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Speaker 3: Let's get right to these Youmish sentiment data. So basically,
Speaker 3: we're looking at a fall for you Mish for the
Speaker 3: first time in three months, and you have the high
Speaker 3: cost of living really offsetting any sort of sanguine views
Speaker 3: on the job mark, kind of the opposite of what
Speaker 3: the FED was sort of looking at over the last
Speaker 3: few weeks. Joan Shue, University of Michigan Surveys of Consumer
Speaker 3: Director joins us now walk us through the decline here
Speaker 3: and the whys behind it.
Speaker 4: Absolutely so, I would point out that this decline is
Speaker 4: not statistically significant. We should see this as you know,
Speaker 4: inching down a very very small change. We're still higher
Speaker 4: than we were two months ago. Being said, consumers are
Speaker 4: you know, I think reacting to the same data that
Speaker 4: we saw on the CPI print yesterday. Inflation is slowing,
Speaker 4: but it's not slowing down as quickly as one would like.
Speaker 4: I'll note that the long term inflation expectations actually came
Speaker 4: down a little bit, so, you know, sort of mixed
Speaker 4: views on inflation, on inflation expectations, and.
Speaker 5: On labor markets.
Speaker 4: You know, I think consumers are feeling a little bit
Speaker 4: more confident this month. We had been seeing a week
Speaker 4: a bit of a weakening and labor market expectations the
Speaker 4: last few months, but they did expect the Fed to
Speaker 4: step in they did last month, and so consumers are
Speaker 4: feeling a little bit more staple there.
Speaker 6: How does just interest rates coming down? Is that just
Speaker 6: too much of a macro Wall Street thing to really
Speaker 6: impact the UMISH data.
Speaker 4: I don't think that the FOMC announcement necessarily moves the
Speaker 4: UMISH data at all.
Speaker 5: It doesn't really move consumers.
Speaker 4: That being said, consumers are fully aware of the interest
Speaker 4: rates around them, and when we ask them about buying
Speaker 4: conditions for a large large purchases like cars or durable
Speaker 4: goods or homes, the spontaneous mentions of high interest rates
Speaker 4: has fallen this month, So consumers are perfectly aware that
Speaker 4: interest rates are going to have been falling, and fifty
Speaker 4: four percent of consumers expect interest rates to continue following
Speaker 4: falling In the year ahead.
Speaker 5: So this is something that's on the minds of consumers.
Speaker 3: The narrative yesterday when we got the CPI data initial
Speaker 3: jobless claims, is that which one is the FED look at, right,
Speaker 3: higher jobless claims or an inflation narrative, that disinflation narrative.
Speaker 3: That's not as steep as we had thought. It feels
Speaker 3: like from the report consumers are looking at those two things. Also,
Speaker 3: job's okay, inflation not okay.
Speaker 4: Absolutely, I mean I think that in terms of inflation,
Speaker 4: and also high prices, that is absolutely.
Speaker 5: The number one factor on consumers' minds.
Speaker 4: We have over forty percent of consumers spontaneously telling us
Speaker 4: that high prices are eroding their personal finances. And it's
Speaker 4: been that way for quite some time, and so consumers
Speaker 4: are really concerned about that. With labor markets, you know,
Speaker 4: consumers are not super concerned about unemployment. They are aware
Speaker 4: that labor markets have been strong for the last couple
Speaker 4: of years.
Speaker 5: They are, you know.
Speaker 4: Watching their incomes very closely, of course, but they aren't
Speaker 4: really afraid of losing their jobs in the year ahead.
Speaker 6: All right, Joan, thank you so much. I really appreciate that.
Speaker 6: Joanne Shu, She's a Surveys of consumer director for the
Speaker 6: University of Michigan's they don't make just good football players
Speaker 6: out there. They make some good economists. It's good economic
Speaker 6: data out there, and.
Speaker 5: They make cars.
Speaker 6: They make cars, but not necessarily at the university.
Speaker 7: Okay, I see the distinction.
Speaker 6: See what you're seeing. So that's all good stuff there.
Speaker 6: So you missed data coming in a little bit weaker
Speaker 6: than expected.
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Speaker 7: What's really driving here? Are banks?
Speaker 3: I mean JP Morgan having like a tremendous move. Paul,
Speaker 3: you got the KBW bank index also arise in the
Speaker 3: most since December fourteenth.
Speaker 7: You've been talking people on morning. Did you find any
Speaker 7: cracks here?
Speaker 6: Well, I mean, you know, people were on the call
Speaker 6: talking about net interest margines, net interest incoming. Finally, Jamie
Speaker 6: Thymond's like, hey, guys, we put up some great numbers.
Speaker 6: Just lighten up about this, and that's interesting.
Speaker 2: I'm with him.
Speaker 6: I mean, and then I saw the Wells Fargo. Being
Speaker 6: a former investment banker, I go right to the investment
Speaker 6: banking lie man, they killed it, yeah, I don't you know.
Speaker 3: And Rolls Fargo they haven't been able to grow in
Speaker 3: the same way because the asset cap. So if they
Speaker 3: killed it, now, imagine when the cap is finally lifted.
Speaker 3: Someone smiling here.
