WEBVTT - Bloomberg's Riccadonna and Dean on Yellen and Dodd-Frank

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<v Speaker 1>order your first custom shirt today. Welcome to the Bloomberg

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<v Speaker 1>P and L Podcast. I'm pim Fox. Along with my

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<v Speaker 1>co host Lisa Abramowitz. Each day we bring you the

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<v Speaker 1>most important, noteworthy, and useful interviews for you and your money,

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<v Speaker 1>whether at the grocery store or the trading floor. Find

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<v Speaker 1>the Bloomberg P and L Podcast on iTunes, SoundCloud and

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<v Speaker 1>at Bloomberg dot com. I would like to get a

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<v Speaker 1>better sense of what caused the bond market to make

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<v Speaker 1>such a significant move yesterday following Jenny Ellen's testimony in

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<v Speaker 1>front of the Senate UH Committee. I want to bring

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<v Speaker 1>in Carl Rickadonna, chief US economist for Bloomberg Intelligence. Carl,

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<v Speaker 1>I noticed that the probability of a March rate hike

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<v Speaker 1>rose to from just two days ago. What do you

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<v Speaker 1>think drove this move? This is a double whammy UH

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<v Speaker 1>due to her remarks yesterday which really focused on the

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<v Speaker 1>dangers of waiting too long, which is something we had

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<v Speaker 1>actually heard from her on several prior occasions. So you know,

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<v Speaker 1>was this an unjustified moved I to me, it looked

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<v Speaker 1>overstated yesterday and you saw about a five basis point

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<v Speaker 1>move in the tenure and then it kind of faded

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<v Speaker 1>later in the day. Then this morning, this is the

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<v Speaker 1>other part of the double whammy. You get this barrage

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<v Speaker 1>of strong economic data. The New York Empire Survey was

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<v Speaker 1>very strong, Retail sales were very strong. Cp I surprised

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<v Speaker 1>the the upside. And so this all just seems to

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<v Speaker 1>fall on. When it rains, it pours, right, Uh. And

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<v Speaker 1>so this just falls onto the notion that the Fed

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<v Speaker 1>is going to be forced to, uh you know what,

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<v Speaker 1>maybe adhere to a tighter tightening schedule. Uh. Then uh,

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<v Speaker 1>maybe they had preferred just a few weeks so or

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<v Speaker 1>a month or so ago. I like that whammy. Can

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<v Speaker 1>I add another whammy? All right? What are they going

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<v Speaker 1>to do in March? They're gonna raise rates. I don't

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<v Speaker 1>think they're going to move in March. I know the

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<v Speaker 1>odds are increasing. We take no for an answer, all right,

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<v Speaker 1>So move ahead? Sure, how many rate heights for the

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<v Speaker 1>rest of the year. I still think it's going to

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<v Speaker 1>be too now. It is subject to the data, and

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<v Speaker 1>Cherry Yellen has made that abundantly clear. And if we

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<v Speaker 1>really see a new normal for the economy which is

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<v Speaker 1>vigor as opposed to sluggishness, then they could they could possibly,

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<v Speaker 1>uh stick to that schedule of three. But I really

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<v Speaker 1>think that that we have persistent sluggishness endemic in the U.

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<v Speaker 1>S economy and that's going to limit them to two.

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<v Speaker 1>I got it. So you think that you're gonna have

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<v Speaker 1>two interest rate increases this year? Yes, if the composition

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<v Speaker 1>of the border governors of the Federal Reserve changes dramatically

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<v Speaker 1>and or we get a signal between now and let's

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<v Speaker 1>say that second rate increase that you're describing, If we

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<v Speaker 1>get a signal that Janet Yellen is not going to

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<v Speaker 1>be around in two thousand eighteen on as chair of

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<v Speaker 1>the Federal Reserve, what happens anything, Well, we are economists

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<v Speaker 1>and Fed watchers will have to re evaluate the FED

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<v Speaker 1>reaction function based on who's at the Fed. And if

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<v Speaker 1>it's uh someone who is looking like the next chair

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<v Speaker 1>is going to be someone more hawkish, then you have

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<v Speaker 1>to reprice FED action as a result. Right, you know,

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<v Speaker 1>it's interesting. Uh, your question, Pim really highlights one of

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<v Speaker 1>the big tensions that Janet Allen is going to be

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<v Speaker 1>facing today in her testimony as she did yesterday, which

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<v Speaker 1>is the Fed's role in regulatory supervision of the banks.

