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Speaker 1: Good morning.

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Speaker 2: I'm Bonnie Quinn and I'm Doug Krisner. Here are the

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Speaker 2: stories we're following today.

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Speaker 1: SoftBank owned ARM Holdings made quite the splash in its

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Speaker 1: Wall Street debut. Shares of the UK based chip designer

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Speaker 1: jumped to get this twenty five percent. ARM raised more

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Speaker 1: than four point eight billion dollars in the biggest initial

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Speaker 1: public offering this year. CEO Renee has told us what

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Speaker 1: the current artificial intelligence boom means for the company.

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Speaker 3: AI is everywhere, and if it's your edge device like

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Speaker 3: the Assistant or the Alexa, or your autonomous vehicle, that's

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Speaker 3: all AI. And now we're seeing it in the cloud,

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Speaker 3: in the data center, and all the growth of Nvidia

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Speaker 3: in Vida announcing one of their newest products, grace Hopper,

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Speaker 3: that is based on ARM. So ARM is everywhere relative

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Speaker 3: to AI that.

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Speaker 1: Was ARM at CEO rene has. ARM shares opened at

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Speaker 1: fifty six dollars and ten cents and closed in the

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Speaker 1: regular session at sixty three dollars and fifty nine cents.

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Speaker 4: We're hearing Walt Disney has held exploratory talks about selling

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Speaker 4: the ABC network and the ABC TV stations to Nextstar

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Speaker 4: Media Group. Now these discussions apparently are preliminary, and sources

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Speaker 4: telling us Nextstar would only be interested at the right price.

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Speaker 4: Here's Bloomberg's Chris Palmery.

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Speaker 5: Rumors about a deal like this have been going on

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Speaker 5: quite a while. You know. The difference is, you know,

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Speaker 5: we saw in July Bob Biker coming out and saying, hey,

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Speaker 5: you know, this is probably a business we don't want

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Speaker 5: to be in long term. The legacy media networks, we know,

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Speaker 5: they've basically been up for sale.

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Speaker 4: That is a Bloomberg'schris palm Mary. By the way, Disney

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Speaker 4: saying today no decision has been made on selling ABC

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Speaker 4: and it's open to options. And separately, we're hearing that

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Speaker 4: Disney is cutting it's target for subscribers for the Disney

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Speaker 4: Plus streaming service for twenty twenty four. The company is

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Speaker 4: expecting I basically a shortfall by tens of millions of subscribers.

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Speaker 4: You know, Disney Plus has been loose using customers, largely

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Speaker 4: because of some hefty price increases, and it's also been

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Speaker 4: impacting or impacted by collapsing demand in India. That's after

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Speaker 4: the company failed to win cricket streaming rights.

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Speaker 1: Funny United Auto Workers president Sean fein Doug is preparing

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Speaker 1: to hit all three Detroit carmakers with targeted walkouts at

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Speaker 1: strategic locations in several states. Now, a workstopage could still

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Speaker 1: be avoided, but the UAW and General Motors Ford and

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Speaker 1: Stillantas are approaching a deadline to agree on a new contract.

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Speaker 1: Let's get more from Bloomberg's David Welsh.

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Speaker 6: The vibe coming out of the union right now is

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Speaker 6: the president is itching destroyed. He says he's not, but

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Speaker 6: he's making plans. The writer has still really strong against

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Speaker 6: the car companies, against rich executives, all that stuff, so

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Speaker 6: he's getting people riled up. He says they're far apart.

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Speaker 6: It doesn't sound like they are if you look at

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Speaker 6: the numbers. So I think they will, and look, it

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Speaker 6: could go on for a while. I don't think it'll

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Speaker 6: be something like three months, but I could see strake

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Speaker 6: going on for weeks, and it could vary by car

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Speaker 6: company too.

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Speaker 1: That's Bloomberg's David Welsh. If no agreement is reached, this

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Speaker 1: could be the first time the union takes action against

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Speaker 1: all three companies. At the same time, UAW President Sean

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Speaker 1: Fain will be holding a news conference at ten pm

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Speaker 1: wool Street time.

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Speaker 4: We go to China next, where the PBOC cut its

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Speaker 4: bank reserve requirements for the second time this year. We

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Speaker 4: have more from Bloomberg's Yvonne Men.

