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Speaker 3: Definitely my highlight of the day, Jamie Diamond, a lot
Speaker 3: to talk about. JP Morgan Chare and chief Executive, Thank
Speaker 3: you so much for hosting us again again at your
Speaker 3: Global Market conference. What's market turbulence looking like right now?
Speaker 3: So we have the CPI print yesterday, market's rally. Are
Speaker 3: there getting ahead of themselves?
Speaker 4: Yeah? So I wouldn't call it turbulence. And we've we've
Speaker 4: had good, healthy markets for quite a while. You know,
Speaker 4: they kind of predicting a soft landing. And you see
Speaker 4: that in both dock prizes, which are kind of high
Speaker 4: credit breads, which are kind of low markets, which are
Speaker 4: kind of wide open. That's all good. It doesn't tell
Speaker 4: what the future is going to be. That good point
Speaker 4: a lot of times in history where that was true
Speaker 4: and the next year wasn't true. And so you know,
Speaker 4: we'll see. I don't pay as much attention to monthly
Speaker 4: numbers as most people.
Speaker 3: Do, I know. So what do you think the future
Speaker 3: is for inflation?
Speaker 4: And probably more worried about it. I mean, you know,
Speaker 4: we've had very big fiscal deficits, and you know, I
Speaker 4: think the underlying inflation may not go a way the
Speaker 4: way people expect it to. And I look at the
Speaker 4: future like a lot of things we look at a
Speaker 4: kind of inflation are the green economy, the remilitarization of
Speaker 4: the world, the infrastructure requirements, the restructuring of trade, fiscal deficits.
Speaker 4: So I think there are a lot of inflationary forces
Speaker 4: in front of us that you know, may keep it
Speaker 4: a little bit higher than people expect. So the surprise
Speaker 4: would be rates are higher, inflation a little bit higher,
Speaker 4: and maybe that will slow growth. And obviously the geo
Speaker 4: politics is a whole different issue that can that could
Speaker 4: be determinative in what comedy does next year. And we
Speaker 4: just we're just not gonna know.
Speaker 3: But does that mean you think it's fifty to fifty
Speaker 3: whether the FED cuts or hikes next time.
Speaker 4: I really don't pay that much tention to that. The
Speaker 4: FED will have to follow the data, and I don't
Speaker 4: know what the data is going to say. But they
Speaker 4: I think, you know, they are doing the right to
Speaker 4: be patient right now, see what's going to happen. They
Speaker 4: may not know for a couple of months, but.
Speaker 3: No big correction. And if you don't pay, you know,
Speaker 3: that much attention to it, it means you're not worried about
Speaker 3: it anything, not worried.
Speaker 4: I just said stocks are very high. I think the
Speaker 4: chance of inflation staying high or a race going up
Speaker 4: or higher than other people of things. So I think
Speaker 4: the chance, my view is whatever the world is pricing
Speaker 4: it for a soft landing, I think it's probably half that.
Speaker 4: I think the chance of something going wrong is higher than.
Speaker 3: People think in the US globally in the.
Speaker 4: US, but also that could affect globally.
Speaker 3: Yeah, and so that what does that mean for markets?
Speaker 4: There'd be down and credits president've got gap out?
Speaker 3: So why is the market not pricing that?
Speaker 4: In not a happy talk?
Speaker 3: Where does that happy talk come?
Speaker 4: From low rates, central banks and reduced rates. You know,
Speaker 4: maybe the geopolitical things disseminate, don't cause problems, and so
Speaker 4: you know the future isn't predictable like that. So you know,
Speaker 4: I'm a student of history. I've watched all the inflection points.
Speaker 4: You go back, and my dad was a stockbroker. I
Speaker 4: go back to the booming market of seventy two and
Speaker 4: the collapse of seventy four, the healthy markets of eighty
Speaker 4: the collapse of eighty two, you know, the ninth the
Speaker 4: eighty seven market crash, the nineteen ninety real estate crash,
Speaker 4: and almost all of them were not predicted the year before.
Speaker 4: So I look at these factors that drive these things
Speaker 4: are not always known. As a company, we prepare for
Speaker 4: all of us. We can serve all our colis regardless.
Speaker 3: But what do you see as the main stress right now?
Speaker 3: Because if it's geopolitics, we talk about it, it's just
Speaker 3: not really priced it. Where does where? Does is it distress?
Speaker 3: Is it something actually going under that you worry about,
Speaker 3: or just a multiple factors coming in at the same time.
Speaker 4: I think, well, geopolitics could create the main stress that
Speaker 4: we're worried about. Oil and gas prices are trade alliances.
Speaker 4: But I think the surprise would be higher rates because
Speaker 4: inflation didn't go down. Then inflation has been stubborn and
Speaker 4: maybe bounces up next year. I think inflation next year
Speaker 4: may be in the cards, may have nothing to do
Speaker 4: with what you're seeing today. So that to me is
Speaker 4: the surprise. If you at higher rates and God forbid stagflation, Yeah,
Speaker 4: you'll see stress in real estate and leverage companies and
Speaker 4: some private credit and things like that.
