WEBVTT - Surveillance: Hintz, Rupkey, Kass 0:00:10.039 --> 0:00:13.720 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 0:00:14.000 --> 0:00:17.560 with Michael McKee. Daily we bring you insight from the 0:00:17.560 --> 0:00:22.760 best in economics, finance, investment, and international relations. Find Bloomberg 0:00:22.840 --> 0:00:27.280 Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course 0:00:27.720 --> 0:00:33.240 on the Bloomberg The ins and outs of Brexit, whether 0:00:33.320 --> 0:00:36.720 it is happening, not happening, what's happening? Uh, The huge 0:00:36.760 --> 0:00:39.040 story of the day, certainly in the United Kingdom and 0:00:39.080 --> 0:00:41.760 for much of Europe. But in the US today, everybody's 0:00:41.760 --> 0:00:45.600 talking about the banks. The second round of FED stress 0:00:45.680 --> 0:00:50.000 tests out yesterday, and it's a little bit like Lake Wobegon, 0:00:50.280 --> 0:00:54.160 where all the men are pretty and all the women 0:00:54.200 --> 0:00:58.520 are strong and the children above average. Everybody passed in 0:00:58.560 --> 0:01:02.480 the US this time. A couple of foreign banks didn't 0:01:02.560 --> 0:01:05.080 quite get there. We're gonna talk about that now with 0:01:05.120 --> 0:01:09.360 Brad Hints, because of course he is the man, the CEO, uh, 0:01:09.800 --> 0:01:13.240 the I'm sorry Stern Business School finance professor, not CEO 0:01:13.319 --> 0:01:16.640 of Stern Business School, of course, but the former CFO 0:01:16.800 --> 0:01:19.920 what I meant to say, of several banks and longtime 0:01:19.959 --> 0:01:25.080 bank analyst. He joined US now and Brad um Yeah, 0:01:25.160 --> 0:01:27.320 obviously the bank's got to be happy. But the FED 0:01:27.400 --> 0:01:30.080 has to be happy too, because they did set a 0:01:30.200 --> 0:01:35.160 rather tough bar, rather high bar in the adverse stress scenario, 0:01:35.560 --> 0:01:39.240 and basically everybody cleared it in terms of capital adequacy. Well, 0:01:39.240 --> 0:01:41.480 that's exactly right. So if we think of the stress test, 0:01:41.560 --> 0:01:45.160 the stress test is a Swiss army knife that the 0:01:45.160 --> 0:01:47.160 FED uses, right, And one of the users of the 0:01:47.240 --> 0:01:50.200 uses of the Swiss army knife is public relations. So 0:01:50.240 --> 0:01:53.320 in the midst of Brexit, the FED is able to 0:01:53.320 --> 0:01:56.400 say US banks are solid, and that help works well 0:01:56.440 --> 0:01:58.559 with the press, and it works well with the public, 0:01:58.600 --> 0:02:00.720 and it works well on Capitol Hill and you know, 0:02:00.800 --> 0:02:03.440 and yes, they stressed the banks and they did well. 0:02:03.960 --> 0:02:06.240 The banks have been getting much better at taking this test, 0:02:06.280 --> 0:02:08.400 and part of that is they reversed engineered a lot 0:02:08.440 --> 0:02:10.680 of the FED. Well, there's a good question. Is it 0:02:10.760 --> 0:02:13.799 that they're getting better at meeting the FEDS requirement or 0:02:13.840 --> 0:02:16.240 they're getting better at knowing how to take the test? 0:02:16.840 --> 0:02:19.440 What's a combination of both, right? I mean, we can 0:02:19.480 --> 0:02:23.000 we can mathematically look at the at the balance sheets. 0:02:23.200 --> 0:02:26.280 The banks are just much stronger than they've been in years. 0:02:26.560 --> 0:02:28.600 But on the other hand, if you take this test 0:02:28.720 --> 0:02:30.640 over a period of time, despite the fact that the 0:02:30.639 --> 0:02:33.399 scenarios change all the time, you're just going to get better. 