1 00:00:01,400 --> 00:00:04,120 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along 2 00:00:04,120 --> 00:00:06,240 Speaker 1: with my co host of Bonnie Quinn. Every business day 3 00:00:06,240 --> 00:00:10,360 Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts, 4 00:00:10,400 --> 00:00:13,600 Speaker 1: along with essential market moving news. Find the Bloomberg Markets 5 00:00:13,600 --> 00:00:17,000 Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts, 6 00:00:17,000 --> 00:00:21,560 Speaker 1: and on Bloomberg dot com. Well, US sales of previously 7 00:00:21,600 --> 00:00:24,040 Speaker 1: owned homes rose in June for the first time in 8 00:00:24,120 --> 00:00:27,720 Speaker 1: four months, as the economy reopened more broadly from coronavirus 9 00:00:27,760 --> 00:00:31,280 Speaker 1: related shutdowns and buyers took advantage of record low mortgage rates. 10 00:00:31,280 --> 00:00:33,479 Speaker 1: To get the latest on the housing market, we like 11 00:00:33,600 --> 00:00:37,360 Speaker 1: to turn the Logan multa. Shami Logan is independent housing 12 00:00:37,440 --> 00:00:40,600 Speaker 1: data analysts also a columnist for The Housing Wire based 13 00:00:40,640 --> 00:00:43,720 Speaker 1: in Irvine, California. Logan thanks so much for joining us again. 14 00:00:43,800 --> 00:00:46,560 Speaker 1: Some pretty solid numbers for the month of June. What 15 00:00:46,600 --> 00:00:49,120 Speaker 1: do you make of the US market right now? The 16 00:00:49,440 --> 00:00:52,839 Speaker 1: US housing market is the most outperforming economic sector in 17 00:00:52,840 --> 00:00:56,080 Speaker 1: the world, and it's already completed a v shape recovery, 18 00:00:56,200 --> 00:00:59,160 Speaker 1: and it's still has legs for sales to go higher. 19 00:00:59,280 --> 00:01:02,920 Speaker 1: And today's today's number is just the first of many 20 00:01:03,040 --> 00:01:07,400 Speaker 1: showing that we already hit a bottom UH in terms 21 00:01:07,440 --> 00:01:10,360 Speaker 1: of demand and we should be able to have another 22 00:01:10,600 --> 00:01:16,679 Speaker 1: five million plus total homesale year. What gives you that confidence, logan? 23 00:01:16,680 --> 00:01:18,400 Speaker 1: I mean, if we don't get another round of stimulus, 24 00:01:18,440 --> 00:01:20,319 Speaker 1: people won't be able to put food on their tables, 25 00:01:20,520 --> 00:01:24,080 Speaker 1: never mind by a house. People that are taking the 26 00:01:24,360 --> 00:01:27,760 Speaker 1: ant benefits are rented. And I think this is the 27 00:01:27,760 --> 00:01:30,880 Speaker 1: one thing that people missed early on the fear of 28 00:01:30,920 --> 00:01:36,119 Speaker 1: the virus initially created. You know, four straight continuously down 29 00:01:36,240 --> 00:01:38,840 Speaker 1: negative year over year print and purchased application And after 30 00:01:38,880 --> 00:01:41,680 Speaker 1: that four weeks things started to come back up. And 31 00:01:41,720 --> 00:01:45,720 Speaker 1: we already have nine straight weeks of positive year over 32 00:01:45,800 --> 00:01:48,880 Speaker 1: year data and purchase application data. It's already hit eleven 33 00:01:48,960 --> 00:01:52,520 Speaker 1: year high. This is looking out thirties and ninety days. 34 00:01:52,560 --> 00:01:55,680 Speaker 1: So this today's existing home sales print is just one 35 00:01:55,920 --> 00:01:59,440 Speaker 1: of many to come that show better data. And we 36 00:01:59,480 --> 00:02:02,480 Speaker 1: already did hit the bottom. So even if even if 37 00:02:02,600 --> 00:02:07,160 Speaker 1: enhanced benefits come down to let's say four dollars UH, 38 00:02:07,200 --> 00:02:10,400 Speaker 1: it's not going to impact the housing market because rates 39 00:02:10,400 --> 00:02:12,640 Speaker 1: are low and the real main story is that the 40 00:02:12,720 --> 00:02:15,920 Speaker 1: US housing market is in a period where demographics are 41 00:02:15,960 --> 00:02:21,560 Speaker 1: the best ever in history, So demographics and mortgage rates 42 00:02:21,320 --> 00:02:24,679 Speaker 1: are in the benefit of the US housing market. Actually, Paul, 43 00:02:24,720 --> 00:02:26,520 Speaker 1: if I can just follow, there are you saying, then 44 00:02:26,560 --> 00:02:30,000 Speaker 1: logan that because those thirty million people that were unemployed, 45 00:02:30,080 --> 00:02:33,920 Speaker 1: and some of them many of them still are our renters, 46 00:02:33,919 --> 00:02:36,480 Speaker 1: that it won't impact the housing market. And if that's 47 00:02:36,480 --> 00:02:39,000 Speaker 1: what you're saying, how is that because they won't be 48 00:02:39,040 --> 00:02:41,000 Speaker 1: able to pay their rent, rents will go down, There'll 49 00:02:41,040 --> 00:02:43,920 Speaker 1: be more supply, people moving out of urban areas to 50 00:02:44,000 --> 00:02:48,000 Speaker 1: suburban areas. How is this not all bad for housing 51 00:02:48,000 --> 00:02:52,440 Speaker 1: in general? How is it? If you know, and it's 52 00:02:52,480 --> 00:02:57,000 Speaker 1: not the velocity of inventory supplies being created, it's not. 53 00:02:57,200 --> 00:02:59,480 Speaker 1: It's not like the stock market. The stock market margin 54 00:02:59,520 --> 00:03:02,799 Speaker 1: debt goes up and down with stocks, So it takes time. 55 00:03:02,880 --> 00:03:05,440 Speaker 1: So even if it even if let's say, assume a 56 00:03:05,520 --> 00:03:08,000 Speaker 1: renter who can't pay a rent in the in the 57 00:03:08,080 --> 00:03:10,679 Speaker 1: in the landlord can't pay his mortgage, that that is 58 00:03:10,680 --> 00:03:15,799 Speaker 1: a story. But for for uh, the seasonality has already 59 00:03:15,880 --> 00:03:18,600 Speaker 1: kicked in. We already hit eleven year highs and purchased 60 00:03:18,600 --> 00:03:22,720 Speaker 1: application as longest purchase application data is flat deposit, we're 61 00:03:22,720 --> 00:03:24,919 Speaker 1: pretty much we got the v shap recoveries here, there's 62 00:03:24,960 --> 00:03:27,280 Speaker 1: not much that could change that. The only thing that 63 00:03:27,320 --> 00:03:30,160 Speaker 1: would say that would change everything is if we the 64 00:03:30,360 --> 00:03:33,840 Speaker 1: surge gets worse and people start to be afraid to 65 00:03:34,320 --> 00:03:37,760 Speaker 1: uh to purchase anything anymore like they did, you know, 66 00:03:37,800 --> 00:03:40,680 Speaker 1: the first four weeks of the virus. Because again, housing 67 00:03:40,760 --> 00:03:43,920 Speaker 1: is primarily demographics and mortgage rate. This is time in 68 00:03:43,960 --> 00:03:46,600 Speaker 1: our US history it's the best for both right now. 69 00:03:46,720 --> 00:03:49,480 Speaker 1: So this is why sales have rebounded and we should 70 00:03:49,520 --> 00:03:51,600 Speaker 1: have new and existing home sales should easily be over 71 00:03:51,640 --> 00:03:54,360 Speaker 1: five million this year. So talk to us about the 72 00:03:54,360 --> 00:03:57,600 Speaker 1: demographic story here are are we finally getting the millennials 73 00:03:57,640 --> 00:03:59,360 Speaker 1: and and even you know the gen z s. I 74 00:03:59,360 --> 00:04:02,520 Speaker 1: guess are they uh finally coming into the housing market. 75 00:04:03,280 --> 00:04:06,840 Speaker 1: Millennials were always buying homes. It's just that their biggest 76 00:04:06,880 --> 00:04:12,160 Speaker 1: housing demographic patch is ages thirty two and the first 77 00:04:12,200 --> 00:04:14,240 Speaker 1: time meeting at home buyer ages thirty three. So we're 78 00:04:14,360 --> 00:04:17,360 Speaker 1: entering this kind of this five year phase. And then 79 00:04:17,400 --> 00:04:19,200 Speaker 1: you have the first time homeowner who has a lot 80 00:04:19,200 --> 00:04:22,400 Speaker 1: of echoity if they wanted to move, uh, they have 81 00:04:22,480 --> 00:04:24,840 Speaker 1: the ability to move. It's all mortgage rates are low. 82 00:04:24,880 --> 00:04:26,840 Speaker 1: As as long as mortgage rates stable four and a 83 00:04:26,880 --> 00:04:29,640 Speaker 1: half percent. Housing seems to do fine when it goes 84 00:04:29,680 --> 00:04:31,400 Speaker 1: above four and a half percent, that is that it 85 00:04:31,440 --> 00:04:34,479 Speaker 1: cools down. So you have the demographics and then you 86 00:04:34,520 --> 00:04:36,919 Speaker 1: have low mortgage rates. Those are the two things that 87 00:04:37,000 --> 00:04:39,719 Speaker 1: drive to the housing markets. Everything else that is said 88 00:04:39,720 --> 00:04:41,520 Speaker 1: about the housing markets for the last I would say 89 00:04:41,560 --> 00:04:45,159 Speaker 1: seven or eight years are speculative. You know, the student 90 00:04:45,200 --> 00:04:47,800 Speaker 1: loan debt crisis didn't shut off millennials from buying. You know, 91 00:04:47,880 --> 00:04:50,680 Speaker 1: the affordability crisis didn't shut off housing from buying. We've 92 00:04:50,680 --> 00:04:53,200 Speaker 1: always been able to keep abound six million total homesale. 93 00:04:53,279 --> 00:04:57,440 Speaker 1: So the question is how much sales can rebound going 94 00:04:57,480 --> 00:05:00,120 Speaker 1: into the year because we've had double digit euro three 95 00:05:00,200 --> 00:05:03,159 Speaker 1: year growth in the last eight weeks and that looks 96 00:05:03,160 --> 00:05:05,159 Speaker 1: out thirty to ninety days. So the story is there. 