WEBVTT - Trade Uncertainty Means Volatility Is Here to Stay: Clay Lowery 0:00:06.240 --> 0:00:09.160 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:09.200 --> 0:00:11.960 Along with my co host Lisa Bramowitz. Each day we 0:00:12.039 --> 0:00:15.560 bring you the most important, noteworthy, and useful interviews for 0:00:15.640 --> 0:00:18.240 you and your money, whether you're at the grocery store 0:00:18.400 --> 0:00:21.160 or the trading floor. Find the Bloomberg p m L 0:00:21.280 --> 0:00:34.240 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Our 0:00:34.360 --> 0:00:38.160 next guest, Clay Lowry, is managing director of Irack Creek 0:00:38.360 --> 0:00:43.159 Global Advisors, based in Washington, d C. Mr Lowry previously 0:00:43.240 --> 0:00:46.160 was the Assistant Secretary for International Affairs at the US 0:00:46.240 --> 0:00:49.760 Treasury Department from two thousand and five to two thousand 0:00:49.920 --> 0:00:53.640 and nine. He also chaired the Committee on Foreign Investment 0:00:53.800 --> 0:00:56.520 in the United States. Now. This is the committee that 0:00:56.520 --> 0:01:00.160 takes a look at international mergers and acquisitions that may 0:01:00.320 --> 0:01:04.520 or may not affect national security interest. Clay Lowry, thank 0:01:04.520 --> 0:01:07.440 you very much for being with us. First, tell us 0:01:07.680 --> 0:01:10.560 what you're telling your clients, if you don't mind, because 0:01:10.560 --> 0:01:14.759 you advise multinationals as well as financial institutions and investors, 0:01:15.000 --> 0:01:18.199 what are you telling them about the on again, off again, 0:01:18.480 --> 0:01:23.839 on again trade dispute, trade tariff dispute and confrontation between 0:01:23.880 --> 0:01:27.200 the United States and China. Thanks for having me. And uh, 0:01:27.880 --> 0:01:29.840 the essential thing that we've been telling people is to 0:01:29.920 --> 0:01:33.039 keep your car seats buckled because and you see it 0:01:33.080 --> 0:01:36.040 every day. I mean, there's it's slightly different every day 0:01:36.080 --> 0:01:41.800 about um, how we're how the administration and to that matter, 0:01:41.880 --> 0:01:45.759 the Chinese are retaliating, how each of that is going 0:01:45.880 --> 0:01:50.240 to to work. And so this is actually just increased volatility. Um. 0:01:50.360 --> 0:01:53.440 We've see that in in in the markets, which um 0:01:54.040 --> 0:01:56.560 are not necessarily about the clients I have, but UM, 0:01:57.000 --> 0:01:58.880 but you see that also and just kind of how 0:01:58.960 --> 0:02:02.320 our sales going to be done, how is investment and 0:02:02.400 --> 0:02:05.440 trade flow is going to be affected, and all of 0:02:05.440 --> 0:02:08.040 this right now is there's a lot of uncertainty. And 0:02:08.080 --> 0:02:10.160 so that's all we've just basically been saying is just 0:02:10.320 --> 0:02:13.440 prepare for more uncertainty. And I think that you see 0:02:13.440 --> 0:02:16.280 that with even the rhetoric coming out of the White House. 0:02:16.360 --> 0:02:18.280 It kind of changes a little bit every other day. 0:02:18.480 --> 0:02:21.959 And so that's kind of there's nothing else to prepare 0:02:22.000 --> 0:02:24.839 for outside of uncertainty, because that's what you have, alright, Clay, 0:02:24.960 --> 0:02:28.160 So our s buelts are buckled. We are duly prepared. 0:02:28.760 --> 0:02:30.920 What I would want to know from you. You were 0:02:31.040 --> 0:02:33.960 formerly the Assistant Secretary of for International Affairs at the 0:02:34.040 --> 0:02:37.520 US Treasury Department. I'm wondering, can you offer us any 0:02:37.600 --> 0:02:42.080 insight into the mechanics of imposing tariffs and what that 0:02:42.120 --> 0:02:44.680 would entail so that we can have a better sense 0:02:44.800 --> 0:02:47.080 of what would have to happen for some of the 0:02:47.280 --> 0:02:51.000 proposals to be made a reality. Well to impose tariffs. 