If the story of Shonali was saying is that those who benefit from higher rates are going to have an even better quarter, does this just mean JP Morgan still is the winner that there’s nowhere else to look in this banking market? Yeah. Good. Good morning, Dan and glad to be here. Yeah. So JP Morgan, you know we’ve talked about in past quarters you know has been the winner will continue to be a a significant winner in this market. They are net deposit gainer in this environment they are their cost of deposits is much lower than other banks. So yeah I I expect them to be the best of the best in the reporting this season. But as was alluded to in in the the run up here to this segment there are other you know other banks like Bank of America will also benefit tremendously. I mean recall that when banks were reporting this time in January, you know JP Morgan said on their call we’re baking in six cuts and here we are below 2. So quite a different backdrop for banks. But you see the in the action of the banks this week the challenge of the kind of the push and take of higher rates because it doesn’t impact the the value of their securities portfolios as rates move higher. I mean Diamond himself said in his investor later a letter that rates could hit 8% or more with inflation. He also count cast doubt on the soft landing. He didn’t agree with the current estimate of 70 or 80%. To be honest. Those are two very separate things because if you get higher inflation rates go to 8%, if you don’t get a soft landing, presumably you are cutting more. But if you translate that into what the expectation is for JP Morgan as a whole, I know they often don’t exactly line up, but do you think we’ll still see hesitation from banks and issuing whole scale upgrades of their forecast? Yeah, certainly on the first quarter calls they all had kind of expected a mild recession in the second-half of this year. I think that you know, definitely gets pushed out. You know, Jamie’s been pretty ahead of the game in terms of calling for higher rates. Recall back in late 22, early 23, he was calling for you know 5 to 6% which we kind of got there on the 5% on the 10 years. So I I hope he’s not right about 8% because I think that’s a very bad scenario for cap for financial markets if that happens. But I do think they’re going to have to you know revise up their estimates for growth because that’s just the reality of where we are right now. That is the worrying thing. He was right last time. And if you’re saying 8%, it’s a it’s a scary world, Walter. And and look, while while higher rates are are good for the likes, you know it’s complicated but higher rates generally benefit the likes of Bank of America, JP Morgan generally they’re not such a great thing for the regional banks. I know you have a few in your portfolio PNC which I know you call a super regional, you own first Horizon 2. What is the reporting season look like for this quarter? If regional banks are going to have to get on the call with their investors with analysts and say, look, we don’t have the benefit of hoping that lower rates would give us some relief. Yeah, absolutely. It’s a great point. You really see this in the performance here today, right. The BKX up about 5% through yesterday, the KRE which is the regional bank index down about 10%. So you’re kind of seeing that manifested in performance because they don’t have the capital markets to offset, you know some of the challenges around deposit growth and deposit costs. I think there’s first of all these stocks generally are are much cheaper than their their bigger peers with the exception of Citigroup which is going through a turn around. So I I think there’s going to be more consolidation in in the banking industry. So that’s one way potentially First Horizon was kind of at the altar with TD Bank and that didn’t happen, but great footprint here in the Southeast, you know PNCI think is big enough and getting bigger that they’re going to kind of fall you know learn more towards these bigger banks in terms of the the puts and takes on interest rates. But yeah, make no mistake, it’s going to be a continued challenge for regional banks particularly on the credit side. And again the cost of deposits. City as you mentioned is is hasn’t experienced the same amount of rally because of the turn around you don’t own city. But we’re going to hear more details from Jane Frazier on the progress of that turn around of that restructuring. Is there anything that she could say Walter to tempt you to dip your toe in, Well, you know City’s tempting just simply on the valuation, right, it’s it’s trading at .6 times book. So even though it’s actually had a pretty good year year to date on on this turn around and cost cuts it’s still cheap. So that that in and of itself is kind of tempting to stick your stick your toe in but and and the and the dynamic of you know again the cost cuts and it’s just totally different drivers for Citigroup. So it’s a it’s a stock that we watch you know we’ve owned it in the past at points in time so we could own it again. I think Jane’s doing, you know, a really good job in terms of what she’s trying to do there, Walter, when it comes to this broader market, I know you said last week when it came to things like payrolls, I I love what you say. It’s an example of the idea that if you’ve gotten the data ahead of time, you would have gotten the market response wrong. What about the CPI data and the rally that has held up the, the holding up a big cap tech of NVIDIA, of the MAG Seven. Has that surprised you too in the face of hotter inflation data? Yeah, Yes and no. I mean if you look it was just a battle on the S&P on on Wednesday at 5150 which was the lows from last Thursday after that sell off. And so this market just does not want to, not want to give up right now. I thought we would see you know some some some more downside pressure off of that maybe breakthrough the 50 day on the downside. But right now they’re just you know money coming in at these levels. So until we see a definitive breakdown and and give back maybe a traditional kind of 10 to 11% type correction which you get typically every year people want to come in and put money in this market. So it is a little bit confounding, but you know the trend is what the trend is, is, is it a trend that that almost mimics 2021 Walter, because clearly bonds are not giving you that much protection. But when it comes to the equity market, it’s things like tech and it’s things like energy as the commodity complex moves higher, is that the playbook? Are we just dusting off what we had three years ago, more or less, Yeah, we certainly were obviously it’s way 23, right. That was the playbook and then early this year that was the play. But, but you know encouragingly in March we started to see some you know balancing out. We start to see other areas really starting to participate, materials, energy, industrials. But over the past say 5 days as the markets kind of churned here, it’s been a flip back to the really I would say the 2023 playbook that is the market cap weighted S&P dramatically outperforming the equal weight S&P. So that seems to be kind of the go to in times of of turmoil we’ll we’ll see if these maybe these bank earnings are are good enough to kind of you know reverse that a little bit We’ll we’ll see.
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