Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: Right now, our conversation of the day. Synthesizing all this together.
Speaker 2: Torson Stock is chief economist at Apollo Global Management. Torson
Speaker 2: I'm going to pull in here a whole bunch of threads.
Speaker 2: The Bloomberg Financial Conditions Index is showing massive accommodation, and
Speaker 2: yet I look at the old liboard, the news, Sofa,
Speaker 2: sofr and I'm seeing huge restriction within the short term
Speaker 2: paper market tensions on Wall Street and the ill liquidity
Speaker 2: on Wall Street. How urgent is it for the FED
Speaker 2: to make some direction on a March cut or dare
Speaker 2: I even say a January first cut?
Speaker 3: Well, it has a number of different dimensions. First, there
Speaker 3: is a dimension on the real economy. It's clear that
Speaker 3: the FED pivot has eased financial conditions dramatically, and this
Speaker 3: begins to run the risk that we might see a
Speaker 3: repeat of what happened at the citycon Valley Bank. Remember
Speaker 3: Chris Waller just said a few weeks ago the easing
Speaker 3: of financial conditions in Q two that boost the GDP
Speaker 3: growth to five percent in Q three. Could we see
Speaker 3: the same now where the easing of financial conditions after
Speaker 3: the fat pivot might actually be boosting the housing market,
Speaker 3: the label market, services inflation, goods inflation. We are not
Speaker 3: out of the woods when it comes to battling inflation.
Speaker 3: So on the real economy, absolutely, the easing of financial
Speaker 3: conditions is very supportive. There are some issues when it
Speaker 3: comes to the plumbing when the tightness as you're highlighting
Speaker 3: in very short term markets, and the FED for sure
Speaker 3: has to play this difficult talk of wall between do
Speaker 3: we want to ease financial condition on the rial side
Speaker 3: or how much can we ease financial conditions in the
Speaker 3: very front end of the curve. But this is the
Speaker 3: challenge for the FED. At the moment that you're highlighting.
Speaker 4: Torsten, you didn't listen. They didn't respond to the idea
Speaker 4: of financial conditions. They didn't seem to think it mattered
Speaker 4: at all at the last press conference. Why should it
Speaker 4: matter now? I mean we're going to actually hear them
Speaker 4: come back and say, actually, just kidding about that financial
Speaker 4: conditions question.
Speaker 3: Well, they were debating in October and September, well maybe
Speaker 3: financial conditions have done a lot of the work for us,
Speaker 3: and now they're saying, well, maybe financial conditions it doesn't
Speaker 3: really matter because it can fluctuate so much. So I
Speaker 3: still think that it's a little bit inconsistent what they're
Speaker 3: saying when that data dependency, it only talks about the
Speaker 3: real data, whereas the financial conditions impulse. If you take
Speaker 3: the easy and financial conditions that we've had since the
Speaker 3: fit pivot and stuff it into furpose the fed's model
Speaker 3: of the US economy, you will get a boom of
Speaker 3: up to one and a half percent growth over the
Speaker 3: next slevel quarters in GDP. It's going to be very
Speaker 3: supportive as a tailwind to the economic outlook.
Speaker 4: Although we did have Ganadi on earlier of TD securities,
Speaker 4: and he said even with this idea that inflation could
Speaker 4: remain stickier, that we could get this ongoing growth, the
Speaker 4: FED could still cut rates and still be restrictive. Given
Speaker 4: the positive real rate.
Speaker 5: Do you ascribe to.
Speaker 4: That kind of thing or do you think that just
Speaker 4: means many fewer rate cuts going.
Speaker 5: Forward for the Fed.
Speaker 3: I think that's absolutely right that we have. Of course,
Speaker 3: for the better part of the last year, we have
Speaker 3: talked about higher for longer. Now the conversation is more
Speaker 3: restrictive for longer, because they can still be restrictive if
Speaker 3: inflation is coming down, because real interest rates is what matters.
Speaker 3: So if real interest rates are still positive as inflation
Speaker 3: comes down, the fact and according you also gradually begin
Speaker 3: to lower rates. But note also that if you look
Speaker 3: at the outlook for sofa futures, as also Tom was mentioning,
Speaker 3: you still have that the bottom will still be around
Speaker 3: three and a half four percent. So one very important
Speaker 3: conclusion for as an allocation is that we.
Speaker 1: Are not going back to zero.
Speaker 3: We have still higher for longer, in the sense that
Speaker 3: the level of interest rates, the level of the free
Speaker 3: rate on page one in your finance textbook, will be
Speaker 3: significantly higher for the next several years than where it
Speaker 3: was from the period from twosand and eight to twenty
Speaker 3: twenty two.
Speaker 6: Let's try and get to the half of what we're discussing.
Speaker 6: Care the interest rates sensitivity of the US economy exactly.
Speaker 6: And now what we've seen over the last two years
Speaker 6: is rates go up aggressively and not slow down the economy.
Speaker 6: And what you're suggesting is that as rates start to
Speaker 6: come in and financial conditions ease, that the economy picks
Speaker 6: up again. Can you help explain that to people why
Speaker 6: higher rates haven't slowed the economy down but easy find
Speaker 6: financial conditions will boost it.
Speaker 7: Ye.
Speaker 3: But what's very important in that debate, and that's also
Speaker 3: taking place on Twitter and X of course here at
Speaker 3: the moment, is that.
Speaker 6: My lift very critically sophisticate.
Speaker 3: Important to remember that that is significantly a function of
Speaker 3: whether you talk about the interest rate sensitive components of
Speaker 3: GDP or the non interest rate sensitive components of GDP.
