WEBVTT - Surveillance: Bank Earnings With Tom Michaud 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.880 Bloomberg dot Com, and of course on the Bloomberg Lisa, 0:00:27.960 --> 0:00:29.600 you and I've had the discussion about what is happening 0:00:29.640 --> 0:00:32.239 in fixed income. The risky of parts of credit that 0:00:32.320 --> 0:00:34.800 lank last year started to pick up in December and 0:00:34.840 --> 0:00:36.680 a follow through has been really positive. And there's a 0:00:36.680 --> 0:00:38.560 simple question. I think a lot of people are asking, 0:00:39.080 --> 0:00:41.159 is it a sign of durability that the rally is 0:00:41.159 --> 0:00:43.640 broadening out, or a sign of excess right or a 0:00:43.680 --> 0:00:46.280 sign of the Perhaps this is not the leading indicator 0:00:46.320 --> 0:00:47.960 that used to be. And I think that's been my 0:00:48.000 --> 0:00:50.040 big question this morning. As you see junk bond yields 0:00:50.040 --> 0:00:52.879 within sixteen basis points of their all time low, we're 0:00:52.880 --> 0:00:55.520 talking about sub five percent high yield. It's not high 0:00:55.560 --> 0:00:57.800 yield anymore, and we're back to that level and it's 0:00:57.880 --> 0:01:01.200 rallying much more than investment grade debt. Just wonder going forward, 0:01:01.320 --> 0:01:03.680 I mean, is this appropriate given where we are in 0:01:03.680 --> 0:01:05.880 the credit cycles to bring up Channel News. Credit Sweet 0:01:05.920 --> 0:01:08.480 head of FX Macro trading Strategy, Good Mornity s up. 0:01:08.920 --> 0:01:11.720 What's the message for clients this morning. Well, we think 0:01:12.240 --> 0:01:15.560 although these concerns that you just mentioned a real concerns 0:01:15.959 --> 0:01:20.119 for now, we think markets continue pushing forward. The bottom 0:01:20.160 --> 0:01:23.120 line is that from a macro perspective, we have a 0:01:23.120 --> 0:01:28.520 situation where the Fed and other central banks indicating that 0:01:28.560 --> 0:01:31.840 they're not looking to raise rates anytime soon. In fact, 0:01:31.959 --> 0:01:36.080 there could be monetary policy framework shifts that bring forward 0:01:36.120 --> 0:01:39.840 ideas like looking at inflation on average over a cycle 0:01:40.000 --> 0:01:42.480 and waiting on its Inflation is above target for a while, 0:01:42.560 --> 0:01:45.039 so there's no macro risk at this point that the 0:01:45.040 --> 0:01:47.440 market can see on the monetary policy side, and I 0:01:47.440 --> 0:01:49.600 think that's one of the issues that's driving markets. There 0:01:49.640 --> 0:01:52.800 was a headline out show up this morning on Spanish bonds, 0:01:52.840 --> 0:01:54.920 and all our listeners need to know, particularly coast to 0:01:54.960 --> 0:01:59.000 coast across America, is the number was g enormous. The 0:01:59.200 --> 0:02:03.440 demand for paper is exceptional. Jeffrey, you with ubs one 0:02:03.480 --> 0:02:06.240 with this earlier. This is one of his great themes. 0:02:06.280 --> 0:02:08.080 Do you see that from where you are in foreign 0:02:08.120 --> 0:02:11.160 exchange that there's just simply a wall of money out 0:02:11.160 --> 0:02:14.640 there absolutely. For example, one of the themes at the 0:02:14.680 --> 0:02:19.800 moment is the large amounts of reverse Yankee bond issuance. 0:02:19.800 --> 0:02:22.560 So US companies issuing a reverse Yankee, that's where they're 0:02:22.560 --> 0:02:26.280 in last place, right. No, you can say, well, you know, 0:02:26.320 --> 0:02:34.840 there's essentially smiled I am familiar with. So you can 0:02:34.880 --> 0:02:38.400 have a situation where a US company would would want 0:02:38.480 --> 0:02:43.800 to issue debt in in Europe uh and then take 0:02:43.840 --> 0:02:45.959 that money and invested in other parts of the world, 0:02:45.960 --> 0:02:48.800 for example in the US itself. And this kind of 0:02:48.800 --> 0:02:52.080 issuance is frequent when there's a belief that rates are 0:02:52.080 --> 0:02:53.800 going to be lower in Europe for a long time 0:02:54.480 --> 0:02:56.680 and that funding costs are