEY ARE NOT ZOMBIES, ARE BANKS GOING TO BE ERIKA: FORCED TO MERGE? ERIKA:ERIKA: AT THE END OF THE DAY, THE NEAR TERM OUTLOOK FOR CONSOLIDATION IS NOT A FRIENDLY ONE. YOU HAVE POTENTIAL MARKS ON THE BALANCE SHEET YOU ARE BUYING BECAUSE INTEREST RATES ARE HIGHER THAN ON THE BANK BALANCE SHEETS.
OVER THE MEDIUM TERM, GIVEN SOME OF THE PRESSURES THAT ARE IMPACTING SMALLER REGIONAL BANKS, I DO SEE REGULAR WAY CONSOLIDATION PICKING UP. I DO NOT SEE THIS AS A NEAR-TERM CATALYST. SONALI: WE ARE IN WASHINGTON DC -- LISA A: WE ARE IN WASHINGTON DC. I LOOK AT J.P. MORGAN RESULTS AND I THINK, IF I WERE IN WASHINGTON, WHY WOULD I NOT SAY FORK OVER THE SMALLER CASH AND WE CAN BAILOUT SMALLER BANKS AS THEY NEED HELP? THESE BIG ONES HAVE PLENTY TO SPARE. ERIKA: AT THE END OF THE DAY, THE LARGE MONEY CENTER BANKS HAVE ALREADY STEPPED UP. THEY ARE LEADING THE CONSORTIUM
OF DEPOSITORS FOR FIRST REPUBLIC FOR EXAMPLE. AT THE END OF THE DAY, JP MORGAN ACTUALLY MENTIONED THE UPCOMING SPECIAL ASSESSMENT THAT CAN COME FROM THE FBI SEE. THE BIG BANKS ARE PROVING THAT EVEN WITH VERY HIGH CAPITAL STANDARDS, HIGH LIQUIDITY STANDARDS, THEY CAN EARN A PRETTY SIGNIFICANT RETURN. I DO NOT NECESSARILY KNOW WHAT THIS MEANS FOR FUTURE REGULATION , BUT AT THE END OF THE DAY, THEY ARE SHOWING PRETTY STRONG RESILIENCE WHICH MIGHT BE SOMETHING THAT PERKS UP THE ATTENTION IN WASHINGTON.
LISA A: THIS IS THE REGULATORY RISK OVERHANG AND WHAT I HEAR AS THE BIGGEST COMMENT, THE ONLY KIND OF SKEPTICISM AROUND JUST BUYING THE BIG BANKS AND NOT THE SMALL BANKS, IS DECREASING DIVERGENCE OF REGULATORY OVERHANG. BUT DO YOU JUST LEAN IN? JP MORGAN, CITIGROUP, THEY ARE ALL WITH BANK OF AMERICA, BUT THEY ARE ALL DELIVERING INCREDIBLE RESULTS. BUT IGNORE THE REGIONALS BECAUSE THEY COULD COME UNDER A LOT OF PRESSURE? ERIKA: OUR RATINGS DISTRIBUTION THIS SUMMARIZE WHAT YOU JUST SAID.
AT THE END OF THE DAY, THE RATE OF CHANGE IN THE REGULATORY CONSTRUCT IS PROBABLY GOING TO BE WIDER FOR REGIONAL BANKS THAN BIG BANKS. THE BIG BANKS, IN TERMS OF REGULATORY STANDARDS, ARE ALREADY EXTRAORDINARILY TIGHT. WHILE WE HAVE BOSWELL FOR COMING, THE CAPITAL PRINCE LIKE WELLS FARGO, JP MORGAN -- CAPITAL PRINTS LIKE WELLS FARGO OR JP MORGAN SAY THEY HAVE EARNINGS POWER. UNFORTUNATELY, REGIONAL BANKS ARE BEHIND. PNC WAS AT 9.22 PERCENT CET1. I THINK THE FLOORS FOR REGIONAL BANKS WILL GO HIGHER. I SUSPECT THE MARKET WILL
EXPECT A NEED TO BE AT 10% OR 10.5 PERCENT. I THANK BANKS AT THE CURRENT VALUATIONS AND EARNINGS POWER LOOK REALLY APPEALING HERE. JONATHAN: ONE FINAL QUESTION. THERE IS DATA THAT COMES OUT IN EARLY MAY. THE SENIOR LOAN OFFICER OPINION SURVEY. THERE ARE A LOT OF PEOPLE IN THE MARKETS THAT WILL BE FIXATED ON THAT WHEN IT COMES OUT.