0:02:51.000 --> 0:02:54.000 I mean, they basically outlined, the administration, that is, has 0:02:54.040 --> 0:02:56.440 outlined what they would like to do in tariffs. There's 0:02:56.480 --> 0:03:00.440 going to be a public comment period, um. And if 0:03:00.480 --> 0:03:02.840 they decide to go forward with these tariffs, and they 0:03:03.040 --> 0:03:06.440 you know, I assume that they will listen to public comment, um. 0:03:06.639 --> 0:03:09.640 And uh they're obviously they say that they're trying to 0:03:09.639 --> 0:03:13.600 also have negotiations with the Chinese. UM. But if they 0:03:13.639 --> 0:03:16.200 put the tariffs on, then they basically it will be 0:03:16.360 --> 0:03:21.560 at tax I mean on imports from China on specific items. Uh. 0:03:21.600 --> 0:03:24.960 They've outlined items that they would put a tax on. 0:03:25.720 --> 0:03:28.920 And uh, once they do that, when they start coming 0:03:28.960 --> 0:03:31.160 over the border, they will have to put it. They 0:03:31.280 --> 0:03:35.119 have to pay a duty the importer and at least 0:03:35.160 --> 0:03:39.080 economically speaking, the importer would pass that on as it 0:03:39.120 --> 0:03:43.560 goes down the line. Presumably that would either affect businesses 0:03:43.680 --> 0:03:47.960 or consumers UM on those products that actually received that tax. 0:03:48.800 --> 0:03:52.520 Clay Lowry, what about the importation of Chinese investment dollars 0:03:52.560 --> 0:03:56.120 into the United States? Now, thank you for the that UM, 0:03:56.240 --> 0:03:59.200 So that one is a little more uncertain. So they 0:04:00.080 --> 0:04:04.040 UM in the President's memorandum basically outlining this, they said 0:04:04.040 --> 0:04:07.280 that they were going to give the Treasury Department sixty 0:04:07.360 --> 0:04:10.360 days to kind of report back on how they would 0:04:10.400 --> 0:04:14.360 like to do see investment restrictions, UM, and we assume 0:04:14.400 --> 0:04:17.120 their investments restrictions. Actually, the words they use the memorandum 0:04:17.160 --> 0:04:20.200 are concerns about Chinese investments. So these are not national 0:04:20.240 --> 0:04:23.360 security concerns. So national security concerns are handled through a 0:04:23.400 --> 0:04:28.599 different mechanism, which is called Scythius UM. This is about 0:04:29.040 --> 0:04:34.120 um in uh restrictions on specific investments that are outside 0:04:34.120 --> 0:04:37.600 of national security that the Chinese are making. Now that 0:04:37.920 --> 0:04:41.200 the issue here is this is not something the United 0:04:41.200 --> 0:04:44.559 States has really done much of effect. I can't remember 0:04:44.600 --> 0:04:46.960 an example in which we have done it, outside of 0:04:46.960 --> 0:04:49.680 maybe if it's like a kind of a rogue regime 0:04:49.720 --> 0:04:52.359 like Iran or something like that. So Because of that, 0:04:52.440 --> 0:04:56.040 I think it's become uh the Treasure Department and others 0:04:56.080 --> 0:04:58.800 in the administration are working on what a how do 0:04:58.839 --> 0:05:02.640 you do this? What's the AUTHORI do you use? Um? Uh, 0:05:02.760 --> 0:05:06.080 what are the legal implications if you use various authorities? 0:05:06.760 --> 0:05:10.480 This is very different than tariffs, because tariffs we've we've 0:05:10.480 --> 0:05:17.160 done throughout our history. Investment restrictions is a very different mechanism. 0:05:17.240 --> 0:05:20.080 Do you get the sense, based on your conversations with 0:05:20.320 --> 0:05:25.720 people who are in the administration or in the Treasury Department, uh, 0:05:26.000 --> 0:05:29.400 that President Trump has a lot of company in his 0:05:29.640 --> 0:05:35.200 sort of declarations of proposals for the tariffs. Do you 0:05:35.200 --> 0:05:39.839 mean support from from from people who are inside the administration, 0:05:39.960 --> 0:05:43.360 from people who are sort of uh career people and 0:05:43.400 --> 0:05:46.920 see this as possibly helping uh, sort of even the 0:05:46.920 --> 0:05:51.200 playing field. So I do think I think, actually, I 0:05:51.240 --> 0:05:53.520 mean go beyond the administration. I think that if you 0:05:53.760 --> 0:05:58.240 talk to a lot of people on Congress, within the administration, 0:05:58.560 --> 0:06:02.280 even the business community, and uh the kind of academic 