0:02:33.440 --> 0:02:35.720 You're going to know how the FED models are going 0:02:35.760 --> 0:02:37.760 to work. And if you see your internal models are 0:02:37.760 --> 0:02:39.800 different than the FED models, you're gonna do everything you 0:02:39.840 --> 0:02:42.399 can to get them together so that so that when 0:02:42.440 --> 0:02:44.400 you say the answer, you're gonna be close to what 0:02:44.480 --> 0:02:47.320 the professor tells you is the real answer. And and 0:02:47.360 --> 0:02:49.560 that's what we're seeing, bright hands, when when when you 0:02:49.639 --> 0:02:52.680 look at these banks, one of the ideas and you're 0:02:52.680 --> 0:02:55.720 not doing by hold cell anymore, but we're hearing from 0:02:55.760 --> 0:02:58.560 a lot of people in the street that a great 0:02:59.320 --> 0:03:02.920 cash flow awaits. Is this the day or you have 0:03:03.040 --> 0:03:07.320 more confidence that these banks will have ample cash flow 0:03:07.880 --> 0:03:12.079 to move to shareholders through dividend growth and share buy 0:03:12.120 --> 0:03:16.960 back where they get beyond being quasa utilities, Well, Tom, 0:03:17.000 --> 0:03:20.200 you've got you know, you've got banks that are proposing 0:03:20.919 --> 0:03:25.880 combined payout ratios of near a hundred percent. So in essence, 0:03:26.080 --> 0:03:28.040 your buy backs and your dividends are going to pay 0:03:28.080 --> 0:03:30.840 out everything that you're earned. So you know what that'll 0:03:30.880 --> 0:03:33.360 do is that is again, if we think about it, 0:03:33.400 --> 0:03:36.200 from an equity point of view, it's reducing the discount 0:03:36.280 --> 0:03:38.080 because you know, here we have a group of banks 0:03:38.120 --> 0:03:40.040 that are out beating their cost of capital, that are 0:03:40.200 --> 0:03:44.600 generating unacceptable returns. But if you can get high dividends 0:03:44.600 --> 0:03:47.120 off of them, that that you you may find that 0:03:47.280 --> 0:03:50.600 still an acceptable investment. On the other hand, if you're 0:03:50.640 --> 0:03:53.240 paying out more than a hundred percent of what you've got, 0:03:53.320 --> 0:03:55.800 or you don't have a lot of growth, and so 0:03:55.880 --> 0:03:59.680 you know, unfortunately, we have an industry that's still in transition, 0:04:00.000 --> 0:04:02.200 in a long transition. Now right we're in the eighth 0:04:02.360 --> 0:04:06.320 year of the transition you know, from them from the crisis. 0:04:06.320 --> 0:04:09.480 But will they trans will they transition over the next 0:04:09.560 --> 0:04:15.920 eighteen months to two years to cash flow generators they 0:04:15.960 --> 0:04:19.599 give it back to shareholders. That's the thesis of exactly, 0:04:19.640 --> 0:04:22.080 and that is that's what you're seeing with distresses. Distresses 0:04:22.320 --> 0:04:25.280 allows them to to to return more capital. You can 0:04:25.360 --> 0:04:27.599 prove that you can you can live through a very 0:04:28.000 --> 0:04:31.960 very difficult scenario, and you can you can execute your 0:04:32.160 --> 0:04:34.640 your your capital proposals. All of them are asking to 0:04:34.880 --> 0:04:37.479 to give back more capital, I don't you know. Unfortunately, 0:04:37.520 --> 0:04:39.720 that leads us in the direction of a utility. You know, 0:04:40.960 --> 0:04:44.479 they pay back. They don't generate great returns, but they 0:04:44.520 --> 0:04:49.040 do pay off. Are the banks handicapped in anyway by 0:04:49.080 --> 0:04:52.960 the efforts that they have made to meet the requirements 0:04:53.000 --> 0:04:55.800 of the test? Are they making fewer loans because of 0:04:56.080 --> 0:05:01.920 that or making less money because of that? Yes, their 0:05:02.000 --> 0:05:06.400 stress test c CAR is UH is the binding constraint 0:05:06.560 --> 0:05:08.960 on the banks. And you've you've had JP Morgan's say that, 0:05:09.120 --> 0:05:13.480 Morgan Stanley Goldman say that if the the the analogy 0:05:13.839 --> 0:05:17.479 I've used in the past is that the stress test 0:05:17.720 --> 0:05:20.440 is like one of those invisible fences that people put 0:05:20.520 --> 0:05:24.400 up for their dog, and and and then each night 0:05:25.040 --> 0:05:33.640 they never worked well, keep you in the studio, like 0:05:36.920 --> 0:05:40.040 you know, each each year the FED goes and it 0:05:40.160 --> 0:05:42.560 digs up the invisible fence and it moves it around 0:05:42.800 --> 0:05:45.520 so that the poor banks who are out in the 0:05:45.600 --> 0:05:48.320 backyard really don't know where they're going to get