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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal and the Bloomberg Business app.

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Speaker 2: Look on I'm this morning, but our lead story JP

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Speaker 2: Morgan in the pre market up by two point eight percent.

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Speaker 2: Ken Leon, the director of equity research at CFI right,

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Speaker 2: joins us now for more. Can should I be focused

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Speaker 2: on the beat, the race or the provisions for credit losses?

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Speaker 3: I think you can.

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Speaker 4: Focus on the economy and the strength of the resulting

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Speaker 4: and performance. And what this means is, you know, that's

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Speaker 4: her kind of Coquillier. You build reserves mostly for loan

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Speaker 4: losses and also looking ahead to perhaps a weaker per performance.

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Speaker 4: Sometimes you have long loss reversals. We had that a

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Speaker 4: year ago. So what's likely now is if we have

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Speaker 4: a soft landing, not a recession second half of this year,

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Speaker 4: the likelihood as these provisions begin to slow down and

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Speaker 4: possibly the reserves may be too high in twenty twenty

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Speaker 4: four when you have an ability to beat much better

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Speaker 4: comparisons to twenty three.

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Speaker 3: This was a good quarter.

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Speaker 4: We thought this would be the trough of the investment

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Speaker 4: backing cycle and we are seeing green shoots. But the

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Speaker 4: strength of the consumer and commercial loan activity is very promising.

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Speaker 4: And size matters here, and that's been your discussion in

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Speaker 4: the last half.

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Speaker 5: Hours, Ken Leon.

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Speaker 1: It's where every wanted to go in size it matter.

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Speaker 1: I'm going to give you two buried in a PowerPoint,

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Speaker 1: Ken Leon, and I know you know this and probably

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Speaker 1: knew it already. Thirty five percent pre tax margin on

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Speaker 1: JP Morgan Asset and Wealth management thirty five percent on

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Speaker 1: the dollar, folks. That's that's almost like just not in

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Speaker 1: the books, is how I'd put that. And what's so

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Speaker 1: important to me, Ken, The return on equity with the

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Speaker 1: Marinero's system leaps from a twenty five blend system up

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Speaker 1: to thirty four percent. Roe, have you ever seen a

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Speaker 1: big profit machine like that?

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Speaker 5: And asset and wealth management.

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Speaker 4: You know what's amazing, Thomas JP Morgan has done this,

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Speaker 4: you know, with less fanfare than others such as James

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Speaker 4: Gorman and Morgan Stanley. I took it from twelve to

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Speaker 4: twenty five percent and probably thirty.

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Speaker 3: These are phenomenal numbers and it speaks to making the

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Speaker 3: right strategic decision to expand an asset and wealth management.

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Speaker 4: That's what Goldman Sachs unfortunately will have to talk about

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Speaker 4: next week, where they made the wrong turn and they're

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Speaker 4: trying to play catch up in these amazing areas.

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Speaker 5: Lisa, that's exactly where I wanted to go. This is

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Speaker 5: not about I've.

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Speaker 1: Never seen this before from JP Morgan and what the

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Speaker 1: improvement was at Gorman coming ages ago.

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Speaker 5: This is about the one that.

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Speaker 6: Aren't doing it, and we're going to look to that

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Speaker 6: next week. In particular, Ken, I'm curious your take on

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Speaker 6: the net interest income coming in so strong, upgrading that

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Speaker 6: for the full year at a time when a lot

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Speaker 6: of people are critical of the big banks for not

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Speaker 6: passing along those extra profits to depositors more quickly, akin

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Speaker 6: to what we're seeing over in the regionals.

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Speaker 4: Yeah, that's right, and we have a beautiful chart somewhere,

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Speaker 4: but basically it's two points. You have one lever, which

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Speaker 4: is rates, and rates might have peaked, but if you

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Speaker 4: have increased loan activity that will spur net interest margins

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Speaker 4: and maybe keep the earnings asset yields at decent spreads,

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Speaker 4: even though we have this disintermediation where depositors are looking

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Speaker 4: for five percent or so. This is really promising for

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Speaker 4: the larger banks. It's about fifty to fifty five percent

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Speaker 4: a total net revenue. As to your point, Lisa, you

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Speaker 4: get a little bit more downstream, it's sixty five percent

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Speaker 4: or more.