97 00:05:05,160 --> 00:05:06,640 Speaker 1: You just got to keep an eye on the mortgage 98 00:05:06,640 --> 00:05:12,320 Speaker 1: persons application data that comes out every Wednesday. So look, 99 00:05:13,600 --> 00:05:16,240 Speaker 1: I was just gonna say, look about the mortgage market here. 100 00:05:16,240 --> 00:05:19,159 Speaker 1: We're just historically low rates and there's no reason to 101 00:05:19,200 --> 00:05:21,560 Speaker 1: think that they're going to go up anytime soon given 102 00:05:21,600 --> 00:05:25,520 Speaker 1: what we hear from the FED. Right, well, the only way, 103 00:05:25,520 --> 00:05:27,240 Speaker 1: the only way with long term rates go up is 104 00:05:27,279 --> 00:05:30,039 Speaker 1: that the economy in general starts to really grow again, 105 00:05:30,120 --> 00:05:33,440 Speaker 1: and that probably means that you know, jobless claims really 106 00:05:33,480 --> 00:05:37,240 Speaker 1: start to go down, uh, and the economy is growing, 107 00:05:37,360 --> 00:05:42,039 Speaker 1: you know, consistently GDP growth. So that's that's not going 108 00:05:42,120 --> 00:05:44,599 Speaker 1: to be the case. And I think the credit story 109 00:05:44,680 --> 00:05:47,320 Speaker 1: is a really important story because I would argue that 110 00:05:47,360 --> 00:05:51,360 Speaker 1: if Freddie Fannie were publicly traded companies that didn't weren't 111 00:05:51,400 --> 00:05:54,880 Speaker 1: part of the government conservatives ship housing would have had 112 00:05:54,920 --> 00:05:57,919 Speaker 1: problems because we we had a mortgage market meltdown in March. 113 00:05:58,400 --> 00:05:59,880 Speaker 1: But I would say about four and a half to 114 00:06:00,040 --> 00:06:02,479 Speaker 1: six point two of loans that could be done before 115 00:06:02,520 --> 00:06:05,880 Speaker 1: March nine, we're harder to do because Freddie and Fanny 116 00:06:05,960 --> 00:06:07,880 Speaker 1: f j they were able to flow credit. They were 117 00:06:07,880 --> 00:06:11,839 Speaker 1: able to provide forbearance in a very quick fashion. Instead 118 00:06:11,839 --> 00:06:14,560 Speaker 1: of the US government trying to take them back into 119 00:06:14,600 --> 00:06:19,480 Speaker 1: conservativeships because their stock prices are following, credit was able 120 00:06:19,520 --> 00:06:22,599 Speaker 1: to flow this year. That is a huge story for 121 00:06:22,680 --> 00:06:26,960 Speaker 1: the US housing v shape recovery this year. Logan, where 122 00:06:27,000 --> 00:06:29,120 Speaker 1: will be the hot markets in the country come this 123 00:06:29,160 --> 00:06:32,360 Speaker 1: time next year? You know, everyone's kind of making this 124 00:06:32,480 --> 00:06:35,760 Speaker 1: city versus suburban story, But this has been happening for 125 00:06:35,839 --> 00:06:38,040 Speaker 1: years now. People have been you know, you know, I 126 00:06:38,080 --> 00:06:41,000 Speaker 1: always say people rent, they make, they date, they get married, 127 00:06:41,000 --> 00:06:43,400 Speaker 1: three and a half years after marriage, they have kids, 128 00:06:43,680 --> 00:06:49,440 Speaker 1: and then they talk. So yeah, so this is actually, um, 129 00:06:49,480 --> 00:06:52,040 Speaker 1: this has been happening for some time. So I would 130 00:06:52,040 --> 00:06:56,080 Speaker 1: say that suburbs I've always been the benefit of people 131 00:06:56,200 --> 00:06:59,479 Speaker 1: getting married and having kids because the cities are very expensive, 132 00:06:59,480 --> 00:07:01,640 Speaker 1: and the people at own homes in the cities, especially 133 00:07:01,720 --> 00:07:04,120 Speaker 1: near water, make a lot of money. Is there's not 134 00:07:04,200 --> 00:07:06,320 Speaker 1: a lot of them. So I just think that that 135 00:07:06,440 --> 00:07:10,400 Speaker 1: movement to bigger, shaper homes in other areas is a 136 00:07:10,400 --> 00:07:13,080 Speaker 1: good thing. It's been here for for years, and it 137 00:07:13,160 --> 00:07:15,679 Speaker 1: is a big story for the housing market because again, 138 00:07:15,720 --> 00:07:18,480 Speaker 1: when you have the biggest demographic patch ever in history 139 00:07:18,560 --> 00:07:21,760 Speaker 1: and you have low mortgage rates, housing sales should be stable, 140 00:07:21,800 --> 00:07:24,920 Speaker 1: which wasn't working from a very overheated market. We just 141 00:07:24,960 --> 00:07:27,680 Speaker 1: had the weakest housing recovery ever recording the history. So 142 00:07:27,720 --> 00:07:30,880 Speaker 1: we're not like working from seven or eight million total 143 00:07:30,920 --> 00:07:33,720 Speaker 1: home sales like we were in two thousand five at 144 00:07:33,720 --> 00:07:38,320 Speaker 1: with higher mortgage rates. So it'll be okay. Housing. Housing 145 00:07:38,360 --> 00:07:41,440 Speaker 1: has already recovered. It'll be stable for twenty we'll deal 146 00:07:41,480 --> 00:07:44,000 Speaker 1: with the issues in which, you know, some of these 147 00:07:44,040 --> 00:07:46,679 Speaker 1: things are the forbearance plans and who's going to foreklose 148 00:07:46,800 --> 00:07:50,120 Speaker 1: or not. But but yeah, twenties, the most outperforming sector 149 00:07:50,160 --> 00:07:52,840 Speaker 1: in the entire world has been the US housing market. 