00:00JON: CREDIT SUISSE GETS ITS BAIL AND A WHILE BANKS HERE IN THE U.S. ARE STILL HANGING ON. ROMAINE BOSTICK HERE ALONGSIDE KATIE GREIFELD, KICKING YOU OFF TO THE CLOSE. KATIE: YOU SEE TWO YEAR TREASURY YIELDS CONTINUE TO KICK OFF, KIND OF MILD COMPARED TO WHAT WE SAW LAST WEEK. ROMAINE: YEAH, KIND OF WILD. -- MILD PEER WAITING FOR MORE INFORMATION ABOUT WHAT HAPPENED HERE IN THE U.S., BUT I GUESS PROVIDING A LITTLE BIT OF A BALANCE FOR INVESTORS WILLING TO WADE INTO THIS. YOU SEE KAORI UP A PRESENT ON THE DAY. BANKING STOCKS ARE AS A WHOLE LIKE FIRST REPUBLIC ARE MOVING SLIGHTLY HIGHER. KRITI: AN -- KATIE: AN OUTPERFORMER. 48 HOURS FROM NOW, WE WILL HAVE THE FED DECISION, SO HUGE THINGS HAPPENING AND WHAT IS A VERY INCONSEQUENTIAL WEEK. ROMAINE: THIS WILL BE AN INTERESTING WEEK. MIKE AT MORGAN STANLEY IS SAYING WELL, THIS COULD POTENTIALLY BE THE END OF THE BEAR MARKET, THOUGH I DID NOT THINK HE REALLY MEANS THAT IN THE MORE POSITIVE SENSE. KATIE: AND HE IS TALKING ABOUT A VICIOUS END, SO THAT DOESN'T SOUND TOO GREAT, EITHER. THE AVAILABILITY OF CREDIT, WHAT THAT MEANS OVERALL FOR ECONOMIC HEALTH. ROMAINE: WE WILL HEAR FROM MIKE WILSON IN A LITTLE BIT. AMAZON ANNOUNCING ABOUT 9000 JOB CUTS, A LOT OF THE LARGER MOVES BY THESE CORPORATIONS TO TIGHTEN THEIR BELTS. KATIE: WE ARE GETTING A DRIP FEED OF INFORMATION WHEN IT COMES TO LAYOFF SPEED WE HAVE ALREADY HEARD FROM AMAZON ON THAT FRONT, TAKING SOME MOMENTUM ON THE STOCK AND THE SECTOR OVERALL. ROMAINE: BAIL INCOME A BAILOUT, DEPENDING ON WHAT YOU WANT TO CALL IT, OR CREDIT SUISSE, 32 POINT $3 BILLION -- 3.25 BILLION DOLLARS. KATIE: HIGHER THAN WHAT WAS INITIALLY TALKED ABOUT, THAT WAS REPORTED. INTERESTING TO SEE HOW THIS ONE SHAKES OUT MY A TON OF MOVING PARTS HERE. ROMAINE: AND TO SEE WHAT TYPE OF THESE TWO COMPANIES CAN LOOK AT. THEY ARE OVER THERE IN ZURICH, SWITZERLAND, LEADER SAYING EVERYBODY NEEDS TO COME TO WORK AND WE WILL SORT ALL OF THIS OUT. OUR VERY OWN SONALI BASAK WENT TO THE BASE IN DOWNTOWN MANHATTAN. WHAT IS THE MOVE LIKE ON THE GROUND OVER THERE? SONALI: IT IS FUNNY, I DID CATCH UP WITH AN EMPLOYEE AND SAID, WHAT IS THE MOOD? HE SAID, YOU KNOW WHAT, I'M NOT PANICKING. UBS DOES GET US EXCITED, BUILDING THE WEALTH MANAGEMENT. A LOT OF QUESTION MARKS. UBS DOWNGRADED BY ITS OUTLOOK, OUTLOOK DOWNGRADED TO NEGATIVE S & P BECAUSE OF THE EXECUTION RISKS TIED TO THE STRATEGY. THE OPEN QUESTIONS REALLY, WHILE CREDIT SUISSE HAD A TARGET ON HOW MANY JOBS WOULD BE CUT, UBS HAS NOT ANNOUNCED WITHOUT WOULD LOOK LIKE ASIDE FROM THAT $8 BILLION, MORE THAN $8 BILLION COST CUTTING PLAN ANNUALLY. THAT DOES INCLUDE HEADCOUNT REDUCTIONS, BUT WE DO NOT KNOW HOW MUCH YET. A LOT OF QUESTIONS ARE UNANSWERED, BUT EMPLOYEES ARE CERTAINLY TAKING IT IN STRIDE. I LOVE THIS LITTLE SCOOP BY OUR OWN JILLIAN ABOUT RECENTLY UBS POSTING AS LAST EMPLOYEE FROM CREDIT SUISSE RECENTLY BEFORE THIS A DEAL IT I KNOW PERSONALLY ALSO THERE ARE OTHER INVESTMENT BANKERS ACROSS WALL STREET LOOKING TO DO THE SAME. KATIE: LIKE YOU SAID, THERE ARE STILL A LOT OF QUESTIONS HERE, HEADCOUNT BEING ONE OF THEM. WHAT IS THE MOST PRESSING NARRATIVE TO FOLLOW OVER THE NEXT COUPLE OF DAYS OR SO? SONALI: LISTEN, THE HEADCOUNT PART IS THE MOST PERSONAL, RIGHT? IT IS EMOTIONAL. YOU HAVE TO THINK ABOUT HOW MUCH OF THE PLAN IS GOING TO COME TO BEFORE -- THE FORE. WITH UBS, THERE ARE STILL QUESTIONS, HOW LONG DOES IT TAKE TO DE-RISK THE INVESTMENT BANK? COULD THAT COST MORE THAN THE GOVERNMENT BACKSTOP INITIALLY GIVEN TO THEM, LIABILITY TIED TO THAT INVESTMENT BANK? AND CAN THEY COMPETE? IT WILL BE BIGGER IN THE UNITED STATES, THEY WILL BE BIGGER IN GLOBAL WEALTH MANAGEMENT. REMEMBER, A LOT OF U.S. BANKS DO NOT HAVE THAT KIND OF PRESENCE ABROAD YOU DO HAVE TO BE CERTAIN THAT U.S. BANKS ARE LOOKING TO EUROPE AND ASIA TO SEE IF THEY CAN TAKE SOME SHARE WHILE UBS IS SITTING OUT THIS EXECUTION PLAN. KATIE: THAT IS BLOOMBERG'S SONALI BASAK LIVE OUTSIDE OF CREDIT SUISSE IN NEW YORK. THERE IS NO DOUBT THAT THE LANDSCAPE FOR U.S. REGIONAL BANKS IS RAPIDLY CHANGING. BLOOMBERG LEARNING NOW THAT FIRST IS TRYING TO STRIKE A DEAL FOR ALL SILICON VALLEY BANK. WHEN HE IS HOW SCOTT -- HAL SCOTT, THE DIRECTOR OF THE COMMITTEE ON CAPITAL MARKETS REGULATIONS. HAL, IT IS GREAT TO HAVE YOU WITH US COULD YOU THINK OF THE PAST TWO WEEKS WE’'VE HAD, THE WEEKEND, LAST WEEKEND WHERE WE HEARD FROM U.S. REGULATORS ABOUT THEIR PLAN TO BACKSTOP SOME OF THE BANKS UNDER PRESSURE IN THE U.S. HAVE THE REGULATORS GONE FAR ENOUGH? HAVE WE SEEN ENOUGH? PROF. SCOTT: IF WE LOOK AT IT RIGHT NOW, THE ANSWER IS YES. THE KEY THING WAS MAKING THIS NEW LENDER OF LAST RESORT FACILITY AVAILABLE, AND SO FAR, AS INDICATED TODAY, LOOKING AT THE STOCK PRICES, NOT GETTING ANY NEWS OF FURTHER RUNS. IT LOOKS LIKE THAT FACILITY HAS DONE ITS JOB AND CALM DOWN, DEPOSITORS THINKING ABOUT WITHDRAWING MONEY. KATIE: IF YOU COULD CONNECT THOSE TWO THOUGHTS FOR ME, THAT WOULD BE HELPFUL. THIS IDEA THAT THEY HAVE DONE TOO MUCH BUT AT THE SAME TIME WE HAVE NOT SEEN ANY FURTHER BANK RUNS, IS THAT NOT EVIDENCE THAT PERHAPS IT WAS JUST ENOUGH? PROF. SCOTT: WELL, YOU COULD SAY THAT, BUT IN MY VIEW, IT WAS THIS NEW FED FACILITY, WHICH WAS CRUCIAL TO STOPPING THE CONTAGIOUS RUN. THAT WAS THE PROBLEM. AS LONG AS THE FED SAID WE ARE GOING TO DO IT WITH THIS NEW FACILITY, I DON'T SEE WHY YOU NEED TO BAILOUT DEPOSITORS OF FAILED BANKS. THERE WAS SOME THOUGHT, MAYBE WE NEED TO GUARANTEE ALL DEPOSITS GOING FORWARD, IF THIS CONTAGION GOT FURTHER OFFKILTER, BUT THAT DOES NOT SEEM TO HAVE HAPPENED, EITHER. I STILL DO NOT SEE WHY WE HAD TO BAILOUT UNINSURED DEPOSITORS OF TWO BANKS, WHEN WE COULD HAVE STOPPED CONTAGION, AND PROBABLY HAVE WITH THE FACILITY. ROMAINE: ABSOLUTELY," COURSE NOW EVERYONE RAISING THEIR HAND, SAYING THEY DESERVE THE SAME. I'M CURIOUS, HAL, ABOUT THE ATTEMPT TO SHIFT REGULATION THAT WE KNOW IS COMING DOWN THE PIPE. DO YOU ENVISION A SCENARIO WITH MIDSIZE BANKS THAT WERE EXEMPT FROM A LOT OF THE RULES THAT APPLY TO SOME OF THE BANKS WILL NOW BE ONE OF THE SAME? PROF. SCOTT: IT IS POSSIBLE, PARTICULARLY IN THE POLITICAL ENVIRONMENT THAT WE LIVE IN. I THINK THE QUESTION WHICH YOU ARE RAISING, IS THERE A REASON TO RAISE CAPITAL REQUIREMENTS ACROSS THE SYSTEM FOR SMALL BANKS? I THINK THAT IS ENTIRELY PREMATURE. I LOOK AT THIS CRISIS AS A LIQUIDITY CRISIS. THERE IS A RUN ON THE BANK, MAYBE A COUPLE OF BANKS. THE WAY TO DEAL WITH THAT IS LENDER OF LAST RESORT THERE IS NO AMOUNT OF CAPITAL IS EVER GOING TO BE ENOUGH, NO REGIONAL AMOUNT OF CAPITAL, TO STEM A RUNOFF BANKING SYSTEM TO DO YOU DEAL WITH THAT THROUGH LENDER OF LAST RESORT, IF NECESSARY, MARKET RULES. ROMAINE: TO A CERTAIN EXTENT, THE MARK TO MARKET RULES CANNOT ARE THEY ADEQUATE, AS WE KNOW THAT TO BE NOW? PROF. SCOTT: THIS IS AN EXCELLENT QUESTION, BECAUSE HE OF THE FACT THAT SVB WAS SOLVENT WAS THE FACT THAT THEY WERE ABLE TO CARRY ABOUT HUNDRED BILLION DOLLARS OF MORTGAGE-BACKED SECURITIES, AGENCIES, BACKED BY THE GOVERNMENT, CARRY THEM AT PAR RATHER THAN THEIR REAL VALUE, WHICH WAS 15 MILLION DOLLARS LESS. IF THEY HAD MARKED THOSE MORTGAGE-BACKED DOWN, THEIR BASIC CAPITAL WOULD HAVE BEEN ERODED. SO THE QUESTION IS, WHY DO WE HAVE THIS? IT WAS SOLVENT. BUT IT RAISES THE QUESTION OF HAVING THIS ACCOUNTING RULE, SO THIS IS NOT A NEW QUESTION. MARKING THE MARKET, THESE SECURITIES WILL GIVE YOU MORE ACCURATE VIEW OF WHAT THE PORTFOLIO IS WORTH IF THERE WERE TO BE A SALE KID ON THE OTHER HAND, THEY ARE SAYING, WE ARE NOT GOING TO SELL THIS PORTFOLIO, YOU SHOULD VALUE WITH A PAUSE. THERE ARE DIFFERENT ARGUMENTS ON THE ACCOUNTING SIDE. THE OTHER FACT IS IF YOU WERE TO VALUE THESE SECURITIES THAT WE NORMALLY DO TO HOLD THE MATURITY, YOU THEN CREATE A LOT OF VOLATILITY, BANK CAPITAL GOES UP AND DOWN BASED ON THE MARKET PRICES, EVEN THOUGH THEIR INTENT IS TO HOLD THE MATURITY YOU. SO I THINK WE NEED TO HAVE THIS DISCUSSION AGAIN, BUT I'M NOT SURE WHAT THE RIGHT ANSWER IS. KATIE: TO YOUR POINT, THIS IS A DISCUSSION WE SHOULD BE HAVING AGAIN, PERHAPS AS WE ARE HAVING RIGHT NOW, WHAT IS YOUR SENSE ON RATHER ACTUALLY ANYTHING WILL CHANGE IN HOW THESE PORTFOLIOS ARE ACTUALLY VALUED AND ACCOUNTED FOR? PROF. SCOTT: WELL, THAT DEPENDS IF WE CHANGE THE ACCOUNTING RULE. I THINK RIGHT NOW, WE ARE NOT CHANGING IT. THE ACCOUNTING RULE IS IF YOU INTEND TO HOLD SECURITIES OF THIS TYPE TO MATURITY, YOU VALUE THEM AT PAR. YOU DON'T SNAP YOUR FINGER AND DO THAT OVERNIGHT. THERE IS SOME VOLATILITY ACCOUNTING, REGULATION, DISCUSSION, BUT I THINK IT IS A DISCUSSION WE NEED TO HAVE AGAIN , BUT I DON'T THINK IT IS GOING TO CHANGE THINGS RIGHT AWAY. ROMAINE: DO YOU THINK IT IS GOING TO CHANGE THE WAY, AND I'M TALKING PARTICULARLY ABOUT COMMERCIAL ACCOUNTS, THE WAY THEY VIEW THE BANKING SYSTEM, AND MORE IMPORTANTLY, HOW THEY ALLOCATE THEIR HOLDINGS? WE'VE HEARD A LOT OF ANECDOTAL EVIDENCE ABOUT COMPANIES TRYING TO FIND WAYS TO DIVERSIFY NOT JUST AWAY FROM THE REGIONAL BANKS BUT AWAY FROM THE TRADITIONAL BANKING SYSTEM ALTOGETHER. PROF. SCOTT: WELL, I THINK THAT IS ANOTHER VERY GOOD QUESTION, YOU KNOW, ONE OF THE MORE INTERESTING THINGS THAT HAS HAPPENED, NOT GOTTEN A LOT OF ATTENTION, IS THE RUN INTO GOVERNMENT MONEY MARKET FUNDS. WITH COVID, IN 2008, WE ARE TALKING ABOUT RUNS OUT OF THE MONEY MARKET FUNDS. NOW WE ARE TALKING ABOUT RUNS INTO THE MONEY MARKET FUNDS. IF YOU ARE A DEPOSITOR, TO SOME EXTENT, YOU HAVE TO HAVE A CERTAIN AMOUNT OF MONEY, BANKS, YOU GET PAYMENTS INCOME THE PAYMENTS OUT, YOU KNOW, RECEIVABLES AND SO FORTH. YOU CAN PUT IT IN GOVERNMENT MONEY MARKET FUNDS. IT IS REALLY NARROW. YOU'VE GOT THE DEPOSITS, AND THERE ARE ASSETS THAT ARE ONLY GOVERNMENT SECURITIES, SO NOT VERY RISKY. A YIELD MIGHT ACTUALLY BE GREATER THAN YOU CAN GET AT A BANK. SO I THINK, YOU KNOW, WE NEED TO MONITOR THAT VERY CLOSELY, BE WORRIED ABOUT RUNS INTO GOVERNMENT MONEY MARKET FUNDS THAT HAVE THE EFFECT OF DISSING OR MEDIATING THE BANKS. ROMAINE: WE SAW THE HUGE INFLOWS LAST WEEK, $120 BILLION PLUS HEADING INTO MONEY MARKET ACCOUNTS LAST WEEK ALONE. WE HAVE TO LEAVE IT THERE. WE APPRECIATE YOU TAKING THE TIME. HOW SCOTT IS THE DIRECTOR OF THE COMMITTEE ON CAPITAL MARKETS REGULATION AND PROFESSOR EMERITUS OVER AT HARVARD LAW SCHOOL, HELPING US KICK OFF THE PROGRAM ON WHAT WILL BE SURE TO BE ANOTHER WILD WEEK. BONDS, CREDIT SUISSE IS EFFECTIVELY BEING WIPED OUT. PATRICK WILL BE DROPPING BY IN JUST A SECOND, AND WE TALK ABOUT FIRST REPUBLIC, THE DRAWDOWN, AND THOSE SHARES, THE BIG WINNER TODAY, NEW YORK CITY BANK AFTER ITS SUBSIDIARY DECIDED TO TAKE OVER MANY OF ITS DEPOSITS. CHRISTOPHER WILL TALK ABOUT WHY HE IS UPGRADING THAT STOCK. WE WILL GET SOME INSIGHTS ON THE MARKET AND THIS WEEK'S FED DECISIONS. MARK HOWARD WILL BE WITH US. PLEASE STICK WITH US. THIS IS BLOOMBERG. YOU WANT TO SORT IT OUT FIRST. > > "BLOOMBERG SURVEILLANCE," THE FED DECIDES, ONLY ON BLOOMBERG, YOUR GLOBAL BUSINESS AUTHORITY. > > I DON'T THINK THAT THERE IS A COMPELLING CASE OF THE FED TO KEEP RAISING 50 BASIS POINTS PER MEETING. KRISHNA: I THINK THE LIKELIHOOD OF 50 WITH THIS NUMBER IS PROBABLY MODEST. LAWRENCE: I HOPE THE FED CAN MOVE FORWARD ANOTHER 25 BASIS POINTS. PRIYA: I THINK THE BAR FOR 50 IS VERY HIGH. MOHAMED: I THINK THE FED WILL TRY AND SOMEHOW BE IN THE MIDDLE. RICHARD: MY SENSE RIGHT NOW IS THAT THEY DO GO AHEAD AND HIKE AT THIS MEETING. STEPHEN: WE WILL SEE THE FEDERAL RESERVE PROBABLY HIKE RATES IN MARCH AND GOING TO A PAUSE. SAM: IF THE FED PAUSES AND STAYS PAUSED, I THINK INVESTORS WILL START MOVING INTO EQUITIES. EVEN: ULTIMATELY-- ETHAN: ULTIMATELY IT WORKS IN THE FED GOES BACK TO HIKING INTEREST RATES. ANDREW: IF THE FED DOES NOT HEIGHT, THERE WILL BE QUESTIONS ABOUT WHETHER THE FED IS ALSO COMMITTED TO PRICE STABILITY. KATIE: AND ALL THE VOLATILITY FUELED BY THE BANKS WE HAVE SEEN IN THE PAST WEEK OR SO, ONE RELATIONSHIP HAS RETURNED TO NORMAL, AT LEAST FOR A DAY PER YOU ARE LOOKING AT TWO YEAR TREASURY YIELDS VERSUS S & P 500 FUTURES. YOU CAN SEE OVER THE PAST DAY, THEY HAVE MOVED IN TANDEM. THAT MEANS AS BONDS HAVE SOLD OFF, STOCKS HAVE RALLIED. IF YOU ARE A 60/40 SORT OF INVESTOR, THIS IS A RELATIONSHIP THAT YOU WANT TO SEE. ROMAINE, WE WILL SEE HOW LONG THIS HOLDS, AT LEAST FOR ONE DAY, THE RELATIONSHIP IS BACK. ROMAINE: MARK HOWARD JOINING US NOW, OVER AT BNP PARIBAS, MARK, GREAT TO SEE YOU, AS