Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 2: Look on I'm this morning, but our lead story JP
Speaker 2: Morgan in the pre market up by two point eight percent.
Speaker 2: Ken Leon, the director of equity research at CFI right,
Speaker 2: joins us now for more. Can should I be focused
Speaker 2: on the beat, the race or the provisions for credit losses?
Speaker 3: I think you can.
Speaker 4: Focus on the economy and the strength of the resulting
Speaker 4: and performance. And what this means is, you know, that's
Speaker 4: her kind of Coquillier. You build reserves mostly for loan
Speaker 4: losses and also looking ahead to perhaps a weaker per performance.
Speaker 4: Sometimes you have long loss reversals. We had that a
Speaker 4: year ago. So what's likely now is if we have
Speaker 4: a soft landing, not a recession second half of this year,
Speaker 4: the likelihood as these provisions begin to slow down and
Speaker 4: possibly the reserves may be too high in twenty twenty
Speaker 4: four when you have an ability to beat much better
Speaker 4: comparisons to twenty three.
Speaker 3: This was a good quarter.
Speaker 4: We thought this would be the trough of the investment
Speaker 4: backing cycle and we are seeing green shoots. But the
Speaker 4: strength of the consumer and commercial loan activity is very promising.
Speaker 4: And size matters here, and that's been your discussion in
Speaker 4: the last half.
Speaker 5: Hours, Ken Leon.
Speaker 1: It's where every wanted to go in size it matter.
Speaker 1: I'm going to give you two buried in a PowerPoint,
Speaker 1: Ken Leon, and I know you know this and probably
Speaker 1: knew it already. Thirty five percent pre tax margin on
Speaker 1: JP Morgan Asset and Wealth management thirty five percent on
Speaker 1: the dollar, folks. That's that's almost like just not in
Speaker 1: the books, is how I'd put that. And what's so
Speaker 1: important to me, Ken, The return on equity with the
Speaker 1: Marinero's system leaps from a twenty five blend system up
Speaker 1: to thirty four percent. Roe, have you ever seen a
Speaker 1: big profit machine like that?
Speaker 5: And asset and wealth management.
Speaker 4: You know what's amazing, Thomas JP Morgan has done this,
Speaker 4: you know, with less fanfare than others such as James
Speaker 4: Gorman and Morgan Stanley. I took it from twelve to
Speaker 4: twenty five percent and probably thirty.
Speaker 3: These are phenomenal numbers and it speaks to making the
Speaker 3: right strategic decision to expand an asset and wealth management.
Speaker 4: That's what Goldman Sachs unfortunately will have to talk about
Speaker 4: next week, where they made the wrong turn and they're
Speaker 4: trying to play catch up in these amazing areas.
Speaker 5: Lisa, that's exactly where I wanted to go. This is
Speaker 5: not about I've.
Speaker 1: Never seen this before from JP Morgan and what the
Speaker 1: improvement was at Gorman coming ages ago.
Speaker 5: This is about the one that.
Speaker 6: Aren't doing it, and we're going to look to that
Speaker 6: next week. In particular, Ken, I'm curious your take on
Speaker 6: the net interest income coming in so strong, upgrading that
Speaker 6: for the full year at a time when a lot
Speaker 6: of people are critical of the big banks for not
Speaker 6: passing along those extra profits to depositors more quickly, akin
Speaker 6: to what we're seeing over in the regionals.
Speaker 4: Yeah, that's right, and we have a beautiful chart somewhere,
Speaker 4: but basically it's two points. You have one lever, which
Speaker 4: is rates, and rates might have peaked, but if you
Speaker 4: have increased loan activity that will spur net interest margins
Speaker 4: and maybe keep the earnings asset yields at decent spreads,
Speaker 4: even though we have this disintermediation where depositors are looking
Speaker 4: for five percent or so. This is really promising for
Speaker 4: the larger banks. It's about fifty to fifty five percent
Speaker 4: a total net revenue. As to your point, Lisa, you
Speaker 4: get a little bit more downstream, it's sixty five percent
Speaker 4: or more.
Speaker 3: So that might help the smaller banks. And we're going
Speaker 3: to be watching that at CFRO.