shocked 0:05:48.680 --> 0:05:51.279 and and and unfortunately what that means is you don't 0:05:51.320 --> 0:05:54.279 go anywhere near the stress test. So you're always maintaining 0:05:54.320 --> 0:05:56.480 surplus capital that pulls down your r o E s. 0:05:56.680 --> 0:05:59.720 You're always maintaining surplus liquidity that pulls down your r 0:05:59.760 --> 0:06:01.520 o I want to get this in bread. I think 0:06:01.560 --> 0:06:04.600 it's too important for our global Wall Street audience. We 0:06:04.720 --> 0:06:09.640 talked earlier about the idea away from tangible book value 0:06:09.680 --> 0:06:11.800 of the European banks, and the share price is just 0:06:11.880 --> 0:06:15.880 getting so low, the behavioral idea of debt versus equity 0:06:16.000 --> 0:06:19.160 Madiglian and Miller and the rest of it. Forget about 0:06:19.200 --> 0:06:22.160 the theory about it. There's a point where the thing 0:06:22.360 --> 0:06:27.720 breaks is tangible book value comes down and down and down. 0:06:28.160 --> 0:06:31.920 We're seeing tangible books in European banks where there's almost 0:06:31.920 --> 0:06:35.360 an accelerative force of lack of confidence. How do you 0:06:35.400 --> 0:06:37.320 know when you get there? Or do you just not 0:06:37.480 --> 0:06:40.440 be able to predict a drop in confidence in a 0:06:40.520 --> 0:06:44.040 banking system? Well, we don't have a funding or problem 0:06:44.120 --> 0:06:46.400 going on right now that I've heard. I heard that before. 0:06:46.520 --> 0:06:48.920 Leaning okay, well all right, but you know, do you 0:06:48.960 --> 0:06:50.960 see the government? Do you do? You do you see 0:06:51.040 --> 0:06:53.760 corporate bonds trading and equity trains? We still have a liquid, 0:06:53.839 --> 0:06:56.040 liquid market, so we're not we're not. We don't have 0:06:56.160 --> 0:06:58.599 that kind of a crisis yet. But you're asking, you're 0:06:58.600 --> 0:07:01.680 asking a question, is there a price that banks have value? 0:07:01.760 --> 0:07:04.080 Of course they are, you know, deutsch is not going away. 0:07:04.360 --> 0:07:07.799 UBS is not going away. Barclays is not going away. 0:07:08.200 --> 0:07:12.680 Um And and you can as an equity analyst, I 0:07:12.840 --> 0:07:17.840 remember an analysis that I'm sure the portfolio managers are 0:07:17.880 --> 0:07:22.440 doing today. The analysis is, as you drop below in 0:07:22.600 --> 0:07:25.480 lower and lower levels of price to tangible book, your 0:07:25.720 --> 0:07:29.480 beta the volatility on a down movement is less than 0:07:29.560 --> 0:07:32.640 the beta on the upside because you know, because the 0:07:32.680 --> 0:07:35.560 banks are nearing a liquidation value, no matter how you 0:07:35.680 --> 0:07:38.640 what kind of of owners assumptions you in, there at 0:07:38.640 --> 0:07:41.400 a liquidation value. So so it says that the bank 0:07:41.440 --> 0:07:45.440 has become one way trades at some point where you know, I, 0:07:46.160 --> 0:07:48.080 we have to be close to this, but you know 0:07:48.280 --> 0:07:50.480 that's that's a call of an equity analyst that has 0:07:50.520 --> 0:07:53.600 to make. It's very difficult. On the Bloomberg just a 0:07:53.680 --> 0:07:58.040 quick look, and there's many book values Deutsche Bank zero 0:07:58.240 --> 0:08:04.040 point to eight. That's stunning, that number, and that's and 0:08:04.120 --> 0:08:08.080 that says they will never make money again. JP Morgan 0:08:08.560 --> 0:08:12.360 had operating income before the crisis, which is massively expanded 0:08:12.680 --> 0:08:15.240 within all the U S banking workout. And there's a 0:08:15.280 --> 0:08:18.520 presumption by many analysts that they will distribute cash flow 0:08:18.560 --> 0:08:23.080 to shareholders this morning, I can own a five point 0:08:23.240 --> 0:08:27.640 seven percent yield on BNP Perry Box with some currency 0:08:27.720 --> 0:08:32.240 issues with the Euro. It's extraordinary how they are differently 0:08:32.440 --> 0:08:39.080 structured than our banks to be high dividend cash machines. Granted, 0:08:39.200 --> 0:08:42.640 with not all that much growth. JP Morgan has a growth. 