Speaker 3: If you split GDP into the cyclical components and the
Speaker 3: non signal components, the main component that is sensitive to
Speaker 3: interest rates is housing. And housing did respond dramatically to
Speaker 3: higher rates. So this whole idea that the economy didn't
Speaker 3: respond to higher rates, that's just completely wrong. Of course,
Speaker 3: the economy responded to rates. It was the interest rate
Speaker 3: sensitive parts that responded to rates going up. Housing started
Speaker 3: slowing down. But the non interest rate sensitive components, in
Speaker 3: this case travel, restaurants, hotels. After COVID had such a
Speaker 3: long tailwind that that more than dominate the slow down
Speaker 3: in the housing market. So splitting that debate away from
Speaker 3: the academic textbook, which we all love, is so important
Speaker 3: because it becomes so critical to think about did the
Speaker 3: parts of the economy that are sensitive to interest rates
Speaker 3: did they actually respond? And absolutely, in particular housing Kapix
Speaker 3: also of COMMERCIALI state things that are sensus of two
Speaker 3: interest rates they did absolutely respond to when interest rates window.
Speaker 6: This is a fantastic explanation. So let's build on it.
Speaker 6: Let's project this out. What are the forecasts now for
Speaker 6: you for GDP in the next couple of quarters. We
Speaker 6: heard from the likes of Max Kanner of HSBC who said,
Speaker 6: the biggest risk right now is that we have to
Speaker 6: reprice rates again higher because exactly of what you're talking about,
Speaker 6: what are you looking for in the data?
Speaker 3: Well, if I type ECFCG on my Bloomberg screen, I
Speaker 3: will see that over the next six months we are
Speaker 3: very close to zero, zero point four and zero point
Speaker 3: five on GDP for Q one and Q two. So
Speaker 3: the consensus answer to your question is GP growth is
Speaker 3: continuously slowing as a result of the fat's campaign of
Speaker 3: hiking rates. The new risk that has emerged is that
Speaker 3: because of the fit pivot, that means that the interest
Speaker 3: rates sensitive components that we're dragging down GDP for the
Speaker 3: better part of last year, they might now begin to rebound.
Speaker 3: Housing most importantly, case SHILLA is now up five percent.
Speaker 3: Case SHILLA is a very important leading indicator for the OEI,
Speaker 3: meaning the shelter components of the CPI, and shelter makes
Speaker 3: up forty percent of the index, So that means that
Speaker 3: if something that makes up forty percent of the index
Speaker 3: is about to rebound, we could come back to that
Speaker 3: discussion about maybe the rates markets we'll have to reprise
Speaker 3: to higher for long gun and more restrictive for longer.
Speaker 2: I just looked at the two year inflation adjusted yield.
Speaker 2: I haven't looked at it since time began Nixon was president,
Speaker 2: and I can use the word never over twenty years,
Speaker 2: the integran, or the duration of a high two year
Speaker 2: real rate, we've never seen. We had a spike in
Speaker 2: eight with a great financial crisis, but these sustained high
Speaker 2: two year real yields are absolutely unprecedented for global Wall Street.
Speaker 2: How unstable are we right now?
Speaker 3: I would say, at least from a fet perspective. If
Speaker 3: you just take the economic textbook out and think about
Speaker 3: what matters, it is absolutely as you're highlighting real rates,
Speaker 3: So real rates being at these levels would tell you
Speaker 3: that we're still in very restrictive territory. So the challenge
Speaker 3: here for the FIT is that they still want to
Speaker 3: have the soft landing, and we all want to have
Speaker 3: the soft landing. That will be the best outcome, of course,
Speaker 3: from so many dimensions. But what is beginning to matter
Speaker 3: is that they have now sucked so much liquidity out.
Speaker 3: We've gotten to a point where we are beginning to
Speaker 3: see some strains in the plumbing that you're highlighting. And
Speaker 3: that's why real rates it has a very significant different
Speaker 3: impact on the long end and what it means for
Speaker 3: the real economy relative to what high real rates means
Speaker 3: for the front end and what it means for financial
Speaker 3: markets as host.
Speaker 6: And this has been an absolute Cameron Dawson joins US
Speaker 6: now chief investment Officer at New Edge Wealth Camic and morning.
Speaker 5: And happy New year, Good morning, Happy nowear are you.
Speaker 6: Sitting on the fence because I'm written this first line
Speaker 6: in your work. It says we could have a scenario
Speaker 6: where both bulls and hairs are right this year, which
Speaker 6: one is it?
Speaker 8: Well, I think that we have to be nimble because
Speaker 8: I believe that there is going to be a scenario
Speaker 8: where you could very easily see people get drawn even
Speaker 8: further into this market. We think positioning is overweight, but
Speaker 8: not quite as is extreme as it was in times
Speaker 8: like twenty twenty one or twenty eighteen.
Speaker 5: So you could see some pain get pulled in.
Speaker 8: But the other reality is that you could see a
Speaker 8: rationalization of the fact that sentiment is very extended and
Speaker 8: that valuations are extended. So it's how you react to
Speaker 8: market rallies or market corrections, I think is how you
Speaker 8: will win.
Speaker 5: In twenty twenty four.
Speaker 6: We mentioned that HSBC. So let's talk about the work
Speaker 6: coming from Max Kentna this morning. Here's this line, biggest
Speaker 6: risk another repricing and rights. Do you agree with.
Speaker 5: That one hundred percent? That's the pain trade.