Speaker 3: So it's unpredictability than you normal.
Speaker 4: I think it's been the enormous of my whole life,
Speaker 4: has it.
Speaker 3: It's not worse now what happens between China and the US,
Speaker 3: and what does that mean for your appetite of being China.
Speaker 4: Yeah, So the geopolitical situation is very tense because the
Speaker 4: more the Ukraine and Russia I ran, the terrors activities
Speaker 4: in Israel, North Korea, nuclear black mail, We've never had
Speaker 4: nuclear blackmail before. And this is of course affecting our
Speaker 4: relationship with China, and you know, it's gonna be hard
Speaker 4: to have a great relation with China. The Ukraine War,
Speaker 4: we're kind of different sides of that. And put Taiwan aside,
Speaker 4: having said that, I think it's the right thing for
Speaker 4: America to fully and deeply engage with China, you know, competitively.
Speaker 4: You know, every nation is going to do. It's in
Speaker 4: their own interest in national security, social America. We should
Speaker 4: define that fairly improperly. If it's unfair trade, you know,
Speaker 4: negotiate that or do whatever you need to do. But
Speaker 4: the engagement is the right thing to do. China is
Speaker 4: not the natural enemy the United States. They have a
Speaker 4: lot of their own problems. So you know, to me,
Speaker 4: we could work together as best we can, and then
Speaker 4: we have common interests climate, anti nuclear, pferation, anti terrorism.
Speaker 3: What does it mean for bank working in China? Actually?
Speaker 3: Given all of this solatility.
Speaker 4: Cautious I mean, you know China, if you look at
Speaker 4: China from a risk of war basis, it used to
Speaker 4: be very good. It's not so good anymore because all
Speaker 4: these things can go wrong. And remember we bank I mean,
Speaker 4: I've got the number, but fifteen hundred multinationals in China.
Speaker 4: They're not leaving China. So we're going to serve our
Speaker 4: clients there. We're just much more cogniti that the risk
Speaker 4: is higher. I might put Hong Kong in that bucket two.
Speaker 4: You know, we look kind of look at China, Hong
Speaker 4: Kong as one at this point from a risk standpoint,
Speaker 4: what does.
Speaker 3: A Trump administration mean for the US economy?
Speaker 4: I don't know.
Speaker 3: You know, they're why because it's unfrectable, or because we're
Speaker 3: too soon to actually try trying to figure out the
Speaker 3: policies that he laves it in place.
Speaker 4: So if you look at history, who was elected president
Speaker 4: may not necessarily effect the next year. That's kind of
Speaker 4: like we're a big tanker and that's going to happen.
Speaker 4: I think the much more important thing is what we
Speaker 4: do in the geopolitical situation. You know, I've always been
Speaker 4: quite clear that American leadership is provided to keep the
Speaker 4: world free and safe for democracy, and that means economic alliances,
Speaker 4: which includes trade. By the way, I think we should
Speaker 4: spend more time in trade. It means NATO. It means
Speaker 4: that Russia should not win in Ukraine, because if they do,
Speaker 4: I think it can tear us under this Western world.
Speaker 3: I know you've ruled out being Treasury secretary. Why what
Speaker 3: would it take to get you into politics.
Speaker 4: I don't think I'm suited for politics. I love my job,
Speaker 4: you know, and so I'm not sure I want to
Speaker 4: do something like that, and I can hope even.
Speaker 3: If you got the call, would it be hard to
Speaker 3: say no, I don't know.
Speaker 4: Probably yes. I love my job and I have no
Speaker 4: inis in leaving and doing N ANDL.
Speaker 3: So what we're in France at a global markets conference.
Speaker 3: What are you expecting from Bozel three? What will j
Speaker 3: Powell put in place? And you will book.
Speaker 4: I should mention, by the way, because President McCrone has
Speaker 4: done an outstanding job here. Pro Business got us to
Speaker 4: move our trading floors here. You know he wants to
Speaker 4: grow his economy. There's much more innovation. We had a
Speaker 4: thing lands by a lot of innovation. So look Basil three,
Speaker 4: We've been quite clear. We thought it was excessive, not
Speaker 4: well thought through. I would love to know what the
Speaker 4: endgame is. What are they trying to accomplish with private credit?
Speaker 4: What are they trying to accomplish with Like even the
Speaker 4: other day, eighty percent or more has left the system,
Speaker 4: and now the government's talking about having a bailout system
Speaker 4: for mortgage companies because they're no longer in a bank
Speaker 4: that has the ability to provide liquidity in tough markets.
Speaker 4: That would be the same thing in market making, so
Speaker 4: they're looking at at it. You know, I trust J.
Speaker 4: Powell to look at and analyze what they need to do,
Speaker 4: how they need to do it. The other thing, which
Speaker 4: I'm not sure Europeans know, I have no idea, and
Speaker 4: it may end up in a lawsuit or something like that.