0:08:43.000 --> 0:08:46.120 BNP Paribot is not at the growth but BMP Perry 0:08:46.160 --> 0:08:51.640 Bots got that massive coupon. Which do I want? Philosophically, 0:08:54.480 --> 0:08:57.439 I'm trying to ask in a professorial way. Sure they 0:08:59.280 --> 0:09:04.480 BNP Perry is. It is smaller on the capital market side, 0:09:04.520 --> 0:09:06.760 There's no question about that, and that's probably one of 0:09:06.800 --> 0:09:09.880 the very good things. And JPM is the leading is 0:09:11.040 --> 0:09:13.839 conventional wisdom is JPM is one of the winners out 0:09:13.880 --> 0:09:16.559 of the out of the crisis. So, I mean what 0:09:16.679 --> 0:09:19.400 you're you're really buying two different things, right, You're buying 0:09:19.720 --> 0:09:23.400 your You're buying a BNP Perry BA with the the 0:09:23.640 --> 0:09:28.280 idea that it it The commercial banking business fundamentally is 0:09:28.320 --> 0:09:31.640 a good business, and a capital markets business can't drag 0:09:31.679 --> 0:09:33.679 it down too far? Right? I mean that that that 0:09:34.200 --> 0:09:37.280 and JPM. You're betting that Jamie will be the winner 0:09:37.320 --> 0:09:39.719 of the war of attrition. So I mean you you 0:09:40.400 --> 0:09:44.640 you're they're not totally comparable, right, I mean b MP 0:09:44.760 --> 0:09:47.040 Perry bad is not attempting to be the global capital 0:09:47.120 --> 0:09:49.400 markets bank anymore. Well what about if I bar bill 0:09:50.080 --> 0:09:53.280 by equal amounts of both, and I believe out of 0:09:53.320 --> 0:09:55.360 the box I generate a four and a half from 0:09:55.400 --> 0:09:58.920 more coupon. I've got a cash flow machine in Paris, 0:09:59.280 --> 0:10:01.559 and I got Mr Diamond running around with his head 0:10:01.640 --> 0:10:04.880 cut off being fortress Diamond. Well, Tom, you're heading back 0:10:04.920 --> 0:10:06.840 to the idea of is there a price that banks 0:10:06.920 --> 0:10:10.040 look look attraductive? Yeah? There there there always is. I 0:10:10.080 --> 0:10:12.640 mean it's it's you know, it's as an academic, you know, 0:10:12.720 --> 0:10:15.240 you talk about cost of you know, cost of capital, 0:10:15.280 --> 0:10:17.719 you talk about r o e s. But as a 0:10:17.800 --> 0:10:20.480 portfolio manager, one looks at it and say, you know, 0:10:20.559 --> 0:10:22.400 I can hold my nose and buy some Can we 0:10:22.520 --> 0:10:25.240 start a rumor this morning that JP Morgan will buy 0:10:25.320 --> 0:10:29.160 BMP Perry. Body would that work? Right after the FED 0:10:29.240 --> 0:10:33.920 stress tests? Right, somebody asked oland will have a stress 0:10:34.120 --> 0:10:36.959 Somebody asked me what the what the major takeaway I 0:10:37.080 --> 0:10:39.240 had from the stress test was that I thought about 0:10:39.360 --> 0:10:41.640 from it? I thought, you know, given the size of 0:10:41.720 --> 0:10:45.000 the projected losses that could happen. You know that the 0:10:45.120 --> 0:10:48.760 FEDS academic exercise in how much each bank could lose. 0:10:49.840 --> 0:10:52.680 Damie Morgan is just a goliath. I mean the amount 0:10:52.679 --> 0:10:55.160 of money they could lose is higher than the GDP 0:10:55.320 --> 0:10:57.959 of a lot of countries. And if you, if you 0:10:58.000 --> 0:10:59.800 think about it, what we've done is we've made the 0:11:00.000 --> 0:11:02.840 credit of the bank spectacular. I mean, these are boy, 0:11:03.200 --> 0:11:05.120 everybody should own the bonds of the banks. You know 0:11:05.200 --> 0:11:09.160 they're there there their bulletproof you. Good morning, Chris Whalen, 0:11:09.840 --> 0:11:13.280 way off front. We shouldn't we We should ask about 0:11:13.320 --> 0:11:16.079 the other foreign banks, not BMP PARRYBO which was not 0:11:16.160 --> 0:11:20.200 stress tested, but the ones on the list the stress 0:11:20.240 --> 0:11:23.520 tests aren't as comparable to them. And most of these 0:11:23.559 --> 0:11:26.200 are our smaller U S subsidiaries. And we we made 0:11:26.240 --> 0:11:28.600 