Speaker 6: What are we seeing ken with respect depositors getting sick
Speaker 6: of earning nothing on what they are parking at these
Speaker 6: banks and moving and actually shifting into CDs into income
Speaker 6: producing instruments. Is this causing any kind of pressure or
Speaker 6: have we seen a surprising stickiness of these deposits that
Speaker 6: will allow this type of net interest income to continue.
Speaker 3: Yeah, so that continues.
Speaker 4: That's far the biggest macro trend is this pivot to
Speaker 4: getting higher yield. And additionally there's course non interestparing deposits
Speaker 4: and deposits that are there because you're a small business
Speaker 4: doing business like with Bank of America and you have relationships,
Speaker 4: so you know, I think that will continue. But if
Speaker 4: we reach next week where we've reached the FED finishing
Speaker 4: its rate rise regime and pause and then perhaps cut
Speaker 4: next year, this will be less of a factor.
Speaker 1: Ken.
Speaker 2: Can we just finish on regulatory over hank bit a pushback?
Speaker 2: I think then in the statement this morning, JP Morgan,
Speaker 2: I just wonder how much of an overhang that's going
Speaker 2: to be on the whole group of stocks in a
Speaker 2: bank and sector one hundred.
Speaker 4: Percent, And that's where I would have started this conversation
Speaker 4: with Michael Barr's holistic capital approach that we studied rigorously,
Speaker 4: that talks about the interplay of liquidity and capital risk
Speaker 4: and taking two dollars for every one hundred dollars for
Speaker 4: risk weighted assets.
Speaker 3: But you know capital will increase.
Speaker 4: If I'm an investor, I'm looking at total return. This
Speaker 4: might put some kind of ceiling on buybacks that none
Speaker 4: of the banks did. Those in the dot Crank stress
Speaker 4: tests were allowed to do, but they had dived. An
Speaker 4: increase capital and return of capital is what Jamie Diamond's
Speaker 4: most worried about, because a sophisticated investor may say, I
Speaker 4: may go.
Speaker 2: Elsewhere, Ken, Thank you, sir, Ken, Leon F. CFO eight.
Speaker 1: Megan Swiber joins US right now, director of US Rates
Speaker 1: Strategy at Bank of America.
Speaker 5: This is a brutal job. Does moynehint call you up
Speaker 5: to get briefing?
Speaker 1: Pharaoh's big on this like Brian's like wicked, wicked informed
Speaker 1: from his research staff. He harasses Ethan Harris at home
Speaker 1: on a weekend. Does he call you up to say,
Speaker 1: what's a terminal rate?
Speaker 5: You know?
Speaker 7: Occasionally here and there, but you know, I would say
Speaker 7: that that's just been really the focus of markets more broadly,
Speaker 7: right is Ultimately what it's going to come down to
Speaker 7: is what is the FED going to do at the
Speaker 7: next meeting? Where does neutral sit? And that's been very
Speaker 7: important for the bond market. But of course, as we
Speaker 7: were just talking about the equity market and okay, but Mark.
Speaker 1: You did your fobosi and there's got to be a
Speaker 1: mathematics that you go out to a place. We're back
Speaker 1: to a normal environment for fossils like me that we
Speaker 1: haven't seen in sixteen years. What's the new you know,
Speaker 1: in terms of terminal uncertainty, what's the new terminal rate
Speaker 1: you're working with?
Speaker 7: So, Tom, what it comes down to right now is
Speaker 7: the inflation picture. And part of the reason why we've
Speaker 7: been able to see rates rally so much this week
Speaker 7: is at the end of the day, we got a
Speaker 7: pretty promising CPI report, and when you're looking at inflation
Speaker 7: being able to moderate, you know, when we dive into
Speaker 7: the details terminal rate, what it does to the terminal
Speaker 7: rate is it reduces how much more we think the
Speaker 7: Fed will have to go if we listen to the
Speaker 7: more of the hawks and the Committee needing them suggesting
Speaker 7: that there's still more room for the Fed to hike.
Speaker 7: What it comes down to is whether or not inflation
Speaker 7: is persistent or not. This core services x housing component
Speaker 7: that Powell's really anchored the market on printed at zero
Speaker 7: percent month over a month in the most recent reading.
Speaker 7: So it takes a little bit of the wind out
Speaker 7: of out of the sales of the more hawkish camp.