ALWAYS. I WANT TO START OFF WITH THE FED MEETING, BECAUSE A LOT HAS CHANGED SINCE THE LAST FED MEETING FOR YOU HAD A MARKET COUPLE WEEKS AGO PRETTY MUCH BUYING INTO WHAT THE FED WAS TELLING THEM. YOU WILL GET MORE RATE HIKES AND YOU WILL GET THEM THROUGH THE END OF THE YEAR. THAT DOES NOT SEEM TO BE WHAT THE MARKET IS EXPECTING ANYMORE. MARK: YOU ARE RIGHT, ROMAINE, AND THANK YOU FOR HAVING ME. IT IS A CLOSE CALL. WE THINK IT IS A MODERATE RESPONSE IN THE MARKETS TODAY, WHAT YOU MENTIONED EARLIER WITH THE DOW UP BY 1%, CREDIT MARKETS ARE WHITE FIRM TODAY. IF THAT CONTINUES FOR THE NEXT 48 HOURS, WE THINK WE GET A 25 BASIS POINT HIKE. ROMAINE: WE ACTUALLY SAW YIELDS WE HAVE NOT SEEN IN SIX OR SEVEN DAYS. IS THAT ENCOURAGING? MARK: THAT IS SOMETHING THE FED WATCHES THEY WANT TO KNOW THE MARKET IS FUNCTIONING, PRIMARY MARKETS, SECONDARY MARKETS, AND FRANKLY, WHAT TOOK PLACE LAST WEEK POST SVP IS INVESTORS BUILT UP SOME CASH, AND WHEN PEOPLE COMMEND THIS MORNING, THEY FOUND THAT EUROPE HAD FOUND ITS FOOTING, AND THAT WAS GOOD FOR CREDIT AS SLIGHTLY WIDER SPREADS. KATIE: YOU SAID SOMETHING INTERESTING, IF THIS CALMED DYNAMIC HOLDS OVER THE NEXT 48 HOURS OR SO, THEN THE FED WILL GO AHEAD WITH 25 BASIS WINS. IS THAT OUR TO OUR? IF -- IS THAT HOUR TO HOUR? DO YOU THINK THE FED IS MAKING THIS DECISION ON THE FLY? MARK: I DON'T THINK IT IS ON THE FLY, KATIE, I THINK IT IS A CLOSE CALL. ONE THING WE WILL BE SKIRTING IS THE SEP RELEASES AND WHETHER REGIONAL SAID ANOTHER FED OFFICERS MEANINGFULLY CHANGE THEIR ECONOMIC EXPECTATIONS BECAUSE OF THIS SET OF BANK DEVELOPMENTS RECENTLY. THAT COULD GIVE THEM SOME WIGGLE ROOM IF ADVANCED TIPPET ONE WAY OR THE OTHER IN THE NEXT 40 HOURS TO POINT TO THAT COME UP AND SAY -- TIP IT ONE WAY OR THE OTHER IN THE NEXT 48 HOURS, 2.2 THAT AND SAY -- TO POINT TO THAT. HAVING STABILITY IN THE FINANCIAL SECTOR IS REALLY A PREREQUISITE TO ACHIEVING THEIR GOALS. KATIE: EVERY PART OF THE ECONOMY TOUCHES THE BANKING SECTOR, BUT THE DECISION THAT HAS TO BE MADE ON WEDNESDAY, AND 48 HOURS, THE FED DECISION BETWEEN HOLDING AT 25 BASIS POINTS, YOU THINK A 50 POINT HIKE IS A POSSIBILITY? MARK: I DON'T THINK 50 IS CURRENTLY ON THE TABLE. AS MUCH AS THEY MAY LIKE IT TOO, EVENTS OF THE LAST 10 DAYS DON'T POINT ABOUT BEING THE CASE. AS YOU'VE MENTIONED, MARKETS HAVE SAID THAT, THE FRONT END OF THE MARKET WITH THE BIG MOVE LAST WEEK. ROMAINE: THERE IS SOME CONCERN RIGHT NOW ABOUT THE RIPPLE EFFECTS OVER IN EUROPE OUT OF THIS CREDIT SUISSE-UBS DEAL AND I GUEST IS HOW REGULATORS THERE SORT OF KEEP THE MARKET STABLE. WHEN YOU LOOK AT THE INSTABILITY, FOR LACK OF A BETTER PHRASE, THAT WE'VE HAD OVER THE LAST FEW DAYS HERE, DO YOU THINK THAT IS RELATIVELY UNDER CONTROL? MARK: INSTABILITY -- WHAT IS FASCINATING, ROMAINE, IS THINGS ARE CHANGING IN THE MARKETS SO QUICKLY, RIGHT? WE SAW THAT WITH SVB, THE TWITTER STORM THAT LED TO A DEPOSIT RUSH, SAME THING THAT HAPPENED WITH SWISS BANKS OVER THE WEEKEND, A REALLY RAPID RATE OF CHANGE. BUT ALSO, INTERESTINGLY, POLICYMAKER RESPONSES HAVE ACCELERATED, COMPARED TO WHEN WE WENT INTO TURBULENCE IN 2008, THE RESPONSE WAS FAR MORE DRAWN OUT, AND THERE WAS NOT A PLAYBOOK IN PLACE. NOW THERE IS A PLAYBOOK. SO, YES, THINGS WERE CERTAINLY WOBBLY LAST WEEK, BUT THE RESPONSE WAS DECISIVE AND IT WAS QUICK, AND WE WERE NOT LEFT HANGING, YOU KNOW, INTO THE WEEK. I ACTUALLY THINK THINGS ARE SORTED, YOU KNOW, UBS HAS STEPPED UP AND BROUGHT IT INTO THE FOLD, AND, YOU KNOW, I DON'T THINK THAT ANYBODY I TALKED TO IS DISSIPATING, YOU KNOW, SIGNIFICANT -- IS ANTICIPATING, YOU KNOW, SIGNIFICANT RAMIFICATIONS. ROMAINE: I'M CURIOUS ABOUT SOME OF THE TRADESPEOPLE HAVE FLOPPED INTO, SAFETY TRAITS, MONEY MARKET ACCOUNTS, A LOT OF THE TRADES WE HAVE SEEN IN THE FX SPACE, DO YOU THINK THOSE WILL BE UNWOUND? MARK: WELL, THERE IS AN INITIAL REACTION AND THEN THERE IS A MIDTERM REACTION. I THINK PEOPLE WANT TO SEE WHAT THE FED SAYS AND WHAT THE FED DOES. IT IS NOT JUST ABOUT RATES, IS ABOUT OTHER POLICIES STEPS AROUND STABILIZING THE BANKING SECTOR, PERHAPS AS YOUR EARLIER GAS WAS JUST TALKING ABOUT IN TERMS OF DEALING WITH -- GUEST WAS TALKING ABOUT IN TERMS OF DEALING WITH THE LIMIT, IF THERE'S ANY CHANGE, AND OUTSIDE CAPITAL THAT COMES INTO THE BANKING SECTOR, SUCH AS WHAT HAS BEEN ON THE BLOOMBERG TERMINAL IN THE PUBLIC. I THINK THERE ARE A LOT OF THINGS THAT COULD AFFECT WHETHER PEOPLE GOING TO SAFETY TRAITS. RIGHT NOW, I THINK IT IS MORE MIDDLE OF THE FAIRWAY TRADES. IT IS NOT DEEP RISK AVERSION, IT IS NOT FULL RISK ON, IT IS SOMEWHERE IN BETWEEN. ROMAINE: I GET YOUR ANALOGY. MARK, I'M GOING TO HAVE TO LEAVE IT THERE. MARK HOWARD, MANAGING DIRECTOR AND SENIOR MULTI-ASSET SPECIALIST AT BNP PARIBAS. A QUICK CHECK ON THE MARKETS, GREEN ACROSS THE SCREEN HERE, TRANSPORTS IN THE RED, BUT INVESTORS A LITTLE BIT MORE CONFIDENCE HERE AS WE HEAD INTO THE START OF THE TODAY FED ROMAINE: WE ARE ABOUT FIVE HOURS INTO THE TRADING SESSION HERE ON THIS MONDAY AFTERNOON, AND SO FAR, STEADY AS SHE GOES. A LOT OF GREEN ACROSS THE SCREEN HERE, THE BIG LEADERS ON THE DAY. YOU WILL FIND IT IN THE ENERGY SPACE, IN MATERIALS, BUT WE SHOULD POINT OUT ALL 11 S & P SECTORS RIGHT NOW ARE HOLDING INTO THE GREEN, AS THAT RISK OFF APPETITE WE SAW LAST WEEK, I DON'T KNOW IF IT IS NECESSARILY RISK ON, BUT CERTAINLY A LITTLE BIT OF A RELIEF. SOME OF THE BACKSTOPS WE ARE SEEING OUT OF THE PRIVATE COMPANIES IN EUROPE, THE BANKS STEPPING UP HERE TO MAYBE GET A LITTLE BIT OF THE ACTION HERE TO SOME OF THE U.S. BANKS, AND OF COURSE AHEAD OF A BIG FED MEETING HERE. A LOT OF PEOPLE ARE TRYING TO FIGURE OUT WHAT IS NEXT. IS IT A SYSTEMIC ISSUE OR NOT? FOR NOW, THE VOTE SEEMS TO BE NOT. YOU ARE SEEING THAT IN THE BID COME OUT OF TREASURIES, THE BIDS COME OUT OF SOME OF THOSE HAVEN ASSETS. AVERY EMBRACE OF RISK, THAT MIGHT BE THE STORY -- A RE -EMBRACE OF RISK, THAT MIGHT BE THE STORY PRIMARILY ON WEDNESDAY FROM WHAT WE HEAR OUT OF THE FED AND JAY POWELL. STAY WITH US. THIS IS BLOOMBERG. ♪ ROMAINE: THIS IS A BLOOMBERG THE CLOSE. LET'S GET YOU CAUGHT UP WHAT IS HAPPENING IN THE COMMODITY SPACES. THEY DID BREAK OUT OF THE RANGE. UNFORTUNATELY, IT WAS TO THE DOWNSIDE. REBOUNDING THIS MONDAY AFTERNOON. LOOKS LIKE IT IS GOING TO SETTLE JUST BELOW $68 A BARREL. RIGHT NOW, UP ABOUT SIX TO 7/10 OF A PERCENT ON THE DAY HERE. AND FUTURES TAKING A DOWN ON THE REMOVAL OF THE UKRAINE RUSSIA WE TO AND CRANE DEAL. KEEP AN EYE ON WHAT HAS BEEN GOING ON. DOWN TO AND A HALF PERCENT ON THE DAY. A VERY INTERESTING STORY ABOUT MORE ROCKS FOUND IN SOME OF THE METAL SHIPMENTS. IT IS WITHIN THE WAREHOUS ES IT IS NOT GOOD. KATIE: WE ARE TALKING ABOUT ADDITIONAL TIER ONE SECURITIES. HERE DISCUSSED IS A PATRICK KAUFMAN, A PORTFOLIO MANAGER AT ASSET MANAGEMENT, WHICH HOLDS CREDIT SUISSE. PATRICK, I THOUGHT BONDHOLDERS ALWAYS CAN BE FOR STOCKHOLDERS IN THE CAPITAL STRUCTURE. I WAS SURPRISED TO SEE THIS. I AM ASSUMING YOU WERE SURPRISED AS WELL. PATRICK: WE HAVE BEEN VERY SURPRISED WITH THIS MOVE BY THE SWISS REGULATOR. WE HAVE NOT EXPECTED IT. WE WERE VERY SURPRISED THAT -- WAS NOT RESPECTED. CREDIT SUISSE CAME OUT ON THE 14TH OF MARCH TELLING US IN A PRESENTATION, STOCKHOLDERS ARE BELOW 81. THIS WAS A BIG SURPRISE TO US, THAT SHAREHOLDERS MOVED OUT. THIS IS SURPRISING TO US. KAILEY: WHAT DO YOU PLAN TO DO? ARE YOU IN CONTACT WITH OTHER BONDHOLDERS? ARE YOU CONTINUING -- CONTINUING POSSIBLE LITIGATION? PATRIK: WE HAVE SEEN EUROPEAN REGULARS IN THE BANK OF ENGLAND COMING OUT GIVING CLEAR STATEMENTS THAT THEY SEE IT DIFFERENTLY. I THINK WE NEED TO WAIT HERE WHAT WILL COME OUT OF THE REGULATOR. MAYBE THEY WILL CHANGE THE COURSE. OVER THE WEEKEND, DISCUSSION HAS BEEN DIFFICULT AND ALONG. THEY MIGHT HAVE FORGOTTEN. ROMAINE: DID THE REGULATORS MAKE ANY ATTEMPT TO REACH OUT TO BONDHOLDERS LIKE YOURSELF BEFORE THEY ANNOUNCED? PATRIK: NOT YET. THIS IS VERY EARLY STAGE. ROMAINE: WE DO HAVE FELT BETTER IF YOU WOULD HAVE KNOWN OR THERE HAVE KNOWN OR THERE HAD BEEN A ANNOUNCEMENT THAT THE EQUITY SHAREHOLDERS, THEY WOULD BE WIPED OUT AS WELL? PATRIK: NOT REALLY. THE POINT IS, YOU CAN PAY SOMETHING FOR SHAREHOLDERS, BUT YOU CANNOT HAVE A 21 HOLDERS GETTING ZERO. -- 81 HOLDERS GETTING ZERO. THERE IS A LOGIC BEHIND IT. HERE, THERE IS NO LOGIC. IT REALLY PUTTING 81 HOLDERS RANKING THEM BELOW SHAREHOLDERS IN MY EYES UNACCEPTABLE. ROMAINE: ARE WE TALKING ABOUT THE OVERALL REGULATIONS, WHICH APPLY TO THE BROADER SPACE QUESTION MIGHT BE SPECIFIC DEBT ISSUANCES, WHICH SOME PEOPLE SAY ALREADY HAD A PROVISION IN THERE THAT YOU SERVED, WHAT WOULD BE THE NORMAL HIERARCHY FOR THESE ISSUES? PATRIK: ANYONE HOLDERS ARE VERY WELL AWARE IN CASE OF AN ISSUE -- ANYONE HOLDERS ARE VERY WELL AWARE IN CASE OF AN ISSUE IN BANK. THERE IS A REASON THIS BOND HAS BEEN ISSUED. AS A EUROPEAN REGULATORS START TODAY, THEY SEE IT DIFFERENTLY. WE HAVE BEEN SURPRISED. THERE IS NO PROBLEM. THIS IS THE REASON WHY THESE -- HAS BEEN ISSUED APPEARED IN A SURPRISING THAT SHAREHOLDERS CAN GET OUT -- AND ANYONE HOLDERS GETS WIPED OUT -- 81 HOLDERS GETS WIPED OUT. A VERY STRONG REACTION TO 81 BONDS THIS MORNING. KATIE: I APPRECIATE YOUR TIME. I AM SURE IT HAS BEEN A LONG COUPLE OF DAYS. THAT IS PATRICK KAUFMAN. U.S. REGIONAL BANKS ARE RALLYING AFTER A BRUTAL TWO WEEK STRETCH FOR THE SECTOR. WE ARE GOING TO BREAK IT DOWN WITH CHRIS, HEAD OF RESEARCH AT KBW. THAT IS NEXT. THIS IS BLOOMBERG. ROMAINE: LET'S GET TO OUR TOP CALLS. AND LOOK AT SOME OF THE BIG -- A LOOK AT SOME OF THE BIG MOVERS. EXECUTIVES IN HIS WORD SHOWED CONFIDENCE AND GUIDANCE FOR THE FULL FISCAL YEAR. UBS GETTING THE UPGRADE TO BI OVER BANK OF AMERICA, WHICH CALLED A GOVERNMENT BROKER-DEAL TO BUY CREDIT SUISSE IMPECCABLE. IT GIVES UBS A SMALLER INVESTMENT BANK ME SHEET, WHICH IS A GOOD THING. THIS FOLLOWING THE BANK'S DECISION TO BUY ABOUT $30 BILLION OF SIGNATURE BANK ASSETS. KBW ANALYST SAYS FROM THIS DEAL, THERE SHOULD GIVE NEW YORK COMMUNITY BANCORP AND THE BANK BRAND GREATER FLEXIBILITY. SHARES UP 34% ON THE DAY. WE WANT TO STICK WITH THIS. CHRIS IS JOINING US OVER AT KBW. LET'S START OFF WITH IT. WHEN YOU TALK ABOUT THE FLEXIBILITY THAT THIS COULD GIVE NEW YORK COMMUNITY BANCORP, WHAT ARE YOU TALKING ABOUT? CHRISTOPHER: NEW YORK COMMUNITIES BALANCE SHEET HAS ALWAYS BEEN ITS ACHILLES' HEEL, THE COMPANY HAS A HIGH LOAN DEPOSIT RATIO AND HAS RELIED ON A LOT OF BORROWINGS IN THE MARKET TO FUND ITSELF. WITH THE FLAGSTAR DEAL THAT CLOSE LAST YEAR, THAT TOOK THEM FROM EIGHT TOUGH POSITION TO A NEUTRAL -- A TOUGH POSITION TO A NEUTRAL POSITION. WE THINK TODAY'S REACTION TO SIGNATURE BANK REALLY PUTS THEM ON THEIR BEST FOOT FORWARD. ROMAINE: A HUGE PLAYER IN THE REAL ESTATE MARKET. SIGNATURE BANK HAD A BIG PRESENCE WHEN IT CAME TO COMMERCIAL REAL ESTATE. HOW MUCH OVERLAP IS THERE BETWEEN THE TWO BUSINESSES? CHRISTOPHER: THEY ARE BOTH MAJOR PLAYERS IN NEW YORK. WHAT IS INTERESTING IS WHAT THEY DID NOT BUY. SIGNATURE IS A 100,000 DOLLAR BANK -- $100 MILLION BANK. NEW YORK COMMUNITY IS ONLY ACQUIRING A FRACTION OF THE LOAN PORTFOLIO. THEY ARE TAKING ON THE $25 BILLION IN CASH. THAT WILL ALLOW THEM TO PAY DOWN HIGHER COSTS BORROWINGS AND THE MARGIN SHOULD EXPAND. KATIE: I KNOW SIGNATURE IS A CRYPTO FRIENDLY BANK. IT IS INTERESTING ABOUT THIS APPOSITION, AND DO NOT ACQUIRE ANY OF THE CRYPTO RELATED ASSETS OR DEPOSITS. HAD DONE THAT, WOULD THAT HAVE CHANGED YOUR VIEW ON THE STOCK? CHRISTOPHER: SURE. THE DIGITAL THE CRYPTO SPACE HAS GONE THROUGH DISRUPTION AND VOLATILITY OVER THE. PAST YEAR. THERE IS GREATER RELATION THAT IS ASCRIBED TO THAT BUSINESS. BY THEM CARVING IT OUT AND LEAVING IT WITH THE FTSE, THEY CAN FOCUS ON THE CORPORATE COMMUNITY MAKE MODEL THAT HAS BEEN PRETTY SUCCESSFUL IN NEW YORK. WHAT THEY HAVE GOT GOING ON IS REALLY STRONG EARNING SECRETIONS. A STOCK THAT IS TRADING BELOW TANGIBLE, WHICH IS THE BIG REASON WE WENT TO A -- THIS MORNING. KATIE: YOUR TWELVE-MONTH PRICE TARGET IS $10 AND $.50. INVESTING ON RECORD SINCE THE COMPANY WENT PUBLIC IN 1993. A LITTLE UNDER NINE DOLLARS. NOW WE HAVE SEEN THE BULK OF THE MOVE, WHAT IS GOING TO PROPEL IT TO THE PRICE TARGET YOU HAVE? CHRISTOPHER: I THINK TODAY'S MOVE IS SIGNIFICANT, BUT ALSO THE LAST FEW WEEKS HAVE BEEN PRESSURE FOR BANKS. WE HAVE STOCKS TRADING BELOW TANGIBLE VALUE. WHAT IS INTERESTING, THIS TRANSACTION IS TRANSFORMATIONAL. IT WILL ALLOW