the point this morning that this is not Deutsche Bank 0:11:28.760 --> 0:11:32.559 that failed. Is a tiny little part of a smaller 0:11:32.920 --> 0:11:36.319 US part of Deutsche Bank. That's all going to change 0:11:36.679 --> 0:11:40.240 in a week, well Friday, when they all become their 0:11:40.280 --> 0:11:43.960 own holding companies. How does that affect what the foreign 0:11:44.000 --> 0:11:46.960 banks can do, will do and are and what they 0:11:47.040 --> 0:11:50.959 need to do regulatory as you you're well aware you're 0:11:50.960 --> 0:11:54.160 going to end up having to capitalize these u S subsidiaries. 0:11:54.800 --> 0:11:59.880 I uh I, I need to do a true can 0:12:00.080 --> 0:12:04.880 fashion on the here, which is I remember as a 0:12:05.240 --> 0:12:09.000 corporate treasurer and as a CFO, having subsidiaries with negative 0:12:09.040 --> 0:12:13.160 equity in them, negative equity in order to allow your 0:12:13.600 --> 0:12:16.679 the the double leverage of the company, the equity of 0:12:16.720 --> 0:12:18.559 the holding company compared to the equity of all the 0:12:18.640 --> 0:12:21.800 subs to look very good. And you wouldn't want to 0:12:21.880 --> 0:12:27.599 load which bank that now? Now, of course, I you 0:12:27.640 --> 0:12:30.720 know I have found religion and I don't do that anymore. 0:12:32.760 --> 0:12:35.679 It's uh, did tests tell you anything about the form 0:12:35.720 --> 0:12:40.319 banks that we should even take away from this? Um? Well, 0:12:41.040 --> 0:12:42.599 remember the stress tests are done for a lot of 0:12:42.640 --> 0:12:44.760 the reasons, right, They're done for the pr reasons. They're 0:12:44.800 --> 0:12:46.559 done for you know, good stress tests. I mean, so 0:12:46.679 --> 0:12:49.360 fundamentally these are solid tests. But you know they're also 0:12:49.440 --> 0:12:52.240 done to pop bubbles. So the Federal Reserve has a 0:12:52.320 --> 0:12:56.720 wonderful um ability to if they don't like something, they 0:12:56.760 --> 0:12:59.160 can stress it. And if you're a bank and they 0:12:59.200 --> 0:13:01.480 see a bubble developping, essentially they can use as a 0:13:01.640 --> 0:13:05.000 macro economic tool too. So I mean, that's why the 0:13:05.320 --> 0:13:08.640 stress tests are the binding constraint for for for all 0:13:08.679 --> 0:13:10.880 of the banks, right we you know, the FED could 0:13:10.920 --> 0:13:13.920 be making it could be trying to to run an 0:13:13.960 --> 0:13:17.520 economic issue of trying to solve an economic issue for 0:13:17.640 --> 0:13:20.400 the for the country in advance of it turning into 0:13:20.440 --> 0:13:23.400 a crisis, and the cost would be lower returns on 0:13:23.480 --> 0:13:26.599 the banks. And so you know, unfortunately, se CAR is 0:13:27.280 --> 0:13:30.599 very costly for the banks. It pushes down the r 0:13:30.640 --> 0:13:33.839 o E s, makes it very difficult to find the 0:13:34.000 --> 0:13:37.040 optimal mix of businesses because you never know what the 0:13:37.120 --> 0:13:40.040 stress is going to be. Thirty seconds, what will the 0:13:40.160 --> 0:13:44.120 American regionals do? We've been too big to fail this morning? 0:13:44.360 --> 0:13:46.400 What are the banks just below them? To P and 0:13:46.520 --> 0:13:49.440 C in the rest of them? So there, that's where 0:13:49.440 --> 0:13:52.600 the M and A is gonna happen. Right You're arguing 0:13:52.640 --> 0:13:54.719 that the number of banks is going to shrink. Yes, 0:13:54.880 --> 0:13:56.880 the number of banks is going to shrink, but but 0:13:57.240 --> 0:14:00.400 they can't allow the larger banks to to it bigger. 