Speaker 5: Here.
Speaker 2: One thing I can get hooks and Stuffs to agree
Speaker 2: on right now is this soft summer patch for inflation.
Speaker 7: Yes, exactly.
Speaker 2: Then there's this divide that starts to merch lights this
Speaker 2: year as you know about the potential to reaccelerate, where
Speaker 2: we evening the team on that.
Speaker 7: So we are of the view that in the long run,
Speaker 7: inflation will be able to settle back to two percent,
Speaker 7: and I think that that's right. There is really this
Speaker 7: divergence between are we going to settle now closer to
Speaker 7: three percent by the end of the year, or is
Speaker 7: that going to be closer to two and a half percent.
Speaker 7: What I'll say right now is that we're a little
Speaker 7: bit more so in the stickier inflation near term camp
Speaker 7: when I look at what the market's pricing. Though you
Speaker 7: look at one year inflation swaps sitting below two point
Speaker 7: two percent this morning, even with our house view for
Speaker 7: a mild recession starting in the first half of next year,
Speaker 7: that's still about forty basis points or so below where
Speaker 7: we're expecting. So I will say the market seems to
Speaker 7: be very overly optimistic around where inflation's going to settle,
Speaker 7: even over the near term. And I think what it
Speaker 7: will come down to about this question of how quickly
Speaker 7: they're going to be able to see inflation moderate down
Speaker 7: to the target. It's going to be a matter of
Speaker 7: how strong the US economy will will continue to be,
Speaker 7: and a lot of that economic resilience to skew the
Speaker 7: risks I think near term towards towards more persistent prints.
Speaker 6: Then do you think that it's too early to get
Speaker 6: both on longer term bonds at a time when perhaps
Speaker 6: the market is overpricing the idea of this soft landing
Speaker 6: that yields low inflation, robust growth, and everything can chug along.
Speaker 7: So I think, Lisa, what this presents for us right
Speaker 7: now is the is when we look at what the
Speaker 7: market's pricing across the curve, I think it's too early
Speaker 7: to get bullish on the front end of the curve.
Speaker 7: And as as was just highlighted, right we've seen really
Speaker 7: that very notable rally in the two year rate. I
Speaker 7: think what makes more sense right now from the investor
Speaker 7: perspective is going along further out the curve, actually closer
Speaker 7: to the tenure point. And that's because when we look
Speaker 7: at prior hiking cycles, right when you look at how
Speaker 7: the market performs twelve months after the Fed delivers that
Speaker 7: final hike, you usually see tens rally on average about
Speaker 7: one hundred basis points over that twelve month period. The
Speaker 7: ability for the front end to really calm down is
Speaker 7: going to be a question more so about when does
Speaker 7: the Fed deliver deliver.
Speaker 6: These cuts You talk about basically a real deepening in
Speaker 6: the yield curve inversion, and this would be a resteeping
Speaker 6: or reinversion down to near record loads or at least
Speaker 6: post nine to eighty one. What does that mean in
Speaker 6: terms of some of the dynamics that we're talking about
Speaker 6: this morning with banks and whether that increases the risk
Speaker 6: of this shallow recession becoming something a little bit more Yeah.
Speaker 7: So deeper inversion we'll put more pressure on banks, for sure.
Speaker 7: But what I think the curve inversion is really telling
Speaker 7: us right now, it's not so much so reflecting recession
Speaker 7: concerns as some of these recession probability models will tell us.
Speaker 7: What it's reflecting is expectations for the FED to cut,
Speaker 7: and the FED cutting alongside inflation that's able to moderate
Speaker 7: back down to its target makes sense. The FED thinks
Speaker 7: about setting interest rates through the real rate, So a
Speaker 7: five percent FED funds rate is different when inflation's running
Speaker 7: at four percent than it is when inflation's running at
Speaker 7: three percent. So what we see the market pricing, and
Speaker 7: part of the real reason behind that yield curve inversion
Speaker 7: is this strong confidence in the market that the Fed's
Speaker 7: going to be able to get this back down to
Speaker 7: two persons.
Speaker 5: It's amazing, it's always.
Speaker 1: It's beautifully spoken, because John, that's the absolute underlying belief
Speaker 1: structure that.