0:06:02.320 --> 0:06:04.720 think tank community, I think that a lot of them 0:06:04.760 --> 0:06:06.880 would say that they have a lot of sympathy for 0:06:06.960 --> 0:06:09.600 what President Trump is trying to do. They believe that 0:06:09.839 --> 0:06:13.440 China has been a poor actor in a number of 0:06:13.480 --> 0:06:17.760 areas on trade and investment, and so um, there may 0:06:17.839 --> 0:06:20.440 need to be some there's a desire for some sort 0:06:20.480 --> 0:06:24.640 of uh more dramatic action. That being said, I think 0:06:24.680 --> 0:06:26.800 that you would also hear from a lot of people 0:06:27.360 --> 0:06:31.720 that that there's two major missing elements to what the 0:06:32.040 --> 0:06:36.440 president has tried to do. First is, um, there doesn't 0:06:36.480 --> 0:06:38.200 seem to be a strategy. What is it you want 0:06:38.200 --> 0:06:40.440 to achieve? Is it? Is it? I mean the President 0:06:40.480 --> 0:06:43.520 talks about lowering the trade deficit. That's kind of a 0:06:43.680 --> 0:06:47.640 strange way to look at things. Is the idea to basically, 0:06:47.680 --> 0:06:50.240 we want more market access for China, we want China 0:06:50.320 --> 0:06:52.920 to treat more fairly. What is it exactly they want 0:06:52.960 --> 0:06:55.120 to achieve? I think the Chinese are confused by that, 0:06:55.360 --> 0:06:57.200 but I actually think that by the way, the business 0:06:57.200 --> 0:07:00.559 community is totally confused by that. And then secondly, um, 0:07:00.839 --> 0:07:03.440 is it would have made more sense And in fact, 0:07:03.480 --> 0:07:06.479 you saw Larry Cudlow even saying this this morning, let's 0:07:06.600 --> 0:07:09.279 try to build a coalition around us. There's a number 0:07:09.279 --> 0:07:11.640 of countries around the world who are concerned about how 0:07:11.720 --> 0:07:16.080 China has been interacting on trade and investment. But the administration, 0:07:16.520 --> 0:07:19.240 which was warned about this over and over and over again, 0:07:19.680 --> 0:07:22.280 go out and build a coalition. There are others that 0:07:22.320 --> 0:07:25.800 are with you. What did they do? Instead? They attacked 0:07:25.840 --> 0:07:30.480 those same countries on steel in uh and aluminum tariffs 0:07:30.520 --> 0:07:33.080 which have which are supposed to be about national security, 0:07:34.000 --> 0:07:36.200 and yet they attacked the countries that actually help us 0:07:36.200 --> 0:07:38.640 on national security. And then secondly, they didn't go around 0:07:38.640 --> 0:07:42.040 building a coalition against China so that China got the message. 0:07:42.120 --> 0:07:44.000 It wasn't just the United States that had a problem 0:07:44.000 --> 0:07:47.280 with China, it was actually the international community at large. 0:07:47.680 --> 0:07:50.080 And for whatever reason, the administration decided not to take 0:07:50.120 --> 0:07:53.560 those tactics. But maybe maybe that maybe given what you 0:07:53.600 --> 0:07:55.920 saw from Larry Cudlo, maybe he's deciding that this is 0:07:56.520 --> 0:07:58.880 maybe they need to make a small change and how 0:07:58.920 --> 0:08:03.080 they're d to approach the president strategy. Clay Lowry, thank 0:08:03.080 --> 0:08:05.080 you so much for being with us. Clay Lowry, Managing 0:08:05.080 --> 0:08:08.960 director at Rock Creek Global Advisors, former Assistant Secretary for 0:08:09.000 --> 0:08:27.400 International Affairs at the US Treasury Department. In an era 0:08:27.560 --> 0:08:32.679 when electronic trading is moving into everything from bonds to currencies, 0:08:32.720 --> 0:08:35.720 Goldman Sacks has been steadily trying to chart out a 0:08:35.840 --> 0:08:39.600 new identity for itself and the latest is a move 0:08:39.720 --> 0:08:45.040 into commercial banking. UH, territory frankly dominated by JP Morgan 0:08:45.120 --> 0:08:47.960 and other behemoth banks. Showing us now to talk about 0:08:48.000 --> 0:08:51.400 that is Brian klein Hansel. He's an equity research analystic 0:08:51.480 --> 0:08:55.240 managing director at Keith, Briette and Woods in New York. Brian, 0:08:55.280 --> 0:08:57.320 thank you so much for being