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Speaker 1: This is Bloomberg Surveillance. We do believe that there's an

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Speaker 1: earnings recession at the bank space this year and next year,

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Speaker 1: so earnings are gonna be under pressure for the next

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Speaker 1: two years. Does oil catch up with copper? Does copper

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Speaker 1: catch up with oil? We would say that copper is

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Speaker 1: going to catch up with oil to the downside. Fifteen

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Speaker 1: percent movement of the Juan versus the en in the

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Speaker 1: last nine months or so, I think it is one

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Speaker 1: of those factors that's pushing the Japanese economy back into recession.

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Speaker 1: Bloomberg Surveillance your link to the world of economics, finance

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Speaker 1: and investment on Bloomberg Radio. Good morning everyone, Michael McKeon,

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Speaker 1: Tom Keene on Economics, Finance and Investment. On a negative

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Speaker 1: statistic for U S, G d P. I'll get to

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Speaker 1: that here in a moment. Let me do a four

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Speaker 1: X brief right now before we do this, UH Economics

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Speaker 1: from Peter Boockvar the Lindsay Group this morning. The four

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Speaker 1: X Brief brought to you by Interactive Broker's winner of

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Speaker 1: f X Weeks two thousand and fifteen award for the

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Speaker 1: best Retail forex trading platform, visit ib at I v

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Speaker 1: k R dot com slash four x range bound dollar

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Speaker 1: up today, not big, but up euro weeker one thirteen eleven,

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Speaker 1: euro crushed over the last UH day. I'm gonna call

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Speaker 1: it the yend goes one oh seven, one oh eight,

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Speaker 1: one oh nine fifteen right now. Everything else a big sure,

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Speaker 1: and we'll leave it at that. Michael McKee, let me

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Speaker 1: read the line from book bar of the Lindsay Group.

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Speaker 1: I expect another cut to Q one g d P.

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Speaker 1: It is very likely that when the Atlanta Fed g

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Speaker 1: d P now adjust their number today, we will see

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Speaker 1: a negative quarterly estimate that of course off retail sales.

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Speaker 1: One of many opinions out there, Mike, which really gets

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Speaker 1: you to the fragile first quarter in indicative of the

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Speaker 1: control group this morning? Or does it? Yeah? That's The

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Speaker 1: York Fed has its own GDP tracker now and it

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Speaker 1: says it's one point one percent. The Atlanta feds UH

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Speaker 1: current forecast is just a tenth of a percent. We

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Speaker 1: will see an update to the Atlanta Fed later today,

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Speaker 1: but not until after ten o'clock because I get we

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Speaker 1: get business inventories at ten and if retail inventories are

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Speaker 1: strong enough, that will change we may not see a

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Speaker 1: cut in the negative numbers. Book. Far emphasizes tomorrow's CPI

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Speaker 1: is much more important. He looks for rate there right now. Oh,

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Speaker 1: Dave Wilson, Uh, what's the dive in her book? Far

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Speaker 1: actually put out correction on that note. He says the

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Speaker 1: January Control Group sales figure was revised up by two tents,

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Speaker 1: so taken with the one tenth upward revision to February

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Speaker 1: offsets the three tenths miss in March GDP estimates for

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Speaker 1: the first quarter, or like we remained negative to unchanged. Right,

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Speaker 1: you are a font of corrective wisdom. Well, you know,

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Speaker 1: I'm just trying to keep up with the flow of information,

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Speaker 1: and there certainly has plenty of it today when you

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Speaker 1: look at the financial Come give us some equities before

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Speaker 1: we get to bread Hins. Absolutely, JP Morgan Chases shares

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Speaker 1: up about two and a half percent. First quarter earnings

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Speaker 1: and revenue at the biggest US lend there fell less

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Speaker 1: than analysts expected based on average estimates in the Blueberg survey.

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Speaker 1: They all went up. They all did. Uh. Their peers

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Speaker 1: are going to be coming out later this week. Bank

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Speaker 1: of America two percent, Wells Fargo up one and a

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Speaker 1: half percent. Those companies set to report tomorrow. City Groups

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Speaker 1: up two percent their first quarter numbers, Do Friday and

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Speaker 1: and JP Morgan, Bank of America, Wells Fargo all higher,

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Speaker 1: even though regulators rejected their living wills, their plans to

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Speaker 1: resolve the potential thank you living will to drive a

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Speaker 1: Harley Davidson. You might well be right there. I should

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Speaker 1: just point out Bank of America, and I just say

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Speaker 1: Bank of New York, let's be honest here. And State

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Speaker 1: Street also had their plans for rejected. Bank of New

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Speaker 1: York up one and a half percent. State Street haven't

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Speaker 1: seen any trading yet, but since you mentioned Harley Davidson,

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Speaker 1: we should point out those shares four and a half

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Speaker 1: percent higher. The motorcycle makers March sales climbed by an

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Speaker 1: estimated ten percent according to UBS, the firms that Harley

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Speaker 1: benefited from relatively warm weather in the north eastern US.