Speaker 8: The pain trade is that everybody thinks that inflation is
Speaker 8: fully vanquished and then gets surprised if things like oil
Speaker 8: prices move higher. Wages end up being stickier than expected
Speaker 8: rates move higher, and then all of those stocks that
Speaker 8: rerated in the last two months up thirty forty percent
Speaker 8: because now they're not worried about their.
Speaker 5: Balance sheets anymore.
Speaker 8: Balance sheet risk becomes an issue again, and you get
Speaker 8: a reversion of a lot of the names that were
Speaker 8: lower quality that happened to lead at the end of
Speaker 8: last year.
Speaker 2: The modeled out earnings are nine percent ten percent. Dare
Speaker 2: I say double digit eleven percent earnings growth for this year?
Speaker 2: Is that in the price now or is that going
Speaker 2: to develop out in the first half of next year.
Speaker 8: It is in the price now, and I think that
Speaker 8: we always have to think about the path of twenty
Speaker 8: four will be pricing in what actually happens in twenty
Speaker 8: twenty five. So if a recession looks more likely in
Speaker 8: twenty twenty five, that's when you'll start to see those
Speaker 8: earning estements get cut into the out years. The thing
Speaker 8: that's the biggest challenge for us for earning estments in
Speaker 8: twenty four is the expectation that top line growth will
Speaker 8: re accelerate in a year where nominal growth because of
Speaker 8: inflation is expected to decelerate. Can you see that happen
Speaker 8: at the same time where we get less inflation, less
Speaker 8: pricing power, and yet we get a big acceleration in top.
Speaker 2: So away for the romance of Apple and Microsoft. If
Speaker 2: you look at Staples and discretionary and all, you've got
Speaker 2: to model out there, what you go back from a
Speaker 2: six percent wonderment of growth back to four percent revenue growth?
Speaker 5: Yeah, very likely.
Speaker 8: And there are idiots and pockets where you're going to
Speaker 8: see improvement. You know, healthcare had its earnings down almost
Speaker 8: twenty percent last year, that will flip positive this year
Speaker 8: just because of easy comps. So that's where we're trying
Speaker 8: to look outside of just the macro drivers, Staples being
Speaker 8: a great example of one that can't get away from
Speaker 8: this inflationary dynamic, and look instead to the more idiotsyncratic opportunities.
Speaker 4: Our banks to douse syncratic opportunities. And I ask with
Speaker 4: JP Morgan at new record high, Yeah.
Speaker 8: I mean you've seen such a huge rerating. Of course,
Speaker 8: there's pockets of banks where there is still inexpensive areas.
Speaker 8: You know, banks do have the tailwind of a less
Speaker 8: inverted curve, hopefully a reopening of capital markets. But then
Speaker 8: we have to consider things like BTFP, does it get
Speaker 8: re extended Basil three in game, all of these things
Speaker 8: that could be big drivers of bank earnings or at
Speaker 8: least appetite for bank risk as.
Speaker 5: We go through twenty twenty four. It sounds like you're
Speaker 5: not buying the rotation story. I am buying the rotation story.
Speaker 9: Yeah.
Speaker 8: I think that we have to have an open mind
Speaker 8: that even great companies with great balance sheets, with monopolies
Speaker 8: could still underperform simply because positioning is so crowded and
Speaker 8: because valuations are so elevated.
Speaker 2: That's the smartest insight I've heard in the last forty
Speaker 2: eight hours.
Speaker 1: Are we going to have rotation or not? That's a really,
Speaker 1: really undersaid cool question.
Speaker 4: I think that that was really some of the anks
Speaker 4: behind the sell off that we've seen that was living,
Speaker 4: that was really led by big tech. We were talking
Speaker 4: about this yesterday with Apple, and I guess that you know,
Speaker 4: how much does that have legs versus what we saw
Speaker 4: last year, which was.
Speaker 5: A headfake and everyone came in saying, all right.
Speaker 4: This is the year to sell tech, and by the
Speaker 4: end of the year of them was saying in Nvidia
Speaker 4: Magnificent seven, it's going to change the world. Kumba Yah
Speaker 4: it's going to save the United States, I mean, et cetera,
Speaker 4: et cetera.
Speaker 8: And what a different setup because at the very end
Speaker 8: of twenty twenty two you had.
Speaker 5: Record outflows from tech ETFs.
Speaker 8: You look at the course of twenty twenty three, you
Speaker 8: had forty billion dollars of inflows into technology compared to
Speaker 8: twenty billion dollars of outflows out of things like energy
Speaker 8: and financials and healthcare. So really this could just be
Speaker 8: about positioning and pain trades and the fact that you
Speaker 8: already re rated tech because now it's already just one
Speaker 8: turn away from its twenty twenty one peak valuation, so
Speaker 8: you're hitting a ceiling.
Speaker 10: Let's put a couple of stories together.
Speaker 6: You said, maybe the biggest paying trait the risk here
Speaker 6: is high, right, so reprice give rights again at Lisa
Speaker 6: brought up banks. How woud the banks respond to that
Speaker 6: given what we saw last year?
Speaker 5: Yeah, I mean it would raise balance sheet risk again.
Speaker 8: It probably puts into sharp focus again issues with commercial
Speaker 8: real estate because we've all kind of breathed this collective
Speaker 8: sigh of relief that higher for longer is dead if
Speaker 8: it's not dead, and the path of the cost of
Speaker 8: capital instead of the last forty years of being down
Speaker 8: is actually marching slightly higher and in a choppy path.
Speaker 8: Could mean that we have to reprice some of the
Speaker 8: risk in some of these balance sheets.
Speaker 6: Is it just JP Morgan then everyone else? When we
Speaker 6: talk about the banks, is that what we're talking about?
