>> THAT'S DELIBERATE. THANKS, MIKE. >> THAT IS INSANE. >> THANKS, MIKE. >>> GET TOLT BROADER ECONOMY. JOINING US ON SET PRESIDENT AT A GLOBAL STRATEGIES COMPANY. >> GOOD TO BE HERE. >> YOU ACTUALLY THINK THE FIRST CUT COULD HAPPEN IN THE APRIL-MAY MEETING. NOT BECAUSE OF INFLATION BUT COMMERCIAL REAL ESTATE? >> EXACTLY. I HAVE BEEN TALKING ON THE SHOW, MELISSA, ABOUT THE CREDIT SHOCK COMING. THREE, FOUR DIFFERENT FACTORS, BUT NOW INCREASINGLY SEEMS TO BE COMING FROM THE FINANCIAL SECTOR, THE BANKING SECTOR. AND EVEN JANET YELLEN IS PRESSURING SECRETARY FOR REASONS REPEATEDLY CLAIMED THAT THE BANKING SYSTEM IS SOUND. HAS GIVEN WAY TO TALKING ABOUT A CONCERN ABOUT COMMERCIAL REAL ESTATE. YESTERDAY SHE TOLD THE SENATE BANKING COMMITTEE SHE IS REALLY WORRIED ABOUT NON-BANK MARKET LENDERS. SO YOU HAD, I THINK, WHAT I CALL A TSUNAMI COMING. THE TIMING, YOU MAY DISAGREE. SAY NO TWO MONTHS. SAY FOUR MONTHS, BUT SOMEWHERE FIRST HALF OF THE YEAR. THAT'S WHY I PICKED THE MAY-JUNE MEETINGS FOR WHEN RATES WILL BE CUT. >> NOT NECESSARILY HIGHLIGHTING WHAT'S GOING ON WITH NEW YORK COMMUNITY BANK? WHICH WAS A SURPRISE AND GENERALLY PERCEIVED ACID YO SIN CREAK AND SPECIFIC TO THAT PARTICULAR BANK? YOU'RE SAYING THERE'S SOMETHING BEYOND THAT? IT'S NOT GOING TO BE IN THE PUBLIC MARKETS? IT'S THESE PRIVATE LENDERS THAT ARE THE SOURCE OF THE PROBLEM? >> EXACTLY. I DO NOT THINK IN JUST IDIOSYNCRATIC AND YET JANET YELLEN MADE A POINT SAYING SHE DID NOT THINK IT WAS SYSTEMIC AND I'VE BEEN SAYING THE PAST YEAR IT'S SYSTEMIC, BUILDING UP AND I THINK REACHING CRESCENDO RIGHT NOW. >> IS THERE A TRIGGER THAT YOU SEE? BECAUSE WE'VE SEEN OR SORT OF FORECASTED THAT THERE WILL BE ISSUES WITH COMMERCIAL REAL ESTATE FOR QUITE SOME TIME BUT THERE HASN'T BEEN THAT TRIGGER. I'M WONDERING, AN ARTICLE IN BLOOMBERG THIS MORNING, MAYBE LAST NIGHT, ACTUALLY SAYING THERE COULD BE RIPPLES FROM CHINA'S NEED TO SELL SOME OF THESE ASSETS THEY HOLD AROUND THE WORLD? >> RIGHT. AND AGAIN, YES. THAT IS QUITE POSSIBLE, BUT I WOULDN'T VENTURE TO GUESS WHERE IT'S GOING TO COME FROM, BUT THE CHINA IMPACT COULD BE SIGNIFICANT. WE SAW WHAT HAPPENED IN CHINA WITH EVERGRANDE AND THE LIQUIDATION. THE PROPERTY SECTOR THAT IS IN DEEP DIVE, AND TO THE EXTENT THAT THERE ARE SALES WHICH ARE GOING ELSEWHERE IN THE WORLD AND THE COMMERCIAL REAL ESTATE PROBLEM IS ALSO NOW IN EUROPE, IT IS IN JAPAN. THAT'S WHY I