1 00:00:12,600 --> 00:00:15,680 Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg Weekly 2 00:00:15,760 --> 00:00:19,320 Speaker 1: Markets podcast. I'm Sarah Ponzak, a reporter on the Cross 3 00:00:19,320 --> 00:00:22,079 Speaker 1: Asset team, and I'm Mike Reagan, a senior editor on 4 00:00:22,120 --> 00:00:24,440 Speaker 1: the Markets team. This week on the show, a Phase 5 00:00:24,480 --> 00:00:26,560 Speaker 1: one trade deal between the U. S and China is 6 00:00:26,560 --> 00:00:29,639 Speaker 1: signed at last, and earning season has begun, with the 7 00:00:29,680 --> 00:00:32,800 Speaker 1: banks the first to report. Our guests share their takes, 8 00:00:33,440 --> 00:00:35,960 Speaker 1: and of course we'll close out the episode with our tradition, 9 00:00:36,040 --> 00:00:39,040 Speaker 1: the craziest thing I saw in markets this week, So 10 00:00:39,240 --> 00:00:41,320 Speaker 1: I've got some bad news for you about the crazy 11 00:00:41,400 --> 00:00:44,080 Speaker 1: things I want again, I don't even have to hear yours. 12 00:00:44,080 --> 00:00:47,000 Speaker 1: I know. As soon as you said bad news, I knew. 13 00:00:47,240 --> 00:00:50,280 Speaker 1: I knew that's what you would say. But we'll see 14 00:00:50,320 --> 00:00:52,280 Speaker 1: about that. Last week you really brought it. We'll see 15 00:00:52,320 --> 00:00:54,520 Speaker 1: by at this time. And remember you can always give 16 00:00:54,600 --> 00:00:57,000 Speaker 1: us a call at our very own Bloomberg Podcast outline. 17 00:00:57,280 --> 00:01:00,280 Speaker 1: That number is six or six three to four, read 18 00:01:00,360 --> 00:01:03,240 Speaker 1: for nine zero. Tell us about the craziest things you've 19 00:01:03,240 --> 00:01:05,800 Speaker 1: seen in Marcus or ask us a question, and maybe 20 00:01:05,800 --> 00:01:08,440 Speaker 1: we'll even play your message on the show. Yeah, Sarah, 21 00:01:08,480 --> 00:01:10,840 Speaker 1: as you said, it was quite a busy week UH 22 00:01:11,080 --> 00:01:13,920 Speaker 1: in newsflow and markets this week. So luckily we have 23 00:01:14,040 --> 00:01:17,280 Speaker 1: some very great guests to to break it all down 24 00:01:17,840 --> 00:01:19,760 Speaker 1: for us. Joining us for the first time on the 25 00:01:19,800 --> 00:01:23,520 Speaker 1: show is the chief US equity strategists at Credit Swiss, 26 00:01:23,720 --> 00:01:27,080 Speaker 1: Jonathan Gallup. John, Welcome to the show. Thanks very much, Sarah. Also, 27 00:01:27,160 --> 00:01:29,280 Speaker 1: it was a big bank earnings week, as you mentioned. 28 00:01:29,640 --> 00:01:31,400 Speaker 1: I will tell you this, I did not really pay 29 00:01:31,520 --> 00:01:33,480 Speaker 1: much attention to them. And you know why that is 30 00:01:33,680 --> 00:01:35,240 Speaker 1: because we have a great guest who's going to tell 31 00:01:35,240 --> 00:01:37,080 Speaker 1: you all about them right now. That's right, because our 32 00:01:37,360 --> 00:01:41,080 Speaker 1: own Bloomberg reporter Lenan Newe UH covers banks very closely, 33 00:01:41,120 --> 00:01:43,399 Speaker 1: and I figured I just let her read the bank earnings, 34 00:01:43,400 --> 00:01:46,160 Speaker 1: so I don't have to help, all right, So you're 35 00:01:46,200 --> 00:01:49,520 Speaker 1: here for right, So John, let's start with you. What 36 00:01:49,600 --> 00:01:52,840 Speaker 1: are the notes you had out recently? Caught my eye. 37 00:01:53,280 --> 00:01:55,760 Speaker 1: You're talking about this new product you have at the 38 00:01:55,800 --> 00:01:58,160 Speaker 1: research desk at Credit Swiss. Let me just read the 39 00:01:58,200 --> 00:02:01,280 Speaker 1: introduction to it. UH. Over a hundred fifty years ago, 40 00:02:01,360 --> 00:02:05,000 Speaker 1: British mathematician Ada Lovelace introduced the world what would later 41 00:02:05,080 --> 00:02:07,600 Speaker 1: become computer programming. First of all, I did not realize 42 00:02:07,600 --> 00:02:09,520 Speaker 1: that a hundred and fifty years ago. That's amazing that 43 00:02:09,520 --> 00:02:12,600 Speaker 1: that was the seeds of computer program and the fact 44 00:02:12,639 --> 00:02:16,000 Speaker 1: that it was a female mathematician is quite amazing as well, 45 00:02:16,160 --> 00:02:18,920 Speaker 1: ahead of her times, fascinating. So in her honor, we 46 00:02:18,960 --> 00:02:22,399 Speaker 1: introduced ADA, the next generation of factor research. What makes 47 00:02:22,440 --> 00:02:24,840 Speaker 1: ADA different is the sophistication of her methods and the 48 00:02:24,880 --> 00:02:28,360 Speaker 1: simplicity of her insights in the market behavior. So you 49 00:02:28,440 --> 00:02:30,400 Speaker 1: and then you went on to write a big report 50 00:02:30,400 --> 00:02:32,200 Speaker 1: about some of the findings of this. I'm curious if 51 00:02:32,200 --> 00:02:34,920 Speaker 1: I'm if I'm a client, is my relationship with Ada 52 00:02:35,000 --> 00:02:37,600 Speaker 1: basically your reports or is it is there an interface 53 00:02:37,840 --> 00:02:40,200 Speaker 1: people will be able to use eventually? At this point 54 00:02:40,240 --> 00:02:42,880 Speaker 1: it's almost a personal relationship. Or what I mean by 55 00:02:42,919 --> 00:02:45,680 Speaker 1: that is it depends on what your your take. So 56 00:02:45,960 --> 00:02:49,400 Speaker 1: the way this whole thing started was that investors were 57 00:02:49,440 --> 00:02:52,160 Speaker 1: calling and said, I'm an energy investor. I've gotten my 58 00:02:52,200 --> 00:02:54,000 Speaker 1: calls right on the earnings, i got my call right 59 00:02:54,040 --> 00:02:56,400 Speaker 1: on the price of oil, and I'm under performing the market. 60 00:02:56,440 --> 00:02:58,120 Speaker 1: My socks aren't doing what they're supposed to do. What 61 00:02:58,200 --> 00:03:00,760 Speaker 1: gives here? And so what we we did is we 62 00:03:00,800 --> 00:03:03,240 Speaker 1: took factor research and we applied it at the company 63 00:03:03,320 --> 00:03:08,679 Speaker 1: level to say, what is the market actually rewarding in energy, 64 00:03:08,800 --> 00:03:11,680 Speaker 1: or in value stocks or in a dividend yield portfolio. 65 00:03:12,120 --> 00:03:17,000 Speaker 1: And that's what the genesis of this was, and it's 66 00:03:17,040 --> 00:03:19,959 Speaker 1: the reception has been fantastic. You hinted at what makes 67 00:03:19,960 --> 00:03:22,160 Speaker 1: you different, and he said the reception has been fantastic. 68 00:03:22,240 --> 00:03:25,640 Speaker 1: But before we get into some of the more macro findings, uh, 69 00:03:25,800 --> 00:03:28,600 Speaker 1: the points of what you found with ADA, do you 70 00:03:28,639 --> 00:03:31,640 Speaker 1: find that it's difficult? Right now? We've heard time and 71 00:03:31,639 --> 00:03:35,960 Speaker 1: again that quant investing, factor investing is really difficult. We've 72 00:03:36,000 --> 00:03:38,240 Speaker 1: seen the likes of a q R cutting some of 73 00:03:38,280 --> 00:03:40,880 Speaker 1: its workforce. We've seen redemptions from some of the most 74 00:03:40,880 --> 00:03:43,680 Speaker 1: popular quant funds out there. I mean, how can you 75 00:03:43,720 --> 00:03:47,120 Speaker 1: actually go about using factors and and do it well. 76 00:03:47,160 --> 00:03:50,480 Speaker 1: I'm not expecting people to simply say ada, or which 77 00:03:50,520 --> 00:03:52,240 Speaker 1: is kind of way we talked about it. AID is 78 00:03:52,280 --> 00:03:55,560 Speaker 1: telling me to be in high dividend yielding stocks. So 79 00:03:55,640 --> 00:03:57,920 Speaker 1: that's what I'm gonna do. What it's what it's saying 80 00:03:58,040 --> 00:04:00,760 Speaker 1: is all us being equal. This is where the market's 81 00:04:00,800 --> 00:04:03,240 Speaker 1: going to pay you. Here are the companies that are 82 00:04:03,240 --> 00:04:07,520 Speaker 1: the most levered or most exposed to those characteristics. Now 83 00:04:07,600 --> 00:04:10,720 Speaker 1: let's start a conversation from these are the high dividend 84 00:04:10,760 --> 00:04:14,160 Speaker 1: paying stocks within the stable space, the markets rewarding it. 85 00:04:14,600 --> 00:04:17,240 Speaker 1: Here's why. Now go and start to do your work. 86 00:04:17,279 --> 00:04:20,000 Speaker 1: So you're starting where the wind is in your sales. 