Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg And
Speaker 1: let's talk about that ugly tait a raut Europe just
Speaker 1: to begin with it. I think that really brings potentially
Speaker 1: brings forward an ECP decision from September to tomorrow. John,
Speaker 1: you're the first person to say that. I totally agree.
Speaker 1: Let's bring in Michael mcaplin Bag International Economics and Policy correspondent.
Speaker 1: Your thoughts, Mike, Well, let maybe the second person to
Speaker 1: say that it could easily bring forward the decision. The
Speaker 1: problem that they have is what are they going to do,
Speaker 1: which tool are they going to use, and how are
Speaker 1: they going to set that up? Presuma believe they've been
Speaker 1: working in that for some time. But the hope was
Speaker 1: that Jogging could float some ideas and see how they
Speaker 1: would play and see what kind of impact that might
Speaker 1: have in the markets, and they would have to forego
Speaker 1: that sort of preliminary testing period if they go ahead
Speaker 1: and move it, But you're right, the numbers so bad.
Speaker 1: German manufacturing the flash p m I forty three, and
Speaker 1: that signals significant contraction in manufacturing. That is definitely going
Speaker 1: to be a drag on growth there, Mike. The parallel
Speaker 1: of the analog to the United States is a linkage
Speaker 1: of the service sector economy to what's clearly a manufacturing recession.
Speaker 1: Is there service sector economy the same as our service
Speaker 1: sector economy. Well, they're manufacturing is a much bigger component
Speaker 1: of the German economy. But yes, they have a large
Speaker 1: services uh component to their economy and the services sector
Speaker 1: is hanging in there. Um. Their p m I for
Speaker 1: services fifty four, that's a trivial change from what it
Speaker 1: was a month ago. Uh, it's not services, it's manufacturing.
Speaker 1: A lot of that has to do with trade. Germany
Speaker 1: is one of the biggest trading nations in the world,
Speaker 1: and with China shut down and the US engaged in
Speaker 1: the trade war with them, You've got a lot of
Speaker 1: other nations that are engaged in many trade skirmishes. It's
Speaker 1: tough for Germany. Those trade talks can't begin fast enough
Speaker 1: for the likes of Germany in Europe, the United States
Speaker 1: and officials heading over to Beijing. I believe ka which
Speaker 1: is significant in and of itself. The Chinese are basically
Speaker 1: saying trade is trade. Let's keep it out of politics
Speaker 1: for now, because the politics between the US and I'm
Speaker 1: sure Bob will know more about those. Politics between the
Speaker 1: U S and China not very good right now. But
Speaker 1: if they can focus on the trade numbers and the
Speaker 1: trade negotiations and try to work on that, it does
Speaker 1: signal there may be farther away from getting somewhere, but
Speaker 1: at least they're starting. Let's bring in Bob Homa, shall
Speaker 1: we kissing your associates? Vice Chair, Bob, you know a
Speaker 1: little something about Germany. I'd love your thoughts on it.
Speaker 1: We're now looking at the water levels in the river Rhine,
Speaker 1: which which to anyone outside of Europe sounds absolutely ridiculous,
Speaker 1: but the weather is being so dry, so hot over
Speaker 1: in Europe that it's actually becoming an economic issue. Bob,
Speaker 1: your knowledge on the country, your knowledge on that area,
Speaker 1: just walkestry has significant. That is well, it is a significant.
