1 00:00:00,080 --> 00:00:13,040 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,320 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg And 5 00:00:33,440 --> 00:00:35,360 Speaker 1: let's talk about that ugly tait a raut Europe just 6 00:00:35,360 --> 00:00:38,840 Speaker 1: to begin with it. I think that really brings potentially 7 00:00:38,840 --> 00:00:43,120 Speaker 1: brings forward an ECP decision from September to tomorrow. John, 8 00:00:43,240 --> 00:00:45,760 Speaker 1: you're the first person to say that. I totally agree. 9 00:00:45,840 --> 00:00:49,400 Speaker 1: Let's bring in Michael mcaplin Bag International Economics and Policy correspondent. 10 00:00:49,400 --> 00:00:52,040 Speaker 1: Your thoughts, Mike, Well, let maybe the second person to 11 00:00:52,080 --> 00:00:54,400 Speaker 1: say that it could easily bring forward the decision. The 12 00:00:54,400 --> 00:00:56,920 Speaker 1: problem that they have is what are they going to do, 13 00:00:56,960 --> 00:00:58,600 Speaker 1: which tool are they going to use, and how are 14 00:00:58,600 --> 00:01:00,600 Speaker 1: they going to set that up? Presuma believe they've been 15 00:01:00,600 --> 00:01:02,640 Speaker 1: working in that for some time. But the hope was 16 00:01:02,760 --> 00:01:05,240 Speaker 1: that Jogging could float some ideas and see how they 17 00:01:05,280 --> 00:01:08,360 Speaker 1: would play and see what kind of impact that might 18 00:01:08,440 --> 00:01:10,480 Speaker 1: have in the markets, and they would have to forego 19 00:01:10,640 --> 00:01:14,240 Speaker 1: that sort of preliminary testing period if they go ahead 20 00:01:14,240 --> 00:01:17,000 Speaker 1: and move it, But you're right, the numbers so bad. 21 00:01:17,080 --> 00:01:21,560 Speaker 1: German manufacturing the flash p m I forty three, and 22 00:01:21,600 --> 00:01:26,640 Speaker 1: that signals significant contraction in manufacturing. That is definitely going 23 00:01:26,680 --> 00:01:29,360 Speaker 1: to be a drag on growth there, Mike. The parallel 24 00:01:29,360 --> 00:01:32,039 Speaker 1: of the analog to the United States is a linkage 25 00:01:32,040 --> 00:01:36,600 Speaker 1: of the service sector economy to what's clearly a manufacturing recession. 26 00:01:37,040 --> 00:01:39,800 Speaker 1: Is there service sector economy the same as our service 27 00:01:39,800 --> 00:01:43,880 Speaker 1: sector economy. Well, they're manufacturing is a much bigger component 28 00:01:43,920 --> 00:01:45,840 Speaker 1: of the German economy. But yes, they have a large 29 00:01:45,840 --> 00:01:50,320 Speaker 1: services uh component to their economy and the services sector 30 00:01:50,440 --> 00:01:53,200 Speaker 1: is hanging in there. Um. Their p m I for 31 00:01:53,280 --> 00:01:56,760 Speaker 1: services fifty four, that's a trivial change from what it 32 00:01:56,840 --> 00:01:59,920 Speaker 1: was a month ago. Uh, it's not services, it's manufacturing. 33 00:02:00,040 --> 00:02:01,640 Speaker 1: A lot of that has to do with trade. Germany 34 00:02:01,680 --> 00:02:04,120 Speaker 1: is one of the biggest trading nations in the world, 35 00:02:04,280 --> 00:02:09,600 Speaker 1: and with China shut down and the US engaged in 36 00:02:09,639 --> 00:02:12,040 Speaker 1: the trade war with them, You've got a lot of 37 00:02:12,040 --> 00:02:15,799 Speaker 1: other nations that are engaged in many trade skirmishes. It's 38 00:02:15,840 --> 00:02:19,440 Speaker 1: tough for Germany. Those trade talks can't begin fast enough 39 00:02:19,639 --> 00:02:22,080 Speaker 1: for the likes of Germany in Europe, the United States 40 00:02:22,080 --> 00:02:26,959 Speaker 1: and officials heading over to Beijing. I believe ka which 41 00:02:26,960 --> 00:02:30,440 Speaker 1: is significant in and of itself. The Chinese are basically 42 00:02:30,440 --> 00:02:34,000 Speaker 1: saying trade is trade. Let's keep it out of politics 43 00:02:34,040 --> 00:02:37,040 Speaker 1: for now, because the politics between the US and I'm 44 00:02:37,080 --> 00:02:39,400 Speaker 1: sure Bob will know more about those. Politics between the 45 00:02:39,480 --> 00:02:41,960 Speaker 1: U S and China not very good right now. But 46 00:02:42,400 --> 00:02:44,880 Speaker 1: if they can focus on the trade numbers and the 47 00:02:44,919 --> 00:02:47,480 Speaker 1: trade negotiations and try to work on that, it does 48 00:02:47,520 --> 00:02:50,960 Speaker 1: signal there may be farther away from getting somewhere, but 49 00:02:51,280 --> 00:02:53,680 Speaker 1: at least they're starting. Let's bring in Bob Homa, shall 50 00:02:53,760 --> 00:02:56,079 Speaker 1: we kissing your associates? Vice Chair, Bob, you know a 51 00:02:56,120 --> 00:02:58,840 Speaker 1: little something about Germany. I'd love your thoughts on it. 52 00:02:59,280 --> 00:03:01,520 Speaker 1: We're now looking at the water levels in the river Rhine, 53 00:03:01,560 --> 00:03:04,640 Speaker 1: which which to anyone outside of Europe sounds absolutely ridiculous, 54 00:03:04,639 --> 00:03:07,360 Speaker 1: but the weather is being so dry, so hot over 55 00:03:07,360 --> 00:03:10,239 Speaker 1: in Europe that it's actually becoming an economic issue. Bob, 56 00:03:10,440 --> 00:03:12,519 Speaker 1: your knowledge on the country, your knowledge on that area, 57 00:03:12,800 --> 00:03:15,679 Speaker 1: just walkestry has significant. That is well, it is a significant. 