Speaker 4: But but the amazing thing to me is that America
Speaker 4: ended up the end game thirty percent more capital than
Speaker 4: the European Bank in America. And I just why we
Speaker 4: argue about international standards and then we simply don't do them.
Speaker 4: And also I think the regulation answer the question what
Speaker 4: do you want how do you want the system to work?
Speaker 4: Is do you want it to put private credit a
Speaker 4: public credit? Do you want moretage out of the banks
Speaker 4: just dictated? If that's the goal is just dictated. If
Speaker 4: you don't want leverage land the bank just dictated, you know.
Speaker 4: And I think you know, we are guardian in the
Speaker 4: financial system. You know, we bank, you know, we bank
Speaker 4: one hundred countries and you know we're on the ground
Speaker 4: of sixty countries. You know, we do great work for cities, schools, states, hospitals,
Speaker 4: soul or whin climate. Middle market companies is that what
Speaker 4: they don't want or they do want, you know, they want.
Speaker 3: To make it more expensive. Are they to figure it out?
Speaker 4: I think they've got to figure out. I don't think
Speaker 4: it's quite clear from any now. So they did. You
Speaker 4: guys should read it and write about it. There was
Speaker 4: no detailed announced about cost benefit, what they're trying to accomplish,
Speaker 4: what the outcome will be.
Speaker 3: That's why we're asking you, Jamie, talk to me about France.
Speaker 3: So you're positive on the President Malcamoy. Also know that
Speaker 3: you were at the Chiefs France event on Monday. If
Speaker 3: he relacks labor laws, would you hire more in this country?
Speaker 4: He did relax labor laws, but if he relax the
Speaker 4: more possibly. You know, we now have a thousand people here.
Speaker 4: We have large trading floors here with Strade. I've got
Speaker 4: the number five or eight, five or six or seven
Speaker 4: eight hundred million dollars a day. When you have a
Speaker 4: thousand people, you tend to hire more and more technology more,
Speaker 4: and that's been true for us so that I've been
Speaker 4: at JP Moore and once you have a very competent
Speaker 4: group of people and you have hiring capability and friends,
Speaker 4: you tend to do more things there. So my view
Speaker 4: is we will be doing more things here, and it
Speaker 4: was the tax lad they put in place, the regulations
Speaker 4: they put in place, the labor flexibility they put in place.
Speaker 4: Those things do make a difference, and very importantly just
Speaker 4: lift up JP Morgan here. We pay a lot of
Speaker 4: taxes here which help lift up all citizens. I don't
Speaker 4: think President macrohane did that for JP Morgan. He did
Speaker 4: because he knows his country needs to grow, bring it innovation,
Speaker 4: and that's that's how you build a better country.
Speaker 3: So the chief executive is the largest wealth fund in
Speaker 3: the world, says that actually America is doing much better
Speaker 3: because Americans are less lazy or work harder than the Europeans.
Speaker 3: I mean, is that fair? Is that regulation?
Speaker 4: I hate total blanking statements like that. I know a
Speaker 4: lot of Europeans who work hard. But I think when
Speaker 4: you see the things about work hours, I think it
Speaker 4: is somewhat true. Americans are hard working. Anywhere you go around,
Speaker 4: Americas are hard working. But I see that here too,
Speaker 4: I don't think, and the innovation people you meet through
Speaker 4: working just as hard as the innovation people in the
Speaker 4: United States.
Speaker 3: So you also in terms of headcount in the UK,
Speaker 3: I think it's at the highest that it's ever been.
Speaker 3: And you're also doing you're giving money to try and
Speaker 3: retrain and you've recently met with possibly the next Prime minister.
Speaker 3: See so far advance in the polls. What do you think?
Speaker 4: Yeah, look, I like the fact that both the Conservative
Speaker 4: and the Labor governments are talking about pro business, simpler regulations,
Speaker 4: getting more innovation in the country, becoming competitive, and we
Speaker 4: all need like we all have too much debt. Growth
Speaker 4: is the best anecdote for antidote for everything, and so
Speaker 4: having a growth strategy is good for a country, and
Speaker 4: it's good for the lower income people. And this training
Speaker 4: stuff is maybe the most important to get training jobs,
Speaker 4: that first job as a first run in a ladder,
Speaker 4: creates dignity, you know, more home household formation, and I
Speaker 4: think countries have to do more of that because if
Speaker 4: they don't, you know, you can have a tough time.
Speaker 3: But do you think the UK com you will change
Speaker 3: under Labor?
Speaker 4: I don't know yet, but I was happy with what
Speaker 4: they were talking about. We had Rachel Reeves come to
Speaker 4: our conference too, that they're all talking from the playbook.
Speaker 4: We need growth, simpler regulations, more capital formation, more capital investment,
Speaker 4: need proper taxation because that's the way to help whole
Speaker 4: country and all our citizens. So that is what we
Speaker 4: shall all be doing.
Speaker 3: Jamie Denman, we talk around, you know, India all the time.
Speaker 3: Is this a decade for India and does it somehow
Speaker 3: counterbaland China for you know, world growth?