Speaker 6: JP Morgan then everybody else?
Speaker 8: We actually just are looking very deeply at some of
Speaker 8: the regional banks. Some of the regional banks are underpriced.
Speaker 8: We think if we look at the balance sheets, they're
Speaker 8: not as extended as or.
Speaker 5: As issued as some parts of.
Speaker 8: Regional banks that some don't have as much commercial real
Speaker 8: estate exposure, have great presence in their local areas, so
Speaker 8: they're trading at very discounted valuations. If we're going down
Speaker 8: in value, that's one of the areas we're actually looking.
Speaker 2: Yeah, it's somebody at you know, the last five six,
Speaker 2: seven days at JP Morgan's capturing one out of five
Speaker 2: profit dollars in American banking. If that isn't the third
Speaker 2: or fourth or fifth national bank of the United States,
Speaker 2: I don't know what is.
Speaker 6: There is nothing else. It's JP Morgan versus everyone else.
Speaker 6: That's been a story the last year.
Speaker 1: I'll refer to our guests done this.
Speaker 2: But yeah, I mean they're capturing some twenty percent of
Speaker 2: profits according to the source. I'm sorry you don't have
Speaker 2: a source in front of me to side. I think
Speaker 2: it's it's the it's the Bramow newsletter. You know that newsletters.
Speaker 10: It's a muster r.
Speaker 1: It's a muster reader.
Speaker 10: Camic. Thank you got to leave this. It's going to
Speaker 10: catch up. It's going to say a happy new Year,
Speaker 10: Cameron Dawson, the new h.
Speaker 1: Wel let's get right to it.
Speaker 2: This is so important right now. Dan Ives joins us.
Speaker 2: He is a bull on any number of technology companies.
Speaker 2: We wait for him to come out on controlled data
Speaker 2: here and with a birecommendation at some point.
Speaker 1: That's a little bit of history there.
Speaker 2: Dan Ives with webbush Dan, what's a channel check? What
Speaker 2: exactly is a channel check? I just I just don't
Speaker 2: see it.
Speaker 11: Yeah, and look for us in terms of our easier
Speaker 11: supply gene checks, really trying to focus on what demand
Speaker 11: looks like in terms of the suppliers for iPhones.
Speaker 9: There have been no cuts from an iPhone perspective as
Speaker 9: of data, and I think that's that's bullets and ultimately
Speaker 9: that shows demand through howadays season has actually been on part,
Speaker 9: actually better than expected.
Speaker 12: And to me, that's what I focus on rather than
Speaker 12: the haters continue.
Speaker 2: Okay, but data tell Okay, you've been gracious about this,
Speaker 2: and they've been gracious about your twenty twenty three ganormous success.
Speaker 2: But when you do a channel check, are you counting iPhones?
Speaker 2: Are you over in China guessing the manufacturing line? Are
Speaker 2: you in the store on Madison Avenue looking at how
Speaker 2: many people from Lisa's family are buy an Apple loot?
Speaker 1: What's a channel check?
Speaker 9: Yeah?
Speaker 12: All above time.
Speaker 9: I mean, we feel we're in Apple stores around the country,
Speaker 9: around the world.
Speaker 12: We're also talking to suppliers.
Speaker 9: Basically trying to triangulate to what we think units is
Speaker 9: going to look like for the quarter and for the year.
Speaker 12: And that's how we've done.
Speaker 9: It from the beginning, I mean, over the last decades so.
Speaker 9: And it's one of you're always gonna have different opinions.
Speaker 9: You just talk about the Barclays downgrade. We continue to
Speaker 9: stick with our checks. That that has navigated us, you know,
Speaker 9: a lot more right than wrong. I think when you
Speaker 9: look at I from fifty, it's easy to take shots,
Speaker 9: you know, relative to maybe some of the fears out there,
Speaker 9: especially fire and a crowd theater first day at the
Speaker 9: trading you know a year I it's a groundhog day.
Speaker 9: You know, we saw it last year as well. It's underestimated.
Speaker 9: Two hundred and fifty million. Is the install based upgrade
Speaker 9: cycle that's due in that window has an upgrade in
Speaker 9: four years.
Speaker 6: Dan, let's get into it. You mentioned Barkleys, Tom mentioned
Speaker 6: it too. I mentioned this, so let's get to that line.
Speaker 6: The continued period of weak results coupled with multiple expansion
Speaker 6: not sustainable in that it is a statement of fact,
Speaker 6: and then there's an opinion of the end. The statement
Speaker 6: of fact is iPhone cuts. They haven't been great for
Speaker 6: the last twelve months.
Speaker 10: That's the fact.
Speaker 6: Yet it's been coupled with multiple expansion, also a fact.
Speaker 6: The opinion piece is they're saying it's not sustainable. Are
Speaker 6: you suggesting that it is?
Speaker 9: Yeah, So what I'm suggesting is that the next three
Speaker 9: to four quarters you're going to have iPhone growth. You
Speaker 9: have growth coming out in China despite the fears and
Speaker 9: abs are the bare noise, and I think the most
Speaker 9: important thing is services, and I think services is going
Speaker 9: to be teenager type of growth. That's key to the
Speaker 9: multiples Manson story. And then we go into later this year,
Speaker 9: there's gonna be more monization from an AI as we
Speaker 9: talked about.
Speaker 12: That's gonna be the next layer. I think it all
Speaker 12: results and this is gonna be viewed.
Speaker 9: As more of a golden buying opportunity rather than the
Speaker 9: start to hit the elevator exit.