58 00:03:15,760 --> 00:03:18,720 Speaker 1: I live for summer in bun which was then the 59 00:03:18,760 --> 00:03:22,840 Speaker 1: capital of what was then West Germany, and the Rhine 60 00:03:23,080 --> 00:03:27,840 Speaker 1: is really the major artery for a lot of trade 61 00:03:27,919 --> 00:03:31,880 Speaker 1: that goes from the western part of Germany through to 62 00:03:32,160 --> 00:03:35,440 Speaker 1: Rotterdam and other ports and then to other parts of 63 00:03:35,440 --> 00:03:38,120 Speaker 1: the world. So the Rhine is very important, and the 64 00:03:38,240 --> 00:03:40,840 Speaker 1: trade link with China that Mike talked about a moment 65 00:03:40,880 --> 00:03:44,600 Speaker 1: ago is also critically important. We talked in this country 66 00:03:44,640 --> 00:03:49,960 Speaker 1: blithely about decoupling and delinking with China. China is an 67 00:03:50,000 --> 00:03:55,280 Speaker 1: integral part of the manufacturing network in Europe and in 68 00:03:55,320 --> 00:03:58,480 Speaker 1: the United States as well. And a weaker China, which 69 00:03:58,480 --> 00:04:04,080 Speaker 1: we've seen their growths diminishing rather substantially, not disastrously, but 70 00:04:04,200 --> 00:04:07,520 Speaker 1: certainly lower than it was, and that affects their demand 71 00:04:07,640 --> 00:04:11,000 Speaker 1: for manufactured goods from Europe and from the United States 72 00:04:11,000 --> 00:04:15,480 Speaker 1: as well. So some normalization of economic relations and alleviation 73 00:04:15,520 --> 00:04:19,000 Speaker 1: of the threat of higher tariffs, and perhaps even reducing 74 00:04:19,000 --> 00:04:22,400 Speaker 1: the tariffs um and improving the investment environment in China 75 00:04:22,440 --> 00:04:24,680 Speaker 1: would be very helpful to the Europeans. It would take time, 76 00:04:24,680 --> 00:04:27,520 Speaker 1: but it would have an impact on the market. The 77 00:04:27,600 --> 00:04:30,800 Speaker 1: limited time that we have with you today, ambassadors extraordinary. 78 00:04:30,920 --> 00:04:34,760 Speaker 1: I I am really taken them back by the diversity 79 00:04:34,839 --> 00:04:39,279 Speaker 1: of the proposed cabinet or speculated cabinet of Prime Minister Johnson. 80 00:04:39,800 --> 00:04:43,000 Speaker 1: It truly to me seems to be a generational shift 81 00:04:43,480 --> 00:04:48,920 Speaker 1: in the United Kingdom. Yes, well, he's got an interesting agenda. 82 00:04:49,000 --> 00:04:51,560 Speaker 1: One is he is and if you look at the 83 00:04:51,600 --> 00:04:54,440 Speaker 1: Tory Party there it is a much more diverse party 84 00:04:54,440 --> 00:04:56,320 Speaker 1: than it was ten years ago. When he wants to 85 00:04:56,320 --> 00:04:59,240 Speaker 1: be able to pick people who represent various elements of 86 00:04:59,279 --> 00:05:03,240 Speaker 1: the Tory Party. But basically on one issue he's going 87 00:05:03,279 --> 00:05:07,599 Speaker 1: to get a lot of levers, people who want a 88 00:05:08,160 --> 00:05:12,440 Speaker 1: bregsit and so he's going to be diversified ethnically and culturally. 89 00:05:12,600 --> 00:05:14,919 Speaker 1: But on the question of Brexit, he's gonna want to 90 00:05:14,920 --> 00:05:20,440 Speaker 1: have relatively hard line. But John it's extraordinary. An Indian 91 00:05:20,480 --> 00:05:24,599 Speaker 1: family that went to Uganda thrown out of anyonever it was. 92 00:05:25,240 --> 00:05:29,600 Speaker 1: We've got a Pakistani possibly appointed times actually just for 93 00:05:29,680 --> 00:05:32,120 Speaker 1: pulling the headline, crossing the bloom bag that Sage Javid 94 00:05:32,680 --> 00:05:37,719 Speaker 1: may be the chancellors. To many people, that's story news. 95 00:05:37,760 --> 00:05:44,839 Speaker 1: But for Americans, the diversity proposed is unprecedented. There's no equivalent. Actually, 96 00:05:45,000 --> 00:05:46,720 Speaker 1: the Conservative Party has done a really good job of 97 00:05:46,760 --> 00:05:49,520 Speaker 1: bringing minority figures into the full front of the party 98 00:05:49,720 --> 00:05:51,839 Speaker 1: and we could well see that in the Boris Johnson 99 00:05:51,880 --> 00:05:56,240 Speaker 1: cabinet quite a big way. Yeah, and it's healthy for 100 00:05:56,240 --> 00:05:58,080 Speaker 1: for Britain and I think it's healthy for Britain in 101 00:05:58,120 --> 00:06:00,920 Speaker 1: the world because it enables them to have these links 102 00:06:00,920 --> 00:06:04,440 Speaker 1: with other countries. How does Boris Johnson attend to the 103 00:06:04,480 --> 00:06:06,920 Speaker 1: President of the United States. We've heard in the last 104 00:06:06,960 --> 00:06:11,320 Speaker 1: hours they may visit three times to September. Well. I 105 00:06:11,320 --> 00:06:14,160 Speaker 1: think Boris Johnson wants to a demonstrate with people that 106 00:06:14,200 --> 00:06:16,880 Speaker 1: he can work with the United States. Be He's gonna 107 00:06:16,920 --> 00:06:21,960 Speaker 1: want to develop some closer economic ties with the EU, 108 00:06:22,080 --> 00:06:24,040 Speaker 1: even if there is a heart break that he wants 109 00:06:24,040 --> 00:06:26,719 Speaker 1: to sure that there's some kind of trade deal. But 110 00:06:27,240 --> 00:06:30,159 Speaker 1: if he cannot get that, then he's going to have 111 00:06:30,240 --> 00:06:32,440 Speaker 1: to have some deal with the United States on trade. 112 00:06:32,440 --> 00:06:36,800 Speaker 1: They're gonna need them. He sold his candidacy in part 113 00:06:36,839 --> 00:06:39,400 Speaker 1: on the idea that we can leave the European Union 114 00:06:39,400 --> 00:06:42,240 Speaker 1: with no real ill effects because will immediately be able 115 00:06:42,279 --> 00:06:44,200 Speaker 1: to put together a trade deal with the United States. 116 00:06:44,520 --> 00:06:47,479 Speaker 1: They haven't been legally allowed to negotiate because they're still 117 00:06:47,520 --> 00:06:49,560 Speaker 1: part of the EU, but they've still been talking on 118 00:06:49,600 --> 00:06:52,479 Speaker 1: the sidelines for quite some time. It's still it's still 119 00:06:52,520 --> 00:06:56,039 Speaker 1: true that Europe's biggest trading partners. So finding some deal 120 00:06:56,120 --> 00:06:58,400 Speaker 1: or trade with Europe's important. But if he can work 121 00:06:58,440 --> 00:07:01,720 Speaker 1: with the United States, it's anthan's his leverage with the Europeans, 122 00:07:01,920 --> 00:07:03,920 Speaker 1: and if he can't get a deal, he's gonna want 123 00:07:03,960 --> 00:07:06,160 Speaker 1: a good deal with The question is will the United States, 124 00:07:06,440 --> 00:07:09,600 Speaker 1: in the way it negotiates, give him a really good deal, 125 00:07:09,960 --> 00:07:11,480 Speaker 1: and that's going to be a challenge. We're going to 126 00:07:11,560 --> 00:07:15,920 Speaker 1: continue five hour discussion with Robert Harman's today. We'll try 127 00:07:15,960 --> 00:07:28,560 Speaker 1: to get to death as well Alicia Levine with this 128 00:07:28,640 --> 00:07:30,200 Speaker 1: bn y mel and Alicia, I want to go right 129 00:07:30,240 --> 00:07:33,440 Speaker 1: to the terminal rate. Everything squeezing down. John mentioning of 130 00:07:33,560 --> 00:07:36,520 Speaker 1: negative negative rates in Europe as well. You're supposed to 131 00:07:36,560 --> 00:07:39,920 Speaker 1: flip the reciprocal and get a higher pe. What's the 132 00:07:40,000 --> 00:07:44,080 Speaker 1: new twelve multiple? I mean value stocks were very twelve. 