Wall Street is a confidence game, and when that confidence is lost or impaired, all bets are off. Welcome to the Powers That Be Daily, Puck's podcast focused on the intersection of Wall Street, Washington, Silicon Valley, and Hollywood, and the players who run it all. I'm Peter Hamby. It's Wednesday, April 22nd. Today, I'm joined by Bill Cohan to talk about the Iran bounce on Wall Street. That's right. There might be a war in the Middle East that's causing an energy shock, high gas prices, accelerating inflation and rising interest rates. But don't tell that to the big banks, which continue to post record profits. Bill is here to explain or try to explain the disconnect between economic worries and a bullish stock market that continues to go up, up, up. We'll discuss all that and much more on today's episode of The Powers That Be. Instagram teen accounts default teens into automatic protections for who can contact them and the content they can see. Explore teen accounts and all of our ongoing work to protect teens online at instagram.com slash teen accounts. Happy Wednesday, everybody, and welcome to The Powers That Be. I'm joined today by my colleague Bill Kohan to talk about the markets, the economy, seeming very resilient despite the fact that we are basically in an energy shock at war with Iran, the biggest choke point in the world. for oil. The Strait of Hormuz is closed. So why is the stock market still doing really well? Bill is going to help me figure this out. But first, Bill, have you started summering in Nantucket yet? When does the summering season begin up there? You know, Peter, you know, for those of us who aren't like in Southern California, it's turned chilly again here in the Northeast. We did have temperatures in the 90s, which tempted people, I think, to want to begin summering early, but I think we have to go back. I think the buds on my apple trees just froze last night. So yeah, no, we're taking it day by day, probably June, Peter, June. You'll be seeing me staying at what's left of my house in June. with with a crispy bronze bill cohan tan yeah i hate to be the guy in la who talks about traffic and weather but katie and i were with our our baby girl at one of our favorite mexican restaurants on sunday evening sitting outside drinking a hazy ipa eating some tacos and we looked up and there was like an outdoor television that had been showing i think like the dodgers game or something and abc world news tonight was on and it said 15 states under freeze or like extreme weather watch and we looked up at the sunshine and said, huh, okay. We're fully weathered lobotomized here. You're wearing a T-shirt. I'm wearing a sweatshirt. So you're drinking like a lime coulee or, you know, iced tea. And I'm like, where's my hot tea? You know, it's back to being early spring here. All right. Well, to the topic at hand. Yes. Bill, you wrote a piece in dry powder the other day called the Wall Street Iran bounce. Look, the markets in Trump's rocky second term have not been rocky. Trump's been rocky, but the markets have been pretty steady other than Liberation Day after those tariffs last year. And the market's still recovered. I'm going to read a little bit from your piece. You say it's all a real head scratcher. We now find ourselves in the middle of Donald Trump's stupid, no way out war in Iran with rising oil and commodity prices, increasing inflation and interest rates, and a president who picks fights with the Pope and chairman of the Fed. The S&P 500 is up nearly 4% for the year, 12% since the index hit a recent low on March 30th. NASDAQ is also up. I'm paraphrasing your writing here. Bill's a better writer than I'm talking right now. And then you mentioned the top Wall Street banks just had the most profitable quarter in history, led by Jamie Dimon's JPMorgan Chase, which posted a net income of $16.5 billion, collectively the big five. J.P. Morgan, Goldman, Morgan Stanley, Bank of America, Citigroup posted first quarter 26 profits of nearly $50 billion. Okay, the disconnect is apparent. What is your explanation for why the markets keep going up, up, up, even though not just Iran, there are other things happening in the world, as you mentioned. Interest rates, gas prices, the labor market is fine, but kind of stagnant. People aren't buying houses this spring. So what is the disconnect Bill in your mind I mean that sort of why I wrote this Peter because I not sure I have an answer I don understand with the Mad King capable of doing anything on any particular day at any particular hour in Washington, starting a voluntary war with Iran that he can't get out of, picking on the Pope, picking on the Fed chair. He might not even get his nominee for new Fed chairman, who he hopes will lower interest rates, but of course can't do it unilaterally. Even confirmed because of Senator Tom Tillis being pissed off about this ridiculous investigation, criminal investigation into the Fed's renovation of its building. Hello, Earth to Donald. So, I mean, I can't really explain the market's reaction. I mean, there are a few themes that sort of transcend the lunacy of Donald Trump's presidency, which probably play into this. you know, he's rapidly trying to deregulate Wall Street. Not that, frankly, it needs or, you know, I know it wants less regulation, but it certainly doesn't need