Speaker 4: How much Dan, is your bullish call predicated on this
Speaker 4: idea of rate cuts, the idea of rates coming down
Speaker 4: as much as people think.
Speaker 9: Yeah, look, that's probably five ten percent from multiple perspective.
Speaker 9: I mean, as we saw twenty two to the disaster
Speaker 9: twenty three in terms of now popcorn movement, in terms
Speaker 9: of FED gonna cut in twenty four. Look, it speaks
Speaker 9: to our overall bull tech thesis, right that the soft
Speaker 9: landing Killsberry do a boys soft landing.
Speaker 12: You're starting to see now more and more focus on tech.
Speaker 12: I do think now.
Speaker 9: You know, as Pharaoh's talked about multiple expansion twenty three,
Speaker 9: I think the numbers show it in twenty four.
Speaker 12: That's the difference.
Speaker 9: Twenty four is where the numbers come through, and tech
Speaker 9: twenty three was more than multiple expansion.
Speaker 4: Well, you mentioned China and how China demand is going
Speaker 4: to pick back up, But I wonder if it's going
Speaker 4: to be for iPhones. And I know we've been talking
Speaker 4: about this for a long time, but yesterday this caught
Speaker 4: my attention. The Chinese automaker BYD surpassed Tesla in terms
Speaker 4: of deliveries for the first time. You're seeing that really
Speaker 4: start to be a main theme. People said that that
Speaker 4: was never going to happen. People say that it's never
Speaker 4: going to happen, that Chinese consumers are going to throw
Speaker 4: out their iPhones. What makes you so confident that we're
Speaker 4: not going to see the same thing happen in the
Speaker 4: iPhone cycle that we're seeing right now in the electric
Speaker 4: vehicle one?
Speaker 12: Yeah, great question.
Speaker 9: And look, when you focus on Tesla, I mean that's
Speaker 9: essentially two horse race between TESTSA and BID. Tests actually
Speaker 9: beat numbers and China was strong for them. But I
Speaker 9: think it does speak to look domestically BID they're beast.
Speaker 9: I mean, they've done a phenomenal job, but Tessa is
Speaker 9: always going to be aware there in China. When you
Speaker 9: look at what's happening within the China market from an
Speaker 9: idphone perspective, it speaks to just a massive and all
Speaker 9: bays that they built in China. You have one hundred
Speaker 9: million iPhones in China right now, window of an upgrade opportunity,
Speaker 9: and the irony is despite geopolitical the last eighteen months,
Speaker 9: Apples gained three inch books of market share because the
Speaker 9: average high end, as in middle income Chinese consumer, they
Speaker 9: want an iPhone despite government basically trying to push WAWE.
Speaker 6: And I'm so pleased to Lisa brought up the EV
Speaker 6: comparison because I think that industry right now has the
Speaker 6: potential to be the industry story of twenty twenty four
Speaker 6: and beyond byd beyond Tesla. How much of a reality
Speaker 6: check are we getting for the industry for the likes
Speaker 6: of GM and Ford.
Speaker 12: I think a big reality shacka. That's why you've seen Farley.
Speaker 9: I think Mary they pull back, you know, in terms
Speaker 9: of a bit from the EV strategy in Detroit. And
Speaker 9: the problem here is do consumers want EV or they
Speaker 9: just want to tessel And I think that that's really
Speaker 9: the issue that's really starting to play out.
Speaker 12: And at this point, Tesla's.
Speaker 9: Doubling down on evs, but no doubt there's been I
Speaker 9: think much more moderate demand that we're seeing across the board,
Speaker 9: and you know, I think as that puts out, you're
Speaker 9: going to see others peel back while others go more aggressively,
Speaker 9: like the likes of the Tesla.
Speaker 6: I wonder what you think the endgame actually is. If
Speaker 6: you speak to the leadership at GM of thought, they've
Speaker 6: been generous with that time we've had this conversation with them.
Speaker 6: They talk about a change in execution, maybe not a
Speaker 6: change in strategy. Would you expect to see a change
Speaker 6: in strategy this year and what would that look like?
Speaker 9: I think slight changing strategy where maybe they pull back
Speaker 9: on some of their long term numbers in terms of
Speaker 9: EV when they expect to go fully EV you know,
Speaker 9: as a two thousand and thirty four thirty five.
Speaker 12: Look, the UAW also put their back against the wall.
Speaker 9: It's a different cost structure and they're trying right now
Speaker 9: to it's a tight balancing act that they're trying to
Speaker 9: get to in Detroit. And I think also it's tough
Speaker 9: going up against the likes of Tesla and some of
Speaker 9: these other evs. That's been a big part of the
Speaker 9: problem that they're focused on, especially now with the UAW.
Speaker 12: Increase in the cost structure, well said Dan.
Speaker 6: Going to hear from your happy new year, Sir Dan
Speaker 6: is Wetbush. Jere Cassidy, Large Camp Bank analyst that RBC
Speaker 6: Capital markets rights in this. After a tumultuous twenty twenty three,
Speaker 6: we believe the banks are our positioned for investors to
Speaker 6: warn outsize returns in twenty twenty four and investors should
Speaker 6: overweight the sector in their portfolios. Jer Cassidy, I'm pleased
Speaker 6: to say join us. Now let's go straight to it.
Speaker 6: Number one question. This is a question for me, and
Speaker 6: I know it's a question for Lisa. Is this off
Speaker 6: the back of high yields or lower yields?
Speaker 7: I would say John that we're expecting that the yields
Speaker 7: gravitate lower, especially at the front end of the curve
Speaker 7: when you take a look at what the Fed has done.