87 00:04:20,320 --> 00:04:23,080 Speaker 1: So in in many ways it's it's very different than 88 00:04:23,120 --> 00:04:25,560 Speaker 1: when you would get from an a q R where 89 00:04:25,560 --> 00:04:28,839 Speaker 1: they're really depending on using you using them as an example, 90 00:04:29,080 --> 00:04:31,480 Speaker 1: but they're where they're really depending on the quad to 91 00:04:31,640 --> 00:04:34,640 Speaker 1: be the portfolio. This is really a tool. One line 92 00:04:34,640 --> 00:04:37,200 Speaker 1: in this report I really struck home with me is 93 00:04:37,560 --> 00:04:40,159 Speaker 1: you talk about sector biases. You say sectors are naturally 94 00:04:40,200 --> 00:04:44,240 Speaker 1: exposed to specific characteristics. For examples, utilities tend to have 95 00:04:44,320 --> 00:04:46,880 Speaker 1: higher higher dividend yields in the broad market, and by 96 00:04:46,880 --> 00:04:49,560 Speaker 1: extension of high dividend yield basket will tend to be 97 00:04:49,680 --> 00:04:52,560 Speaker 1: overweight utilities. I think this is really important because all 98 00:04:52,600 --> 00:04:55,040 Speaker 1: throughout last year, you know, when people are rotating from 99 00:04:55,040 --> 00:04:58,479 Speaker 1: growth to value. You know, as kind of an old 100 00:04:58,480 --> 00:05:00,720 Speaker 1: man looking at the market, I was gonna, no, they're 101 00:05:00,800 --> 00:05:03,760 Speaker 1: they're they're rotating out of tech and into banks or 102 00:05:03,800 --> 00:05:06,760 Speaker 1: into energy. So I'm curious, like how much of the 103 00:05:06,839 --> 00:05:11,359 Speaker 1: market's motivations do you think of investors motivations, still cling 104 00:05:11,440 --> 00:05:14,200 Speaker 1: to those old sort of ideas of I'm going to 105 00:05:14,320 --> 00:05:16,960 Speaker 1: buy the sector rather than I'm going to buy the factor. Well, 106 00:05:17,000 --> 00:05:19,799 Speaker 1: you're you're you're actually asking several questions. So let me 107 00:05:21,560 --> 00:05:22,960 Speaker 1: so so let me let me you know, if we 108 00:05:23,040 --> 00:05:25,800 Speaker 1: started at the more, maybe you know, the biggest issue 109 00:05:25,839 --> 00:05:29,560 Speaker 1: is that we have this perception that certain investment characteristics 110 00:05:29,760 --> 00:05:32,280 Speaker 1: are good and others are bad. So we like high 111 00:05:32,320 --> 00:05:34,800 Speaker 1: quality portfolios, we like stocks that don't have a lot 112 00:05:34,839 --> 00:05:38,520 Speaker 1: of debt, we like stocks with growth and big global footprints. 113 00:05:38,520 --> 00:05:42,400 Speaker 1: But every one of those characteristics does well or poorly 114 00:05:42,640 --> 00:05:45,680 Speaker 1: in certain situations. I'll give you an example. Um right now, 115 00:05:45,800 --> 00:05:51,000 Speaker 1: companies with deteriorating fundamentals that are heavily shorted are outperforming 116 00:05:51,000 --> 00:05:53,480 Speaker 1: the market. Um And And you wouldn't normally think that 117 00:05:53,520 --> 00:05:56,520 Speaker 1: because it would sound like their negative characteristics. And what 118 00:05:56,640 --> 00:05:59,280 Speaker 1: the key here is is to say, I'm not coming 119 00:05:59,279 --> 00:06:01,360 Speaker 1: in with any boy. Let me you know, you know, 120 00:06:01,400 --> 00:06:03,120 Speaker 1: if I have an opinion on what what types of 121 00:06:03,160 --> 00:06:05,160 Speaker 1: things I think are gonna happen, or if I'm looking 122 00:06:05,200 --> 00:06:07,719 Speaker 1: at trends, I want to start by saying that I 123 00:06:07,720 --> 00:06:09,760 Speaker 1: I don't care all I want to do here is 124 00:06:09,839 --> 00:06:11,880 Speaker 1: make money in the markets. Now tell me what the 125 00:06:11,880 --> 00:06:14,080 Speaker 1: best way to do that is. So that phenomenon you 126 00:06:14,120 --> 00:06:16,480 Speaker 1: just mentioned, is that a function of shortcovering you think, 127 00:06:16,520 --> 00:06:19,080 Speaker 1: or is it the notion that the economic aid is 128 00:06:19,080 --> 00:06:21,080 Speaker 1: turning around, gonna start firming up a little bit, or 129 00:06:21,080 --> 00:06:22,720 Speaker 1: maybe a combination of both. No, No, it's it's the 130 00:06:22,800 --> 00:06:25,360 Speaker 1: ladder point. And I think that people misss think about. 131 00:06:25,400 --> 00:06:28,400 Speaker 1: A short company is a company that in some way 132 00:06:28,480 --> 00:06:31,080 Speaker 1: is broken. It's some hedge funds somewhere things. This is 133 00:06:31,080 --> 00:06:34,200 Speaker 1: a company that may go bankrupt. And if the economy 134 00:06:34,440 --> 00:06:37,120 Speaker 1: is weak, which it was let's say, you know, for 135 00:06:37,160 --> 00:06:39,920 Speaker 1: the majority of the last eighteen months or so, then 136 00:06:40,400 --> 00:06:43,680 Speaker 1: a broken company and a weak economy bad news. All 137 00:06:43,680 --> 00:06:46,200 Speaker 1: of a sudden. If the economy is getting better, they're 138 00:06:46,200 --> 00:06:49,000 Speaker 1: gonna get pulled away from the precipice and things are 139 00:06:49,000 --> 00:06:51,160 Speaker 1: gonna get better for them, and they're going to actually 140 00:06:51,200 --> 00:06:54,080 Speaker 1: improve more than a really healthy company. And this is 141 00:06:54,160 --> 00:06:58,240 Speaker 1: really frustrating for investors with a quality biased like I 142 00:06:58,279 --> 00:07:00,520 Speaker 1: bought the best company. They don't have, you know, dead 143 00:07:00,560 --> 00:07:04,760 Speaker 1: on their balance sheet. Their businesses run really clean and 144 00:07:04,920 --> 00:07:07,640 Speaker 1: everything right, and and in improving economy and they're getting 145 00:07:07,680 --> 00:07:10,520 Speaker 1: less in the dust by this broken company with band management. 146 00:07:10,840 --> 00:07:15,120 Speaker 1: And that's the whole point. They're bias towards quality is 147 00:07:15,200 --> 00:07:18,120 Speaker 1: a dangerous bias if it's if it's not put in context. 148 00:07:18,320 --> 00:07:20,040 Speaker 1: I do want to pick up on a point of 149 00:07:20,120 --> 00:07:24,840 Speaker 1: one of the questions then, Mike, Yeah, but about the 150 00:07:24,880 --> 00:07:30,880 Speaker 1: fact that factors don't necessarily equate to particular sectors. In fact, 151 00:07:30,880 --> 00:07:33,720 Speaker 1: across sectors you can find different factors, and you have 152 00:07:33,920 --> 00:07:36,640 Speaker 1: a very interesting chart. And I find it interesting because 153 00:07:36,640 --> 00:07:41,240 Speaker 1: in my reporting last year about low volatility, people constantly, 154 00:07:41,440 --> 00:07:44,920 Speaker 1: constantly looked at low volatility and said, well, low volatility 155 00:07:44,960 --> 00:07:47,640 Speaker 1: is doing well because utilities, real estate, consumer stables are 156 00:07:47,640 --> 00:07:50,200 Speaker 1: doing well. But what you actually find is that the 157 00:07:50,320 --> 00:07:53,360 Speaker 1: areas of low volatility, the pockets of that factor that 158 00:07:53,400 --> 00:07:56,560 Speaker 1: actually did well, we're in cyclical areas the likes of 159 00:07:56,680 --> 00:08:00,720 Speaker 1: financials energy. Can you maybe dive a bit deeper into 160 00:08:00,760 --> 00:08:06,160 Speaker 1: this difference, breakdown the idea that factors aren't just sectors 161 00:08:06,200 --> 00:08:08,200 Speaker 1: you can't go across. So so, sarahly, one of the 162 00:08:08,200 --> 00:08:10,560 Speaker 1: things that we that we start with is that we 163 00:08:10,600 --> 00:08:13,280 Speaker 1: look at the factor or these basically, what's the factor. 