Speaker 1: I live for summer in bun which was then the
Speaker 1: capital of what was then West Germany, and the Rhine
Speaker 1: is really the major artery for a lot of trade
Speaker 1: that goes from the western part of Germany through to
Speaker 1: Rotterdam and other ports and then to other parts of
Speaker 1: the world. So the Rhine is very important, and the
Speaker 1: trade link with China that Mike talked about a moment
Speaker 1: ago is also critically important. We talked in this country
Speaker 1: blithely about decoupling and delinking with China. China is an
Speaker 1: integral part of the manufacturing network in Europe and in
Speaker 1: the United States as well. And a weaker China, which
Speaker 1: we've seen their growths diminishing rather substantially, not disastrously, but
Speaker 1: certainly lower than it was, and that affects their demand
Speaker 1: for manufactured goods from Europe and from the United States
Speaker 1: as well. So some normalization of economic relations and alleviation
Speaker 1: of the threat of higher tariffs, and perhaps even reducing
Speaker 1: the tariffs um and improving the investment environment in China
Speaker 1: would be very helpful to the Europeans. It would take time,
Speaker 1: but it would have an impact on the market. The
Speaker 1: limited time that we have with you today, ambassadors extraordinary.
Speaker 1: I I am really taken them back by the diversity
Speaker 1: of the proposed cabinet or speculated cabinet of Prime Minister Johnson.
Speaker 1: It truly to me seems to be a generational shift
Speaker 1: in the United Kingdom. Yes, well, he's got an interesting agenda.
Speaker 1: One is he is and if you look at the
Speaker 1: Tory Party there it is a much more diverse party
Speaker 1: than it was ten years ago. When he wants to
Speaker 1: be able to pick people who represent various elements of
Speaker 1: the Tory Party. But basically on one issue he's going
Speaker 1: to get a lot of levers, people who want a
Speaker 1: bregsit and so he's going to be diversified ethnically and culturally.
Speaker 1: But on the question of Brexit, he's gonna want to
Speaker 1: have relatively hard line. But John it's extraordinary. An Indian
Speaker 1: family that went to Uganda thrown out of anyonever it was.
Speaker 1: We've got a Pakistani possibly appointed times actually just for
Speaker 1: pulling the headline, crossing the bloom bag that Sage Javid
Speaker 1: may be the chancellors. To many people, that's story news.
Speaker 1: But for Americans, the diversity proposed is unprecedented. There's no equivalent. Actually,
Speaker 1: the Conservative Party has done a really good job of
Speaker 1: bringing minority figures into the full front of the party
Speaker 1: and we could well see that in the Boris Johnson
Speaker 1: cabinet quite a big way. Yeah, and it's healthy for
Speaker 1: for Britain and I think it's healthy for Britain in
Speaker 1: the world because it enables them to have these links
Speaker 1: with other countries. How does Boris Johnson attend to the
Speaker 1: President of the United States. We've heard in the last
Speaker 1: hours they may visit three times to September. Well. I
Speaker 1: think Boris Johnson wants to a demonstrate with people that
Speaker 1: he can work with the United States. Be He's gonna
Speaker 1: want to develop some closer economic ties with the EU,
Speaker 1: even if there is a heart break that he wants
Speaker 1: to sure that there's some kind of trade deal. But
Speaker 1: if he cannot get that, then he's going to have
Speaker 1: to have some deal with the United States on trade.
Speaker 1: They're gonna need them. He sold his candidacy in part
Speaker 1: on the idea that we can leave the European Union
Speaker 1: with no real ill effects because will immediately be able
Speaker 1: to put together a trade deal with the United States.
Speaker 1: They haven't been legally allowed to negotiate because they're still
Speaker 1: part of the EU, but they've still been talking on
Speaker 1: the sidelines for quite some time. It's still it's still
Speaker 1: true that Europe's biggest trading partners. So finding some deal
Speaker 1: or trade with Europe's important. But if he can work
Speaker 1: with the United States, it's anthan's his leverage with the Europeans,
Speaker 1: and if he can't get a deal, he's gonna want
Speaker 1: a good deal with The question is will the United States,
Speaker 1: in the way it negotiates, give him a really good deal,
Speaker 1: and that's going to be a challenge. We're going to
Speaker 1: continue five hour discussion with Robert Harman's today. We'll try
Speaker 1: to get to death as well Alicia Levine with this
Speaker 1: bn y mel and Alicia, I want to go right
Speaker 1: to the terminal rate. Everything squeezing down. John mentioning of
Speaker 1: negative negative rates in Europe as well. You're supposed to
Speaker 1: flip the reciprocal and get a higher pe. What's the
Speaker 1: new twelve multiple? I mean value stocks were very twelve.