with us. So I 0:08:57.360 --> 0:08:59.480 just first want to get a sense of what Goldman 0:08:59.559 --> 0:09:03.040 Sachs is trying to do with commercial banking and what's 0:09:03.040 --> 0:09:07.200 attractive to the bank about this business. Yeah, thanks for 0:09:07.200 --> 0:09:09.720 having me Sea. What Goldman is looking to do is 0:09:09.800 --> 0:09:12.880 really too deepen the relationships that they have with their 0:09:12.920 --> 0:09:15.960 corporate clients already. So the relationship that they have today 0:09:16.080 --> 0:09:18.680 is more from an advisory perspective when you think about 0:09:18.760 --> 0:09:22.199 advising on potential M and A UM, and what they're 0:09:22.240 --> 0:09:24.840 trying to do now is be more of a bank 0:09:25.120 --> 0:09:28.280 to these corporate clients. By that, I mean looking to 0:09:29.400 --> 0:09:32.720 do more lending with these corporate clients UM as well 0:09:32.760 --> 0:09:36.360 as capturing deposits that these corporations may have. So there 0:09:36.400 --> 0:09:39.199 really are trying to build out the bank around this 0:09:39.360 --> 0:09:43.840 existing relationship. So UH, one question is why. I mean, 0:09:44.160 --> 0:09:46.280 the other banks have such a toe hold into this, 0:09:46.559 --> 0:09:50.640 and notoriously, lending is a capital intensive business that kind 0:09:50.640 --> 0:09:52.600 of moves away from the M and A and the 0:09:52.640 --> 0:09:56.559 investment banking that Goldman sax is known for. Yeah, that's 0:09:56.559 --> 0:09:58.720 a good question. We also have as well. I mean, 0:09:59.160 --> 0:10:02.760 really point of time that this what Goldman laid out 0:10:02.840 --> 0:10:06.320 was a strategy to increase revenues. It was one environment 0:10:06.440 --> 0:10:09.320 when revenues were challenged, so this is one way to 0:10:09.360 --> 0:10:14.600 grow revenues. But it is a very competitive UM industry overall. 0:10:14.679 --> 0:10:18.439 In commercial banking. It's an area where Goldman Sachs themselves 0:10:18.679 --> 0:10:21.959 have little history relative to the other big banks that 0:10:22.040 --> 0:10:24.720 kind of dominate the space. So it is an area 0:10:24.840 --> 0:10:29.160 we could potentially see incremental revenues come through. It's just 0:10:29.240 --> 0:10:31.800 it's going to be a very hard, hard fought to 0:10:31.840 --> 0:10:34.480 win those type of revenues. So the other thing it 0:10:34.559 --> 0:10:38.319 does it helps UM act as a ballast relative to 0:10:38.360 --> 0:10:41.839 the trading business. Volatility over the last five years has 0:10:41.880 --> 0:10:44.560 been fairly low UM, so this is an area we 0:10:44.600 --> 0:10:47.760 could see recurring revenues come from with less volatility that 0:10:47.840 --> 0:10:49.720 you do in the trading business. So you can see 0:10:49.720 --> 0:10:52.319 how it could make sense longer term. It's as we 0:10:52.400 --> 0:10:55.520 do questioned their ability and executing the strategy long term. 0:10:56.120 --> 0:10:59.599 Can you speak specifically about David Solomon and what he 0:11:00.000 --> 0:11:03.480 things to this strategy. Well, he does have a background 0:11:03.800 --> 0:11:05.680 in a lot of the areas, so he comes up 0:11:05.679 --> 0:11:08.320 to the advisory side in the investment bank, so he 0:11:08.360 --> 0:11:11.559 does have a lot of relationships with the senior executives 0:11:11.559 --> 0:11:14.960 at these corporations. Um. Where it fails to see there's 0:11:14.960 --> 0:11:17.120 a bridge right now is that a lot of these 0:11:17.160 --> 0:11:19.400 decisions are made by treasurers. So we'll have to see 0:11:19.440 --> 0:11:22.640 if he can bridge that gap between the CEO down 0:11:22.679 --> 0:11:25.319 to the treasurer um. But he does have a background 0:11:25.559 --> 0:11:28.080 within the investment bank and have the relationships with the 0:11:28.120 --> 0:11:31.240 corporations themselves, so that's the positive. And a lot of 0:11:31.240 --> 0:11:34.080 the other new strategies, he does have a foot and 0:11:34.120 --> 0:11:36.760 a lot of those strategies, whether it was the Marcus initiative, 0:11:36.800 --> 0:11:41.520 which is their kind of retail consumer lending platform, so 0:11:41.559 --> 0:11:44.560 he's been more of a key proponent for that platform. 