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Speaker 7: In Hong Kong, the People's Bank of China has lowered

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Speaker 7: the triple R for most banks by twenty five basis points.

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Speaker 7: The way that average triple R for banks will be

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Speaker 7: seven point four percent after the reduction, and knafas say

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Speaker 7: a triple R cut was expected because the large amount

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Speaker 7: of special bond supply is said to hit the market

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Speaker 7: this month. The central Bank said the cut will help

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Speaker 7: maintain reasonably ample liquidity in the banking system. Economs estimate

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Speaker 7: that the production could free up fifty five to sixty

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Speaker 7: nine billion dollars. Bloomberg Economics say the PAOC could still

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Speaker 7: trim its policy rate by ten basis points later on today.

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Speaker 7: For the consensus is for a hold at two and

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Speaker 7: a half percent. In Hong Kong. I'm yvon Mann Bloomberg Radio.

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Speaker 4: Well GOP lawmakers have been pressing the Biden administration to

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Speaker 4: completely cut off Huawei Technologies and the Chinese chip makers

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Speaker 4: MICK from their American suppliers. Now this comes after Huawei

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Speaker 4: launched a new phone. It uses highly advanced technology that

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Speaker 4: the US has been trying to keep out of China's hands.

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Speaker 4: This phone is or utilizes, i should say, a Chinese

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Speaker 4: made seven nanimeter chip. It appears to rely on US

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Speaker 4: technology and it's really stoked a lot of debate in

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Speaker 4: Washington over the effectiveness of US attempts to curtail China's

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Speaker 4: technological and military prowess. Daybreak Asia and an update on

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Speaker 4: Global News is next. As we have been reporting, we

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Speaker 4: shall find out a lot more tonight about the uaw's

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Speaker 4: plans for its labor dispute, how this may play out.

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Speaker 4: It will unfold at ten o'clock Eastern time in the US.

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Speaker 4: At Baxter has been covering this story also with an

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Speaker 4: eye to what we may get out of the White House.

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Speaker 8: And yeah, that's right, Doug. Question a major question today

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Speaker 8: will can President Joe Biden get involved in the UAW

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Speaker 8: auto industry labor dispute. Well Bloomber's Gabriel Coppola says he

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Speaker 8: has imaged himself as a friend of the middle class

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Speaker 8: and organized later labor.

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Speaker 9: But I think that you know, he's limited in what

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Speaker 9: he can do. You know, both legally and you know,

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Speaker 9: but I think he can. He can't. You know, he

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Speaker 9: needs the success of the automakers just as much, right

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Speaker 9: because if the automakers don't have a deal that's sustainable,

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Speaker 9: then they're not going to support these jobs of the future.

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Speaker 8: And a sad reality. Ford CEO Jim Farley has just

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Speaker 8: come out with an interview saying that things, you know,

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Speaker 8: whatever is being said in public are just not moving.

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Speaker 3: What the UAW is offering us is a choice between

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Speaker 3: going out of business and bankruptcy.

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Speaker 8: Again, the workers are set to target strike at midnight

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Speaker 8: unless there is an eleventh hour agreement of some kind.

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Speaker 8: House Speaker Kevin McCarthy today sending a clear message to

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Speaker 8: the right wing of his party, no government shut down.

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Speaker 10: I told my conference, I know tomorrow is the Jewish holiday,

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Speaker 10: will be out of session, but when we come back,

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Speaker 10: we're not going to leave.

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Speaker 8: Meanwhile, House Minority Leader how Came Jeffrey says the threat

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Speaker 8: is still there.

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Speaker 11: House Republicans have made clear that they are determined to

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Speaker 11: shut down the government and try to jam the extreme

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Speaker 11: right wing ideology down the throats of the American people.

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Speaker 8: So first there'll be a showdown between McCarthy and the

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Speaker 8: right wing of his party.

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Speaker 10: Threats don't matter, and sometimes people do those things because

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Speaker 10: of personal things, and that's all fine.

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Speaker 8: Oh yeah, and then he'll have to fight with the Democrats.

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Speaker 8: After a deal broke down earlier this summer, a plea deal.

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Speaker 8: Hunter Biden has been indicted on federal charges. Bloomberg's Nancy

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Speaker 8: Lyons has the very latest.