Speaker 4: Yeah, Look, I think India has done a very good job.
Speaker 4: And you know when you look at India, yes, it
Speaker 4: should have a very bright future. I'm not saying as
Speaker 4: account in a China, but a very bright future. And
Speaker 4: I think we shall be reaching out to India that
Speaker 4: you know, they have to stay not aligned because they're
Speaker 4: kind of where they are in the world between Russia
Speaker 4: and China. But you know, they're a democracy, they're a
Speaker 4: natural friend of America and the Western world, and we
Speaker 4: shall all be helping them. And they've they've made a
Speaker 4: lot of changes there, infrastructure, transfer payment, seven hundred million
Speaker 4: people bank accounts that are going to be very good
Speaker 4: for that country.
Speaker 3: So what does that mean for JP Morgan.
Speaker 4: Well, we're not we're not in the retail business there,
Speaker 4: but we will be in. We have sixty thousand employees there.
Speaker 4: We got big campuses, high technology, uh, and we're expanding
Speaker 4: our trading, our research, our investment banking. Yeah, we're there
Speaker 4: at a big time.
Speaker 3: Can you talk to me a little bit about JP
Speaker 3: Morgan and how I mean you've had a number of
Speaker 3: high profile departures. How does that change actually the way
Speaker 3: you focus your business and how you run things going forwards?
Speaker 4: Not at all?
Speaker 3: Nothing zero. If you were to buy anything, what would
Speaker 3: you buy?
Speaker 4: Oh that's different. Look we have we can't buy banks.
Speaker 4: You do know that?
Speaker 3: So you know you could buy your European bank, could you?
Speaker 4: I wouldn't even try. I think the American relgud hate it.
Speaker 4: I think the regulators he would hate it. Even if
Speaker 4: they said go ahead and do it, I'd probably be
Speaker 4: in courts and things for a year and a half.
Speaker 4: Huge distraction in my own company. I'd rather just say
Speaker 4: we want to add clients in this country, and clients
Speaker 4: and that kind of add bankers and technology and branches.
Speaker 4: Just a better way for us to grow.
Speaker 3: Okay, But if there's a if you could buy anything,
Speaker 3: I mean not about I tell you, but you were
Speaker 3: thinking of something.
Speaker 4: Yeah, we always look at stuff. Yeah, so we're not
Speaker 4: looking at any major acquisition or anything like that.
Speaker 3: Technology.
Speaker 4: You know, if you look who we're doing. We're adding
Speaker 4: literally and sort we have yesterday, next week. We're adding
Speaker 4: retail and wholesale branches. We're adding them in the United States.
Speaker 4: We're almost all the major hundred cities there now. We're
Speaker 4: adding commercial banking all over Europe and Asia. We're adding
Speaker 4: technology around payments and even the blockchain called honorx to
Speaker 4: move data and maybe move money one day. We're constantly investing.
Speaker 4: We have two hundred people, two thousand people, AI and
Speaker 4: machine learning for use cases on the way to probably AID.
Speaker 3: I know I speak in five years. How much bigger
Speaker 3: and how much different?
Speaker 4: Probably be speaking to a fake diamond who's just answering
Speaker 4: question n avatar an avatar.
Speaker 3: Yeah, do you think about technology a lot?
Speaker 4: Yes, all the time. Every meeting we have. This has
Speaker 4: been true my whole life. When we have any management meeting,
Speaker 4: your technology jets on the table that includes AI, cloud,
Speaker 4: just more analytics. What are you doing to do things better, faster,
Speaker 4: quicker for clients digital huge amount of digital services, integrating
Speaker 4: them better or a mating them better.
Speaker 3: So that would I mean that will change? I guess
Speaker 3: see the heart of banking. Does that mean that you
Speaker 3: we'll see more winners? Than losers because of the technological eventments.
Speaker 4: So technology has always changed the heart of banking, moving money,
Speaker 4: holding money, advising money, radio. That won't change, and you
Speaker 4: have to do that according to rules, laws, regulations by country.
Speaker 4: What it will change is how you deliver it. So
Speaker 4: like right now you go on your phone, you can
Speaker 4: move money and buy stocks. That wasn't true twenty years ago.
Speaker 4: So yes, everything you do will change to the technology.
Speaker 4: But you'll still have to move money, budget, raise money,
Speaker 4: make investments, et cetera. So you know, the core won't change,
Speaker 4: but will it change. Regulations may change that too, obviously, so.
Speaker 3: In the US. So again, would a Trump presidency be
Speaker 3: more favorable to banks when it comes to regulation?
Speaker 4: You know, I don't know. I mean, you know, I
Speaker 4: am unhappy with the amount of rules and regulations coming
Speaker 4: out today. I don't know what a second administration of
Speaker 4: either one would do. I'm hopeful that they focus on growth.
Speaker 4: Wh's good for the citizens, it's good for the country,
Speaker 4: and I would help anyone I can to do that
Speaker 4: for my country. I'm quite patriotic about that. And I
Speaker 4: do think you need a service. I think you needed
Speaker 4: no helping.