Speaker 2: We have hasn't been shattered, hasn't been shattered.
Speaker 7: You look at five year, five year break evens, they've
Speaker 7: been pretty consistently priced at the Fed's target throughout this
Speaker 7: whole inflationary episode.
Speaker 2: That's the credibility test for chem and pound. In fact,
Speaker 2: he's basically so, oh yeah, a few times. Can we
Speaker 2: finish on the global backdrop? We haven't discussed that much.
Speaker 2: Does it matter to your call that China is experiencing
Speaker 2: what some people might refer to as deflation disinflation? The
Speaker 2: UK has got problems with inflation, Europe inflation, it's all
Speaker 2: this tension abroad and some major trading partners. How important
Speaker 2: is that?
Speaker 8: So?
Speaker 7: I think it's definitely important, John, And when we think
Speaker 7: about the China story right with that will probably weigh
Speaker 7: more so. And when we're thinking about what our inflation
Speaker 7: forecasts are to the commodity story right and we've been
Speaker 7: able to see and that's a major reason why year
Speaker 7: over year inflation has been able to fall so much
Speaker 7: because commodity prices have fallen from where we were sitting
Speaker 7: this time last year. So the fact that we're seeing
Speaker 7: more of this weaker China story really does, I think,
Speaker 7: endorse the fact that the market's been able to price
Speaker 7: inflation down so much. When you're talking about how the
Speaker 7: market price is inflation, it's very, very highly correlated to
Speaker 7: the commodity story. So that in and of itself really
Speaker 7: does help support lower inflation compensation priced across the curve.
Speaker 2: Megan, thank you, big fan of your work together with Marcavana,
Speaker 2: just pretty in thank you, Thank you very much.
Speaker 1: Thank you.
Speaker 2: Megan Swambite of Bank for America on race strategy and
Speaker 2: this inflation backdrop.
Speaker 1: We're trying to get perspective here, and we've heard a
Speaker 1: lot from bears vacillating, readjusting up. Anastasia m Rosso, chief
Speaker 1: investment strategist at I Capital, she doesn't have to vamp
Speaker 1: it up it all. She nailed it the market up.
Speaker 1: Let's go back in history. What did you see in October?
Speaker 1: What did you see that was enthusiasm for the market.
Speaker 8: Back in October? What we saw were valuations that we're
Speaker 8: discounting a lot. I mean, if you looked across the
Speaker 8: equity markets. You've had the SMP that was trading I
Speaker 8: think at the time in the fortieth percentile. Over the
Speaker 8: last fifteen years, if you look at investment grade and
Speaker 8: high yield bonds that were trading, you know, in the
Speaker 8: nines or tenth percentile of their respective ranges. So we
Speaker 8: were discounting a lot and then positioning. I mean, Tom,
Speaker 8: could you get anybody to invest in any risk asset
Speaker 8: in October of last year? The answer is no. And
Speaker 8: then ultimately the catalyst. You always need a catalyst. What
Speaker 8: we saw was that by the middle of this year
Speaker 8: there was likely to be this gap that was going
Speaker 8: to open up between what the level of FED funds
Speaker 8: rate is and where inflation was going to be, and
Speaker 8: that gap was going to be positive, meaning FET funds
Speaker 8: rate is above the rate of core inflation. And that's
Speaker 8: sort of what we are today. And I think that's
Speaker 8: what's been happening in the last six months. We've incrementally
Speaker 8: been getting closer and closer to that pivot point. But
Speaker 8: as you know, markets priced in advance.
Speaker 2: So what next, I guess the question. You know, you've
Speaker 2: wrote this equity market ballmark, if you want to call
Speaker 2: it that, Yet today. What are you doing now?
Speaker 7: I mean, you stick with it, You stick with.
Speaker 8: It, and you know, for now, I think we are
Speaker 8: on track for a soft landing. And I know, you know,
Speaker 8: the bearish camp would say, well, you look at positioning
Speaker 8: and it's getting very exuberant, you know, by some metrics
Speaker 8: you look at, you know, whether it's touch funds, whether
Speaker 8: it's CTAs, all of those investors have you know, very quickly,
Speaker 8: very bullishly positioned. So you know that leaves you susceptible
Speaker 8: to a negative catalyst. But can you name a negative
Speaker 8: catalyst right now? You know, we've got if we've got
Speaker 8: inflation that is easy, We've got the FED that is pausing.