164 00:08:13,440 --> 00:08:15,760 Speaker 1: It's just companies that are tilted towards a certain behavior, 165 00:08:16,160 --> 00:08:18,080 Speaker 1: and we we look at them and say, I want 166 00:08:18,080 --> 00:08:21,040 Speaker 1: to eliminate the sector issues. So if we're looking at 167 00:08:21,040 --> 00:08:23,520 Speaker 1: low vall as what a low ball banks do compared 168 00:08:23,560 --> 00:08:26,320 Speaker 1: to high ball banks, what a low vall um staples 169 00:08:26,320 --> 00:08:29,560 Speaker 1: do compared to you know, other staples. And what we 170 00:08:29,640 --> 00:08:32,199 Speaker 1: found was is that the area that low Vall did 171 00:08:32,240 --> 00:08:35,240 Speaker 1: the best in were the most high vall parts of 172 00:08:35,240 --> 00:08:38,800 Speaker 1: the market. So so in energy and materials and discretionary 173 00:08:38,800 --> 00:08:41,040 Speaker 1: in banks, we would say, well, Lovall didn't do well there, 174 00:08:41,360 --> 00:08:44,600 Speaker 1: but in fact that's where really the juice was on 175 00:08:44,640 --> 00:08:49,200 Speaker 1: this trade. So yes, utilities and staples and telco's did well. 176 00:08:49,640 --> 00:08:52,679 Speaker 1: But if you were a professional investor um who was 177 00:08:52,720 --> 00:08:55,080 Speaker 1: looking at this kind of work, you you would have 178 00:08:55,120 --> 00:08:57,720 Speaker 1: played it entirely differently. You know, John, when I walked 179 00:08:57,720 --> 00:09:01,040 Speaker 1: in here, you were going through some charts with Sarah. 180 00:09:01,080 --> 00:09:03,480 Speaker 1: I think you predicted the I s M manufacturing could 181 00:09:03,559 --> 00:09:05,840 Speaker 1: could hit fifty two and a few months and there's 182 00:09:05,840 --> 00:09:08,480 Speaker 1: a trade involved in that. Yeah. So so here's what 183 00:09:08,640 --> 00:09:12,360 Speaker 1: here's what the background is that the what we call 184 00:09:12,520 --> 00:09:14,840 Speaker 1: the I s M is a serving and so they 185 00:09:14,840 --> 00:09:18,000 Speaker 1: ask a bunch of people who buy equipment for factories 186 00:09:18,040 --> 00:09:20,439 Speaker 1: that they're purchasing managers and they say, how do you 187 00:09:20,480 --> 00:09:22,959 Speaker 1: think it's going. Are you seeing demand for equipment? Are 188 00:09:23,000 --> 00:09:24,840 Speaker 1: you able to get the equipment or the parts that 189 00:09:24,880 --> 00:09:28,200 Speaker 1: you need? And from that they derive this score on 190 00:09:28,240 --> 00:09:31,960 Speaker 1: how good the economy is. And typically what they're reading 191 00:09:32,080 --> 00:09:35,240 Speaker 1: is lines up pretty well with how the industrial data 192 00:09:35,280 --> 00:09:37,040 Speaker 1: is coming in, you know, shipments and things like that. 193 00:09:37,320 --> 00:09:41,200 Speaker 1: And right now the economy is saying that things are 194 00:09:41,240 --> 00:09:43,960 Speaker 1: okay and the I s M survey is saying things 195 00:09:44,000 --> 00:09:46,840 Speaker 1: are totally broken. There the gap is about as wide 196 00:09:46,960 --> 00:09:50,120 Speaker 1: as it's ever been, and so the question is why 197 00:09:50,200 --> 00:09:53,160 Speaker 1: and how does that resolve? Because these gaps they're gonna close, 198 00:09:53,240 --> 00:09:55,440 Speaker 1: either because the economy is going to follow the I 199 00:09:55,559 --> 00:09:57,760 Speaker 1: s M down and do to poorly, or the I 200 00:09:58,040 --> 00:10:00,360 Speaker 1: M is magically to go up. The guy who buying 201 00:10:00,400 --> 00:10:04,040 Speaker 1: the equipment for his factory is totally freaked out by 202 00:10:04,120 --> 00:10:06,679 Speaker 1: trade issues, so when he's asked, how do you think 203 00:10:06,720 --> 00:10:08,719 Speaker 1: it's going all these things is I'm never going to 204 00:10:08,760 --> 00:10:11,600 Speaker 1: get these parts because they were manufactured in China. So 205 00:10:11,679 --> 00:10:14,480 Speaker 1: I'm really concerned now that we have this trade deal done, 206 00:10:14,800 --> 00:10:16,839 Speaker 1: now that we're starting to see a pick up in 207 00:10:16,840 --> 00:10:19,480 Speaker 1: in in some of the economic data, especially in Europe 208 00:10:19,480 --> 00:10:23,280 Speaker 1: and China in their domestic economies. My belief in the 209 00:10:23,360 --> 00:10:26,600 Speaker 1: data says that it's not that the industrial data is 210 00:10:26,600 --> 00:10:28,840 Speaker 1: gonna get worse. It's that the survey day is going 211 00:10:28,880 --> 00:10:30,960 Speaker 1: to get better. And what does that do is it 212 00:10:31,000 --> 00:10:34,720 Speaker 1: pushes stocks up, and it pushes more cyclical companies, and 213 00:10:34,760 --> 00:10:38,240 Speaker 1: it pushes lower quality companies like those short um kind 214 00:10:38,280 --> 00:10:40,560 Speaker 1: of stocks that we're talking about. Those end up bleeding 215 00:10:40,600 --> 00:10:55,600 Speaker 1: in that environment. Lennon, I want to bring you in 216 00:10:55,640 --> 00:10:58,000 Speaker 1: here because we did hear from the likes of the 217 00:10:58,120 --> 00:11:01,160 Speaker 1: largest US banks, the sleek JPMR Game, Morgan, Stanley, Engleman, 218 00:11:01,200 --> 00:11:04,600 Speaker 1: stacked Bank of America, you name it um on a 219 00:11:04,640 --> 00:11:07,440 Speaker 1: macro level to start off, do you get the sense, uh, 220 00:11:07,640 --> 00:11:10,960 Speaker 1: similar to what Jonathan is saying that the macro outlook 221 00:11:11,040 --> 00:11:13,440 Speaker 1: is still strong and the consumers still looks strong, at 222 00:11:13,480 --> 00:11:16,880 Speaker 1: least from the bank's perspective. Yes, definitely, Sarah. So throughout 223 00:11:16,920 --> 00:11:19,360 Speaker 1: this whole period when everyone's freaking about and freaking out 224 00:11:19,400 --> 00:11:22,600 Speaker 1: about trade or recession concerns, and bank CEO's have all 225 00:11:22,640 --> 00:11:25,720 Speaker 1: been very bullish. They've all talked about the positive US 226 00:11:25,800 --> 00:11:29,040 Speaker 1: consumer driving a lot of business UM still not really 227 00:11:29,080 --> 00:11:31,480 Speaker 1: being harmed by all the uncertainties and the macro sort 228 00:11:31,480 --> 00:11:34,679 Speaker 1: of concerns. So yeah, they've been pretty optimistic and they 229 00:11:34,720 --> 00:11:37,800 Speaker 1: haven't really turned more pessimistic as a as of this quarter. 230 00:11:38,880 --> 00:11:40,719 Speaker 1: One thing I love to look at BANC earnings for 231 00:11:40,880 --> 00:11:43,679 Speaker 1: is the credit quality trends. Uh, And I don't know, 232 00:11:43,880 --> 00:11:47,280 Speaker 1: for years now, everyone had and their brother has been predicting, oh, 233 00:11:47,320 --> 00:11:48,920 Speaker 1: that they're about to turn and they're about the you know, 234 00:11:48,960 --> 00:11:52,160 Speaker 1: the credit qualities. Yeah, what are you saying? As far 235 00:11:52,200 --> 00:11:54,080 Speaker 1: as you know, delinquencies and that sort of thing, it's 236 00:11:54,080 --> 00:11:58,280 Speaker 1: still very good credit quality UM, not a huge deterioration. 