Speaker 1: Is it fifteen or is it eighteen? So I'm not
Speaker 1: going to put a number on it, but it's come on,
Speaker 1: come on, you look for a bank put a number
Speaker 1: on it, not the sales side. Um, you know, look
Speaker 1: it's higher. It's clearly higher. When your rates are lower,
Speaker 1: you discount rate as ower, your multiple as higher, and
Speaker 1: markets go up. And we see that not just in
Speaker 1: the US but also globally, which is why markets don't
Speaker 1: feel frothy. They feel more or less fairly valued, but
Speaker 1: not frothing four L four, not level five, Level four.
Speaker 1: I was listening to Andrew Sheets of Morgan Stanley quite
Speaker 1: recently and he makes a really interesting point. They make
Speaker 1: it very simple over at Morgan Stanley. We're going to
Speaker 1: get easing. That is the consensus view in the market
Speaker 1: right now. What is the accompanying data. Does it continue
Speaker 1: to weaken, does it stabilize, or does it accelerate? And
Speaker 1: that's the real judgment call here as to what is
Speaker 1: about to happen with risk assets and right now the
Speaker 1: Andrew Sheets take on this, and at least sure I'd
Speaker 1: love your insight on it as well. Is that if
Speaker 1: this market was bettering beyond just easing and to something
Speaker 1: like sustainable economic growth, why inflation expectations higher? Why commodities
Speaker 1: rallying across the whole complex? And why aren't long end
Speaker 1: rates pushing higher as well? Why aren't we factoring then
Speaker 1: those things? If we believe these central banks can end
Speaker 1: genia about a growth picture, Well, it's a great question,
Speaker 1: and we've had this discussion now for several weeks, which
Speaker 1: is what actually is the transition mechanism between lower rates
Speaker 1: and economic growth. And if you look at Germany and
Speaker 1: you look at Europe and the e c B, it's
Speaker 1: that's the perfect example of the muddy nature of it
Speaker 1: and how it's not actually direct transmission, because if you
Speaker 1: look at the p m I is coming out of
Speaker 1: Germany today, it's very clear that negative rates actually have
Speaker 1: not helped the economy or manufacturing, or investment or anything
Speaker 1: of the sort. So we come back to America and
Speaker 1: ask the question, what can the central bank here do
Speaker 1: by easing. Clearly it's going to be in the interest
Speaker 1: rate sectors, interest rates sensitive sectors of the economy, housing
Speaker 1: and autos. Autos have their own issue because there's a
Speaker 1: structural change going on in auto ownership. We can see
Speaker 1: that in right sharing, but we should see it there first.
Speaker 1: The other issue is on the on the yield question.
Speaker 1: If we think growth is stabilizing and turning, you can
Speaker 1: not escape the global negative yield here in the US,
Speaker 1: and you have thirteen trillion dollars of negative yielding debt
Speaker 1: and that's going to come into America and you can't
Speaker 1: you can't engineer your way out of it. It's capital flows.
Speaker 1: Let's talk about earnings quickly as well. Caterpillar delivering results.
Speaker 1: I believe in about eight minutes time looking at the
Speaker 1: semi Semmy's have had a massive run over the last
Speaker 1: couple of days. Taiwan Semmy I believe last week came
Speaker 1: out with some pretty decent numbers relative to an ugly
Speaker 1: expectation looking forward. I believe Texas Instruments did the same
Speaker 1: thing after the close yesterday. You'll take on that area
Speaker 1: of the market right now. I think it's interesting what
Speaker 1: what the semis are telling you is that cyclicals are
Speaker 1: the play here and the u S data is interesting
Speaker 1: because the u S data in June clearly was better
Speaker 1: than than April or May. So you have a turn
Speaker 1: here in the US. The semis are saying that you
Speaker 1: play the cyclicals because they're the forward looking that they're
Speaker 1: the forward looking sector. This is really the interesting thing here.