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Speaker 3: So that might help the smaller banks. And we're going

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Speaker 3: to be watching that at CFRO.

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Speaker 6: What are we seeing ken with respect depositors getting sick

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Speaker 6: of earning nothing on what they are parking at these

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Speaker 6: banks and moving and actually shifting into CDs into income

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Speaker 6: producing instruments. Is this causing any kind of pressure or

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Speaker 6: have we seen a surprising stickiness of these deposits that

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Speaker 6: will allow this type of net interest income to continue.

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Speaker 3: Yeah, so that continues.

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Speaker 4: That's far the biggest macro trend is this pivot to

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Speaker 4: getting higher yield. And additionally there's course non interestparing deposits

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Speaker 4: and deposits that are there because you're a small business

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Speaker 4: doing business like with Bank of America and you have relationships,

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Speaker 4: so you know, I think that will continue. But if

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Speaker 4: we reach next week where we've reached the FED finishing

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Speaker 4: its rate rise regime and pause and then perhaps cut

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Speaker 4: next year, this will be less of a factor.

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Speaker 1: Ken.

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Speaker 2: Can we just finish on regulatory over hank bit a pushback?

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Speaker 2: I think then in the statement this morning, JP Morgan,

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Speaker 2: I just wonder how much of an overhang that's going

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Speaker 2: to be on the whole group of stocks in a

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Speaker 2: bank and sector one hundred.

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Speaker 4: Percent, And that's where I would have started this conversation

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Speaker 4: with Michael Barr's holistic capital approach that we studied rigorously,

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Speaker 4: that talks about the interplay of liquidity and capital risk

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Speaker 4: and taking two dollars for every one hundred dollars for

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Speaker 4: risk weighted assets.

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Speaker 3: But you know capital will increase.

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Speaker 4: If I'm an investor, I'm looking at total return. This

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Speaker 4: might put some kind of ceiling on buybacks that none

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Speaker 4: of the banks did. Those in the dot Crank stress

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Speaker 4: tests were allowed to do, but they had dived. An

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Speaker 4: increase capital and return of capital is what Jamie Diamond's

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Speaker 4: most worried about, because a sophisticated investor may say, I

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Speaker 4: may go.

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Speaker 2: Elsewhere, Ken, Thank you, sir, Ken, Leon F. CFO eight.

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Speaker 1: Megan Swiber joins US right now, director of US Rates

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Speaker 1: Strategy at Bank of America.

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Speaker 5: This is a brutal job. Does moynehint call you up

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Speaker 5: to get briefing?

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Speaker 1: Pharaoh's big on this like Brian's like wicked, wicked informed

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Speaker 1: from his research staff. He harasses Ethan Harris at home

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Speaker 1: on a weekend. Does he call you up to say,

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Speaker 1: what's a terminal rate?

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Speaker 5: You know?

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Speaker 7: Occasionally here and there, but you know, I would say

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Speaker 7: that that's just been really the focus of markets more broadly,

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Speaker 7: right is Ultimately what it's going to come down to

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Speaker 7: is what is the FED going to do at the

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Speaker 7: next meeting? Where does neutral sit? And that's been very

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Speaker 7: important for the bond market. But of course, as we

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Speaker 7: were just talking about the equity market and okay, but Mark.

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Speaker 1: You did your fobosi and there's got to be a

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Speaker 1: mathematics that you go out to a place. We're back

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Speaker 1: to a normal environment for fossils like me that we

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Speaker 1: haven't seen in sixteen years. What's the new you know,

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Speaker 1: in terms of terminal uncertainty, what's the new terminal rate

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Speaker 1: you're working with?

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Speaker 7: So, Tom, what it comes down to right now is

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Speaker 7: the inflation picture. And part of the reason why we've

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Speaker 7: been able to see rates rally so much this week

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Speaker 7: is at the end of the day, we got a

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Speaker 7: pretty promising CPI report, and when you're looking at inflation

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Speaker 7: being able to moderate, you know, when we dive into

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Speaker 7: the details terminal rate, what it does to the terminal

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Speaker 7: rate is it reduces how much more we think the

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Speaker 7: Fed will have to go if we listen to the

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Speaker 7: more of the hawks and the Committee needing them suggesting

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Speaker 7: that there's still more room for the Fed to hike.