150 00:07:53,520 --> 00:07:55,720 Speaker 1: Look Multa semi, thank you so much. We appreciate that. 151 00:07:55,760 --> 00:08:00,600 Speaker 1: Logan Multa Shami housing data analysts for UH. He is 152 00:08:00,640 --> 00:08:05,960 Speaker 1: looking at the housing market very very strong. Indeed that 153 00:08:06,040 --> 00:08:08,000 Speaker 1: he is getting turned up on the Bunsen burner that 154 00:08:08,160 --> 00:08:11,160 Speaker 1: is U S China relations. The latest just a few 155 00:08:11,200 --> 00:08:14,559 Speaker 1: minutes ago, China has vowed retaliation after the US forced 156 00:08:14,600 --> 00:08:18,360 Speaker 1: the closure of its Houston councilate. That itself was quite 157 00:08:18,360 --> 00:08:20,480 Speaker 1: the surprise to wake up to this morning. Let's bring 158 00:08:20,480 --> 00:08:24,480 Speaker 1: in somebody who knows all about diplomatic relations. Nick wadhams 159 00:08:24,520 --> 00:08:28,760 Speaker 1: our national security reporter in Washington, d C. Nick, how 160 00:08:29,040 --> 00:08:32,000 Speaker 1: serious is this, you know, sort of popping up of 161 00:08:32,040 --> 00:08:34,240 Speaker 1: a Houston problem? I mean it is literally Houston, we 162 00:08:34,240 --> 00:08:38,760 Speaker 1: have a problem, that's right. I mean Houston has long 163 00:08:39,040 --> 00:08:43,079 Speaker 1: been in in the eye of the US government and 164 00:08:43,679 --> 00:08:47,560 Speaker 1: the counter intelligence community FBI. There have been a string 165 00:08:47,600 --> 00:08:52,760 Speaker 1: of high profile espionage and intellectual property theft cases that 166 00:08:52,880 --> 00:08:58,720 Speaker 1: have gone through Houston involving either Chinese students uh coming 167 00:08:58,760 --> 00:09:02,320 Speaker 1: there or Chinese and Arikans who were accused, at least 168 00:09:02,320 --> 00:09:06,280 Speaker 1: in one case, of funneling cancer research back to China. 169 00:09:06,400 --> 00:09:09,520 Speaker 1: So there's that element, um, But there's also you know, 170 00:09:09,559 --> 00:09:12,560 Speaker 1: the broader context as you point out, of US China 171 00:09:12,640 --> 00:09:16,960 Speaker 1: relations just on this steep downward spiral um, and you know, 172 00:09:17,000 --> 00:09:20,400 Speaker 1: the inevitable result looks to be that China will almost 173 00:09:20,440 --> 00:09:23,880 Speaker 1: certainly close a U s consulate there. So um, this 174 00:09:23,960 --> 00:09:26,520 Speaker 1: is by no means the end of the story, all right, 175 00:09:26,640 --> 00:09:30,199 Speaker 1: n coount rare is it for a for the US 176 00:09:30,280 --> 00:09:33,920 Speaker 1: to close down a foreign consulate in the United States. 177 00:09:34,920 --> 00:09:37,880 Speaker 1: It's it's extremely rare, I mean, And this is something 178 00:09:37,960 --> 00:09:42,040 Speaker 1: that in the past had only usually happened in in 179 00:09:42,280 --> 00:09:47,600 Speaker 1: the most high profile cases, Russia the obvious example, um Uh. 180 00:09:47,960 --> 00:09:50,920 Speaker 1: The last time that happened was when when the US 181 00:09:50,960 --> 00:09:54,520 Speaker 1: closed the Russian consulate in UM in San Francisco. The 182 00:09:54,920 --> 00:09:57,600 Speaker 1: big thing here, though, is that that came after a 183 00:09:57,679 --> 00:10:00,440 Speaker 1: whole bunch of deliberation, and Russia got a lot of 184 00:10:00,480 --> 00:10:04,160 Speaker 1: warning and there was a very clear uh sort of 185 00:10:04,400 --> 00:10:08,640 Speaker 1: landing ramp uh that led to that point, this one, 186 00:10:08,840 --> 00:10:11,440 Speaker 1: it looks, according to all the people I'm talking to, 187 00:10:12,240 --> 00:10:14,320 Speaker 1: that this was really a shot out of the blue. 188 00:10:14,440 --> 00:10:18,560 Speaker 1: China was cut completely off guard, um with this decision, 189 00:10:18,800 --> 00:10:21,679 Speaker 1: you know, seventy two hours to leave their burning documents 190 00:10:21,679 --> 00:10:25,760 Speaker 1: and trash cans outside the embassy, a really different approach 191 00:10:26,160 --> 00:10:29,640 Speaker 1: um and and and the real surprise to the Chinese, 192 00:10:30,440 --> 00:10:33,680 Speaker 1: so you know, the rem and B is also you know, reacting. 193 00:10:33,760 --> 00:10:36,240 Speaker 1: It's it's below seven today, which is quite the you know, 194 00:10:36,280 --> 00:10:39,240 Speaker 1: the the move. And it would appear that, you know, 195 00:10:39,320 --> 00:10:41,679 Speaker 1: this isn't fun anymore. I mean, there were you know, 196 00:10:41,840 --> 00:10:44,880 Speaker 1: there was there was a suggestion perhaps in certain circles 197 00:10:44,920 --> 00:10:47,079 Speaker 1: that you know, this is all for for show, when 198 00:10:47,120 --> 00:10:50,280 Speaker 1: that really the US and China would get on fine 199 00:10:50,360 --> 00:10:52,760 Speaker 1: when it was necessary to. But it doesn't feel like 200 00:10:52,760 --> 00:10:56,280 Speaker 1: it's for show anymore. No, I think that's true. You know, 