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Speaker 1: Uh CSX is up one percent. The railroad's first quarter

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Speaker 1: profit match the average estimate. CSX cut costs to counter

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Speaker 1: declines in oil and coal shipments. And speaking of oil,

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Speaker 1: we should point out energy producers mostly lower as CREWE

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Speaker 1: falls from the highest price in November. New York Trading

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Speaker 1: Concho Phillips sound one percent, Kinder Morgan Marathon whil both

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Speaker 1: one and a half percent lower. I'll give you one more,

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Speaker 1: one more tricks on take around this one x O.

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Speaker 1: N Uh, it's a four percent. Brazilian regulators allowed the

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Speaker 1: drug makers Oxytech Unit to combat the spread of the

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Speaker 1: Zeka virus and other ailments by using genetically engineered mosquitoes. No,

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Speaker 1: this reminds me the movie The Slide. I don't think

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Speaker 1: we want to know, but I don't want to know.

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Speaker 1: I'll tell you what. If they're selling hogs, then things

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Speaker 1: are okay. I saw map yesterday about like how north

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Speaker 1: Zekea gets It's it's like it's it's northerner than I thought,

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Speaker 1: and you would think is the weather warms up? Oh

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Speaker 1: you're a font of good joy. I'm just saying, David Wilson,

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Speaker 1: thank you so much. We're thrilled to bring you right now.

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Speaker 1: After a really great discussion over the last forty eight

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Speaker 1: hours on banks, Brattian's the New York University for years

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Speaker 1: with Sanford Burnstein, Brad I tried to frame this morning

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Speaker 1: the scale of these banks. I took the oil gloom.

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Speaker 1: They're writing down oil investments. I get that, and I

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Speaker 1: divided it by the assets of a bank. It's it's

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Speaker 1: shocking how big these things are and how small those

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Speaker 1: write downs are relative to their mass and scale. Is

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Speaker 1: that correct? Well, yeah, I remember what we have with

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Speaker 1: the banks is since the crisis, the regulators really have

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Speaker 1: been all over them in terms of being conservative. So

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Speaker 1: you know the fact that they're they're right downs are

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Speaker 1: small as tells you a little bit about you know

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Speaker 1: how one of the reasons why they're r o s

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Speaker 1: are low. Right, if you if you're not taking any risk,

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Speaker 1: you're not taking you're you're not going to take a

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Speaker 1: lot of losses. So you know, yeah, we have a

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Speaker 1: headwind right now. The head rend is on the energy side.

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Speaker 1: I don't anticipate that what we're going to see is

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Speaker 1: the same thing that we saw, say in Texas when

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Speaker 1: we went through the Texas oil bust of say the eighties, right,

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Speaker 1: But nonetheless, it's a head wind in terms of the banks,

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Speaker 1: and you're seeing the banks take take action on it.

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Speaker 1: It's going to be a headwind that's going to continue

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Speaker 1: and and and you know that's that that kind of

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Speaker 1: goes with the territory you know, I think what's interesting

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Speaker 1: here is we've got the market getting enthusiastic about a

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Speaker 1: bank that generated at nine R a week. Um, you know,

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Speaker 1: they're they're not above their cost of capital. And you've

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Speaker 1: got to say Jamie does a brilliant job. But you know,

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Speaker 1: it's the only thing that we can talk about a

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Speaker 1: bank is that they're going to return more capital to shareholders.

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Speaker 1: That's that tells us we've got an industry that's kind

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Speaker 1: of in trouble, um in trouble or just changing in

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Speaker 1: the sense that, um, you know, the fundamental expectations for

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Speaker 1: what you can make as an investor are going to

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Speaker 1: be different from here and up now that that that's

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Speaker 1: a good point, which is you can make an argument

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Speaker 1: that you know, banks that have fortress balance sheets, and

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Speaker 1: let's recognize the regulator tory capital on these banks, they

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Speaker 1: really look like day of Fortress balance sheets. That's great

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Speaker 1: if you're a creditor. I'm not certain whether it's great

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Speaker 1: as a as an equity holder. Right, you're right now