Speaker 3: Helping as a bank, you it's good to get that clearer.
Speaker 2: The friend of ours in this program joined us. Now
Speaker 2: for more, Mike Collins, let's start with yesterday and talk
Speaker 2: about what that data means going forward from here.
Speaker 5: Yeah, Jonathan, good, good morning, Thanks for having me again.
Speaker 6: Yeah.
Speaker 5: I think we're just moving in the direction we've been expecting, right, which.
Speaker 6: Is slight moderation in growth down.
Speaker 5: Toward two percent, maybe a little bit below two percent
Speaker 5: this year, and a continued moderation in inflation. I mean,
Speaker 5: if you strip out we're back to stripping out shelter again, right,
Speaker 5: because that continues to be sticky running, you know, closer
Speaker 5: to six percent than two or three.
Speaker 6: If you strip that out, both had.
Speaker 5: Line and core CPI year over year now are back
Speaker 5: in the low to mid two. So we're moving in
Speaker 5: the right direction. That's our expectation that the shelter component
Speaker 5: will probably get cut in half as the year goes on,
Speaker 5: from close to six to closer to three. So I
Speaker 5: think it's pretty good news on all front. The question is,
Speaker 5: as you heard from from Williams this morning, you know,
Speaker 5: why does the FED need to do anything. I mean,
Speaker 5: we're in the zero to two cut camp now, as
Speaker 5: you just indicated, and I don't know.
Speaker 6: I mean, I think I think zero.
Speaker 5: Is probably the highest probability of a zero one or
Speaker 5: two if you had to really push me on it.
Speaker 5: You know, the FED'SMO historically has been sit on your hands,
Speaker 5: don't do anything until you're really forced to move, until
Speaker 5: the data really points hard in one direction or the other.
Speaker 2: And it is not doing that, Mike, I want to
Speaker 2: push you on it. I've got a quote in front
Speaker 2: of me from you at the start of April. You
Speaker 2: said this, the economy continues to be solid, Inflation continues
Speaker 2: to be stayed ken well above their target, the labor
Speaker 2: market is still rock solid, financial conditions to the easiest
Speaker 2: they've been since the Fett sneid hiking. Why would you
Speaker 2: cut interest rates with that backdrop? Mike, is that quote
Speaker 2: still your quote right now? Would you say exactly the
Speaker 2: same thing?
Speaker 6: Absolutely? You know?
Speaker 5: I mean now, Powell is a dove, right, he is
Speaker 5: a labor market economist, kind of trained under Yellen.
Speaker 6: That's his that's his mo.
Speaker 5: He's very sensitive to getting pushed from the left about
Speaker 5: the job market. I mean, if things change, and things
Speaker 5: can change rapidly, as we all know, Jonathan, if things
Speaker 5: change in the labor market really starts to weaken over
Speaker 5: the course of the year, then sure, I mean a
Speaker 5: cut or two are definitely in the cards. But right now,
Speaker 5: the way the data is pointing, I would certainly still
Speaker 5: stick to that statement that their mo is to do nothing.
Speaker 6: Until they're forced to.
Speaker 5: And again with the election looming, they start running out
Speaker 5: of dates as we all know, so that's definitely part
Speaker 5: of the capitalist Mike.
Speaker 1: We've been playing around with what this means for risk
Speaker 1: your assets, and a lot of people have had conflicting views.
Speaker 7: About how much it actually matters.
Speaker 1: Since we're seeing a stickiness and a lack of potential
Speaker 1: rate cuts. This here because of positive economic trends.
Speaker 7: From your vantage point, does.
Speaker 1: This push you further into risk assets in credit or
Speaker 1: maybe make you a little concerned hold back.
Speaker 5: Yeah, We're continuing to be pretty defensive in credits. We're
Speaker 5: continuing to cut back. In fact, our recent trades I've
Speaker 5: really been to continue to reduce exposure to corporate credit
Speaker 5: and increase exposure to things like Believe it or Not,
Speaker 5: you know, old fashioned government guaranteed agency mortgage backed securities,
Speaker 5: where they have been a big laggard, not only this
Speaker 5: year but over years now relative to corporate credit, and
Speaker 5: they actually have some technical and valuation dynamics that actually
Speaker 5: look pretty appealing. Right, if interest rates fall, if you
Speaker 5: get a weakening in the economy, which again isn't our
Speaker 5: base case, mortgages would actually outperform corporate credit in my
Speaker 5: mind in that scenario. So again, that's an up in
Speaker 5: quality trade, that's an up in liquidity trade, that's a
Speaker 5: more defensive trade, and that's generally been our direction of travel.
Speaker 1: It raises this interesting point about whether the biggest risk
Speaker 1: is not a reacceleration of inflation anymore, whether we've basically
Speaker 1: taken that off the table and now people are just
Speaker 1: looking for the timing of one thing's slow more materially,
Speaker 1: which is the reason why people are getting bullish on duration.
Speaker 1: Is that essentially your baseline presumption.