237 00:11:58,880 --> 00:12:02,480 Speaker 1: We are looking at those very closely. At Bank of America, 238 00:12:02,559 --> 00:12:04,880 Speaker 1: the consumer business started to do a little bit worse, 239 00:12:04,920 --> 00:12:06,960 Speaker 1: but that's not really a credit issue. It's more that 240 00:12:06,960 --> 00:12:09,720 Speaker 1: they're earning less because of interest rate cuts by the FED. 241 00:12:09,840 --> 00:12:12,120 Speaker 1: So we're keeping an eye on it, but so far 242 00:12:12,240 --> 00:12:15,120 Speaker 1: they've done pretty well with credit. Just a quick question 243 00:12:15,200 --> 00:12:16,640 Speaker 1: as because we've been we do a lot of work 244 00:12:16,640 --> 00:12:19,520 Speaker 1: looking at UM earnings data cross banks. But if you 245 00:12:19,559 --> 00:12:22,120 Speaker 1: break the banks into two groups, which is the big 246 00:12:22,120 --> 00:12:25,760 Speaker 1: money center banks and then the regional banks, and putting 247 00:12:25,760 --> 00:12:29,440 Speaker 1: aside some company specific issues, but the big money center 248 00:12:29,480 --> 00:12:32,160 Speaker 1: banks to Wall Street banks are expected to deliver much 249 00:12:32,240 --> 00:12:37,880 Speaker 1: much better results and the regional banks UM not as much. 250 00:12:37,960 --> 00:12:42,199 Speaker 1: Any thoughts on what's causing those those differences and how 251 00:12:42,240 --> 00:12:44,280 Speaker 1: that plays out, the big banks would be so happy 252 00:12:44,280 --> 00:12:46,880 Speaker 1: that you said that. So I think a lot of 253 00:12:46,920 --> 00:12:50,400 Speaker 1: it comes down to digital and to technology. The big 254 00:12:50,400 --> 00:12:53,080 Speaker 1: banks have a lot of money to spend on these tools. 255 00:12:53,080 --> 00:12:55,319 Speaker 1: They have a lot of money to really dive into 256 00:12:55,360 --> 00:12:58,480 Speaker 1: that digital mobile app stuff, and so they're really making 257 00:12:58,480 --> 00:13:01,720 Speaker 1: the bank much more efficient. They're making sure that consumers 258 00:13:01,800 --> 00:13:04,839 Speaker 1: don't call, you know, a phone line to ask for 259 00:13:04,880 --> 00:13:07,920 Speaker 1: their balance and instead or doing everything by phone, um, 260 00:13:07,960 --> 00:13:10,360 Speaker 1: you know, by their mobile app. And so they're really 261 00:13:10,559 --> 00:13:13,079 Speaker 1: pushing into a lot of efficiency because they can make 262 00:13:13,080 --> 00:13:15,719 Speaker 1: that investment in technology. So I would have guessed the 263 00:13:15,760 --> 00:13:17,880 Speaker 1: interest rate scenario is part of it too. You know, 264 00:13:17,920 --> 00:13:21,240 Speaker 1: your regional banks are more sort of saving loan type 265 00:13:21,240 --> 00:13:24,400 Speaker 1: of businesses and and the big ones are more diversified. 266 00:13:24,480 --> 00:13:28,440 Speaker 1: Is that m I just definitely more diversified, and UM 267 00:13:28,760 --> 00:13:31,400 Speaker 1: for now have not seen a massive impact from the 268 00:13:31,400 --> 00:13:34,480 Speaker 1: fed's rate cuts, but that's coming well. You also even 269 00:13:34,520 --> 00:13:36,920 Speaker 1: just look at this past quarter, for example, and you 270 00:13:36,960 --> 00:13:39,920 Speaker 1: saw such a major boost from trading desks at the 271 00:13:39,960 --> 00:13:42,680 Speaker 1: major banks, which isn't necessarily something that your regional banks 272 00:13:42,720 --> 00:13:45,520 Speaker 1: would be doing either. Right, No, And we've been talking 273 00:13:45,520 --> 00:13:48,760 Speaker 1: a long time about the structural decline in trading and 274 00:13:48,800 --> 00:13:50,679 Speaker 1: whether you know this is just a trend that's going 275 00:13:50,720 --> 00:13:53,000 Speaker 1: to keep continuing. But the fick trader has got to 276 00:13:53,040 --> 00:13:55,319 Speaker 1: break this quarter. So bond traders, let me just give 277 00:13:55,320 --> 00:13:57,840 Speaker 1: you a few metrics here. JP Morgan came in a 278 00:13:57,920 --> 00:14:02,720 Speaker 1: billion dollars higher than analysts predicted, Goldman Sacks six, Surgeon 279 00:14:02,800 --> 00:14:06,920 Speaker 1: fictuating um and Morgan Stanley more than doubled from a 280 00:14:07,000 --> 00:14:10,760 Speaker 1: year earlier. So that's a huge easy comparison to eighteen right. 281 00:14:10,800 --> 00:14:12,959 Speaker 1: I mean the narrative then was that all the clients 282 00:14:13,000 --> 00:14:15,480 Speaker 1: were sitting on their hands, not trading anything. Does it 283 00:14:15,480 --> 00:14:17,199 Speaker 1: looked like the world was ending? Yeah, And now they've 284 00:14:17,280 --> 00:14:18,720 Speaker 1: run to the other side of the boat and they said, oh, 285 00:14:18,720 --> 00:14:20,760 Speaker 1: everything's fine. Trade, it's going to be worked out, and 286 00:14:20,800 --> 00:14:23,080 Speaker 1: so let's trade. Let's do a lot of business. Let's 287 00:14:23,280 --> 00:14:27,000 Speaker 1: trade a lot of bonds, rates, mortgages. John, I'm gonna 288 00:14:27,040 --> 00:14:29,600 Speaker 1: packing about five questions off of what well, non just 289 00:14:29,640 --> 00:14:31,400 Speaker 1: had to say, all right, so you ready want to 290 00:14:31,400 --> 00:14:34,480 Speaker 1: take notes like you know, you see pal take notes 291 00:14:34,520 --> 00:14:37,040 Speaker 1: in the Nope. But I I wonder if you do 292 00:14:37,240 --> 00:14:39,680 Speaker 1: buy into that notion that credits sort of leads the 293 00:14:39,680 --> 00:14:42,240 Speaker 1: the equity market. Um, it's one of these common tropes 294 00:14:42,280 --> 00:14:44,520 Speaker 1: you hear all the time. I'm curious if it's it's 295 00:14:44,720 --> 00:14:47,800 Speaker 1: one that's worth believing, and if so, sort of where 296 00:14:47,800 --> 00:14:50,400 Speaker 1: do you look first for that deterioration? You know, is 297 00:14:50,440 --> 00:14:52,560 Speaker 1: it in the consumer end? When if you start to 298 00:14:52,560 --> 00:14:55,600 Speaker 1: see Joba's claims pick up? Is it sort of something 299 00:14:55,640 --> 00:14:59,320 Speaker 1: that you just can't predict? Uh, you're right. You asked 300 00:14:59,320 --> 00:15:02,320 Speaker 1: five questions. But so if you said let me, let me, 301 00:15:02,400 --> 00:15:03,880 Speaker 1: let me so, let me go and reframe it into 302 00:15:03,920 --> 00:15:10,920 Speaker 1: the question I want to answer, which is i've intermedia trading, 303 00:15:11,160 --> 00:15:16,240 Speaker 1: so but the you know so you're not and pivot 304 00:15:17,240 --> 00:15:20,600 Speaker 1: so but the um, the question is what would basically 305 00:15:20,600 --> 00:15:22,600 Speaker 1: make things deteriorate from here? What what can go wrong 306 00:15:22,680 --> 00:15:25,440 Speaker 1: that we're problematic? And I think that there's two things 307 00:15:25,520 --> 00:15:27,800 Speaker 1: and we're seeing neither one of them. But the first 308 00:15:27,840 --> 00:15:31,680 Speaker 1: thing is is that everyone's assuming right now that inflation 309 00:15:31,880 --> 00:15:34,800 Speaker 1: will not be a problem over the next year, and 310 00:15:34,880 --> 00:15:37,040 Speaker 1: that even though we have a tight labor market, and 311 00:15:37,080 --> 00:15:39,360 Speaker 1: even though we're probably going to see an incremental pickup 312 00:15:39,360 --> 00:15:41,400 Speaker 1: and inflation, it's gonna be nothing, which is going to 313 00:15:41,440 --> 00:15:44,360 Speaker 1: freak the fat out a really spooked market. Now, if 314 00:15:44,400 --> 00:15:46,880 Speaker 1: you ask me whether I agree with that consensus view, 315 00:15:47,120 --> 00:15:49,960 Speaker 1: sometimes I do. I don't, but right now I absolutely do. 316 00:15:50,120 --> 00:15:52,120 Speaker 1: I think that we're it's going to stay contained and 317 00:15:52,160 --> 00:15:55,720 Speaker 1: that's gonna be really healthy. The second issue is if 318 00:15:55,760 --> 00:15:58,280 Speaker 1: you look at and there's two different kinds of jobs data. 319 00:15:58,360 --> 00:16:01,160 Speaker 1: There's are we hiring people and are we firing people? 