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Speaker 1: the equity holders are still looking for for returns on

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Speaker 1: capital above ten percent over time. You're absolutely right. What

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Speaker 1: will happen is there is the perception of risk in

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Speaker 1: the equity market will bring it down, and the and

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Speaker 1: the bata's will will drop in the cost of capital

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Speaker 1: and drop and arguably they can beat their cost of capital,

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Speaker 1: not so much by generating higher r o s, but

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Speaker 1: by this expectation dropping over time. We're not there yet though,

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Speaker 1: and you can see that in terms of the price

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Speaker 1: book of the bank isn't isn't what you just said

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Speaker 1: the way the FED and other regulators are thinking about

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Speaker 1: it in terms of you know, it's great if if

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Speaker 1: you're a debt holder, not so great if you're an

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Speaker 1: equity holder. Partly because of the tax code, partly for

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Speaker 1: their own reasons, banks loaded up on debt as opposed

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Speaker 1: to equity. Very true. Yeah, that's that, that is true.

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Speaker 1: The uh the And you know, is there an agenda

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Speaker 1: on the part of the regulators to keep the r

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Speaker 1: o e s down? Yeah, I would say that that

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Speaker 1: that's probably it. I mean, if you're if you can't

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Speaker 1: break up the banks, one way to to to to

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Speaker 1: reduce systemic risk is to constrain their r os. And clearly,

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Speaker 1: you know, the regulatory rules over the over the last

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Speaker 1: five years have made it very difficult for for any

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Speaker 1: bank to to optimize their balance sheet. Right, if you're

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Speaker 1: constantly changing regulatory rules, you know, you can never get

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Speaker 1: to that that that optimality that the banks. Remember if

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Speaker 1: you listen to the bank's conference calls over time, they're

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Speaker 1: always talking about you know, we're you know, we're trying

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Speaker 1: to to to to rationalize our capital. Yeah, they're not

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Speaker 1: there thirty seconds and then I want to come back

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Speaker 1: with you, can these people really downsize? I mean, I

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Speaker 1: know they're gonna lay off this, that and the other thing.

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Speaker 1: But if they're hiring so many compliance people to adjust

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Speaker 1: their living will, can they really lower the employment headcount? Um?

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Speaker 1: Certainly the compensation on for the for the average person

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Speaker 1: in banking has dropped, and you know we've all seen that. UM.

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Speaker 1: When I talked to my class at n y U

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Speaker 1: um I, one of the things I say is, how

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Speaker 1: many of you guys want to meet one a million

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Speaker 1: bucks a year? They all raise their hands. Well, there's

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Speaker 1: the there, there's the good part. You can still make

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Speaker 1: a million bucks a year in investment banking. You can't

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Speaker 1: make five anymore. And we're in a transition periods. So

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Speaker 1: you're absolutely right, it's a transition period. Canna Banks cut expenses. Yes,

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Speaker 1: they can, and we you know we and are we

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Speaker 1: in a transient transition period. Okay, let's come back Bradhends

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Speaker 1: with this New York University, Mike mcketie your point on

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Speaker 1: retail sales. Stephen Stanley UH is more optimistic than Peter

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Speaker 1: book far Lindsay Group, Steven Stanley Dammers Pierpont is adamant

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Speaker 1: about constructive revisions down the road. He sees real consumers

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Speaker 1: spending to quote get back to two and a half

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Speaker 1: to three percent over the balance of two thousands sixteen.

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Speaker 1: So that's their mix of opinions that's out there. Well, um,

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Speaker 1: we got business inventories at ten o'clock, then we'll see

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Speaker 1: what the has. Well, this is why I like on surveillance.

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Speaker 1: A lot of different opinions will continue with Bradiens of

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Speaker 1: New York University on the two big to fail banks.

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Speaker 1: Now let's check in with Michael Barr and get the

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Speaker 1: latest world of national headlines. Mike, Tom, thank you very much.

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Speaker 1: Tens of thousands of Horizon workers on the East Coast

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Speaker 1: have gone on strike. About thirty nine thousand workers walked

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Speaker 1: off the job early this morning. Installers, customer service employees

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Speaker 1: repair men and other service workers of fighting against a

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Speaker 1: pension freeze and the company's ability to make layoffs easier.

