Daily Briefing – October 14, 2020

Published on
October 14th, 2020
32 minutes

Daily Briefing – October 14, 2020

Daily Briefing ·
Featuring Peter Cooper, Jack Farley, and Ed Harrison

Published on: October 14th, 2020 • Duration: 32 minutes

Real Vision managing editor, Ed Harrison, is joined by editor, Jack Farley, to break down today's bank earnings reports and look forward to the fate of the credit markets. Ed shares his framework for understanding the K-shaped bifurcation between investment banks relying on a flurry of IPOs and bond issuance and commercial banks who are left with spotty loans and narrowing net interest margins. Jack guides viewers through the remarkable performance of Goldman Sachs, particularly their trading division, and he also shines a light on the rising credit risks in Bank of America's loan book. In the intro, Real Vision's Peter Cooper discusses how companies are postponing their plans to return to the office until the summer of 2021 and what the future of work arrangements may look like as remote work continues to present its pros and cons.



  • BF
    Bill F.
    19 October 2020 @ 22:11
    Sorry so late in the comment section. I continue to say “RVDB is the best 30 minutes in business news”! Listen to the last 10 minutes and see what Jamie Dimon is saying and then what the potential Republican strategy may be with the stimulus. Both comments were very eye opening. Great job Ed and Jack!
  • LB
    Lenska B.
    16 October 2020 @ 05:59
    One of the best exchanges. Ed and Jack make a great team.
    • JF
      Jack F. | Real Vision
      17 October 2020 @ 18:12
      Thank you, Lenska, I agree with you!
  • AS
    Ananth S.
    15 October 2020 @ 21:54
    Jack did great, loved the conversation
  • JS
    Jon S.
    15 October 2020 @ 19:54
    For me this pandemic and WFH had been an opportunity to discover how much I enjoy the silence and solitude when I work my wife is not there and none in the office. The issue is now that I always worked almost 24/7 but now with the remote systems we can work like from the office 24/7. this makes the client experience much much better, but the employees stress I guess its exacerbated and the eyes get red. I guess is a trade off :)
  • IN
    I N.
    15 October 2020 @ 00:46
    I like the shuffle with Jack taking turns at running the DB. Fresh is good. You are keeping it fresh by shuffling the viewpoints and ideas, or even the articulation of similar issues.
    • JF
      Jack F. | Real Vision
      15 October 2020 @ 01:00
      Thank you I N - glad you liked it!
    • RK
      Robert K.
      15 October 2020 @ 18:49
      I agree 100% (and good to give poor Ash a break, allowing him to give us more Crypto goodness.)
  • PT
    Philip T.
    15 October 2020 @ 17:08
    Jack, you are correct that the regional banks are the place to keep an eye on since they have the greatest exposure to the coming insolvency stage (Raoul), especially especially real estate loans. Though they are capitalized with far better reserves than in the GFC, it will still weigh on their earnings and are not the place to be until we see how bad the insolvency wave is and until it peaks and begins to recede (a 2021 story).
  • PT
    Philip T.
    15 October 2020 @ 13:06
    US banks will likely continue to have greater defaults than European banks, but they have greater reserves to handle them. European banks are socialized to carry more non-performing loans; that's why they are basket cases likely to be taken over by their governments. The US is a healthier business climate by allowing zombie companies to go into default and reorganize, rather than be carried as dead weight, dragging down the whole economy (ala Japan).
    • JF
      Jack F. | Real Vision
      15 October 2020 @ 15:48
      Interesting view, Philip. I know many have their eye on regional banks as the receptacles of illiquid credit whose stresses have not yet been seen. But have there been any that have happened already?
  • CA
    Chad A.
    15 October 2020 @ 05:05
    Great job guys! Jack, fantastic job! You are whuppin' it's ass!
    • JF
      Jack F. | Real Vision
      15 October 2020 @ 15:46
      Thanks Chad!
  • CK
    Cagatay K.
    15 October 2020 @ 04:28
    Great job Jack on the second time around. Ed, what is your view on long term declining net interest margins trends of banks over the past 20 years? Do you really think that margins will jump back to at least pre covid levels until say 2023-24? I do see a lot of pressure in margin spread of banks in terms of lower yields for the long term and declining velocity of money. That s possibly why Citi or WFC is trading at such PTBV vs peers. That NIM at precovid levels might not ever come back
    • EH
      Edward H. | Real Vision
      15 October 2020 @ 14:34
      I think we are about to re-enter a period of significant financial repression globally where interest rates are lower than both nominal GDP growth and inflation. What CBs want is to allow an economy to grow its way out of the huge debt burdens we have built up. But, in the absence of growth, they are willing to accept inflation as a means of trying to reduce the real burden of debt. I suspect that deleveraging will be an issue that retards growth. And so, negative real yields will remain in place for quite some time.