Speaker 7: And I don't know if that's a good.
Speaker 6: Or bad thing.
Speaker 3: As Alison Williams, Bloomberg Intelligence, Senior Analyst for Global Banks
Speaker 3: and Asset Managers. Allison, what was your biggest takeaway from
Speaker 3: these two guys.
Speaker 8: I mean, things are good, right, and then we got
Speaker 8: the PPI numbers. I think that's also giving a list
Speaker 8: lift to the stocks. You know, JP Morgan is fascinating
Speaker 8: because they you know, beat the interest income. The guidance
Speaker 8: looks better for fourth quarter, but Jamie making him point
Speaker 8: to talk down the interest income guidance for next year,
Speaker 8: and as you pointed out, really just getting annoyed with
Speaker 8: people like focusing so much on every little thing. He
Speaker 8: did make comments about the expenses as we were discussing
Speaker 8: earlier this morning, just pointing out that look expenses are
Speaker 8: investments and investments in the future. But generally, you know,
Speaker 8: showing you know, charge offs coming in better than expected,
Speaker 8: but building the reserve. I think that reflects conservatism. Wells
Speaker 8: Fargo also, you know they're they're actually releasing reserves. So
Speaker 8: what that means is that generally a better economic view
Speaker 8: on a lot of different things. They did build some
Speaker 8: for card and for commercial real estate.
Speaker 6: A right one of the many reasons I am not
Speaker 6: a bank analyst because I focus on all the wrong things.
Speaker 6: Here's my question for Wells Fargo. Wells Fargo's CEO, they've
Speaker 6: refurbished more than four and sixty branches this year. I
Speaker 6: have been in a branch since well before the pandemic.
Speaker 6: I'm like, mister, I got my app I'm cruising on
Speaker 6: my APP. I can do everything. Why are banks still
Speaker 6: have branches?
Speaker 7: They get cash in your pocket, I see you take
Speaker 7: it out.
Speaker 6: Yeah, but I've at four or five hundred bucks because
Speaker 6: you never know when you're going to walk by a
Speaker 6: crap game. So talk to us about branches and how
Speaker 6: they what do they mean for the Wells Fargos and
Speaker 6: the Bank of Americas of the world.
Speaker 8: So banks are still building branches there's two reasons. So
Speaker 8: banks such as like Wells Fargo, Bank of America JP Morgan,
Speaker 8: there is a cap in terms of what you can buy,
Speaker 8: so you have to organically build. So any states that
Speaker 8: they're not in that they think are attractive markets, they
Speaker 8: are building in those markets. But what they have been
Speaker 8: doing is reconfiguring those branches, so focusing.
Speaker 9: More on wealth.
Speaker 8: So the branch may not be that you know, if
Speaker 8: you walked into a branch, you might not recognize it.
Speaker 8: There is a JP Morgan branch in the middle of
Speaker 8: Summit which hasn't changed very much, but but a lot
Speaker 8: of the branches and select markets are just making them smaller,
Speaker 8: more sales focused, focusing more on the wealth management business,
Speaker 8: so not necessarily your your branch of the day of old,
Speaker 8: where the focus was on deposits. Hopefully everyone's doing those
Speaker 8: on their phone because the cost to banks of processing
Speaker 8: those is pennies.
Speaker 1: On the dollar.
Speaker 6: John, you know, you can deposit a check by taking
Speaker 6: a photo of the check and then.
Speaker 7: I actually have done that. But there are things like
Speaker 7: they're doing everything they can to make me go paperless.
Speaker 2: I absolutely refuse.
Speaker 7: Really, I want it to be so much easier. Big
Speaker 7: of a drag.
Speaker 3: And then you wonder why we make you out to
Speaker 3: be a curmudgeon, and we're like, we don't do it,
Speaker 3: you do it to yourself.
Speaker 7: I fully admit it.
Speaker 3: What would be your questions now, so we got to
Speaker 3: this quarter, et cetera, what's your biggest question for JPM
Speaker 3: and for Wells Fargo?
Speaker 8: I mean, when is longerth can you get a little
Speaker 8: bit better? So that is I think one of the
Speaker 8: benefits of interest rate cuts that you're not sartly going
Speaker 8: to see in their projections, right because I think they're
Speaker 8: going to want to see more evidence of that loan demand.
Speaker 8: Card has been really strong, and the reason why we're
Speaker 8: seeing reserves for card is really not we have some
Speaker 8: normalization of credit, but it's really the growth. So when
Speaker 8: are the other areas going to pick up?
Speaker 1: You know?
Speaker 8: The other thing is fees. Fees have been helped by
Speaker 8: the super strong markets, and I think that's if you
Speaker 8: look at Wells Fargo's stock today, Yes, that interesting comes
Speaker 8: softer in the quorder, but next quarter looks fine and
Speaker 8: the markets are doing better. You know, that's that's not
Speaker 8: necessarily a question that management can answer, but it's something
Speaker 8: that we think is going to continue to benefit the bag.
Speaker 6: I have my checking account what Wells fargos, So I
Speaker 6: don't think I'm prepared to ask this question. Explain to
Speaker 6: us what the regulatory and legal issues are still above
Speaker 6: Wells Fargo and when do they hope to get out
Speaker 6: from under that.