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Speaker 1: Verizon says it has trained thousands of non union employees

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Speaker 1: to fill in during the strike. A new pole says

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Speaker 1: about fifty eight percent of Republican voters think the presidential

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Speaker 1: candidate who heads into the party's convention but the most delegates,

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Speaker 1: should end up as the nominee's according to an Associated

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Speaker 1: Press GfK pole. Meanwhile, Republican presidential front runner Donald Trump

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Speaker 1: is suggesting that the Republican National Committee is working to

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Speaker 1: defeat him. Global News twenty four hours a day, powered

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Speaker 1: by our twenty four hundred journalists more than a hundred

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Speaker 1: fifty news bureaus from around the world. Don Mike Labar

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Speaker 1: Mi malbar thanks so much. That yeah, and one oh

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Speaker 1: nine eleven A much weaker year over the last eighteen hours.

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Speaker 1: Stronger down, not too strong, but nevertheless a reversal of

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Speaker 1: what we've seen, an effect with Brad Hints, Bloomberg surveillance,

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Speaker 1: Act and on your radio. This is a Bloomberg Business

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Speaker 1: Flash and I'm Karen Moscow. The Bloomberg Futures are port

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Speaker 1: brought to you by Interactive Brokers and Cimme Group. If

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Speaker 1: DOCK index futures are higher this morning, indicating equities will

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Speaker 1: gain a second day after better than forecast. Chinese trade

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Speaker 1: data stoked optimism in the world's second biggest economy, and

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Speaker 1: futures again higher. AS and P EVENI futures up ten points,

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Speaker 1: Dow E Mini futures up ninety and NAS documity futures

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Speaker 1: up about thirty four. The DECKS in Germany is up

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Speaker 1: two percent, ten year Treasury down to thirty seconds, the

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Speaker 1: YELD one point seven eight percent. YELD on a two

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Speaker 1: year point seven four percent nine max screwed oil down

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Speaker 1: one percent or forty eight cents to forty one sixty

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Speaker 1: A barrel comics gold is down nine ten percent or

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Speaker 1: eleven dollars thirty cents to twelve announced the euro a

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Speaker 1: dollar thirteen thirteen the end one oh nine point oh nine.

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Speaker 1: That's a Bloomberg business flash. Tom and Mike Karen thinks

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Speaker 1: so much. Michael, we gotta get used to the phrase

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Speaker 1: goose egg, goose egg, goose seg Wyoming. No, it's a

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Speaker 1: goose egg. It's like a phrase. Neil data. He looks

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Speaker 1: for a Q one goose egg red sox. No, well, yeah,

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Speaker 1: that's assumed zero percent. His tracking number zero point two percent. Now,

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Speaker 1: everybody all over the lot here. Um, I've seen people

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Speaker 1: say that the you know, because of the numbers the

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Speaker 1: revisions to retail sales, that retail sales be a little

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Speaker 1: bit better for the quarter. We shall see, we shall see.

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Speaker 1: As Marks Andy said, Um, you know, better to look

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Speaker 1: at the jobs numbers than the GDP numbers. Um, better

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Speaker 1: to look at Brad Hintson talk to him about the

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Speaker 1: banks than for us to try to figure it out

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Speaker 1: on our own. He is a long time financial analyst

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Speaker 1: at Sanford Bernstein and before that wash CFO for banks.

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Speaker 1: He's now at n y U Brad. The headline of

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Speaker 1: the morning after JP Morgan's earnings were that JP Morgan

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Speaker 1: and four of its other banks failed the Federal Reserve

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Speaker 1: and fdi c s h orderly resolution or living will

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Speaker 1: requirements that they cannot be, according to these regulators, safely

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Speaker 1: wound down. How big a deal is this? The the

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Speaker 1: resolution rules are are are affecting the bank's ability to

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Speaker 1: operate around the world, because if you if you write

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Speaker 1: a will, living will the logical thing that a regulator

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Speaker 1: is going to look at and say, you know, let's

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Speaker 1: let's shrink the number of your legal entities right so

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Speaker 1: that we can we we we can shut each one

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Speaker 1: down with with with the federal regulators doing that, you

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Speaker 1: also have regulators all around the world saying, okay, we

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Speaker 1: need our entity, whatever the JP Morgan in the city,

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Speaker 1: the Bank of America Anity, and whatever legal country that is,

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Speaker 1: they have to be properly capitalized to stand alone. And

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Speaker 1: so essentially what's happening is is that the living will,

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Speaker 1: which sounds very harmless um, is affecting resolution rules around

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Speaker 1: the world, and each one of the subsidiaries of the

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Speaker 1: banks have to fund themselves on a standalone basis, capitalize

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Speaker 1: themselves and a stand a loan basis, and worry about

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Speaker 1: their intro bank relationships. I know this sounds really technical.