201 00:10:56,320 --> 00:10:59,440 Speaker 1: there's always been this bifurcation in US policy against China, 202 00:10:59,440 --> 00:11:02,920 Speaker 1: at least under Trump administration, where the president himself uh 203 00:11:03,280 --> 00:11:05,559 Speaker 1: kept talking about his good relationship with chij and Ping 204 00:11:05,679 --> 00:11:07,920 Speaker 1: and he really wanted that trade deal, and there was 205 00:11:07,960 --> 00:11:10,959 Speaker 1: a lot of evidence that he was essentially putting everything 206 00:11:11,000 --> 00:11:13,120 Speaker 1: else to the side because he was so focused on 207 00:11:13,120 --> 00:11:17,520 Speaker 1: the trade deal. Once coronavirus happened, it really changed everything 208 00:11:17,559 --> 00:11:20,760 Speaker 1: and it empowered the Hawks in the administration. There are 209 00:11:20,840 --> 00:11:23,319 Speaker 1: a lot of them. There's also bipartisan support for a 210 00:11:23,400 --> 00:11:26,920 Speaker 1: much tougher stance towards China on the Hill, and the President, 211 00:11:26,960 --> 00:11:29,640 Speaker 1: who had really been standing in the way and suppressing 212 00:11:29,679 --> 00:11:32,080 Speaker 1: a lot of that essentially cleared out of the way. 213 00:11:32,160 --> 00:11:35,160 Speaker 1: You know, he's really blamed China for the coronavirus pandemic. 214 00:11:35,200 --> 00:11:38,680 Speaker 1: And we're coming into an election season where both sides 215 00:11:38,720 --> 00:11:41,280 Speaker 1: actually are are blaming China for this thing and accusing 216 00:11:41,320 --> 00:11:44,440 Speaker 1: the others of not being sufficiently tough on China. So 217 00:11:44,600 --> 00:11:48,160 Speaker 1: you see this element where essentially the Hawks have won 218 00:11:48,240 --> 00:11:50,280 Speaker 1: the day and a lot of these ideas that have 219 00:11:50,360 --> 00:11:52,880 Speaker 1: been percolating for many, many months about how to get 220 00:11:52,960 --> 00:11:56,559 Speaker 1: tough on China are now being rolled out. So how 221 00:11:56,600 --> 00:12:00,320 Speaker 1: does this actually play out? Practically? On the round in 222 00:12:00,360 --> 00:12:02,880 Speaker 1: Houston to the folks from the MBSCY just kind of 223 00:12:03,000 --> 00:12:06,400 Speaker 1: all hopping their cars for George Bush Airport in Houston 224 00:12:06,400 --> 00:12:08,360 Speaker 1: and hoped the next flight to Beijing. How does this 225 00:12:08,400 --> 00:12:11,600 Speaker 1: all work? Yeah, I mean they have seventy two hours 226 00:12:11,640 --> 00:12:14,360 Speaker 1: they have to leave. Um, they have to go home. There, 227 00:12:14,440 --> 00:12:17,280 Speaker 1: their their their status in the US will be illegal 228 00:12:17,400 --> 00:12:20,200 Speaker 1: if they if they stay. We've seen this before. Um, 229 00:12:20,240 --> 00:12:23,079 Speaker 1: you know when it happened with Russia and seventeen there 230 00:12:23,080 --> 00:12:27,480 Speaker 1: were little literally buses of Russian diplomats who were escorted 231 00:12:27,480 --> 00:12:29,839 Speaker 1: to the airport and put on planes home and then 232 00:12:30,000 --> 00:12:32,439 Speaker 1: given a hero is welcome when they got back. Um. 233 00:12:32,480 --> 00:12:35,120 Speaker 1: You know, the bigger question is, these are the world's 234 00:12:35,160 --> 00:12:39,880 Speaker 1: two largest economies. They are utterly interdependent on each other 235 00:12:40,760 --> 00:12:43,800 Speaker 1: as as global engines of growth, and there is a 236 00:12:43,800 --> 00:12:46,760 Speaker 1: lot of talk in the administration about really breaking that 237 00:12:46,800 --> 00:12:50,680 Speaker 1: bond and decoupling these two economies. Whether the whether the 238 00:12:50,679 --> 00:12:53,920 Speaker 1: Trump administration wants to risk that, given that, uh, you know, 239 00:12:54,000 --> 00:12:57,320 Speaker 1: China is so integral to American economic growth, is a 240 00:12:57,360 --> 00:13:01,200 Speaker 1: big question. But um, all signs points to there being 241 00:13:01,240 --> 00:13:04,199 Speaker 1: a lot of force, you know a lot of persuasive 242 00:13:04,240 --> 00:13:06,400 Speaker 1: voices in the administration saying they want to do that. 243 00:13:06,840 --> 00:13:09,520 Speaker 1: I mean, it's completely humiliating for the Chinese to have 244 00:13:09,559 --> 00:13:12,319 Speaker 1: to do that, right nick, I mean literally the symbolism 245 00:13:12,320 --> 00:13:14,280 Speaker 1: of that, and you can imagine the other pictures of 246 00:13:14,280 --> 00:13:17,400 Speaker 1: this if they are like literally burning or you know, 247 00:13:17,440 --> 00:13:21,400 Speaker 1: getting rid of documents and getting going outside, you know, 248 00:13:21,440 --> 00:13:25,560 Speaker 1: almost as if they're being deported by ice. Yeah, you 249 00:13:25,600 --> 00:13:28,240 Speaker 1: know it is. It's an extremely humiliating moment, and it's 250 