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Speaker 12: Hunter Biden is charged with three counts related to the

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Speaker 12: as of a cult revolver in twenty eighteen. He allegedly

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Speaker 12: lied on the form that's required to buy the gun

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Speaker 12: that he was not using drugs, but that was a

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Speaker 12: period when the younger Biden had acknowledged struggling with an

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Speaker 12: addiction to crack cocaine following his divorce and the death

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Speaker 12: of his brother. The felonies carry maximum sentences between five

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Speaker 12: and ten years in prison. A special council is still

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Speaker 12: investigating Hunter Biden and could file additional tax charges in Washington.

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Speaker 12: Nancy Lyons Bloomberg Radio.

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Speaker 8: All Right, Nancy, thank you. At Hong Kong has kicked

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Speaker 8: off a campaign to stimulate its nightlife. Life is official

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Speaker 8: seek to bolster the city's attractiveness and revive an economy

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Speaker 8: battered by years of pandemic isolation. The promotion, called Night

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Speaker 8: Vibes Hong Kong, will feature three evening bazaars at waterfront

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Speaker 8: locations next to Victoria Harbor. All right on a jet

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Speaker 8: and going global news powered by more than twenty seven

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Speaker 8: hundred journalists and analysts in over one hundred twenty countries.

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Speaker 8: In San Francisco, Baxter in This is Bloomberg Now.

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Speaker 4: You can get the latest news whenever you want it

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Speaker 4: with Bloomberg News Now. It's the top stories from our

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Speaker 4: global team of reporters at the click of a button.

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Speaker 4: Get Bloomberg News Now on the Bloomberg Business app or

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Speaker 4: at Bloomberg dot com or anywhere you get your podcast

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Speaker 4: Daybreak Asia. And our special guest it is a former

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Speaker 4: head of the Dallas Fedbank, Rob Kaplan, is with us.

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Speaker 4: Rob's also CEO and president of the Draper Richards Kaplan's Foundation.

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Speaker 4: It's a pleasure to see you once again.

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Speaker 2: Thank you so much.

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Speaker 4: We've got this FED meeting coming up next week. I'm

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Speaker 4: less concerned about what you think may or may not happen,

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Speaker 4: and I'm more interested in getting your perspective on how

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Speaker 4: difficult it is it is when you get to the

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Speaker 4: end of a tightening cycle to kind of engineer this

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Speaker 4: and allow markets to kind of adjust, but not to

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Speaker 4: become overly enthusiastic that we're necessarily done with tightening.

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Speaker 13: Well, every cycle is different, and this one is different.

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Speaker 13: And here's how it's different. A lot of the key

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Speaker 13: drivers of what we're seeing right now are happening away

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Speaker 13: from the FED. What do I mean by that? Government

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Speaker 13: spending unspent ARPA money, which is in the hundreds of

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Speaker 13: billions of dollars at the local level, the Infrastructure Act money,

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Speaker 13: Inflation Reduction Act money is all being spent in significant

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Speaker 13: size in the US economy that is helping to stabilize

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Speaker 13: and give resiliency to the US economy.

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Speaker 11: In my view.

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Speaker 13: Without those three sources of spending, my guess is the

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Speaker 13: FED would have stopped raising rates maybe a couple of

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Speaker 13: moves ago, might be at four and a half and

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Speaker 13: four and three quarters, and we might even be in

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Speaker 13: a downturn right now. So that's significant. And the second

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Speaker 13: thing that's significant is because of the energy transition that

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Speaker 13: we're executing here and around the world world. We're limiting

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Speaker 13: fossil fuel production in the United States, We're undersupplied globally,

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Speaker 13: and oil prices are very significant elements of inflation directly

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Speaker 13: and indirectly. And so the challenge for the FED now

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Speaker 13: is if you'd told people a year ago they'd get

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Speaker 13: to five and a quarter five and a half, you'd say,

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Speaker 13: oh my god, we may not need to go that far,

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Speaker 13: and the economy would be very slow. It's instead very

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Speaker 13: resilient and inflation is still sticky. But I would argue

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Speaker 13: there are structural drivers away from the FED. So the

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Speaker 13: decision for the FED is how do you end this

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Speaker 13: cycle when you have this amount of stimulus fiscally and

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Speaker 13: should you talk about it right now? They've chosen not

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Speaker 13: to talk about it, thinking it's out of their lane.

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Speaker 13: But without it, they're going to need to keep their

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Speaker 13: options open that they may still need to do more.