0:11:44.600 --> 0:11:46.520 So a lot of the areas where the bank has 0:11:46.559 --> 0:11:50.240 been trying to grow outside of the traditional trading UM 0:11:50.440 --> 0:11:53.760 channels are areas that he's either helped to develop or 0:11:53.800 --> 0:11:56.719 where he's worked previously, so he does have a good 0:11:56.720 --> 0:11:59.679 background in these businesses. You know, Brian, I'm struck by 0:11:59.679 --> 0:12:04.280 this that Goldman Sachs is expanding into new territories, whether 0:12:04.320 --> 0:12:07.040 it's the markets platform that focuses on consumer lending, or 0:12:07.040 --> 0:12:10.040 whether it's commercial banking. And this sort of is echoed 0:12:10.160 --> 0:12:12.760 by Jamie Diamond over at JP Morgan with the investor 0:12:12.840 --> 0:12:16.240 letter that he put out, which basically says, we're expanding everywhere, 0:12:16.480 --> 0:12:19.520 anywhere you can go, we want to be There is 0:12:19.520 --> 0:12:22.440 there a concern at all on behalf of analysts like 0:12:22.480 --> 0:12:25.680 yourself that some of these banks are perhaps moving outside 0:12:25.679 --> 0:12:28.880 their wheelhouse and getting too diffuse and possibly could increase 0:12:29.120 --> 0:12:33.839 the risks of underperforming more broadly as they expand. Yeah, 0:12:33.880 --> 0:12:35.280 I mean we think there is. I think Goldman is 0:12:35.320 --> 0:12:40.200 a fairly good example of expanding into the consumer business 0:12:40.320 --> 0:12:44.160 at a period where you've had generally what we consider 0:12:44.240 --> 0:12:47.319 benign credit conditions, meaning that you're not taking a lot 0:12:47.360 --> 0:12:50.160 of losses on the loans that you're making in the 0:12:50.240 --> 0:12:55.240 consumer business. Um, but that's been fairly you know, five 0:12:55.320 --> 0:12:58.079 years of low losses. That could change at any point 0:12:58.080 --> 0:13:00.520 in time, and if you don't have a history in 0:13:00.600 --> 0:13:03.400 that business, it could all of a sudden become very 0:13:03.520 --> 0:13:07.880 challenged to matt manage credit managerings being its revenues in 0:13:08.000 --> 0:13:10.000 those businesses. So it does seem to be what we 0:13:10.000 --> 0:13:14.000 would call late cycle growth in the consumer business. It 0:13:14.080 --> 0:13:17.360 does raise yellow flags at this point, not necessarily red 0:13:17.440 --> 0:13:19.800 flags to us and to investors, but it is an 0:13:19.840 --> 0:13:22.600 area where you're trying to grow um and we would 0:13:22.679 --> 0:13:25.480 argue that they're trying to grow aggressively in an area 0:13:25.480 --> 0:13:27.880 where there is little history for the company. So I mean, 0:13:27.920 --> 0:13:29.800 certainly is a yellow flag at this point in time. 0:13:30.400 --> 0:13:33.080 Just a quick point Brian that if we see increase 0:13:33.120 --> 0:13:36.040 in interest rates, won't this help the bond trading business, 0:13:36.120 --> 0:13:39.960 And in a sense Goldman Sachs looking to expand in 0:13:40.120 --> 0:13:43.960 areas that maybe it is a little too late to 0:13:44.000 --> 0:13:46.880 the party and maybe just focus on what it does 0:13:47.000 --> 0:13:50.560 best and wait for the cycle to turn. I mean, 0:13:50.600 --> 0:13:53.080 it certainly could. So. A lot of the revenues are 0:13:53.120 --> 0:13:55.840 generated in the bond trading business are based on the 0:13:55.840 --> 0:13:58.000 steepness of the Yelk curve. So as long as the 0:13:58.040 --> 0:14:01.320 long end keeps moving, us the short term rates and 0:14:01.320 --> 0:14:03.680 that's generally a positive for the trading business. That also 0:14:03.720 --> 0:14:07.599 could mean I think we want from a corporation perspective 0:14:08.360 --> 0:14:11.679 is are they committed to this business? And that's exactly 0:14:11.720 --> 0:14:14.160 to your point. If you see a big pick up 0:14:14.240 --> 0:14:17.479 in trading revenues, are they going to still want to 0:14:17.559 --> 0:14:21.680 maintain these lending relationships in this commercial