Speaker 8: I mean, the so the asset cap is unprecedented. Is
Speaker 8: an asset basically after you know, if we go way
Speaker 8: way back to twenty sixteen, they were they were fined
Speaker 8: for some different sales practices. They had to make some improvements,
Speaker 8: they weren't making them fast enough. So within about a
Speaker 8: year or so, they got this asset CAUP which said, look,
Speaker 8: you're not allowed to grow from where your assets are
Speaker 8: today until you know, you fix the things that we
Speaker 8: want to fix. And that had never happened before, and
Speaker 8: so initially the thought was, oh, this will be a
Speaker 8: few months. So many many years later they are still
Speaker 8: working to fix that. And you know, since then, you know,
Speaker 8: that was a prior CEO. So we had a change
Speaker 8: at the top in terms of management, we had the
Speaker 8: board turnover, We've had tons of processes changing. There was
Speaker 8: a Bloomberg excuse me, a Bloomberg News article recently about
Speaker 8: you know, sending to regulars, all the changes that they've made,
Speaker 8: but at this point it makes less of a difference.
Speaker 8: The Really it really hurt them during the pandemic because
Speaker 8: they were limited in terms of the deposits they could add.
Speaker 8: But it is really about sentiment and flexibility. Should there
Speaker 8: be another big opportunity for them created, they want to
Speaker 8: make sure that they have that flexibility.
Speaker 3: And if you talk to management, they're like, it's it's
Speaker 3: a process, Like they can't give a data or a
Speaker 3: time because it's about transparency and rules. So like when
Speaker 3: they keep making the transparency and rules happen, at some
Speaker 3: point that will be lifted. Thirty seconds. Which bank now
Speaker 3: that is left to report? Do you think does well
Speaker 3: based on these results?
Speaker 8: Gulben Sachs, Golvin Sachs, and Morgan Stanley. So Morgan Stanley
Speaker 8: is more skewed towards the equity's business right They're trading
Speaker 8: has more exposure there equities trading super strong at JP Morgan.
Speaker 8: Those three banks are the top in the business and
Speaker 8: so we expect to see more strength next week.
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Speaker 7: So here's a story I don't understand.
Speaker 3: So it's a great story to then talk to Bloomberg
Speaker 3: Intelligence about a TD Bank is going to pay almost
Speaker 3: three point one billion dollars in fines and other penalties
Speaker 3: and face a cap on its US retail banking assets.
Speaker 3: This is after pleading guilty to failing to prevent money
Speaker 3: laundering by drug cartels and other criminals. We got the
Speaker 3: legal side, we got the business equity side for you here.
Speaker 3: Elliot Stein is Bloomberg Intelligence Litigation analyst and Paul Goldberg
Speaker 3: is Bloomberg Intelligence Senior equity analyst. Elliott start with you
Speaker 3: explain to me the legal story here.
Speaker 10: Right, So, yesterday TD Bank became the largest bank in
Speaker 10: US history to plead guilty to money laundry and virations.
Speaker 10: They paid three billion dollars, which is now the most
Speaker 10: any bank has ever paid for money laundry and virations,
Speaker 10: and they are now only the second bank to have
Speaker 10: an asset cap imposed on them, after well as Fargo over.
Speaker 5: Six years ago.
Speaker 10: Although it should be noted that the asset cap on
Speaker 10: TD Bank is only limited to its US retail bank operations,
Speaker 10: so it's sort of a smaller asset cap than one
Speaker 10: imposed on Wills.
Speaker 6: Hey, Paul, how much does this impact what investors kind
Speaker 6: of their view of TD? Three billion dollars is a
Speaker 6: big number, Elliott says, But they got one hundred and
Speaker 6: twenty billion a market cap, So what do you think?
Speaker 9: Yeah, all right, Paul, three billion dollars is not a
Speaker 9: big that big of a deal for them as a bank.
Speaker 9: They have thirteen percent of capital ratio, and they reserved
Speaker 9: most of it for most of it already just shy
Speaker 9: have a few dollars there. The asset cap is a
Speaker 9: bigger issue, and it's going to impede growth the now.
Speaker 9: They gave some ins and outs what they're going to
Speaker 9: do trying to accommodate the new requirements from the regulators.
Speaker 9: They're going to cut their US assets for those retail
Speaker 9: banks by about ten percent. It's going to be an
Speaker 9: additional one and have billion dollar charge. And even excluding
Speaker 9: that charge, some of the actions that we saw when
Speaker 9: we ran the numbers, it could be as much as
Speaker 9: another thirty cents in the earning, So another few percent
Speaker 9: of the earnings are going to get shaved in the
Speaker 9: next year. And how long is it going to take
Speaker 9: to unwind? It's going to take some time.
Speaker 3: This might be a silly question, Elliott, but like what
Speaker 3: was what did they actually do and how they actually
Speaker 3: fixed that.
Speaker 5: Part of it?
Speaker 6: Like who launders money anymore?
Speaker 4: I know?