going to be lower if 0:02:56.720 --> 0:03:00.440 you raise money in Europe uh. And in essence, the 0:03:00.520 --> 0:03:03.840 idea that negative yields are going to sustain in Europe 0:03:04.080 --> 0:03:06.600 is one of the factors of striving this. So there 0:03:06.720 --> 0:03:10.200 is in that sense of wall of money clearly because 0:03:10.440 --> 0:03:13.280 companies feel that they can go to Europe and easily 0:03:13.320 --> 0:03:16.160 fund themselves and get money. I do have to wonder, John, 0:03:16.240 --> 0:03:18.080 you raised the issue of durability, and I think that 0:03:18.080 --> 0:03:20.079 that's a really important one, and I think that I 0:03:20.120 --> 0:03:21.680 don't want to be Debbie Downer. But I guess that's 0:03:21.680 --> 0:03:23.760 where I've been pigeonholed. Oh, tomm you don't have to 0:03:23.760 --> 0:03:25.799 give me that look he's raising his eyebrows at me. 0:03:25.880 --> 0:03:27.760 But I will say, there's a question do you get 0:03:27.800 --> 0:03:31.440 in now at a time when we are later and 0:03:31.480 --> 0:03:34.200 there is a question about liquidity, uh, the ability to 0:03:34.200 --> 0:03:36.760 get out when you actually see a problem. Do you 0:03:36.800 --> 0:03:38.800 continue to take that risk given the fact that you're 0:03:38.800 --> 0:03:42.560 rewarded for it, or do you back off? It's difficult 0:03:42.560 --> 0:03:45.560 to back off simply because every day that you've backed off, 0:03:45.680 --> 0:03:48.840 you you're losing money in effect um and because at 0:03:48.880 --> 0:03:51.120 the end of the day there's a relative component to 0:03:51.520 --> 0:03:54.480 this as well. So uh, like I said, you've got 0:03:54.520 --> 0:03:56.880 negative rates in Europe. There's no sign that that's going 0:03:56.920 --> 0:04:01.840 to change. And the US, the market still pricing in 0:04:01.880 --> 0:04:04.400 another FED cut over the course of this year. And 0:04:04.440 --> 0:04:06.400 it's not just the US and the rest of G ten. 0:04:06.520 --> 0:04:09.640 The UK could cut again, Australia could cut very difficult 0:04:09.720 --> 0:04:13.240 macro backdrop to try to fade. When I I'm glad 0:04:13.280 --> 0:04:15.480 you're bringing this up shot up John the hockey stick 0:04:15.680 --> 0:04:19.960 on British rate code expectations absolutely extraordinary driven by the 0:04:19.960 --> 0:04:22.760 policymakers more than the data. A little about turn from 0:04:22.800 --> 0:04:25.440 Governor Carney and others as well. I find it absolutely fascinating. 0:04:25.480 --> 0:04:31.040 Where did it come from on what three months ago? 0:04:31.360 --> 0:04:36.000 It's obviously and it speaks for all of credit sweet research. 0:04:36.360 --> 0:04:39.040 Are you guys glass half full or glass half empty 0:04:39.120 --> 0:04:43.160 right now? Is a general investment statement. We're definitely glass 0:04:43.200 --> 0:04:49.279 half full still as as overall we're less how full? Maybe? Well, 0:04:49.440 --> 0:04:52.159 can you be less half full? We're more optimistic three 0:04:52.160 --> 0:04:55.120 months ago, just because valuations were better three months ago, 0:04:55.360 --> 0:05:00.320 right when risky assets were still pricing in uncertainty around 0:05:00.320 --> 0:05:02.039 things like the US China trade deals. Some of that 0:05:02.080 --> 0:05:04.520 has gone away. So obviously as you as you mentioned, 0:05:05.279 --> 0:05:08.080 it's not as attractive as it was. Have you said 0:05:08.120 --> 0:05:11.640 that there's no obvious signal yet to back up and 0:05:11.640 --> 0:05:15.000 in fact price action still tells us that too. For example, 0:05:15.080 --> 0:05:17.680 the Iran risks that came through at the beginning of 0:05:17.680 --> 0:05:21.880 the year. If markets really were as overwhelmingly long risk 0:05:22.000 --> 0:05:24.840 as everybody suspects it talks about, there should have been 0:05:24.880 --> 0:05:27.560 a more dramatic reaction to that, and there really wasn't. 0:05:28.000 --> 0:05:29.680 Thank you so much, up John, us with us with 0:05:29.720 --> 0:05:45.520 Credit Suite. Looking at JP Morgan, I think we've got 0:05:45.520 --> 0:05:47.679 a better idea. With a number of thirty six point 0:05:47.720 --> 0:05:51.000 four billion dollars for annual earnings, that's quite something for 0:05:51.080 --> 0:05:53.640 a US bank on a yearly, sir, that many people 0:05:53.640 --> 0:05:56.680 thought perhaps we'd go into recession on a year when 0:05:56.720 --> 0:05:59.440 we had three interest rate cuts. We've had record profit 0:05:59.520 --> 0:06:02.080 numbers out of Jack P. Mulkin. How does this correlate 0:06:02.120 --> 0:06:04.920 with the idea that banks are in a downward slump? 