320 00:16:01,360 --> 00:16:04,280 Speaker 1: We care about both, but we really care about the 321 00:16:04,320 --> 00:16:08,000 Speaker 1: fires um. And so what we're seeing is the weekly 322 00:16:08,080 --> 00:16:11,560 Speaker 1: jobless claims, which is that read just keeps getting lower 323 00:16:11,600 --> 00:16:15,640 Speaker 1: and lower, and all indications are that that it's going 324 00:16:15,680 --> 00:16:19,320 Speaker 1: to stay healthy. But if that turned, it's you know, 325 00:16:19,440 --> 00:16:21,760 Speaker 1: if we look at the two things that typically tell 326 00:16:21,800 --> 00:16:23,960 Speaker 1: you this there's a real problem. The first one everybody 327 00:16:24,000 --> 00:16:26,160 Speaker 1: focuses on is the yel curve, and we talked about 328 00:16:26,200 --> 00:16:28,520 Speaker 1: that last year quite a bit, but probably the one 329 00:16:28,560 --> 00:16:31,600 Speaker 1: that's more important. If you see the weekly jobless claims 330 00:16:31,800 --> 00:16:35,280 Speaker 1: kind of spike up, watch out, that's a problem. But 331 00:16:35,400 --> 00:16:36,880 Speaker 1: right now we're not seeing that. So those are the 332 00:16:36,880 --> 00:16:39,800 Speaker 1: things that matter. You know. It's funny about inflation. I 333 00:16:39,800 --> 00:16:42,640 Speaker 1: I everyone came out saying, oh, this was a weaker 334 00:16:42,640 --> 00:16:46,120 Speaker 1: than expected CPI report this week. Of course CPI was 335 00:16:46,120 --> 00:16:49,440 Speaker 1: still two point three percent, you know. Um, So I 336 00:16:49,440 --> 00:16:51,880 Speaker 1: wonder if part of it is that everyone has sort 337 00:16:51,920 --> 00:16:54,960 Speaker 1: of recalibrated their expectations of the Fed to some degree, 338 00:16:55,040 --> 00:16:58,360 Speaker 1: the symmetry of that target that U they will allow 339 00:16:58,560 --> 00:17:00,640 Speaker 1: to run a little hot. And I know they look 340 00:17:00,680 --> 00:17:03,200 Speaker 1: at PC more than than c p I, but they will, 341 00:17:03,560 --> 00:17:05,920 Speaker 1: you know, allow a breach of two percent, maybe a 342 00:17:05,920 --> 00:17:08,840 Speaker 1: little higher than what people have previous previously expected. Well 343 00:17:08,960 --> 00:17:11,320 Speaker 1: if if if first of all, as you said, you know, 344 00:17:11,400 --> 00:17:13,840 Speaker 1: PC is is what the Fed looks at. And for 345 00:17:13,880 --> 00:17:16,520 Speaker 1: those people here don't like follow the jargon on what's 346 00:17:16,560 --> 00:17:18,399 Speaker 1: PC and c p I. So you go to the 347 00:17:18,440 --> 00:17:21,840 Speaker 1: grocery store and you realize that butter is doubled in price, 348 00:17:22,400 --> 00:17:25,040 Speaker 1: So you know, is that inflation? It is if you 349 00:17:25,080 --> 00:17:27,960 Speaker 1: actually buy butter at twice the price. But if you 350 00:17:28,000 --> 00:17:30,240 Speaker 1: do what most of us do, would say, wow, but 351 00:17:30,280 --> 00:17:33,000 Speaker 1: it is expensive. I'll buy olive oil, which has not 352 00:17:33,040 --> 00:17:35,480 Speaker 1: gone up in price, Then you actually you didn't experience 353 00:17:35,520 --> 00:17:39,240 Speaker 1: any inflation. You substitute things out and and so there's 354 00:17:39,400 --> 00:17:42,159 Speaker 1: if you look at it in that context, which is overall, 355 00:17:42,320 --> 00:17:44,639 Speaker 1: am I paying more money when I go to the 356 00:17:44,640 --> 00:17:47,320 Speaker 1: grocery store to get the groceries that I need? That 357 00:17:47,400 --> 00:17:49,520 Speaker 1: number is still a really low number. And the FED 358 00:17:49,560 --> 00:17:51,720 Speaker 1: if they say not that the two percent, and we 359 00:17:52,000 --> 00:17:54,760 Speaker 1: think that two percent is a ceiling, it's not. If 360 00:17:54,760 --> 00:17:57,359 Speaker 1: it's kind of a central tendency or or you know 361 00:17:57,440 --> 00:18:01,439 Speaker 1: your target, then we we were not even close to 362 00:18:01,440 --> 00:18:04,679 Speaker 1: two let alone that being an average over over purity 363 00:18:04,800 --> 00:18:07,960 Speaker 1: of years. So there's really at this point not a 364 00:18:07,960 --> 00:18:09,760 Speaker 1: lot of threat, even though some of these readings are 365 00:18:09,840 --> 00:18:11,359 Speaker 1: tipping up a little bit. All right. So if we 366 00:18:11,400 --> 00:18:14,119 Speaker 1: set the backdrop based on this conversation we're having, the 367 00:18:14,160 --> 00:18:17,879 Speaker 1: economy is healthy, turning to the upside, Inflation is muted, 368 00:18:17,920 --> 00:18:20,480 Speaker 1: interest rates are low. So at the end of last year, 369 00:18:20,760 --> 00:18:23,399 Speaker 1: as we were discussing earlier, we saw the value trade 370 00:18:23,520 --> 00:18:26,880 Speaker 1: take off. This year so far it's been completely squashed. 371 00:18:26,880 --> 00:18:29,080 Speaker 1: It's as if we're back to the beginning of Bigger 372 00:18:29,200 --> 00:18:31,440 Speaker 1: is better. You see the things doing well, Apple doing 373 00:18:31,480 --> 00:18:35,240 Speaker 1: well from your point of view, especially using the technology 374 00:18:35,280 --> 00:18:37,840 Speaker 1: that you guys have been using to dissect all of 375 00:18:37,880 --> 00:18:42,200 Speaker 1: this is the value trade? Over? Can you know yet? 376 00:18:42,240 --> 00:18:45,200 Speaker 1: And if not, where can you squeeze some more juice 377 00:18:45,240 --> 00:18:47,720 Speaker 1: out of it? Right? So I think that there So 378 00:18:47,760 --> 00:18:49,919 Speaker 1: I think there's there's two issues here. Um, when you 379 00:18:50,000 --> 00:18:52,720 Speaker 1: call it the value trade, you're kind of taking a 380 00:18:52,720 --> 00:18:55,679 Speaker 1: whole bunch of things and you're squishing into value. So 381 00:18:55,680 --> 00:18:59,480 Speaker 1: so so if you said our low pe stocks that 382 00:18:59,480 --> 00:19:02,040 Speaker 1: that under are formed by ten percent over the less 383 00:19:02,119 --> 00:19:04,000 Speaker 1: you know, let's say year to eighteen months that have 384 00:19:04,119 --> 00:19:07,560 Speaker 1: jumped in the fourth quarter by roughly ten percent, is 385 00:19:07,600 --> 00:19:10,840 Speaker 1: that part of the trade mostly over? I think the 386 00:19:10,840 --> 00:19:14,359 Speaker 1: answers yes. However, if you look at the same issue 387 00:19:14,400 --> 00:19:17,760 Speaker 1: with small caps, it looks like they have a lot 388 00:19:17,840 --> 00:19:21,480 Speaker 1: more room to run if you look at non US companies, 389 00:19:21,760 --> 00:19:25,320 Speaker 1: so Europe relative to the US more to run, emerging 390 00:19:25,400 --> 00:19:28,520 Speaker 1: markets more to run. Um, So you almost need to 391 00:19:28,680 --> 00:19:30,879 Speaker 1: not you almost you absolutely need to look at this 392 00:19:31,359 --> 00:19:35,879 Speaker 1: in more more individual slices because they're not all the same. 393 00:19:36,280 --> 00:19:38,639 Speaker 1: But in terms of how long does this continue to 394 00:19:38,680 --> 00:19:42,440 Speaker 1: go for our take is probably something in the three 395 00:19:42,480 --> 00:19:45,520 Speaker 1: to six months range. This is not a new world 396 00:19:45,680 --> 00:19:48,800 Speaker 1: where where the economy is gonna take off, and and 397 00:19:48,800 --> 00:19:52,040 Speaker 1: and the like. This is a near term trade. It's 398 00:19:52,040 --> 00:19:55,440 Speaker 1: a bounce. If you're a stock trader, this is super important. 