Speaker 10: Yeah, so the laundering here was by Chinese drug cartels
Speaker 10: and other drug cartels as well. And I think what's
Speaker 10: notable is that TD Bank employees were accepting bribes from
Speaker 10: these cartels. Yeah, Ale a couple of them were indicted previously,
Speaker 10: a couple of TD Bank employees. So I think that's
Speaker 10: what made this sort of a more egregious case because
Speaker 10: you know, usually with banks, you see that their AML
Speaker 10: processes are deficient. Here you have bank employees participating in
Speaker 10: the crimes and that can get imputed to the bank itself,
Speaker 10: and that's what made it the worst case.
Speaker 6: Paul Goldberg, I'm looking at the stock kind of you know,
Speaker 6: flat on the year. What's the call on a bank
Speaker 6: like TD and maybe just Canadian banks in general.
Speaker 9: Canadian banks are sort of sitting at the crossroads. Has
Speaker 9: the Bank of Canada started cutting the interest rates ahead
Speaker 9: of the Federal Reserve. Here they've done three cuts already.
Speaker 9: They kind of sitting in between the two worlds. One
Speaker 9: is the slower growth and risk of actual recession, which
Speaker 9: is kind of minimized at this point, and the other
Speaker 9: one is a profitability. The long growth slowed quite dramatically
Speaker 9: in Canada and somewhat in the US, and their mortgage
Speaker 9: market is a little bit different than the US when
Speaker 9: mortgage is repriced to a higher rate, which exposes consumer
Speaker 9: to a very different risk. And about seventy five percent
Speaker 9: of mortgages overall, and a lot of them that were
Speaker 9: issued at a very low rates during the pandemic due
Speaker 9: to the price in twenty five and twenty six, So
Speaker 9: a lot of what's going on and what might happen.
Speaker 9: People are looking at the Bank of Canada how well
Speaker 9: it can actually prevent that from spilling over into consumer pains.
Speaker 3: So then based on that, when you take a look
Speaker 3: at the stock is down by about over two percent today,
Speaker 3: do we see it was down about six percent? I
Speaker 3: think yesterday. What part of this is reflected in the stock,
Speaker 3: How much of the macro Bank of Canada, and then
Speaker 3: how much of this kind of legal fees, etc.
Speaker 9: So I think the macro has been reflected in the
Speaker 9: stock for quite a while because the relative to Peers
Speaker 9: has been under performing all year, and the story on
Speaker 9: the whole kind of DML story has been around for
Speaker 9: over a year as well, so a lot of been
Speaker 9: reflected as well. I think what people were not really
Speaker 9: expecting is the asset cap. And even though as Elliott said,
Speaker 9: it's only the US retail operations, so the assets of
Speaker 9: those two operations are only about thirty percent of the
Speaker 9: total bank assets, it's still kind of unexpected and that's
Speaker 9: what's pressing the stock. They gave sort of claire in
Speaker 9: what might be the pressure in twenty five, But the
Speaker 9: question is, and this is kind of goes back to
Speaker 9: Wells Fargo where every quarterly poll people are asking when
Speaker 9: they're going to be down with the cap. And we've
Speaker 9: been out there for seven years already, So what's priced
Speaker 9: in there in that respect is kind of hard to tell.
Speaker 6: Hey, Elliet this asset cap, which I just learned about
Speaker 6: like fifteen minutes ago, and Alison Williams explained it to
Speaker 6: me the context to Wells Fargos, and now I think I.
Speaker 2: Know all about it.
Speaker 6: This seems like a real deterrent for regulators to rein
Speaker 6: in banks behavior here. I mean, writing a check is easy,
Speaker 6: they can reserve for it, no big deal. This seems
Speaker 6: like it could really have some tea.
Speaker 10: Yeah, and I think it's sort of a new wave
Speaker 10: of enforcement weapons that regulators are bringing because you did
Speaker 10: have Wells Fargo's asset cap almost seven years ago, but
Speaker 10: more recently we've seen the OCC imposed different business limitations
Speaker 10: on Wells by requiring them to get OCC approval if
Speaker 10: they're going to expand into new products or new markets.
Speaker 10: And we saw that with TD Bank yesterday as well,
Speaker 10: because in addition to the asset cap, if TD's US
Speaker 10: operations want to expand into new markets or open new branches,
Speaker 10: they have to get OCC approval as well. So we're seeing,
Speaker 10: you know, new tools that regulators are using beyond just
Speaker 10: monetary penalties, which you know, critics say, are you know,
Speaker 10: just the cost of doing business.
Speaker 3: Which so for Wells Fargo, part of it is for
Speaker 3: the broader asset cap lift. It's sort of like you know,
Speaker 3: when you see it like it's nothing, you can point
Speaker 3: to that like they're going to fix this and then
Speaker 3: all will be well that that's sort of just transparency
Speaker 3: and rules. They have just clean up and they have
Speaker 3: to do better. What is it for TD It's.
Speaker 10: Similar to what Wells Fargo went through, but you know,
Speaker 10: there's no that that's the problem moments sort of exactly,
Speaker 10: it's up to the OCC. There are steps that the
Speaker 10: bank has to take along the way, right, They have
Speaker 10: to put in the plan that the OCC approves, Then
Speaker 10: they have to implement a plan. Then they have to
Speaker 10: get a third party independent reviewer to sort of sign
Speaker 10: off on it, and then that third part already presents
Speaker 10: it to the OCC, and then the OCC signs off
Speaker 10: on it. But there's no crystal clear moment. It's interesting, yeah,
Speaker 10: where it gets lifted.