133 00:07:44,880 --> 00:07:48,240 Speaker 1: Is it fifteen or is it eighteen? So I'm not 134 00:07:48,240 --> 00:07:49,880 Speaker 1: going to put a number on it, but it's come on, 135 00:07:50,120 --> 00:07:52,119 Speaker 1: come on, you look for a bank put a number 136 00:07:52,160 --> 00:07:56,119 Speaker 1: on it, not the sales side. Um, you know, look 137 00:07:56,160 --> 00:07:58,680 Speaker 1: it's higher. It's clearly higher. When your rates are lower, 138 00:07:58,960 --> 00:08:02,000 Speaker 1: you discount rate as ower, your multiple as higher, and 139 00:08:02,160 --> 00:08:04,240 Speaker 1: markets go up. And we see that not just in 140 00:08:04,280 --> 00:08:07,360 Speaker 1: the US but also globally, which is why markets don't 141 00:08:07,440 --> 00:08:11,920 Speaker 1: feel frothy. They feel more or less fairly valued, but 142 00:08:12,040 --> 00:08:17,040 Speaker 1: not frothing four L four, not level five, Level four. 143 00:08:17,800 --> 00:08:20,240 Speaker 1: I was listening to Andrew Sheets of Morgan Stanley quite 144 00:08:20,280 --> 00:08:22,880 Speaker 1: recently and he makes a really interesting point. They make 145 00:08:22,920 --> 00:08:25,200 Speaker 1: it very simple over at Morgan Stanley. We're going to 146 00:08:25,200 --> 00:08:27,360 Speaker 1: get easing. That is the consensus view in the market 147 00:08:27,440 --> 00:08:30,520 Speaker 1: right now. What is the accompanying data. Does it continue 148 00:08:30,560 --> 00:08:33,360 Speaker 1: to weaken, does it stabilize, or does it accelerate? And 149 00:08:33,360 --> 00:08:35,360 Speaker 1: that's the real judgment call here as to what is 150 00:08:35,360 --> 00:08:37,800 Speaker 1: about to happen with risk assets and right now the 151 00:08:37,840 --> 00:08:39,640 Speaker 1: Andrew Sheets take on this, and at least sure I'd 152 00:08:39,640 --> 00:08:41,600 Speaker 1: love your insight on it as well. Is that if 153 00:08:41,640 --> 00:08:45,560 Speaker 1: this market was bettering beyond just easing and to something 154 00:08:45,720 --> 00:08:51,040 Speaker 1: like sustainable economic growth, why inflation expectations higher? Why commodities 155 00:08:51,120 --> 00:08:54,200 Speaker 1: rallying across the whole complex? And why aren't long end 156 00:08:54,240 --> 00:08:56,719 Speaker 1: rates pushing higher as well? Why aren't we factoring then 157 00:08:56,840 --> 00:09:00,000 Speaker 1: those things? If we believe these central banks can end 158 00:09:00,040 --> 00:09:03,559 Speaker 1: genia about a growth picture, Well, it's a great question, 159 00:09:03,679 --> 00:09:06,360 Speaker 1: and we've had this discussion now for several weeks, which 160 00:09:06,440 --> 00:09:11,080 Speaker 1: is what actually is the transition mechanism between lower rates 161 00:09:11,320 --> 00:09:13,840 Speaker 1: and economic growth. And if you look at Germany and 162 00:09:13,880 --> 00:09:16,240 Speaker 1: you look at Europe and the e c B, it's 163 00:09:16,280 --> 00:09:19,840 Speaker 1: that's the perfect example of the muddy nature of it 164 00:09:19,920 --> 00:09:22,120 Speaker 1: and how it's not actually direct transmission, because if you 165 00:09:22,120 --> 00:09:23,400 Speaker 1: look at the p m I is coming out of 166 00:09:23,440 --> 00:09:27,840 Speaker 1: Germany today, it's very clear that negative rates actually have 167 00:09:28,000 --> 00:09:31,840 Speaker 1: not helped the economy or manufacturing, or investment or anything 168 00:09:31,840 --> 00:09:34,080 Speaker 1: of the sort. So we come back to America and 169 00:09:34,120 --> 00:09:36,760 Speaker 1: ask the question, what can the central bank here do 170 00:09:36,960 --> 00:09:39,840 Speaker 1: by easing. Clearly it's going to be in the interest 171 00:09:39,920 --> 00:09:43,440 Speaker 1: rate sectors, interest rates sensitive sectors of the economy, housing 172 00:09:43,960 --> 00:09:46,199 Speaker 1: and autos. Autos have their own issue because there's a 173 00:09:46,200 --> 00:09:48,800 Speaker 1: structural change going on in auto ownership. We can see 174 00:09:48,800 --> 00:09:51,720 Speaker 1: that in right sharing, but we should see it there first. 175 00:09:52,120 --> 00:09:54,959 Speaker 1: The other issue is on the on the yield question. 176 00:09:55,120 --> 00:09:59,840 Speaker 1: If we think growth is stabilizing and turning, you can 177 00:10:00,040 --> 00:10:05,120 Speaker 1: not escape the global negative yield here in the US, 178 00:10:05,360 --> 00:10:08,320 Speaker 1: and you have thirteen trillion dollars of negative yielding debt 179 00:10:08,600 --> 00:10:10,520 Speaker 1: and that's going to come into America and you can't 180 00:10:10,559 --> 00:10:13,120 Speaker 1: you can't engineer your way out of it. It's capital flows. 181 00:10:13,200 --> 00:10:16,400 Speaker 1: Let's talk about earnings quickly as well. Caterpillar delivering results. 182 00:10:16,440 --> 00:10:18,599 Speaker 1: I believe in about eight minutes time looking at the 183 00:10:18,600 --> 00:10:20,720 Speaker 1: semi Semmy's have had a massive run over the last 184 00:10:20,720 --> 00:10:23,480 Speaker 1: couple of days. Taiwan Semmy I believe last week came 185 00:10:23,480 --> 00:10:25,839 Speaker 1: out with some pretty decent numbers relative to an ugly 186 00:10:26,160 --> 00:10:29,839 Speaker 1: expectation looking forward. I believe Texas Instruments did the same 187 00:10:29,840 --> 00:10:32,000 Speaker 1: thing after the close yesterday. You'll take on that area 188 00:10:32,040 --> 00:10:34,600 Speaker 1: of the market right now. I think it's interesting what 189 00:10:34,600 --> 00:10:36,960 Speaker 1: what the semis are telling you is that cyclicals are 190 00:10:37,000 --> 00:10:39,800 Speaker 1: the play here and the u S data is interesting 191 00:10:39,800 --> 00:10:42,480 Speaker 1: because the u S data in June clearly was better 192 00:10:42,880 --> 00:10:45,160 Speaker 1: than than April or May. So you have a turn 193 00:10:45,200 --> 00:10:47,280 Speaker 1: here in the US. The semis are saying that you 194 00:10:47,320 --> 00:10:50,280 Speaker 1: play the cyclicals because they're the forward looking that they're 195 00:10:50,320 --> 00:10:53,400 Speaker 1: the forward looking sector. This is really the interesting thing here. 196 00:10:53,440 --> 00:10:56,600 Speaker 1: While everybody is so worried about growth falling apart, corporates 197 00:10:56,600 --> 00:10:59,840 Speaker 1: are coming in pretty decent. Are you happy advising clients 198 00:10:59,840 --> 00:11:01,800 Speaker 1: for not to add a little bit more sticklaricality to 199 00:11:01,840 --> 00:11:04,839 Speaker 1: that portfolios? Given the economic data we're seeing a swell. 