0:06:05.440 --> 0:06:08.040 Just throwing that out there, Well, the stop price of 0:06:08.080 --> 0:06:12.200 performance last year doesn't correct with that absolutely, because people 0:06:12.200 --> 0:06:15.240 are saying that the sort of years of incredible profitability 0:06:15.240 --> 0:06:20.280 are over. This doesn't. He's next to us. Now tell 0:06:20.320 --> 0:06:23.120 me show k B w C E. Oh, Tom, you've 0:06:23.160 --> 0:06:26.960 retroly the numbers you thoughts place. Yes, I think it's impressive. 0:06:27.000 --> 0:06:29.360 You mentioned the revenue growth, and you would combine that 0:06:29.440 --> 0:06:33.920 with only three point nine percent operating expense growth and 0:06:33.960 --> 0:06:37.359 share repurchase of about four percent year over year. You 0:06:37.400 --> 0:06:40.560 put it together, it's it's dynamite. Now that I think 0:06:40.560 --> 0:06:44.119 it's all about the operating leverage now that revenue growth. 0:06:44.160 --> 0:06:48.679 Remember last fourth quarter was a terrible fixed income trading quarter. 0:06:49.000 --> 0:06:51.440 So I know it's an ad plus percent improvement year 0:06:51.480 --> 0:06:53.839 over year, but that's not really normalized. That's more a 0:06:53.880 --> 0:06:57.120 story of how bad last year's fourth quarter was. But 0:06:57.240 --> 0:07:00.800 still it's really pretty good and it's more dollars than 0:07:00.839 --> 0:07:02.880 we thought it was going to be, so so it 0:07:02.960 --> 0:07:06.320 was good performance. But but this type of operating leverage 0:07:06.360 --> 0:07:08.520 is really impressive. Well, what I find amazing about this 0:07:08.600 --> 0:07:10.600 is we're gonna hit us again and again through the 0:07:10.640 --> 0:07:12.480 next twenty four hours. That we knew this was going 0:07:12.520 --> 0:07:15.160 to be a big bait because we knew Q four 0:07:15.200 --> 0:07:17.880 ANDEN was bad, but so did the whole analyst community, 0:07:17.920 --> 0:07:20.720 and there were still a billion dollars shy fixed income 0:07:20.800 --> 0:07:23.560 trading revenue LEASA. Yeah, that's been the issue here, is 0:07:23.600 --> 0:07:25.680 that they managed to beat and then some Do we 0:07:25.720 --> 0:07:29.000 have a sense time of exactly where they benefited. Yes, 0:07:29.040 --> 0:07:31.400 it's a matter of fact, so relative to expectations, and 0:07:31.400 --> 0:07:34.600 our firm was a little bit more aggressive than than 0:07:34.680 --> 0:07:37.040 the average firm in terms of our estimate. But they 0:07:37.080 --> 0:07:40.480 had sixteen cents of share of revenue beat, and they 0:07:40.520 --> 0:07:44.720 had eight cents of share of mortgage banking miss. Because 0:07:44.760 --> 0:07:46.480 that's one of the themes we haven't talked about. Is 0:07:46.520 --> 0:07:50.560 that rate? Is that mortgage banking. We've been expecting there 0:07:50.600 --> 0:07:53.280 to be a little bit of a of a week 0:07:53.360 --> 0:07:56.640 or mortgage banking quarter. So that happened, and when you 0:07:56.680 --> 0:07:59.559 look at that um you'll see that it was really 0:07:59.600 --> 0:08:03.160 a very big quarter in terms of trading fixed income. 0:08:03.320 --> 0:08:07.280 Was were other big twenty plus cent per share beats 0:08:07.280 --> 0:08:11.560 relatively Bloomberg gap on on your cell phone, or I 0:08:11.680 --> 0:08:13.560 have a Bloomberg gap on my cell phone, but I 0:08:13.600 --> 0:08:16.480 happen to be reading the direct delivery of research well 0:08:16.480 --> 0:08:18.680 on my phone. But this is really compelling. In other words, 0:08:18.720 --> 0:08:22.480 it wasn't all bright spots right the mortgage decline they 0:08:22.480 --> 0:08:25.480 had to offset somewhere. I'm wondering they did what was better? 