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Speaker 1: I mean what it's fundamentally means is you can't transfer

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Speaker 1: a trading book or a funding book around the world

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Speaker 1: as seamlessly as you used to. And that's the reason

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Speaker 1: why the banks are sort of they're being very careful

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Speaker 1: about what they promise on this, because the very idea

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Speaker 1: of a universal bank is that you can move everything

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Speaker 1: around the world easily. Well, if you can't anymore, then

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Speaker 1: one of the economics of a universal bank goes away.

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Speaker 1: And that's sort of the issues you're You're you're running

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Speaker 1: into very technical stuff. But again, if it's a direct

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Speaker 1: attack on the business model of the banks, you understand

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Speaker 1: why the regulators are doing it, you understand why it's

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Speaker 1: happening around the world. But nonetheless, it affects the potential

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Speaker 1: bottom bottom line of the banks. Can I ask a

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Speaker 1: dumb question, Mike, Yeah, why is it living well different

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Speaker 1: than the stress test? I mean, I understand one is

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Speaker 1: like static and the others wonderfully dynamic, but isn't it

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Speaker 1: all the same thing, trying to gain what happens under

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Speaker 1: shock sort of? When you know, when when you've and

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Speaker 1: I have talked about stress tests before, I've always the

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Speaker 1: analogy I've always used is the uh, the invisible fence

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Speaker 1: that that suburbanites half of their dogs. You know, when

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Speaker 1: when when you put an invisible fence in, you'll let

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Speaker 1: the dog in the backyard. You know, he goes running

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Speaker 1: to the out and he hits the invisible fence and

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Speaker 1: get shocked, right and uh, and so for a while

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Speaker 1: he kind of sits in the middle of the yard

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Speaker 1: whimpering because he doesn't know where to go. Um. The

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Speaker 1: problem with the stress tests is that they move all

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Speaker 1: the time, right, So it's an invisible fence that's moving,

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Speaker 1: so that the banks really can't can't optimize. And that's

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Speaker 1: one of the reasons why there are oas or look.

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Speaker 1: So it's an important thing, the invisible the the stress

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Speaker 1: tests are used to to to test the banks to

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Speaker 1: worry about bubbles too, right. I mean, if you if

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Speaker 1: you have Miami real estate going up, you know, perhaps

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Speaker 1: you ought to s Miami real estate when you do

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Speaker 1: the the the annual tests and so the regulators are

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Speaker 1: using the stress tests sort of like a Swiss army knife.

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Speaker 1: They can use it for many, many certain things. The

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Speaker 1: living wills. What you're saying is change the way you

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Speaker 1: operate because you know, we don't know what's going to happen,

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Speaker 1: but if something really bad happens, we have to be

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Speaker 1: able to shut down your various entities and we want

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Speaker 1: to want to know how to do it, and the

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Speaker 1: way to do it is to simplify things and capitalize

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Speaker 1: things and make everything stand alone. Great idea, but every

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Speaker 1: time there's always a secondary effect of every regulatory change

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Speaker 1: is very quickly thirty seconds, we've got to go, what

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Speaker 1: should we look for from Bank of America that that

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Speaker 1: government issue governance issues? Um, it's a different bank than

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Speaker 1: jp Morgan frame Bank of America for us quickly, sure,

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Speaker 1: we're gonna have you know, the the U. The lending

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Speaker 1: side will be fine, right because what we've seen CNI

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Speaker 1: loan is doing well. Um there for for all the

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Speaker 1: retail sides, the banks look good, so wells Fargo. You

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Speaker 1: know the performance that we saw seen a jp AM

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Speaker 1: probably flows through to say that the consumer side looks

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Speaker 1: relatively well. The commercial banking side with the exception of

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Speaker 1: the reserve increase. You know, CNI loans are going to

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Speaker 1: do well. Of course, in the case of Bank of America,

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Speaker 1: you know we're going to have fixed income doing doing

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Speaker 1: much weaker, uh and and that's going to pull down performances.

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Speaker 1: So you know, the the issue here in terms of

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Speaker 1: this quarter will be how much energy exposure do you have?

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Speaker 1: And we'll see that roll through from each one of

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Speaker 1: the banks. And then the other one is going to

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Speaker 1: be how big are you in trading? Right? And so

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Speaker 1: someone who who is big and trading is going to

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Speaker 1: be hard worse than someone who who isn't bred. Thank

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Speaker 1: you so much for New York University. Mcam McKee. Always

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Speaker 1: interesting to say, one at home has the fence around

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Speaker 1: the kitchen. Bump, bump again, so I get shocked. Bloomberg surveillance.

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