200 00:11:05,240 --> 00:11:07,959 Speaker 1: I am actually, and I am because you don't. You 201 00:11:08,000 --> 00:11:10,400 Speaker 1: don't fight central banks. So you have the FED, you've 202 00:11:10,440 --> 00:11:12,600 Speaker 1: got the e c B, you've got other central banks 203 00:11:12,640 --> 00:11:15,640 Speaker 1: already easing as of last week, so you have to 204 00:11:15,679 --> 00:11:19,080 Speaker 1: play into that. Your multiple is higher. You support corporates. 205 00:11:19,200 --> 00:11:21,280 Speaker 1: You can't go bankrupt in Europe. How are you gonna 206 00:11:21,320 --> 00:11:24,120 Speaker 1: go bankrupt? The ECB is buying every bond out there. 207 00:11:24,720 --> 00:11:28,000 Speaker 1: We're too short. We've got to come back Alicia for 208 00:11:28,040 --> 00:11:42,400 Speaker 1: another visit here soon out there and darkening the door 209 00:11:42,480 --> 00:11:45,280 Speaker 1: right now. Timthey O'Brien spiriting with David Shipley all that 210 00:11:45,440 --> 00:11:48,760 Speaker 1: his Bloomberg opinion. Many of you have seen him waxing 211 00:11:48,800 --> 00:11:52,560 Speaker 1: philosophical in Washington, and this morning we begin by speaking 212 00:11:52,559 --> 00:11:57,080 Speaker 1: to Mr O'Brien about these Mueller hearings. The photo this 213 00:11:57,120 --> 00:12:00,920 Speaker 1: week out on Twitter of a lieutenant in vian and 214 00:12:00,960 --> 00:12:03,120 Speaker 1: there was another photo the President doing whatever he was 215 00:12:03,120 --> 00:12:06,080 Speaker 1: doing at the time. Do we really know who Robert 216 00:12:06,160 --> 00:12:08,800 Speaker 1: Mueller is? I mean, do we have a clue who's 217 00:12:08,840 --> 00:12:12,839 Speaker 1: actually gonna be the focus of attention in Washington this morning? Yeah? Yeah, 218 00:12:12,920 --> 00:12:15,720 Speaker 1: Robert Mueller is a by the books prosecutor. He's he 219 00:12:15,840 --> 00:12:19,640 Speaker 1: follows the rules. Uh, you know, he's a long standing 220 00:12:20,280 --> 00:12:25,240 Speaker 1: classic Republican conservative. Um, he's well, why can't this president 221 00:12:25,280 --> 00:12:28,600 Speaker 1: get along with him? Well, because it's not about politics. 222 00:12:28,679 --> 00:12:31,120 Speaker 1: You know. Trump doesn't like the fact that Mueller's steward 223 00:12:31,000 --> 00:12:35,760 Speaker 1: an investigation that potentially could have gone into into an 224 00:12:35,760 --> 00:12:39,120 Speaker 1: exploration of Trump's finances, but certainly looked obviously at what 225 00:12:39,120 --> 00:12:43,520 Speaker 1: happened in the twenty sixteen campaign and Trump's UM teen's 226 00:12:43,559 --> 00:12:46,200 Speaker 1: interactions with Russians. He didn't like any of that because 227 00:12:46,240 --> 00:12:48,439 Speaker 1: it was an existential threat. So Tim, we have two 228 00:12:48,480 --> 00:12:51,120 Speaker 1: herrings today. One starts rather readly for Washington. The House 229 00:12:51,200 --> 00:12:54,800 Speaker 1: Judiciary Committee hearring beginning hasn't been up to so early 230 00:12:54,880 --> 00:12:58,160 Speaker 1: in three months. Tim's in New York here at Blomberg. 231 00:12:58,200 --> 00:13:00,199 Speaker 1: Tim is still getting up early. Don't worry about you know, 232 00:13:00,320 --> 00:13:01,880 Speaker 1: I'm not going to pay attention to Tom. Can you 233 00:13:01,880 --> 00:13:06,640 Speaker 1: ask me a question, please, let's talk about it. What 234 00:13:06,640 --> 00:13:09,080 Speaker 1: are you expecting? What are you expecting from this? Because 235 00:13:09,080 --> 00:13:11,080 Speaker 1: so many of our listeners it just thinking about this. 236 00:13:11,120 --> 00:13:14,840 Speaker 1: So I've got hours of testimony. Perhaps do I tune in? Well, 237 00:13:14,880 --> 00:13:17,880 Speaker 1: here's the thing. The MULA report is an extraordinary document. 238 00:13:17,920 --> 00:13:20,720 Speaker 1: Its fourty eight pages long, and it is one of 239 00:13:20,720 --> 00:13:24,680 Speaker 1: the most incriminating documents ever put together about a sitting president. 240 00:13:24,880 --> 00:13:27,520 Speaker 1: Here's the other reality. Most of the country and most 241 00:13:27,520 --> 00:13:30,480 Speaker 1: politicians have not read it. So one of the things 242 00:13:30,559 --> 00:13:33,520 Speaker 1: that's important about today is its political theater. This is 243 00:13:33,559 --> 00:13:36,880 Speaker 1: the power of TV and radio to broadcast something that 244 00:13:36,880 --> 00:13:40,400 Speaker 1: people aren't reading on with the idea that they might 245 00:13:40,440 --> 00:13:43,800 Speaker 1: engage with it. So to the extent that this brings 246 00:13:43,920 --> 00:13:47,360 Speaker 1: the Mala Report into people's living rooms, it's important and 247 00:13:47,360 --> 00:13:49,800 Speaker 1: we've seen that before over the last year. We saw 248 00:13:49,840 --> 00:13:53,000 Speaker 1: it with Kavanaugh's confirmation earrings for the Supreme Court. We 249 00:13:53,000 --> 00:13:56,760 Speaker 1: saw with Michael Koh's hearings UM people really engaged with those. 