THE R.O.E. IN THE EARNINGS POWER OF THE COMPANY TO BE SUSTAINABLE. WE BELIEVE INVESTORS WILL PUT A PREMIUM ON THE PRICE THAT WE HAVE NOT SEEN. ROMAINE: WE HAVE TO ASK ABOUT WHAT ELSE IS GOING ON OUT THERE IN THE U.S. BANKING SPACE. EVERYONE IS LOOKING FOR WHAT THE NEXT SHOE TO DROP COULD BE. ARE THERE OTHER BANKS THAT YOU THINK COULD POTENTIALLY MAYBE BE HAVING SOME ISSUES THAT WOULD NEED TO BE ADDRESSED. ? IS THAT ENOUGH TO -- ANOTHER RUN OR COLLAPSE? CHRISTOPHER: THIS LIQUIDITY CRISIS WE HAVE BEEN DEALING WITH IS -- AT THE SPEED OF WHAT IS HAPPENING -- I HAVE NEVER SEEN ANYTHING LIKE IT. WE HAVE SEEN SIGNATURE BANK, SILICON VALLEY BANK, BOTH OF THOSE COMPANIES WENT INTO THE MARKETS IN VERY SHORT ORDER. THIS WHAT WE ARE SEEING IS A SPILLOVER EFFECT IN BASH. THE STOCKS REMAIN UNDER STRESS. ROMAINE: THE BEST PERFORMING THE MAJOR STOCKS OUT THERE ON THE DAY. WE CONTINUE OUR COVERAGE ON THE BANKING COVERAGE IN THE U.S. AND ABROAD APPEARED OUR . JOIN US WITH GILLIAN TETT. THAT IS COMING UP AFTER THE BREAK. THIS IS BLOOMBERG. ROMAINE: TIME FOR OUR WALL STREET WEEK DAILY SEGMENT. DAVID WESTIN JOINING US AS HE DOES EVERY DAY AT THIS TIME. WE TALK ABOUT THE SLOW-MOVING CRISIS IN THE BANKING SECTOR. I HAVE A FEELING THAT IS GOING TO BE A BIG TOPIC. DAVID: WE HAVE A CREDIT SUISSE DEAL. IT KEEPS ON COMING. IT SEEMS TO BE NOT BEING" TO OVER. ROMAINE: MOST OF THE PEOPLE YOU SPOKEN TO, THEY SEEM TO SUGGEST THAT REGULATORS ARE GETTING THIS UNDER CONTROL. IS THAT TRUE? DAVID: I THINK THAT IS RIGHT. IT IS ONE OF THESE THINGS YOU DO NOT KNOW IF IT IS OVER UNTIL IT IS OVER. ONE PERSON HAS REALLY OBSERVED THIS IN DETAILS OVER THE YEARS, GILLIAN TETT. THANK YOU SO MUCH FOR BEING WITH THE SPIRIT WHY DO WE NEVER SEE IT COMING? WE HAVE THESE FINANCIAL CRISIS PERIODICALLY. WE DO NOT SEE IT COMING. GILLIAN: WE GOING IS GOOD, IT HAS BEEN IN RECENT YEARS GIVEN THE CONDITIONS, PEOPLE DO NOT LOOK FOR RISKS. WE ARE TRAINED TO ASSUME THE PAST -- THE RECENT PAST THAT WE LOOK THROUGH. IN CASE OF THE CRISIS, WE SPENT A LOT OF TIME IN 2008 TALKING ABOUT CREDIT RISK. OF COURSE, MORTGAGE BORROWERS BASH AT THE HEART OF -- AT THE HEART OF 2008 CRISIS. MANY INVESTORS FORGOT TO LOOK TO INTEREST RATE RISK. THEY WOKEN UP VERY RECENTLY TO THE BALANCE SHEET PROBLEMS. ESSENTIALLY REGULATORS ARE PLAYING CATCH-UP AS WELL. DAVID: HOW MUCH DO THEY HAVE TO CATCH UP? I AM NOT SURE THEY ARE NONE. GILLIAN: REGULATORS ARE TRAINED LIKE GENERALS TO SUPPORT THE LAST WAR. IT IS STILL FRANKLY BEING TESTED . THERE'S A OLD CLICHE THAT THE ROOTS OF THE -- COME FROM THE LATIN WORD W MEANING TRUST. WHAT IS HAPPENING NOW, INVESTORS ARE WAKING UP IN A PACK AND SCARING ALL OF THE BANKS FOR THE THINGS THEY MIGHT BE UNTRUSTWORTHY AND PROBLEMATIC. WHETHER IT IS THE FACT THAT SILICON VALLEY BANK HAD A VERY NARROW BUSINESS MODEL, OR THE FACT THAT IT WAS DEPENDENT ON UNINSURED DEPOSITS, OR THE FACT THAT CREDIT SUISSE HAD A SERIES OF CRISIS AND SCANDALS. THE FACT THAT MANY REGIONAL BANKS HAVE ALSO BEEN PLAYING AROUND WITH HER BALANCE SHEETS AND TAKING RISKS. THE MARKET IS SUDDENLY WAKING UP , SEEING THEM AND LOSING TRUST OR CREDIT. ROMAINE: HOW DO WE REGAIN THE TRUST? IT MAKES SENSE ON WHY INVESTORS WOULD NOT FOCUS ON CREDITS. YOU FOCUS ON WHAT YOU KNOW OR WHAT IS FAMILIAR. NOW CAN WE HAVE THESE REGULATORS IN THE U.S. AND OVER IN EUROPE TRYING TO BROKER THESE DEALS. GILLIAN: THERE'S TWO WAYS TO BUILD TRUST IN A FINANCIAL SYSTEM. I PRESUME THE GOVERNMENT IS GOING TO PROP EVERYTHING UP IN A CRISIS AND PROVIDE A SAFETY NET AND SUPPORT FOR THAT. OR YOU RELY ON FREE-MARKET PRINCIPLES AND ASSUME THAT INVESTORS KNOW ENOUGH ABOUT WHAT IS GOING ON TO JUDGE WHETHER SOMETHING IS CREDIT WORTHY OR NOT WORTH TRUSTING AND CLEAR-CUT RULES TO COPE WITH CRISIS IN THE CASE OF A DEFAULT. YOU NEED TO KNOW YOUR PROPERTY LAWS ARE CLEAR-CUT. WHAT IS HAPPENING WITH CREDIT SUISSE, BY ESSENTIALLY PAYING OUT EQUITYHOLDERS, 3 BILLION AND WIPING OUT -- VR OVERTURNING WHAT MANY PEOPLE HAVE ASSUMED WAS A NORMAL CAPITAL STRUCTURE. THAT IS LIKELY TO POTENTIALLY CAUSE PEOPLE TO FEEL NERVOUS ABOUT CAPITAL MARKET LOSS IN A WIDER SENSE. ROMAINE: ABSOLUTELY. YOU LOOK AT ANY TIER ONE DEBT IN EUROPE, IT IS DOWN GILLIAN: NO ONE SEEMS TO TRASH THE IDEA THAT SHOULD THE IDEA. ROMAINE: A WIPEOUT OF THE BONDHOLDERS IS GOING TO BE A ONE-OFF. GILLIAN: YOU COULD POTENTIALLY SEE THAT EXTENDING ELSEWHERE. JUST HOW FAR THE FDIC'S PROTECTION IS GOING TO EXTEND IF A BANKING CRISIS CONTINUES. THEY HAVE EXTENDED INTO ALL DEPOSITORS WITH SVP AND SIGNATURE. IF OTHER MIDSIZED REMAINS FALL INTO PROBLEMS, THE SAME SITUATION WILL LAY OUT. THAT IS ARE YOU SEE INSTITUTIONS LIKE FIRST REPUBLIC FACING EURO CRISIS OF CONFIDENCE. DAVID: AT THE MEANTIME, BACK AT THE RANCH, THERE IS INFLATION. THE FEDERAL RESERVE HAS TO MAKE SOMETHING WRITTEN A CHOICE IN GOING AGAINST INFLATION OR SACRIFICING THE BANKING SYSTEM? CAN IT DO BOTH. GILLIAN: THE FEDERAL RESERVE HAS BEEN GRAPPLING WITH THE TRADE-OFF BETWEEN GROWTH AND INFLATION. WE ARE GETTING IN SITUATION WHERE IT GOES TO TRY TO FLUSH INFLATION. JUST WHEN YOU THOUGHT IT COULD NOT GET WORSE, IT HAS A TRIFECTA OF PROBLEMS, ALSO WITH FINANCIAL STABILITY. IT IS NOT POSSIBLE TO NAME ALL THREE. THE FED IS GOING TO HAVE TO CHOOSE WHICH OF THE TWO WHICH OF IT IT WILL UPHOLD TO PUT PRIORITY ON IT DAVID: NATIONAL BANK CAN ON THE ONE HAND AND WE CAN KEEP TIGHTENING LIKELY TIGHT BEFORE. WE WILL PROTECT SOME OF THE BANKS THAT ARE IN TROUBLE. GILLIAN: ONE CHRISTINE LAGARDE MADE IT VERY CLEAR LAST WEEK THAT THE TASK OF MAINTAINING FINANCIAL STABILITY THROUGH CONFIDENTIAL RULES AND OTHER TOOLS IS DIFFERENT FROM USING MONETARY POLICY FOR THE ECONOMY. I AM IN THAT CAN. THE FED SHOULD GO AHEAD WITH A SUMMIT FIVE BASIS POINT RISE OR WHATEVER IT IS JUSTIFIED TO KEEP INFLATION UNDER CONTROL. HOWEVER, AFTER ALL OF THESE LONGER STEMMING POLICIES, IT IS VERY HARD FOR MOST INVESTORS ARE POLICYMAKERS TO DISTINGUISH WHAT A BALANCE SHEET EXPANSION DOES OR DOES NOT MEAN. AFTER ALL OF THIS LIQUIDITY INJECTION IS NOT GOING TO AMOUNT TO MORE QE, IT IS A DIFFERENT TYPE OF PRACTICE. WHETHER IT STILL FITS IN THE QUESTION DILEMMA IS ANOTHER QUESTION? DAVID: HOW MANY LAWSUITS WERE YOU SEEING? GILLIAN: A LOT. IT IS IMPORTANT IT IS TESTED IN COURT. IF WE MOVE INTO A SITUATION WHERE OUR GOVERNMENT CAN OVERRIDE LEGAL INSTRUCTIONS WITHOUT ANY OVERSIGHT, THAT IS NOT GOOD FOR CAPITALISM OR FREE MARKETS. GILLIAN: SOME PEOPLE SAID -- HAS THE RIGHTS TO OVERTURN THE STRUCTURE AND CRAM DOWN. THE REALITY IS, THERE ARE NOT PEOPLE IN THE MARKETS WHO THINK LOOKING AT COCOS OUR UNDERSTANDING THAT THEY ARE SENIOR TO -- WITHOUT SOME CLARIFICATION TO THE COURTS AND WITHOUT PEOPLE TRUSTING IN THE JUDGMENT, IT IS GOING TO GREAT LONG-TERM PROBLEMS. DAVID: THANK YOU SO MUCH FOR JOINING US. I SUSPECT YOU SHARE MY FEELINGS THAT WE ARE IN THE COURSE WHERE IT IS GETTING BIGGER AND MORE COMPLICATED RATHER THAN SIMPLE. ROMAINE: SHE KEEPS USING THAT PHRASE, THROUGH MARKET PRINCIPLES. WE HAVE NOT REALLY HAD A FREE-MARKET PRINCIPLES IN THIS COUNTRY. THE REFEREE IS PLAYING IN THE GAME. DAVID: TOMORROW, WE WILL HAVE JOHN MACK, FORMER CEO OF MORGAN STANLEY. HE SAYS HE IS GOING TO TELL US ABOUT HIS EXPERIENCES ABOUT THE CRISIS. YOU CAN CATCH ALL OF THESE CONVERSATIONS ON WALL STREET WEEK. > > COUNTDOWN TO THE CLOSE AHEAD OF THE U.S. MARKET CLOSE STARTS NOW. ROMAINE: THIS IS THE COUNTDOWN TO THE CLOSE. 60 MINUTES LEFT TO GO IN THE TRADING SESSION. HAPPY MONDAY. ARE WE ARE JOINED BY CAROL MASSAR -- WE ARE JOINED BY OUR COLLEAGUES, CAROL MASSAR. CAROL MASSAR, IT HAS BEEN A INTERESTING WEEKEND WITH UBS, CREDIT SUISSE, A LOT OF PEOPLE LOOKING IN THE U.S. TO SEE HOW OUR BANKING SYSTEM RESOLVES SOME OF THE ISSUES LINGERING. CAROL: THE GLOBAL RANKING SYSTEM CONTINUES TO DO WHAT IT NEEDS TO DO TO CALM EVERYONE DOWN -- BANKING SYSTEM CONTINUES TO DO WHAT IT NEEDS TO DO TO CALM EVERYONE DOWN. IT DOES LOOK LIKE A RISK ON TRADE IF YOU LOOK AT WHAT IS GOING ON IN CRYPTO AGAIN. IT IS A LOT OF MONEY. ROMAINE: A HUNDRED BILLION AS OF LAST YEAR. YOU HAVE 304 BILLION IN A WEEK CAROL:. IT REALLY SMART PERSPECTIVE APPEARED LET'S TALK ABOUT CRYPTO. WE ARE SEEING SOME SEPARATIONS IN TRADE WERE THERE SOME RISK ON TRADE, BIG BANGS, REGIONAL BANKS DOING WELL. YOU HAVE A BITCOIN UP ABOUT 4/10 OF A PERCENT OF BOUNCING AROUND. IT IS TOPPING 28,000 FOR THE FIRST TIME SINCE JUNE WE ARE UP FIVE DAYS IN A ROW. SOME OF IT HAS TO DO WITH MAYBE A DOVISH FED. THE TERM IN THE BANKING SECTOR, INVESTORS ARE LOOKING AT OTHER OPTIONS. RYAN PLATFORMS UP A 7%. NOT ALL NAMES, COINBASE ME FROM SEEING SOME PRESSURE TODAY. JESS: I HAVE TO POINT OUT THE TWO-YEAR TREASURY YIELD. STILL AT 4% AFTER POSTING ITS DECLINE. MORE THAN 100 BASIS POINTS IN JUST THE PAST TWO WEEKS ALONE. TWO-YEAR YIELDS HAVE BEEN AT OR ABOVE THE FED'S TERMINAL RATE. THAT IS GOING TO BE SOMETHING KEY WATCHING MOVING FORWARD. ROMAINE: THE BANKING CRISIS IS NOW OVER. YOU ARE SEEING GREEN ACROSS THE BOARD. YOU HAVE THE S & P UP ABOUT 7/10 OF 1%. A SIMILAR STORY FOR THE RUSSELL 2000. JESS: ALL 11 ARE IN THE GREEN, BUT BARELY. HEALTH CARE LEADING THE WAY. YOU CAN SEE ENERGY MOVING UP THERE, WHICH IS INTERESTING. JUST AS I AM TALKING, INFORMATION. BIG TECH HAVE BEEN THE LEADER BUT NOW IT IS THE UNDERPERFORMER BUT REMAIN STILL IN THE GREEN. SVB ONE OF THE BIG STORIES OF THE DAY, IF IT WERE NOT A BANKING CRISIS GOING ON, WOULD BE THE AMAZON ANNOUNCEMENT. ROMAINE: 9000 ADDITIONAL JOB CUTS. THEY HAVE BEEN RALLYING EARLIER. BED, BATH & BEYOND IS A -- THIS IS SIGNIFICANT. THERE WAS A THRESHOLD WITH THE BONDHOLDERS AND EQUITY HOLDERS WITH REGARDS TO -- APPEARED TRADING . THEY NEED TO GO BACK TO THE TABLE. IT WILL BE INTERESTING TO SEE WHAT THE COMPANY IS APPEARED FIRST REPUBLIC DOWN 43% ON THE DAY. IT MOVING IN DIFFERENT DIRECTIONS. WE DO NEED TO GO OVER TO EUROPE AND TALK ABOUT SOME OF THE SELLOFFS WE HAVE SEEN IN SOME OF THE TIER ONE CAPITAL BONDS. ROMAINE: A LOT OF THE PAIN THAT BONDHOLDERS ARE CONCERNED ABOUT RIGHT NOW WHEN IT COMES TO WHETHER THEY WILL BE -- BY ANYTHING GOING ON BY THE REGULATORS. THIS IS SOMETHING THAT THE FED MEANS TO THINK ABOUT BIG TIME WHEN IT GOES INTO THE MEETING NEXT WEEK. CAROL: DO YOU HAVE ANOTHER CHART FOR US? ARE YOU SURE? ANOTHER CHART? WHAT IS GOING ON WITH THE BANKING SYSTEM WILL BE TOP OF MIND B. BILL REMINDED US THAT THE FED HAS A COUPLE OF THINGS ON ITS PLATE. WHAT IT DOES WITH THE RATES, IT HAS GOT ITS MASSIVE $8.6 TRILLION ON ITS BALANCE SHEET. > > THIS IS ABOUT LENDERS TO SUPPORT THE BANKING SYSTEM. QUANTITATIVE TIGHTENING TO RUN OUT THE TREASURY FOR FOLIO. IT IS GOING TO CONTINUE. I SEE THESE TOOLS AS SEPARATE AND DIFFERENT. I EXPECT THE QUANTITATIVE TIGHTENING -- ZERO, DO NO HARM, BANKING SYSTEM IS UNDER STRESSED. CAROL: BILL DUDLEY. A REMINDER THAT THESE TWO THINGS GOING ON THAT WILL CERTAINLY IMPACT THE LIQUIDITY WITHIN THE SYSTEM. ROMAINE: UNDERGRAD THINK ANYBODY IS THINKING THAT BALANCE SHEET IS GOING TO GO -- I DO NOT THINK ANYBODY IS THINKING THE BALANCE SHEET IS GOING TO GO ANYWHERE. YOU KNOW, IT IS A THIRD WHAT THEY HAD ENTIRELY OVER LAST YEAR. THERE ARE FOLKS OUT THERE USING THIS AS A LENDER OF A LAST RESORT. THE REST OF THE FEDERAL GOVERNMENT, THE FED OR SOMEWHERE ELSE WHO ARE SUPPOSED TO BE THE BACKSTOP ME TO COME OUT AND SAY SOMETHING. KATIE: IT IS INTERESTING WHERE THE BANKS ARE SEEKING HELP FROM. I FIGURE WE ARE SPOKEN FROM THE FEDERAL HOME LINE -- HOMELAND BANK SYSTEM IS NEARLY DOUBLED. A LOT OF UPTICK, MAYBE NOT AS MUCH AS EXPECTED FROM THE FEDERAL RESERVE. JESS: WITH EYES ON THE DOT PLOTS WITH ECONOMIC PROJECTIONS, BERKELEY IS THINKING THE PROJECTION WOULD BE A 5.1%, WHICH IS ACTUALLY WHERE THE FED HAD IT AT THE DECEMBER MEETING. CAROL: WE ARE JUST CREATING ANOTHER --. ROMAINE: I MEAN, CAROL? COME ON. ROMAINE: WHAT HAPPENED TO CAPITALISM? KATCAROL: I AM FILLING IN MONDAY KIND OF CRANKY MOOD. IT IS TOMORROW, KATIE. ALRIGHT, EVERYBODY WILL BE BACK IN LESS THAN EIGHT HOURS TIME -- A HOURS TIME. RADIO, TV, BLOOMBERG ORIGINALS, CATCH US AT 4 P.M. WALL STREET TIME. ROMAINE: CONTINUING OUR COVERAGE ON BLOOMBERG TELEVISION AS WE COUNT DOWN TO THE CLOSING BELL AT THE PATH AHEAD FOR THE FED IN FULL FOCUS APPEARED ON THE FED COME OUR BELIEF IS A GOLDILOCKS ONE. 50 BASIS POINTS. 