00:13:28,280 --> 00:13:31,760 Speaker 1: one that China will will likely reciprocate. I mean, uh, 251 00:13:32,120 --> 00:13:34,960 Speaker 1: you just then there is a notion in this in 252 00:13:35,000 --> 00:13:38,439 Speaker 1: this administration that you have to establish reciprocity and if 253 00:13:38,480 --> 00:13:41,800 Speaker 1: you push back hard enough on the on the Chinese 254 00:13:41,840 --> 00:13:45,120 Speaker 1: in a public way, uh, that will deter them from 255 00:13:45,200 --> 00:13:48,720 Speaker 1: future aggressive action. Diplomats I've spoken to say, it's just 256 00:13:48,840 --> 00:13:50,560 Speaker 1: the office that really the way you have to do 257 00:13:50,600 --> 00:13:53,320 Speaker 1: this is do it privately. You don't want to have 258 00:13:53,640 --> 00:13:58,480 Speaker 1: a situation where you're publicly humiliating another country's diplomats. Chinese 259 00:13:58,480 --> 00:14:02,080 Speaker 1: officials are especially insitive to that, given a long history 260 00:14:02,080 --> 00:14:04,959 Speaker 1: of what they see as humiliation at the hands of 261 00:14:04,960 --> 00:14:08,360 Speaker 1: of Western powers. So it's almost certain we have not 262 00:14:08,400 --> 00:14:10,760 Speaker 1: seen the end of this. Nick Bottoms, thank you so 263 00:14:10,840 --> 00:14:13,480 Speaker 1: much for that. We appreciate that update. Nick Bottoms, foreign 264 00:14:13,480 --> 00:14:16,880 Speaker 1: policy reporter for Bloomberg News reporting on this. Uh U 265 00:14:16,920 --> 00:14:20,840 Speaker 1: s shutting down the Chinese consulate in Houston, Texas, will 266 00:14:20,840 --> 00:14:26,440 Speaker 1: have more on that story well. Judy Shelton, President Donald 267 00:14:26,440 --> 00:14:29,520 Speaker 1: Trump's pick for Federal Reserves. Board of Governors cleared a 268 00:14:29,640 --> 00:14:32,400 Speaker 1: key hurdle to confirmation by winning the approval of a 269 00:14:32,440 --> 00:14:34,840 Speaker 1: majority on the Senate Banking Committee. Get a sense of 270 00:14:34,880 --> 00:14:37,800 Speaker 1: what this means and for the FED overall. We welcome 271 00:14:37,960 --> 00:14:42,040 Speaker 1: Michael McKee, international economics and policy correspondent for Bloomberg News, 272 00:14:42,320 --> 00:14:45,480 Speaker 1: joins us in the Bloomberg and Reactor Brooker studio. So Michael, 273 00:14:45,520 --> 00:14:47,360 Speaker 1: give us a censor. I understand that this pick is 274 00:14:47,400 --> 00:14:51,160 Speaker 1: particularly contentious. Why is that, Well, there are three charges 275 00:14:51,200 --> 00:14:53,480 Speaker 1: against Judy Shelton. One is that she's been a longtime 276 00:14:53,520 --> 00:14:57,120 Speaker 1: advocate of the gold standard, which almost no economists believe 277 00:14:57,200 --> 00:14:59,160 Speaker 1: is a good idea. The other is that she's been 278 00:14:59,200 --> 00:15:01,520 Speaker 1: a political opportun who is changing her views on interest 279 00:15:01,600 --> 00:15:05,080 Speaker 1: rates and on inflation when it looked like those might 280 00:15:05,120 --> 00:15:07,680 Speaker 1: derail her nomination. And the third is that she is 281 00:15:07,720 --> 00:15:10,840 Speaker 1: beholden to President Trump rather than to the US economy 282 00:15:10,880 --> 00:15:15,520 Speaker 1: and would inject politics into FED deliberations. But Republicans seem 283 00:15:15,640 --> 00:15:18,880 Speaker 1: to have made their peace with those charges, and they 284 00:15:18,920 --> 00:15:21,480 Speaker 1: did vote her out on a straight party line vote 285 00:15:21,480 --> 00:15:23,920 Speaker 1: out of the Banking Committee. We don't know when the 286 00:15:23,960 --> 00:15:26,240 Speaker 1: floor vote will be or even if given everything else 287 00:15:26,280 --> 00:15:29,400 Speaker 1: Congress is doing right now, but it appears she would 288 00:15:29,400 --> 00:15:32,280 Speaker 1: be likely to be confirmed when and if there is 289 00:15:32,320 --> 00:15:35,600 Speaker 1: a vote. What role does he remember the FED Board 290 00:15:35,600 --> 00:15:39,440 Speaker 1: of Governors play, Michael, in the sense of how important 291 00:15:39,480 --> 00:15:42,760 Speaker 1: will she be? It depends on the individual governor. In 292 00:15:42,800 --> 00:15:46,640 Speaker 1: her case, she'd be one of twelve voters um and 293 00:15:46,800 --> 00:15:50,600 Speaker 1: probably have very little influence on the board. Certainly, nobody 294 00:15:50,640 --> 00:15:52,880 Speaker 1: at the FED likes the gold standards, so that's not 295 00:15:52,920 --> 00:15:54,960 Speaker 1: even gonna be a starter. And if she were to 296 00:15:54,960 --> 00:15:58,800 Speaker 1: make controversial statements or advocate for something seen as political, 297 00:15:58,880 --> 00:16:01,120 Speaker 1: she'd be kind of isolate. Lated she could get a 298 00:16:01,120 --> 00:16:04,520 Speaker 1: lot of headlines by making speeches or writing op eds 299 00:16:04,600 --> 00:16:08,040 Speaker 1: or things like that, but her actual influence would be 300 00:16:08,200 --> 00:16:13,080 Speaker 1: very limited. How how politicized is the FED in general? Michael, 301 00:16:13,080 --> 00:16:15,400 Speaker 1: I don't think we talked about it that often, but 302 00:16:15,400 --> 00:16:18,080 Speaker 1: maybe a little bit more during this administration. But typically overall, 303 00:16:18,440 --> 00:16:22,200 Speaker 1: how politicized is has the FED been historically? Historically they've 304 00:16:22,200 --> 00:16:26,160 Speaker 1: been very a political with the one exception of under 305 00:16:26,200 --> 00:16:29,640 Speaker 1: President Nixon, when Arthur Burns, as the FED chairman, agreed 306 00:16:29,680 --> 00:16:32,520 Speaker 1: to goose the economy to help Nixon re election in 307 00:16:32,640 --> 00:16:35,840 Speaker 1: nineteen seventy two. And that helped uh touch off the 308 00:16:35,840 --> 00:16:39,240 Speaker 1: Great inflation that Paul Vulker became famous for killing off 309 00:16:39,280 --> 00:16:41,960 Speaker 1: with a couple of recessions. So the FED learned a 310 00:16:41,960 --> 00:16:44,360 Speaker 1: lot from that episode, and they try very hard to 311 00:16:44,360 --> 00:16:46,600 Speaker 1: stay out of politics. That doesn't mean they don't make 312 00:16:46,640 --> 00:16:49,960 Speaker 1: decisions that are seen as political, but they like to 313 00:16:50,000 --> 00:16:52,040 Speaker 1: believe that they're making them in the best interests of 314 00:16:52,080 --> 00:16:55,520 Speaker 1: the economy. There's an old canard that the Fed doesn't 315 00:16:55,520 --> 00:16:59,080 Speaker 1: act in election years, but they do. I just doubt 316 00:16:59,280 --> 00:17:02,120 Speaker 1: they'll be any action this year ahead of the election, 317 00:17:02,640 --> 00:17:06,679 Speaker 1: unless they decide to add more stimulus somehow, ramp up 318 00:17:06,760 --> 00:17:10,119 Speaker 1: KWEE or something which I'm sure President Trump would actually like. 319 00:17:10,560 --> 00:17:13,520 Speaker 1: What is the term for a governor and does it 320 00:17:13,520 --> 00:17:18,360 Speaker 1: ever get shortened? Yes, governor's terms, by law are set 321 00:17:18,400 --> 00:17:21,719 Speaker 1: at fourteen years. However, if you are nominated to replace 322 00:17:21,720 --> 00:17:24,440 Speaker 1: a governor whose term is not up, you assume the 323 00:17:24,520 --> 00:17:27,119 Speaker 1: number of years that they have on their term. And 324 00:17:27,200 --> 00:17:30,440 Speaker 1: Judy Shelton was nominated to Janet Yellin's old seat, actually, 325 00:17:30,480 --> 00:17:34,240 Speaker 1: so she has three more years before she could be 326 00:17:34,280 --> 00:17:37,000 Speaker 1: reappointed for another fourteen year term, and of course that 327 00:17:37,040 --> 00:17:39,520 Speaker 1: would certainly depend on who the president is at the time. 328 00:17:40,240 --> 00:17:43,960 Speaker 1: How about this FED nominee, Christopher Waller. What's the story there, 329 00:17:44,040 --> 00:17:47,960 Speaker 1: because he was also his nomination passed. I think wall 330 00:17:48,000 --> 00:17:50,080 Speaker 1: Street is focusing on the wrong person when they focus 331 00:17:50,160 --> 00:17:52,040 Speaker 1: on Judy Shelton, and they should pay much more attention 332 00:17:52,080 --> 00:17:55,480 Speaker 1: to the views of Christopher Waller. He's a standard mainstream economist, 333 00:17:55,520 --> 00:17:58,560 Speaker 1: but very much on the dovish side. He was a professor, 334 00:17:59,080 --> 00:18:02,520 Speaker 1: has a PhD in economics, and then has been for 335 00:18:02,560 --> 00:18:04,879 Speaker 1: the past three or four years the research director at 336 00:18:04,880 --> 00:18:07,000 Speaker 1: the St. Louis FED, and he played a role in 337 00:18:07,080 --> 00:18:10,880 Speaker 1: helping develop Jim Bullard, the St. Louis FED President's view 338 00:18:11,119 --> 00:18:14,800 Speaker 1: of regime change that you don't change monetary policy unless 339 00:18:14,840 --> 00:18:19,160 Speaker 1: the economic regime the status of the economy changes. So 340 00:18:19,240 --> 00:18:23,760 Speaker 1: he'll be seen as a strong dubbish addition to the FED, 341 00:18:24,160 --> 00:18:28,040 Speaker 1: and he will probably because of his mainstream view or 342 00:18:28,080 --> 00:18:31,399 Speaker 1: his his mainstream economic training put it that way, and 343 00:18:31,680 --> 00:18:33,960 Speaker 1: his familiarity with the FED system have a lot more 344 00:18:33,960 --> 00:18:36,399 Speaker 1: influenced people on wall Street will pay a lot more 345 00:18:36,400 --> 00:18:39,640 Speaker 1: attention to what he says, and others in the FED 346 00:18:39,680 --> 00:18:42,480 Speaker 1: will as well. So I would focus more on him 347 00:18:42,520 --> 00:18:46,040 Speaker 1: getting on the board than Judy Shelton until and unless 348 00:18:46,080 --> 00:18:48,439 Speaker 1: we see if Donald Trump is reelected and the Senate 349 00:18:48,840 --> 00:18:52,280 Speaker 1: it stays Republican sociate Good in theory become the next cheriff. 