Speaker 1: While everybody is so worried about growth falling apart, corporates
Speaker 1: are coming in pretty decent. Are you happy advising clients
Speaker 1: for not to add a little bit more sticklaricality to
Speaker 1: that portfolios? Given the economic data we're seeing a swell.
Speaker 1: I am actually, and I am because you don't. You
Speaker 1: don't fight central banks. So you have the FED, you've
Speaker 1: got the e c B, you've got other central banks
Speaker 1: already easing as of last week, so you have to
Speaker 1: play into that. Your multiple is higher. You support corporates.
Speaker 1: You can't go bankrupt in Europe. How are you gonna
Speaker 1: go bankrupt? The ECB is buying every bond out there.
Speaker 1: We're too short. We've got to come back Alicia for
Speaker 1: another visit here soon out there and darkening the door
Speaker 1: right now. Timthey O'Brien spiriting with David Shipley all that
Speaker 1: his Bloomberg opinion. Many of you have seen him waxing
Speaker 1: philosophical in Washington, and this morning we begin by speaking
Speaker 1: to Mr O'Brien about these Mueller hearings. The photo this
Speaker 1: week out on Twitter of a lieutenant in vian and
Speaker 1: there was another photo the President doing whatever he was
Speaker 1: doing at the time. Do we really know who Robert
Speaker 1: Mueller is? I mean, do we have a clue who's
Speaker 1: actually gonna be the focus of attention in Washington this morning? Yeah? Yeah,
Speaker 1: Robert Mueller is a by the books prosecutor. He's he
Speaker 1: follows the rules. Uh, you know, he's a long standing
Speaker 1: classic Republican conservative. Um, he's well, why can't this president
Speaker 1: get along with him? Well, because it's not about politics.
Speaker 1: You know. Trump doesn't like the fact that Mueller's steward
Speaker 1: an investigation that potentially could have gone into into an
Speaker 1: exploration of Trump's finances, but certainly looked obviously at what
Speaker 1: happened in the twenty sixteen campaign and Trump's UM teen's
Speaker 1: interactions with Russians. He didn't like any of that because
Speaker 1: it was an existential threat. So Tim, we have two
Speaker 1: herrings today. One starts rather readly for Washington. The House
Speaker 1: Judiciary Committee hearring beginning hasn't been up to so early
Speaker 1: in three months. Tim's in New York here at Blomberg.
Speaker 1: Tim is still getting up early. Don't worry about you know,
Speaker 1: I'm not going to pay attention to Tom. Can you
Speaker 1: ask me a question, please, let's talk about it. What
Speaker 1: are you expecting? What are you expecting from this? Because
Speaker 1: so many of our listeners it just thinking about this.
Speaker 1: So I've got hours of testimony. Perhaps do I tune in? Well,
Speaker 1: here's the thing. The MULA report is an extraordinary document.
Speaker 1: Its fourty eight pages long, and it is one of
Speaker 1: the most incriminating documents ever put together about a sitting president.
Speaker 1: Here's the other reality. Most of the country and most
Speaker 1: politicians have not read it. So one of the things
Speaker 1: that's important about today is its political theater. This is
Speaker 1: the power of TV and radio to broadcast something that
Speaker 1: people aren't reading on with the idea that they might
Speaker 1: engage with it. So to the extent that this brings
Speaker 1: the Mala Report into people's living rooms, it's important and
Speaker 1: we've seen that before over the last year. We saw
Speaker 1: it with Kavanaugh's confirmation earrings for the Supreme Court. We
Speaker 1: saw with Michael Koh's hearings UM people really engaged with those.