0:08:25.760 --> 0:08:28.920 What was so amazing that actually delivered this beat that 0:08:28.960 --> 0:08:33.000 exceeded even the most aggressive of my senses at the 0:08:33.080 --> 0:08:37.080 market for fick trading and for equities was probably a 0:08:37.080 --> 0:08:39.240 little bit more generous than people thought. And I'm going 0:08:39.280 --> 0:08:41.800 to guess they picked up market share. So I think 0:08:41.800 --> 0:08:45.680 it's it's it's something well, the bigger, the biggest banks 0:08:45.720 --> 0:08:49.800 have been picking up market share from European banks. Is 0:08:49.840 --> 0:08:52.440 the data is what our research has shown and Also 0:08:52.559 --> 0:08:56.080 the smaller players, UH, continue to see pressure. So what's 0:08:56.080 --> 0:08:59.120 the sweat emerge right now? I'm sorry, what's the sweat 0:08:59.200 --> 0:09:02.079 to merge right now? January? Everybody's back from the holidays, 0:09:02.320 --> 0:09:04.720 what is the sweat and small bank and regional banks 0:09:04.720 --> 0:09:07.200 to merge? Merge, merger. I think you're going to see 0:09:07.240 --> 0:09:10.720 more consolidation because there's an understanding of how you got 0:09:10.720 --> 0:09:14.320 to take more costs. So we've got some long term 0:09:14.360 --> 0:09:17.400 trends on efficiency ratios. Even the talk. You look at 0:09:17.440 --> 0:09:19.520 some of these banks, they're in the fifties, mid to 0:09:19.600 --> 0:09:23.920 high fifties efficiency ratio. Wells far Ago is above that, 0:09:24.000 --> 0:09:27.160 and hence their profitability is lower. So there's a little 0:09:27.200 --> 0:09:32.679 bit of a competitive competition war on efficiency. And then 0:09:32.800 --> 0:09:34.920 while they're doing that, they're spend at least the big 0:09:34.960 --> 0:09:38.680 banks are spending billions of dollars on innovation. So the 0:09:38.720 --> 0:09:41.160 other banks in the industry are seeing that. And it's 0:09:41.200 --> 0:09:43.839 not game over for the regional banks. They just need 0:09:43.920 --> 0:09:47.000 to play to their strengths, play to their strength year 0:09:47.080 --> 0:09:49.600 last year. Some of these numbers valitate some of the 0:09:49.679 --> 0:09:53.280 year this bank had. Show me the year ahead, reasons 0:09:53.320 --> 0:09:55.480 to be constructive? What not? I tell them. Okay, the 0:09:55.520 --> 0:09:58.920 industry is very profitable. The balance sheets the strongest it's 0:09:58.960 --> 0:10:01.559 been an eighty year. Is the some of the Dodd 0:10:01.559 --> 0:10:04.640 Frank reforms of capital and liquidity reforms have made these 0:10:04.679 --> 0:10:08.560 banks safer. The American banks, the gap between their performance 0:10:08.600 --> 0:10:11.600 in Europe is widening. Of the big global banks, they 0:10:11.600 --> 0:10:15.480 will pick up more share globally, the and then the 0:10:15.600 --> 0:10:18.400 operating But remember all this is being said, but the 0:10:18.440 --> 0:10:21.800 regular banks and the typical banks are gonna have very 0:10:21.880 --> 0:10:25.880 little growth this year, if any, and it's because the 0:10:25.920 --> 0:10:28.960 cuts and interest rates have hit the margin. What we 0:10:29.000 --> 0:10:31.280 didn't talk about is that their net interest margin was 0:10:31.400 --> 0:10:34.040 down a lot. The rest of the at JP Morgan, 0:10:34.200 --> 0:10:36.280 the rest of the industry's margin is going to be 0:10:36.320 --> 0:10:39.040 down a lot year over year. You have to let 0:10:39.080 --> 0:10:42.800 that season and get behind you. And once that happens 0:10:42.800 --> 0:10:44.839 in the back half of the year, we think you'll 0:10:44.840 --> 0:10:47.880 start to see a pick up in operating leverage again 0:10:48.280 --> 0:10:51.120 for the banks we got I've got ten more questions, 0:10:51.160 --> 0:11:09.199 Thomas Short, Thank you so much company, k W as well, Lisa, 0:11:09.240 --> 0:11:12.360 A good time to speak to Jeffrey you of UBS 0:11:12.400 --> 0:11:14.280 with one of the great insights last year of a 0:11:14.320 --> 0:11:17.800 walla cash out there. It's inside baseball, Jeff. You but 0:11:17.920 --> 0:11:21.240 the Spain had a ten year offering today and everybody 0:11:21.320 --> 0:11:25.400 lined up. It was way way oversubscribe. What's its signal? 