Speaker 7: It's interesting.
Speaker 3: Also, it's like, how do you prove that your workers
Speaker 3: are no longer taking bribes?
Speaker 7: Like what is that?
Speaker 4: Like?
Speaker 7: What does that look like?
Speaker 3: Right? No, we promise, Yeah, it's like proving a negative exactly. Guys,
Speaker 3: a really interesting story. We thank you both. That was
Speaker 3: really fun. Elliott Stein, Bloomberg Intelligence Litigation analyst and Paul Goldberg,
Speaker 3: Bloomberg Intelligence Senior equity analyst, talking about TD Bank.
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Speaker 3: So we had the PPI which seemed pretty benign. You
Speaker 3: have nothing really happening in the front end. Long end
Speaker 3: though still selling off joining us now as Priam isra
Speaker 3: chief fixed income portfolio manager at JP Moore again asset
Speaker 3: management joining us.
Speaker 7: There prea what is going on with the long end?
Speaker 3: Why the selloff? Is there something fundamental? Is it repositioning?
Speaker 3: Is it something else?
Speaker 11: I think it's a combination of a couple of things.
Speaker 5: So we have this really strong jobs report.
Speaker 11: Now I know it's one report, it is subject to revisions,
Speaker 11: but I think the broad based strength of that report
Speaker 11: I think is making the market consider exactly where is
Speaker 11: neutral rate? And I think that neutral rate if you
Speaker 11: were thinking the Feds around two point nine, you know
Speaker 11: what if it's three and a half, what if it's four.
Speaker 11: I think that's part of it. So we saw that
Speaker 11: repricing starting with that report. The other one is we
Speaker 11: have an election in less than a month out and
Speaker 11: I think, you know, we can debate, you know, the
Speaker 11: makeup of Congress, the presidency, but fiscal restraint is not
Speaker 11: something either party is talking about. Even in a divided
Speaker 11: government scenario. I think there's a case to be made
Speaker 11: that the taxes will get extended, a lot of the
Speaker 11: spending will continue. So I think the market is reassessing
Speaker 11: that term premium. You know, now we're not worrying about growth,
Speaker 11: We're worried about what is the outlook after the election,
Speaker 11: and with all this fiscal question mark out there, I
Speaker 11: think we're reassessing how much will the FED cut and
Speaker 11: what should be that term premium? How much more should
Speaker 11: you get paid if you're giving the government money for
Speaker 11: two years versus ten years. And I think it's the
Speaker 11: combination of the two, along with probably some positioning. I
Speaker 11: think market was long given the previous two payroll reports.
Speaker 11: We were long into that payroll report. That's why the
Speaker 11: long end has sold off. I think we're starting to
Speaker 11: see some value, but before the election outcome and before
Speaker 11: realizing what's happening on the fiscal front, I think people
Speaker 11: are going to be nervous to step in and really
Speaker 11: buy the long end.
Speaker 6: All right, pria. In terms of credit, how much credit
Speaker 6: risk do you want to take these days? Because again
Speaker 6: you can sit in a two year treasury you get
Speaker 6: close to four percent.
Speaker 11: Year, right, I think, and credit spreads are tight on
Speaker 11: any historical metric. You could argue I'm not getting paid
Speaker 11: up enough for credit.
Speaker 5: Here's why I'm going to.
Speaker 11: Argue that high quality credit or owning high quality corporate paper,
Speaker 11: even with these tidespreads make sense. So two points on
Speaker 11: that number one you talked about, I can be in
Speaker 11: the very front end and still earn four percent. Well,
Speaker 11: we think the Fed's going to continue to cut. The
Speaker 11: urgency for fifty is clearly not there. But I think
Speaker 11: a gradual pace of twenty five getting close to a
Speaker 11: three or three and a half on FED funds.
Speaker 5: So that front end or money market.
Speaker 11: Yield where you may have it's felt great to be there,
Speaker 11: that yield is going to go down over time. Secondly,
Speaker 11: look at corporate America. I mean we're in a soft landing.
Speaker 11: This is the time when you should be picking up
Speaker 11: a little bit more spread. You have to be careful,
Speaker 11: you know what you're buying. But in the investment greate
Speaker 11: corporate market, I would even go as far as the
Speaker 11: high quality high eyel market, so the double be even
Speaker 11: some single bee look attractive. I mean, look at balance sheets.
Speaker 11: What are companies doing with the debt that they're issuing.
Speaker 11: They are not relevering up. This is not end of
Speaker 11: cycle behavior from corporate America. You know, there has been issuance,
Speaker 11: but there's it's been taken down really well. The issuance
Speaker 11: is all pre funding maturities that are coming up. So
Speaker 11: companies are very smartly trying to push out that maturity wall.
Speaker 11: So I would say, if you're picking up one hundred
Speaker 11: basis points in high quality IG investment grade or two
Speaker 11: hundred in high quality HYGIEL, it makes sense as long
Speaker 11: as we stay in a soft landing, pick up that
Speaker 11: yield and.