banking relationship blogger 0:14:21.800 --> 0:14:25.560 term or really simply switch back to being more focused 0:14:25.600 --> 0:14:27.560 on trading. I think at this point in time, the 0:14:27.600 --> 0:14:29.960 fact that they really haven't built out the commercial bank, 0:14:30.040 --> 0:14:32.040 I think it's gonna be a challenge for them to 0:14:32.120 --> 0:14:35.400 grow commercial banking clients as a result. And I think 0:14:35.440 --> 0:14:37.560 that's the risk, and I think all the corporations will 0:14:37.600 --> 0:14:39.640 be asking the same question, is you know how what 0:14:39.840 --> 0:14:41.520 it are you to this business that you want to 0:14:41.520 --> 0:14:44.680 take our um business from us. I want to thank 0:14:44.680 --> 0:14:47.280 you very much for spending time with us. Brian Klein 0:14:47.360 --> 0:14:51.960 Hazel Handel is equity research channelist for Keep Briette and Wood. 0:14:51.960 --> 0:15:10.640 Speaking about Goldman Sachs right now, I want to turn 0:15:10.680 --> 0:15:15.000 our attention to Hugh Son, Bloomberg Finance reporter. He just 0:15:15.000 --> 0:15:17.840 wrote a phenomenal story for Bloomberg Markets Magazine which we're 0:15:17.840 --> 0:15:20.520 gonna get to in a second. But before we go there, Hugh, 0:15:20.600 --> 0:15:24.280 I know you've got a deep knowledge of JP Morgan, 0:15:24.440 --> 0:15:26.640 and given the fact that they just had their annual 0:15:26.640 --> 0:15:29.760 meeting and released their annual letter to shareholders, you know, 0:15:29.840 --> 0:15:33.440 what's your big takeaway for what JP Morgan's goal is 0:15:33.480 --> 0:15:36.480 in the year ahead? And this solidifies UM. Thank you 0:15:36.520 --> 0:15:39.160 for having me. This solidifies UM something that I've been 0:15:39.280 --> 0:15:41.320 that's been sort of coalescing in the back of my 0:15:41.360 --> 0:15:44.240 mind for a little while now, which is UM. You know, 0:15:44.320 --> 0:15:47.720 they're they're the aggressors in this space. UM. So for 0:15:47.760 --> 0:15:51.560 an example, UM, JP Morgan. You know, they gave some 0:15:51.600 --> 0:15:54.240 comments about what they were gonna do with UM online, 0:15:54.240 --> 0:15:58.560 brookeradge and UM. This is on their investor day Febru 0:15:59.600 --> 0:16:01.920 and all of a sudden you see Charles Schwab and 0:16:02.360 --> 0:16:07.160 a few other UM sort of broken stocks UM move 0:16:07.240 --> 0:16:10.080 up by five percent. And that's because the markets interpreted 0:16:10.120 --> 0:16:14.120 that they weren't going to aggressively go into UM. You know, 0:16:14.480 --> 0:16:21.040 UH free online robo advising just one example of you know, 0:16:21.480 --> 0:16:25.360 of their impact in the market. So wherever you look 0:16:25.400 --> 0:16:29.520 in finance, they are the aggressives, whether it's deposits, fixed income, 0:16:29.800 --> 0:16:33.040 credit cards, Trust Advisory. I could go on and on, 0:16:33.840 --> 0:16:36.640 and in my mind what was coalescing is just sort 0:16:36.640 --> 0:16:38.520 of this idea that they are kind of becoming the 0:16:38.560 --> 0:16:43.960 Amazon of of finance. Okay, they want to be the 0:16:44.000 --> 0:16:47.600 Amazon of finance. Can we say that there are a 0:16:47.680 --> 0:16:51.120 variety of competitors who might have a different view about 0:16:51.160 --> 0:16:55.680 the um in the banking space, Well, I mean there 0:16:55.720 --> 0:17:00.440 are City Bank there as well as Fargo. There's a 0:17:00.480 --> 0:17:03.600 Bank of America, Morgan Stanley done very well with their 0:17:03.640 --> 0:17:06.760 wealth management division, which is now trying to get to 0:17:06.800 --> 0:17:09.240 commercial banking. I bring it up only because you know, 0:17:09.280 --> 0:17:12.919 we've heard before about the one stop shop. Absolutely, and 0:17:12.960 --> 0:17:15.639 you should be skeptical. Sure, yeah, And you know, I 0:17:15.720 --> 0:17:18.679 note that one of the quotes from Jamie Diamond is 0:17:18.720 --> 0:17:22.480 talking about bureaucracy, right, and he's not a seemingly not 0:17:22.600 --> 0:17:26.080 a fan of bureaucracy. And I mean, I gotta say 0:17:26.160 --> 0:17:28.320 