CAN YOU MAKE A SUGGESTION AS TO WHAT WE MAY SEE OR MIGHT NOT SEE WHEN THAT COMES OUT? ERIKA: BELT-TIGHTENING IS NATURAL. BELT-TIGHTENING IS A NATURAL RESULT OF TIGHTENING MONETARY POLICY AND IS A PROBABILITY AS RECESSION INCREASES. HOWEVER, THE SENIOR LOAN OFFICER SURVEY IN MAY WILL SHOW THAT BELT-TIGHTENING. THE SEVERITY OF THE CREDIT CRUNCH, THERE IS A LOT OF DOOMSAYERS IN THE MARKET RIGHT NOW THAT WILL BE PERHAPS UNDERMINED. JONATHAN: WONDERFUL TO CATCH UP WITH YOU.
BUSY WEEK AND NEXT WEEK AS WELL. WE HOPE WE CAN CATCH UP WITH YOU AGAIN IN THE NEXT FEW WEEKS. THIS ECHO SOMETHING WE HEARD FROM JP MY -- THIS ECHO SOMETHING WE HEARD FROM JAMIE DIMON OF JP MORGAN. THE CEO OF JP MORGAN SAYING, "I WOULD NOT USE THE WORD CREDIT CRUNCH IF I WERE YOU.
ECHO'S MOHAMED EL-ERIAN IN THE LAST HOUR. THE CFO RUNS TO SAY, WE ARE NOT DOING AGGRESSIVELY TIGHT STANDARDS. THE CREDIT CRUNCH HAS STARTED. JAMIE DIMON, I WOULD NOT USE THE WORD CREDIT CRUNCH IF I WERE YOU. TOM: AND THE DISPERSION, IT WILL BE THE CRUNCH OR WHATEVER YOU WANT TO CALL IT. IT IS LIKE TWO AMERICANS. IT WILL BE DISPERSED ACROSS MANY AMERICANS.
THERE WILL BE LOSERS OUT THERE BUT TO BORROW A TURKISH LIRA PHRASE, INDIA IDIOSYNCRATIC. LISA A: IN SILICON VALLEY, THERE IS A CREDIT CRUNCH. IT FOR COMMERCIAL REAL ESTATE, THERE IS A CREDIT CRUNCH. IN THE MORTGAGE MARKET, WE HAVE SEEN TIGHTENING WITH RESPECT TO AUTO LENDING. IN SPECIFIC SECTORS, THERE ARE RESTRICTIONS IN LENDING.
AREAS THAT ARE NOT SIGNIFICANT FOR SOME BIG BANKS. THEY ARE NOT CAPTIONING -- CAPTURING THE SUCCESS WE ARE SEEING. IT IS WHETHER THIS WILL HAVE A BROADER EFFECT OR NOT. JONATHAN: THE EARLY PART OF THE SESSION
10 MINUTES IN. THE EQUITY POSITIVE BY 0.1% ON THE S&P 500. ON THE NASDAQ, NEGATIVE BY ZERO. RELATIVE TO THE BANKING FROM HER OF THE LAST MONTH.
IN THE BOND MARKET, YIELDS LOOK LIKE THIS WITH A FOCUS ON THE FRONT END OF THE YIELD CURVE. FOR 2-YEAR YIELD IN AMERICA, TREASURY YIELDS ARE HIGHER BY 11 BASIS POINT, NORTH OF 4%. 4.0 8%. WE ARE FOCUSING ON BANKS FOR GOOD REASON. RETAIL SALES LOOK SOFTER AT FIRST LOOK AS LACEY MENTIONED A FEW TIMES. ENERGY IS NOT AS BAD. THEN YOU FOLD INTO THE MIX GOVERNOR WALLER WITH SOME PRETTY HAWKISH HEADLINES INTO THE OPENING BELL. LISA A: LOOKING TO RAISE RATES FURTHER AND HOLD THEM THERE.
WE ARE NOT CUTTING, AGAIN AND AGAIN IS WHAT THE FED KEEPS SAYING. JONATHAN: AS WE ROUND OUT AND ROB OF OUR COVERAGE, ERIC NELSON , CHIEF ECONOMIC ADVISOR AT UNIC REDIT. THIS IS BLOOMBERG. LISA M:. KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD. WITH THE FIRST WORD,
2023-04-18