399 00:19:55,640 --> 00:19:59,080 Speaker 1: If you're a long term investor, probably less. So, you know, 400 00:19:59,119 --> 00:20:02,280 Speaker 1: I think one consensus or near consensus from a lot 401 00:20:02,280 --> 00:20:04,320 Speaker 1: of the sort of look ahead pieces I read at 402 00:20:04,320 --> 00:20:06,679 Speaker 1: the end of the year from people like you was 403 00:20:06,880 --> 00:20:09,399 Speaker 1: uh uh, And I'm not sure if you came out 404 00:20:09,440 --> 00:20:11,280 Speaker 1: and said this yourself. But then the numbers kind of 405 00:20:11,320 --> 00:20:16,200 Speaker 1: imply that valuation expansion was a big story last year. 406 00:20:16,680 --> 00:20:19,800 Speaker 1: From the next level. Not a lot of people expect 407 00:20:19,920 --> 00:20:24,520 Speaker 1: more expansion and ps this year. Um from the macro level. 408 00:20:26,200 --> 00:20:28,359 Speaker 1: Is there a chance of that surprising people? You know? 409 00:20:28,520 --> 00:20:29,960 Speaker 1: Is that is and is a trade deal kind of 410 00:20:30,000 --> 00:20:33,960 Speaker 1: a catalyst for for some more frauthy valuations. So one 411 00:20:33,960 --> 00:20:36,000 Speaker 1: of the things that we try to do is to 412 00:20:36,000 --> 00:20:38,560 Speaker 1: to take what we call the consensus narrative, this thing 413 00:20:38,600 --> 00:20:41,639 Speaker 1: that we all believe not because we actually ran the numbers, 414 00:20:41,680 --> 00:20:44,359 Speaker 1: but because it sounds large. So the market was up 415 00:20:44,359 --> 00:20:46,159 Speaker 1: twenty nine and a half percent last year, you had, 416 00:20:46,240 --> 00:20:48,440 Speaker 1: dividends is up thirty one and a half. Stocks must 417 00:20:48,480 --> 00:20:50,639 Speaker 1: be expensive, and we do know in that environment we 418 00:20:50,680 --> 00:20:53,920 Speaker 1: actually had near zero EPs growth, so obviously something was 419 00:20:53,960 --> 00:20:56,920 Speaker 1: going on. However, if you if you look, what really 420 00:20:56,920 --> 00:20:59,639 Speaker 1: happened was you had a really horrible fourth quarter of 421 00:20:59,640 --> 00:21:03,040 Speaker 1: eighteen and the majority of last year's return was simply 422 00:21:03,040 --> 00:21:06,240 Speaker 1: reversing the fourth quarter. So if you instead looked at 423 00:21:06,320 --> 00:21:10,560 Speaker 1: eighteen and nineteen combined, what you actually found was the 424 00:21:10,760 --> 00:21:13,720 Speaker 1: entire market run over the two years was driven by earnings, 425 00:21:13,720 --> 00:21:16,720 Speaker 1: and multiples are actually were down a tiny bit. Now, 426 00:21:16,800 --> 00:21:19,159 Speaker 1: if you look at that really great return that you 427 00:21:19,240 --> 00:21:24,320 Speaker 1: had over eighteen and nineteen coming from earnings, about of 428 00:21:24,359 --> 00:21:26,159 Speaker 1: it was there'll maybe a little less than fifty, but 429 00:21:26,160 --> 00:21:28,879 Speaker 1: about it was from the tax cuts, which is not 430 00:21:28,880 --> 00:21:31,439 Speaker 1: gonna repeat itself. So if you take out the tax cuts, 431 00:21:31,680 --> 00:21:33,679 Speaker 1: you're left with something which was like five percent a 432 00:21:33,720 --> 00:21:36,359 Speaker 1: year on earnings. So it's so I think that people 433 00:21:36,480 --> 00:21:39,640 Speaker 1: are misframing it because it's convenient to do. Now if 434 00:21:39,680 --> 00:21:42,320 Speaker 1: you if you look at why, and we we believe 435 00:21:42,359 --> 00:21:45,080 Speaker 1: actually the multiples are going to drift, not immediately but 436 00:21:45,200 --> 00:21:47,760 Speaker 1: over twenty Right now, at forward, PE is about eighteen. 437 00:21:48,600 --> 00:21:50,520 Speaker 1: And the reason is, first of all, interest rates are 438 00:21:50,520 --> 00:21:53,360 Speaker 1: super low, and the second thing is that companies are 439 00:21:53,400 --> 00:21:57,359 Speaker 1: returning a crazy amount of cash back to shareholders. What 440 00:21:57,400 --> 00:22:00,679 Speaker 1: they're being rewarded for is not hoarding the money and 441 00:22:00,760 --> 00:22:03,919 Speaker 1: making bad investments with it, but simply returning it back. 442 00:22:04,400 --> 00:22:07,600 Speaker 1: And I think that that many are making mistake to 443 00:22:07,680 --> 00:22:10,880 Speaker 1: be concerned that higher than average multiples does not mean 444 00:22:10,920 --> 00:22:13,520 Speaker 1: that they can't go higher anyway, right, right, Yeah, The 445 00:22:13,640 --> 00:22:16,720 Speaker 1: valuations don't ever sort of bring the top of the market. 446 00:22:16,760 --> 00:22:18,719 Speaker 1: I guess, yeah. I mean, there's going to come a 447 00:22:18,760 --> 00:22:22,600 Speaker 1: certain level that you're gonna say, listen, I'm just uncomfortable 448 00:22:22,640 --> 00:22:26,199 Speaker 1: with this. But if normally p's running fifteen and now 449 00:22:26,200 --> 00:22:29,040 Speaker 1: they're running at eighteen, but companies are returning twice as 450 00:22:29,119 --> 00:22:32,199 Speaker 1: much capital and interest rates are half the level, I 451 00:22:32,280 --> 00:22:34,840 Speaker 1: just I just think that we're really far away from 452 00:22:35,080 --> 00:22:37,159 Speaker 1: where multiples are going. Can I make a point on 453 00:22:37,240 --> 00:22:39,400 Speaker 1: tax cuts? Also? One of our colleagues wrote a great 454 00:22:39,440 --> 00:22:42,600 Speaker 1: story about how the bank's got eighteen billion in tax 455 00:22:42,640 --> 00:22:46,600 Speaker 1: cuts from the Trump tax plan last year. Pretty amazing. 456 00:22:47,040 --> 00:22:48,960 Speaker 1: So do we know how that Well, obviously it would 457 00:22:48,960 --> 00:22:51,919 Speaker 1: have helped profits, but and so now the total effect 458 00:22:52,000 --> 00:22:59,080 Speaker 1: is thirty two billion tax for the big experience. Speaking 459 00:22:59,119 --> 00:23:00,720 Speaker 1: of benefits to banks, I do just want to get 460 00:23:00,720 --> 00:23:04,119 Speaker 1: your take because something that was very noticeable this week 461 00:23:04,600 --> 00:23:06,919 Speaker 1: while we were awaiting the signing of the Phase one 462 00:23:06,920 --> 00:23:09,119 Speaker 1: trade deal between the U S and China UH and 463 00:23:09,200 --> 00:23:12,400 Speaker 1: President Trump was running through the role call of everyone 464 00:23:12,440 --> 00:23:15,280 Speaker 1: who was at the event to witness the signing. There 465 00:23:15,320 --> 00:23:17,280 Speaker 1: are a lot of big bank executives. There are a lot, 466 00:23:17,320 --> 00:23:20,159 Speaker 1: at least a lot of people in the financial services industry. 467 00:23:20,240 --> 00:23:22,200 Speaker 1: So I want to get your take. Is there something 468 00:23:22,200 --> 00:23:25,080 Speaker 1: about the trade deal that is supposed to really help 469 00:23:25,200 --> 00:23:28,760 Speaker 1: or will it actually benefit the financial services industry. Yeah, 470 00:23:28,800 --> 00:23:31,560 Speaker 1: it was a funny moment when Trump asked or said 471 00:23:31,600 --> 00:23:33,440 Speaker 1: that the banks should say thank you to him. He 472 00:23:33,520 --> 00:23:36,800 Speaker 1: was speaking to a JP Morgan executive. That was hilarious. Um. Yeah, 473 00:23:36,880 --> 00:23:39,760 Speaker 1: I mean the banks are all very keen to get 474 00:23:39,960 --> 00:23:43,000 Speaker 1: bigger in China. UM. Golden Sact prior to the trade 475 00:23:43,040 --> 00:23:45,119 Speaker 1: deal was already saying that it wanted to double its 476 00:23:45,119 --> 00:23:48,479 Speaker 1: amount of staffing in China. The question now is whether 477 00:23:48,600 --> 00:23:52,119 Speaker 1: they can deepen their impact because they already have to 478 00:23:52,160 --> 00:23:54,280 Speaker 1: have these kind of JV structures. So if you were 479 00:23:54,280 --> 00:23:56,240 Speaker 1: in a j j V with a big American bank, 480 00:23:56,280 --> 00:23:58,639 Speaker 1: which is just be like okay, fine, I'll sell everything 481 00:23:58,680 --> 00:24:01,480 Speaker 1: and you can take over you know that that's a negotiation. 