Speaker 6: Yes, yes, I think the upside risk we're there. We've
Speaker 6: had it.
Speaker 5: We've had the big boom in nominal GDP, we've had
Speaker 5: the overshoot in real growth, we've had the overshoot in
Speaker 5: inflation and nominal growth.
Speaker 6: We've had the overshoot in interest rates.
Speaker 5: Lisa, and and I think you know when the markets
Speaker 5: just a few weeks ago we're pricing in a permanent
Speaker 5: funds rate of around four percent as the low terminal rate.
Speaker 6: For the next ten years.
Speaker 5: I look at that as an overshoot, and that rates
Speaker 5: where you know, fifty two hundred basis points too high.
Speaker 6: And then look what just happened.
Speaker 5: They rallied forty basis points really fast, right, So now
Speaker 5: maybe there's still half a percent, you know, higher than
Speaker 5: what I would say is fair value, which is probably
Speaker 5: more in the in the mid to high threes, let's say,
Speaker 5: on a ten year treasury.
Speaker 6: Than in the in the low to mid mid fourth.
Speaker 5: So yeah, we're still advising our clients that, you know,
Speaker 5: you get four handle yields across the curve on long
Speaker 5: term rates, you know, four to four and a half,
Speaker 5: and anything above four and a half is the bi
Speaker 5: zone for adding duration to their portfolios, which really.
Speaker 1: Goes to this question that we were asking earlier when
Speaker 1: we were peeking out in rates, about how much these
Speaker 1: other concerns about the deficit, about tariffs, about a structurally
Speaker 1: more inflationary environment would really be problematic for longer term bonds.
Speaker 1: I'd say it's sort of a gut check for me
Speaker 1: because I hear things like Ray Dalio talking about civil
Speaker 1: war and the possibility of the US det completely undermining
Speaker 1: the value of the dollar. David Solomon with Jonathan Ferrell
Speaker 1: earlier this week, talking about how concerned he is about
Speaker 1: the deficit. Is this all just lip service to basically
Speaker 1: cover any potential risks that they have, but that everyone
Speaker 1: just sees this as continuing to be the same old
Speaker 1: story that isn't going to come to the markets for
Speaker 1: you know, I.
Speaker 5: Think what a lot of people in the US, right
Speaker 5: we're a very kind of nationalistic, you know, US centrist
Speaker 5: view here in the US, and it is a global
Speaker 5: bond market, and our clients are big pools of money
Speaker 5: all over the world. And if you look at, you know,
Speaker 5: the fiscal situations elsewhere, I mean, they are at least
Speaker 5: as bad as ours. The supply is brutal everywhere. Europe's
Speaker 5: actually maybe a little bit of a shining star because
Speaker 5: they actually do have a fiscal rules, even.
Speaker 6: Though they let them slip.
Speaker 5: But our rates, Lisa, our rates are two hundred basis
Speaker 5: points higher than China, two hundred basis points higher than
Speaker 5: German and European yields, you know, three hundred you know,
Speaker 5: basis points three hundred fifty base points higher than Japanese yields.
Speaker 6: I mean, these.
Speaker 5: Investors controlled giant, you know, sometimes trillion dollar pools of capital,
Speaker 5: and a lot of them, especially you know, pensions, insurance
Speaker 5: and sovereign wealth funds and central banks. They buy fixed income, right,
Speaker 5: And we are the world's bond market, and I think
Speaker 5: a lot of people in the US forget that. And
Speaker 5: you know, the dollar is still you know, the one
Speaker 5: of the strongest currencies, and I think it's you know,
Speaker 5: when push comes to shove, global investors will we'll look
Speaker 5: to the US bond market for safety, and I think
Speaker 5: that will continue to hold.
Speaker 6: Truth.
Speaker 2: Well, let's focus on that. Let's just get into it
Speaker 2: just a little bit more. The buyers are still showing up.
Speaker 2: Have you noticed any change in the background of the
Speaker 2: buyers over the last twelve months. Is it becoming more domestic?
Speaker 5: You know, a little bit on the margin, Jonathan, But
Speaker 5: we're also seeing more and more interest now just recently
Speaker 5: from from non US investors into the US bond market.
Speaker 6: Right.
Speaker 5: And remember it's not just our treasury yields and our
Speaker 5: treasury auctions, because a lot of these folks aren't buying
Speaker 5: just right. Yeah, And the auctions, it's a big deal.
Speaker 5: You need a marginal buyer to step in. But we have,
Speaker 5: you know the world's biggest, most liquid, diversified, regulated, attractive
Speaker 5: credit markets, which you had a lot of yield and
Speaker 5: spread on top of that, and that's where you really
Speaker 5: see the demand. And that's one reason, to your point, Lisa,
Speaker 5: why credit spreads continue to be pretty tight. I mean,
Speaker 5: you have a lot of supply of treasuries, not a
Speaker 5: lot of net supply of private sector debt, meaning corporate debt,
Speaker 5: structured debt, mortgage debt, et cetera. So that could keep
Speaker 5: those spreads relatively tight. But you know, on the auction size, yeah,
Speaker 5: I mean, they're gigantic auctions, and you think at some
Speaker 5: point there's going to be a failed auction, and we
Speaker 5: always worry about that, Jonathan, but wow, we haven't seen
Speaker 5: it yet. And there's no empirical evidence that supply of
Speaker 5: treasuries in and of itself drives the level of interest rates.