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Speaker 7: What it comes down to is whether or not inflation

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Speaker 7: is persistent or not. This core services x housing component

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Speaker 7: that Powell's really anchored the market on printed at zero

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Speaker 7: percent month over a month in the most recent reading.

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Speaker 7: So it takes a little bit of the wind out

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Speaker 7: of out of the sales of the more hawkish camp.

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Speaker 5: Here.

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Speaker 2: One thing I can get hooks and Stuffs to agree

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Speaker 2: on right now is this soft summer patch for inflation.

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Speaker 7: Yes, exactly.

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Speaker 2: Then there's this divide that starts to merch lights this

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Speaker 2: year as you know about the potential to reaccelerate, where

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Speaker 2: we evening the team on that.

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Speaker 7: So we are of the view that in the long run,

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Speaker 7: inflation will be able to settle back to two percent,

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Speaker 7: and I think that that's right. There is really this

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Speaker 7: divergence between are we going to settle now closer to

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Speaker 7: three percent by the end of the year, or is

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Speaker 7: that going to be closer to two and a half percent.

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Speaker 7: What I'll say right now is that we're a little

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Speaker 7: bit more so in the stickier inflation near term camp

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Speaker 7: when I look at what the market's pricing. Though you

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Speaker 7: look at one year inflation swaps sitting below two point

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Speaker 7: two percent this morning, even with our house view for

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Speaker 7: a mild recession starting in the first half of next year,

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Speaker 7: that's still about forty basis points or so below where

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Speaker 7: we're expecting. So I will say the market seems to

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Speaker 7: be very overly optimistic around where inflation's going to settle,

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Speaker 7: even over the near term. And I think what it

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Speaker 7: will come down to about this question of how quickly

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Speaker 7: they're going to be able to see inflation moderate down

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Speaker 7: to the target. It's going to be a matter of

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Speaker 7: how strong the US economy will will continue to be,

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Speaker 7: and a lot of that economic resilience to skew the

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Speaker 7: risks I think near term towards towards more persistent prints.

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Speaker 6: Then do you think that it's too early to get

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Speaker 6: both on longer term bonds at a time when perhaps

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Speaker 6: the market is overpricing the idea of this soft landing

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Speaker 6: that yields low inflation, robust growth, and everything can chug along.

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Speaker 7: So I think, Lisa, what this presents for us right

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Speaker 7: now is the is when we look at what the

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Speaker 7: market's pricing across the curve, I think it's too early

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Speaker 7: to get bullish on the front end of the curve.

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Speaker 7: And as as was just highlighted, right we've seen really

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Speaker 7: that very notable rally in the two year rate. I

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Speaker 7: think what makes more sense right now from the investor

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Speaker 7: perspective is going along further out the curve, actually closer

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Speaker 7: to the tenure point. And that's because when we look

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Speaker 7: at prior hiking cycles, right when you look at how

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Speaker 7: the market performs twelve months after the Fed delivers that

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Speaker 7: final hike, you usually see tens rally on average about

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Speaker 7: one hundred basis points over that twelve month period. The

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Speaker 7: ability for the front end to really calm down is

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Speaker 7: going to be a question more so about when does

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Speaker 7: the Fed deliver deliver.

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Speaker 6: These cuts You talk about basically a real deepening in

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Speaker 6: the yield curve inversion, and this would be a resteeping

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Speaker 6: or reinversion down to near record loads or at least

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Speaker 6: post nine to eighty one. What does that mean in

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Speaker 6: terms of some of the dynamics that we're talking about

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Speaker 6: this morning with banks and whether that increases the risk

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Speaker 6: of this shallow recession becoming something a little bit more Yeah.

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Speaker 7: So deeper inversion we'll put more pressure on banks, for sure.

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Speaker 7: But what I think the curve inversion is really telling

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Speaker 7: us right now, it's not so much so reflecting recession

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Speaker 7: concerns as some of these recession probability models will tell us.