25 BASIS POINTS IS JUST ABOUT RIGHT ON BOTH COUNTS APPEARE . DRAWING US TO DISCUSS RIGHT NOW, MICHAEL. -- JOINING US TO THIS -- JOINING US TO DISCUSS THIS RIGHT NOW, MICHAEL. EVERYONE IS PULLING THEIR HEAD OUT THINKING THE FED IS GOING TO MAKE SOME MASSIVE PIVOT. YOU DO NOT NECESSARILY SEE THAT COMING, DO YOU? MICHAEL: BETWEEN FIVE BASIS POINTS IS A CONTINUATION OF THE GRADUAL MOVE DEMONSTRATING CLOSER TO THE END AND AT THE BEGINNING. STILL GETTING YOU NEAR THE TERMINAL RATE IS 5%, WHICH IS WHERE MOST PEOPLE BELIEVE IN SOME OF THAT RANGE WE SHOULD BE. IT ALLOWS THE FED TO WATCHFUL WAITING TO SEE WITH THE BANKING CRISIS AND OTHER ECONOMICS OF THE AGGRESSIVE RATE HIKES. THEY CAN DO NOTHING I THINK WOULD SURPRISE A LOT OF PEOPLE, SECLUDED. THAT WOULD CERTAINLY BE REASONABLE. IT IS TOO HIGH FOR ALL OF THE FACTORS THAT WE HAVE MENTIONED. THEN IT BECOMES ANSWERING ALL OF THESE UNANSWERED QUESTIONS AT THE MOMENT. . ROMAINE: WHETHER WE GET TO IF I WERE ON WEDNESDAY, THE QUESTION IS, WHERE DO YOU SEE IS GOING FOR THE REST OF THE YEAR? WE HAVE A MARKET PRICING IN RATE CUTS. AGAIN, UNANSWERED QUESTIONS. I WOULD SUSPECT IT IS GOING TO HAVE TO DEPEND ON WHAT THE WE DOES. HOW MUCH DID IT SLOW GIVEN THE VOLATILITY AND RATE INCREASES THAT WE SAW. OBVIOUSLY, WE LOOK LIKE WE ARE HAVING A HARD LANDING. I CAN SEE RATE CUTS, DO NOT KNOW IF WE ARE IN A POSITION TO DO THAT. THE SOFT LANDING TO ME, ESPECIALLY IF IT IS STATED BY SOME SCARED BEHAVIOR THAT TURNS OUT TO BE JUST A BLIP AND A NOTHING MORE THAN THAT. MAYBE THAT SLOWS THINGS NOW A LITTLE MORE. THE TERMINAL RATE OF FIVE. THE REST OF THE -- OF ECONOMY REMAINS RELATIVELY STRONG. EMPLOYMENT HAS NOT FALLEN OUT OF BED. IT IS REALLY HARD TO SEE SO MUCH OF THE U.S. ECONOMY BASED ON CONSUMER SPENDING. MOST PEOPLE ARE WORKING. THEY ARE SPENDING. IT IS REALLY HARD TO SEE A DEEP RECESSION UNLESS THAT NUMBER REALLY FALLS OUT OF BED. IF WE START TO SEE THAT, THAT WOULD INDICATE DANGEROUS AND BIGGER CRACKS IN THE SYSTEM. WE JUST HAVE TO ANSWER THE ONE BY ONE AND IT WILL TELL AS TO GO. KATIE: A SOFT LANDING STILL IN THE POSSIBILITY. CASH IS SUPERHOT. YOU CAN SEE THAT IN THE MONEY MARKET FUNDS. SHOULD HE BE LEANING MORE INTO RISK? -- SHOULD YOU BE LEANING MORE INTO RISK? MICHAEL: WE ARE A ASSET ALLOCATOR, WE DID A VARIETY, BONDS, COMMODITIES, REAL ESTATE, GROWTH STOCKS, ETC.. WE WOULD HAVE TO ADVOCATE THAT JUST FOR THE SIMPLE REASON. JUST BECAUSE THERE ARE CERTAINLY ON ANSWERED QUESTIONS, THERE ARE SOME NEW DIRECTIONS YOU CAN GO. YOU WANT TO MINIMIZE YOUR DOWN RISK BUT HAVE AVENUES TO POP IT. THERE CERTAINLY ALWAYS OPPORTUNITIES. I THINK SOME REGIONAL BANKS ARE A INTERESTING OPPORTUNITY RIGHT NOW. WE TENDED TO LOOK FOR COMPANIES THAT CAN CONTROL PRICING POWER IN THIS ENVIRONMENT. THAT WOULD BE OUR EQUITY EXPOSURE. IT SAYS ENERGY, COMMODITIES, SOME MATERIALS. IF THE VALUES WERE THERE. TRANSPORTS ARE DONE WILL THAT HAVE DONE WELL THIS YEAR. WE ARE STILL IN LITTLE NERVOUS ON THE BOND SIDE. WE CONTINUE TO FOCUS ON THE BALANCE SHEET. WE ARE STICKING WITH THAT FROM THE MOMENT, ALTHOUGH RECOGNIZING IT IS CLOSER TO THE END THAN THE BEGINNING. GOLD AND SILVER ARE RUNNING. IF THE FEDS WERE TO CUT RATES, WE WILL SEE GOLD AND SILVER IN ECONOMIC CONDITIONS. ROMAINE: MICHAEL, THE PRESIDENT AND PORTFOLIO MANAGER AT THE PERMANENT PORTFOLIO MANAGER OF F UNDS. ONE OF OUR GUESTS COMING UP IS GOING TO SAY OFFICIAL ENDING TO THE POTENTIAL OF THE BEAR MARKETS APPEARED MIKE WILSON WILL JOIN US TO HELP US NOW TO THE CLOSING BELL. TWO DAYS AWAY FROM THE BIG FED DECISION. NICO WILL BE JOINING US TO GET HIS TAKE INTO PRESIDENT. WE'RE GOING TO HEAR WHAT THESE TWO MEN HAD TO TALK ABOUT. MARY LOVELY IS GOING TO GIVE US HER PERSPECTIVE AS WELL. STICK WITH US. ROMAINE: 43 MINUTES UNTIL WE GET TO THE CLOSING BELL. WE LOOK AT THE GREEN ON THE SCREEN, EXXON, TESLA, PROCTER & GAMBLE, THERE IS NO TIME. E. WE ARE TALKING ABOUT IDIOSYNCRATIC MARKET MOVING AT ALL DIRECTIONS SCOT . WE ARE HIGHER ON THE DAY. THE TWO YEAR YIELD STILL CAMPED OUT BELOW 4% AS WE HEAD INTO A TWO-DAY MEETING FED MEETING, A FED MEETING WERE A LOT OF PEOPLE SAY THEY WILL SEE CONTINUED ACCELERATIONS. THOSE BETS HAVE COME IN DRAMATICALLY. THE REST OF THE MARKET SAYING THAT IS IT FOR THE YEAR. KEEP IN MIND, LOOK AT WHAT IS HAPPENING HERE IN THE FX SPACE. IN THE COMMODITY SPACE. WE GET TO THE IDEA THAT THERE IS NO NARRATIVE AND IT IS A BIG PART OF THE REASON WHY WE STILL HAVE CASH MOVED TO THE SIDELINE. IF YOU CANNOT PIECE IT TOGETHER OR PRICE THINGS OUT IN A WAY WITH YOUR OWN ABILITIES, SOMETIMES IT IS BETTER TO MOVE TO THE SIDELINES. THAT IS WHAT WE SAW LAST WEEK. WHETHER IT IS THE FED MEETING OR CATALYST THAT BRINGS OTHER PEOPLE BACK. ABIGAIL DOOLITTLE IS BACK FOR OUR SEGMENTS. LAST WEEK I THINK WE GOT ABOVE 40. I THINK SOMEONE YOU HAVE SPOKEN TO ON THIS PROGRAM ACTUALLY SAID THAT WAS GOING TO HAPPEN. ABIGAIL: NOT ONLY SAID IT WAS GOING TO GO ABOVE 30, HE TOLD US A FEW WEEKS AGO WHEN IT WAS AROUND BELOW 20 THAT IN MARCH, THE VIX TENDS TO GO TO 31. THAT IS WHERE IT WAS LAST WEEK. GREAT TO HAVE YOU WITH US SCOTT. I KNOW THAT WAS A LOT OF SEASONALITY, I THINK THAT A LOT OF YOUR EXPERIENCE AND EXPERTISE WILL APPEASE OF THAT TOO. IF YOU WERE TO TAKE A LOOK AT YOUR CRYSTAL BALL, WHAT DO YOU SEE NEXT OR VOLATILITY? SCOTT: LET'S START THE BANKING ISSUE THAT IS GOING ON RIGHT NOW. AFTER WEDNESDAY, AFTER THE FED ANNOUNCEMENT, WE WILL SEE A LOWER VIX. IF 50 BASIS POINT HIKE WAS STILL ON THE TABLE, THAT CAN CHANGE THE NARRATIVE. 73% PROBABILITY. I DO THINK WE WILL SEE THE VIX TREND LOWER UNLESS WE GET SOME OF THE BANKING CONTINGENT. IT IS A LOT OF SEASONALITY. WHEN YOU ARE STANDING AROUND THE PIT ALL DAY LONG AND TALKING TO ALL THE PEOPLE AND SEEING THE ORDER FLOW BACK AND FORTH, IT GIVES YOU A GOOD SENSE FOR WHAT IS GOING ON. ABIGAIL: RIGHT NOW WE ARE IN NOWHERE LAND. THERE IS NO DOMINANT NARRATIVE SO TO SPEAK. WHAT IS INTERESTING, IF WE GO TO THE BLOOMBERG TERMINAL WE WILL SEE THE CORRELATION, A RELATIONSHIP BETWEEN THE VIX AND WHERE FED FUTURES ARE RIGHT NOW. WHAT IS INTERESTING IS, SPREAD IS GOING IN. WHICH SHOULD BE VOLATILITY. YOU THINK WE ARE GOING TO SEE THE VIX GO DOWN TOWARD THAT SPREAD IS. SCOTT: WE ARE GOING TO SEE THE BOTTOM IN THE VIX AROUND 20 IN. MAYBE IT BREAKS THROUGH THE TEENS, 19 AND A HALF. I WOULD EXPECT 21 AFTER THE FED ANNOUNCEMENT UNLESS WE SEE SOMETHING FURTHER FROM THE BANKING CENTER, OR IF POWELL HAPPENS TO BLURT OUT SOMETHING THAT MAYBE THEY ARE NOT DONE RAISING. EVERYONE IS EXPECTING HIM TO SAY OK, WE ARE KIND OF AT THE END OF THIS RISE CYCLE. WE ARE GOING TO LOOK TO WHAT THE DATA AND COME BACK OFF A LITTLE. IF YOU BLURTS OUT SOMETHING HAWKISH, ALL BETS ARE OFF. ABIGAIL: THE LAST TIME WE HEARD HIM SPEAK BEFORE CONGRESS, THAT IS WHEN THE MARKET DECIDED THAT 50 BASIS POINTS WAS APPROPRIATE. WE HAD A TARGET RATE CLOSER TO 580 OR SO, THE PEAK IN SEPTEMBER. WE ARE LOOKING AT A LOT OF CUTS THIS YEAR. MAYBE IT DOES REVERSED. HOW DO YOU TRADE THIS VOLATILITY? SCOTT: AROUND ANY BIG EVENTS LIKE THIS, EVEN GOING INTO A STOCKS ARE EARNING REPORT, I LIKE TO SELL THAT VOLATILITY GOING INTO THE BIG NEWS ANNOUNCEMENT. I LIKE TO SELL PREMIUM AND ADVICE SOMETHING AS MY HEDGE A FEW DAYS OUT OR MAYBE A WEEK OUT. WE'RE LOOKING AT AT THE MONEY SPX AND IMPLIED TRADING FOR THIS WEDNESDAY AND THURSDAY. I LIKE TO PLAY THOSE TIMES SPREAD CALENDAR SPREADS BECAUSE WHEN IT COMES TO IMPLIED VOLATILITY WITH OPTIONS, THEY ALWAYS NORMALIZE. AFTER THAT BIG EVENT IS BEHIND US, THAT IS WHEN YOU TYPICALLY SEE THAT. ABIGAIL: YOU ARE NOW A REAL MASTER OF THE VIX. THANKS FOR JOINING US. FROM NEW YORK, THIS IS BLOOMBERG. ROMAINE: THIS IS "THE COUNTDOWN TO THE CLOSE," 30 MINUTES LEFT IN THE TRADING DAY. KATIE: NOT SURE IF IT IS RISK ON OR A RELIEF VALLEY, THERE IS A LOT OF GREEN ON THE SCREEN. IN THE CIRCLE BEHIND ME YOU HAVE 10 OF 11 SECTORS IN THE GREEN. ENERGY AND MATERIALS ARE UP THERE. DOWN THE LIST, COMMUNICATION SERVICES, CONSUMER DISCRETIONARY, NOT SEEING MUCH LOVE. TECH HAD BEEN IN THE GREEN BUT HAS NOW FLIPPED INTO THE RED. ROMAINE: NOT A LOT OUT THERE IN TERMS OF INDIVIDUAL MOVERS. ON THE BACK OF HER, KEEPING AN EYE ON STARBUCKS. TAKING OVER AS CEO A COUPLE OF WEEKS EARLIER THAN PLANNED, THEY HAD HIM IN WAITING AS THEY TRY TO SORT OUT THE LEADERSHIP. NOW OF COURSE ALL THE FOCUS ON BANKS. AS A WHOLE BANKS ARE DOING PRETTY GOOD. ALLIED FINANCIAL IS UP 5% ON THE DAY. SOME OF THE OTHER NAMES HAVE BEEN BEATEN DOWN AND ARE STARTING TO SEE A BIT OF A REBOUND. THE BIG PART OF THE REASON IS THE LACK OF CONTAGION BASED ON WHAT WE KNOW RIGHT NOW, THE CONTAGION RISK DOESN'T SEEM TO BE THERE. THE LINE ON YOUR SCREEN, THIS IS WHAT YOU HAVE ON CREDIT SUISSE AND CREDIT SUISSE ALONE. ALL THE LINES OF THE BANKS DOWN HERE, JP MORGAN, MORGAN STANLEY, WE HAVEN'T NECESSARILY SEEN THE SPIKE IN THE RISK WITH THOSE BANKS AND IT'S A SIMILAR STORY FOR SOME OF THE OTHERS INCLUDING THE REGIONAL BANKS. THE IDEA OF WHAT THE BANKING CRISIS IS, A CRISIS OR SOMETHING SPECIFIC TO THESE BANKS, IT REMAINS TO BE SEEN. LOOKING AT THE MAIN GAUGES, YOU'RE JUST NOT REALLY SEEING IT. KATIE: SPEAKING OF BANKS, LET'S TALK ABOUT SIGNATURE BANK'S. IT MAY CALM SOME OF THE TURMOIL, IT IS DEFINITELY SPARKING A RALLY IN THOSE N.Y.C. B-SHARES. LET'S BRING IN MATTHEW TO BREAK IT ALL DOWN. A HUGE RALLY IN NEW YORK. WHAT ARE THEY GETTING OUT OF THIS, NECESSARILY? MATT: INVESTORS LOVE THIS DEAL. SIMPLY I WOULD SAY IT'S ALL KILLER, NO FILLER. NEW YORK COMMUNITY BANK CORE WAS INVITED BY THE FDIC WHICH TOLD THEM WE ARE GOING TO LET YOU JUST BUY THE BEST STUFF THAT YOU WANT. WHAT ARE THEY GETTING? 25 BILLION IN CASH. IN THIS ENVIRONMENT ITS MANNA FROM HEAVEN. IT WILL LET THEM CHANGE THEIR ENTIRE FUNDING PROFILE. THEY'VE GOT $34 BILLION IN LOW-COST POSITS. THEY DIDN'T GET STUFF THEY DIDN'T WANT, INCLUDING THE CRYPTO DIGITAL LENDING BUSINESS. I'M NOT GOING TO SAY IT'S A SWEETHEART DEAL BUT IT IS AN AMAZING TRANSACTION FOR THEM. ROMAINE: SOUNDS SWEETHEART TO ME. WHAT HAPPENS TO BOND? MATT: NYSE IS GOING TO WIND IT DOWN, THEY WILL SERVICE THE BUSINESSES IN GET A FEE FOR DOING SO. IT'S REALLY SOMETHING ELSE. ROMAINE: I SHOULD COME BACK AS A BANKER OR A LAWYER, I FEEL LIKE THEY ALWAYS WIN. [LAUGHTER] KATIE: LET'S TALK ABOUT THE ROLE OF THE GOVERNMENT HERE. WHAT WAS THE ROLE IN THIS SPECIFIC DEAL? MATT: NO ONE WANTS TO CALL IT A BAILOUT, BUT LET'S LOOK AT WHAT THEY DID. THEY HAD A REALLY CREATIVE STRUCTURE THAT IS A NORMAL SLEEP BENEFICIAL TO THE BUYER. THEY ARE NOT HANDING OUT MONEY BUT THEIR HOLDINGS, LETTING THEM BY WHAT THEY WANT IT'S A VERY CREATIVE STRUCTURE. THE REASON THEY DID THAT, BAILOUTS ARE A BAD WORD RIGHT NOW. THEY CAME UP WITH SOMETHING ELSE AND IT'S ACTUALLY LIKE CREATIVE. ROMAINE: WHEN WE LOOK AT THE BIG SELLOFF IN FIRST REPUBLIC, WHY ARE WE NOT SEEN THIS TYPE OF DEAL WITHIN IT? MATT: IT'S BASICALLY A ZOMBIE BANK AT THIS POINT. IF YOU BUY IT, YOU WILL HAVE TO MARK OF THE BALANCE SHEET DOWN TO MARKET, CREATING SOMETHING LIKE A $15 BILLION TO 20 BILLION DOLLAR HOLE. IF ANYBODY TRIED TO BUY IT RIGHT NOW, THEY WOULD LOSE A LOT OF MONEY. ROMAINE: WHAT I'M TRYING TO GET AT HERE IS WHY SB AND QUIET, WAS THERE THAT MUCH OF A DIFFERENCE BETWEEN THE SITUATIONS THESE BANKS WERE IN? MATT: FDIC WENT IN AND SEIZED SIGNATURE BANK. IT WAS A FAIL SITUATION. I WANT TO STRESS I SEE NO INDICATION THAT THAT'S ACTUALLY GOING TO HAPPEN. FIRST REPUBLIC IS CHUGGING ALONG, THEY HAVE LOST A LOT OF DEPOSITS WITH A LOT OF RUSSIANS FROM SHAREHOLDERS THAT ARE CREATING A LOT OF PRESSURE BUT IT IS STILL OK. IT'S NOT A FAILURE SITUATION. THAT ALL SAID, I THINK THAT FOR M & A SITUATIONS TO HAPPEN THERE OUTSIDE FAILURE THE GOVERNMENT HAVE TO INTERVENE. KATIE: TALK TO US ABOUT SILICON VALLEY BANK. ONE OF THE INITIAL DOMINOES IN WHAT HAS BEEN A PRETTY LONG TRIP CHAIN. THAT PROCESS IS STILL ONGOING. LOOKING AT YOUR BIO, I CAN SEE CITIZENS ARE STILL SET TO CONTINUE. WHAT'S THE LATEST? MATT: THAT'S AN INTERESTING SITUATION. THE GUY THAT RUNS THE BANK HAS DONE MORE FDIC -- D -- IF TIC DEALS THAN ANYBODY. HE LOVES THIS STUFF AND IS KEEN TO DO A DEAL FOR SILICON VALLEY BANK. A LOT OF THESE BANKS DURING CRISIS HAVE DONE BIG TRANSACTIONS AND HE IS HOPING TO GET HIMSELF ON SILICON VALLEY BANK. THAT SAID, THE AUCTION IS GOING THIS WEEK FOR THE BANK AND THERE ARE OTHER SUITORS IN THE MIX. ROMAINE: ANYTHING TO READ INTO THIS IDEA THAT THE DEALS SEEM TO BE BETWEEN ONE REGIONAL BANK OR ANOTHER RATHER THAN HAVING THE OTHER BIG BANKS SWEEP IN? MATT: I THINK THAT'S A GOOD THING. THE GOVERNMENT COULD HAVE WAVED A MAGIC WAND AND PUT THIS BALANCE SHEET ON J.P. MORGAN CHASE OR BANK OF AMERICA. THEY FOUND A CREATIVE SOLUTION WITH ANOTHER REGIONAL BANK. IT'S GOOD TO HAVE HEALTHY MIDSIZED BANKS RATHER THAN JUST MAKING THE BIG GUYS BIGGER. THIS WAS POINTEDLY DONE THAT WAY. THAT MIGHT BE THE VIEW FROM THE GOVERNMENT. ROMAINE: MATTHEW, I WOULD CALL THIS A SWEETHEART DEAL. MATTHEW WILL. GREAT REPORTING BY HIM. COUNTING YOU DOWN TO THE CLOSING BELL, MIKE WILSON OVER AT MORGAN STANLEY WILL BE JOINING US IN JUST A SECOND. 