it. It's making $50 billion in profits in the first quarter. I mean, what more do you want, Wall Street? I mean, what more could you possibly want? This is the best quarter in Wall Street history. J.P. Morgan just had the best quarter of any bank in Wall Street history, $16.5 billion of profits. I mean, I guess, you know, the volatility helps the trading desks. Clients want, as Jamie Dimon said in the call. They want and need the trading desk to provide them liquidity. Even if they don't want to be on the other side of their client's trades, they're willing to provide that client's service, and they take a little bit of bakshish on every trade, and so it adds up. Investment banking revenues were pretty much on fire. I think when I first came to Puck more than five years ago, or about five years ago, and one of my first interviews was with Jamie, and he explained basically that 80% of every quarter's revenues and profits are kind of in the bag because of the interstitial nature of JPMorgan Chase, whether it's from wealth management or asset management or commercial banking or you know all the the businesses that jp morgan uh has he's pretty much can speak to 80 of his profits uh on any given quarter and then so the variable this 20 is you know the markets and whether the trading uh is doing a good job whether investment banking is up and robust and i think you know, this quarter, this past quarter, the volatility and the desire for liquidity and the need for capital, especially to, you know, fund some of this ridiculous AI stuff and build, you know, put them in sort of the perfect position to benefit from these markets and this sort of atmosphere of deregulation. And I mean, when was the last time anybody ever talked about the SEC or the CFTC? You know, regulators seem to be non-existent. So it's kind of like open, you know, open season now. And, you know, they're benefiting from it. On the other hand, You know, we've seen a similar parallel kind of universe going on in private credit land where investors have been trying to redeem their positions in many of these funds beyond the 5% redemption limits. And that's causing sort of consternation in the private credit land, which, of course, you know, Wall Street has a symbiotic relationship with private credit. I mean, they're basically in the business of private credit, too, but they've ceded a lot of the territory to the Apollos and the Blackstones, the KKRs and the Brookfields, etc., etc., the Blue Owls and the Aries. And so, I don't know, all of which is to say I can't really explain it. One of my sources tried to explain it by saying that, you know, the Fed and the Treasury are just trying to inflate its way out of this period of time we in now increasing the national debt and the deficits And you know the banks are sort of right in the pathway of this amazing increase in liquidity. And so they've got to manage that liquidity. And so they're just taking their pound of flesh every day, and it's resulting in profits. I mean, once again, Peter, if you look at what the banks are paying you on your checking or savings accounts, it's still close to zero. And so they're taking your deposits that cost them nothing, nothing, and they're making huge profits on it. So net interest income at J.P. Morgan is huge. It's probably in excess of, you know, 20 billion of profit that obviously there's expenses related to that. But, you know, that's contributing to the overall profitability and the machine that the profit machine that exists when you don't have to pay for your cost of goods sold, which basically most big banks don't now. or at least money center banks like J.P. Morgan and probably Bank of America and Wells don't really pay much for deposits. Goldman Sachs and Morgan Stanley probably pay more to attract capital and certainly Apollo and Blackstone pay more. So yeah, it's like a beautiful machine at the moment, the flywheel. I know out there in California people talk about flywheels. I think the flywheel in some of these big banks has really been going on all cylinders in the last quarter. And probably, you know, my sense is I talked to Mike Mayo, the dean of Wall Street banking analysts at Wells Fargo, and he says that all the CEOs he talks to of these banks see that the rest of the year will be pretty much the same. I want to use your mayo interview as a tease to ask when this party might end after the break, if you don't mind, when we come back. teens. Plus, teens under 16 can't change these default safety settings without parental approval. So parents can help teens connect safely. Instagram teen accounts, automatic protections for who can contact teens and the content they can see. Learn more at instagram.com slash teen accounts. Welcome back to the powers that be everybody. I'm talking to the author of dry powder, the one, the only Bill Cohan. Bill, before the break, you mentioned that you chatted with Mike Mayo about when the party might end, in your words. Actually, in the Puck article on Dry Powder, it says, let's save the depressing part for last. I do have other questions for you, but he predicted that the capital market activity in 2026 will be 10% up over 2025. By 2028, it'll be up 20% over 2025. So it sounds like the party isn't ending anytime soon. I mean, you know, as I say, Peter, you know, Wall Street is a