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Speaker 7: What it's reflecting is expectations for the FED to cut,

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Speaker 7: and the FED cutting alongside inflation that's able to moderate

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Speaker 7: back down to its target makes sense. The FED thinks

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Speaker 7: about setting interest rates through the real rate, So a

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Speaker 7: five percent FED funds rate is different when inflation's running

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Speaker 7: at four percent than it is when inflation's running at

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Speaker 7: three percent. So what we see the market pricing, and

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Speaker 7: part of the real reason behind that yield curve inversion

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Speaker 7: is this strong confidence in the market that the Fed's

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Speaker 7: going to be able to get this back down to

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Speaker 7: two persons.

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Speaker 5: It's amazing, it's always.

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Speaker 1: It's beautifully spoken, because John, that's the absolute underlying belief

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Speaker 1: structure that.

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Speaker 2: We have hasn't been shattered, hasn't been shattered.

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Speaker 7: You look at five year, five year break evens, they've

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Speaker 7: been pretty consistently priced at the Fed's target throughout this

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Speaker 7: whole inflationary episode.

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Speaker 2: That's the credibility test for chem and pound. In fact,

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Speaker 2: he's basically so, oh yeah, a few times. Can we

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Speaker 2: finish on the global backdrop? We haven't discussed that much.

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Speaker 2: Does it matter to your call that China is experiencing

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Speaker 2: what some people might refer to as deflation disinflation? The

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Speaker 2: UK has got problems with inflation, Europe inflation, it's all

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Speaker 2: this tension abroad and some major trading partners. How important

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Speaker 2: is that?

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Speaker 8: So?

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Speaker 7: I think it's definitely important, John, And when we think

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Speaker 7: about the China story right with that will probably weigh

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Speaker 7: more so. And when we're thinking about what our inflation

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Speaker 7: forecasts are to the commodity story right and we've been

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Speaker 7: able to see and that's a major reason why year

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Speaker 7: over year inflation has been able to fall so much

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Speaker 7: because commodity prices have fallen from where we were sitting

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Speaker 7: this time last year. So the fact that we're seeing

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Speaker 7: more of this weaker China story really does, I think,

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Speaker 7: endorse the fact that the market's been able to price

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Speaker 7: inflation down so much. When you're talking about how the

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Speaker 7: market price is inflation, it's very, very highly correlated to

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Speaker 7: the commodity story. So that in and of itself really

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Speaker 7: does help support lower inflation compensation priced across the curve.

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Speaker 2: Megan, thank you, big fan of your work together with Marcavana,

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Speaker 2: just pretty in thank you, Thank you very much.

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Speaker 1: Thank you.

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Speaker 2: Megan Swambite of Bank for America on race strategy and

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Speaker 2: this inflation backdrop.

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Speaker 1: We're trying to get perspective here, and we've heard a

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Speaker 1: lot from bears vacillating, readjusting up. Anastasia m Rosso, chief

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Speaker 1: investment strategist at I Capital, she doesn't have to vamp

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Speaker 1: it up it all. She nailed it the market up.

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Speaker 1: Let's go back in history. What did you see in October?

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Speaker 1: What did you see that was enthusiasm for the market.

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Speaker 8: Back in October? What we saw were valuations that we're

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Speaker 8: discounting a lot. I mean, if you looked across the

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Speaker 8: equity markets. You've had the SMP that was trading I

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Speaker 8: think at the time in the fortieth percentile. Over the

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Speaker 8: last fifteen years, if you look at investment grade and

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Speaker 8: high yield bonds that were trading, you know, in the

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Speaker 8: nines or tenth percentile of their respective ranges. So we

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Speaker 8: were discounting a lot and then positioning. I mean, Tom,

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Speaker 8: could you get anybody to invest in any risk asset

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Speaker 8: in October of last year? The answer is no. And

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Speaker 8: then ultimately the catalyst. You always need a catalyst. What

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Speaker 8: we saw was that by the middle of this year

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Speaker 8: there was likely to be this gap that was going

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Speaker 8: to open up between what the level of FED funds

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Speaker 8: rate is and where inflation was going to be, and

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Speaker 8: that gap was going to be positive, meaning FET funds

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Speaker 8: rate is above the rate of core inflation. And that's

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Speaker 8: sort of what we are today. And I think that's

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Speaker 8: what's been happening in the last six months. We've incrementally

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Speaker 8: been getting closer and closer to that pivot point. But

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Speaker 8: as you know, markets priced in advance.