Speaker 8: And you know, Lisa, you talk about this all the time.
Speaker 8: If you've got the consumer that is strong and is
Speaker 8: not going anywhere, you know, then where's the secuity market
Speaker 8: going to go?
Speaker 9: You know?
Speaker 8: So for now, I think when I score the valuations,
Speaker 8: which is supported around these levels, and when I score
Speaker 8: that with twenty twenty four earnings, which by the way,
Speaker 8: have been derisked a lot, that we have zoo close
Speaker 8: to forty eight hundred on the SMP.
Speaker 6: And just to let you know, I could give you
Speaker 6: a numerous catastrophic situations that could potentially happen to Curtaila,
Speaker 6: but that doesn't look likely. And that is the underscored
Speaker 6: point here that we are seeing less headwinds to this
Speaker 6: rally continuing, which raises a question of leadership. How much
Speaker 6: do you shift away from what's done best so far
Speaker 6: to some of the small cap areas the financials after
Speaker 6: seeing the results that we've seen just this morning.
Speaker 8: Yeah, well, I think you stick with tech because tech,
Speaker 8: of course is where the growth is and is going
Speaker 8: to continue to be. And I am a big fan
Speaker 8: of artificial intelligence. I think that's a huge trend that
Speaker 8: is adding to earnings of companies starting today. So you
Speaker 8: stick with tech. But at the same time, Lisa, I'm
Speaker 8: really coming around on financials, and you know, if you
Speaker 8: look at the earnings results this morning, there's not much
Speaker 8: to be disappointed about. You know, yes, we know deposit
Speaker 8: betas are going to rise, but guess what that's priced in.
Speaker 8: You know, yes, we know lending is going to be slower,
Speaker 8: but that's also baked into the cake. And what I'm
Speaker 8: actually encouraged about for financials two things that I don't
Speaker 8: think are yet priced in. The First one is the
Speaker 8: possibility of a steeper Yel curve if we are, in fact,
Speaker 8: in a soft landing scenario that at some point the
Speaker 8: FED is going to pause and maybe even ease if
Speaker 8: inflation really comes down, and if the economy is still
Speaker 8: on track, then the back part of the curve should
Speaker 8: actually hold up.
Speaker 6: The only thing that someone could say if they're a
Speaker 6: bearish and Tom would grunt and he would say, oh,
Speaker 6: come on, I can't stand this. The concept of regulatory overhang.
Speaker 1: It.
Speaker 6: Yeah, if perhaps these banks do too well and suddenly
Speaker 6: the supervisors and congress members decry that and try to
Speaker 6: put more constraints on them, is that something you're watching.
Speaker 8: Yeah, it does need to be baked into the models
Speaker 8: for sure, But I would say it's a one time risk.
Speaker 8: That's a one time adjustment that would be that would
Speaker 8: have to be made. And guess what. It's also being
Speaker 8: talked about in the research for pots. But the other thing,
Speaker 8: again that I don't think is yet baked in possibility
Speaker 8: of step a Yel curve, but also the possibility of
Speaker 8: deal activity picking up. I know that in some of
Speaker 8: the results that we're seeing today, you know, there's not
Speaker 8: much to write home about when to IPO volumes.
Speaker 1: Or m and A.
Speaker 8: But I think conditions are starting to be in place
Speaker 8: for capital markets to really open up in the back
Speaker 8: half of the year. So that means more IPO volumes,
Speaker 8: more announced m ANDA deals, which by the way, picked
Speaker 8: up this quarter, more of them getting done, and that's
Speaker 8: positive for banks, it's positive for alternative asset managers, for
Speaker 8: all the PE companies, private equity companies that will have
Speaker 8: the exit opportunities they haven't had.
Speaker 1: Let's get concise. Do you see a second leg of
Speaker 1: the of a bullmarket to a fossil like me, that's
Speaker 1: early nineteen seventy six, and what's an SPX called. Don't
Speaker 1: give me this ninety day garbage that you do give
Speaker 1: me like a one year, two year, three year view.
Speaker 1: I'm scared stiff, I've missed this. I need to participate.
Speaker 1: Do I have a luxury of a second leg of
Speaker 1: a bullmarket?
Speaker 8: I'll give you a six month view of that.
Speaker 5: That's just really reaching out sixtears.
Speaker 8: You know, it's somewhere between the ninety day and the
Speaker 8: one year, But the six month view, I think we
Speaker 8: do push higher towards forty eight hundred on the S
Speaker 8: and P and a little bit more cautious going to
Speaker 8: twenty twenty four, because you know, if we are at
Speaker 8: a point where the real rates do become restrictive, you know,
Speaker 8: at some point we may actually have a downturn in
Speaker 8: the economy. So I don't want to pretrade that. So
Speaker 8: that's why I'm sticking with it. But at some point
Speaker 8: in twenty twenty four we might have to have a
Speaker 8: different conversation.
Speaker 2: It's been a great coach I found this year. Congratulations
Speaker 2: and a stays around myrsite if on capital.
Speaker 1: What we need now is a reset on the American economy.
Speaker 1: She's expert with this, with the acuity out of London
Speaker 1: School of Economics Poosia shir I'm joins just now a
Speaker 1: US economist at Barclays. You got to write a weekend note,
Speaker 1: my deepest sympathies. What's going to be the theme of
Speaker 1: the weekend note? Across the algebra of real GDP, consumer investment,
Speaker 1: government in this oddity of trade.
Speaker 9: Yeah, that's that's a that's a good point. So you know,
Speaker 9: we've we've been seeing very strong consumption spending since the
Speaker 9: beginning of this year.
Speaker 5: Lake.
Speaker 9: You know, Lisa pointed out there's there are signs that
Speaker 9: perhaps the momentum is slowing, but we're still you know,
Speaker 9: fairly high. So just to give you a sense of
Speaker 9: the numbers, you know, we're tracking GDP in the second quarter,
Speaker 9: it's still one point five percent, comes to one point
Speaker 9: five percent, and that's that's a resilient economy. I think
Speaker 9: where we are seeing some signs of weakness is perhaps
Speaker 9: in business fixed investment and that's you know, supplemented by
Speaker 9: the data we're getting in terms of manufacturing pmis, and
Speaker 9: that that's really where the weakness seems to be building up.
Speaker 9: And then we're expecting you know, some drag from from trade.
Speaker 9: But overall, if I want to look at GDP, you know,
Speaker 9: we're still on a fairly strong foot.
Speaker 1: It's been off message today for us as we focus
Speaker 1: on the banks, and it really hasn't come up in
Speaker 1: the powerpoints that I've seen. But what is Barclay's, with
Speaker 1: all of your heritage of studying us in London say
Speaker 1: about commercial real estate? I understand it's not going to
Speaker 1: move the needle on real GDP, but fold a commercial
Speaker 1: real estate analysis into your American economics.
Speaker 9: Yeah. Fair. So we did write about this a while back,
Speaker 9: Tom and we've course focused on office cre and I
Speaker 9: think that's where at the time there was a lot
Speaker 9: of discussion about stresses. But you know, some of the
Speaker 9: takeaways from the note was look off of CIRE is
Speaker 9: just about one third of all of the CIRE in
Speaker 9: the markets. And I think the second is it really
Speaker 9: depends on, you know, how the stresses play out. Typically
Speaker 9: you find that loan maturities are staggered, Lee's rollovers are staggered,
Speaker 9: and the lot of exposure for CRES is with the
Speaker 9: smaller banks. So for it to become a macro scenario,
Speaker 9: we would really need a solid meltdown, and that's something
Speaker 9: we don't see happening at the moment.
Speaker 1: PUSHA.
Speaker 6: We're talking about the economic backdrop in a week that
Speaker 6: has been pivotal. It has given us both the dissipflation
Speaker 6: narrative that has gotten given us roid or shot, and
Speaker 6: everyone seems to be buying it. It's everything is rallying,
Speaker 6: kind of weak. We also have earnings from a number
Speaker 6: of companies, not just the banks, that highlight the strength
Speaker 6: of the consumer. Is this an economy that has any
Speaker 6: chance of a recession this year?
Speaker 9: Well, at the look of it, yes, it seems hard
Speaker 9: to see how the slow down materializes. But our baseline, Lisa,
Speaker 9: is that it's likely that momentum will slow towards the
Speaker 9: end of this year, and a lot of that is
Speaker 9: contingent on the FEDS hawk is rhetoric and further rate tightening.
Speaker 9: And you know, it's hard for us sitting here to
Speaker 9: now think of how the economy slows, but we think
Speaker 9: higher rates will slowly start to bite. Towards the third
Speaker 9: quarter of this year. We're seeing some nascent signs of
Speaker 9: slowing perhaps in the economy, and we think that with
Speaker 9: further rate tightening, we should get to a point where
Speaker 9: we see a mild and shallow recession towards the end
Speaker 9: of the year.
Speaker 6: We're seeing that a lot of the banks are increasing
Speaker 6: their loans to consumers right now. They see the money
Speaker 6: signs because they're getting good interest rates on these loans,
Speaker 6: even as delinquency rates pick up, and they're putting aside
Speaker 6: more cash for loan losses. How do you watch this,
Speaker 6: the releveraging of the American consumer ahead of what a
Speaker 6: lot of people are expecting to be a slowdown.
Speaker 9: Yeah, that's that's a that's a good point. So we
Speaker 9: are seeing some signs of stresses in terms of delinquencies
Speaker 9: like you pointed out, and we think, you know, eventually
Speaker 9: the US consumer is likely to slow. But you know,
Speaker 9: just to sort of tie all of this back, it
Speaker 9: really depends on what happens to the labor markets. You know.
Speaker 9: We we see strong consumption spending that's primarily a reinforcing
Speaker 9: cycle of strong labor demand feeding into income, feeding into consumption.
Speaker 9: So in order for this to slow, what we really
Speaker 9: need is for labor market conditions to ease. Yeah. I
Speaker 9: think that's that's the key point that we we want
Speaker 9: to see, and I think that's where we're looking at
Speaker 9: in terms of where consumption spending is headed.
Speaker 5: What I see in the earnings.
Speaker 1: We'll talk to Shanoli Bassk about this in a bit, folks,
Speaker 1: and then Gina Martina Adams on this equity surge is
Speaker 1: and I want to fold this into economics because everybody's
Speaker 1: telling me the hour after hour after hour, and there's
Speaker 1: guys now that the stock markets delinked from the economy,
Speaker 1: which I'm not sure I buy. What I see here
Speaker 1: in the PowerPoint from JP Morgan is the iconic bank
Speaker 1: is the rich people are basically throwing money at a
Speaker 1: financial system profiting from it, and the haves in.
Speaker 5: America are really doing well. What's the polarity?
Speaker 1: And I think you're really qualified to do this with
Speaker 1: your workout of Indian out of the United Kingdom, you're
Speaker 1: distant from this, which is great.
Speaker 5: What's the polarity you perceive.
Speaker 1: In the two Americas or the three Americas.
Speaker 5: That are out there.
Speaker 9: Yeah, I think that's a good point. I think that
Speaker 9: the people in the upper income group are clearly very
Speaker 9: well positioned in this economy, very strong balance sheets, you know,
Speaker 9: very strong savings. And I think it's the perhaps the
Speaker 9: income personiles which are in the lower end of the spectrum,
Speaker 9: which is where the stresses are likely to be quelt.
Speaker 1: You know.
Speaker 9: Of course we look at aggregate data, Tom, and what
Speaker 9: that tells us is across the board, people seem to
Speaker 9: be comfortable to not save even in this economy, I think,
Speaker 9: and that they're benefiting from this this huge pile of
Speaker 9: savings and they're taking comfort from it, and so across
Speaker 9: the spectrum it seems like, you know, we yet to
Speaker 9: see any cautious sentiments set in.
Speaker 1: That's the expense of summer camps in plural which is
Speaker 1: where you see the saving dynamic on a macro basis.
Speaker 5: Slip away, rollover, rollover.
Speaker 1: I'm hoping July rolls over into August where we can
Speaker 1: save ourselves.
Speaker 5: Push your surround. Thank you so much with Barkley so
Speaker 5: they really nice. Update.
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Speaker 5: Thanks for listening. I'm Tom Keen, and this is Bloomberg