0:11:26.040 --> 0:11:29.440 The desperation that people need to buy full faith and 0:11:29.480 --> 0:11:33.560 credit paper. I'm saying it right now that yield environment 0:11:33.720 --> 0:11:37.200 is still very very much in place. Are we're saying 0:11:37.280 --> 0:11:40.320 in a disregarding credit risks or things like that? You know, perhaps, 0:11:40.320 --> 0:11:42.800 and but you know people are willing to pay a 0:11:42.840 --> 0:11:45.320 premium of that, and that's purely reflecting you know that 0:11:45.440 --> 0:11:47.679 the view central banks, they're going to stay where they are, 0:11:47.840 --> 0:11:49.560 if not low us, for a very long time to come. 0:11:49.760 --> 0:11:53.600 Is it like oh, five oh six, oh seven, the 0:11:53.640 --> 0:11:56.360 memory of people trying to squeeze out ten more basis 0:11:56.400 --> 0:12:02.040 points somewhere? Are we back there? So on the market side, 0:12:02.040 --> 0:12:04.720 and you can see some comparisons, I guess I'll remember 0:12:04.760 --> 0:12:07.319 back then when the carry trade was putting euro en 0:12:07.440 --> 0:12:10.000 to one seventy and KeyWe dollar is giving you you know, 0:12:10.040 --> 0:12:13.680 seven percent or the eight percent things like that. So 0:12:13.679 --> 0:12:16.559 so those trades are still there. But on the other hand, 0:12:16.640 --> 0:12:18.160 you know, if you look at balance sheet, if you 0:12:18.160 --> 0:12:20.680 look at the assets side, and they're clearly households. They're 0:12:20.679 --> 0:12:24.280 not taking up leverage, debt to income ratios very stable. 0:12:24.280 --> 0:12:26.240 If anything, they're a bit more healthy. So I think 0:12:26.280 --> 0:12:28.839 that's why a lot of investors want to take on risk, 0:12:28.880 --> 0:12:31.079 because they know that on the financial side, you're not 0:12:31.120 --> 0:12:34.480 going to see similarities to ten years ago. In trade 0:12:34.520 --> 0:12:37.640 tensions with China in the US, we're really sort of 0:12:37.640 --> 0:12:40.760 hanging over the market and depressing gains that people said 0:12:40.800 --> 0:12:43.200 otherwise would have been there. Now we have the EU 0:12:43.280 --> 0:12:47.000 delegation coming to Washington, d C. This week heating up 0:12:47.040 --> 0:12:49.600 over there with respect to the trade tensions. How much 0:12:49.640 --> 0:12:51.280 is that going to weigh things down, if at all. 0:12:52.640 --> 0:12:54.439 So I think that's going to be one of the 0:12:54.520 --> 0:12:56.720 key risks from that Europe in particular is going to 0:12:56.760 --> 0:12:58.440 look at and I think you're holding back a lot 0:12:58.480 --> 0:13:00.960 of investors from going for the risk on in Europe. 0:13:00.960 --> 0:13:03.800 At Robert Lheiser, you know, talked about rebalancing the trade 0:13:03.800 --> 0:13:07.640 relationship between the US and the European Union. So the rhetoric, 0:13:07.679 --> 0:13:09.160 you know, it hasn't been great. There are areas of 0:13:09.200 --> 0:13:13.240 corporations say against China and the like um, but clearly 0:13:13.240 --> 0:13:15.800 your wants to multilateral approach. They're not used to this 0:13:15.920 --> 0:13:19.600 kind of bilateral um, you know, bargaining. So now that 0:13:19.679 --> 0:13:21.280 is going to be a source of war, especially for 0:13:21.320 --> 0:13:24.320 the auto industry in Europe for quite some time. Yeah. 0:13:24.320 --> 0:13:26.600 So are we you expecting sort of an unto performance 0:13:26.640 --> 0:13:28.720 in the auto sector and industrials or do you think 0:13:28.760 --> 0:13:29.960 that this is just going to be sort of a 0:13:30.000 --> 0:13:33.480 general overhang? Um? So, actually on the industrial side, if 0:13:33.480 --> 0:13:35.360 you strip out autos, I think the outlook is not 0:13:35.440 --> 0:13:38.960 as in a negative data stabilized and that's what the 0:13:39.120 --> 0:13:42.440 German Treasury curve is theda Gentman bund curvisum telling you 0:13:42.760 --> 0:13:45.160 as well. But I think these are tactical shifts at 0:13:45.160 --> 0:13:47.760 the time being. Are we calling for reflation in Europe? 