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Speaker 2: So what next, I guess the question. You know, you've

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Speaker 2: wrote this equity market ballmark, if you want to call

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Speaker 2: it that, Yet today. What are you doing now?

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Speaker 7: I mean, you stick with it, You stick with.

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Speaker 8: It, and you know, for now, I think we are

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Speaker 8: on track for a soft landing. And I know, you know,

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Speaker 8: the bearish camp would say, well, you look at positioning

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Speaker 8: and it's getting very exuberant, you know, by some metrics

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Speaker 8: you look at, you know, whether it's touch funds, whether

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Speaker 8: it's CTAs, all of those investors have you know, very quickly,

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Speaker 8: very bullishly positioned. So you know that leaves you susceptible

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Speaker 8: to a negative catalyst. But can you name a negative

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Speaker 8: catalyst right now? You know, we've got if we've got

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Speaker 8: inflation that is easy, We've got the FED that is pausing.

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Speaker 8: And you know, Lisa, you talk about this all the time.

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Speaker 8: If you've got the consumer that is strong and is

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Speaker 8: not going anywhere, you know, then where's the secuity market

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Speaker 8: going to go?

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Speaker 9: You know?

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Speaker 8: So for now, I think when I score the valuations,

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Speaker 8: which is supported around these levels, and when I score

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Speaker 8: that with twenty twenty four earnings, which by the way,

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Speaker 8: have been derisked a lot, that we have zoo close

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Speaker 8: to forty eight hundred on the SMP.

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Speaker 6: And just to let you know, I could give you

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Speaker 6: a numerous catastrophic situations that could potentially happen to Curtaila,

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Speaker 6: but that doesn't look likely. And that is the underscored

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Speaker 6: point here that we are seeing less headwinds to this

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Speaker 6: rally continuing, which raises a question of leadership. How much

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Speaker 6: do you shift away from what's done best so far

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Speaker 6: to some of the small cap areas the financials after

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Speaker 6: seeing the results that we've seen just this morning.

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Speaker 8: Yeah, well, I think you stick with tech because tech,

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Speaker 8: of course is where the growth is and is going

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Speaker 8: to continue to be. And I am a big fan

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Speaker 8: of artificial intelligence. I think that's a huge trend that

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Speaker 8: is adding to earnings of companies starting today. So you

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Speaker 8: stick with tech. But at the same time, Lisa, I'm

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Speaker 8: really coming around on financials, and you know, if you

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Speaker 8: look at the earnings results this morning, there's not much

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Speaker 8: to be disappointed about. You know, yes, we know deposit

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Speaker 8: betas are going to rise, but guess what that's priced in.

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Speaker 8: You know, yes, we know lending is going to be slower,

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Speaker 8: but that's also baked into the cake. And what I'm

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Speaker 8: actually encouraged about for financials two things that I don't

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Speaker 8: think are yet priced in. The First one is the

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Speaker 8: possibility of a steeper Yel curve if we are, in fact,

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Speaker 8: in a soft landing scenario that at some point the

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Speaker 8: FED is going to pause and maybe even ease if

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Speaker 8: inflation really comes down, and if the economy is still

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Speaker 8: on track, then the back part of the curve should

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Speaker 8: actually hold up.

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Speaker 6: The only thing that someone could say if they're a

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Speaker 6: bearish and Tom would grunt and he would say, oh,

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Speaker 6: come on, I can't stand this. The concept of regulatory overhang.

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Speaker 1: It.

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Speaker 6: Yeah, if perhaps these banks do too well and suddenly

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Speaker 6: the supervisors and congress members decry that and try to

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Speaker 6: put more constraints on them, is that something you're watching.

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Speaker 8: Yeah, it does need to be baked into the models

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Speaker 8: for sure, But I would say it's a one time risk.