Speaker 7: If we truly are at the terminal rate for FED
Speaker 7: funds in the past four tightening cycles when they started
Speaker 7: to cut rates, it's always been a catalyst for bank stocks.
Speaker 7: And think what we're expecting as the market is that
Speaker 7: at some point in twenty four the Fed could cut
Speaker 7: your term interest rates.
Speaker 4: Is this for bank stops or is this for JP Morgan.
Speaker 7: At least a very good question, because JP Morgan has
Speaker 7: been the risk off trade and it's been spectacular, as
Speaker 7: you guys mentioned, record highs. And so if we're going
Speaker 7: into a risk on environment, which I believe we are,
Speaker 7: if the FED is finished tightening, then actually JP Morgan
Speaker 7: is probably going to be a source of funds for
Speaker 7: many investors. It is a stock that is owned everywhere.
Speaker 7: It's been a great stock, but risk on may be
Speaker 7: the better way to go with a Bank America or
Speaker 7: City Group or others like.
Speaker 5: That a source of funds.
Speaker 4: I love that it's a euphemism for it gets sold,
Speaker 4: so that you could raise money to buy something you
Speaker 4: think is going to return more the fact that you
Speaker 4: think it's going to be Bank of America. Do you
Speaker 4: also lean into the Mic Mayo idea that City Group
Speaker 4: and its whole revamp with some of its streamlining, hutting units,
Speaker 4: massive job cuts is going to be the real winner over.
Speaker 7: Time is going to be certainly an opportunity to be
Speaker 7: a winner. They've still got a lot of heavy lifting.
Speaker 7: Jane Frasier's leading the charge here, of course, and I
Speaker 7: think it's a very big, complicated job. It's turning around
Speaker 7: the notion liner. There's early progress, a lot of heavy lifting,
Speaker 7: as I said to do. But if she can succeed
Speaker 7: in the management, succeed this stock is definitely undervalued and
Speaker 7: it has great upside, but it's been a value trapped
Speaker 7: for many years, so we'll have to wait and see.
Speaker 2: Jarred I went to a seminar once at a firm
Speaker 2: long ago called Tucker, Anthony and Rlday, and I was
Speaker 2: lectured that banks are supposed to return nominal GDP plus
Speaker 2: a little bit. I'm going to center tendency. Is that
Speaker 2: make an eight, nine, ten percent once in your lifetime?
Speaker 2: JP Morgan has turned that upside down. You didn't see
Speaker 2: this coming. You're the expert, nor did anybody else. The
Speaker 2: returns of ten years, of twenty years or fifteen percent
Speaker 2: or so. Their thirty year return is solid double digit return.
Speaker 1: What did Harrison? What did Diamond get right?
Speaker 7: Tom? It's really Jamie Diamond. I think you could get
Speaker 7: give Harrison credit, I guess for merging with Bank one
Speaker 7: when Jamie Diamond was their CEO. And of course Diamond
Speaker 7: has taken over since then, and it's been his steadfast
Speaker 7: focus on delivering for shareholders, both through expansion and growth,
Speaker 7: but at the same time controlling expenses. They also have
Speaker 7: done a very good job in diversifying their revenue. Their
Speaker 7: consumer banking business, similar to Bank America, is very very profitable.
Speaker 7: On top of that, they've got a very strong capital
Speaker 7: markets business. The bear Stearns acquisition, which was very difficult
Speaker 7: in early years because of the reputational problems that came
Speaker 7: along with it, has worked out extremely well for them.
Speaker 7: So I would say the diversity of revenue, Tom and
Speaker 7: the focus on leading or delivering for shareholders.
Speaker 2: But back to Andrew Jackson, who you covered, you know
Speaker 2: years ago, Girardi, I mean, are they the fifth bank
Speaker 2: of the Uni United States? Over the holidays, somebody said
Speaker 2: one out of five profit dollars comes to JP Morgan.
Speaker 2: They're building their palace on fifth on Park Avenue right now.
Speaker 1: I mean to the Butch Cassidy idea, who are these guys?
Speaker 1: Are they the Bank of the United States.
Speaker 7: I don't think they're the Bank of the United States.
Speaker 7: But they have done a great job in delivering for
Speaker 7: their shareholders and for their employees and their communities as well.
Speaker 7: It's been a big growth engine for the company. This economy,
Speaker 7: the global economy as well. And again it's this leadership
Speaker 7: that they have under Diamond and his executive management team.
Speaker 7: And Tom, you know, many of his senior folks have
Speaker 7: left JP Morgan and are now CEOs of other banks,
Speaker 7: like Charlie Sharp at Wells Fargo, and so he's got
Speaker 7: a very deep bench and they execute.
Speaker 1: And that's the key.
Speaker 7: Tom. You know, banking is a commodity business. As you
Speaker 7: well know, it's all about execution. And JP Morgan is
Speaker 7: that you executed extremely well.
Speaker 4: What is the business model though, that you want to
Speaker 4: execute as a big US bank? Chard And this, I
Speaker 4: think is one of the key questions that we had
Speaker 4: during last year when the rise of private capital, private equity,
Speaker 4: private debt really was challenging the capital markets activity of
Speaker 4: certain big financial institutions. Can the JP Morgans, the Bank
Speaker 4: of Americas, the city groups get into the private debt
Speaker 4: world that in some ways has been stealing their lunch?
