California Dreaming

At Milken, Even Investors Aren’t Able to Sour the Mood

Bank executives develop a sudden bout of optimism.

Photographer: Patrick T. Fallon/Bloomberg

Add a lackluster reaction to big bank earnings, and first-quarter corporate profits in general, to the list of things that won't sap the optimism of Masters of the Universe.

In fact, they seem to be doubling down. Bank executives speaking on Monday at the annual Milken Institute Global Conference in Beverly Hills, California, were near universally optimistic about markets and the economy. The experience of just two weeks ago, when most of the banks reported better-than-expected earnings but still disappointed investors, doesn't seem to have diminished their positive outlook.

No Credit

Investors have turned negative on the big banks despite generally strong first-quarter results

Source: Bloomberg

Citigroup Inc. CEO Michael Corbat said that the recently enacted tax cuts had not yet worked their way through the economy, and that things were set to improve. Just a few weeks ago, he said that he thought escalating global tensions could bring down the market, which seemed shaky even if the economy was robust. 

But that skepticism at the Milken conference, which draws Wall Streeters, CEOs, politicians and policy wonks for a Californian Davos, was gone. JPMorgan Chase & Co.'s head of asset management, Mary Callahan Erdoes, also speaking at the conference, was firmly in the glass half-full camp. Economy? Never been better, she said. Central bank policy? No worries. Rising interest rates won't take back from the stimulus that the Federal Reserve has pushed into the market. Trade tension with China? Great, Erdoes said. It brings important issues to the forefront. "There's nothing written that expansions have to end," she said.

Long Winded

The current economic expansion is close to the longest since World War II

Source: Bloomberg, Haver Analytics, Renaissance Macro Research

David Solomon, Goldman Sachs Group Inc.'s CEO heir apparent, was slightly less optimistic, but not much. He said that both CEO and investor confidence were high, though he added that he did see some greed in markets. "There's places where people are further along the greed spectrum than the fear spectrum," Solomon said in an interview on Bloomberg Television from the conference. Still, he said he didn't see any sign of a recession coming anytime soon.

The optimism is at odds with the recent rockiness of the market. Indeed, even as executives waxed sanguine, the market was dropping again on Monday. No one seemed to notice, or barely mention, that 2018 has not been the best year for investors. Instead, Erdoes called it just a return to normal levels of volatility. She said investors should welcome it.

It's also a change in tone, at least in recent history, for conferences like Milken. Attendees might generally expect that optimism would be the default position at conferences that feature big egos and prominent trappings of success. But in the years after the financial crisis, even as the market was rising, bank executives were guardedly pessimistic. Nobody wanted to be the person who did not to see the next one coming. Investors didn't heed those cautionary tales, and markets marched higher.

Now the dynamic has flipped. It's investors and markets that seem skeptical, and it's the bank executives who are trying on rose-colored glasses. It's possible that the people who attend the Milken conference are those who have first benefited from tax cuts and the Trump administration’s regulatory pullback, and that as Corbat promised, the effects will soon ripple through the rest of the economy. But it could also be that 10 years after the financial crisis, the Masters of the Universe have regained their confidence in reading the market cosmos. Mere mortals should be excused for staying slightly more grounded.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Stephen Gandel in New York at sgandel2@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

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