you ever hear anybody say that they are a fan 0:17:28.359 --> 0:17:31.240 of bureaucracy, that they think it's just wonderful and great 0:17:31.280 --> 0:17:34.600 and it helps me wonderful businesses. Well, how are you 0:17:34.640 --> 0:17:37.199 going to manage all these wonderful new initiatives if you 0:17:37.240 --> 0:17:40.399 don't have a bureaucracy that can actually execute. Yeah, I 0:17:40.440 --> 0:17:42.639 mean so a lot lots of good points. I would 0:17:42.640 --> 0:17:48.040 say there's a reason why, um, other other members, other 0:17:48.840 --> 0:17:54.240 financial players are watching Jamie Morgan and and and it 0:17:54.320 --> 0:17:56.080 stems from a lot of the adventus they have. They 0:17:56.080 --> 0:18:00.320 have the highest r o E, they have most deposits. Um, 0:18:00.359 --> 0:18:04.800 they have Jamie Diamond, who's you know who doesn't He 0:18:04.880 --> 0:18:09.400 doesn't deliberate before entering markets suggressfully at times as much 0:18:09.440 --> 0:18:13.280 as others. Um as an analyst talk to relate to me, 0:18:13.359 --> 0:18:15.560 you know, he says, other other banks are happy to 0:18:15.640 --> 0:18:18.400 let JP Morgan go first in some instances. And so 0:18:19.760 --> 0:18:23.000 you know, um, whether or not you know the other 0:18:23.160 --> 0:18:24.840 the other banks, it's not as that they're going to 0:18:24.920 --> 0:18:28.359 go away. But the JP Morgan, if you look at 0:18:28.440 --> 0:18:30.159 you know, if you if you read the letter, they 0:18:30.200 --> 0:18:34.000 see opportunity everywhere, even in places they're they're already number one. 0:18:34.840 --> 0:18:36.639 What does that tell you? That tells me if they 0:18:36.640 --> 0:18:39.480 want to rally their troops and have some ambition as 0:18:39.480 --> 0:18:42.240 they plow forward and take over the world. I do 0:18:42.280 --> 0:18:43.720 want to I do want to get a sense though 0:18:43.800 --> 0:18:46.399 you know, they have brought ambitions in China or Asia 0:18:46.440 --> 0:18:48.920 Born broadly, they have brought ambitions even in fixed income 0:18:48.920 --> 0:18:52.000 currencies and commodities. UH, in wealth management they want to 0:18:52.200 --> 0:18:55.000 manage money for very rich people. Who doesn't UM, But 0:18:55.119 --> 0:18:56.760 I do want to talk a little bit about some 0:18:56.840 --> 0:19:00.560 more fundamental challenges that JP Morgan faces along with the 0:19:00.600 --> 0:19:01.919 rest of the banks. And this goes to really what 0:19:01.960 --> 0:19:05.160 you wrote about, uh in the Bloomberg Markets article, which 0:19:05.280 --> 0:19:10.560 is the technological infrastructure of these banks is becoming increasingly crucial. 0:19:10.760 --> 0:19:13.840 And in that race, who's winning? So yeah, I mean 0:19:13.960 --> 0:19:16.280 that the story we wrote, UM, you know, sort of 0:19:16.280 --> 0:19:20.120 an epic tail UM and it's online right now about 0:19:20.240 --> 0:19:23.919 the arms technological arms race in you know, arguably the 0:19:23.960 --> 0:19:27.480 most iconic trading market UM in the world, which is 0:19:27.520 --> 0:19:31.639 the stock market. UM. This is another instance in which 0:19:31.960 --> 0:19:36.400 the advantages of scale become greater and greater over time. UH. 0:19:36.440 --> 0:19:39.080 And and one reason why people are concerned about Japan 0:19:39.119 --> 0:19:43.880 Morgan's entry into the space. UM when you have when 0:19:43.880 --> 0:19:45.960 you have a leading you know, so it's sort of 0:19:46.000 --> 0:19:49.159 top The thing that's said is that only people in 0:19:49.200 --> 0:19:52.639 the top three inequities make any money. Why is that? 0:19:52.640 --> 0:19:54.280 That's because if if you're not on the top three 0:19:54.840 --> 0:19:58.240 you're essentially subsidizing the business. And in order to spend 0:19:58.760 --> 0:20:03.040 enough money in enough money on technology to remain current, UM, 0:20:03.119 --> 0:20:05.040 you need to be making a lot of money. And 0:20:05.119 --> 0:20:06.960 if you're not in the top three, you're you're essentially 0:20:07.000 --> 0:20:09.560 not clearing the hurdle to make enough money to invest 