Speaker 1: Having said that, I do feel like a little bit
Speaker 1: of light has run out of the lamp. I think
Speaker 1: people have had are sort of in a PTSD state
Speaker 1: with Trump, and I don't know how much more generally
Speaker 1: people want to absorb. So I think this will be
Speaker 1: a litmus test of that today. But let's explore that
Speaker 1: a little bit further. The idea that this is about
Speaker 1: almost defining the perceptions or shaping the perceptions of the
Speaker 1: Muller Report. You've written this morning the role that Attorney
Speaker 1: General William Barr has had. You've written about that this morning,
Speaker 1: that he's almost defined. He shaped the perception, perhaps more
Speaker 1: so than the individual that wrote it. Just walks us
Speaker 1: through the important self. That's him. Yeah, you know, this
Speaker 1: isn't Bill Barr's first rodeo. He was. He was an
Speaker 1: attorney general for George H. W. Bush in the early
Speaker 1: nineties when the Orian contrainvestigation was underway, and he was
Speaker 1: very shrewd about how we protected the president during that investigation.
Speaker 1: So he had been there before, and I think he
Speaker 1: came into this with a playbook, and I think his
Speaker 1: playbook was he was going to define what the report
Speaker 1: was about before Bob Muller or anyone else did, including
Speaker 1: the Democrats. And what Bill Barr said was, um, there's
Speaker 1: no collusion, there's no criminal conspiracy. The president wasn't fully exonerated,
Speaker 1: and Bob Mueller made no ruling on obstruction of justice,
Speaker 1: so I will he didn't obstruct. And that basically became,
Speaker 1: you've gotten a clean bill of health, Mr President, even
Speaker 1: though that's not what the report says. And moll and
Speaker 1: Bar really stayed by that. You know, when the report
Speaker 1: was finally released in full. He had a press conference
Speaker 1: to day came out and he said a lot of
Speaker 1: misleading things about what was in the report. So you know,
Speaker 1: bar has been an ally of the president and has
Speaker 1: really running interference for hmat. Is Mr Mueller a private
Speaker 1: citizen today? Is he uh employee of the government? Is
Speaker 1: he a legacy to the Department of Justices or code?
Speaker 1: Did he has to? I think he had a personal code.
Speaker 1: There is not an institutional coach. It's not a d
Speaker 1: J code er fl he he resigned in May. They
Speaker 1: shut his office down, I believe in late May, so
Speaker 1: he's no longer implied by the employed by the Justice Department.
Speaker 1: Um this letter he sought this week from Justice Department
Speaker 1: offering guidance about what he could say. My colleague No Feldman,
Speaker 1: who knows about all things legal, said that it's not
Speaker 1: a legally binding letter. I think Mueller asked for it
Speaker 1: because it's yet another indication that Mueller really wants he
Speaker 1: does not want to testify in public about what he
Speaker 1: regards as a private investigation. What are these shining lights
Speaker 1: of our American politics gonna do? When he says it's
Speaker 1: not gonna be the drama? I plead the Fifth Amendment.
Speaker 1: But he's gonna say, I don't want to answer that, correct.
Speaker 1: So I think what they're gonna have to probably do
Speaker 1: is ask him to read passages from the report. And
Speaker 1: there's some really extraordinary passages in there where Trump is asking,
Speaker 1: is they're going to force Mr Mueller to do that.
Speaker 1: He's a citizen, he's appearing before the Congress. He should
Speaker 1: do what they asked him to do, include read from
Speaker 1: the document. And now beyond that, of course, this is
Speaker 1: going to dominate the headlines in Washington, d C. Something
Speaker 1: that's attracted a little attention from our listeners here at
Speaker 1: Bloomberg Tim is what is happening with the d l
Speaker 1: J and big tech. Some people are struggling to get
Speaker 1: their head around the idea that the United States is
Speaker 1: involved in a trite dispute with the Chinese and also
Speaker 1: simultaneously going off to some of the big tech firms
Speaker 1: here in the United States. Two things for us, well,
Speaker 1: you know, as a you know, as as business journalists,
Speaker 1: I find the schizophrenia in the Trump administration curious and
Speaker 1: it and it often feels to me like where they
Speaker 1: are on policy is a little bit shoot from the hip.