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Speaker 13: Even though I don't think they'll do anything in this

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Speaker 13: septem meeting.

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Speaker 1: How many more times will they need to go? The

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Speaker 1: situation sounds a little more dire when you put it

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Speaker 1: the way you just put it.

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Speaker 13: I don't know the answer to that. I do know

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Speaker 13: that anything interest rates sensitive right now is very weak.

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Speaker 13: If you're a small mid sized business, it is very

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Speaker 13: difficult to get a loan if you're in the goods sector.

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Speaker 13: Business is very weak. So there's number of sectors of

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Speaker 13: the economy that are affected by the FED funds rate

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Speaker 13: feel like they're in a recession right now. Then you've

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Speaker 13: got this counterforce I just talked about of government spending

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Speaker 13: that's going into construction and is really going into services,

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Speaker 13: Meaning if you have workers that are working at these

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Speaker 13: new projects, they spend money in restaurants and they fly

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Speaker 13: and all that other. And so the truth is, if

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Speaker 13: I were at the FED right now, I wouldn't act

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Speaker 13: in the September meeting. I'd probably be inclined to be

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Speaker 13: more more patient than even November before I acted, but

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Speaker 13: I would certainly leave open the option that I might

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Speaker 13: have to act. The thing that would bother me is

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Speaker 13: I'm not raising rates because the organic strength in the economy.

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Speaker 13: I'm raising rates because of the artificial extra stimulus being

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Speaker 13: created by government spending. And the thing that would scare

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Speaker 13: me and worry me is when the government spending starts

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Speaker 13: to dry up, not in twenty three or twenty four,

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Speaker 13: but into twenty five, we may have a lot more

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Speaker 13: fundamental weakness than I would like. But that's the reality

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Speaker 13: I'm dealing with if I'm at the FED, so.

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Speaker 4: Many things to talk about too. The balance sheet roll

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Speaker 4: off seems to have been done pretty well so far.

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Speaker 4: I mean, it hasn't created too much disruption in markets

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Speaker 4: near as I can tell, although in March we had

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Speaker 4: a lot of stress building in the regional banking complex,

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Speaker 4: a couple of bank failures. Some people were pointing the

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Speaker 4: finger at the FED saying, this is the consequence of

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Speaker 4: aggressive tightening. We can put that aside right now. But

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Speaker 4: in the interim or intervening period, there have been calls

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Speaker 4: from a lot more capital on the part of banks,

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Speaker 4: a lot of the regulators saying, hey, you need to

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Speaker 4: put more aside in the event that there is some

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Speaker 4: stress that continues to build. Jamie Diamond, for one, is

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Speaker 4: pushed back against this. How do you see the overall

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Speaker 4: banking system right now?

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Speaker 13: So or rough estimate would be if the FED balance

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Speaker 13: sheet went from four to nine trillion pre COVID to

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Speaker 13: after COVID, it's now running it down to closer to eight.

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Speaker 13: The best estimate I've seen is half that increase went

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Speaker 13: into bank deposits. As the FED is running down the

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Speaker 13: balance sheet, as you note, it puts more pressure on

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Speaker 13: bank deposits, plus bank deposits are repricing to a higher level.

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Speaker 13: Plus the backup and longer term yields have eroded bank capital.

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Speaker 13: So most banks I talk to right now are are

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Speaker 13: very concerned, quietly concerned about further bank deposits. They're very

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Speaker 13: worried about their earnings being weak, and they need to

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Speaker 13: show good earnings for the regulators and for the depositors.

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Speaker 13: And they're being extremely careful about loans to small and

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Speaker 13: mid sized businesses, and they are. And the requirements for

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Speaker 13: more capital, meaning there are two ways to fit into

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Speaker 13: new higher capital requirements. One is to raise more money.

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Speaker 13: The other is to shrink your loan book. And what

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Speaker 13: I've seen is they're doing a little bit. They're shrinking

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Speaker 13: their loan book and being very disciplined on loans. The

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Speaker 13: thing I don't love about the requirement to raise more

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Speaker 13: bank capital. The issue we had in March was not

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Speaker 13: about bank capital. It was a supervisory lapse hiding in

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Speaker 13: plain sight, where the banks took asset liability risk. It

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Speaker 13: was well known to the FED and to the regulators,

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Speaker 13: but they didn't act to get banks to clean it up.