250 00:13:56,840 --> 00:13:59,240 Speaker 1: Having said that, I do feel like a little bit 251 00:13:59,240 --> 00:14:00,960 Speaker 1: of light has run out of the lamp. I think 252 00:14:01,240 --> 00:14:03,800 Speaker 1: people have had are sort of in a PTSD state 253 00:14:03,920 --> 00:14:07,680 Speaker 1: with Trump, and I don't know how much more generally 254 00:14:07,720 --> 00:14:09,319 Speaker 1: people want to absorb. So I think this will be 255 00:14:09,320 --> 00:14:11,160 Speaker 1: a litmus test of that today. But let's explore that 256 00:14:11,160 --> 00:14:13,000 Speaker 1: a little bit further. The idea that this is about 257 00:14:13,120 --> 00:14:15,920 Speaker 1: almost defining the perceptions or shaping the perceptions of the 258 00:14:15,960 --> 00:14:20,000 Speaker 1: Muller Report. You've written this morning the role that Attorney 259 00:14:20,040 --> 00:14:22,880 Speaker 1: General William Barr has had. You've written about that this morning, 260 00:14:22,880 --> 00:14:25,640 Speaker 1: that he's almost defined. He shaped the perception, perhaps more 261 00:14:25,720 --> 00:14:28,160 Speaker 1: so than the individual that wrote it. Just walks us 262 00:14:28,160 --> 00:14:30,400 Speaker 1: through the important self. That's him. Yeah, you know, this 263 00:14:30,440 --> 00:14:33,240 Speaker 1: isn't Bill Barr's first rodeo. He was. He was an 264 00:14:33,240 --> 00:14:36,640 Speaker 1: attorney general for George H. W. Bush in the early 265 00:14:37,000 --> 00:14:41,040 Speaker 1: nineties when the Orian contrainvestigation was underway, and he was 266 00:14:41,160 --> 00:14:45,040 Speaker 1: very shrewd about how we protected the president during that investigation. 267 00:14:45,120 --> 00:14:46,960 Speaker 1: So he had been there before, and I think he 268 00:14:47,000 --> 00:14:48,920 Speaker 1: came into this with a playbook, and I think his 269 00:14:49,000 --> 00:14:52,440 Speaker 1: playbook was he was going to define what the report 270 00:14:52,600 --> 00:14:55,840 Speaker 1: was about before Bob Muller or anyone else did, including 271 00:14:55,880 --> 00:14:59,920 Speaker 1: the Democrats. And what Bill Barr said was, um, there's 272 00:15:00,040 --> 00:15:04,920 Speaker 1: no collusion, there's no criminal conspiracy. The president wasn't fully exonerated, 273 00:15:05,120 --> 00:15:07,800 Speaker 1: and Bob Mueller made no ruling on obstruction of justice, 274 00:15:07,960 --> 00:15:11,640 Speaker 1: so I will he didn't obstruct. And that basically became, 275 00:15:12,120 --> 00:15:14,560 Speaker 1: you've gotten a clean bill of health, Mr President, even 276 00:15:14,560 --> 00:15:17,080 Speaker 1: though that's not what the report says. And moll and 277 00:15:17,400 --> 00:15:20,280 Speaker 1: Bar really stayed by that. You know, when the report 278 00:15:20,320 --> 00:15:23,360 Speaker 1: was finally released in full. He had a press conference 279 00:15:23,360 --> 00:15:25,040 Speaker 1: to day came out and he said a lot of 280 00:15:25,080 --> 00:15:28,440 Speaker 1: misleading things about what was in the report. So you know, 281 00:15:28,520 --> 00:15:31,640 Speaker 1: bar has been an ally of the president and has 282 00:15:31,640 --> 00:15:34,560 Speaker 1: really running interference for hmat. Is Mr Mueller a private 283 00:15:34,680 --> 00:15:39,280 Speaker 1: citizen today? Is he uh employee of the government? Is 284 00:15:39,320 --> 00:15:43,040 Speaker 1: he a legacy to the Department of Justices or code? 285 00:15:43,040 --> 00:15:46,360 Speaker 1: Did he has to? I think he had a personal code. 286 00:15:46,400 --> 00:15:48,680 Speaker 1: There is not an institutional coach. It's not a d 287 00:15:49,000 --> 00:15:52,920 Speaker 1: J code er fl he he resigned in May. They 288 00:15:52,920 --> 00:15:55,680 Speaker 1: shut his office down, I believe in late May, so 289 00:15:55,720 --> 00:15:58,880 Speaker 1: he's no longer implied by the employed by the Justice Department. 290 00:15:59,360 --> 00:16:02,920 Speaker 1: Um this letter he sought this week from Justice Department 291 00:16:02,920 --> 00:16:07,120 Speaker 1: offering guidance about what he could say. My colleague No Feldman, 292 00:16:07,160 --> 00:16:09,920 Speaker 1: who knows about all things legal, said that it's not 293 00:16:10,000 --> 00:16:13,280 Speaker 1: a legally binding letter. I think Mueller asked for it 294 00:16:13,600 --> 00:16:17,040 Speaker 1: because it's yet another indication that Mueller really wants he 295 00:16:17,080 --> 00:16:19,040 Speaker 1: does not want to testify in public about what he 296 00:16:19,080 --> 00:16:22,720 Speaker 1: regards as a private investigation. What are these shining lights 297 00:16:22,720 --> 00:16:26,440 Speaker 1: of our American politics gonna do? When he says it's 298 00:16:26,440 --> 00:16:28,560 Speaker 1: not gonna be the drama? I plead the Fifth Amendment. 299 00:16:28,560 --> 00:16:31,680 Speaker 1: But he's gonna say, I don't want to answer that, correct. 300 00:16:31,680 --> 00:16:33,480 Speaker 1: So I think what they're gonna have to probably do 301 00:16:33,600 --> 00:16:37,480 Speaker 1: is ask him to read passages from the report. And 302 00:16:37,520 --> 00:16:40,640 Speaker 1: there's some really extraordinary passages in there where Trump is asking, 303 00:16:40,680 --> 00:16:42,680 Speaker 1: is they're going to force Mr Mueller to do that. 304 00:16:43,080 --> 00:16:46,280 Speaker 1: He's a citizen, he's appearing before the Congress. He should 305 00:16:46,360 --> 00:16:48,320 Speaker 1: do what they asked him to do, include read from 306 00:16:48,320 --> 00:16:50,520 Speaker 1: the document. And now beyond that, of course, this is 307 00:16:50,560 --> 00:16:53,440 Speaker 1: going to dominate the headlines in Washington, d C. Something 308 00:16:53,440 --> 00:16:55,720 Speaker 1: that's attracted a little attention from our listeners here at 309 00:16:55,760 --> 00:16:57,720 Speaker 1: Bloomberg Tim is what is happening with the d l 310 00:16:57,800 --> 00:17:01,320 Speaker 1: J and big tech. Some people are struggling to get 311 00:17:01,320 --> 00:17:03,400 Speaker 1: their head around the idea that the United States is 312 00:17:03,440 --> 00:17:06,080 Speaker 1: involved in a trite dispute with the Chinese and also 313 00:17:06,160 --> 00:17:08,440 Speaker 1: simultaneously going off to some of the big tech firms 314 00:17:08,480 --> 00:17:12,680 Speaker 1: here in the United States. Two things for us, well, 315 00:17:12,840 --> 00:17:15,240 Speaker 1: you know, as a you know, as as business journalists, 316 00:17:15,280 --> 00:17:19,520 Speaker 1: I find the schizophrenia in the Trump administration curious and 317 00:17:19,560 --> 00:17:22,479 Speaker 1: it and it often feels to me like where they 318 00:17:22,480 --> 00:17:25,480 Speaker 1: are on policy is a little bit shoot from the hip. 319 00:17:25,720 --> 00:17:28,800 Speaker 1: And you don't know who where the inputs are coming from. 320 00:17:28,840 --> 00:17:31,880 Speaker 1: You know, as you just said, he came into office 321 00:17:31,920 --> 00:17:34,280 Speaker 1: as a champion of business. He had a you know, 322 00:17:34,280 --> 00:17:37,440 Speaker 1: a tech council meet at Trump Tower with the head 323 00:17:37,480 --> 00:17:40,919 Speaker 1: of the Fangs and other and other another leading CEOs. 324 00:17:41,440 --> 00:17:44,439 Speaker 1: Now he's authorized it would appear in anti trust investigation. 