Speaker 1: And you don't know who where the inputs are coming from.
Speaker 1: You know, as you just said, he came into office
Speaker 1: as a champion of business. He had a you know,
Speaker 1: a tech council meet at Trump Tower with the head
Speaker 1: of the Fangs and other and other another leading CEOs.
Speaker 1: Now he's authorized it would appear in anti trust investigation.
Speaker 1: You are considered Timothy O'Brien the expert on the president's
Speaker 1: previous finances. I believe in the last twenty four hours
Speaker 1: he's saying I want my state tax returns to be
Speaker 1: private in New York is reasserting that he doesn't want
Speaker 1: his state tax returns, not only saying that he's suing
Speaker 1: as a private citizen to prevent that as the same
Speaker 1: as the federal return they're not. They don't have the
Speaker 1: same depth as the as the federal returns, but they
Speaker 1: have a lot of the same information directionally. Obviously, I
Speaker 1: think what people want to see is what kind of
Speaker 1: income he has from abroad and in any possible malfeasance
Speaker 1: that might be inside the documents to be Governor Cuomo
Speaker 1: past legislation to allow this. The President is saying, no,
Speaker 1: is a citizen. We're not going to do this, what
Speaker 1: would you suggest will be the outcome? I don't think
Speaker 1: the courts are going to be on the President's side
Speaker 1: and this. You know, they've made a similar, you know,
Speaker 1: slate of arguments about access to his financial records and
Speaker 1: other records. And his argument has been these are political
Speaker 1: efforts and therefore they should be knocked down. And the
Speaker 1: Congress has said, we're exercising oversight per the Constitution. The
Speaker 1: courts have tended to decide with Congress on that. What
Speaker 1: will you look for the rest of the summer from
Speaker 1: the president we've and talking you're about has been almost
Speaker 1: two administrations. In the first term, there's been such turnover
Speaker 1: and all, what's sort of your crystal ball into the
Speaker 1: cooling months of September and October. Um, well, he doesn't
Speaker 1: have cooling months, so we meet with Prime Minister Johnson.
Speaker 1: I mean you know that. Yeah, I think and I
Speaker 1: think that I think that, you know, Iran, and and
Speaker 1: and North Korea have to remain sort of front and
Speaker 1: center in people's minds. Uh, the southern border remains unresolved.
Speaker 1: What's gonna happen with immigration policy there? And then I
Speaker 1: think obviously he's positioning and um, you know there's gonna
Speaker 1: be some key issues that the Republicans have to pull
Speaker 1: together on to have an agenda behind and beyond just
Speaker 1: Trump the showman. And I think they've got to figure
Speaker 1: out where they are on healthcare, where they are in immigration,
Speaker 1: and and and make sure that the fruits of their
Speaker 1: tax cut are apparent to their support. We're gonna stay
Speaker 1: and listen to the testimony live here in Bloomberg Radio.
Speaker 1: I want to watch you translated for me. Tom. I
Speaker 1: would that that we supported if you read the document.
Speaker 1: Full of school, I was sure, I have not read.
Speaker 1: I have not read the document, So you guys should
Speaker 1: not host a show about an event if you haven't
Speaker 1: read the document. Really, I don't think the members, honestly,
Speaker 1: I don't think every day there was all these this
Speaker 1: jockeying in Washington about who would get to ask questions,
Speaker 1: and they were postponing the hearings, and my feeling was
Speaker 1: only let the people ask questions who've actually read the
Speaker 1: moment when I agree with that that, right, it's it's interesting.