THINK IT IS SYSTEMIC AND I DON'T KNOW WHERE THE TREASURY SECRETARY CAN SAY SHE DOESN'T THINK IT IS SYSTEMIC. >> SAW A COUPLE BANKS IN NEW YORK HAVING TO MARK DOWN THEIR PORTFOLIOS. SURPRISINGLY DIDN'T HAVE MUCH IMPACT HERE IN THE UNITED STATES. SORT OF HAPPENED AND WE ALL HERE MOVED ON OPINION WONDERING, THEN, IF THIS IS A TSUNAMI, IS THIS INSULATED WITHIN THE ECONOMY OR DOES THIS HAVE SPILLOVER EFFECT ACROSS THE ECONOMY? >> DEPENDS ON HOW THEY HANDLE IT. MY GUESS IF THEY DO IT EARLIER RATHER THAN LATER WHICH MEANS CUT CREATES STER AND QUANTITATIVE EASING. NERD, DON'T ACT LIKE YOU DID IN 2008 ALLOWING THIS TO GO BANKRUPT. SUPPOSING YOU CAN ACTED IN JULY-AUGUST OF 2008 AND YOU HAD TAKEN THE ESSENTIAL STEPS THE DROP WOULD NOT HAVE BEEN AS SEVERE AS IT TURNED OUT TO BE. SO PERHAPS THEY LEARNED A LESSON. CUT THE RATES FASTER. THEY WILL SWITCH OVER TO PROVIDING LIQUIDITY FASTER. ONE MORE EXPERIENCE WITH SEPTEMBER 2019, BECAUSE OF QUANTITATIVE TIGHTENING. THEY HAVE A LOT OF EXPERIENCE. SO I'M HOPEFUL THEY'LL ACT FAST, IN WHICH CASE YOU CAN LIMIT THE FALLOUT AND THE REST OF THE ECONOMY. >> SO CUTTING PATH FORYOU STARTS EARLIER THAN WHAT SOME OTHERS ARE EXPECTING, I'M WONDERING IF YOU THINK THE END POINT -- IS THE END POINT THE SAME? WHAT'S YOUR FORECAST END OF THE YEAR FOR WHERE RATES END UP? >> ONCE THE RATE CUTS TAKE PLACE AND IF IT IS TAKING PLACE DUE TO A -- TWO THINGS HAPPEN. THE CUTS ARE SUBSTANTIAL, AND, TWO, THEY HAPPEN VERY FAST. IF THAT WAS HAPPENING, I WOULD LOOK FOR SIX TO EIGHT CUTS ON THE BASIS POINT CUT, IF YOU CALL IT TWO CUTS, ONE CUT EQUALS TWO -- SOME OF THAT HAPPENING, IF THE CREDIT EVEN, IN FACT, DOES TAKE OUT TO BE VERY SIGNIFICANT. >> IF THAT HAPPENS AND THEY DO IT SWIFTLY, DOES THAT ALSO SHELTER THE ECONOMY FROM FEELING WHAT WOULD HAVE OTHERWISE BEEN A SHARPER TICKUP IN, SAY, UNEMPLOYMENT? >> IN OTHER WORDS, WE HAD A SEVERE PROBLEM IN 2008, AND I THINK THEY KEEP REPEATEDLY, JAY POWELL AND YELLEN HAVE SAID THIS IS NOT 2008. THIS IS A MUCH SMALLER PROBLEM. THEY CAN MAKE IT A MUCH SMALLER PROBLEM AND REACT FASTER AND IN WHICH CASE INCREASE IN UNEMPLOYMENT RATE WOULD NOT BE AS MUCH. THERE IS A COST. YOU'RE GOING TO GIVE UP YOUR FIGHT AGAINST INFLATION, AND THAT TYPICALLY IS WHAT HAPPENS WITH THE FED. THEY KEEP FIGHTING AND THEY FIND THAT THEY CANNOT IN SOME STATES CONTINUE WITH THAT, INFLATION SHOOTS UP AND THEY QUIT. >> BY END OF