confidence game. And when that confidence is lost or impaired, you know, all bets are off. I think we saw a beginning of probably an exaggeration of concern in the private credit markets, which caused retail investors to say, hey, I want my money back, because they didn't quite understand what they had gotten themselves into. Probably unnecessarily, probably overreaction. That hasn't really seeped into the equity markets, although for the life of me, if people are concerned about private credit and loans that are senior secured and first lien, but they're not concerned about equity, equity positions, then we're talking about lunacy here. Because, you know, equity is the most risky down at the bottom of the capital structure. Senior secured debt is the least risky at the top of the capital structure. If people are worried about what's going on at the top of the capital structure, but not worried about what's going on at the bottom of the capital structure, then, you know, forgive me, Peter, I don't understand it. And that to me is topsy-turvy through the looking glass and probably means that we destined for you know a rocky landing at some point here which we overdue for because financial crises come once you know generally speaking once every 20 years It been 18 years since the last one. And, you know, we're rocking and rolling now, you know. Donald Trump is telling us it's the best economy ever. It's the greatest thing ever. Well, it's not. But for some reason, a lot of investors believe him and or seem to be acting like they believe him. And, you know, but, you know, a lot of this, you know, inflation, a lot of these crazy valuations in the equity markets are really sort of focused on, you know, the Magnificent Seven and, you know, AI companies. I think, you know, underneath it, there's a lot of concern. You know, QVC just filed a bankruptcy Bankruptcy, you know, there are a lot of, you know, bankruptcy people, lawyers are very busy, and they're being recruited at vast sums from one firm to another, which, you know, you know, so there's going to be a lot of restructurings and bankruptcies that already have been. I can't explain why the NASDAQ and the S&P 500 are at all-time highs, and I don't think it's going to be that way for much longer. It is an axiom, at least in the political world it is, and you'd be smarter about this than me, that the stock market is not the economy. So back to some of those topics I was discussing at the top of this podcast. Say inflation is accelerating right now because of the war. Prices are going up for everything from food to jet fuel and this will have a long tail. uh does the market is the market just inoculated from these other forces is it just trading and deals and borrowing uh you know i mean these the big five is not the entire stock market of course but when the banks when their profits slow down if other sectors of the economy are slowing down this is me this is me the guy who got a barely past macro econ in college asking this question but I think it is an interesting one. Well, a lot of people say that the stock market is not the economy. Wall Street is not Main Street. I kind of disagree with that, actually. I think there is a high correlation because Wall Street, the stock market is driven by profitability. And yes, profits still seem to be strong. Consumers still seem to be driving the economy, still seems to be spending. So there is a correlation between Main Street and Wall Street, which is why, you know, the stock market seems to be percolating along because corporate profits have still, having yet had the hit that they probably will have, and the consumer hasn't yet, for whatever reason, which I don't understand, taken a hit and slowed down their spending. so I think that's inevitable to come here especially if the war grinds on and you know one day we're you know they can't they're begging to reach a peace agreement and the next day you know Iran is saying we're not showing up at the peace talk so I don't know what Donald Trump's talking about what he's smoking but he smokes a lot of it and he talks about it a lot and you know at the moment, investors seem to be willing to believe him. I mean, you know, when he said the other day that, you know, the Strait of Hormuz was open and, you know, peace was at hand, the market was up a thousand points. So I think, you know, that's obviously not true. And yet the market hasn't given that up yet. So I don't know. that's a good workplace to end it i don't know either bill thank you so much for helping me try to figure all of this out everyone please read bill's reporting at dry powder thank you peter thanks so much for listening to another episode of the powers that be as a reminder the powers that be is the official podcast of puck we'd like to thank ben landy liz goff and alex bigler for their editorial and production guidance if you like what you hear please share with a friend it really helps us keep delivering the inside scoop that only Puck can offer. Follow us on Twitter at Puck News. I'm Ben Landy. See you tomorrow. This has been a presentation of Odyssey. Please listen, rate, review, and follow all episodes wherever you get your podcasts. The Powers That Be Daily is executive produced by John Kelly, co-founder of Puck, Bob Tabador, and Ben Landy, executive editor at Puck. you