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Speaker 8: That's a one time adjustment that would be that would

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Speaker 8: have to be made. And guess what. It's also being

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Speaker 8: talked about in the research for pots. But the other thing,

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Speaker 8: again that I don't think is yet baked in possibility

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Speaker 8: of step a Yel curve, but also the possibility of

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Speaker 8: deal activity picking up. I know that in some of

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Speaker 8: the results that we're seeing today, you know, there's not

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Speaker 8: much to write home about when to IPO volumes.

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Speaker 1: Or m and A.

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Speaker 8: But I think conditions are starting to be in place

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Speaker 8: for capital markets to really open up in the back

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Speaker 8: half of the year. So that means more IPO volumes,

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Speaker 8: more announced m ANDA deals, which by the way, picked

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Speaker 8: up this quarter, more of them getting done, and that's

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Speaker 8: positive for banks, it's positive for alternative asset managers, for

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Speaker 8: all the PE companies, private equity companies that will have

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Speaker 8: the exit opportunities they haven't had.

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Speaker 1: Let's get concise. Do you see a second leg of

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Speaker 1: the of a bullmarket to a fossil like me, that's

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Speaker 1: early nineteen seventy six, and what's an SPX called. Don't

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Speaker 1: give me this ninety day garbage that you do give

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Speaker 1: me like a one year, two year, three year view.

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Speaker 1: I'm scared stiff, I've missed this. I need to participate.

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Speaker 1: Do I have a luxury of a second leg of

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Speaker 1: a bullmarket?

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Speaker 8: I'll give you a six month view of that.

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Speaker 5: That's just really reaching out sixtears.

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Speaker 8: You know, it's somewhere between the ninety day and the

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Speaker 8: one year, But the six month view, I think we

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Speaker 8: do push higher towards forty eight hundred on the S

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Speaker 8: and P and a little bit more cautious going to

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Speaker 8: twenty twenty four, because you know, if we are at

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Speaker 8: a point where the real rates do become restrictive, you know,

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Speaker 8: at some point we may actually have a downturn in

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Speaker 8: the economy. So I don't want to pretrade that. So

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Speaker 8: that's why I'm sticking with it. But at some point

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Speaker 8: in twenty twenty four we might have to have a

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Speaker 8: different conversation.

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Speaker 2: It's been a great coach I found this year. Congratulations

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Speaker 2: and a stays around myrsite if on capital.

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Speaker 1: What we need now is a reset on the American economy.

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Speaker 1: She's expert with this, with the acuity out of London

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Speaker 1: School of Economics Poosia shir I'm joins just now a

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Speaker 1: US economist at Barclays. You got to write a weekend note,

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Speaker 1: my deepest sympathies. What's going to be the theme of

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Speaker 1: the weekend note? Across the algebra of real GDP, consumer investment,

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Speaker 1: government in this oddity of trade.

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Speaker 9: Yeah, that's that's a that's a good point. So you know,

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Speaker 9: we've we've been seeing very strong consumption spending since the

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Speaker 9: beginning of this year.

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Speaker 5: Lake.

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Speaker 9: You know, Lisa pointed out there's there are signs that

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Speaker 9: perhaps the momentum is slowing, but we're still you know,

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Speaker 9: fairly high. So just to give you a sense of

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Speaker 9: the numbers, you know, we're tracking GDP in the second quarter,

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Speaker 9: it's still one point five percent, comes to one point

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Speaker 9: five percent, and that's that's a resilient economy. I think

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Speaker 9: where we are seeing some signs of weakness is perhaps

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Speaker 9: in business fixed investment and that's you know, supplemented by

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Speaker 9: the data we're getting in terms of manufacturing pmis, and

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Speaker 9: that that's really where the weakness seems to be building up.

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Speaker 9: And then we're expecting you know, some drag from from trade.

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Speaker 9: But overall, if I want to look at GDP, you know,

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Speaker 9: we're still on a fairly strong foot.

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Speaker 1: It's been off message today for us as we focus

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Speaker 1: on the banks, and it really hasn't come up in

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Speaker 1: the powerpoints that I've seen. But what is Barclay's, with

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Speaker 1: all of your heritage of studying us in London say

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Speaker 1: about commercial real estate? I understand it's not going to

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Speaker 1: move the needle on real GDP, but fold a commercial

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Speaker 1: real estate analysis into your American economics.