0:13:47.760 --> 0:13:50.160 You know, are we going to see um the UCB 0:13:50.360 --> 0:13:53.400 starter change this language? You know? Probably not, But again 0:13:53.440 --> 0:13:55.800 you let's see how these talks go. Jeff, you, how 0:13:55.800 --> 0:13:59.280 do you measure effervescence? I mean, if we're up here, 0:13:59.320 --> 0:14:01.880 we're up are in a good and positive way across 0:14:01.920 --> 0:14:08.040 asset classes. What's the Jeff you measurement for exuberance? For 0:14:08.320 --> 0:14:12.680 exuberance volve again, I go back to being an ex guy. Um, 0:14:12.720 --> 0:14:17.040 and if you look at how euro dollar implied VOWL month. 0:14:17.040 --> 0:14:19.200 I think we're trading on the four handle right, so 0:14:19.240 --> 0:14:22.200 you know, those were just levels where we where you 0:14:22.200 --> 0:14:25.160 would think unthinkable form. Yes, it is the most liquid 0:14:25.200 --> 0:14:27.600 f FX pair you know, but for that to essentially 0:14:27.640 --> 0:14:31.640 you know, become a a low carry or a negative 0:14:31.720 --> 0:14:34.880 carry near cash asset. You know that those are levels 0:14:34.920 --> 0:14:37.320 where ten fifteen years ago you would tell someone from 0:14:37.400 --> 0:14:39.240 SX that you're a dog trade on four let's say 0:14:39.400 --> 0:14:42.360 no chance, But that is happening again, going back to 0:14:42.400 --> 0:14:44.760 West Central branksa if we are in no chance And 0:14:44.840 --> 0:14:47.080 it was one of my headlines last year was the 0:14:47.280 --> 0:14:49.960 London annuity at four point one percent. I believe it 0:14:50.000 --> 0:14:52.120 was in the f T that was published. Are we 0:14:52.240 --> 0:14:55.560 going to see the actual rate of return for some 0:14:55.640 --> 0:14:59.080 of these annuity products actually go under four percent? To me, 0:14:59.200 --> 0:15:03.080 that's a little lead back to the nineteen thirties um 0:15:03.120 --> 0:15:05.120 that that would not be a surprise. And I think 0:15:05.120 --> 0:15:07.920 this underscores and and and a bigger theme of again 0:15:08.360 --> 0:15:11.680 the cash you know, for these old I managers, for example, 0:15:11.960 --> 0:15:14.760 do they really need to be more like the Norwegians 0:15:14.880 --> 0:15:18.680 and go go towards risk, you know, be or be 0:15:18.760 --> 0:15:21.760 like the Canadians, you know, go back into I will 0:15:21.760 --> 0:15:24.480 go into a p framework and otherwise those rates are 0:15:24.480 --> 0:15:26.360 going to come down. How do you boost returns? And 0:15:26.400 --> 0:15:29.240 they're going to need to be a change or in 0:15:29.280 --> 0:15:32.880 mindset on the regulatory side. But again, if that cash 0:15:32.920 --> 0:15:34.680 goes out of six income, where they're going to go 0:15:34.800 --> 0:15:39.000 most likely equities? Lisa Bramo, it's Ian Lincoln just publishing 0:15:39.120 --> 0:15:45.840 moments ago at the More Capital Markets CPI universally disciplined universally. 0:15:45.920 --> 0:15:48.760 He was watched on the street there. Yeah, Well to me, 0:15:48.800 --> 0:15:50.800 I mean I think that this raise a question how 0:15:50.800 --> 0:15:53.600 can you keep piling into risk at a time when 0:15:53.640 --> 0:15:56.720 you have a global economy that's deadily slowing. I mean, 0:15:56.720 --> 0:16:00.360 the fundamentals just don't matter anymore? Is that it? Now? 0:16:00.360 --> 0:16:02.520 It's certainly not. It's not that it doesn't matter anymore. 0:16:02.520 --> 0:16:04.360 And I think people are going to focus on quality. 0:16:04.440 --> 0:16:06.600 You know, that's a message that we are sending to klients. 