Moneybeat: Too big to bail

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. He’s head of the wealth management firm The Bahnsen Group, and he’s here now.

David, good morning!

DAVID BAHNSEN: Good to be with you, Nick.

EICHER: Let’s start with November jobs. Just shy of 200-thousand jobs added, the unemployment rate still below 4, coming in at 3.7 percent. And I know you like to look at a three months moving average, because the number fluctuates. But I’m looking at the whole year, David, and it’s really remarkably consistent. Only four months with under 200K jobs added (nothing under 100K) and all the rest considerably over that. But just eyeballing the chart, that’s easily a 200-thousand job average for the past 12 months. That’s pretty amazing, isn’t it?

BAHNSEN: Well, I think that's right. I think that if you look at over the whole year, there's been really impressive job growth. And particularly if you think about where expectations were at the beginning of the year, that a recession was assumed, that the Fed tightening was not only assumed to be something that would really eat away at jobs, but was hoping to eat away at jobs. I mean, that was sort of the whole intent, that they were going to use monetary policy to slow down the economy, meaning slow down job and wage growth. And it clearly has not happened.

Now, I don't think that the job market is as frothy, excessively hot, whatever that word means. The amount of job openings has come down. But it hasn't come down to below average levels, it's come down to closer to average levels. That's a very big difference. And I think that the, you know, 200,000 new payrolls in November is indicative of a good, but not overly, you know, excessive, where no one can figure out why things are happening the way they are. That's where they were when the economy reopened after COVID, is all of these so-called experts scratching their heads like, “How is this happening?” Right now, I think it's data that's within reasonable expectations.

EICHER: I want to ask about congressional testimony by the seven big-bank CEOs this past week on Capitol Hill. And I guess the big news coming out of that had to do with a recommendation on higher capital requirements. Banks having to hold a bigger percentage of deposits. What’d you take from that testimony?

BAHNSEN: Well, I thought that all of the bank CEOs did a very good job, and I most certainly am on their side of this issue. And I don't even know how to disagree with the other side. Because for the life of me, Nick, I can't understand what the argument might be. Now, I just want to make very clear, we're not debating about whether or not banks should be properly capitalized. There's no question that I favor banks having the systemic level of capitalization necessary to make them safe, ongoing institutions, particularly the very large ones, that we all know they would bail out as too big to fail if something were to happen. So I think that there should be these requirements for them to hold adequate levels of capital.

The idea, though, that they aren't is what is utterly confusing to me.They have as much capital as they've ever had at higher ratios. And each of these various things that has come up lately has had nothing to do with big banks not having enough capital. We've gone to the big banks and said, “Hey, will you help us out with these regional banks that have run into trouble?” And so with First Republic, with Silicon Valley Bank, it wasn't JP Morgan or Bank of America that were inadequately capitalized. We were going to them asking for them to help take on the liabilities and the depositors of the regional banks.

So what you have right now is a Fed that is, through their actions of rapidly raising rates the way they did in 2022, there were some issues that were created at some of the regional banks. And right now you have Congress talking, and it's really from a Fed recommendation, the vice chair of supervision, looking at wanting to bring in a global standard called Basel III to our big banks. And the point is, if you raise capital requirements, you have to hold more capital against what bank activity, then you have to get a higher return for the banks. And all you can do to do that is get it from customers, either by paying less in deposits or by charging more for loans. That's it. Those are the only options. And so to me, they're a gnat in search of a windshield. There is no issue here. They're trying to solve a problem that doesn't exist and they're trying to do it in a way that is going to hurt customers or big banks.

EICHER: The wires moved a photo of the bankers holding up their hands in the affirmative to the question of whether the higher capital requirements idea would be harmful. All of them saying it would be. Is that kind of stuff persuasive with respect to policymaking? What do you think?

BAHNSEN: This isn't a congressional policy. I mean, they're not looking at codifying this in legislation. This is Federal Reserve regulation. Now, the Senate Finance Committee can go get all over the Fed, they have some oversight responsibilities with the Fed, but they don't really have the authority to do anything about it. But I may have made this comment before: Chairman Powell was asked about this at a luncheon event I attended with him a couple of months ago, and he didn't exactly seem like a cheerleader for it, either. So I think that you have a Biden appointee, Vice President of supervision, who came in looking to do something crazy like this. And I'm not even sure the rest of the Fed is on board with it, let alone the Senate Finance Committee. We'll see. There's always people like Senator Elizabeth Warren, who, if it were up to her, she’d just shut down all of the banks. So yeah, there'll be some support, but I would be surprised if there is a groundswell of support for it.

EICHER: What about the markets this week? Kind of quiet.

BAHNSEN: Well, I do think it's sort of nice to have had a boring week in the markets. It's been such a big rally in the stock market lately. That to see things settle a little bit. Oil prices down in the low 70s. You have to start wondering, is this just part of the reason markets are going higher, that oil didn't hold up there in the high 80s, didn't go in the 90s? Or are oil prices potentially indicative of, you know, a softening demand, even weaker results expected from China? I think a lot of the stories are getting set up right now in December that are going to matter into 2024. We already know about the election, oil is going to be a big story, China is going to be a massive story. And by the way, so is Japan. So it's a very interesting global set of stories right now.

EICHER: Ok, David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group. You can keep up with David at his personal website, Bahnsen.com. His weekly Dividend Cafe is at dividendcafe.com.

Thank you, David!

BAHNSEN: Thanks so much, Nick.

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