0:14:00.720 --> 0:14:03.480 So the regional's merge and make for a new you know, 0:14:04.000 --> 0:14:09.439 we we have a new somebody, some someone in that 0:14:09.559 --> 0:14:13.000 group is is an n CNB of the old days 0:14:13.040 --> 0:14:18.360 that becomes a nation financial and Buffalo one of the 0:14:18.440 --> 0:14:20.320 best banks in the world. They could be the next 0:14:20.640 --> 0:14:35.600 BMP Perryo bred Hands. Thank you so much. Chris Ruski 0:14:35.760 --> 0:14:38.160 is for this though he's pack Tokey. It's a good 0:14:38.200 --> 0:14:41.240 person to talk to you right now about EIST. Do 0:14:41.280 --> 0:14:43.920 you have an opinion on jobless claims? I mean, we're 0:14:44.000 --> 0:14:48.600 clearly not seeing problems in the labor market. Yeah, I mean, 0:14:48.680 --> 0:14:50.920 they don't have a lot of informational value. I know 0:14:51.720 --> 0:14:55.119 Federal Reserve has had lectures down there, the policy officials 0:14:56.400 --> 0:14:59.320 pushing back on the idea that it's a leading indicator 0:14:59.400 --> 0:15:03.080 of the econom me initial unemployment claims. But at this point, 0:15:03.160 --> 0:15:05.680 you know, it's very sensitive and at this point it 0:15:05.720 --> 0:15:09.640 can only tell us what's you know, going wrong. And 0:15:09.840 --> 0:15:14.120 this morning with claims up just a little bit off 0:15:14.320 --> 0:15:19.640 the well, the lowest level of claims since the nineteen seventies, 0:15:21.040 --> 0:15:25.080 two thousands, so we're only twenty above that. I know, 0:15:25.760 --> 0:15:28.600 it sounds like a lot of people applying for unemployment 0:15:28.680 --> 0:15:31.760 because they've been laid off in just one week. But 0:15:31.920 --> 0:15:36.240 it's actually good times for the economy anyway. Nothing going 0:15:36.320 --> 0:15:38.400 wrong yet. I mean, I think it's a fair thing 0:15:38.640 --> 0:15:42.120 that you know, Brexit is alarmed people in a way 0:15:42.240 --> 0:15:46.400 I haven't seen since really the Lehman shock in two 0:15:46.480 --> 0:15:49.600 thousand and eight. I think people went a little overboard 0:15:49.600 --> 0:15:52.880 about what those risks from Brexit mean here for the US. 0:15:53.080 --> 0:15:55.760 But you know, so it's a fair game. We want 0:15:55.760 --> 0:15:58.080 to see if companies are concerned enough not just to 0:15:58.160 --> 0:16:03.240 cut production but to you know, layoff workers. And nothing's happening, 0:16:03.320 --> 0:16:08.440 although it's only been one week. Arguably he might be interested. 0:16:08.520 --> 0:16:12.280 I went to my economist club meeting yesterday, the Forecasters Club, 0:16:12.920 --> 0:16:15.720 which I'm going to be president of next year. Thank you. 0:16:19.600 --> 0:16:22.160 I hope your hope your convention is better than the 0:16:22.240 --> 0:16:25.800 one in Cleveland. Now we we we went around the 0:16:25.840 --> 0:16:28.960 table about what Brexit means for the US. It's just 0:16:29.200 --> 0:16:33.560 US economists, although there's European Bank economist as well. Anyway, 0:16:33.960 --> 0:16:36.800 too said nothing. Too said it was going to drag 0:16:36.880 --> 0:16:40.200 GDP point one or point two percentage point one said 0:16:40.280 --> 0:16:42.840 zero point to five is zero point five percent drag 0:16:42.920 --> 0:16:46.040 on GDP. So you know, not that much of an 0:16:46.080 --> 0:16:48.920 impact on GDP anyway. But one of the things is 0:16:49.040 --> 0:16:52.360 nuanced your very quickly, Chris Rupkey, is the idea from 0:16:52.680 --> 0:16:56.360 UH Sir Howard Davies today that he shared your optimism, 0:16:56.800 --> 0:16:58.600 but he said, look, you've got a one time move 0:16:58.680 --> 0:17:02.640 in Sterling. I mean, it's got to help British exports, right, 0:17:03.920 --> 0:17:06.320 I don't know. I mean, yeah, it's been what it's 0:17:06.960 --> 0:17:11.720 at this point, it's what move from a dollar fifty? 0:17:12.440 --> 0:17:14.720 I don't know if that changes. I guess that's going 0:17:14.800 --> 0:17:17.639 to have an impact. Yeah, but I mean some of 0:17:17.720 --> 0:17:22.200 the companies in Europe have already complained about the change 0:17:22.240 --> 0:17:26.400 in the exchange rate. I mean it's it's not yet, 0:17:26.520 --> 0:17:30.680 but yeah, it could have an impact. Christier, I want 0:17:30.720 --> 0:17:32.680 to talk about the economic data. We get to July 0:17:32.880 --> 0:17:37.080 eight in the labor report. I believe the last labor report, Mike, 0:17:37.119 --> 0:17:41.040 would you call it a little shaky and there's a 0:17:41.119 --> 0:17:44.480 lot of there's a lot of optimism to two point 0:17:44.560 --> 0:17:48.439 five or better g d P. How do you dovetail 0:17:48.840 --> 0:17:52.960 a shaky labor report with a better US economic growth? 