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<v Speaker 1>And I want to bring in UH Dean and Nathan Dean,

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<v Speaker 1>who's the government analyst for Bloomberg Intelligence, to give us

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<v Speaker 1>a little bit more of a sense of first of all,

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<v Speaker 1>what the significance is of Dan Trullo stepping down as

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<v Speaker 1>a federalsor of governor in the upcoming months. Uh and

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<v Speaker 1>and and two you know where we are with respect

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<v Speaker 1>to the Dodd Frank overhaul and what the implications there

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<v Speaker 1>could be. So the the earth of nation of Daniel

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<v Speaker 1>Trula really takes away the point man on the subtle

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<v Speaker 1>reserve capital requirements, the negotiations with Bossel and the International

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<v Speaker 1>UH Capital Requirements Framework. And what it does is that

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<v Speaker 1>it pushes him aside. It allows Donald Prompt to bring

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<v Speaker 1>in this new vice Vice Chair of Supervision and Regulation,

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<v Speaker 1>and it really negates any future rulemakings that we're going

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<v Speaker 1>to see from the Fed. UH. You know, there was

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<v Speaker 1>a lot of talk about, you know, will the Governor

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<v Speaker 1>Trulo continue to negotiate, continue to sign up for more

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<v Speaker 1>capital rules. Uh. And this really negates that. You know.

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<v Speaker 1>It's interesting. Trula is on Bloomberg Television earlier today. Uh,

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<v Speaker 1>and he highlighted, in response to a question of a

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<v Speaker 1>from Bloomberg Televisions David Weston, that perhaps the net was

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<v Speaker 1>cast too large originally with the Dodd Frank Act. Take

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<v Speaker 1>a listen to what he had to say. The post

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<v Speaker 1>U crisis regime, both supervisory and regulatory, that's been put

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<v Speaker 1>in place in many instances cast the net perhaps too

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<v Speaker 1>broadly or deeply. I've been particularly concerned with the impact

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<v Speaker 1>on community banks. You know that the risk based capital

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<v Speaker 1>rules had to be changed to take into account what

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<v Speaker 1>the media that the big regionals and the largest banks

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<v Speaker 1>were doing, But in the process, those same rules applied

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<v Speaker 1>to community banks. Uh. Nathan, do you think that it's

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<v Speaker 1>significant that Dan Trullo himself sees places where Dodd Frank

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<v Speaker 1>could be potentially curtailed. Absolutely. And I think the debate

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<v Speaker 1>that we're going to see over the next year is

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<v Speaker 1>what's the scope of the curtailing or the weakening of

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<v Speaker 1>these provisions. You know, the Photo Reserve has already taken

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<v Speaker 1>steps to weaken the qualitative c CAR for banks between

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<v Speaker 1>fifty and two and fifty billion. Bloomberg News obtained a

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<v Speaker 1>memo about the next version of the Choice Act trying

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<v Speaker 1>to do away with that qualitative c CAR. So I

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<v Speaker 1>think what we're going to have to expect from the

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<v Speaker 1>set over the next year. Maybe Jennet Allen will tell

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<v Speaker 1>us a little bit more in this cestimony this morning,

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<v Speaker 1>is what are her plans for the next year are

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<v Speaker 1>she Is she going to be open to working with

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<v Speaker 1>Republicans to scaling back down regulations for those fifty billion

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<v Speaker 1>dollar size and banks, or is she essentially going to

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<v Speaker 1>say that, you know what, I think what we have

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<v Speaker 1>is appropriate right now and it will be up to

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<v Speaker 1>the next said share in the next you know, Donald

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<v Speaker 1>Trump's appointees to take that further. Carvera Donna, I want

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<v Speaker 1>to put to you a scenario in which we have

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<v Speaker 1>anti regulation at the FED. We have the promulgation of

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<v Speaker 1>the administration's view that regulations ought to be diminished. So

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<v Speaker 1>you have that, plus you have a relatively easy money policy.

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<v Speaker 1>Because let's speculate that there are business leaders who will

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<v Speaker 1>be taking some of those positions on the FED Board

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<v Speaker 1>of governors and they're gonna want easy money. Do you

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<v Speaker 1>see that that is a possibility. I definitely think that

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<v Speaker 1>the you know, the regulatory wave ebbs and uh and

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<v Speaker 1>Wayne's over the course of the uh uh you know,

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<v Speaker 1>the aftermastatic. So I know it has been on on

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<v Speaker 1>the rise, and I think that we could see it

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<v Speaker 1>retreat for a bit for the reasons you mentioned, Nathan,

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<v Speaker 1>you agree, do and I think what's going to happen

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<v Speaker 1>here is it's really going to be which bank is

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<v Speaker 1>going to see the most regulatory relief. You know, there's

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<v Speaker 1>this huge debate in Washington. Is it the small banks?