0:20:09.680 --> 0:20:12.400 to be relevant tomorrow. And that's what you've seen happen 0:20:12.480 --> 0:20:14.840 to a lot of players. Top players like Credit Sweets, 0:20:14.840 --> 0:20:16.879 who was maybe number two or number one just a 0:20:16.880 --> 0:20:20.280 few years ago, fallen a lot since then. UM. JP 0:20:20.359 --> 0:20:22.880 Morgan is has you know, grown by leaps and bounds, 0:20:23.160 --> 0:20:25.800 UM in this space. You know, Goldman Sacks was number 0:20:25.800 --> 0:20:28.000 one just a few years ago. They had thirteen billion 0:20:28.000 --> 0:20:31.320 in inequities revenue in two thousand and nine, I want 0:20:31.359 --> 0:20:34.479 to say a high water mark. This last year they 0:20:34.520 --> 0:20:38.640 had about half of that. What did Jamie Diamonds non 0:20:39.160 --> 0:20:43.640 JP Morgan chase ambitions? You know, I mean every time 0:20:43.680 --> 0:20:46.639 he he goes, he rattles off on these long, you 0:20:46.640 --> 0:20:50.399 know letters about what the United States should do. UM. 0:20:50.480 --> 0:20:52.479 You know you have to think and ask yourself, as 0:20:52.480 --> 0:20:55.439 this guy eventually want to be president, and UM, you 0:20:55.440 --> 0:20:57.480 know he said on the record, you know, look, I 0:20:57.240 --> 0:20:59.320 I'd love to be President's never gonna happen. I'm not 0:20:59.320 --> 0:21:01.800 gonna run. And so you know, you think he's going 0:21:01.840 --> 0:21:03.959 to be involved in some way in in the public 0:21:04.920 --> 0:21:07.639 discussion because he seems to be and it seems to 0:21:07.680 --> 0:21:10.280 be genuine on some level that he's passionate about these 0:21:10.280 --> 0:21:15.600 big picture problems that that the country faces. So just 0:21:15.600 --> 0:21:20.080 just moving forward with respect of the technological arms race. UM. 0:21:20.240 --> 0:21:22.640 Do you have a sense of who's winning? Yeah, look 0:21:22.720 --> 0:21:26.119 so JP Morgan UM. In many ways, it's it's a 0:21:26.119 --> 0:21:28.919 three way race between JP Morgan, Goldman Sachs, and Morgan Stanley. 0:21:28.960 --> 0:21:31.520 Morgan Stanley has for the past few years been number 0:21:31.560 --> 0:21:35.280 one because they have this lineage UM in essentially the 0:21:35.320 --> 0:21:38.439 type of technology, the type of trading that has become 0:21:39.000 --> 0:21:43.119 in vogue as you know, quants UH quant hedge funds 0:21:43.160 --> 0:21:46.960 are really the only UM asset class taking in tons 0:21:46.960 --> 0:21:48.760 and tons of money in the past few years to 0:21:48.920 --> 0:21:52.880 signal rentech. Those guys have just amazing track records UM 0:21:52.960 --> 0:21:55.720 and so Morgan Stanley was best position for that, and 0:21:56.119 --> 0:21:58.760 JP Morgan came in a few years ago decided to 0:21:58.760 --> 0:22:01.240 make a huge investment. You know, people talk about JP 0:22:01.320 --> 0:22:03.000 Morgan like they're the army. You know, when they want 0:22:03.000 --> 0:22:04.919 to invest, they're going to do so and come in 0:22:05.040 --> 0:22:08.640 guns blazing. And then you know, golden sacks never count 0:22:08.680 --> 0:22:11.880 golden sacks out right. Those guys are you know, or devious. 0:22:11.920 --> 0:22:15.360 And when they decide to um turn around and and 0:22:15.359 --> 0:22:18.240 and and strategically shift, they're going to commit to it. 0:22:19.480 --> 0:22:23.080 And so between those three they're all making huge strides 0:22:23.400 --> 0:22:27.240 right now. It's Morgan Stanley and JP Morgan who you 0:22:27.280 --> 0:22:30.200 are priming with if you are a quantitedge fund. Thanks 0:22:30.280 --> 0:22:32.439 very much for being with us. Hughs On, our finance 0:22:32.480 --> 0:22:35.320 reporter for Bloomberg News. You can follow Hugh on Twitter 0:22:35.720 --> 0:22:56.000 at Hugh Underscore on s o N. Peter Lynch, famed 0:22:56.040 --> 0:23:00.760 investor from Fidelity whose book One Up on Wall Street 0:23:00.760 --> 0:23:04.240 taught investors about something called invest in what you know. 0:23:04.880 --> 0:23:10.280 Sir John Templeton, famed investor, described the maximum point of 0:23:10.480 --> 0:23:16.560