23 MINUTES BEFORE WE GET TO THE CLOSING BELLS. MARKETS ARE RELATIVELY HIGHER ON THE DAY. DOWN 8/10 OF 1% ON THE S & P AND NASDAQ, RELATIVE UNDERPERFORMER UP BY 2/10 OF 1%. BACK IN A MOMENT. FROM NEW YORK, THIS IS BLOOMBERG. ROMAINE: A MODICUM OF STABILITY IN THE MARKETS RIGHT NOW, 20 MINUTES UNTIL THE CLOSING BELL. OUR NEXT GUEST IS THE CHIEF U.S. EQUITY STRATEGIST FOR MORGAN STANLEY AND IS STAYING CAUTIOUS. HE DESCRIBES WHAT HE SEES AS THE BEGINNING OF THE END OF THE BEAR MARKET MARK FIVE RESTRICTIVE CREDIT CONDITIONS, SAYING THE LAST PART OF THE BEAR CAN BE VICIOUS AND HIGHLY CORRELATED WITH PRICES FALLING SHARPLY IN A WAY THAT IS IF OCCULT TO PREVENT OR TO PRINT -- DEFEND. MIKE WILSON JOINS US NOW TO TALK MORE ABOUT THIS AND I DO WANT TO START OFF WITH THE RISK PREMIUM IN THE MARKETS WITH THE RELATIVELY LOW RISK PREMIUMS IF YOU WILL, HOW OR WHAT SCENARIOS YOU CAN SEE THAT WOULD GET US BACK TO LEVELS THAT ARE MORE APPROPRIATE. MIKE: GOOD TO SEE YOU, ROMAINE. I THINK THAT THIS HAS BEEN A BIT OF A BUMP IN THE SADDLE, IF YOU WANT TO CALL IT THAT, BURR IN THE SADDLE, FOR FOLKS LIKE YOURSELVES. IT'S LIKE WAITING FOR GHETTO. WHEN IS THE MARKET GOING TO REPRICE THESE RISKS THAT SEEM FAIRLY OBVIOUS LIKE THE EARNINGS RISK WE ARE TALKING ABOUT NOW YOU HAVE THIS CATALYST WITH REGIONAL BANKING SYSTEMS THAT SEEM TO BE REALLY ANOTHER SORT OF, YOU KNOW, ISSUE THAT WILL ACCELERATE THE EARNINGS RISK. THE RISK PREMIUM ESSENTIALLY AT THE VERY END OF THE BEAR MARKET, WE'VE GOT THIS MEANING RISK PREMIUM AS EXPECTED AND IT GENERALLY SPIKES AS THE MARKET CAN NO LONGER DENY WHERE WE ARE GOING ON EARNINGS. WE THINK THAT MOMENT IS CLOSER NOW BECAUSE OF THE UNFORESEEN ADVANTAGE. IF YOU WANT TO CALL IT THAT. ROMAINE: LOOKING AT SOME OF THE YIELDS WE HAVE SEEN ON THE KEY METRICS HERE, WHAT DID THAT SIGNAL TELL YOU? MIKE: THAT'S THE UNFORTUNATE THING. THE YIELD CURVE GOING NEGATIVE, IT'S A HIGH PROBABILITY THAT THE SESSION COMES WITHIN 12 MONTHS. BUT 12 MONTHS IS A LONG TIME. THE REAL PROBLEM IS WHEN IT DEEPENS AGAIN, THE FED SAYING THEY HAVE TO CUT AGAIN ON THE 2-YEAR NOTE RALLIES. THAT'S EXACTLY WHAT'S GOING ON, RIGHT? BOND MARKET ICING A RECESSION AT THE WITH THE EQUITY MARKET STILL IN DENIAL. WE DON'T KNOW WHICH ONE BE RIGHT AND WHICH MAKES A MARKET. BUT THE YIELD CURVE RE-STEEPENING IS TYPICALLY NOT A GREAT SIGNAL FOR STOCKS. KATIE: IF YOU LOOK AT THE CURVE WHERE WE GOT BELOW 100 BASIS POINTS OF INVERTED LAST WEEK, WE ARE NOW AT NEGATIVE 45 OR SO. QUITE A DRAMATIC MOVE. TO YOUR POINT THAT'S A SIGNAL THAT THE MARKET IS PRICING IN CUTS. WE ARE SEEING THAT NOW. THINKING ABOUT THE DATA WE ARE GETTING, WHAT'S HAPPENING IN THE BANKING SECTOR, WHICH JEROME POWELL WILL WE GET ON WEDNESDAY? IS NOW THE TIME TO PRICE IN THOSE CUTS OR IS THAT PREMATURE? MIKE: IT'S ALL DEPENDENT ON THE DATA, RIGHT? THAT'S WITH THE BOND MARKET IS BETTING ON. IT'S NOT OMNIPOTENT, DOESN'T KNOW FOR SURE. THAT I THINK WITH THE EQUITY MARKET IS ASSUMING IS THAT IS ALWAYS GOOD. LAST 30 YEARS, FED CUTTING, DON'T LIKE THE FED, THAT'S ALWAYS HELPFUL. THEN THIS RECENT INFUSION OF CAPITAL WITH A MINI BURN AND WE DISAGREED WITH THAT. UNTIL PROVEN GUILTY, THE EQUITY MARKET WILL LEAVE ON A SOFT MARKET SCENARIO. WE COULD HAVE A SOFT ARE CAP LANDING THE OTHER WAY BUT LOOK, OVER THE LAST COUPLE OF WEEKS THE GENERAL VIEW WAS THAT AVAILABILITY WAS GOING TO COME DOWN. WE CAN SEE THE INTERNALS CONFIRMED. SMALL AND MID-CAP UNDERPERFORMING. SUSCEPTIBLE TO THAT KIND OF CONSTRAINT ON CAPITAL AVAILABILITY. LOOK, WE ARE IN THE EARNINGS RECESSION CAMP. 100% CHANCE THAT IT STARTS HAPPENING AND GETS MUCH MORE SEVERE. EVEN IF WE DON'T HAVE A FULL-BLOWN ECONOMIC FIGHT. ROMAINE: WE ARE JUST GETTING STARTED HERE BUT WE DO NEED TO TAKE A QUICK BREAK WITH MIKE WILSON HERE. HE IS STICKING WITH US AS WE COUNT DOWN TO THE CLOSING BELLS. SOME DEGREE OF STABILITY IN THE MARKET THAT THE LONGER IS ANYONE'S GUESS. THE FED BEGINNING A MEETING TOMORROW. THEN A BIG DECISION NOT SO MUCH ABOUT RATES BUT I THINK COMMUNICATION HERE ABOUT THE STABILITY OF OUR FINANCIAL SYSTEM. KATIE: BIG TIME. THAT'S WHEN EVERYTHING CAN CHANGE WHAT IS INTERESTING TO ME RIGHT NOW IS THE SMALL CAPS RALLYING, THEY HAD BEEN THE UNDERPERFORMER BUT DEFINITELY NOW SEEING A BIT OF A SIGN OF LIFE THERE AS WE HEAD INTO THAT ALL-IMPORTANT FED UNIT. ROMAINE: REMEMBER JUST A FEW WEEKS AGO WE WERE ABOVE 4% WITH THAT STEEPENING ON KEY PARTS OF THE CURVE THAT COULD BE A POTENTIAL CONCERN. STICK WITH US, MORE COVERAGE AFTER THE BREAK. THIS IS BLOOMBERG. ♪ ROMAINE: THIS IS THE COUNTDOWN TO THE CLOSE, I'M ROMAINE BOSTICK. KATIE: ROMAINE: AND I'M KATIE GREIFELD. SOME DEGREE OF STABILITY HERE WITH THE ESSENCE 500 UP ON THE DAY ARE YOU TAKING A LOOK AT THE YIELD SPACE, THE VIX COUNTDOWN WITH WEAKNESS CONTINUING IN THE DOLLAR. THE BIG RALLY THAT WE SAW IN BITCOIN IS HOLDING ON THE DAY AROUND 28,000. THE BLOOM COMING OFF OF THE ROWS ON SOME OF THOSE HAVEN ASSETS LIKE GOLD. NOW SLIGHTLY BELOW THAT, 1980 IN THE SPOT MARKET. KATIE: AND STILL WITH US IS MIKE WILSON OVER AT MORGAN STANLEY. BEFORE THE BREAK WE TALKED ABOUT CREDIT AVAILABILITY. POTENTIAL CREDIT CRUNCH. WHAT IT WOULD MEAN FOR THE ECONOMY AND WHAT IT HAS MEANT ARE SMALL-CAP STOCKS THAT HAVE BEEN UNDER PRESSURE THE LAST. SMALL CAPS ARE THE UNDERPERFORMERS. DOES THAT MEAN THAT MEGA CAP TECH NAMES SHOULD BE THE WINNER? MIKE: TO SOME DEGREE. THE LARGE CAPS WITH CLEAN BALANCE SHEETS ARE GOING TO NEED CAPITAL ANYTIME SOON AND IT IS VERY EASY TO GO BACK TO THE OLD WINNERS. WE HAVE SEEN THIS NARROWNESS IN THE MARKET LIKE WE SAW GOING INTO COVID THREE YEARS AGO WHERE THERE WERE JUST 10 STOCKS HOLDING UP EVERYTHING. IT WAS DEBUTED AS BEING ONE OF THE SAFEST PLACES TO BE. THAT MAKES SENSE, I THINK. THE ONE CAVEAT I WOULD THROW OUT TO YOUR LISTENERS IS THAT TECHNOLOGY IS A VERY PROCYCLICAL SECTOR. BECAUSE OF THE WAY THAT COVID PLAYED OUT, THE PULL FORWARD IN DIGITAL SPENDING, THERE'S THIS PERCEPTION THAT TECH IS NO LONGER AN ECONOMICALLY SENSITIVE . I THINK THE GROUP CAN HOLD UP IF WE HAVE THAT STEP DOWN AND REVENUE GROWTH, WE COULD BE SURPRISED. THE BETTER PLACE TO BE WOULD BE AREAS THAT WERE DEFENSIVELY GEARED. THE MAJORITY OF THEM ARE MORE OFFENSE OF. ROMAINE: WE HAVE SEEN PEOPLE ROTATE INTO THOSE AREAS BUT THEN OF HER STAY ROTATE A MUCH BACK OUT OF IT AS SOON AS THEY FEEL THE COAST IS CLEAR. WHAT DO YOU LOOK AT HERE THAT BECOMES THE BALANCE SHOULD THINGS ACTUALLY DETERIORATE? MIKE: LAST YEAR DEFENSIVE'S DID REALLY WELL, DOING THEIR JOB WITH ROPE SLOWING. THERE WAS A REAL KIND OF IT FELT LIKE SAFETY. AT THE BEGINNING OF THE YEAR AS WE USUALLY DO THE RISK ON VALIDATED THE EFFECT AND WENT DOWN CONSIDERABLY IN FEBRUARY. THAT GOT PEOPLE TO LEAVE IT. MEANING THE DEFENSIVE SECTORS, THINGS LIKE STAPLES, UTILITIES, PERHAPS HEALTH CARE THAT HAVE BEEN UNDER PERFORMANCE THIS COULD GET LEGS BACK. ROMAINE: WE TALKED WITH A LOT OF PEOPLE ON THIS PROGRAM ABOUT THIS IDEA HERE OF FINDING THE OPPORTUNITY. THE IDEA THAT WHETHER WE ARE HEADED FOR RECESSION OR ECONOMIC DOWNTURN, THIS IDEA THAT THE BEAR MARKET HAS GONE ON FOR A SIGNIFICANT AMOUNT OF TIME THERE WILL BE AN UPSWING TO SOME AMOUNT OR ANOTHER. TIMING IS THE BIG FACTOR. I'M CURIOUS WHAT YOU LOOK OR THAT GIVES YOU MORE CONFIDENCE THAT THE BEAR MARKET IS OVER AND THE BULL MARKET IS AFOOT. IS IT ABOUT ECONOMIC CONDITIONS? MIKE: ACTUALLY PRICE WILL USUALLY LEAD TO. THE PRICE IS ALMOST NEVER FACTORED INTO GROWTH CONCERNS. RIGHT? BEAR MARKET IS STILL ABOUT THE FED INFLATION AND INTEREST RATES GOING UP. THAT HAS COMPRESSED VALUATION. AT NO POINT IN THE LAST YEAR HAVE WE SEEN THE PREMIUM COMPONENT, THOSE USUALLY BLOWOUT WHEN THEY ARE REALLY CONCERNED WITH STOCKS AND WHERE THERE AT INSTRUMENTS ARE CONCERNED WITH GROWTH AND THAT HASN'T HAPPENED YET. WE CANNOT SAY THE COAST IS CLEAR GIVEN OUR VIEW ON GROWTH. IF WE WERE MORE OPTIMISTIC ON GROWTH WE WOULD BE SAYING THE BEAR MARKET BE OVER IN OCTOBER WHEN WE CALL THE RALLY AT THAT TIME WHERE THERE WOULD BE A RELIEF BUT NOW GIVEN THE VIEW ON EARNINGS AND A CREDIT CRUNCH, WE THINK THE RISK HAS GONE UP FOR THAT TO COME HOME AND HIT THE PRICE EARNINGS. THAT'S WHAT WE ARE REALLY LOOKING FOR AND THE ECONOMIC DATA AND RATE OF CHANGE WILL FOLLOW. LOOK, BEAR MARKETS ARE EXHAUSTING. I'M MORE EXHAUSTED THAN ANYONE. WE ALL WANTED TO BE OVER BUT IT IS OUR JOB TO REACH OUT TO CLIENTS AND SAY THE RISK WERE -- RISK REWARD IS STILL NOT TRACKING. KATIE: IT HAS BEEN A LONG TIME AND IT IS TIRING BUT AS WE ARE STILL WAITING FOR THE EQUITY RISK RHENIUM SPIKE, WHERE YOU HIDE OUT MEANTIME? YOU CAN MAKE THE CASE FOR DEFENSIVE STOCKS WHAT ABOUT CASH? GOING INTO THE MONEY MARKETS, DOES THAT MAKE THE MOST SENSE IN THIS ENVIRONMENT? MIKE: ABSOLUTELY, WE CALL THE EARNINGS OUTLOOK YEAR OF YIELD. BAD ENOUGH YOU ARE NOT GETTING PAID TO TAKE EQUITY LIKE RISKS BUT YOU HAVE THIS REALLY GOOD ALTERNATIVE TO TREASURY YIELDS. MONEY MARKET SECURITIES ARE RIGHT SAFE. GETTING PAID 4%, 5%, THAT'S A TERRIFIC RETURN WHILE YOU WAIT. SITTING HERE, NOT GETTING PAID AND KEEPING UP WITH THE INFLATIONARY CONCERNS. BUT IT'S NOT PRACTICAL FOR MOST PEOPLE TO HAVE 100% OF THEIR MONEY IN CASH BUT LOOK, YOU CAN BE SKEWED IN THAT DIRECTION SO THAT WHEN THE OPPORTUNITY COMES YOU HAVE A CASH RESERVE THAT YOU CAN PUT TO WORK QUICKLY. THE OTHER AREA WAS INVESTMENT-GRADE CREDIT. WE ARE STILL BETTER OFF THAN OBVIOUSLY EQUITY LIKE RISK. KATIE: THAT BEING SAID, WHERE YOU PLAY DEFENSE IN THE EQUITY MARKET? MIKE: WE HAVE HAD A BEAR MARKET IN A LOT OF PARTS OF THE MARKET WERE STOCKS ARE AROUND 60%, 70%, 80%. BUT YOU WANT TO TAKE SWINGS AT INDIVIDUAL STOCKS IN THE TECH SECTOR SAYING HERE ARE THE THINGS WE THINK SHOULD BE LOOKING AT GOING FORWARD. INDUSTRIALS, MAYBE SOME OF THOSE FINANCIALS THAT HAVE SHAKEN LOOSE. TAKING RISKS ON SINGLE STOCK SECURITIES THAT YOU WANT TO UNDERWRITE THE NEXT TWO YEARS TO THREE YEARS. RIDING THROUGH THE REMAINING PART OF THIS BEAR MARKET. THAT'S HOW IT SET UP. IT MAKES SENSE. MAKING SURE THEY UNDERSTAND THEY ARE PAYING THE INDEX FUND. ROMAINE: WE WILL HAVE TO LEAVE IT THERE, MIKE. REALLY APPRECIATE YOU TAKING THE TIME WITH US. GOT HIS MBA FROM THE GREAT CITY OF CHICAGO. LOVE CHICAGO SO MUCH. KATIE GREIFELD, COUNTING DOWN TO THE CLOSE. 2.5 MINUTES TO GO IN THE MARKET IS HOLDING ONTO ITS GAINS. KATIE: AND IT IS COMING ON SOME REASONABLE VOLUME. ABOUT 9% ABOVE THE 20 DAY AVERAGE AND IT HAS BEEN VOLATILE . THERE IS SOME CONVICTION THERE. ROMAINE: IT WILL BE INTERESTING TO SEE WHAT HAPPENS OVER THE NEXT COUPLE OF DAYS. STICK WITH US AS WE MOVE CLOSER TO THE CLOSING BELL. FOR MARKET COVERAGE CLOSER TO THE BELL AND THEN BEYOND. > > THE CROSS-PLATFORM COVERAGE OF THE U.S. MARKET CLOSE STARTS RIGHT NOW. ROMAINE: RIGHT NOW WE ARE TWO MINUTES AWAY FROM THE END OF THE TRADING DAY, COUNTING YOU DOWN TO THE THOSE INVALID AND HERE TO HELP US GO BEYOND THE BELL IS OUR SIMULCAST WITH CAROL MASSAR AND JUST MENTION. -- JESS MINTON. CAROL, TRADITIONALLY WEAK CELEBRATE THE FIRST DAY OF SPRING ON MARCH 21 BUT ANTI-VAXXERS AT NASA SAY IT ACTUALLY BEGINS ON MARCH 20. CAROL: THIS IS WHAT YOU HAVE BEEN DOING IN THE LAST 45 MINUTES? KATIE: IT'S ALL HE'S TALKED ABOUT. [LAUGHTER] CAROL: I DON'T WANT TO SAY CRISIS, BUT WE HAVE SEEN NERVOUSNESS AT THE BANKING SECTOR. [LAUGHTER] THE BANKS ARE DOING OK, RIGHT? LOOKING AT THE S & P 500 INVESTORS COMING BACK TO THE MARKET, I MEAN TIME WILL TELL. I'M NOT SURE WHICH WORD. ROMAINE: IS IT NOT LIKE A FIRE? CAROL: IT'S A FIRE. BUT THE WHOLE TOWN IS GOING OVER, YET. JESS: CAROL AND I WERE JUST SPEAKING WITH ALLISON WILLIAMS ABOUT HOW IMPORTANT IT IS FOR INVESTOR SENTIMENT AROUND THESE WHEN YOU ARE SEEING FIRST REPUBLIC STOCK IT AND BE UP AGAIN TODAY EVEN AS THESE BIGGER BANKS BECOME JAMIE DIMON AND JP MORGAN TRYING TO STEP IN THEIR. IT'S REALLY CRUCIAL AHEAD OF THAT FED MEETING. ROMAINE: YOU ACTUALLY DID HAVE THE DO FACT OF REOPENING OF THE FED MARKET TODAY. ALL INVESTMENT-GRADE ISSUES BUT THEY HAD GONE SIX DAYS WHERE THERE WAS A COMPLETE FREEZE. SO MAYBE IT IS A GOOD SIGN SHOWING THAT INVESTORS ARE GETTING MORE COMFORTABLE WITH WHERE WE ARE RIGHT NOW. THE BELL IS RINGING IN NEW YORK. THE DOW JONES INDUSTRIAL AVERAGE, HIGHER BY 1.2%. THE S & P HUNT HIGHER BY 35 OR SO ON THE NASDAQ COMPOSITE IS HIGHER FOR TENTS OF A PERCENT. THE RUSSELL 2000, RELATIVE OUTPUT AROUND THE DAY. WE SHOULD POINT OUT THAT THE MID-CAPS INCLUDE REGIONAL BANK NAMES THAT WERE UP 1.7%. CAROL: WE WILL GET TO THE INDUSTRY GROUPS IN A MOMENT BUT JUST LOOKING AT THE S & P 500, MOST NAMES WERE HIGHER. ONE WAS UNCHANGED. KATIE: LOOKING AT THE INDUSTRY GROUPS IT PRETTY MUCH BUYS INTO THE IDEA THAT THIS IS A BROAD TASTE RALLY. AT LEAST FOR TODAY. INSURANCES IS AT THE TOP WITH ENERGY, MATERIALS AND THE GREEN. WE HAVE A LOT OF BARS THAT ARE THAT COLOR BUT AT THE BOTTOM OF THE SCREEN YOU HAVE SOFTWARE AND TRANSPORTATION DOWN, CAROL. SO NOT EVERYONE WAS SINGING THE SAME TUNE. CAROL: NO BUT A LOT OF GAINERS. 