Speaker 5: Extend out the curve. You know, maybe thirty years too
Speaker 5: far out. Five year five year.
Speaker 11: Corporate bonds I think make a lot of sense as
Speaker 11: long as we stay in the soft landing and the
Speaker 11: data or FED policy is telling you that the soft
Speaker 11: landing should be our base case.
Speaker 3: It's just so crazy because I feel like in the
Speaker 3: beginning of August it was a growth scare, and then
Speaker 3: it was a soft landing, and now there's some talk
Speaker 3: about are we actually reaccelerating here and the FED is
Speaker 3: going to have to pause now that conversation, like Bostic pointed,
Speaker 3: our Ophil Bostic this week, supported that this is just
Speaker 3: such a weird time, like how do you manage that
Speaker 3: kind of narrative shift?
Speaker 5: I completely hear you, Alex.
Speaker 11: I think the market flips from one narrative to another
Speaker 11: very quickly every data point base. I think part of
Speaker 11: it is the FED keep selling us that they are
Speaker 11: not data point dependent, but there is no forward guidance.
Speaker 11: And we went from pricing in twenty five to fifty
Speaker 11: within a week to now pricing less than twenty five
Speaker 11: at the next meeting. So I think the market's clearly
Speaker 11: treating FED policy as data point dependent. But here's where
Speaker 11: it come boils down to the data is mixed. I
Speaker 11: mean there's some signs of slowing. I think we don't know.
Speaker 11: I think the last time I was on I was
Speaker 11: telling you I don't know if we're slowing to potential
Speaker 11: or below potential. I think we're still in that same
Speaker 11: place before the payroll report. There you could point to
Speaker 11: a couple of data points on the labor market, and
Speaker 11: I think it will come down to the labor market,
Speaker 11: so watch claims. And here's the bad news on this.
Speaker 11: We're not going to have very reliable data in the
Speaker 11: next few months because the impact of the strikes, the
Speaker 11: impact of the hurricanes. So we're going to have to
Speaker 11: look at the totality of data as the FED is doing,
Speaker 11: and then see is it convincingly leading.
Speaker 5: Us one way or the other.
Speaker 11: I think the market's overdoing the moves on boat directions.
Speaker 11: We didn't think a recession was very likely early August.
Speaker 11: I don't buy there's no landing scenario right now. I
Speaker 11: think we're slowing we Here's the thing. Soft landings are rare.
Speaker 11: The FED hasn't really been able to pull it off before,
Speaker 11: so I think it's understandable why the market's skeptical.
Speaker 5: But maybe this is the.
Speaker 11: One time where somehow they're able to cut rates too
Speaker 11: neutral or to whatever is their estimate of economy's estimate
Speaker 11: of neutral at the same time as the economy slows down.
Speaker 11: So perhaps this is the one time where we'll be
Speaker 11: in soft landing. But I think we should be careful
Speaker 11: not to swing from one end to the other end
Speaker 11: the market is and I think that's where we get opportunities.
Speaker 11: I think if the market prices out any more cuts
Speaker 11: in the front end, we'd be looking to buy the
Speaker 11: two years. I don't think the FED stops the easing cycle,
Speaker 11: but the market can certainly run with the narrative in
Speaker 11: one direction.
Speaker 6: Are there any sectors industry sectors that screen well for
Speaker 6: you given that background?
Speaker 5: Sure?
Speaker 11: So there's these growth sectors utilities, for example. It was
Speaker 11: not necessarily I would have said that that's a growth
Speaker 11: sector two years ago, and here we are electrification AI.
Speaker 11: So I think within the investment grade sector, I would
Speaker 11: say utilities make sense. There's areas in communication, in the
Speaker 11: high yields space where we think, you know, the sector
Speaker 11: might have been beaten down a little bit, we think
Speaker 11: there's value there. Financials now, financials have done well, but
Speaker 11: we still think that there's value. I mean, I'm going
Speaker 11: to be looking at the earning and the earning season
Speaker 11: starting out, and we just got the banks. What I'll
Speaker 11: be watching is do margins stay strong, because you know,
Speaker 11: if revenue growth, if the economy is slowing, I mean,
Speaker 11: we may we're likely slowing to trend or just below trend,
Speaker 11: not recession. But if we're slowing and companies have already
Speaker 11: gotten a lot of productivity out of you know what
Speaker 11: they could do to keep costs slow. It's going to
Speaker 11: come down to how much further can they do on
Speaker 11: the productivity side. And so if margins remain strong, I
Speaker 11: think then there's a lot of sectors you can look at.
Speaker 11: I mean there's certain sectors. I think you have to
Speaker 11: look at valuations too. I think many sectors make sense,
Speaker 11: but if the market's already priced that in, we stay
Speaker 11: away from that. Industrials in our view look rich from
Speaker 11: a valuation standpoint, but financials utility is there's a bunch
Speaker 11: of sectors. Securitized credit, I think people look at CMBs
Speaker 11: and get nervous. Commercial real estate we look at single
Speaker 11: family rental housing is still very unaffordable, so people are
Speaker 11: forced into the rental market. You have a job, you're earning,
Speaker 11: you're making your rent payment. That's a sector that makes
Speaker 11: a lot of sense. It's positive cash flow so across
Speaker 11: the Unlike equities, where I think you have to have
Speaker 11: a viewed tech, I think in fixed income it's like
Speaker 11: making me pick between my children.