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<v Speaker 1>Is it the big banks? You know, we just heard

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<v Speaker 1>that comment about community sized banks. So I think the

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<v Speaker 1>debate is going to be can the big banks essentially

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<v Speaker 1>attached themselves to this wave of deregulation that right now

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<v Speaker 1>is favoring the smaller ones. P and L is brought

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<v Speaker 1>snack person and your FETO lay person? Not a person

0:08:28.840 --> 0:08:32.480
<v Speaker 1>and have an oatmeal? Yeah? Yeah, and that's what That's

0:08:32.520 --> 0:08:35.319
<v Speaker 1>what they've been bolstered by. UM. But when I look

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<v Speaker 1>at their earnings, on the face of it, it seems like,

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<v Speaker 1>you know, they are benefiting from the fact that its

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<v Speaker 1>revenue it's coming from these guilt free products. I want

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<v Speaker 1>to be that in air quote. Yes I did put

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<v Speaker 1>that in air. I mean, come on, and nothing's guilt free.

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<v Speaker 1>You can always put guilter at anything. Can say food,

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<v Speaker 1>beverage and tobacco analysts for Bloomberg Intelligence, I want to

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<v Speaker 1>get your thoughts on Pepsi's results. High Lisa Sure, PepsiCo

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<v Speaker 1>reported today another sound quarter. Um. You know, PepsiCo among

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<v Speaker 1>the food beversbacal companies that I cover, seems to be

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<v Speaker 1>the one that seems to be the most predictable, the

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<v Speaker 1>steady grower, and this is just another quarter in that mix.

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<v Speaker 1>UM down well, maybe a lot of those anticipated perhaps,

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<v Speaker 1>um From a fundamental point of view, it's biggest drivers

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<v Speaker 1>in North America are free to lay quaker that the

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<v Speaker 1>beverage business collectively put up good numbers, you know, high

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<v Speaker 1>single digit sales, high signle digit operating profits. It's really

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<v Speaker 1>the non North America operations. They're having some currency issues

0:09:37.679 --> 0:09:41.160
<v Speaker 1>outside you know, the US North America. But overall, you know,

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<v Speaker 1>if you're a fundamental owner of PepsiCo, I think you

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<v Speaker 1>had to be pleased with today's numbers. Hey, can can

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<v Speaker 1>I just ask you to give us a view of

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<v Speaker 1>the industry right now? I mean, we got the results

0:09:50.600 --> 0:09:53.720
<v Speaker 1>from Dr Pepper Snapple this week. I want to know

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<v Speaker 1>what's going on with Most and Corps Brewing in the

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<v Speaker 1>wake of that whole beer market shake up and then

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<v Speaker 1>Constellation brands with the Mexico can business. Sure, well, it's

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<v Speaker 1>a lot in there to unpack their pim. But do

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<v Speaker 1>my best. You know, the beverage business is a steady grower,

0:10:08.760 --> 0:10:12.400
<v Speaker 1>and you know, like I think, across all beverages, it's

0:10:12.400 --> 0:10:15.200
<v Speaker 1>the alcohol beverages that are probably doing the best. It's

0:10:15.240 --> 0:10:19.200
<v Speaker 1>still the craft distill business. The craft beers are still

0:10:19.200 --> 0:10:22.160
<v Speaker 1>doing pretty well, they're getting a little more competitive. It's

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<v Speaker 1>the non alcoholic side that, excuse me, growing a little

0:10:25.559 --> 0:10:28.880
<v Speaker 1>more slowly. Some of the turmoil that the companies are

0:10:28.920 --> 0:10:32.440
<v Speaker 1>siting here is some of the uncertainties in Latin America.

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<v Speaker 1>You know's just talk about a border tax. A lot

0:10:35.320 --> 0:10:40.559
<v Speaker 1>of these companies source goods from Mexico. Um. Well, Constellation

0:10:40.880 --> 0:10:45.600
<v Speaker 1>is Corona beer right in the United States. That's right.

0:10:45.640 --> 0:10:48.480
<v Speaker 1>It's a big drive out of Constellation brands sales and profits.