Speaker 1: Jim O'Brien, thank you so much, of course, with Blueberg
Speaker 1: opinion and driving so much to the smart that the
Speaker 1: every day right now on the equity markets, John, why
Speaker 1: don't you bring him? Mr Golub who has been persistently
Speaker 1: in the markets through gloom, thick and thin, joined just
Speaker 1: from Credit Swacee, the chief US equity strategist. It's been
Speaker 1: a while, John, it's quite a catch. Elby. Let's talk
Speaker 1: about earning season so far. What are you looking at?
Speaker 1: What's your school can't John, it's you know, it's it's
Speaker 1: pretty good. If you look at the the level of
Speaker 1: earnings surprises, you have something like three cores of the
Speaker 1: company's beating expectations, and the beats are coming in more
Speaker 1: than six percent, which is really strong. The level of
Speaker 1: the earnings growth is quite weak. We'll probably by the
Speaker 1: time this is over only have about two EPs growth
Speaker 1: and when you take out the buybacks, that's pretty close
Speaker 1: to zero. But but compared to expectations, things are coming
Speaker 1: in pretty well. What's the guidance like at the moment
Speaker 1: for the rest of this year going? UM? I think
Speaker 1: the guidance is finding what we knew we were going
Speaker 1: to get was um, you know, comments about about trade
Speaker 1: and potential headwinds, and so I'm not sure we're seeing
Speaker 1: anything that's um that's out of the ordinary. But you know, Prepsy,
Speaker 1: the more important issue here is that the media company,
Speaker 1: the typical average company and portfolio is doing much better
Speaker 1: than the weighted number when people quote the SMP. And
Speaker 1: the reason for that is simply that mega cap tech
Speaker 1: is having a harder time with respect to growth and
Speaker 1: that's bringing down the averages even though typical portfolio managers
Speaker 1: doing a little better. Okay, investing one oh one, your
Speaker 1: most sophisticated hedge fund client or somebody in wealth management
Speaker 1: at credit Suites. I just did a laddered return year
Speaker 1: to date, six months to day, three months to date,
Speaker 1: one month to date, and the answer is it's all
Speaker 1: double digit, pretty nice returns. Everything said and done. Do
Speaker 1: I get out of the market and enjoy what I've
Speaker 1: done the first six months or do you stay in
Speaker 1: the market even if you get an incremental single digit
Speaker 1: return to the end of the year. Alright, So, Tom,
Speaker 1: I'm I'm gonna disappoint you a little bit because I've
Speaker 1: been super bullish for the last six years, and I'd say,
Speaker 1: is it's not that embarished, But I'm more cautious. If
Speaker 1: you look since the September high, so roughly about ten months,
Speaker 1: the SMP is up only two. The reason that the
Speaker 1: market looks so great since let's say late December or
Speaker 1: year to date of the last six weeks was because
Speaker 1: we had such a lousy fourth quarter and we've gotten
Speaker 1: it back. So stock multiples are fine at seventeen, which
Speaker 1: but that's roughly where they were, um, you know, ten
Speaker 1: months ago. So the market doesn't look particularly expensive, even
Speaker 1: though it's run up recently. The earnings outlook for for
Speaker 1: next year you're probably gonna get something like a load
Speaker 1: of mid single digits, which is not brilliant, but is fine. Um.
Speaker 1: The thing which we really need to see to propel
Speaker 1: the markets further is exactly what Jonathan was talking about
Speaker 1: a moment ago. You don't want to be um putting
Speaker 1: yourself out there with respect to equities when the economic
Speaker 1: data is decelerating. We need that to turn around. Um.