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Speaker 9: Yeah. Fair. So we did write about this a while back,

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Speaker 9: Tom and we've course focused on office cre and I

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Speaker 9: think that's where at the time there was a lot

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Speaker 9: of discussion about stresses. But you know, some of the

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Speaker 9: takeaways from the note was look off of CIRE is

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Speaker 9: just about one third of all of the CIRE in

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Speaker 9: the markets. And I think the second is it really

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Speaker 9: depends on, you know, how the stresses play out. Typically

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Speaker 9: you find that loan maturities are staggered, Lee's rollovers are staggered,

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Speaker 9: and the lot of exposure for CRES is with the

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Speaker 9: smaller banks. So for it to become a macro scenario,

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Speaker 9: we would really need a solid meltdown, and that's something

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Speaker 9: we don't see happening at the moment.

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Speaker 1: PUSHA.

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Speaker 6: We're talking about the economic backdrop in a week that

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Speaker 6: has been pivotal. It has given us both the dissipflation

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Speaker 6: narrative that has gotten given us roid or shot, and

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Speaker 6: everyone seems to be buying it. It's everything is rallying,

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Speaker 6: kind of weak. We also have earnings from a number

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Speaker 6: of companies, not just the banks, that highlight the strength

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Speaker 6: of the consumer. Is this an economy that has any

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Speaker 6: chance of a recession this year?

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Speaker 9: Well, at the look of it, yes, it seems hard

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Speaker 9: to see how the slow down materializes. But our baseline, Lisa,

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00:21:25,400 --> 00:21:29,280
Speaker 9: is that it's likely that momentum will slow towards the

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Speaker 9: end of this year, and a lot of that is

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Speaker 9: contingent on the FEDS hawk is rhetoric and further rate tightening.

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00:21:36,080 --> 00:21:39,119
Speaker 9: And you know, it's hard for us sitting here to

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Speaker 9: now think of how the economy slows, but we think

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Speaker 9: higher rates will slowly start to bite. Towards the third

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Speaker 9: quarter of this year. We're seeing some nascent signs of

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00:21:48,520 --> 00:21:52,920
Speaker 9: slowing perhaps in the economy, and we think that with

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Speaker 9: further rate tightening, we should get to a point where

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Speaker 9: we see a mild and shallow recession towards the end

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Speaker 9: of the year.

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Speaker 6: We're seeing that a lot of the banks are increasing

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Speaker 6: their loans to consumers right now. They see the money

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Speaker 6: signs because they're getting good interest rates on these loans,

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Speaker 6: even as delinquency rates pick up, and they're putting aside

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Speaker 6: more cash for loan losses. How do you watch this,

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00:22:15,480 --> 00:22:19,200
Speaker 6: the releveraging of the American consumer ahead of what a

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Speaker 6: lot of people are expecting to be a slowdown.

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Speaker 9: Yeah, that's that's a that's a good point. So we

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Speaker 9: are seeing some signs of stresses in terms of delinquencies

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00:22:26,920 --> 00:22:31,600
Speaker 9: like you pointed out, and we think, you know, eventually

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00:22:32,320 --> 00:22:35,320
Speaker 9: the US consumer is likely to slow. But you know,

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00:22:35,480 --> 00:22:37,600
Speaker 9: just to sort of tie all of this back, it

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00:22:37,760 --> 00:22:41,600
Speaker 9: really depends on what happens to the labor markets. You know.

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00:22:41,720 --> 00:22:46,400
Speaker 9: We we see strong consumption spending that's primarily a reinforcing

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Speaker 9: cycle of strong labor demand feeding into income, feeding into consumption.

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00:22:50,280 --> 00:22:53,160
Speaker 9: So in order for this to slow, what we really

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00:22:53,359 --> 00:22:57,800
Speaker 9: need is for labor market conditions to ease. Yeah. I

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00:22:57,880 --> 00:23:00,520
Speaker 9: think that's that's the key point that we we want

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00:23:00,600 --> 00:23:02,359
Speaker 9: to see, and I think that's where we're looking at

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Speaker 9: in terms of where consumption spending is headed.