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Speaker 13: In response, the response has been you need to raise

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Speaker 13: more capital, and we're going to be tougher from a

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Speaker 13: regulatory point of view. But I think a lot of

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Speaker 13: banks I talked to are frustrated. They think it was

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Speaker 13: a supervisory issue, not a bank capital issue. And I

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Speaker 13: think that's what you hear Jamie diamond saying this bank

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Speaker 13: capital is not going to help, and it isn't what

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Speaker 13: the issue was in March. The last comment I'd make

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Speaker 13: about the FED balance sheet, there is one sort of

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Speaker 13: low fever symptom of the balance sheet runoff and all

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Speaker 13: this government spending, and that's the backup in the ten year.

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Speaker 13: So we don't talk about as much as we should,

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Speaker 13: but the tenure treasury has backed up a good fifty

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Speaker 13: basis points. That is a very significant move, and I'm

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Speaker 13: not sure it's over yet. And so is there some

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Speaker 13: symptom of the bank of the runoff. We don't have

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Speaker 13: as many natural buyers for treasuries used to be FED

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Speaker 13: was one. Banks we know were one, but they're not

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Speaker 13: going to buy anymore because it created the problems in March,

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Speaker 13: and so I would be watching, and I do watch

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Speaker 13: very carefully. Right now, two things, where are the ten

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Speaker 13: years trading? And what's the price of oil, and those

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Speaker 13: are two factors away from the FED that are concerning.

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Speaker 1: Well, WTI is above a ninety dollars barrel, as you

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Speaker 1: well know today, Rob. It sounds like you're describing a

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Speaker 1: scenario where the transmission mechanism sort of works through small

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Speaker 1: businesses and next year we might get a slow down.

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Speaker 1: Will there be a drop off and employment that will

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Speaker 1: cause a recession?

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Speaker 13: So I don't think. I don't know, of course, but

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Speaker 13: I would guess there will not be a recession this

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Speaker 13: year or next year. And the reason is the amount

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Speaker 13: of government spending for the rest of this year and

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Speaker 13: next year. And by the way, you notice that that

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Speaker 13: you know, if you ask me six months ago, I

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Speaker 13: think the best estimate on the deficit for this year

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Speaker 13: was a trillion and a quarter. It's now two trillion dollars. Okay,

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Speaker 13: we're running a very high, high pre recession.

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Speaker 1: Deficittion my election here though, Does that make a.

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Speaker 13: Difference, Well, I'll leave that to others. I think the

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Speaker 13: point of this is this amount of spending that's a

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Speaker 13: meaningful percentage of GDP is the main reason I think

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Speaker 13: that we've got stability. We don't have slower GDP growth.

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Speaker 13: It also means that the employment rate is going to

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Speaker 13: stay unemployment rate very low. There's substantial demand from every

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Speaker 13: one of these projects for jobs. There aren't enough workers

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Speaker 13: to do these jobs, and there's a lot of job

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Speaker 13: switching to fill these jobs. I think this is a

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Speaker 13: reason why the Fed, I hope they don't, may need

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Speaker 13: to do more and we'll need to keep rates higher

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Speaker 13: for longer. And that's the trade. And you may see

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Speaker 13: the tenure backup.

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Speaker 4: For so we're at four twenty eight right now. Can

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Speaker 4: you see a tenure at let's say four to seventy

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Speaker 4: five and other fifty basis points.

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Speaker 13: So I'll take you here's how I'd look at it.

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Speaker 13: People are saying, gee, when the Fed starts to cut

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Speaker 13: rates somewhere in the future in twenty twenty four, maybe

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Speaker 13: the tenure will lease off. I think the bond market

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Speaker 13: has already looked through that, and it's said if inflation

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Speaker 13: stays sticky, price of oil might be one of the reasons.

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Speaker 13: And the Fed is able to get the Fed funds

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Speaker 13: rate down to say three, for example, three percent at

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Speaker 13: one hundred and fifty basis point term premium that gets

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Speaker 13: you to four to fifty on the tenure This is

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Speaker 13: why a lot of intelligent people are saying, you know,

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Speaker 13: I know there's a been backup in rates, but I'm

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Speaker 13: not sure we're at fair value now. And that's why

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Speaker 13: I'm watching this very carefully, because it could create a

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Speaker 13: further tightening in financial conditions, assuming the Fed.

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