325 00:17:44,720 --> 00:17:48,560 Speaker 1: You are considered Timothy O'Brien the expert on the president's 326 00:17:48,600 --> 00:17:52,320 Speaker 1: previous finances. I believe in the last twenty four hours 327 00:17:52,920 --> 00:17:55,840 Speaker 1: he's saying I want my state tax returns to be 328 00:17:55,960 --> 00:17:59,840 Speaker 1: private in New York is reasserting that he doesn't want 329 00:17:59,840 --> 00:18:02,560 Speaker 1: his state tax returns, not only saying that he's suing 330 00:18:02,600 --> 00:18:06,000 Speaker 1: as a private citizen to prevent that as the same 331 00:18:06,000 --> 00:18:07,800 Speaker 1: as the federal return they're not. They don't have the 332 00:18:07,800 --> 00:18:10,000 Speaker 1: same depth as the as the federal returns, but they 333 00:18:10,040 --> 00:18:13,600 Speaker 1: have a lot of the same information directionally. Obviously, I 334 00:18:13,640 --> 00:18:15,080 Speaker 1: think what people want to see is what kind of 335 00:18:15,119 --> 00:18:18,840 Speaker 1: income he has from abroad and in any possible malfeasance 336 00:18:18,880 --> 00:18:22,280 Speaker 1: that might be inside the documents to be Governor Cuomo 337 00:18:22,840 --> 00:18:27,359 Speaker 1: past legislation to allow this. The President is saying, no, 338 00:18:27,600 --> 00:18:30,760 Speaker 1: is a citizen. We're not going to do this, what 339 00:18:30,840 --> 00:18:33,560 Speaker 1: would you suggest will be the outcome? I don't think 340 00:18:33,600 --> 00:18:35,280 Speaker 1: the courts are going to be on the President's side 341 00:18:35,280 --> 00:18:39,520 Speaker 1: and this. You know, they've made a similar, you know, 342 00:18:39,800 --> 00:18:42,840 Speaker 1: slate of arguments about access to his financial records and 343 00:18:42,880 --> 00:18:46,399 Speaker 1: other records. And his argument has been these are political 344 00:18:46,440 --> 00:18:49,719 Speaker 1: efforts and therefore they should be knocked down. And the 345 00:18:49,760 --> 00:18:54,240 Speaker 1: Congress has said, we're exercising oversight per the Constitution. The 346 00:18:54,280 --> 00:18:57,320 Speaker 1: courts have tended to decide with Congress on that. What 347 00:18:57,440 --> 00:18:59,240 Speaker 1: will you look for the rest of the summer from 348 00:18:59,240 --> 00:19:02,280 Speaker 1: the president we've and talking you're about has been almost 349 00:19:02,280 --> 00:19:05,480 Speaker 1: two administrations. In the first term, there's been such turnover 350 00:19:05,560 --> 00:19:08,720 Speaker 1: and all, what's sort of your crystal ball into the 351 00:19:08,760 --> 00:19:11,879 Speaker 1: cooling months of September and October. Um, well, he doesn't 352 00:19:11,880 --> 00:19:15,240 Speaker 1: have cooling months, so we meet with Prime Minister Johnson. 353 00:19:15,280 --> 00:19:17,000 Speaker 1: I mean you know that. Yeah, I think and I 354 00:19:17,040 --> 00:19:20,160 Speaker 1: think that I think that, you know, Iran, and and 355 00:19:20,160 --> 00:19:22,320 Speaker 1: and North Korea have to remain sort of front and 356 00:19:22,320 --> 00:19:27,200 Speaker 1: center in people's minds. Uh, the southern border remains unresolved. 357 00:19:27,200 --> 00:19:30,000 Speaker 1: What's gonna happen with immigration policy there? And then I 358 00:19:30,000 --> 00:19:34,640 Speaker 1: think obviously he's positioning and um, you know there's gonna 359 00:19:34,640 --> 00:19:36,480 Speaker 1: be some key issues that the Republicans have to pull 360 00:19:36,560 --> 00:19:39,720 Speaker 1: together on to have an agenda behind and beyond just 361 00:19:40,320 --> 00:19:42,120 Speaker 1: Trump the showman. And I think they've got to figure 362 00:19:42,119 --> 00:19:45,159 Speaker 1: out where they are on healthcare, where they are in immigration, 363 00:19:45,800 --> 00:19:48,560 Speaker 1: and and and make sure that the fruits of their 364 00:19:49,080 --> 00:19:51,240 Speaker 1: tax cut are apparent to their support. We're gonna stay 365 00:19:51,240 --> 00:19:53,880 Speaker 1: and listen to the testimony live here in Bloomberg Radio. 366 00:19:53,920 --> 00:19:56,000 Speaker 1: I want to watch you translated for me. Tom. I 367 00:19:56,560 --> 00:19:59,400 Speaker 1: would that that we supported if you read the document. 368 00:19:59,440 --> 00:20:00,880 Speaker 1: Full of school, I was sure, I have not read. 369 00:20:00,960 --> 00:20:03,000 Speaker 1: I have not read the document, So you guys should 370 00:20:03,000 --> 00:20:05,200 Speaker 1: not host a show about an event if you haven't 371 00:20:05,200 --> 00:20:07,760 Speaker 1: read the document. Really, I don't think the members, honestly, 372 00:20:07,840 --> 00:20:10,240 Speaker 1: I don't think every day there was all these this 373 00:20:10,359 --> 00:20:12,840 Speaker 1: jockeying in Washington about who would get to ask questions, 374 00:20:12,840 --> 00:20:16,119 Speaker 1: and they were postponing the hearings, and my feeling was 375 00:20:16,200 --> 00:20:18,439 Speaker 1: only let the people ask questions who've actually read the 376 00:20:18,480 --> 00:20:21,840 Speaker 1: moment when I agree with that that, right, it's it's interesting. 