Speaker 5: It's hard.
Speaker 11: There's opportunities in many sectors.
Speaker 7: We appreciate it. Thank you so very much. We always
Speaker 7: love when you join us.
Speaker 3: Priam Israel joining us at JP Morgan Asset Management. She
Speaker 3: is a fixed income portfolio manager.
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Speaker 6: I'm saying really over the last couple of three years
Speaker 6: that the regulatory hand of the ghost governments got a
Speaker 6: little heavier on the shoulders of big tech companies, and
Speaker 6: that includes our good friends at Google. Jennifer re joins
Speaker 6: us here. She's a senior at litigation analyst for Bloomberg
Speaker 6: Intelligence Alecuit. You rights here. If the US Justice Department
Speaker 6: asks Alphabet's Google to divest part of its business as
Speaker 6: a remedy for illegally maintaining monopolies in general search related
Speaker 6: ad markets, we think the dj will probably fail. Jen,
Speaker 6: what's the thinking behind that? Because there is some increasing
Speaker 6: talk here that the Department of Justice may in fact
Speaker 6: ask for some type of breakup of Alphabet.
Speaker 12: Yeah, and they've suggested that they are going to ask
Speaker 12: for that will find out mid November. But the reason
Speaker 12: why I think this, and I'm sorry because I'm going
Speaker 12: to have to get a little nerdy with you.
Speaker 1: Yeah, bring it all right, get ready.
Speaker 12: Here on this judge has adhered so closely to the
Speaker 12: old Microsoft monopolization decision back in early two thousand, the
Speaker 12: entire litigation, he said, that is his blueprint, and all
Speaker 12: through his decision on liability, he cited Microsoft, Microsoft, Microsoft,
Speaker 12: And what Microsoft says is that the standard for finding
Speaker 12: that the conduct and here it was these default agreements
Speaker 12: that Google had to put Search and all basically all
Speaker 12: the distribution channels right in the Internet. That to find
Speaker 12: liability you just have to find that it's reasonably probable
Speaker 12: that these agreements contributed to maintaining the monopoly, to maintaining
Speaker 12: the monopoly in search. But what Microsoft said is for remedy,
Speaker 12: if you're going to use divestiture, that standard is much higher.
Speaker 12: In other words, you need to kind of have a
Speaker 12: butt four standard.
Speaker 1: You have to be.
Speaker 12: Really certain that but for those agreements, Google wouldn't have
Speaker 12: the position in search it has today. And that this
Speaker 12: judge said over and over that Google got to this
Speaker 12: monopoly position by having a better product, not by behaving badly,
Speaker 12: but by basically innovating and making this great search product
Speaker 12: that people loved. It got to this monopoly position, and
Speaker 12: it was only after it attained that position that it
Speaker 12: behaved badly to maintain that spot. So I think given
Speaker 12: this much higher standard for what's called causation in the
Speaker 12: Microsoft case, and this judge is adherence to Microsoft, he's
Speaker 12: not going to go that far.
Speaker 3: So that was a pretty nerdy assessment, but I kind
Speaker 3: of got that that definitely works for me. What about
Speaker 3: behavioral remedies and and what does that mean?
Speaker 12: Yeah, I think we're going to see quite a lot
Speaker 12: of that because the DJ kind of threw in just
Speaker 12: about everything that's possible here. Behavioral remedies means you can
Speaker 12: or can't. We are going to make you do things
Speaker 12: or tell you can't do things, right, it's just how
Speaker 12: you conduct your business and how we're going to tell
Speaker 12: you you have to conduct your business. So in this case,
Speaker 12: very likely it's going to be Google can't pay Apple
Speaker 12: to insert Google Search as the default behind Safari, can't
Speaker 12: pay the OEMs like Samsung making the Android phones or
Speaker 12: require them as a condition to having Google Play or
Speaker 12: YouTube or some other really desirable app that the OEMs
Speaker 12: want to pre install. You can't condition that access to
Speaker 12: Google Play on also putting Chrome or Search front and
Speaker 12: center and keeping all the other rivals in Browser and
Speaker 12: Search off the phone.
Speaker 1: Things like that.
Speaker 12: Also possibly some data sharing, because what this judge found
Speaker 12: is that over the years, through the volume of searches
Speaker 12: Google had, they had the scale to developing become better,
Speaker 12: whereas bing and Duct, dot Go and some of the
Speaker 12: other new rivals didn't have that scale and couldn't improve.
Speaker 12: And that data is super important, as well as the
Speaker 12: indexing of the web and the crawling of the web
Speaker 12: and all of everything Google did to create this great
Speaker 12: search engine. So Google may have to share some of
Speaker 12: that data with some of these search rivals to help
Speaker 12: them try to get better timing.
Speaker 6: I know, you guys bill by the hour, so timing
Speaker 6: is very important. I just think just screams appeals and
Speaker 6: years and years and years. But give us a sense
Speaker 6: of how you think the timing might play out.