Speaker 7: I think it Ken, Lisa, And when you think about it,
Speaker 7: and you're right, the private equity private debt area is
Speaker 7: certainly growing much faster than the banks. But believe it
Speaker 7: or not, the shadow banking industry has been taking the
Speaker 7: bank's market share for forty years you go back to
Speaker 7: the early eighties and you look at the market share
Speaker 7: that the banks had of lending into the United States,
Speaker 7: it was well over forty percent. The private or shadow
Speaker 7: banking market was in the low twenties. Today it's completely
Speaker 7: flip flopped. The bank's market share now is in the
Speaker 7: low twenties and the shadow banking is in the fifty
Speaker 7: over fifty percent. So the banks have done it through consolidation.
Speaker 7: You know, when Tom and I were young, we had
Speaker 7: over eighteen thousand banks in the United States in the
Speaker 7: early nineteen eighties. Today there's forty six hundred. JP Morgan
Speaker 7: has been a big beneficiary of that, and they've been
Speaker 7: able to create those efficiencies. So yes, they can compete.
Speaker 7: They will compete, and I don't think that the banks
Speaker 7: are going to be put out of business, but certainly
Speaker 7: they don't have the market share that they used to have.
Speaker 7: But we have to remember too, the economy has grown
Speaker 7: dramatically in forty years, and they have the smallest slice
Speaker 7: of the pie, but they're more profitable than ever, not
Speaker 7: just JP Morgan, but other banks as well.
Speaker 4: What about the smaller banks, Given the fact that you're
Speaker 4: talking about a bigger slice of just overall activity. You
Speaker 4: haven't seen that so much in the smaller banks, and
Speaker 4: with rates forbading high, you're going to have real commercial
Speaker 4: real estate pressures as well.
Speaker 7: It's interesting, it depends on you know how small the
Speaker 7: bank is and who owns it. I've always maintained this
Speaker 7: banking system we have in the United States is obviously
Speaker 7: very polarized. You got the very small banks at one
Speaker 7: end and the very large banks at the other end.
Speaker 7: And if it's a non if it's if the owners
Speaker 7: of the smaller banks, private banks, or mutual savings banks
Speaker 7: or another group of banks, if their owners are comfortable
Speaker 7: with earning returns on equities of four or five percent,
Speaker 7: and they're not going to sell the bank as long
Speaker 7: as they have FDIC insurance, they're going to remain in
Speaker 7: business indefinitely. On the other end, if you do have
Speaker 7: a bank with thirty billion in assets and it's not
Speaker 7: earning up to what its shareholders want it's to earn,
Speaker 7: then they're going to have to consolidation. Consolidation is going
Speaker 7: to continue. We're in a pause right now, but the
Speaker 7: long term trend has been consolidation in the industry will
Speaker 7: continue to consolidate in the future and argue.
Speaker 10: Jared, let's finish on Washington if we can.
Speaker 6: I was speaking to your colleague Amy with Silverman just
Speaker 6: yesterday and were reflected on a line that came from
Speaker 6: Lori Cavasina, who I think described presidential politics in the
Speaker 6: election on the horizon like staring at the sun.
Speaker 10: I just wonder if that's what it's like for you.
Speaker 6: Have you given any thought to changes in leadership in
Speaker 6: Washington and what might mean for the companies to fall
Speaker 6: under your cover?
Speaker 7: John, It's a good question because it's going to be
Speaker 7: the topic du jour this year, of course, with the
Speaker 7: election coming. And what we can say is that under
Speaker 7: the current administration there's been more regulation of banks, particularly
Speaker 7: with the Consumer Financial Protection Bureau. We don't know who's
Speaker 7: going to be running, you know, just yet in November,
Speaker 7: but if Trump is the candidate for the other party,
Speaker 7: the Republican Party, and if he was to win, his
Speaker 7: administration had less regulation for banks. So if that administration
Speaker 7: was to come back, you would have to expect they
Speaker 7: would change the heads of different regulatory agencies in twenty
Speaker 7: twenty five, and it probably would be less regulation for
Speaker 7: the banks as we move forward.
Speaker 1: You know, Johnny.
Speaker 2: I think Bloomberg Radio is missing it today because we're
Speaker 2: seeing the fireplace with your dacity here on Bloomberg Television
Speaker 2: talks about inflation South Paris, Maine. Three hundred and twenty
Speaker 2: five dollars per cord of red oak that's delivered to
Speaker 2: Shake Cassidy and he's he's popping like eight night cords
Speaker 2: of winter.
Speaker 1: He used a thing about that. I mean, it's adding up.
Speaker 10: It's expensive. But don't you love the smell.
Speaker 1: The smell's great. The damn dog is over by the fireplace.
Speaker 10: The smell you know, this dog's called Elizabeth.
Speaker 1: We won't call Aaron.
Speaker 10: We want to thank you, Joe Capital of Marcus, Thank you, sir.
Speaker 2: Let's get to it, and we do it with an
Speaker 2: authority that we have had through Auto Tournament of the
Speaker 2: Eastern Mediterranean. Norman rule joins us now senior advisor at
Speaker 2: the Center for Strategic and International Studies and the courses
Speaker 2: work for the nation in intelligence.
Speaker 1: Norman.
Speaker 2: When I say Lebanon, for all of us of a
Speaker 2: certain persuasion, we are completely formed by something frankly is
Speaker 2: stunning forty years ago, which is the Beirut Barracks bombing.
Speaker 2: When we lost marines at accountable iwo Jima level. Where
Speaker 2: are we now with Lebanon, with Hesbela, Do we have
Speaker 2: a relationship? Was it forever fractured forty years ago?