Speaker 5: That is driven by growth, by inflation, and by the
Speaker 5: ultimate path of the funds.
Speaker 4: Right.
Speaker 5: That's been the case in my nearly forty year career,
Speaker 5: and it'll probably be the keys for a waldote.
Speaker 3: If it changes.
Speaker 2: You're on the list of names we'll call first, Okay,
Speaker 2: Michael Collins, A PJM. Mike, appreciate it were beginning that
Speaker 2: top story stocks at all time highs following the lowest
Speaker 2: inflation print in six months. Mana, Mahjana, Edward Jones right
Speaker 2: in this if we see a Goldilocks calling of the economy,
Speaker 2: markets may welcome this outcome. While this scenario continues to
Speaker 2: be our base case, the tail risk is a more
Speaker 2: rapid downturn that also leads to rate cuts, but for
Speaker 2: the wrong reason. Mana joins us. Now for more matter,
Speaker 2: If Walmart is doing well, what does it say about
Speaker 2: a broader economy?
Speaker 7: Yeah, you look, thanks Seana.
Speaker 8: It does feel like it's consistent with the narrative we've
Speaker 8: been getting over the last several days, which is, retail
Speaker 8: sales have been cooler, the labor market looks to be moderating.
Speaker 8: Perhaps more consumers are headed to Walmart to get that
Speaker 8: better discount. It does feel like the consumer feels a
Speaker 8: little bit stretched, but of course we're watching that lower
Speaker 8: income consumer more so than the broader economy. Now, keep
Speaker 8: in mind, both the labor market and the consumer started
Speaker 8: from a position of strength. So when we think about cooling,
Speaker 8: it's cooling from a very strong base. And so the
Speaker 8: scenario that we laid out, what we call a Goldilocks
Speaker 8: moderation of the economy, really means that the economy could
Speaker 8: soften a bit, but we're still talking about at trend levels,
Speaker 8: maybe slightly below trend levels. That kind of cooling also,
Speaker 8: keep in mind, can lead to better inflation trends. So
Speaker 8: if we are at the start of a bumpy ride
Speaker 8: lower in inflation, a goal delocks cooling in the economy.
Speaker 8: That's an environment that the market will welcome. What they
Speaker 8: don't want to see is a more rapid decline, and
Speaker 8: that's what we're on the lookout for.
Speaker 7: We don't see it yet.
Speaker 2: Well, what you're going through, and I think what you're
Speaker 2: setting up is something we've discussed on this program for
Speaker 2: a while, the difference between a welcome cooling and an
Speaker 2: unwelcome deterioration. Can we turn to the labor market. What's
Speaker 2: the labor market telling you versus say, what Corporate America
Speaker 2: is telling you?
Speaker 8: Yeah, you know, I think the labor market's an interesting
Speaker 8: story here. Of course, you know, at three point eight
Speaker 8: three point nine per unemployment rate still near multi decade lows,
Speaker 8: so still relatively strong. But what we're seeing is better
Speaker 8: supply and better demand, or a more balanced supply demand picture,
Speaker 8: and I think the FED has highlighted this as well.
Speaker 8: We are seeing on the supply side more workers returning
Speaker 8: to the labor market, perhaps after that pandemic hiatus. We
Speaker 8: also have the immigration story working in our favor from
Speaker 8: the supply perspective, but we are also seeing job openings
Speaker 8: move lower, so the demand for that labor is coming down,
Speaker 8: the supply of that labor is moving higher. We think
Speaker 8: that will lead to a nice cooling in the wage
Speaker 8: gains figure, and that's what we really want to see.
Speaker 3: For services inflation.
Speaker 8: We'd say more broadly, also on the labor market, some
Speaker 8: of those leading indicators not only job openings, but the
Speaker 8: quits rates. Keep in mind, folks are not quitting their
Speaker 8: jobs like they once were, perhaps because there's not as
Speaker 8: many openings to go into after you quit your job,
Speaker 8: but that tends to be a leading indicator for the
Speaker 8: labor economy.
Speaker 3: We could see an unemployment rate.
Speaker 8: Tick higher, perhaps above four percent, but in our view,
Speaker 8: that is still healthy and probably not getting much more
Speaker 8: beyond that.
Speaker 1: So dancing on the head of a pin of this
Speaker 1: goldilocks type of situation that seems to be great for
Speaker 1: stocks no matter what, regardless of how far we push
Speaker 1: on either direction. What would trigger some sort of end
Speaker 1: to this goldilocks that so far has been an absolute
Speaker 1: panaceat of stocks and you see it continuing.