0:17:53.520 --> 0:17:56.560 Which one? Which one's got the trend? Right? I always 0:17:56.600 --> 0:17:59.480 look on the bright side of life. It's whatever the 0:17:59.680 --> 0:18:02.920 data the stronger day to take that one. Yeah, it's 0:18:02.920 --> 0:18:07.680 a little weird, isn't it. Uh, Real real consumer expenditures 0:18:07.800 --> 0:18:10.440 yesterday we got it for May. I mean, it looks 0:18:10.560 --> 0:18:13.760 like consumers shot the lights out in the second quarter 0:18:14.359 --> 0:18:18.680 April through May. It's running four You know, we talked 0:18:18.680 --> 0:18:23.040 about a two percent GDP world where that's kind of 0:18:23.200 --> 0:18:25.520 subpar in most people's minds, but here you have the 0:18:25.560 --> 0:18:30.000 consumer roaring out at four percent. It's quite odd. I 0:18:30.119 --> 0:18:34.920 think what I finally detected in Janet Yellen's testimony, though, 0:18:35.640 --> 0:18:38.119 was that she was starting to warn off people a 0:18:38.240 --> 0:18:42.560 little about what the slowdown and payroll jobs actually mean. 0:18:43.119 --> 0:18:45.119 I mean, they go back and forth on of it, 0:18:45.480 --> 0:18:47.800 on this some of their some of the FETE governors 0:18:47.840 --> 0:18:50.199 are worried about what it means. But you know, at 0:18:50.280 --> 0:18:53.280 some point, we're at full employment. You know, unemployment rates 0:18:53.320 --> 0:18:55.639 four point seven percent. It's not just because people are 0:18:55.720 --> 0:18:58.600 dropping out of the labor force. I don't see people 0:18:58.760 --> 0:19:01.760 panhandling in the street to New York. Well maybe I do, 0:19:01.960 --> 0:19:04.040 but you know, I mean, we're at full employment. So 0:19:04.160 --> 0:19:07.320 the idea here is that jobs are gonna slow, right, 0:19:07.400 --> 0:19:10.600 It's gonna run like a hundred and seventy thousand on 0:19:10.840 --> 0:19:13.040 average for the rest of the year something like that. 0:19:13.320 --> 0:19:17.399 I mean, you know, last month's number thirty thousand, plus 0:19:17.880 --> 0:19:20.760 you know it was weak, but I don't think you 0:19:20.840 --> 0:19:23.399 want to think that the economy is going downhill like 0:19:23.600 --> 0:19:26.719 recession like sort of stuff. What do you think our 0:19:26.800 --> 0:19:29.520 growth rate in the second quarter is going to be? Well, 0:19:29.600 --> 0:19:31.200 I guess I had to pump it up a little 0:19:32.240 --> 0:19:36.159 after foal consumers spending, and we kind of have two 0:19:36.240 --> 0:19:40.840 economies right now where business investments suffering a little. Although 0:19:40.920 --> 0:19:45.199 exports came back that was good, but business investments slowing, 0:19:45.280 --> 0:19:47.800 so I don't know, something near three point oh maybe 0:19:47.880 --> 0:19:52.560 barely touching foint. Well, I had two point six, so uh, 0:19:52.680 --> 0:19:55.240 consumption was strong. We'll see what happens with some of 0:19:55.280 --> 0:19:57.879 the durable goods data later on. As I said, it 0:19:57.920 --> 0:20:02.280 looks like exports are finally at least stabilizing and won't 0:20:02.320 --> 0:20:06.200 be a drag that the strong dollar impact and slower 0:20:06.240 --> 0:20:09.760 world growth that was supposedly bringing down our exports, and 0:20:10.200 --> 0:20:12.560 they did come down quite a bit. It looks like 0:20:12.800 --> 0:20:16.000 we're kind of leveling off there after a decline. So 0:20:16.119 --> 0:20:20.800 that's good news. Pretty brexit of course as of today, yes, 0:20:21.960 --> 0:20:25.760 well this is actually yesterday. The last night fed GDP 0:20:25.880 --> 0:20:29.720 now is two point seven, so you're you're in the ballpark. There. Yeah. 0:20:29.760 --> 0:20:31.919 But you know one interesting thing I just put up 0:20:31.960 --> 0:20:36.600 on the Bloomberg