8.6% WAS CLOSING AT A GAIN OF 3.3%. THE STORY OF OURS WAS THE ACQUISITION OF CREDIT SUISSE, GETTING BILLIONS IN CENTRAL BANK AND STATE SUPPORT OVER THE WEEKEND. ADR IN TODAY'S TRADE. KATIE YOU TALKED ABOUT THIS EARLIER ON TELEVISION, IT WAS UP ALMOST 32%, SOARING BY A RECORD OF TWO ANALYSTS FOLLOWING THAT AGREEMENT TO TAKE OVER SIGNATURE BANK AND THEIR DEPOSIT WITH SOME OF THEIR LOANS. SPENDING $38 BILLION TO DO SO. CERTAINLY IN OUTPERFORMER THERE. THIS ONE JUST TOPPING THE 500, I WANTED TO SHARE IT WITH EVERYBODY AS IT GOES BEYOND THE BANKING SECTOR. UPGRADED FROM RAYMOND JAMES. STOCKS MULTIPLES LOOK MORE REASONABLE WITH SOLAR EQUIPMENT IN EUROPE. THAT'S YEAR-TO-DATE. JESS: STARTING OFF WITH FIRST REPUBLIC, THAT STOCK IS DOWN NEARLY 50%. IT CAME AFTER WE JUST TALKED ABOUT THE RESCUE PROPOSAL BY JAMIE DIMON, TRYING TO CONVERT THE POSITS TO CAPITAL. BRANCHED OUT OVER THE PAST FEW WEEKS, THE STOCK IS DOWN 90% AND IT COMES AS WE ALL KNOW ONE DAY AFTER S & P CUT THEIR CREDIT RATING DEEPER INTO JUNK FOR THE STOCK. LOOKING AT THE ADR FOR CREDIT SUISSE, THAT STOCK DOWN OVER 50% TODAY. DOWN CLOSE TO 54% AFTER THEY AGREED TO PURCHASE CREDIT SUISSE FOR $53 BILLION. WE TALKED ABOUT THAT ALL OF YESTERDAY AND I HAVE TO POINT OUT THE TAP AND WITH BED, BATH, AND BEYOND, SINKING 20%. IT'S BELOW ONE DOLLAR. THEY FINISHED AROUND $.81, PUTTING THEIR FINANCIAL DEAL THAT RISK AND COMING IN THE WAKE OF THE PLANS FOR A REVERSE STOCK SPLIT WITH SHARES GETTING BOOTED FROM THE S & P 500 SMALL-CAP INDEX. ROMAINE: IT WILL BE INTERESTING TO SEE WHAT HAPPENS AS WE WAIT FOR THAT BIG FAT DECISION ON WEDNESDAY AS THEY SPLIT REGARDING THAT EXPECTATION. TAKING A LOOK AT THIS YIELD SPACE ON A MONDAY AFTERNOON AND WE SAW YIELDS CREEPING BACK UP A LITTLE BIT. EIGHT POINTS ON THE FIVE. LOOKING AT ROUGHLY SIX POINTS ON THE 10 YEAR. DEFINITELY WELL BELOW WHERE WE WERE JUST ABOUT A WEEK AND A HALF AGO. OF COURSE ALL OF THAT COULD CHANGE ON A DIME DEPENDING ON WHAT THE FED DOES AND WHAT IT COMMUNICATES ON WEDNESDAY. KATIE: AND IT FEELS LIKE THE TWO YEAR TREASURY YIELD HAS BEEN THE EPICENTER OF EVERYTHING TALKING ABOUT THE BOND MARKET. IT'S RARE THAT I PAY ATTENTION TO THE SHORT AND VERSUS THE BENCHMARK THAT'S THE MARKET WE ARE IN. KATIE: -- CAROL: AS YOU SAID, THINGS CAN CHANGE DEPENDING ON THE CROSSING HEADLINES IN THIS IS SOMETHING TO THINK ABOUT, WHETHER OR NOT WE STAY AT THESE LEVELS. WE WILL SEE, ULTIMATELY. JESS: CAROL AND I WERE JUST TALKING TO LISMAN FORMING ABOUT THE PSYCHOLOGY OF THESE TRADE AND WHO MAY NOT HAVE BEEN AROUND FOR INVESTING IN THE GLOBAL FINANCIAL CRISIS. LOOKING AT THE BROADER MARKETS TODAY IT ISN'T REACTING THE WAY MARKETS WOULD HAVE THOUGHT OVER THE WEEKEND BUT WE COULD SAY THE SAME THING ABOUT LAST CANNED AS THEY FINISHED THE WEEK WITH THE NASDAQ 100 GOING FOR ITS BEST WEEK SINCE NOVEMBER. ROMAINE: WE WERE SPEAKING WITH JILLIAN EARLIER ON THE TV PROGRAM AND THIS IDEA THAT SINCE THE FINANCIAL CRISIS THIS HAS BEEN A MARKET THAT IF NOT COMPLETELY DRIVEN HAS BEEN SUPPORTED BY GOVERNMENT POLICY, THE DEBTOR FISCAL POLICY ITSELF THERE'S CAN TURN THAT WE ARE HEADING IN THAT DIRECTION. THAT THEY NEED TO STEP INTO THAT LIQUIDITY WHERE WE ARE BACK TO SQUARE ONE. CAROL: IT'S TROUBLESOME. IT HAS BEEN GOOD FOR CALMING DOWN THE MARKET HERE BUT IS THERE A FINANCIAL SYSTEM WHERE WE NEED ALL OF THESE MEASURES? IT'S WHERE I WANT TO UNDERSTAND THESE BALANCE SHEETS AND MAKE SURE WE UNDERSTAND THE RISK EXPOSURE ULTIMATELY THAT THE FINANCIAL SYSTEM HAS. KATIE: TO PUSH BACK A BIT, BUT WE SAW FROM REGULATORS LAST WEEKEND SPECIFIC TO THE U.S., DID WE REALLY WANT TO FIND OUT? IF WE DIDN'T HAVE THAT BACKSTOP STEP IN FROM THE GOVERNMENT, WE HAVE LEARNED THAT THIS IS ABOUT PSYCHOLOGY. A CRISIS OF CONFIDENCE, WHAT HAPPENS TO THE SMALLER BANKS? WE HAVE SEEN BANK RUNS. I SYMPATHIZE, THEY ARE IN A TOUGH SPOT HERE. JESS: YOU AND I HAVE TALKED A LOT ABOUT THE TIMES THEY HAVE TIGHTENED HIM LUCINDA BUT WHEN YOU SEE THE MARKETS RESILIENTLY THIS DOES THAT MAKE IT TOUGHER FOR THE FED AS FAR AS THOSE CONDITIONS NOT TIGHTENING AS MUCH AS THEY THOUGHT THEY POTENTIALLY WOULD? ROMAINE: I AM CURIOUS, THE IDEA OF WHAT A FREE MARKET IS SUPPOSED TO BE. I GET IT, YOU DON'T WANT BANKS TO FAIL AND FOR ALL THE DEPOSITORS TO LOSE THEIR MONEY BUT THAT IS WHAT CAPITALISM IS SUPPOSED TO BE, I DON'T KNOW, THE MARKET SORTING ITSELF OUT BUT TIME AND TIME AGAIN WE SEE THAT'S NOT WHAT WE REALLY HAVE. CAROL: EXACTLY. WE GET INTO TROUBLE. I UNDERSTAND THERE MEASURES TO CALM THE SYSTEM BECAUSE THEY SAY EVERYTHING'S OK, EVERYBODY AND THEN THERE ARE MEASURES THAT MASK PROBLEM. ROMAINE: AS LONG AS ALL THE VENTURE CAPITALISTS IN SILICON VALLEY ARE OK. [LAUGHTER] CAROL: SARCASM FILLS MY HEART. JESS: THERE IS THIS -- KATIE: THERE IS THIS ARGUMENT THAT CAN BE MADE AGAINST SILICON VALLEY BANK THAT THE DEPOSITOR BASE WAS TOO CONCENTRATED BUT THAT THE VENTURE CAPITALISTS AND THE TECH ROSE, THEIR DEPOSITS WERE BACKSTOP. ROMAINE: WHAT ABOUT THE ONES WHO YELLED FIRE IN A CROWDED THEATER? WHAT ABOUT THEM? KATIE: IT'S A GOOD QUESTION. CAROL: THE PROBLEM IS, IF THE ACCOUNTANTS DON'T GET IT, THE EXECUTIVES DON'T GET IT, WITHOUT CHIEF RISK OFFICERS AND CENTRAL BANKS SAYING THAT THERE ARE PROBLEMS WITHOUT REPERCUSSION OR ACCOUNTABILITY, THERE'S SOMETHING WRONG WITH THE SYSTEM. ROMAINE: NOW EVERY CONGRESSMAN HAS THIS HALF BAKED BILL WHERE THEY WANT TO DO THIS OR THAT. HAPPY SPRING EQUINOX. [LAUGHTER] CAROL: TOMORROW. JESS: WE KEEP TALKING ABOUT SPRING BUT SPRING HAWAII SEASON. WE ARE GETTING HOUSING SEASON DATA THAT I WILL BE KEEPING MY EYES ON THIS WEEK. [LAUGHTER] ROMAINE: I LOVE YOU GUYS. KATIE: I LOVE YOU, TOO. ROMAINE: WE USED HIM, YOU DROVE HIM AWAY? CAROL: I DO THAT TO PEOPLE. WE WILL SEE YOU AGAIN TOMORROW. OUR CLOCK -- CROSS PLATFORM COVERAGE OF RADIO, TV, AND BLOOMBERG ORIGINALS, WE WILL SEE YOU AGAIN BEFORE SAME TIME, SAME PLACE TOMORROW. ROMAINE: COMING UP, A LOT MORE TO COVER INCLUDING AN INTERESTING MILESTONE. ENDING A DROUGHT THAT HAD BEGUN WITH THE SILICON VALLEY BANK SECTOR AND IS THIS A POSITIVE SEEM TO SEE IF IT WILL LAST? WE BREAK IT DOWN AFTER THE BREAK. THIS IS BLOOMBERG. ♪ ROMAINE: WITH U.S. CASH MARKETS NO CLOSED, IT HAD BEEN AN UP DATE BUT OSCILLATION IS REALLY CAUSING A CONCERN. ON THE FAR END OF YOUR SCREEN IT'S AN UP DAY ACROSS THE BOARD. THINK ABOUT THE MOVES THAT WE SAW UP, DOWN, UP, DOWN, WHO KNOWS WHAT TOMORROW IS GOING TO BRING. ANNOUNCEMENT WEDNESDAY AFTERNOON. KBW BANK INDEX GOT ITS MOJO BACK. UP 1.5% ON THE DAY. MOST OF THE MAJOR BANKING INITIAL INDEXES ARE MOVING HIGHER WITH THE BACKSTOP OVERSEAS IN EUROPE. MORE REASSURANCES ARE HERE IN THE UNITED STATES AS YOU START TO SEE SOME DEALS BROKERED FOR THE ASSETS AT SIGNATURE BANK. THE TWO YEAR YIELD IS CAMPED OUT AT 4%. HIGHER ON THE DAY BUT THAT SETTLEMENT IS CAUSING A BIT OF CONCERN AS PEOPLE FOCUS ON THOSE LONG-TERM MACRO CONDITIONS THAT COULD BE A BIG PART OF THE DEBATE WHEN THE FED MEETS TOMORROW. THE FED, IT'S NOT JUST ABOUT THE FINANCIAL AND BANKING SYSTEM BUT ALSO ABOUT HOW THE MARKET REACTS TO IT. FINANCIAL CONDITIONS AND HOW IMPORTANT WAS THAT, GUESS WHAT, FAN -- FINANCIAL CONDITIONS ARE TIGHTER BUT KATIE THE PROBLEM IS THAT THAT WASN'T INDUCED BY THE FED IT WAS INDUCED BY YES, KATIE, I WILL SAY IT, BANKING CRISIS. KATIE: WILL WE GOT THERE IN ANY CASE, MAYBE THAT'S GOOD NEWS FOR THE FED BUT ON THE TOPIC OF TIGHTER FINANCIAL CONDITION TO HAD A 60 WHEN IT CAME TO THE BOND MARKET BUT NOW THE HIGH-GRADE MARKET IS BACK OPEN FOR SALES, ENDING THE DROUGHT THAT CAME WITH THE SVB FAILURE AND THE RIPPLE EFFECT IN THE BANKING SECTOR. LET'S BREAK IT DOWN NOW WITHOUT CORPORATE DEBT REPORTER. DUKE ENERGY, OHIO, CENTERPOINT ENERGY, HOUSTON, COMING TO MARKET TODAY. IS IT FAIR TO EXTRAPOLATE THAT WITH THE REST OF THE MARKET AND THING THAT CZAR OK OR IS IT MORE IDIOSYNCRATIC? > > I WOULD SAY IT'S THE LATTER. THOSE ARE SINGULAR COMPANIES AND IF ANYONE CAN ISSUE DEBT IS UTILITY COMPANIES. FOR THE JUNK RATED, IT'S MORE CHALLENGING. FOR THOSE WITH HIGHER BONDS WE HAVEN'T SEEN THE DEAL THERE SINCE MARCH 2 AND FOR LEVERAGED LOANS WE HAVE SEEN A COUPLE OF DEALS RIGHT ON THEIR WAY THROUGH THE SYSTEM BUT EVEN JUST SAW ONE POOLED TODAY AS WELL IN FOUR RISKIER BORROWERS IT'S A TOUGHER MARKET. PUT SOME COLOR AROUND WHO MAKES UP THOSE RISKIER BORROWERS? WHEN YOU TALK ABOUT JUNK RATED COMPANIES NOT COMING TO THE MARKET, WHO ARE THEY, WHAT'S THE PROFILE, AND DO THEY NEED TO? IT DEPENDS -- PAULA: IT DEPENDS. SOME ARE SMALLER IN SCALE, THERE MIGHT BE OIL OR GAS NAMES AND IT'S A HARDER SPACE TO BE IN. EVEN WITHIN JUNK RATED COMPANIES THERE IS A LOT OF BIFURCATION BETWEEN THE RECESSION RESISTANT AND THOSE THAT ARE CYCLICAL IF SOMETHING GOES WRONG. ROMAINE: BUT HOW MUCH DO THEY TAKE IT ON THE CHIN? THAT HAS TO FACTOR IN. PAULA: ABSOLUTELY. BORROWING COSTS HAVE INCREASED SIGNIFICANTLY. IT'S GONE UP TO 9%. VERY FAST IN A MONTH. THEY WANT TO REFINANCE OR ISSUE MORE DEBT, IT'S GOING TO BE MORE COSTLY. ROMAINE: I WANT TO PIVOT A BIT HERE ABOUT WHAT WE SAW OVER THE WEEKEND. THIS DECISION FROM REGULATORS, 18 MONTH BONDHOLDERS WOULD EVENTUALLY -- EXCEPT -- EFFECTIVELY BEAT SUBORDINATED TO SHAREHOLDERS, SOMETHING THAT WASN'T SUPPOSED TO HAPPEN. PAULA: THAT HAS THROWN A LOT OF TURMOIL INTO THE 81 MARKET. SPECIAL, RISKY BONDS THAT BANKS IN EUROPE CAN ISSUE. PART OF THE POST FINANCIAL CRISIS REFORMS. ROMAINE: TO BE CLEAR THEY WERE STRUCTURED IN A WAY WHERE THEY WERE SUPPOSED TO TAKE SOME SORT OF LOSS WHEN THERE'S PRESS, RIGHT? PAULA: ABSOLUTELY, THERE IS A CUSHION, THEY COULD BE WRITTEN DOWN. TYPICALLY YOU UNDERSTAND THAT TO MEAN YOU ARE WRITTEN DOWN AFTER SHAREHOLDERS ARE AT ZERO BUT IN THIS CASE THEY ARE PROVIDING $3 BILLION IN VALUE TO THE EDIT SUISSE SHAREHOLDERS. ROMAINE: HOW MUCH FOR THE OTHERS? PAULA: ZERO OVERNIGHT. YOU CAN IMAGINE IT'S VERY PAINFUL. THEY ARE ON THE HOOK FOR LOSING HUNDREDS OF MILLIONS OF DOLLARS FROM THE DECISION. THE QUESTION IS, REGULATORS FEEL VERY STRONG THAT THEY INTERPRETED THE DOCUMENTS CORRECTLY. THE MARKET ASSUMED THE SHAREHOLDERS WOULD GO TO ZERO FIRST. ROMAINE: AND WE HAVE SEEN OTHER BONDS FALL ON THAT. PAULA: EXACTLY SO OVERALL I THINK THE ENTIRE INVESTOR BASE CONCERNED THAT THIS MARKET IS DIFFERENT THAN THEY THOUGHT IT WAS LAST WEEK. KATIE: THIS IS ONE OF THE WILDER STORIES OF THE PAST WEEK AND A HALF OR SO. $275 BILLION MARKET, WHAT DOES IT MEAN FOR THE REST OF THE MARKET, FOR THE POPULARITY OF THESE TYPES OF BONDS? CREDIT SUISSE IS A SPECIAL SCENARIO. HE REALLY HAD TO READ THE FINE PRINT. IS IT GOING TO DAMPEN DEMAND GOING FORWARD? PAULA: I THINK SO BUT THERE IS ALWAYS DEMAND AT THE RIGHT PRICE FOR BANKS TRYING TO ISSUE THIS TYPE OF DEBT, NOT A GREAT THING TO HAVE HAPPEN WHEN THERE IS ALREADY A BANKING CRISIS. KATIE: MAYBE THIS IS GETTING TOO FAR AHEAD OF MYSELF WHEN YOU LOOK AT THE PERFORMANCE OF THE PREFERRED ATF'S, IS ANYONE TALKING ABOUT FEARS OF WHAT THIS COULD MEAN FOR OTHER TYPES OF DEBT THAT ARE A MIX BETWEEN EQUITY AND BONDS AND WHAT IT COULD MEAN IF WE SAW ANOTHER SITUATION LIKE THIS? PAULA: THE 81 SITUATION IS VERY UNIQUE BUT IN GENERAL I THINK THERE'S A LOT OF UNKNOWNS AND UNCERTAINTIES AND