377 00:20:22,359 --> 00:20:24,680 Speaker 1: Jim O'Brien, thank you so much, of course, with Blueberg 378 00:20:24,760 --> 00:20:27,159 Speaker 1: opinion and driving so much to the smart that the 379 00:20:27,280 --> 00:20:40,000 Speaker 1: every day right now on the equity markets, John, why 380 00:20:40,040 --> 00:20:43,679 Speaker 1: don't you bring him? Mr Golub who has been persistently 381 00:20:44,160 --> 00:20:47,240 Speaker 1: in the markets through gloom, thick and thin, joined just 382 00:20:47,320 --> 00:20:49,840 Speaker 1: from Credit Swacee, the chief US equity strategist. It's been 383 00:20:49,840 --> 00:20:51,720 Speaker 1: a while, John, it's quite a catch. Elby. Let's talk 384 00:20:51,760 --> 00:20:54,760 Speaker 1: about earning season so far. What are you looking at? 385 00:20:54,800 --> 00:20:58,160 Speaker 1: What's your school can't John, it's you know, it's it's 386 00:20:58,280 --> 00:21:01,119 Speaker 1: pretty good. If you look at the the level of 387 00:21:01,320 --> 00:21:04,919 Speaker 1: earnings surprises, you have something like three cores of the 388 00:21:04,960 --> 00:21:08,040 Speaker 1: company's beating expectations, and the beats are coming in more 389 00:21:08,080 --> 00:21:11,600 Speaker 1: than six percent, which is really strong. The level of 390 00:21:11,640 --> 00:21:15,760 Speaker 1: the earnings growth is quite weak. We'll probably by the 391 00:21:15,760 --> 00:21:19,600 Speaker 1: time this is over only have about two EPs growth 392 00:21:19,640 --> 00:21:21,680 Speaker 1: and when you take out the buybacks, that's pretty close 393 00:21:21,720 --> 00:21:25,160 Speaker 1: to zero. But but compared to expectations, things are coming 394 00:21:25,160 --> 00:21:27,560 Speaker 1: in pretty well. What's the guidance like at the moment 395 00:21:27,640 --> 00:21:31,920 Speaker 1: for the rest of this year going? UM? I think 396 00:21:31,960 --> 00:21:34,520 Speaker 1: the guidance is finding what we knew we were going 397 00:21:34,560 --> 00:21:40,400 Speaker 1: to get was um, you know, comments about about trade 398 00:21:40,480 --> 00:21:43,960 Speaker 1: and potential headwinds, and so I'm not sure we're seeing 399 00:21:44,000 --> 00:21:50,040 Speaker 1: anything that's um that's out of the ordinary. But you know, Prepsy, 400 00:21:50,240 --> 00:21:54,720 Speaker 1: the more important issue here is that the media company, 401 00:21:54,760 --> 00:21:58,679 Speaker 1: the typical average company and portfolio is doing much better 402 00:21:58,800 --> 00:22:02,399 Speaker 1: than the weighted number when people quote the SMP. And 403 00:22:02,440 --> 00:22:06,080 Speaker 1: the reason for that is simply that mega cap tech 404 00:22:06,200 --> 00:22:08,959 Speaker 1: is having a harder time with respect to growth and 405 00:22:09,000 --> 00:22:12,800 Speaker 1: that's bringing down the averages even though typical portfolio managers 406 00:22:12,800 --> 00:22:14,920 Speaker 1: doing a little better. Okay, investing one oh one, your 407 00:22:14,920 --> 00:22:19,320 Speaker 1: most sophisticated hedge fund client or somebody in wealth management 408 00:22:19,359 --> 00:22:22,600 Speaker 1: at credit Suites. I just did a laddered return year 409 00:22:22,640 --> 00:22:25,160 Speaker 1: to date, six months to day, three months to date, 410 00:22:25,440 --> 00:22:27,800 Speaker 1: one month to date, and the answer is it's all 411 00:22:27,840 --> 00:22:32,000 Speaker 1: double digit, pretty nice returns. Everything said and done. Do 412 00:22:32,119 --> 00:22:35,080 Speaker 1: I get out of the market and enjoy what I've 413 00:22:35,080 --> 00:22:37,919 Speaker 1: done the first six months or do you stay in 414 00:22:37,960 --> 00:22:41,359 Speaker 1: the market even if you get an incremental single digit 415 00:22:41,400 --> 00:22:43,840 Speaker 1: return to the end of the year. Alright, So, Tom, 416 00:22:43,880 --> 00:22:46,600 Speaker 1: I'm I'm gonna disappoint you a little bit because I've 417 00:22:46,600 --> 00:22:50,000 Speaker 1: been super bullish for the last six years, and I'd say, 418 00:22:50,080 --> 00:22:53,000 Speaker 1: is it's not that embarished, But I'm more cautious. If 419 00:22:53,040 --> 00:22:57,600 Speaker 1: you look since the September high, so roughly about ten months, 420 00:22:58,080 --> 00:23:01,520 Speaker 1: the SMP is up only two. The reason that the 421 00:23:01,560 --> 00:23:05,359 Speaker 1: market looks so great since let's say late December or 422 00:23:05,440 --> 00:23:08,240 Speaker 1: year to date of the last six weeks was because 423 00:23:08,359 --> 00:23:10,840 Speaker 1: we had such a lousy fourth quarter and we've gotten 424 00:23:10,840 --> 00:23:14,560 Speaker 1: it back. So stock multiples are fine at seventeen, which 425 00:23:14,720 --> 00:23:18,920 Speaker 1: but that's roughly where they were, um, you know, ten 426 00:23:18,960 --> 00:23:22,520 Speaker 1: months ago. So the market doesn't look particularly expensive, even 427 00:23:22,520 --> 00:23:25,960 Speaker 1: though it's run up recently. The earnings outlook for for 428 00:23:26,080 --> 00:23:29,399 Speaker 1: next year you're probably gonna get something like a load 429 00:23:29,440 --> 00:23:34,200 Speaker 1: of mid single digits, which is not brilliant, but is fine. Um. 430 00:23:34,440 --> 00:23:36,879 Speaker 1: The thing which we really need to see to propel 431 00:23:36,960 --> 00:23:40,440 Speaker 1: the markets further is exactly what Jonathan was talking about 432 00:23:40,440 --> 00:23:43,959 Speaker 1: a moment ago. You don't want to be um putting 433 00:23:44,000 --> 00:23:46,720 Speaker 1: yourself out there with respect to equities when the economic 434 00:23:46,840 --> 00:23:50,760 Speaker 1: data is decelerating. We need that to turn around. Um. 435 00:23:50,800 --> 00:23:53,800 Speaker 1: The other thing is if anyone believes that that falling 436 00:23:53,800 --> 00:23:56,639 Speaker 1: interest rates are good for stocks, that is not going 437 00:23:56,680 --> 00:23:58,240 Speaker 1: to be the case between now and the end of 438 00:23:58,240 --> 00:24:00,480 Speaker 1: the year. That last line, that is not just a 439 00:24:00,560 --> 00:24:03,119 Speaker 1: throwaway statement from the team, a credit slace. I know 440 00:24:03,200 --> 00:24:04,959 Speaker 1: you've done a lot of work on it, so explore 441 00:24:05,000 --> 00:24:06,560 Speaker 1: it a little bit. Further, for us, there is this 442 00:24:06,680 --> 00:24:09,400 Speaker 1: just sort of generous general surface level belief that level 443 00:24:09,480 --> 00:24:12,159 Speaker 1: rates great for stocks. What do you know, what do 444 00:24:12,240 --> 00:24:16,000 Speaker 1: you see in the data? Well, I mean, so there's 445 00:24:16,000 --> 00:24:18,800 Speaker 1: a couple of things we we we've mechanically, we've gone 446 00:24:18,800 --> 00:24:21,640 Speaker 1: through and said what happens to stocks