0:10:48.480 --> 0:10:50.720
<v Speaker 1>So if there's a tax imposed there, you know, that

0:10:50.760 --> 0:10:53.520
<v Speaker 1>could be uh, you know, an issue for them. They

0:10:53.559 --> 0:10:56.680
<v Speaker 1>have some strategies to mitigate that way they source goods

0:10:56.720 --> 0:10:59.880
<v Speaker 1>and so on. Um. But nevertheless, you know, you can't

0:11:00.040 --> 0:11:02.960
<v Speaker 1>scape a you know, attacks if there's one imposed on

0:11:03.080 --> 0:11:06.440
<v Speaker 1>a big piece of business. Um. But you know what

0:11:06.520 --> 0:11:09.640
<v Speaker 1>about most and cores go there ken most of corps

0:11:09.720 --> 0:11:13.640
<v Speaker 1>are still digesting, uh you know the full steak in

0:11:13.800 --> 0:11:18.839
<v Speaker 1>the essay b. Miller Um business that they got as

0:11:18.880 --> 0:11:22.600
<v Speaker 1>part of the inhazard bush Um deal with any relinquished

0:11:22.640 --> 0:11:27.559
<v Speaker 1>their partnership steak. Those beers put up by most and

0:11:27.640 --> 0:11:30.160
<v Speaker 1>corps tend to be slow growing because of the so

0:11:30.240 --> 0:11:34.600
<v Speaker 1>called popular beers, not so much the Craft beers um

0:11:34.640 --> 0:11:37.360
<v Speaker 1>that are really where the action is in the US.

0:11:37.880 --> 0:11:40.800
<v Speaker 1>You know, you're talking about Middle Light and Coors Light

0:11:40.840 --> 0:11:42.720
<v Speaker 1>and so they have leading shares, but they're just not

0:11:42.800 --> 0:11:45.359
<v Speaker 1>growing as quickly. I think a lot of the millennials

0:11:45.360 --> 0:11:49.760
<v Speaker 1>are moving to more um you know, exotic tasting richard

0:11:49.800 --> 0:11:52.160
<v Speaker 1>flavored beers. Well, I'm wondering if they're going to move

0:11:52.160 --> 0:11:55.360
<v Speaker 1>toward more exotic tasting mac and cheese. Kraft Hynes is

0:11:55.400 --> 0:11:58.400
<v Speaker 1>going to be reporting today after the bell shares are

0:11:58.520 --> 0:12:01.719
<v Speaker 1>up more than in the past twelve months. What do

0:12:01.760 --> 0:12:04.480
<v Speaker 1>you look expecting real quick out of the earnings today.

0:12:04.679 --> 0:12:06.800
<v Speaker 1>I think everyone's gonna be looking at the margins. You know,

0:12:06.880 --> 0:12:09.920
<v Speaker 1>Craft is all about margin enhancement right now. They're on

0:12:09.960 --> 0:12:14.280
<v Speaker 1>a tremendous sweeping cost cutting program. Uh, they're close to

0:12:14.679 --> 0:12:18.080
<v Speaker 1>meeting their two year target of cost cutting. We expect

0:12:18.920 --> 0:12:21.320
<v Speaker 1>at some point second quarter, maybe second half of this

0:12:21.400 --> 0:12:23.040
<v Speaker 1>year for them to start looking to the top line,

0:12:23.040 --> 0:12:26.480
<v Speaker 1>whether that's acquisitions, whether that's new products. But this this

0:12:26.559 --> 0:12:28.880
<v Speaker 1>quarter is all about cost cutting and how much more

0:12:28.920 --> 0:12:31.600
<v Speaker 1>they can boost operating margins. All right, well, we're gonna

0:12:31.600 --> 0:12:34.600
<v Speaker 1>be looking for that. Look for the earnings. The estimate

0:12:34.720 --> 0:12:37.680
<v Speaker 1>is for earnings of eighty seven cents. We'll be bringing

0:12:37.679 --> 0:12:39.320
<v Speaker 1>that to you, of course, as soon as it is

0:12:39.360 --> 0:12:42.360
<v Speaker 1>released for craft Hines. Thanks very much for joining us.

0:12:42.440 --> 0:12:47.040
<v Speaker 1>Kenna sha is food beverage tobacco analysts for Bloomberg Intelligence.

0:12:52.040 --> 0:12:54.480
<v Speaker 1>Thanks for listening to the Bloomberg P and L podcast.

0:12:54.840 --> 0:12:58.640
<v Speaker 1>You can subscribe and listen to interviews at iTunes, SoundCloud,

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<v Speaker 1>or whatever podcast platform you prefer. I'm pim Fox. I'm

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<v Speaker 1>out there on Twitter at pim Fox. I'm out there

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<v Speaker 1>on Twitter at Lisa Abramo. It's one before the podcast.

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<v Speaker 1>You can always catch us worldwide on Bloomberg Radio. P

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