Speaker 8: To be Yeah, you know, look, I think that's what
Speaker 8: we are all thinking about. We had our first correction
Speaker 8: earlier this year, was only about five and a half
Speaker 8: percent page trough in the S and P.
Speaker 3: Five hundred.
Speaker 8: What we were really thinking about is what would lead
Speaker 8: us to become for that correction to become more nefarious?
Speaker 8: Would it ever turn into a bear market a twenty
Speaker 8: percent plus decline? Historically, when we are in that environment,
Speaker 8: when we are entering a bear market or in a
Speaker 8: bear market, we tend to see a few factors in place. One,
Speaker 8: the economy is usually hitting a recession. We may not
Speaker 8: be in a yet or heading in that direction. Two,
Speaker 8: the FED tends to be raising rates pretty aggressively. And
Speaker 8: then three there's usually that unknown shock factor, which is
Speaker 8: hardest to handicap. But I'd say when we think about
Speaker 8: the first two, either recession or FED rates aggressively. That
Speaker 8: doesn't seem like a likely scenario as we look forward,
Speaker 8: So again, we don't expect that one five and a
Speaker 8: half percent correction to be it this year. We are
Speaker 8: headed towards an election season, et cetera. There could be
Speaker 8: more volatility ahead. But as long as we feel comfortable
Speaker 8: that that volatility doesn't turn into something deeper or more prolonged,
Speaker 8: we think it's an interesting opportunity for investors more than anything.
Speaker 1: In the meantime, a lot of people have been waiting
Speaker 1: for that pivot.
Speaker 7: Point to really start to broaden out.
Speaker 1: We are seeing some broadening out in specific sectors, but
Speaker 1: broadening out to small calfs and some of the value
Speaker 1: names you see is really coming into play when we
Speaker 1: actually see rate cuts.
Speaker 7: Won't it be too late then, don't you kind of
Speaker 7: have to get ahead of it.
Speaker 3: Yeah, it's a good point.
Speaker 8: And look, I think as we get opportunities along the way,
Speaker 8: any of that volatility that we noted earlier, that is
Speaker 8: a great opportunity to not only diversify, make sure you're
Speaker 8: balanced in your growth value cyclical portfolio, but thinking about rebalancing,
Speaker 8: thinking about adding those quality investments at better prices. We
Speaker 8: do think one, as we get closer to FED rate cuts,
Speaker 8: that will be a catalyst to unlock a more sustainable
Speaker 8: broadening of market participation. But two, as we head to
Speaker 8: the back half of the year, what we're seeing in
Speaker 8: earnings growth is that earnings growth contribution becomes more balanced
Speaker 8: between those growth tech sectors and those cyclical and value
Speaker 8: parts of the market. You know, Q one and even Q
Speaker 8: two to some extent really driven by tech Magnificent seven
Speaker 8: outperforming on the earnings front. But as we get more
Speaker 8: balanced on earnings, as we get closer to FED rate cuts,
Speaker 8: and by the way, if inflation continues to moderate, that's
Speaker 8: a good environment for a broadening of participation, not only
Speaker 8: between growth and value and US equities perhaps international continuing
Speaker 8: to play some meaningful catchup. And by the way, of course,
Speaker 8: your bond portfolio is starting to look a lot more
Speaker 8: interesting too. Mony you talk about the probability of September
Speaker 8: rate cut was moved up higher.
Speaker 3: But what do you make of.
Speaker 8: Neil Koshkari yesterday basically saying we might need to stay here.
Speaker 7: A lot longer.
Speaker 8: Yeah, you know, we think higher for longer should be
Speaker 8: the base case. And whether it's September December, even early
Speaker 8: next year. The longer for longer term investors than the
Speaker 8: narrative really is. The FED was embarking on not just
Speaker 8: a twenty twenty four rate cutting cycle, was twenty twenty four,
Speaker 8: twenty twenty five, twenty twenty six, so two to three
Speaker 8: year rate cutting cycle to get them at least somewhat
Speaker 8: closer to a neutral level. So we do think they
Speaker 8: are on that path for a multi year rate cutting cycle.
Speaker 8: They will need to see as a prerequisite to that,
Speaker 8: as many of us have talked about, at least probably
Speaker 8: two to three better inflation prints. Now we got a
Speaker 8: good one this week. Hopefully that resets the clock and
Speaker 8: we get a couple more in the months ahead. The
Speaker 8: one thing I'll say is I do think it's interesting
Speaker 8: the way the narrative is setting up for September, December,
Speaker 8: and then March. So this quarterly pace of rate cuts
Speaker 8: could be an interesting one for the Fed. At least
Speaker 8: it takes a little bit of the uncertainty out of it,
Speaker 8: makes it a little bit more systematic. If they can get
Speaker 8: the data to fall into place, I think that could
Speaker 8: be something they consider down the road as well.
Speaker 2: I appreciate the reaction to the earnings from Wilmot and
Speaker 2: a comment Schay on the fold of market mightamhitch on
Speaker 2: that of Edwards Jones. This is the Bloomberg Surveillance Podcast,
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