  • TM
    Tyler M.
    15 October 2020 @ 14:24
    Great work, guys. Jack, nice work. You’re a natural.
  • RS
    Richard S.
    15 October 2020 @ 11:37
    Another excellent DB. A few thoughts. First -the market is going up because there is no other place to get yield and everyone believes that the Fed will intervene in the event of any significant market stress. I recently invested in a very conservative tech stock. I made more in two months than I would have made in 14 years with CD's or 10 year bonds. Second- I don't consider an economy in 'recovery' that has been fueled by trillions in fiscal and monetary stimulus. Many segments of the economy and many individuals are on life support. For sure, helicopter money fuels spending, but it's not a long-term solution. Third- traditional banks are in trouble. The margins are insufficient at zero bound rates.
  • BD
    Bruce D.
    15 October 2020 @ 10:32
    You don't think that the market is going up because there is nowhere else to put your money. We can't put it in bonds, savings treasuries, so everyone is in equities and derivatives. Furthermore, the chart you showed only went up to 2016.not 2020
  • PB
    15 October 2020 @ 00:02
    Yeah, I think the market isn't pricing in a Biden White House and a Republican Senate. I can just imagine the "austerity" argument coming out of the Senate come February. Austerity == Stagflation at best.
    • EH
      Edward H. | Real Vision
      15 October 2020 @ 00:08
      Agreed. This is the most probable bearish scenario
    • RM
      Robert M.
      15 October 2020 @ 01:32
      Also agree with Ed that this will be bearish as it leads to no additional stimulus. The Senate will discover the financial austerity that they have lacked over the last four years.
    • AB
      Alastair B.
      15 October 2020 @ 04:58
      All paths seem to be leading to gold as the asset of choice here. This is nothing new here - I’ve been a goldbug for years - but I’m not finding any convincing evidence to challenge my beliefs any more. What am I missing?
  • SS
    Shane S.
    15 October 2020 @ 04:40
    Jack’s taken a promotion - Congrats man!
  • AB
    Alastair B.
    15 October 2020 @ 04:24
    Good luck for the next few weeks to all the Americans here. I hope your families and friends can stay together despite the turbulence. The fed brings the bread, the Whitehouse brings the circus, and both are distractions from what is really important.
  • LB
    Leslie B.
    15 October 2020 @ 03:28
    Hey Tony Greer. Take note. Ed uses evidence to support his ideas of the political economy instead of making assumptions like you did yesterday.
  • MD
    Matt D.
    15 October 2020 @ 03:11
    Interesting - thanks Ed and Jack. Is it really that clear that it will be a Biden landslide? I remember seeing an article saying the JP Morgan's renown quant (Kolanovic) has a unique way of looking at intel rather than the polls. If his model is accurate, it apparently would invalidate the polls from Real Clear Politics (mentioned in comments below) and question Biden sweeping win across Battleground states. His model could well be wrong too. Polls schmolls. I mean, is it even believable that "The Market" has a consensus view on any of this? Where are they making this consensus from (which data), how it is being made (a consensus)/communicated etc.? Peoples politics will definitely get in the way - we've seen that since mid-year on various RV interviews (guests) and the follow-up comments. Traders like to think they are objective. To me that question would further imply that even if you are correct in anticipating the next US President / Senate, you still could lose money bigly - if the market was wrong (and you correct) they will up the vol to re-position and probably dump any correct traders (unless you can ride the vol).
  • JD
    Jesse D.
    15 October 2020 @ 03:05
    Good talk today. More of this please.
  • RG
    Richard G.
    15 October 2020 @ 02:35
    Very good discussion gents, covered some good stuff for me to bear in mind when preparing my portfolio for next year.
  • TC
    Timothy C.
    15 October 2020 @ 02:31
    so one more comment where I agree with Ed that he did not say explicitly. Consumer spending is going to skew. It may not expand or contract, but it will skew. Spending on food and rent is stuck, but where you spend your technology and entertainment dollars, that will change. That shift will continue
  • PP
    Patrick P.
    15 October 2020 @ 02:20
    Stay tuned for a come back...
  • TC
    Timothy C.
    15 October 2020 @ 02:14
    top of K is going to be a spray
  • TC
    Timothy C.
    15 October 2020 @ 02:11
    I'm going to agree with Ed, although we may have some craziness.
  • SS
    Steven S.
    15 October 2020 @ 02:09
    Great job, Peter, Jack and Ed. Always delightful and informative.
  • TC
    Timothy C.
    15 October 2020 @ 01:58
    MBS is going to be a bbq...
  • MA
    Mike A.
    15 October 2020 @ 01:47
    Since we refuse to loan our reserves out lets trade the market take it from the retail traders...Why not we basically can set the price.Release the Sharks!! "Goldman Sachs"
  • RA
    Robert A.
    14 October 2020 @ 23:49
    Another great job Jack. Ed’s pretty easy to work with, eh? Looking forward to your interview with Tyler as the waters might get a little deeper 😉—you are proving to be a Quick study though and a strong swimmer...bring it Tyler.
    • JF
      Jack F. | Real Vision
      15 October 2020 @ 01:35
      Haha. Ed is a gentle (intellectual) giant, and I'm very lucky that both he and Ash have been so welcoming to me on the Real Vision Daily Briefing (RVDB) Tyler's also very sharp and he has a lot of experience on the trading desk. He has been spot on so far on the credit markets - just like Tony Greer has nailed the equity trade. Will be interesting to see whether spreads stay this tight. Whichever way it goes, would love the chance to chat with Tyler about it sometime, either on the Exchange or even on RVDB (maybe once the "frost is on the pumpkin"?).
  • DS
    David S.
    14 October 2020 @ 23:36
    Careful Ed on biting on those national polls showing Biden in the lead...they were also dead wrong in 2016.
    • EH
      Edward H. | Real Vision
      14 October 2020 @ 23:46
      That’s not the point, actually. The point is that national polls are the widest relative to poll error of any post WW2 election. For Trump to win, you have to do better than any time relative to polls in that time frame. Second, polls at the state level are starting to mirror this gap. And that makes the burden harder for Trump. Republicans are already hedging their bets in order to stymie Biden should he win, as seems likely. Their focus is the Senate now. Lastly, economics leads, politics follows. That’s my mantra. Maybe this race is different because of the gap in outcomes but I am sceptical of that.
    • GB
      Griffin B.
      15 October 2020 @ 00:02
      Trump is doing better in the swing states, albeit marginally, relative to last election - which are all that matters. If there where ever a year for reversal of a 50+ year trend...
    • EH
      Edward H. | Real Vision
      15 October 2020 @ 01:19
      Griffin, Trump is actually doing worse in swing states versus Biden than at this stage versus Clinton. You’re maybe looking at old data. See here https://www.msn.com/en-us/news/politics/joe-biden-leads-in-9-swing-states-over-trump-with-20-days-until-election/ar-BB1a1ktA vs old data here https://www.realclearpolitics.com/articles/2020/08/28/biden_is_underperforming_hillary_in_battleground_states_144080.html#!
  • RH
    Ron H.
    15 October 2020 @ 00:31
    Not only do markets seem to be pricing in an inevitability of reflationary stimulus, which probably would not happen under a divided government, but they seem to be making two additional embedded assumptions: that stimulus will be in an adequate amount, and that it will actually work. Either of these assumptions may also be wrong. It's not as if anyone in the inner circles of power politics is proposing a New Deal type of approach. Also, the interminable will-they-or-won't-they dynamic, and the 'temporary' nature of everything discussed, may very well be changing psychology in ways that are greatly underappreciated. All forms of life understand on some level that when winter is bearing down and when they must look out for their own survival, they must 'save' and not spend. Even the famously profligate American consumer.
    • JF
      Jack F. | Real Vision
      15 October 2020 @ 01:04
      I think you totally nailed it, Ron. The ongoing rally hinges on hopes of reflationary stimulus as you say. Also, I think your may be on to something with regards to the urge to save. Both JPMorgan and Goldman Sachs noted in their earnings reports that corporations are paying down their revolver. It will be interesting to see whether this is a lasting trend that will materialize over the coming months.
  • GF
    Gordon F.
    15 October 2020 @ 00:33
    I just went back and watched the interview with Raoul and Mike Green on the perils of indexation from last December. If Mike's assessment in that talk - https://www.realvision.com/shows/the-interview/videos/the-perils-of-passive-indexation - is correct, then we are likely to see a lot of volatility between now and year-end, regardless of other concerns. And there are no shortage of other concerns!!
  • JW
    JAAP W.
    15 October 2020 @ 00:03
    Ed used the word metastasized a lot today.
    • EH
      Edward H. | Real Vision
      15 October 2020 @ 00:07
      Drink! We’ve got a new overused drinking game word now!
  • NL
    Nikola L.
    14 October 2020 @ 23:49
    as per my previous comments.. I still think there won't be any stimulus before the elections. Still think markets will crash prior to elections.
  • MJ
    Matt J.
    14 October 2020 @ 23:48
    Thank you Ed! Super explanations of the current markets and economic environment.
  • SM
    Shawn M.
    14 October 2020 @ 23:40
    New Drinking game word for the DB, METASASIZE. LOVE the work keep it up, Gentlemen.
  • HR
    Humberto R.
    14 October 2020 @ 23:34
    Just like in markets, when consensus is all piled in one direction, we know what comes next. Short squeeze on the polls coming soon...