Speaker 1: This is going to take a long time.
Speaker 12: I mean, I don't think we see any real impact
Speaker 12: on Google soon, So the final remedies won't be decided
Speaker 12: till August, so we have a long time before we
Speaker 12: even know what the judge orders. At that point, Google
Speaker 12: will be able to appeal. They will appeal, they've already
Speaker 12: said so. And what they'll do is ask for a
Speaker 12: stay of this injunction. In other words, just freeze it
Speaker 12: in place pending our appeal. We don't have to do anything,
Speaker 12: We don't have to change anything. Usually a company does
Speaker 12: win that kind of thing, right, If we look at
Speaker 12: Epic Games versus Apple, where Apple lost on just a
Speaker 12: very slim piece of that case, and there was a
Speaker 12: limited injunction that got stayed for two and almost two
Speaker 12: and a half years. So it was issued in September
Speaker 12: twenty twenty one, didn't go into effect until this past January,
Speaker 12: so it was a long time before Apple had to
Speaker 12: do anything. And I think we're going to see the
Speaker 12: same thing here.
Speaker 3: Does this ruling change if someone else is in the
Speaker 3: White House, I mean, even if it's a President Harris
Speaker 3: and she takes a different approach to this kind of stuff,
Speaker 3: Does this change?
Speaker 12: No, It's absolutely a possibility. Now I tend to doubt it,
Speaker 12: but it is a possibility because we will have different
Speaker 12: peak decision makers of the DOJ very likely, and those
Speaker 12: different decision makers could just decide to discuss settlement. This
Speaker 12: is exactly what happened in the Microsoft case. After Microsoft
Speaker 12: partially one on appeal, but at least the order by
Speaker 12: a trial court in that case to break up Microsoft
Speaker 12: was reversed on appeal, and later we had a new
Speaker 12: administration George W. Bush, and the case settled. It's possible.
Speaker 12: We have heard from former President Trump and JD.
Speaker 1: Vans. They're both not a friend to Google.
Speaker 3: They've been pretty It's like this is like maybe one
Speaker 3: area where both sides actually weirdly agree, but they won't
Speaker 3: say it.
Speaker 1: I think that's right.
Speaker 12: They won't really say it, but I do think they
Speaker 12: weirdly agree, And I don't really think such a high
Speaker 12: profile case that either one of them are going to
Speaker 12: back off and have some slap on the wrist settlement.
Speaker 6: Remind us what else does Google have out there that
Speaker 6: would interest you?
Speaker 12: So we have the ad tech case too, different markets.
Speaker 12: This is the ad tech stack, right demand side and
Speaker 12: sell side options for publishers and advertisers to come together
Speaker 12: and sell advertising on the Internet. And that trial extended
Speaker 12: at the end of September and that is moving really fast.
Speaker 12: So the weird thing here, Paul is we could have
Speaker 12: a decision and a remedy in that case before we
Speaker 12: have one in the Search case. So you know, it's
Speaker 12: very which a year ago, September, a year ago finished up.
Speaker 12: My colleagues's been following that, and he does also think
Speaker 12: there will be a ruling against the DJ on liability.
Speaker 12: But just like I see the Search case, he doesn't
Speaker 12: see the remedy ultimately being a divestiture or some forced
Speaker 12: sale of let's say Double Click, which is part of
Speaker 12: the Google ad stack business.
Speaker 1: So we have that.
Speaker 12: Europe is also looking at Google obviously, they're looking at
Speaker 12: the tech stack as well.
Speaker 1: They've talked about a breakup.
Speaker 12: I'd be surprised if Europe went that far, if the
Speaker 12: United States courts don't go that far. But you know,
Speaker 12: Europe has a tendency to impose really really big fines
Speaker 12: and we've seen that, so that could still happen down
Speaker 12: the road.
Speaker 3: Interesting.
Speaker 6: Boy, this Lena Kaye person was FTC.
Speaker 7: But different from.
Speaker 6: But she's all out there. Yeah she's very aggressive, correct.
Speaker 1: I mean, yes, very aggressive, especially in merger challenges.
Speaker 2: Yeah.
Speaker 12: Yeah, DJ has been less aggressive in the merger challenge side.
Speaker 12: She has her monopolization cases against Amazon and Meta still pending,
Speaker 12: but a lot of merger challenges.
Speaker 7: Yeah, you have to wonder does that like continue too.
Speaker 3: I mean in that even if she's not had the FTC,
Speaker 3: when we wind up getting a new president, like say
Speaker 3: President Harris, Yeah, it takes the Is this still a
Speaker 3: sea change in how we look at anti trust? Still
Speaker 3: a sea change of how we look at M and
Speaker 3: A versus a one off, which I think could be something.
Speaker 1: I think there's a change.
Speaker 12: I don't see us going back to where we were
Speaker 12: five years ago, when it was kind of assumed the
Speaker 12: most problematic deals would settle with remedy. I just don't
Speaker 12: see us going back to that. I think more aggressive
Speaker 12: anti trustforcement has taken root, and I think it's here.
Speaker 12: Could there be some easing a little bit of less rigidity, Yes,
Speaker 12: I think that's possible.
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