482 00:24:01,520 --> 00:24:05,040 Speaker 1: Theoretically they can now have a wholly owned subsidiary exactly. 483 00:24:05,080 --> 00:24:07,800 Speaker 1: And so the question is whether the partners are actually 484 00:24:07,800 --> 00:24:09,800 Speaker 1: going to be okay with that, whether the banks can 485 00:24:09,920 --> 00:24:12,960 Speaker 1: kind of you know, broaden or widen their steak in 486 00:24:13,119 --> 00:24:15,679 Speaker 1: some of these entities. So does the partnership kind of 487 00:24:15,720 --> 00:24:19,080 Speaker 1: get gained them entrance into the exactly. There is something 488 00:24:19,080 --> 00:24:21,359 Speaker 1: to be said for a local partnership because it gives 489 00:24:21,359 --> 00:24:24,119 Speaker 1: you local trust and a name brand and something that 490 00:24:24,160 --> 00:24:27,360 Speaker 1: you can kind of get your toll holding. So our 491 00:24:27,440 --> 00:24:29,639 Speaker 1: Chinese consumer is going to be happy with, you know, 492 00:24:29,800 --> 00:24:32,359 Speaker 1: Golden sax brand or do they want a local firm 493 00:24:32,440 --> 00:24:35,040 Speaker 1: that kind of opens the door. Maybe they buy one 494 00:24:35,040 --> 00:24:39,560 Speaker 1: percent and go Yeah. It reminds me see, and I'm 495 00:24:39,600 --> 00:24:42,119 Speaker 1: sure that everyone is kind of looking at their looking 496 00:24:42,160 --> 00:24:44,640 Speaker 1: at their businesses and figuring out what to do, trying 497 00:24:44,680 --> 00:24:49,199 Speaker 1: to start those negotiations because now it's green light. I 498 00:24:49,200 --> 00:24:51,119 Speaker 1: think that's our green light for the craziest thing of 499 00:24:51,160 --> 00:24:54,160 Speaker 1: the week. John's impressed with that, Segway, I can tell 500 00:24:54,160 --> 00:25:01,520 Speaker 1: every because he said media training. He knows all right, 501 00:25:02,000 --> 00:25:05,439 Speaker 1: lad Lot already told me that her craziest thing is 502 00:25:05,440 --> 00:25:09,240 Speaker 1: one of her own stories, which I'll allow so self serving, 503 00:25:09,359 --> 00:25:12,439 Speaker 1: but I gotta do it because this story really touched 504 00:25:12,440 --> 00:25:15,160 Speaker 1: a nerve. I wrote a story about how Wall Street's 505 00:25:15,160 --> 00:25:18,800 Speaker 1: bonus culture is dying because of the quants, right, because 506 00:25:22,040 --> 00:25:25,960 Speaker 1: you're catering to quant clients, I'm sure. And so these days, 507 00:25:26,320 --> 00:25:29,320 Speaker 1: you know, the quantz and the robots and automation doing 508 00:25:29,440 --> 00:25:32,399 Speaker 1: much more of the work that the traditional old school 509 00:25:32,400 --> 00:25:34,720 Speaker 1: trader used to do. And so that kind of means 510 00:25:34,760 --> 00:25:38,360 Speaker 1: that cost pressure and team team dynamics now are really 511 00:25:38,400 --> 00:25:40,920 Speaker 1: important rather than just the one trader saying I'm gonna 512 00:25:40,920 --> 00:25:43,160 Speaker 1: make a big bet and I'm gonna make tons of money. Um. 513 00:25:43,320 --> 00:25:46,000 Speaker 1: Really touched a nerve. Got a lot of reader emails 514 00:25:46,359 --> 00:25:49,160 Speaker 1: lamenting the good old days, saying, oh no, I need 515 00:25:49,200 --> 00:25:51,440 Speaker 1: to go and take a coding class. Um. So that 516 00:25:51,520 --> 00:25:54,320 Speaker 1: was that was the craziest thing. I just didn't I 517 00:25:54,359 --> 00:25:57,880 Speaker 1: didn't anticipate this type of reaction that people really, you know, unleash. 518 00:25:57,920 --> 00:26:02,640 Speaker 1: They're kind of angst on me after I I think 519 00:26:02,640 --> 00:26:05,680 Speaker 1: when you're telling someone, uh that part of their job 520 00:26:05,880 --> 00:26:08,080 Speaker 1: or part of their pay is that threat, um, they 521 00:26:08,119 --> 00:26:09,840 Speaker 1: might not be too happy with you. They were not 522 00:26:09,880 --> 00:26:14,280 Speaker 1: happy alright, sir, can you beat that? Alright? So this 523 00:26:14,320 --> 00:26:17,160 Speaker 1: week I'm leaning back on just some of the old 524 00:26:17,200 --> 00:26:20,240 Speaker 1: classics because how could I not If you look at 525 00:26:20,240 --> 00:26:22,800 Speaker 1: shares of Tesla or you look at shares of Beyond 526 00:26:22,840 --> 00:26:26,480 Speaker 1: Meat this year, it's really just unbelievable. So shares a 527 00:26:26,560 --> 00:26:30,000 Speaker 1: Beyond Meat up about fifty this year, shares of Tesla 528 00:26:30,480 --> 00:26:35,560 Speaker 1: up about year to date um. And these are companies 529 00:26:35,600 --> 00:26:38,119 Speaker 1: that had had some struggles a couple of months back up, 530 00:26:38,200 --> 00:26:41,080 Speaker 1: but now they're back and they're very hot. And yes 531 00:26:41,119 --> 00:26:44,520 Speaker 1: there has been news flow to help these gains, uh 532 00:26:44,640 --> 00:26:47,119 Speaker 1: and kind of inspire these games. But at the same time, 533 00:26:47,200 --> 00:26:49,760 Speaker 1: just the sheer strength of what we've seen has been 534 00:26:49,760 --> 00:26:53,320 Speaker 1: pretty crazy. Yeah, they're just classics that you can run 535 00:26:53,400 --> 00:26:55,359 Speaker 1: with Johnna. They tell you about our gibbick. Here the 536 00:26:55,400 --> 00:26:57,640 Speaker 1: craziest thing we saw in markets this week, well, I'll 537 00:26:57,680 --> 00:27:01,560 Speaker 1: wing it. Um. We we didn't analysis of the fourth 538 00:27:01,640 --> 00:27:05,880 Speaker 1: quarter expected earnings. This is just consensus um expectations and 539 00:27:06,000 --> 00:27:09,840 Speaker 1: for the fourth quarter and then all of and the 540 00:27:10,119 --> 00:27:14,639 Speaker 1: expectation is that is going to be a massive rebound. 541 00:27:14,920 --> 00:27:19,359 Speaker 1: And everyone kind of wrote off the the earning story 542 00:27:19,520 --> 00:27:24,080 Speaker 1: because you had no earnings to speak of in and 543 00:27:24,600 --> 00:27:27,760 Speaker 1: what the um and and so, first to your point 544 00:27:27,760 --> 00:27:32,359 Speaker 1: on trade, the biggest um changes those SMP companies that 545 00:27:32,400 --> 00:27:35,240 Speaker 1: are doing the majority of their business outside of the US. 546 00:27:35,760 --> 00:27:39,480 Speaker 1: The numbers are like double digit growth expectations for for 547 00:27:39,600 --> 00:27:43,200 Speaker 1: UH for next year. However, the current quarter is going 548 00:27:43,240 --> 00:27:46,000 Speaker 1: to see none of that because we are still seeing 549 00:27:46,000 --> 00:27:47,639 Speaker 1: and you talked about things being good in the banks, 550 00:27:47,880 --> 00:27:49,840 Speaker 1: but the industrial companies and the material companies and the 551 00:27:49,880 --> 00:27:52,160 Speaker 1: energy companies, um and and even some of the big 552 00:27:52,160 --> 00:27:54,840 Speaker 1: tech companies are really expect expected to have a week quarter. 