Speaker 13: That's an excellent point, and I regret I remember that
Speaker 13: incident well and lost friends. The event of forty years
Speaker 13: ago actually had a different message for the world. The
Speaker 13: US pulled out of Lebanon at that time, and Osama
Speaker 13: bin Laden later stated that watching the withdrawal of the
Speaker 13: United States from Lebanon was one of the motivators for
Speaker 13: him to undertake his operations because he realized the West
Speaker 13: could be pushed back out of the region.
Speaker 1: Are we being pushed back now?
Speaker 2: I mean within the multiple fronts at Lisa Abramowitz's outlined
Speaker 2: this morning Gods of the West Bank and again up
Speaker 2: to the border with Lebanon as the West is America
Speaker 2: being pushed out now?
Speaker 13: No, we have a very different profile, and indeed, diplomacy
Speaker 13: is likely going to increase in intensity and come out
Speaker 13: weeks because we need to come up with a way
Speaker 13: to move. Lebanese has belowed north of the Israeli border
Speaker 13: so that Israeli citizens can return to their homes. The
Speaker 13: thousands tens of thousand of Israeli citizens to open their businesses,
Speaker 13: go to school, and also so that tens of thousands
Speaker 13: of Lebanese can return south to that border which has
Speaker 13: become such a flashpoint in recent weeks.
Speaker 4: Yeah, hundreds of thousands of people have been misplaced or
Speaker 4: displaced as a result of some of the fighting on
Speaker 4: both sides. But Norman and I'm curious whether this is
Speaker 4: an escalation the fact that Israel did attack according to Hamas,
Speaker 4: but also with a wink, wink, nod nod from Israeli
Speaker 4: officials to kill this is Mamas executive.
Speaker 13: Well, to be clear, Israel has stated from the beginning
Speaker 13: of the October seventh massacred that it would eradicate the
Speaker 13: Hamas leadership responsible for that action, and therefore this is
Speaker 13: no surprise. I think what you have to look at
Speaker 13: is this drone attack, which Israel has not admitted but
Speaker 13: is understood to have undertaken, took place in an incredibly secure,
Speaker 13: prey conscious neighborhood, and it demonstrates an exquisite and dynamic
Speaker 13: intelligence capacity. So as Hesbula thinks about it's connor its
Speaker 13: response to this, it's got to think about what is
Speaker 13: known around us and what can we get away with
Speaker 13: and what will happen to the people who might be
Speaker 13: involved in that attack against Israel.
Speaker 4: Do you have any sense, Norman, of what the conversations
Speaker 4: are like with Hamas, with Hesbelah, with the Iranian leadership,
Speaker 4: given the fact that a lot of people think that
Speaker 4: they're taking some cues from Iran, that there has been
Speaker 4: funding from Iran, that you have the Iranian warship going
Speaker 4: to the Red Sea, and the huthis also Iranian fact
Speaker 4: making noise and trying to interrupt Western shipping lines.
Speaker 13: Iran It's proxies have no strategic drivers to involve themselves
Speaker 13: more fully in this conflict. It would impact multiple strategic
Speaker 13: equities for a game that is uncertain that they have
Speaker 13: multiple incentives to continue and perhaps raise the intensity of
Speaker 13: attacks against Israel to show that they have skin in
Speaker 13: the resistance game. I should also note that today, the
Speaker 13: January third, is the fourth anniversary of the killing of
Speaker 13: Cossum Solomoni, and that's a day when one would expect
Speaker 13: Iranian proxies to attack US or Israeli versus just for
Speaker 13: that symbolic anniversary.
Speaker 6: Exactly where I wanted to go normally let's talk about it,
Speaker 6: the assassination of the major General. It's easy to forget
Speaker 6: that it ever happened because several weeks later, many weeks later,
Speaker 6: we were all drowning in a global pandemic. What has
Speaker 6: happened since then with the relationship between the United States
Speaker 6: and Iran, between two different white Houses, very little.
Speaker 13: The indirect engagement that took place did produce the possibility
Speaker 13: of some sort of engagement, a hostage released by the
Speaker 13: Iranians in exchange for the release of personnel. But Iran's
Speaker 13: regional activities did not change, and I don't think the
Speaker 13: White House expected them to change. More So, Iran's nuclear
Speaker 13: program has continue to expand. And here's the important point.
Speaker 13: Iran is now producing enriched uranium at level that no
Speaker 13: state that is not pursued a nuclear weapon has ever produced.
Speaker 13: It has no civilian use for the nature of its
Speaker 13: current enrichment. So you have to ask yourself the question,
Speaker 13: has the West de facto recognized the Iranian military nuclear program?
Speaker 13: The White House would say no. The facts do raise
Speaker 13: the question.
Speaker 2: Norman a tough way to Segui here, but I'm going
Speaker 2: to do it as one final question. Taiwan continues to
Speaker 2: come up within our first of the year conversations.
Speaker 1: Do we have good intelligence on mainland China?
Speaker 13: The United States intelligence program against China, has stated by
Speaker 13: Central Intelligence Agency had Bill Burns, is robust and works significantly.
Speaker 13: I won't comment on those operations to the extent that
Speaker 13: I know of them, but I will say that this
Speaker 13: remains such a priority that it's an all source intelligence
Speaker 13: programs at all imagery and a variety of different aspects.
Speaker 13: We're going to have a good understanding of some of
Speaker 13: China's activities that will provide the warning policy maker's need
Speaker 13: for the update.
Speaker 6: You're insights so valuable, Norman Roll there for the Center
Speaker 6: for Strategic and International Studies.
Speaker 10: Thank you, sir.
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Speaker 1: Thanks for listening. I'm Tom Keen, and this is Bloomberg