Professional Service. Uh well really well with 0:20:36.720 --> 0:20:40.240 these plugs and m u f G. Of course, you know, 0:20:40.520 --> 0:20:43.280 go team m u f G. Anyway, I put up 0:20:44.200 --> 0:20:49.760 the Dow Jones stock Index GP graph price monthly GPM 0:20:50.560 --> 0:20:55.240 for the down industrials. I mean, put that up. Where 0:20:55.359 --> 0:20:58.960 is the financial market turmoil here in the US that 0:20:59.119 --> 0:21:02.600 there's nothing going on? This is not a stock market 0:21:02.760 --> 0:21:06.840 crisis from Brexit. I mean, it's come back. I think 0:21:06.880 --> 0:21:10.399 people are exaggerating this problem in that for the for 0:21:10.520 --> 0:21:13.920 the US markets at this point anyway, prices have not 0:21:14.080 --> 0:21:16.760 come down year to date. The Dow is up one 0:21:16.840 --> 0:21:20.200 and a half percent. I mean, how is that a crisis? Well, 0:21:20.240 --> 0:21:23.360 it's not, I suppose, is what a lot of people 0:21:23.440 --> 0:21:25.800 after the last couple of years would say. Yeah, I 0:21:26.160 --> 0:21:29.280 guess so. Actually I was noticing as well. You look 0:21:29.320 --> 0:21:31.840 at some of the central bank policies where they keep 0:21:31.920 --> 0:21:35.119 pushing and pushing and pushing. I think Drogg is going 0:21:35.240 --> 0:21:39.600 before the German Parliament in September. I believe anyway, if 0:21:39.640 --> 0:21:41.600 you look at you know what's going on in Germany. 0:21:41.760 --> 0:21:44.639 Very strong economy, but their stock markets down ten percent 0:21:44.680 --> 0:21:47.080 and they've got negative rates. I mean, how do you 0:21:47.160 --> 0:21:50.480 explain that to the the people? I don't know. It's 0:21:51.280 --> 0:21:55.320 an interesting time. Chris Ruski, thanks so much, greatly appreciative. 0:21:55.359 --> 0:22:23.879 Thank you to Akill. It's appreciating and of course, a 0:22:23.960 --> 0:22:28.560 grateful debt getting you ready for the fourth of July weekend. 0:22:28.640 --> 0:22:30.359 We got to get ready with a grateful dead and 0:22:30.480 --> 0:22:32.280 for that we need to go to the official surveillance 0:22:32.359 --> 0:22:36.000 dead ed Douglas Cass of Sea Breeze Partners, good morning, sir, 0:22:36.800 --> 0:22:39.440 Professor Keene. I thought you were more of a mellow 0:22:40.080 --> 0:22:43.080 Crosby Stills, Nash and guy. But when I heard head's 0:22:43.080 --> 0:22:46.680 all empty, heads all spinning, I was thinking Strugar of Magnolia. 0:22:47.040 --> 0:22:49.560 I have a great honor of Steven Stills, and you know, 0:22:49.640 --> 0:22:52.480 I'll listen to my Yo yo ma at the time, 0:22:53.359 --> 0:22:55.920 but it really talks about remember the dead. They were 0:22:55.960 --> 0:23:00.120 priced to perfection. You couldn't get tickets, and then then 0:23:00.200 --> 0:23:04.000 the the C prices collapsed. Yeah, and the C prices 0:23:04.040 --> 0:23:06.160 collapsed and they went on to do other things. Remind 0:23:06.280 --> 0:23:09.320 me of the overseas bond market. Are you are you 0:23:09.480 --> 0:23:12.400 gonna say? Doug Cass of Sabers partners. Are you gonna 0:23:12.440 --> 0:23:16.280 say that Brexit is an exogertous shock that will unhinge 0:23:16.560 --> 0:23:19.359 the equity markets after what we've seen the last three 0:23:19.440 --> 0:23:23.280 days of recovery, I'm going to say that that Friday's 0:23:23.359 --> 0:23:27.440 vote will likely lead to an unraveling of the EU, 0:23:28.440 --> 0:23:30.960 that it will lead to a dampening of global economic 0:23:31.040 --> 0:23:34.040 and profit growth. And I think that Brexit is far 0:23:34.119 --> 0:23:37.800 more corrosive than we saw from say, the Greek crisis 0:23:37.960 --> 0:23:42.719 and other economic, political, and geopolitical issues that have emerged 0:23:42.720 --> 0:23:46.280 in recent years. John Michael Twaite, editor in chief of 0:23:46.320 --> 0:23:50.760 Bloomberg News. Michael mckeot with a really cautious say lovely, 0:23:50.840 --> 0:23:55.760 lovely essay today, somewhat alluding to Mr Cass's words. Well, 0:23:55.840 --> 0:23:59.280