PEOPLE ARE NOT SURE WHAT'S GOING TO HAPPEN NEXT. ROMAINE: BRINGING US BACK TO THE QUESTION OF THE ROLE THAT REGULATORS HAVE. THAT'S THE CONCERN RIGHT NOW. BASICALLY 15 YEARS OF A MARKET THAT WAS SUPPORTED IF NOT EXPLICITLY BUT IMPLICITLY BY CENTRAL BANK POLICY. THERE'S CONCERN NOW THAT WE ARE MAYBE REGRESSING. IS THERE ANY CONCERN HERE THAT WHEN IT COMES TO THE STABILITY OF THE SECONDARY MARKETS HERE THAT THERE WILL BE DISTORTIONS? THAT INVESTOR IS -- INVESTORS WON'T BECOME TRIPLE? PAULA: WE'VE BEEN FRAMING THIS AS THE END OF THE EASY MONEY ERA . FOR COMPANIES WITH STRONG BALANCE SHEETS, THERE ARE THOSE WHO WANT TO INVEST IN THAT DEBT CAN PROVIDE THAT CAPITAL THE ANY THAT ARE ON THE CUSP, I'M SURE IT MATTERS. KATIE: PAULA, THANK YOU FOR JOINING US TO DISCUSS T-1. THIS IS BLOOMBERG. ROMAINE: ONE OF THE HEAD SCRATCHERS LAST WEEK IN THE ANGST SELLOFF WAS THE BEAT DOWN THAT WE SAW WITH CHARLES SCHWAB BUT NOW WE KNOW WHY, CLIENTS WERE MOVING MONEY OUT OF TWO LARGE CORPORATE HELD DEBT FUNDS. BUT HERE'S THE KICKER, THEY MOVED INTO GOVERNMENT SECURITIES, THAT'S OUR BIG NUMBER FOR THE DAY. $16.5 BILLION IN CORE NET ASSETS IN THE WEEK SCHWAB ACCOUNT. A ROTATION AND DISTINCTION THAT MATTERS. A 120 BILLION DOLLAR FIREHOSE OF CASH THAT FLOWED IN LAST WEEK REMINISCENT OF 2008 WHEN THE RESERVE PRIMARY PLUG IN ASSETS THAT WERE DOUBLED IN A MATTER OF MONTHS AS INVESTORS LOOK FOR SAFETY FROM FALLING EQUITIES THAT PROVED TO BE A TRAP. CORPORATE SECURITY ACCOUNTED FOR THE MAJORITY OF THE RESERVE FUND ASSETS. WE KNOW WHAT HAPPENED NEXT. LEHMAN WOBBLED, INVESTORS PULLED CASH, IT WAS THE SECOND MONEY MARKET FUND TO BREAK THE BUCKET IN HISTORY, THEY COULDN'T STAND BY THEIR LONG-HELD TRADITION OF LOCKED ASSET VALUES AT ONE DOLLAR PER SHARE. IN FOR A REPEAT? NO. ALEXIS WRITES SLEEP TIGHT, THIS TIME IT REALLY IS DIFFERENT AS THREE QUARTERS OF THE LOT ONLY HOLD TREASURIES FOR GOVERNMENT BONDS AND IN THEORY IT DOESN'T GET MUCH SAFER THAN THAT. ALEXIS JOINS US TO TALK MORE ABOUT THAT. GIVE US A SENSE OF HOW MUCH HAS CHANGED OVER THE LAST 12 TO 15 YEARS SINCE THE RESERVE FUND WENT KAPUT. > > IT'S BEEN A HUGE SHIFT SINCE WE SAW THIS MARKET TURMOIL LAST. MONEY MARKET FENDS -- FUNDS AND INVESTING IN CORPORATE DEBT USED TO BE 60% OF THAT INDUSTRY. NOW 80% MONEY MARKET FUNDS INVEST IN GOVERNMENT SECURITIES, TREASURIES. PAPER. WHEN IT COMES TO BANKS SPECIFICALLY IT'S MUCH, MUCH SMALLER. WELL BELOW 10%. ROMAINE: WE HAVE TALKED ABOUT THE IDEA OF THESE MONEY MARKET RUNS. I HATE WERE GUARANTEED BUT THIS IDEA THAT THERE IS AN ASSURANCE OF THE DOLLAR PAY AND A LOT OF THEM HAVE BACKED OFF OF THAT THEY ARE PRIMARILY NOW MADE UP OF THESE SAFER GOVERNMENT RELATED SECURITIES. DOES THAT PROVIDE SOME IMPLICIT GUARANTEE? > > DEFINITELY THERE IS AN IMPLICIT GUARANTEE BUT IT'S IMPORTANT TO POINT OUT FOR INVESTORS THAT THESE ARE MUTUAL FUNDS, NOT MONEY MARKET BONDS AT THEIR BANK. IT'S A MUTUAL FUND THAT DOESN'T COME WITH INSURANCE OF THE FDIC BUT FOR NOW THAT NUMBER IS EVEN HIGHER. AGAIN, IT DOES COME WITH SOME RISK AND THEY ARE NOT A BANK ACCOUNT. HOWEVER GIVEN THAT THE MAJORITY OF THESE ARE INVESTED IN LIQUIDITY AND I SHOULD POINT OUT THAT IN THE LEHMAN ERA WHEN THEY BROKE THE BOND, IT IS TYPICAL TO SEE SIX MONTHS OR EVEN A YEAR. NOW MOST HOLDINGS ARE MUCH SHORTER. THE AVERAGE MATURITY IS CLOSER TO 14 DAYS. KATIE: WHEN THE DURATION RISK HAS BEEN WIPED OUT, TALK TO US ABOUT WHAT THE PAPER ACTUALLY LOOKS LIKE. LIKE ROMAINE SAID, IT'S MOSTLY TREASURIES NOW BUT AS I UNDERSTAND IT THAT WASN'T ALWAYS THE CASE, ESPECIALLY 2008. > > RIGHT. THEY WERE HELD BROADLY ACROSS MONEY MARKET FUNDS. BANK POSITIONS AS WELL. LOOKING AT CREDIT SUISSE SPECIFIC THE LOOKING AT ONE TROUBLED BANK, THAT WAS A MINIMAL POSITION HELD BY JUST A FEW AND IT WAS MOSTLY A SHORT-TERM OVERNIGHT LOAN. THAT NUMBER, THE SMALL POSITION FOR THE OVERNIGHT STUFF, PROBABLY AS OF NOW THOSE FUNDS DON'T EVEN HOLD IT APART. BECAUSE OF THAT IT HAS CHANGE SIGNIFICANTLY IN TERMS OF WHAT THE MONEY MARKET RUNS ARE. KATIE: NOT MUCH IN THE WAY OF CREDIT RISK FOR DURATION RISK. WHAT KIND OF RISK IS OUT THERE FOR MONEY MARKET FUND? IS IT JUST FED POLICY AT THIS POINT? > > THAT'S EXACTLY RIGHT. THE BIGGER RISK FOR TURMOIL IS WHAT THE BANK IS GOING TO DO. SO MANY FUNDS ARE ALLOCATED TREASURIES AND SHORT-TERM HOLDINGS. WHATEVER THE FED DOES IS GOING TO TRICKLE DOWN INTO WHAT THE PERFORMANCE IS LIKE INPUT THE YIELDS ARE. SO FAR WE HAVE SEEN INVESTORS POURING MONEY INTO MONEY MARKET FUNDS. ATTRACTING MORE THAN $120 BILLION LAST WEEK. ASSETS ARE AT MORE THAN A RECORD 5 TRILLION. THERE'S BIG MONEY FLOWING IN. ONCE THE FED STARTS TO PULL BACK ON ITS HEIGHT PARADING, WE WILL START TO SEE PERHAPS INVESTORS WITH BIGGER CHALLENGES WITH RESPECT TO BANK A PER. ROMAINE: ONE FINAL QUESTION ON SENTIMENT AND WHO HAS THESE FUNDS AND IN TERMS OF DEALING WITH BANKS THEMSELVES OR FINANCIAL INSTITUTIONS, MONEY MARKET FUNDS, LAST TIME WE TALKED WE WERE TALKING ABOUT THESE OTHER INSTRUMENTS THAT HAVE FALLEN OUT OF FAVOR. GIVE US A SENSE, THOUGH, HAS THE BANKING CRISIS RATTLED PEOPLE'S STATE IN INSTITUTIONS? > > I DON'T THINK SO BUT THERE WAS ROTATION OUT OF THE SIGN FUNDS AND THERE HAD BEEN CONCERNED ABOUT WHAT THE FUNDS WERE HOLDING AND I THINK OVERALL IF YOU ARE CONCERNED AND YOU ARE LOOKING FOR SAFETY, I STILL THINK IT IS VERY COMFORTABLE FOR THE BIG MONEY FUND PROVIDERS AND I DON'T THINK THAT HAS CHANGED FUNDAMENTALLY. ROMAINE: ALEXIS, ALWAYS GREAT TO CATCH UP WITH YOU. HER LATEST COLUMN, YOU CAN TRUST YOUR MONEY FUND NOT TO PAY OUT. A LOT MORE COMING UP ON THE BIG SHOW. WE ARE FOLLOWING XI JINPING ON THE GROUND IN RUSSIA. WE WILL FIND OUT WHAT HE HAD TO SAY TO LET A MERE PRUDENT. MARY LOVELY IS JOINING US TO DISCUSS THE UPENDING OF WHAT'S KATIE: LET'S TAKE A LOOK AT HOW MARKETS PERFORMED. IT WAS RISK ON, NO HAVEN BID IN THE BOND MARKET, THE YIELDS CLIMBED ACROSS THE CURVE. SELLING WAS CONCENTRATED ON THE FRONT END. TWO-YEAR TREASURY YIELDS MARGIN BACK TO 4%, NOT THERE YET. 10 YEAR YIELDS ALMOST AT 3.50. YOU TAKE A LOOK AT THE STOCK MARKET, GREEN ON THE SCREEN. THE S & P 500 UP .9%, OUTPERFORMING BIG TECH READ THE NASDAQ 100 FINISHING .3% HIGHER. SMALL CAPS FINALLY SEEING LOVE. YET THE RUSSELL 2000 UP OVER 1%. PEOPLE COMING OUT OF THE DOLLAR VOLATILITY DROPPING AS MEASURED BY THE VIX. BITCOIN IS AT 20,000 ON THE NOSE. ROMAINE: INTERESTING RAP. WE TALK ABOUT EMERGING MARKETS, ON THE BACK FOOT FOR ANOTHER PART OF THE DAY. EMERGING MARKET ASSETS MAY HAVE DODGED THE BIG BROADSOFT IN THE WAKE OF THE TROUBLES GOING ON WITH THE U.S. AND EUROPEAN BANKS. FOLKS ARE SEEKING REFUGE IN SOME OF THE AREAS. JOINING US IS OUR CHIEF EMERGING MARKETS, EDITOR AND THE COHOST OF ASIA DAYBREAK. I CAN UNDERSTAND SOME OF THE APPETITE. WHY WERE THEY NOT RATTLED. SHERY: IT WAS INTERESTING THAT WE SAW THE RESILIENCE IN EMERGING-MARKET ASSETS. WE WERE DOWN IN UP, IT WAS VOLATILE BUT NOT AS BADLY HIT AS WE HAVE SEEN IN PAST EPISODES OF VOLATILITY, ESPECIALLY WHEN YOU THINK EMS. THEY ARE TRADED LIKE RISK ASSETS. PERHAPS, DUE TO VALUATIONS, THEY ARE PRETTY CHEAP. THEY'VE DONE BADLY LAST YEAR. IT IS A GOOD OPPORTUNITY. NOT TO MENTION,, WE HAVE SEEN THE EXPECTATIONS OF CHINA'S REOPENING. WE'RE ALSO SEEING SOME ECONOMIES THAT HAVE STARTED TIGHTENING AND HIKING RATES AGGRESSIVELY, EVEN BEFORE ADVANCED ECONOMIES, COULD THEY FARE BETTER? ROMAINE: I HAVE LOOKED AT THIS CHART. IT'S FASCINATING TO ME. THIS IS THE VOLATILITY AND EM VERSUS THE REST OF THE DEVELOPED WORLD. THERE ISN'T VOLATILITY. I'TS NOT MEASURED BY THE MAIN FEAR GAUGE. SHERY: AS OPPOSED TO THE VIX, IT'S BEEN DOWN FOR THE WHOLE OF LAST WEEK. AS YOU SAID, PERHAPS BECAUSE INVESTORS HAVE BEEN TAKING REFUGE. EMERGING MARKETS AT THESE VALUATIONS, WHEN WE COME OUT ON THE OTHERS OF WHAT IS HAPPENING, WITH A BANKING STRESS, PERHAPS WE WILL SEE MORE OPPORTUNITIES. KATIE: TALK TO US ABOUT BRAZIL. IF YOU LOOK AT EM CURRENCIES, THE -- BRAZIL STANDS OUT, WHICH IS AT ODDS WITH THE INFLATION OUTLOOK. SHERY: THIS IS AN INTERESTING STORY. WE'RE HEADED FOR RATE DECISION ON WEDNESDAY, WHICH WILL PROBABLY BE OVERSHADOWED BY THE FMOC. BRAZIL IS EXPECTED TO HOLD THE RATE OF 13.75% FOR THE FIFTH CONSECUTIVE TIME. THIS IS, AS THE CUT INFLATION ACCELERATION FROM DOUBLE DIGITS, JUST LAST YEAR. THINGS HAVE BEEN LOOKING BETTER. BUT THEN, AS YOU SAID, WE HAVE SEEN INFLATION EXPECTATIONS CONTINUE TO RISE. ANALYSTS RAISING THEM FOR THE NEXT THREE YEARS. ALTHOUGH CONSUMER PRICES ARE THE ROUTE -- AT AROUND 5%, PEOPLE ARE NOT CONVINCED THAT THEY WILL STAY THERE. TODAY WE ARE WATCHING THE SENATE IN BRAZIL CLOSELY. THE FINANCE MINISTER HAS PROVIDED THE BLUEPRINT WHEN IT COMES TO THE FISCAL POLICY. WILL THEY CONTINUE TO SPEND MORE WITH THE PRESIDENT? ROMAINE: BEFORE WE LET YOU GO, I HAVE TO ASK ABOUT CHINA AND ITS IMPORTS WHEN IT COMES TO EM. WHEN YOU LOOK AT THE WHOLE BASKET. A LOT OF CHINESE NAMES DOMINATING THE INDEXES. SHERY: PEOPLE SEEM TO LIKE IT, DESPITE THE FACT THAT WE HAVE SEEN MORE UPSIDE RECENTLY, ESPECIALLY WITH CHINA'S REOPENING. IT SAYS IT IS ONE OF THE FEW GOOD STORIES IN THE MARKETS THIS YEAR. WE'RE WATCHING IT CLOSELY BECAUSE LAST NIGHT, WE EXPECT OF THE LOAN PRIME RATES TO STAY STEADY. LAST WEEK, THAT CUT THE RRR, THAT IS HOW MUCH CASH YOU PARK WITH THE CENTRAL BANK. THERE IS AN EASING BIAS. KATIE: GREAT TO SEE YOU. THAT IS BLOOMBERG EM CORRESPONDENT, SHERY AHN. STICKING WITH CHINA, CHINESE PRESIDENT XI JINPING, HE IS IN MOSCOW MEETING WITH RUSSIAN PRESIDENT, VLADIMIR PUTIN, FOR THE START OF A THREE-DAY VISIT. PUTIN SAYS THAT RUSSIA IS READY TO DISCUSS CHINA'S INITIATIVE FOR ENDING THE CONFLICT IN UKRAINE. JOINING US NOW IS PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS, SENIOR FELLOW, MARY LOVELY. GREAT TO HAVE YOU WITH US. LET'S TALK ABOUT THAT INITIATIVE FROM CHINA. HOW FEASIBLE DO YOU THINK THAT THAT IS? MARY: SHE -- XI IS THERE TO PRESENT HIMSELF AS A STAKEHOLDER AND PEACEMAKER TO TRY TO FURTHER BOLSTER CHINA'S REPUTATION ON THE GLOBAL STAGE. THE 12 POINT PLEASE PLAN IS FROM THE WESTERN POINT OF VIEW, DEAD IN THE WATER. BUT, IT WILL BE VIEWED AS CREDIBLE BY MANY OF NONALIGNED NATIONS. IT FIRMLY POSITIONS CHINA, AS AN ALTERNATIVE TO U.S. LED INTERNATIONAL SECURITY. KATIE: SO, IF IN THIS PLAN, XI PRESENTING CHINA AS THE PEACEMAKER, THE RESPONSIBLE STAKEHOLDER, HOW IS THE U.S. PORTRAYED IN THIS PLAN? MARY: OH, WELL, THAT'S -- WHAT WE MIGHT EXPECT. IT'S PORTRAYED AS A HEGEMON, AS A BULLY, AS A DOMINATING FORCE, AND AS AMERICANS, WE MAY LOOK AT THIS AND SAY WE WANT A PEACEFUL OUTCOME TO THE WAR IN UKRAINE. WE SEE IT AS AN OBVIOUS AGGRESSION BY MOSCOW. BUT, THESE WORDS ACTUALLY RESONATE IN MANY NONALIGNED COUNTRIES AROUND THE WORLD, EVEN SOME OF THE COUNTRIES THAT VOTED TO SANCTION MOSCOW, AS A RESULT OF ITS INVASION. SO, THERE IS THIS, DOES THIS RESONATE IN OTHER PARTS OF THE GLOBE? ROMAINE: I AM CURIOUS ON YOUR TAKE ON XI'S STRATEGY. IT MAKES SENSE AS TO WHY HE WOULD TRY TO, IF NOT STRENGTHEN, AT LEAST MAINTAIN TIES WITH PUTIN AND RUSSIA. BUT, THIS IS STILL A COUNTRY AND AN ECONOMY THAT, WHETHER HE LIKES IT OR NOT, IS INEXTRICABLY TIED TO THE U.S., LATIN AMERICA, EUROPE. I'M CURIOUS AS TO WHAT THE STRATEGY IS IN DEALING WITH THOSE. YOU CANNOT SHUN THOSE COUNTRIES AND SAY, I'M GOING ALL IN WITH PUTIN. MARY: NO. HE HAS THREE REASONS TO STICK WITH PUTIN. ONE, DIPLOMATIC, FINDING SUPPORT FOR CHINESE INITIATIVES TO TAKE A LARGER ROLE IN GLOBAL GOVERNANCE, SAY THE U.S. ECONOMIC, THEY'RE GETTING CHEAP OIL GAS FROM RUSSIA. AND MILITARILY. RUSSIA WOULD BE AN ALLY IF CHINA DECIDES TO MAKE A MOVE TOWARD TAIWAN. SO, CHINA HAS ITS REASONS, TO SOLIDIFY THIS RELATIONSHIP. AT THE SAME TIME, THEY ARE WALKING A TIGHT ROPE, ESPECIALLY WITH THE EUROPEAN UNION. THEY VIEW THE U.S. AS TOO FAR GONE TO BE RESUSCITATED IN TERMS OF RELATIONSHIP. BUT THE EU THEY SEE AT A KNIFE EDGE. THE WAY THAT XI HAS CHOSEN TO PLAY IT IS, HEY GUYS I'M GOING HERE IS THE PEACEMAKER. THAT SHOULD MAKE YOU HAPPY. EUROPE, SHOULD SEE ME AS A NONTHREATENING ACTOR ON THE GLOBAL STAGE. ROMAINE: WHEN WE TALK ABOUT THE U.S. EFFORTS TO MITIGATE THE INFLUENCE OF CHINA, WITH REGARDS TO THE CHIP SECTOR AND THE IDEA OF TRYING TO ONSHORE MORE MANUFACTURING HERE, WE KNOW THE CHINESE HAVE MADE IT CLEAR THAT THEY SEE THAT AS A THREAT. IN SOME CASES THEY OF USE THE WORD INSULT. IS THIS JUST THE WAY IT IS GOING TO BE? THERE IS NO WAY