Speaker 1: The other thing is if anyone believes that that falling
Speaker 1: interest rates are good for stocks, that is not going
Speaker 1: to be the case between now and the end of
Speaker 1: the year. That last line, that is not just a
Speaker 1: throwaway statement from the team, a credit slace. I know
Speaker 1: you've done a lot of work on it, so explore
Speaker 1: it a little bit. Further, for us, there is this
Speaker 1: just sort of generous general surface level belief that level
Speaker 1: rates great for stocks. What do you know, what do
Speaker 1: you see in the data? Well, I mean, so there's
Speaker 1: a couple of things we we we've mechanically, we've gone
Speaker 1: through and said what happens to stocks when on days
Speaker 1: where interest rates fall and days where interest rates rise,
Speaker 1: and when days were interest rates rise, what you have
Speaker 1: is better news. And those are the days where the
Speaker 1: stock market makes virtually all of their games. This has
Speaker 1: been the case for virtually the entire recovery cycle. It's
Speaker 1: a very consistent way to to invest. So that's really
Speaker 1: the simple bottom one. So for people, the reason that
Speaker 1: the market wants to fed or was expecting to fit
Speaker 1: to cut is because the short end of the curve
Speaker 1: is is inverted. Basically, you can get a higher interest
Speaker 1: rate on one month bonds than you can on a
Speaker 1: two year bond. But in general speaking, if we have
Speaker 1: lower interest rates at the end of the year, we
Speaker 1: will have lower stock prices. John the value in American banking,
Speaker 1: you're with a Swiss bank, so it's a little easier
Speaker 1: for you to talk about this than others representing too
Speaker 1: big to fail banks. How a bunch of a steel
Speaker 1: is that cash flow of too big to fail American
Speaker 1: banking right now? It's it's amazing Tom that right now,
Speaker 1: if you if you look at the return of capital,
Speaker 1: dividends and five backs together, the US banks are yielding
Speaker 1: ten percent, thank you. And this is an environment where
Speaker 1: you can get barely over two percent on a government bond.
Speaker 1: And not only that, but the banks are much much
Speaker 1: less risky today than they've been because the government has
Speaker 1: forced them to take less risk. So um, I'm shocked
Speaker 1: that investors aren't more enthusiastic about that. What's so important here,
Speaker 1: John is Yesterday Gabriela Santos of JP Morgan was saying
Speaker 1: blended SPX is a two percent share buy back, and
Speaker 1: Mr Galub just said the banking too big defail banking
Speaker 1: sector is a five factor of that. Well, they've been
Speaker 1: juicing aps with the buy backs. We saw that with
Speaker 1: the results just the other week. John, talk to me
Speaker 1: about the financials at the moment and the level rate story,
Speaker 1: the FED on the brink of an easing cycle. I
Speaker 1: don't know how deep it goes. It could be one cut,
Speaker 1: two cuts, three cuts, four That kind of environment what
Speaker 1: does it mean for US financials now, considering the shift
Speaker 1: they've made to their business models in the last decade. Well,
Speaker 1: and it's it's a it's a great point. First of all,
Speaker 1: and this is a big difference between US banks and
Speaker 1: non US banks is the US banks make more of
Speaker 1: their money from fees, which means that they hold up
Speaker 1: much better even in environments for that where interest rates
Speaker 1: aren't kind of working in their favor. Um. But what
Speaker 1: right now, if you can get a higher interest rate
Speaker 1: on a one month CD, then you can get on
Speaker 1: a to year government bond. It's very hard for banks
Speaker 1: to make money when they're borrowing costs which which our
Speaker 1: deposits is higher than what they're gonna lend out um
Speaker 1: for two or three years. So if the FED can
Speaker 1: brings down the short end of the of the curve,
Speaker 1: a short end of short term introduce, then then bank
Speaker 1: profitability should do well. So what the what the banking
Speaker 1: sector wants is a steepio curve where the tenure bond
Speaker 1: is above the two year yield. And that's what the
Speaker 1: markets expecting. The reason the market's expecting four moves is
Speaker 1: because they do not believe the FED will let the
Speaker 1: curve stay inverted at the short end. Is there right now?
Speaker 1: Two oh five and the tenure one eight one on
Speaker 1: the two year Jonathan Gollop credits. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keane before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio.