Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim
Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
Speaker 1: we bring you the most important, noteworthy, and useful interviews
Speaker 1: for you and your money, whether you're at the grocery
Speaker 1: store or the trading floor. Find the Bloomberg P M
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Speaker 1: Right now, let's bring in Dave Wilson, Bloomberg Fox Editor,
Speaker 1: columnist and blogger at M Life. Go on the Bloomberg.
Speaker 1: I really want to start with bank earnings. We've got
Speaker 1: Goldman Sachs as results. Uh. Interestingly, the reaction has been
Speaker 1: decidedly mixed, even though they beat by quite a bit
Speaker 1: on the top line revenues. Yeah, some concern with what's
Speaker 1: going on with their equity trading business. That was a
Speaker 1: weak spot in terms of revenue. Of course, you got
Speaker 1: a management transition. It's understatement of the year management transition. Yeah, Boss, Well,
Speaker 1: it's a process, okay, I mean it's not going to
Speaker 1: happen right away. We know that Lloyd blank Find will
Speaker 1: remain CEO and chairman until October one. We'll give up
Speaker 1: the CEO job to President David Solomon. Then by Rand
Speaker 1: will step down as chairman. Solomon will take that job.
Speaker 1: So yeah, it's a transition that it's in something that's
Speaker 1: been talked about for a few months. So it's not
Speaker 1: surprised that, you know, it's like anything else. It's you know,
Speaker 1: it's change coming to Goldman and you know people tend
Speaker 1: not to like change very much, and that would explain
Speaker 1: at least in part the stocks slide in early trading.
Speaker 1: Also a big big mover today Netflix They were portty
Speaker 1: disappointing earnings after the bell yesterday and they are just
Speaker 1: getting hammered and bringing the nasdack down. UH shares? What it?
Speaker 1: What's the latest with the shares? They were down, well,
Speaker 1: they're down a bit more than ten percent. But what's interesting, though,
Speaker 1: is if you go back and look at the history
Speaker 1: of Netflix's move was after earnings reports, this is not
Speaker 1: a surprise at all because you know, on average the
Speaker 1: stock up or downcent going all the way back to
Speaker 1: two thousand seven h the day after earnings, and you know,
Speaker 1: today we were down at the low's fourteen percent and change,
Speaker 1: and Netflix is actually making some of that back and
Speaker 1: now the stock's only up eighty seven percent. For the year,
Speaker 1: which really tells you, you know, what's happening here as
Speaker 1: much as anything is a bit of a buy. The
Speaker 1: rumors sell the news, even when the news isn't something.
Speaker 1: I'm just gonna get you what's going on in the
Speaker 1: bond market, which is basically nothing. Uh the ten year
Speaker 1: at two point eight five percent, though the uh, well,
Speaker 1: the two year at the two point six percent. I
Speaker 1: want to bring in Carl Rickadonna, our chief US economist
Speaker 1: for Bloomberg Economics, and Matt Posler are Bloomberg News reporter
Speaker 1: who covers the Federal Reserve, And of course we are
Speaker 1: awaiting Jerome Powell, Chair of the Federal Reserve, and his
Speaker 1: testimony before a Congress. Um, Matt, what do you expect
Speaker 1: him to say when we've got the prepared marks? But
Speaker 1: I mean, is it really going to say anything that's
Speaker 1: gonna be market moving? Well, that's a good question, you know,
Speaker 1: I think, Um, maybe if they start getting into some
Speaker 1: more detailed questions about the Fed's plans for interest rates
Speaker 1: this year and next year, you know, there's a big
Speaker 1: question about Um, the Fed kind of sees there's this
Speaker 1: neutral interest rate that they think once they get to
Speaker 1: that neutral rate, then um, you know, they will no
Speaker 1: longer be stimulating the economy. And so the big question
Speaker 1: for next year is once they get to that neutral rate,
Speaker 1: which will probably happen next year they think it's around two,
Speaker 1: then do they keep going and actually starting to outright
Speaker 1: restrict economic growth because they're worried about unemployment being too low,
Speaker 1: um and maybe inflation you know, going higher. So we
Speaker 1: don't really see any indication that j. Powell and these
Speaker 1: prepared remarks really feels like that's you know, going to
Speaker 1: be necessary because it's going to be asked about the
Speaker 1: trade war. Yeah, so that's uh, that's also something that
Speaker 1: you know, could could definitely have implications. He kind of,
Speaker 1: you know, very briefly touches on it in these prepared remarks,
Speaker 1: but doesn't really say anything you know, about what it
Speaker 1: means in particular. So that could be interesting line of
Speaker 1: questions as well. Carl, come on in here. We're going
Speaker 1: to be a lot of questions also about the labor market,
Speaker 1: which is sort of confusing. We have this very low
Speaker 1: unemployment rate and really muted wage gains. How could he
Speaker 1: be surprising on this? I mean, do you think that
Speaker 1: he's going to say anything of note here well, in
Speaker 1: the prepared remarks, he says moderate wages, say the job
Speaker 1: market is not causing high inflation. So I think he's
Speaker 1: going to echo this theme that maybe there still is
Speaker 1: more slack in the labor market than what the three
Speaker 1: point eight or four point zero percent unemployment rate, that
Speaker 1: what otherwise have you believe? And I suspect he'll play
Speaker 1: the role of economic cheerleader in terms of indicating that
Speaker 1: death through the fence policy and maybe also tipping his
Speaker 1: hat to tax reforms. We're actually seeing labor force participation
Speaker 1: potentially at least leveling out, if not the edging higher
Speaker 1: as a strong economy, as coaxing workers back in office
Speaker 1: sideline in plain English, the participation rate. One thing that
Speaker 1: people talk about is why has the unemployment rate for
Speaker 1: working age men in particular remained higher than it was
Speaker 1: right before the last downturn, and particularly the prime working
Speaker 1: age men in the US. And people are wondering, you know,
Speaker 1: is this because of the opioid epidemic? Is this because
Speaker 1: of the high incarceration rates? Is because because of discrimination
Speaker 1: childcare costs? Um do you expect him to to sort
Speaker 1: of weigh in on that at all? I mean, does
Speaker 1: that matter from economic perspective, certainly from a social perspective
Speaker 1: it does. I think those are all factors, but I
Speaker 1: think even more importantly as the dynamics of what has
Speaker 1: been driving the economy. Uh. And so what you certainly
Speaker 1: see uneven distribution of employment by sectors. UH. For example,
Speaker 1: the construction sector tends to hire a lot more males
Speaker 1: and females. And certainly construction activity has been a aggered
Speaker 1: in this cycle as the housing sector really struggled to
Speaker 1: recover up from the bust. And so, you know, everything
Speaker 1: you mentioned is correct, But I think also just the
Speaker 1: composition of growth is a very relevant He'll probably be
Speaker 1: asked about this. I don't think that there will be
Speaker 1: upmarket moving responses. Uh. You know, as he'll he'll cite
Speaker 1: many of the factors that I've mentioned. Just now, Matt,
Speaker 1: what if you could just comment on some of the
Speaker 1: other FEDER officials, For example, Neil cash Cary recently talking
Speaker 1: about the yield curve. Do you think that the chairman
Speaker 1: power will get questions referencing Neil cash Cary. Yeah, you know,
Speaker 1: I can't imagine the yeld curve is to top of
Speaker 1: mine for a lot of these senators. But on the
Speaker 1: other hand, it is you know, a three hour hearing, right, So,
Speaker 1: I mean that is something that could come up, um
Speaker 1: at some point. Certainly it's the talk of the town
Speaker 1: on Wall Street. Everybody's looking at this yield curve flattening
Speaker 1: almost flat. Um. Obviously historically, uh, that has sort of
Speaker 1: been followed by recessions, and so low of people are
Speaker 1: worried about that. I mean. The interesting thing about FED
Speaker 1: officials talking about that so much is, you know, to
Speaker 1: some extent, they do control not only the short term
Speaker 1: interest rate, but where that long term interest rate settles
Speaker 1: as well, because if you think it's sort of the
Speaker 1: average of you know, expected short term interest rates over
Speaker 1: the next ten years, then they can kind of affect that.
Speaker 1: And so if you look at their long run neutral
Speaker 1: rate that we were just talking about earlier, that's right
Speaker 1: between two seventy five and three percent, that's exactly where
Speaker 1: the ten year yield is as well. So UM, I
Speaker 1: think the FED, you know, FED officials kind of need
Speaker 1: to think about the yield curve and and the extent
Speaker 1: to that to which that is just reflecting what they're
Speaker 1: telling people they are going to do with interest rates
Speaker 1: and whether that should really be so concerning to them.
Speaker 1: Um that markets seem to be getting the message. All right,
Speaker 1: Dave come back in here with respect to equity markets,
Speaker 1: do you expect them to have any reaction to anything
Speaker 1: that fed Powell could say? For example, if he says, look, uh,
Speaker 1: we don't necessarily think that the yield curve of a
Speaker 1: setting the same signals that has in the past. We're
Speaker 1: gonna keep raising rates at a study uh and slow pace,
Speaker 1: but we're going to stay on our trajectory. What does
Speaker 1: that do to ataquities? Well, I mean, there is certainly
Speaker 1: the potential for a movement, although let's face it, Uh,
Speaker 1: you know, the chair power would be perfectly happy if
Speaker 1: nothing moved. In response to what he was saying that
Speaker 1: he's simply reinforced where people are going in in terms
Speaker 1: to in terms of interest rate policy. Here, I mean,
Speaker 1: just to give you some idea, we so sort of
Speaker 1: a brief flip up to the highs of the day,
Speaker 1: and he has some P five hundred after those initial
Speaker 1: headlines came out. Uh, and now you're you're seeing stocks
Speaker 1: and bounce around. Uh. Still not quite higher, though they've
Speaker 1: made up a lot of their early losses. So you know,
Speaker 1: if that's the outcome, then I suspect the policy makers
Speaker 1: would be perfectly happy with that. Matt, just a little
Speaker 1: bit about inflation. Uh, milk, eggs, bread, You've been following
Speaker 1: the basics, Yeah, absolutely, so you know that's uh, that's
Speaker 1: really good news. Right. So the prices of milk, eggs
Speaker 1: and bread, as you mentioned, seemed to be coming down
Speaker 1: a lot, and so that was a really big criticism
Speaker 1: of the Fed in the early years of this expansion,
Speaker 1: when we did have a little bit of inflation, it
Speaker 1: was a lot of that um, you know, uh inflation
Speaker 1: that was driven by dollar weakness. It was really hitting
Speaker 1: you know, low end consumers right where it hurt the most,
Speaker 1: and the grocery basket. And so while the Fed was saying, oh,
Speaker 1: you know, we have to keep policy easy, Um, we're
Speaker 1: not worried about inflation, everybody's looking at their grocery bill
Speaker 1: and saying, well, you know, how can you kind of
Speaker 1: be taking this position and build Dudley famously got in
Speaker 1: trouble when he said, well, you know, look at iPads, right,
Speaker 1: the price of those has come down a lot. And
Speaker 1: he said that in twenty eleven and someone at the
Speaker 1: town hall said, well, you can't eat an iPad, so
Speaker 1: that certainly is not the case anymore. It's an interesting
Speaker 1: kind of Yeah, I mean, Carl coming on the US
Speaker 1: economy if you can. Industrial production report out today for
Speaker 1: the month of June. Estimates were for a gain of
Speaker 1: a half a percent, actually up six it actually top
Speaker 1: Actually manufacturing was stronger. But we have to really pass
Speaker 1: through the details here because there was a fire at
Speaker 1: a part supplier in the auto sector, and so we
Speaker 1: saw a swoon in May and then a sharp rebound
Speaker 1: in June. The moral of the story is the Q
Speaker 1: two factory output data looks good. Uh. The Q two
Speaker 1: consumer spending data look great. Uh. And we're looking at
Speaker 1: a quarter that will probably a register g d P
Speaker 1: gain of if not in the high threes, maybe even
Speaker 1: in the low four percent territory. But we shouldn't get
Speaker 1: too excited about one single quarter because we will see
Speaker 1: a moderation in the second half of the year. Uh.
Speaker 1: There's this usual whipsaw between a week Q one and
Speaker 1: we have to break in here. A Jerome Palifa draw
Speaker 1: Reserve chair is now starting his testimony before the House.
Speaker 1: Let's listen in Thanks for listening to the Bloomberg P
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Speaker 1: I'm him Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramowits one before the podcast. You
Speaker 1: can always catch us worldwide on Blueberg Radio