TO ROLL THIS BACK, IS THERE? MARY: WELL, WE SEE THE WAY THE U.S. CONGRESS IS MOVING. WE SEE THE WAY THE BIDEN ADMINISTRATION IS MOVING. THE BIDEN ADMINISTRATION HAS MAINTAINED THE TRUMP TARIFFS ON CHINA. THEY HAVE GONE MUCH FURTHER AND MORE EFFECTIVELY IN TERMS OF SANCTIONS, AND EXPORT CONTROLS ON CHINA, PARTICULARLY. AS YOU MENTIONED IN SEMICONDUCTORS. THERE'S ABSOLUTELY NO MOVEMENT BACKWARD. IT DOES NOT MEAN RELATIONS CANNOT IMPROVE IN THE FUTURE. WE'LL SEE THAT MANY OF THESE MOVES WILL ACTUALLY DRIVE MANY OF THE COUNTRY IS THAT WE WANT TO SEE IS OUR FRIEND SHORING CIRCLE. IT WILL HASTEN THEIR INTEGRATION WITH CHINA. I KNOW THAT SOUNDS PARADOXICAL, BUT COUNTRIES THAT WILL BE ABLE TO EXPORT TO US BECAUSE OF THE VOID THAT IS LEFT BY CHINA WILL STILL RELY ON CHINA FOR INTERMEDIATE INPUTS. CHINA IS SUCH A LARGE COUNTRY, SUCH AN IMPORTANT MANUFACTURING SOURCE THAT IT WILL BE IMPOSSIBLE TO REMOVE THEM FROM SUPPLY CHAINS. THAT MEANS THAT THESE THIRD COUNTRIES, INDIA, VIETNAM, MALAYSIA, INDONESIA, THEIR RELATIONS WITH CHINA WILL DEEPEN. KATIE: NOT MUCH TIME LEFT. TO YOUR POINT ON EUROPE THAT CHINA SEES THE RELATIONSHIP AS SALVAGEABLE IN A WAY, DOES EUROPE FEEL THE SAME? MARY: I THINK -- I MEAN WE KNOW EUROPE VIEWS THE WAR IN UKRAINE AS IN ACCESS TO -- AS AN EXISTENTIAL THREE -- A THREAT TO SECURITY. EVERY TIME CHINA AND PRESIDENT XI NEEDS WITH PUTIN, IT PUTS A FURTHER DISTANCE BETWEEN THE TWO. ON THE OTHER HAND, THEY ARE REALISTIC ABOUT THE IMPORTANCE OF CHINA IN THE GLOBAL ECONOMY. SO, AS MUCH AS XI WANTS TO WALK THIS TIGHT ROPE, I DON'T THINK THAT THEY ARE MAKING MUCH MOVEMENT WITH THE EUROPEAN UNION. SOME PEOPLE IN THE U.S. GOVERNMENT BELIEVE THAT THEY ARE SUPPORTING EUROPE, WHICH THEY HEAR VERY CLOSELY TO U.S. SANCTIONS ON RUSSIA. ROMAINE: WE WILL HAVE TO LEAVE IT THERE. ALWAYS GREAT TO TALK TO YOU THERE. ONE OF THE BIG EXPERTS OUT THERE, MARY LOVELY, A SENIOR FELLOW AT PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS. MORE ON THE SHOW. INCLUDING THE TWO DATE FED MEETING. THE BIG DECISION COMING ON WEDNESDAY AFTERNOON. A CHIEF ECONOMIST AT SMBC NIKKO SECURITIES IS COMING UP AFTER THE BREAK. > > WE HAVE A SELF-INDUCED CRISIS BY IRRESPONSIBLE FISCAL MONETARY POLICY. > > THIS IS A DIFFERENT SITUATION. > > THIS IS VERY DIFFERENT THAN THE SITUATION WE SAW IN 2008. > > THIS IS JUST THE BEGINNING OF US TRYING TO MAKE SENSE OF THE -- OF HOW SYSTEMIC THIS CAN GET. > > WE THINK THIS IS CLOSER TO THE BEGINNING THAN THE END. THAT WILL BE A PROBLEM FOR MARKETS. > > WE NEED TO SEE BACKSTOPS IN PLACE. > > WE WILL SEE MORE REGULATION OF BANKS BOTH MIDSIZE AND LARGE. > > A LOT MORE REGULATORY CHANGES, ESPECIALLY IN THE BANKING SYSTEM. > > WE NEED MORE SUPERVISION, NOT NECESSARILY REGULATION. > > > > WE ARE FACING A BIT -- BIG FED MEETING. THE MARKET'S GIVING THEM 25 BASIS POINTS. > > WAIT AND WATCH WHAT HAPPENS. > > THERE IS AN OPPORTUNITY, WE THINK FOR THE FED TO STEP IN AND ADD A BIT OF CONFIDENCE TO THE SITUATION. ROMAINE: UNPARALLELED ANALYSIS AND COVERAGE ON BLOOMBERG OF THE GLOBAL BANKING CRISIS. ON SUNDAY WE LEARNED THAT THE UBS IS AGREEING TO BUY CREDIT SUISSE FOR $3.3 BILLION. THE GOVERNMENT BROKER DEAL AIMED TO CONTROL THE CRISIS OF CONFIDENCE GOING ON OVER THERE. JOINING US RIGHT NOW IS SONALI BASAK IN NEW YORK CITY OUTSIDE OF CREDIT SUISSE' NEW YORK-BASED HEADQUARTERS. THE HOUSE THAT WAS BUILT IN ZURICH, QUITE THE REMINISCENT OF A VERY ICONIC BUILDING YOU ARE STANDING IN FRONT OF. WHAT IS THE SEEM LIKE. I ASSUME, NOT AS CHAOTIC AS WHAT WE'VE BEEN SEEING OVERSEAS? SONALI: REMEMBER COME OUTSIDE OF THE HEADQUARTERS YOU HAVE 200 PROTESTERS FRUSTRATED, CHANTING REVOLUTION, INTO THE RICH. THEY HAVE THROWN EGGS AT THE BUILDING. IT. IS MUCH CALMER NOW. . WE'VE BEEN INSIDE THE COFFEE SHOPS. IT IS VERY BUSINESS AS USUAL. I CANNOT TELL YOU HOW MANY MEETINGS I HAVE DONE WITH TRADERS AND BAKERS IN MIDTOWN MANHATTAN IN THIS AREA. IT'S A SIGNIFICANT MOMENT. THEY HAVE BEEN IN THIS BUILDING SINCE THE 90'S. EVER SINCE THEN, IN THE LAST DECADE, THEY HAVE HAD THESE AMBITIONS TO BE THE BIGGEST PRIME BROKERAGES ON WALL STREET. THEY WERE ONE OF THE TOP SIX AND SEVEN M & A BANKING HOUSES. THEY HAVE A LOT TO OFFER UBS. UBS ALSO HAS A BIG PRESENCE. THERE WILL BE SYNERGIES, WHICH MEANS JOB CUTS. WE TALKED ABOUT THIS WITH FOLKS OUTSIDE, THEY ARE NOT FREAKING OUT YET. WE'VE SEEN A LOT OF HEADLINES ABOUT PEOPLE BEING POACHED TO OTHER PLACES. SO, WE WILL SEE HOW THINGS SHAKE OUT. KATIE: SO CALM, AS YOU LAID OUT, AT LEAST OUTSIDE OF THE NEW YORK OFFICES. TALK A BIT ABOUT THE SHAREHOLDERS, PARTICULARLY THE UBS SHAREHOLDERSW. E'VE -- WE HAVE BEEN TALKING ABOUT THE AT1'S. BUT THIS HAS BEEN GOING THROUGH WITHOUT A SHAREHOLDER VOTE, WHICH IS REMARKABLE. WHAT HAS THE RESPONSE BEEN LIKE? WHAT ARE YOUR SO SINCE -- YOUR SOURCES TELLING YOU ABOUT THAT ISSUE? SONALI: THE POINT ABOUT THE SHAREHOLDER VOTES, YOU THINK ABOUT WHAT THE NATIONAL BANK SET ABOUT, THEY SAID LISTEN, YOU WOULD HAVE HAD NOTHING. AT THE SAME TIME YOU HAVE THE SAUDI NATIONAL BANK THAT WAS WIPED OUT TO 1.2 BILLION FRANCS. SINCE TAKING THE STATE. IT IS A DIFFICULT QUESTION ABOUT WHAT A BANK IS WORTH AND HOW QUICKLY THE VALUE CAN BE LOST IN A TOUGH TIME, PARTICULARLY THE RISKIER BUSINESSES OF INVESTMENT BANKING. THE DEPOSIT FLOWS OUT OF CREDIT SUISSE WAS WHAT EXACERBATED THE PROBLEM. IT'S THE RISK IN THE INVESTMENT BANK THAT HAS CAUSED THE SLOW BLEEDS OVER DECADES. A LOT OF ANGER, AROUND SHAREHOLDERS AND BONDHOLDERS. IT COULD HAVE BEEN WORSE. ROMAINE: SONALI BASAK IN DOWNTOWN MANHATTAN, OUTSIDE OF THE NEW YORK OFFICES OF CREDIT SUISSE, AS WE CONTINUE OUR FOCUS ON THE BANKING CRISIS AND THE REGULATORY RESPONSE. WE TALK ABOUT THE BIG FED MEETING, STARTING TOMORROW. THE TIGHTENING CYCLE THAT SOME PEOPLE THINK MIGHT BE OVER. OVERNIGHT INDEX SWAPS PRICING AND A 70% CHANCE OF A QUARTER HIKE BY THE FED THIS WEEK AFTER THAT, THEIR ARE SORTING TO CUTS. JOSEPH LAVORGNA JOINING US NOW. HE IS A CHIEF ECONOMIST AT SMBC NIKKO SECURITIES AMERICA. BEFORE WE GET TO RATES, I DO WANT TO START OFF WITH A BALANCE SHEET. A BALANCE SHEET THAT IF YOU PUT A ONE YEAR CHART HAVE BEEN -- HAD BEEN COMING DOWN. IF YOU PUT UP A ONE-WEEK CHART HAS SPIKED A BIT HIGHER UP HERE. IT HAS A LOT OF PEOPLE MAKING JOKES ABOUT THE END OF QT. JOSEPH: YES. THE THING IS, IF YOU LOOK AT DEPOSIT DATA WE SAW LAST YEAR, A RECORD OUTFLOW COME A LOT OF THE MONEY WENT INTO MONEY MARKET FUNDS BECAUSE SHORT RATES WENT UP SO FAST SO QUICKLY. INVESTORS, MOM-AND-POP, WHAT HAVE YOU PUT THEIR MONEY IN TREASURY BILLS. CERTAINLY, THE QT ALSO SHRUNK RESERVES AT AN 11% PACE. ALL THOSE THINGS HER TO THE BANKING SYSTEM. IT'S PART OF THE REASON WHY WE ARE IN THE SPOT WE ARE IN. WHY I EXPECT THE FED TO PAUSE AND STOP QT. TO DO MORE QT WILL ONLY EXACERBATE MANY OF THE PROBLEMS THE FED HAS CAUSED. KATIE: TO THE IDEA THAT PERHAPS WE HAVE ALREADY SEEN THE END OF QT, THE FACT THAT YOU SAW THE BALANCE SHEET GET A BIT BIGGER IN THE PAST WEEK, I FEEL LIKE THERE IS NUANCE. IT WAS IN A POLICY CHANGE NECESSARILY. WHEN IT COMES TO SIGNALING, THIS WAS NOT AN ACTUAL POLICY CHANGE, A FORMAL END TO QT. DOES THAT TELL YOU ANYTHING ABOUT WHAT THE NEXT FEW MONTHS COULD LOOK LIKE? JOSEPH: THE FACT THAT THE BALANCE SHEET ROSE ALMOST 450 BILLION IN AGGREGATE TELLS YOU THE FED HAD SHRUNK THE BALANCE SHEET TOO MUCH. YOU ARE RIGHT ON THE SEQUENCING. IF THE FED CONTINUES TO DO THE QT, THEY WILL LOSE UPWARDS OF 95 BILLION A MONTH. IT WILL LIKELY BE 60 BECAUSE THE MORTGAGES ARE EXTENDED. EVEN AT $60 BILLION A MONTH, THAT IS TWICE THE PACE WE HAD IN 2017 AT 2019. WE SAW THE REPO PROBLEMS WHEN THE FED CUT BACK ON THE RESERVES. IF THEY WERE TO CONTINUE TO QT, THEY WILL CONTINUE TO SCRAMBLE FOR FUNDING WHEN -- IN A WORLD WHEN THE EQUITY MARKETS AND CAPITAL MARKS ARE NOT HIS BIDDABLE TO THANKS. THAT IS -- HOSPITABLE TO BANKS. THEY WILL NOT GET MUCH FURTHER ON IT. ROMAINE: WHAT TYPE OF COMMUNICATION ARE YOU EXPECTING OUT OF JAY POWELL? MORE IMPORTANTLY, WHAT TYPE OF KEEN OCCASION --COMMUNICATION DO YOU THINK YOU SHOULD GIVE? JOSEPH: I WILL ANSWER THE SECOND QUESTION. THAT IS THE FED COULD SAY IN LIGHTS OF CIRCUMSTANCES AS IT RELATES TO FINANCIAL RISK AND STABILITY, THE PRUDENT COURSE OF ACTION IS TO MAKE SURE POLICIES WORK, SO AS TO PREVENT SOMETHING WORSE FROM HAPPENING. WE KNOW FINANCIAL INSTITUTIONS HAVE TIGHTENED. WE HAVE SEEN THE LARGE BANKS TIGHTEN STANDARDS. THE SMALLER BANKS WILL AS WELL. THE PRUDENT COURSE OF ACTION IS TO WAIT. THEY HAVE INTEREST WAIT -- RATE FORECAST. IF THINK TURN OUT AS THEY EXPECT THEY CAN HIKE AGAIN IN FIVE WEEKS. THIS NOTION OF HIKING NOW TO MAINTAIN THAT ABILITY IS LUNACY. THAT'S WHAT THEY SHOULD BE. I HOPE THEY GET COMMON SENSE FOR WHAT THEY WILL DO. KATIE: TO YOUR POINT, THEY RAN DOWN THE BALANCE SHEET TOO MUCH. DO YOU THINK THAT THEY HAVE HIKED ENOUGH? YOU MADE THE POINT THAT THEY COULD HIKE AGAIN IN FIVE WEEKS. THE NEXT MOVE DOES NOT HAVE TO BE A CUT. SHOULD THEY TAKE THEIR FOOT OFF THE GAS AS WELL? JOSEPH: I WOULD SAY, THEIR LAST MOVE IS DONE. THEY ARE DONE HIKING. IF THEY HIKE ON WEDNESDAY THEY WILL MAKE THE PROBLEM WORSE. HISTORICALLY, 18 TIGHTENING CYCLE SINCE 1950, THE TIME FROM THE LAST HIKE TO THE LAST CUT IS THREE MONTHS AT THE MEETING IS TOO MUCH. HISTORY IS LINING UP PERFECTLY. THE FED FUNDS RATE WENT UP DRAMATICALLY THAT COMMERCIAL BANKS LOST DEPOSITS BECAUSE PEOPLE PUT IT IN HIGHER-YIELDING ASSETS. INKS WERE SLOW TO RAISE THE RATES. -- RANKS WERE SLOW TO RAISE THE RACE. -- BANKS WERE SLOW TO RAISE THE RACE -- RATES. KATIE: REALLY APPRECIATE YOUR TIME AS WE COUNT DOWN TO THE FED DECISION ON WEDNESDAY. THAT IS JOSEPH LAVORGNA, CHIEF ECONOMIST AT SMBC NIKKO SECURITIES AMERICA. COMING UP, IT'S WHAT INVESTORS NEED TO WATCH FOR TOMORROW. WE'LL WALK YOU THROUGH IT. THAT IS NEXT. THIS IS BLOOMBERG. ROMAINE: AS WE WRAP UP OUR COVERAGE ON MONDAY HERE IS A LOOK AHEAD ON WHAT MARKETS WILL BE FOCUSED ON. WE CONTINUE OUR FULL MARKET COVERAGE OF THE BANK FALLOUT. KATIE: IT IS TELLING THAT THAT IS AN ALL DAY EVENT WE WILL BE TALKING ABOUT AND THE IMPACT TO THE MARKET AND WHAT IT MEANS FOR THE FED. ROMAINE: A LOT OF LOOSE ENDS WITH A LOT OF BANKS, FIRST REPUBLIC TODAY. INTERESTING TO SAY WHAT DEVELOPMENTS -- TO SEE WHAT DEVELOPMENT WILL COME. WE'LL HEAR FROM SOME OF THE BIGGEST REGULATORS OUT THERE. KATIE: IT WILL BE INTERESTING TO SEE IF CHRISTINE LAGARDE'S TONE HAS SHIFTED FROM LAST WEEK. IT WAS AN EVENTFUL WEEKEND IN EUROPE. ROMAINE: BACK HERE IN THE UNITED STATES WE WILL HEAR FROM THE TREASURY SECRETARY, JANET YELLEN WAS SCHEDULED TO SPEAK AT A CONFERENCE IN WASHINGTON. DO YOU THINK SHE WILL BE ASKED ABOUT THE BANKING CRISIS? KATIE: THAT IS THE THING ABOUT THESE PREVIOUSLY SCHEDULED SPEECHES, YOU HAVE TO REACT IN REAL TIME ABOUT WHAT IS GOING ON. ROMAINE: SHE IS AN OLD HAND AT THIS. THE PERSON WHO REPLACED HER AT THE FED, JAY POWELL WILL START THEIR TWO-DAY MEETING IN WASHINGTON. KATIE: TO BE A FLY IN THE WALL. TO -- BEHIND CLOSED DOORS WILL BE INTERESTING. ROMAINE: THEY HAVE A LOT TO CHEW ON, WHETHER THEY CONTINUE WITH THE RATE HIKING CYCLE OR THEY WILL DO A PAUSE IN LIGHT OF THE DEVELOPMENT. WE ARE IN EARNINGS SEASON. NIKE. YOU ARE A BIG RUNNER? KATIE: BIG TIME. IT WILL BE AN INTERESTING READ ON THE CONSUMER. SOMETHING TO RELY ON. WE DO STILL HAVE EARNINGS TO LOOK FORWARD TO. ROMAINE: IF YOU BELIEVE MIKE WILSON, MAYBE THAT IS NOT SOMETHING YOU DO WANT. I APPRECIATE EVERYONE TUNING IN FOR BLOOMBERG MARKETS THE CLOSE. FULL YOU BE BACK TOMORROW? KATIE: ALL WEEK. ROMAINE: BE SURE TO TUNE IN WITH US TOMORROW. STICK AROUND, BALANCE OF POWER COMING UP NEXT.

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"Bloomberg Markets: The Close" (03/20/2023)

Romaine Bostick & Katie Greifeld bring you the latest news and analysis leading up to the final minutes and seconds before and after the closing bell on Wall Street and tackles the bank jitters easing, AT1 bonds and Xi visiting Russia. Guests today: Hal Scott of Committee on Capital Markets Regulation, Mark Howard of BNP Paribas, Patrik Kauffmann of Aquila Asset Management, Chris McGratty of KBW, Gillian Tett of the Financial Times, Michael Cuggino of Permanent Portfolio Family of Funds, Mike Wilson of Morgan Stanley, Mary Lovely of the Peterson Institute for International Economics, Joe Lavorgna of SMBC Nikko Securities America. (Source: Bloomberg)