when on days 447 00:24:21,680 --> 00:24:24,280 Speaker 1: where interest rates fall and days where interest rates rise, 448 00:24:24,720 --> 00:24:26,920 Speaker 1: and when days were interest rates rise, what you have 449 00:24:27,080 --> 00:24:30,199 Speaker 1: is better news. And those are the days where the 450 00:24:30,200 --> 00:24:33,360 Speaker 1: stock market makes virtually all of their games. This has 451 00:24:33,400 --> 00:24:37,680 Speaker 1: been the case for virtually the entire recovery cycle. It's 452 00:24:37,680 --> 00:24:42,280 Speaker 1: a very consistent way to to invest. So that's really 453 00:24:42,320 --> 00:24:45,119 Speaker 1: the simple bottom one. So for people, the reason that 454 00:24:45,240 --> 00:24:47,680 Speaker 1: the market wants to fed or was expecting to fit 455 00:24:47,800 --> 00:24:50,359 Speaker 1: to cut is because the short end of the curve 456 00:24:50,520 --> 00:24:53,399 Speaker 1: is is inverted. Basically, you can get a higher interest 457 00:24:53,520 --> 00:24:56,760 Speaker 1: rate on one month bonds than you can on a 458 00:24:56,800 --> 00:25:00,359 Speaker 1: two year bond. But in general speaking, if we have 459 00:25:00,520 --> 00:25:02,399 Speaker 1: lower interest rates at the end of the year, we 460 00:25:02,440 --> 00:25:07,560 Speaker 1: will have lower stock prices. John the value in American banking, 461 00:25:07,600 --> 00:25:09,639 Speaker 1: you're with a Swiss bank, so it's a little easier 462 00:25:09,680 --> 00:25:12,720 Speaker 1: for you to talk about this than others representing too 463 00:25:12,720 --> 00:25:15,880 Speaker 1: big to fail banks. How a bunch of a steel 464 00:25:16,440 --> 00:25:19,320 Speaker 1: is that cash flow of too big to fail American 465 00:25:19,359 --> 00:25:23,520 Speaker 1: banking right now? It's it's amazing Tom that right now, 466 00:25:23,560 --> 00:25:26,200 Speaker 1: if you if you look at the return of capital, 467 00:25:26,280 --> 00:25:30,240 Speaker 1: dividends and five backs together, the US banks are yielding 468 00:25:30,400 --> 00:25:34,120 Speaker 1: ten percent, thank you. And this is an environment where 469 00:25:34,160 --> 00:25:38,520 Speaker 1: you can get barely over two percent on a government bond. 470 00:25:39,080 --> 00:25:41,680 Speaker 1: And not only that, but the banks are much much 471 00:25:41,760 --> 00:25:45,600 Speaker 1: less risky today than they've been because the government has 472 00:25:45,640 --> 00:25:50,080 Speaker 1: forced them to take less risk. So um, I'm shocked 473 00:25:50,080 --> 00:25:53,520 Speaker 1: that investors aren't more enthusiastic about that. What's so important here, 474 00:25:53,600 --> 00:25:56,879 Speaker 1: John is Yesterday Gabriela Santos of JP Morgan was saying 475 00:25:56,920 --> 00:26:00,480 Speaker 1: blended SPX is a two percent share buy back, and 476 00:26:00,600 --> 00:26:03,760 Speaker 1: Mr Galub just said the banking too big defail banking 477 00:26:03,800 --> 00:26:07,000 Speaker 1: sector is a five factor of that. Well, they've been 478 00:26:07,040 --> 00:26:09,440 Speaker 1: juicing aps with the buy backs. We saw that with 479 00:26:09,480 --> 00:26:11,399 Speaker 1: the results just the other week. John, talk to me 480 00:26:11,440 --> 00:26:14,400 Speaker 1: about the financials at the moment and the level rate story, 481 00:26:14,960 --> 00:26:17,560 Speaker 1: the FED on the brink of an easing cycle. I 482 00:26:17,560 --> 00:26:19,760 Speaker 1: don't know how deep it goes. It could be one cut, 483 00:26:19,840 --> 00:26:22,800 Speaker 1: two cuts, three cuts, four That kind of environment what 484 00:26:22,800 --> 00:26:25,200 Speaker 1: does it mean for US financials now, considering the shift 485 00:26:25,240 --> 00:26:28,920 Speaker 1: they've made to their business models in the last decade. Well, 486 00:26:29,119 --> 00:26:31,280 Speaker 1: and it's it's a it's a great point. First of all, 487 00:26:31,320 --> 00:26:34,159 Speaker 1: and this is a big difference between US banks and 488 00:26:34,240 --> 00:26:37,600 Speaker 1: non US banks is the US banks make more of 489 00:26:37,640 --> 00:26:42,439 Speaker 1: their money from fees, which means that they hold up 490 00:26:42,520 --> 00:26:46,440 Speaker 1: much better even in environments for that where interest rates 491 00:26:46,440 --> 00:26:50,000 Speaker 1: aren't kind of working in their favor. Um. But what 492 00:26:50,400 --> 00:26:52,960 Speaker 1: right now, if you can get a higher interest rate 493 00:26:53,640 --> 00:26:55,960 Speaker 1: on a one month CD, then you can get on 494 00:26:56,000 --> 00:26:59,800 Speaker 1: a to year government bond. It's very hard for banks 495 00:26:59,840 --> 00:27:03,119 Speaker 1: to make money when they're borrowing costs which which our 496 00:27:03,160 --> 00:27:06,359 Speaker 1: deposits is higher than what they're gonna lend out um 497 00:27:06,480 --> 00:27:09,640 Speaker 1: for two or three years. So if the FED can 498 00:27:10,000 --> 00:27:12,280 Speaker 1: brings down the short end of the of the curve, 499 00:27:12,880 --> 00:27:16,760 Speaker 1: a short end of short term introduce, then then bank 500 00:27:16,800 --> 00:27:19,840 Speaker 1: profitability should do well. So what the what the banking 501 00:27:19,880 --> 00:27:23,159 Speaker 1: sector wants is a steepio curve where the tenure bond 502 00:27:23,240 --> 00:27:26,720 Speaker 1: is above the two year yield. And that's what the 503 00:27:26,760 --> 00:27:30,280 Speaker 1: markets expecting. The reason the market's expecting four moves is 504 00:27:30,320 --> 00:27:32,639 Speaker 1: because they do not believe the FED will let the 505 00:27:32,640 --> 00:27:35,320 Speaker 1: curve stay inverted at the short end. Is there right now? 506 00:27:35,400 --> 00:27:37,800 Speaker 1: Two oh five and the tenure one eight one on 507 00:27:37,880 --> 00:27:46,119 Speaker 1: the two year Jonathan Gollop credits. Thanks for listening to 508 00:27:46,200 --> 00:27:50,720 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on 509 00:27:50,760 --> 00:27:56,600 Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm 510 00:27:56,640 --> 00:27:59,960 Speaker 1: on Twitter at Tom Keane before the podcast. You can 511 00:28:00,040 --> 00:28:03,200 Speaker 1: always catch us worldwide. I'm Bloomberg Radio.