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Speaker 5: What I see in the earnings.

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00:23:06,240 --> 00:23:08,520
Speaker 1: We'll talk to Shanoli Bassk about this in a bit, folks,

473
00:23:08,520 --> 00:23:12,119
Speaker 1: and then Gina Martina Adams on this equity surge is

474
00:23:12,440 --> 00:23:14,680
Speaker 1: and I want to fold this into economics because everybody's

475
00:23:14,720 --> 00:23:16,920
Speaker 1: telling me the hour after hour after hour, and there's

476
00:23:17,080 --> 00:23:19,960
Speaker 1: guys now that the stock markets delinked from the economy,

477
00:23:20,000 --> 00:23:22,280
Speaker 1: which I'm not sure I buy. What I see here

478
00:23:22,320 --> 00:23:25,280
Speaker 1: in the PowerPoint from JP Morgan is the iconic bank

479
00:23:26,040 --> 00:23:28,840
Speaker 1: is the rich people are basically throwing money at a

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00:23:28,880 --> 00:23:32,280
Speaker 1: financial system profiting from it, and the haves in.

481
00:23:32,359 --> 00:23:35,680
Speaker 5: America are really doing well. What's the polarity?

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00:23:35,680 --> 00:23:37,840
Speaker 1: And I think you're really qualified to do this with

483
00:23:38,000 --> 00:23:40,400
Speaker 1: your workout of Indian out of the United Kingdom, you're

484
00:23:40,440 --> 00:23:41,920
Speaker 1: distant from this, which is great.

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00:23:42,560 --> 00:23:44,760
Speaker 5: What's the polarity you perceive.

486
00:23:45,000 --> 00:23:48,119
Speaker 1: In the two Americas or the three Americas.

487
00:23:47,600 --> 00:23:48,159
Speaker 5: That are out there.

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Speaker 9: Yeah, I think that's a good point. I think that

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00:23:53,240 --> 00:23:56,000
Speaker 9: the people in the upper income group are clearly very

490
00:23:56,040 --> 00:24:00,560
Speaker 9: well positioned in this economy, very strong balance sheets, you know,

491
00:24:00,880 --> 00:24:05,840
Speaker 9: very strong savings. And I think it's the perhaps the

492
00:24:06,119 --> 00:24:08,879
Speaker 9: income personiles which are in the lower end of the spectrum,

493
00:24:09,240 --> 00:24:11,720
Speaker 9: which is where the stresses are likely to be quelt.

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Speaker 1: You know.

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00:24:13,320 --> 00:24:15,520
Speaker 9: Of course we look at aggregate data, Tom, and what

496
00:24:15,680 --> 00:24:18,760
Speaker 9: that tells us is across the board, people seem to

497
00:24:18,800 --> 00:24:23,000
Speaker 9: be comfortable to not save even in this economy, I think,

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00:24:23,040 --> 00:24:26,040
Speaker 9: and that they're benefiting from this this huge pile of

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00:24:26,119 --> 00:24:29,719
Speaker 9: savings and they're taking comfort from it, and so across

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Speaker 9: the spectrum it seems like, you know, we yet to

501
00:24:32,400 --> 00:24:35,040
Speaker 9: see any cautious sentiments set in.

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Speaker 1: That's the expense of summer camps in plural which is

503
00:24:38,880 --> 00:24:41,359
Speaker 1: where you see the saving dynamic on a macro basis.

504
00:24:41,920 --> 00:24:43,840
Speaker 5: Slip away, rollover, rollover.

505
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Speaker 1: I'm hoping July rolls over into August where we can

506
00:24:46,520 --> 00:24:47,159
Speaker 1: save ourselves.

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Speaker 5: Push your surround. Thank you so much with Barkley so

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Speaker 5: they really nice. Update.

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510
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00:25:00,000 --> 00:25:03,359
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00:25:03,520 --> 00:25:08,000
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514
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00:25:13,640 --> 00:25:17,800
Speaker 5: Thanks for listening. I'm Tom Keen, and this is Bloomberg