553 00:27:54,920 --> 00:27:58,320 Speaker 1: So this is going to be a you know, surprisingly 554 00:27:58,320 --> 00:28:01,600 Speaker 1: week quarter with unbelieve probably strong expectations for next year. 555 00:28:01,640 --> 00:28:03,800 Speaker 1: And what I'm hearing when I talk to investors is 556 00:28:04,119 --> 00:28:07,399 Speaker 1: they're struggling with buying into this story. They want to 557 00:28:07,400 --> 00:28:10,320 Speaker 1: believe things are going to get better, but they're hugely skeptical, 558 00:28:10,359 --> 00:28:12,920 Speaker 1: which to me is actually an opportunity. So you think, 559 00:28:13,119 --> 00:28:15,520 Speaker 1: is it possible we actually see double digit earnings growth 560 00:28:15,520 --> 00:28:17,200 Speaker 1: for the benchmark this year? No, you're not gonna see 561 00:28:17,200 --> 00:28:18,359 Speaker 1: for that. You're not gonna be double digit for the 562 00:28:18,359 --> 00:28:21,320 Speaker 1: bench book, but you will see is so take energy 563 00:28:21,359 --> 00:28:25,400 Speaker 1: for example, it's abtracted like two from earnings last year 564 00:28:25,440 --> 00:28:28,120 Speaker 1: for the whole SMB and had a horrible number. It's 565 00:28:28,160 --> 00:28:31,280 Speaker 1: going to have super easy comps. So Energy is gonna 566 00:28:31,280 --> 00:28:34,280 Speaker 1: put up in a relative growth rate compared to the 567 00:28:34,280 --> 00:28:39,160 Speaker 1: prior year huge numbers. The big tech companies um that 568 00:28:39,440 --> 00:28:43,600 Speaker 1: we're faced with either a semiconductor cycle or internet issues, 569 00:28:43,920 --> 00:28:48,680 Speaker 1: had really huge margin pressures and costs in and so 570 00:28:48,760 --> 00:28:51,800 Speaker 1: they're set up to put up really really big relative 571 00:28:51,840 --> 00:28:55,280 Speaker 1: gains in the year. So the delta on this is 572 00:28:55,320 --> 00:28:58,120 Speaker 1: going to be Energy, megacap tech are going to be 573 00:28:58,880 --> 00:29:02,400 Speaker 1: just They're They're going to be double digit winners. And 574 00:29:02,680 --> 00:29:06,440 Speaker 1: I think that there's this skepticism of people buying into 575 00:29:06,520 --> 00:29:09,240 Speaker 1: that success plenty. All right, Mike, you talked to big games. 576 00:29:10,160 --> 00:29:12,920 Speaker 1: Now time for the winning entry and the craziest thing. Well, first, 577 00:29:13,240 --> 00:29:14,720 Speaker 1: before I get to that, let me start with a 578 00:29:15,120 --> 00:29:18,000 Speaker 1: friend of mine texted me with his entry. Uh. He 579 00:29:18,040 --> 00:29:19,920 Speaker 1: worn though that I can't think of a market angle 580 00:29:19,960 --> 00:29:23,480 Speaker 1: on this one. So maybe, uh, if if anyone always 581 00:29:23,520 --> 00:29:29,960 Speaker 1: have a friend who calls in with but so if anyone, 582 00:29:30,000 --> 00:29:31,880 Speaker 1: if anyone can think of a market angle for this story, 583 00:29:31,880 --> 00:29:34,720 Speaker 1: it is crazy. Yeah, but called the hotline if you 584 00:29:34,760 --> 00:29:37,320 Speaker 1: got a market angle. But it's a man. This says 585 00:29:37,400 --> 00:29:39,360 Speaker 1: a story from the Des Moines Register. I think I 586 00:29:39,400 --> 00:29:42,000 Speaker 1: saw a few other places too. Man going through a 587 00:29:42,080 --> 00:29:45,960 Speaker 1: nasty divorce with his wife. He uh petitioned the judge 588 00:29:46,280 --> 00:29:49,000 Speaker 1: uh to do it by trial by combat. He basically 589 00:29:49,000 --> 00:29:51,240 Speaker 1: wants to have a sword fight with his wife. And 590 00:29:51,280 --> 00:29:54,719 Speaker 1: according to this guy, trial by combat has never officially 591 00:29:54,760 --> 00:29:56,760 Speaker 1: been outlawed. You can still requested. I don't know. I 592 00:29:56,760 --> 00:29:58,880 Speaker 1: think he's watching too much Game of Thrones. I think 593 00:29:58,880 --> 00:30:02,840 Speaker 1: their friend wins, so the market I go first. I 594 00:30:02,920 --> 00:30:06,800 Speaker 1: allow him to win if we can, going back before duels. 595 00:30:06,880 --> 00:30:10,360 Speaker 1: He's going way way back trading by combat. But here's 596 00:30:10,480 --> 00:30:13,600 Speaker 1: here's my craziest thing of the week, courtesy of the 597 00:30:13,760 --> 00:30:17,760 Speaker 1: Coin Desk website via the Money Stuff newsletter, which I 598 00:30:17,800 --> 00:30:20,800 Speaker 1: find a lot of crazy things, and some people have 599 00:30:20,880 --> 00:30:26,120 Speaker 1: launched a new cryptocurrency backed by tins of sardines. First, 600 00:30:26,160 --> 00:30:28,520 Speaker 1: the reporter, I think thought it was a joke because 601 00:30:28,560 --> 00:30:31,440 Speaker 1: it's UH mentioned April one in the in the White 602 00:30:31,440 --> 00:30:33,479 Speaker 1: paper about it. But no, this is the real thing, 603 00:30:33,480 --> 00:30:35,080 Speaker 1: and I looked it up. I did some research, and 604 00:30:35,120 --> 00:30:38,640 Speaker 1: by that I mean I googled sardine vintage sardines. Apparently 605 00:30:38,720 --> 00:30:44,000 Speaker 1: John sardines are an appreciating asset. There are some aficionados, 606 00:30:44,000 --> 00:30:52,520 Speaker 1: aficionados if you follow me. Yeah, it's like sardines appreciate 607 00:30:52,640 --> 00:30:56,160 Speaker 1: they taste better after a few years, tins of sardines 608 00:30:56,400 --> 00:30:59,200 Speaker 1: appreciating value like a fine wine. I know it sounds 609 00:30:59,200 --> 00:31:05,240 Speaker 1: crazy until when and um, I don't know. It's it's 610 00:31:05,240 --> 00:31:08,160 Speaker 1: got to be an ex expiration day. But so this 611 00:31:08,280 --> 00:31:13,040 Speaker 1: cryptocurrency would buy tens of sardines swore them, and that's 612 00:31:13,200 --> 00:31:15,200 Speaker 1: that's what underpins the value that it actually might be 613 00:31:15,200 --> 00:31:18,520 Speaker 1: the first cryptocurrency that makes sense to me too. Sadly, Look, 614 00:31:18,560 --> 00:31:20,360 Speaker 1: I'm going to say that as crazy, but considering the 615 00:31:20,400 --> 00:31:23,880 Speaker 1: fact that when we first started this podcast you flat 616 00:31:23,920 --> 00:31:27,400 Speaker 1: out said to me we cannot talk about crypto, I 617 00:31:27,440 --> 00:31:33,280 Speaker 1: think you might be disqualified. We've already broken the role 618 00:31:33,280 --> 00:31:40,520 Speaker 1: many times there you're a sardina aficionado. But with that said, 619 00:31:40,560 --> 00:31:42,560 Speaker 1: Jonathan golob Lynn and New and thank you so much 620 00:31:42,560 --> 00:31:53,160 Speaker 1: for joining us today. Thank you what goes up. We'll 621 00:31:53,200 --> 00:31:55,720 Speaker 1: be back next week. Until then, you can find us 622 00:31:55,720 --> 00:31:58,560 Speaker 1: on the Bluebog Terminal website and app or wherever you 623 00:31:58,640 --> 00:32:01,120 Speaker 1: get your podcasts. We'd love it if you took the 624 00:32:01,160 --> 00:32:03,800 Speaker 1: time to rate interview the show on Apple Podcast. Some 625 00:32:03,880 --> 00:32:06,560 Speaker 1: more listeners can find us, and you can find us 626 00:32:06,560 --> 00:32:10,240 Speaker 1: on Twitter. Follow me at at Sarah Ponzeck. Mike is 627 00:32:10,280 --> 00:32:14,200 Speaker 1: a Reaganonymous our guest. Lenan Newen is at Lenan T. Newen. 628 00:32:14,640 --> 00:32:18,440 Speaker 1: You can also follow Bloomberg Podcasts at podcast. What Goes 629 00:32:18,520 --> 00:32:21,920 Speaker 1: Up is produced by topor Foreheads and edited by Darrell Dillard. 630 00:32:22,200 --> 00:32:25,760 Speaker 1: The head of Bloomberg Podcast is Francesco Levie. Thanks for listening, 631 00:32:25,840 --> 00:32:26,640 Speaker 1: See you next time.