0:16:06.600 --> 0:16:09.360 So um, you go to a company a level fundamentals 0:16:09.920 --> 0:16:13.160 and be clear about stock picking, but also be clear 0:16:13.240 --> 0:16:15.120 what you want to own. So we don't want to 0:16:15.200 --> 0:16:18.360 own so in a corporate investment expose sectors Right now, 0:16:18.440 --> 0:16:21.760 one's own consumer exposed and sectors and besides something that's 0:16:21.760 --> 0:16:23.920 been well flagged again credit in the US and the 0:16:24.040 --> 0:16:27.280 senior loans, things like that. But the moment that credit 0:16:27.360 --> 0:16:29.680 begins to crack, the moment you know where we'd really 0:16:29.680 --> 0:16:32.000 start to do default rates and you go up where 0:16:32.360 --> 0:16:35.240 better fundamentals on the household side is no longer enough, 0:16:35.320 --> 0:16:37.960 you know, to sustain the credit evaluations we see right now, 0:16:38.040 --> 0:16:40.080 that's when we need to reassess. Jeffrey, you thank you 0:16:40.160 --> 0:16:42.760 so much. With us and their wealth management division, just 0:16:42.800 --> 0:17:00.360 wonderful and set analysis right now my face for its 0:17:00.400 --> 0:17:03.440 strategists here she's head of strategy for B and Y 0:17:03.520 --> 0:17:07.439 Melon and Alicia Levine is my favorite strategist because Paul, 0:17:07.720 --> 0:17:10.800 she has so much Wall Street experience that she puts 0:17:10.800 --> 0:17:15.360 it on one page. Noticed that there's no seven page memos, 0:17:15.400 --> 0:17:19.040 there's no twenty page you know. It's remember Sanford Bernstein 0:17:19.040 --> 0:17:21.720 in the Black Books. You'd walk around with the Sanford 0:17:21.760 --> 0:17:24.840 bursting Black Book just to be cool, you know, just 0:17:24.920 --> 0:17:27.240 to show you a cool not dead. For Alicia Levine, 0:17:27.320 --> 0:17:30.200 she writes a terse one page mom, Alicia, I want 0:17:30.240 --> 0:17:31.720 to go right to the risks that are out there 0:17:31.720 --> 0:17:34.720 because we're risk free right now, we're massively risk on. 0:17:35.160 --> 0:17:37.000 And I want to go to just a simple one. 0:17:38.160 --> 0:17:41.399 Are we grabbing like eight months of performance in two weeks? 0:17:41.640 --> 0:17:44.200 I mean, is that that's not valid? Right? Well, let's 0:17:44.280 --> 0:17:46.919 let's say that maybe we're grabbing eight months of performance 0:17:46.920 --> 0:17:51.840 in the previous quarter. Right, So October represented the first 0:17:51.920 --> 0:17:54.639 time that we surpassed the previous high. So for like 0:17:55.119 --> 0:17:57.879 you know, twelve fifteen months, we slashed around to the 0:17:57.920 --> 0:18:00.480 same levels more or less, even though the if you 0:18:00.520 --> 0:18:02.600 looked at it an annual basis and looked pretty good. 0:18:03.359 --> 0:18:07.439 So the fourth quarter was extraordinary. The earnings estimates, to 0:18:07.640 --> 0:18:11.359 my surprise, have not come down for they're still hanging 0:18:11.359 --> 0:18:15.040 out there at and that's actually kind of unusual because 0:18:15.040 --> 0:18:18.679 normally body December thirty one, you have some softness and 0:18:18.720 --> 0:18:23.360 the estimates for the following year. Okay, JP Morgan one 0:18:23.400 --> 0:18:32.400 single headline, your revenues up nine It's stunning. Both City 0:18:32.480 --> 0:18:35.440 and JP Morrigan did it on on the fixed side, 0:18:35.440 --> 0:18:40.040 on the fixing and wheel used to spin the wheel. No, 0:18:40.240 --> 0:18:43.480 I mean, look, the banks have shown us they've gotten 0:18:43.520 --> 0:18:46.280 through the compression in yields, they got through the inverted 0:18:46.320 --> 0:18:48.840 yeel curve pretty good. If they can get through that, 0:18:49.000 --> 0:18:50.880 I think they're set up for a really nice year 0:18:50.920 --> 0:18:57.040 this year. They're still trading inexpensively relative to their business lines. So, Alicia, 0:18:57.040 --> 0:18:59.080 I don't know if you know, but Tom's dollar cost 0:18:59.160 --> 0:19:05.040 averaging to the equity markets this year exactly after being 0:19:05.040 --> 0:19:08.119 in a triple leverage cash fund for should he be 0:19:08.200 --> 0:19:11.199 chasing the Fang stocks, the tech names, the leaders of 0:19:11.240 --> 0:19:14.000 this market, or getting a little bit more conservative utilities 0:19:14.000 --> 0:19:16.119 some of the more defensive sectors. Look, you're talking to 0:19:16.160 --> 0:19:20.200 somebody who was around in so like, I get queasy 0:19:20.240 --> 0:19:22.560 when I get asked that question. On the other hand, 0:19:23.160 --> 0:19:26.280 you know, if this is a liquidity driven market, and 0:19:26.320 --> 0:19:28.920 if we're going back to the kind of the high 0:19:29.000 --> 0:19:32.480 growth stocks pushing it, we see a positive year, you 0:19:32.520 --> 0:19:34.640 have to own some of it. You have to own 0:19:34.720 --> 0:19:38.280 some of it. So look, Google based for eighteen months, 0:19:38.440 --> 0:19:42.400 Facebook based for almost two years. Those are kind of interesting. Also, 0:19:42.440 --> 0:19:46.840 Amazon has never surpassed it's old high also kind of interesting. 0:19:47.240 --> 0:19:50.040 So you have to own some of those large cap 0:19:50.240 --> 0:19:54.439 tech stocks. But I just wouldn't overdo it. Nine looms 0:19:54.520 --> 0:19:57.640 large in my mind. And by the way, everybody's talking 0:19:57.640 --> 0:19:59.960 about how great, they're far oh one K did last year. 0:20:00.240 --> 0:20:03.240 That makes me nervous. It makes me really nervous. I 0:20:03.240 --> 0:20:05.480 don't want to hear that right because it means everyone's 0:20:05.480 --> 0:20:07.760 piling in. So how about you know the other I 0:20:07.760 --> 0:20:09.640 would say kind of a I'm not sure if it's 0:20:09.640 --> 0:20:11.400 a consensus trade, but the trade I hear a lot 0:20:11.440 --> 0:20:13.159 about as people think about where there could be some 0:20:13.200 --> 0:20:17.880 opportunities in the Great twenty nineteen is maybe like emerging markets, uh, 0:20:18.240 --> 0:20:20.119 small caps, things like that I need to think a 0:20:20.119 --> 0:20:23.200 little bit outside the box. So we like actually overseas 0:20:23.280 --> 0:20:25.480 markets compared to the US. This year, we still think 0:20:25.480 --> 0:20:28.040 the US is positive. We're still the best house in 0:20:28.160 --> 0:20:32.280 like a mediocre neighborhood. But the issue is that signing 0:20:32.280 --> 0:20:35.280 the trade deal and separately from that and an uptick 0:20:35.320 --> 0:20:39.480 and growth is going to be felt most noticeably in 0:20:39.520 --> 0:20:42.880 the European markets and an emerging markets simply because they've 0:20:42.960 --> 0:20:46.879 underperformed for so long. I mean emerging markets underperformed for 0:20:46.960 --> 0:20:50.399 ten years. Europe under has really underperformed since two thousand 0:20:50.400 --> 0:20:53.040 and twelve. So this is an interesting place to put 0:20:53.119 --> 0:20:56.399 some capital. Most US investors are not allocated overseas, and 0:20:56.440 --> 0:21:01.880 they should be by Melon. What are you seeing your 0:21:01.960 --> 0:21:06.359 clients do? What is the action plan you're in review? 0:21:07.000 --> 0:21:11.840 Maybe tax punning, But what's the mood up there? There 0:21:12.080 --> 0:21:15.359 is there is fear. There's fear not about the red 0:21:15.440 --> 0:21:21.080 sox about markets. So there's rebalancing. There's rebalancing. So fixed 0:21:21.080 --> 0:21:23.359 income had a great year last year, but also equity 0:21:23.400 --> 0:21:26.040 markets had a great year. So we are advising our 0:21:26.080 --> 0:21:29.200 clients that diversification is the name of the game. It's 0:21:29.240 --> 0:21:32.120 the only closest thing that's a free lunch out there, 0:21:32.400 --> 0:21:35.720 and you should definitely rebalance so you get some sort 0:21:35.760 --> 0:21:38.440 of protection out there. We still think duration is playable 0:21:38.520 --> 0:21:41.560 for risk off markets. There is still that negative correlation 0:21:41.600 --> 0:21:44.840 out there between fixed income and equities. So when I 0:21:44.880 --> 0:21:48.200 think about the markets performance the equity markets in nineteen, 0:21:48.200 --> 0:21:51.520