David, Bill, thank you both for coming. It's an interesting pairing. We've got a big US domestic bank and a big global capital markets voice. So, I think we should be able to triangulate what's going on in the world here a bit. Bill, let's start with you. You know, you're talking to US CEOs all the time. You've got a real-time snapshot into consumer household balances. Can you just on a scale of 1 to 10 like how scared we should all be on the economic front right now?
First of all, remember I'm a banker, so like 90% of the stuff I worry about never actually comes to be, but that's my job. So, it's actually really good. Notwithstanding headlines and consumer confidence surveys, you look at consumer employment, consumer spending, the health of consumer balance sheets, our deposits are growing on average per account. You wouldn't think that, but it's happening. Credit's really good, corporates are expanding. So it's almost this weird vacuum. If I got up and I went through all of our materials and you said, 'All right, tell me the mood of the world,' it's not showing up in anything we see today. Of course, that's all subject to, subject to, subject to, and what could be tomorrow isn't what is happening right now in the moment. And we worry about the same thing everybody else is worried about, right? How long does the Middle East conflict drag out? How long is oil at 100 bucks? How does that impact Asia, Europe? How does that bleed into the US? On and on and on. None of those outcomes are good outcomes, but today you don't see it.
And what are you hearing on the global front?
You do see some of that now already. So, in the US, there's a sense that if this war keeps going for a few more weeks or maybe longer, we might have a crisis. In Asia, we have a crisis. And in Europe it's getting closer. So I do see in a number of different areas and as you know I was in Asia earlier this week, a lot of things were going really well there, a lot of excitement, a lot of interest in new opportunities, Korea, Japan, etc., until this war kicked in and it has created a real shudder through the economies, through the markets and is having an impact on confidence and behavior already. And that's taking place in some countries, some markets that can afford to navigate through it for now. But in other countries, you know, the Philippines, Sri Lanka, other places like that, there is real impact already in terms of having people work shorter days, work from home, etc. So it is an interesting mix in terms of how the US is feeling about things right now in a little bit of its own justifiably in its own bubble and what's going on elsewhere in the world.
Yeah. How do you reconcile and I think about this every day. You look at the markets, the S&P is back in the green for the year, realize it's not the only stock market in the world but it's an important one. How do you reconcile that with you know you see these sort of coming cliffs of supply. These are physical supply problems. These are not sort of paper things that you can financial. How do you, is this just complacency?
I think you could almost say that it is rational complacency and that requires some explanation. And the reason I describe it that way is that if you go back for the last 25 years or so in the US markets, you have had, you know, go back to the Greenspan put, if you will, you have had real learned behavior of buy the dip in this market and in this country. And it's been a good strategy. It's been a good approach. And there has been a number of government rescues. There has been central bank support. I think the question and this is where you have to ask does rational complacency tip over into irrational complacency. If you have stagflation, if you have rates going up and a lot higher energy costs and that has a real impact on both consumer behavior and economic activity, then that's very hard for a central bank to fix. That's very hard for a government to fix. And you know, we've had there's been plenty of discussion this week or so over the 1970s. And how does this compared to the 1970s from 1973 to, you know, after that oil shock, equity markets went down 40%. Over the next two years. Now, that's this is not a prediction, but
I thought I was a negative guy. Can I, I mean distinction. So if I look at what's happened in the US today to put a little sense behind why I think the stock market is where it is. Corporate earnings remain really strong. They're driven by consumer expenditures. Consumers are employed. The whole notion gas prices have gone up but gas expenditures are 3% of the consumer wallet. Right? So even in a K-shaped economy, consumers are, you know, lower income consumers are spending a concentrated amount right now on healthcare, housing, gas, fuel, staples. The wealth effect from the equity market keeps feeding itself and we're spending into an economy that's creating corporate earnings that kind of sits where it is. Can it all fall? Yeah. But it's not irrational exuberance in the moment, right? It's this notion of if in fact oil's at 100 bucks and the forward curve is 75 is wrong. How does that ultimately bleed through to a generic recession in the US? You know almost definitionally some small form of stagflation just because inflation's going to hang around 3% or so I think
And I think that's the question. In other words, if you look at the market performance today it's looking at that forward curve for energy.
Yeah. And it's thinking, okay, energy is going to be, you know, Brent's going to be at 75 again in a few months.
By the way, we've run at 100 and been fine, right? You know, we had a supply shock in the 70s, it isn't necessarily what's happening in the US today. And you can run the economy at 100. The real fear is if you're actually at 100 at the end of this year, then maybe it's a lot worse. Like to your point on Asia, if it's at 100 here, they're not getting any supply.
Yeah. And so you think that's sort of learned dependency that people have essentially been bailed out. You haven't gone wrong buying the dip because you're not young. And this is also in a current administration that is famously or notoriously sensitive to the markets and the equity markets in particular.
The Trump put replacing the Greenspan put.
Yeah. And the question on that is I think there's a market expectation that if things got really wobbly Trump would fix it. The question is when you have 20% of natural gas supplies knocked out and some of that knocked out for three to five years Trump could fix it doesn't quite work as well.
Yeah. So those are some of the questions. I don't mean to be doom and gloom here. I don't want to replace you in that category. But you know, I'm not as I often say, I'm not in the prediction business, but I am in the scenario planning business. And I think right now the markets are pretty focused on a very rosy scenario. And there are some other scenarios out there.
Bill, let's talk about credit.