350 00:18:52,400 --> 00:18:55,040 Speaker 1: Trump wanted to do that. How do they meet? When 351 00:18:55,080 --> 00:18:57,680 Speaker 1: do they meet? How does it all happen? They meet 352 00:18:58,440 --> 00:19:02,560 Speaker 1: every six every eight weeks. There's eight meetings a year, 353 00:19:02,680 --> 00:19:07,760 Speaker 1: and they get together for two days of discussions. Uh. 354 00:19:08,000 --> 00:19:13,159 Speaker 1: The Fed has UH is supposed to have seven board governors. 355 00:19:13,520 --> 00:19:17,000 Speaker 1: They've had five for a very long time. And there 356 00:19:17,040 --> 00:19:20,000 Speaker 1: are twelve regional Fed bank presidents, so nineteen members of 357 00:19:20,040 --> 00:19:22,520 Speaker 1: the Open Market Committee, but twelve voted any one time. 358 00:19:22,560 --> 00:19:24,240 Speaker 1: The New York Fed has a permanent vote and the 359 00:19:24,240 --> 00:19:29,960 Speaker 1: other four bank presidents rotate. And at this point we've 360 00:19:30,000 --> 00:19:34,440 Speaker 1: had only ten voters for well almost seven years. The 361 00:19:34,520 --> 00:19:36,240 Speaker 1: last time I can see we had a full compliment 362 00:19:36,320 --> 00:19:41,399 Speaker 1: was two thousand thirteen. So just Mike McKay real quickly, 363 00:19:41,680 --> 00:19:45,240 Speaker 1: if you can President Biden, if President Vice President Biden, 364 00:19:45,240 --> 00:19:48,040 Speaker 1: if he were to be elected president next in this election, 365 00:19:48,080 --> 00:19:50,200 Speaker 1: could he reverse some of these appointments that are being 366 00:19:50,240 --> 00:19:52,199 Speaker 1: made now or you have to wait to the end 367 00:19:52,240 --> 00:19:54,080 Speaker 1: of the term. Uh, he would have to wait till 368 00:19:54,119 --> 00:19:57,400 Speaker 1: the end of term. You can't fire governors for anything 369 00:19:57,440 --> 00:20:01,360 Speaker 1: except doing something illegal. But as you say, this particular 370 00:20:01,440 --> 00:20:03,840 Speaker 1: term is only three years as opposed to the typical fourteen, 371 00:20:03,960 --> 00:20:06,280 Speaker 1: so there would be an opportunity for the next Senate, 372 00:20:06,320 --> 00:20:09,480 Speaker 1: I guess, on the next version of Congress to do 373 00:20:09,600 --> 00:20:13,359 Speaker 1: something right. If if Biden were elected, you would assume 374 00:20:13,400 --> 00:20:16,800 Speaker 1: that he probably would not reappoint her. Yeah, yeah, Michael McKee, 375 00:20:16,840 --> 00:20:20,199 Speaker 1: thank you, as always again encyclopedic, this time on the 376 00:20:20,200 --> 00:20:23,000 Speaker 1: Fed and the economy. Michael McKee is our international economics 377 00:20:23,000 --> 00:20:25,840 Speaker 1: and policy correspondent here at Bloomberg, And of course this 378 00:20:25,960 --> 00:20:29,679 Speaker 1: on Judy Shelton clearing a key hurdle to confirmation to 379 00:20:29,680 --> 00:20:33,000 Speaker 1: the Federal Reserves Board of Governors. She won the approval 380 00:20:33,080 --> 00:20:35,440 Speaker 1: of a majority on the Senate Banking Committee. That obviously 381 00:20:35,440 --> 00:20:37,760 Speaker 1: has to go to the entire Senate and also the House, 382 00:20:37,800 --> 00:20:41,119 Speaker 1: but it looks like she is going to be a 383 00:20:41,240 --> 00:20:46,800 Speaker 1: FED board member. One of the frequent topics of consideration 384 00:20:47,040 --> 00:20:48,600 Speaker 1: is whether we're going to see some kind of an 385 00:20:48,640 --> 00:20:52,160 Speaker 1: economic recovery when we'll see it, how bad the economy 386 00:20:52,200 --> 00:20:54,760 Speaker 1: is going to get before we see it again. This morning, 387 00:20:54,840 --> 00:20:57,720 Speaker 1: data showing existing home sales coming in almost as anticipated 388 00:20:57,800 --> 00:21:00,639 Speaker 1: at a four point seven two million dollar in June 389 00:21:00,640 --> 00:21:03,480 Speaker 1: of twenty points I present. So some of the data great, 390 00:21:03,680 --> 00:21:05,639 Speaker 1: some of the data not so good. Let's bring in 391 00:21:05,680 --> 00:21:09,879 Speaker 1: somebody who's been looking at restoration restoration for the US economy, 392 00:21:09,920 --> 00:21:12,800 Speaker 1: Fred Cannon as Global director of Research at Keith, Riette 393 00:21:12,840 --> 00:21:17,760 Speaker 1: and Woods, which has a new KBW Restoration Index. So Fred, 394 00:21:17,800 --> 00:21:20,760 Speaker 1: welcome and tell us why you put this index together 395 00:21:20,880 --> 00:21:24,080 Speaker 1: and what's actually in it. Um. Thanks Foh, it's great 396 00:21:24,080 --> 00:21:26,200 Speaker 1: to be on and we appreciate being on. Yeah. So 397 00:21:26,280 --> 00:21:29,080 Speaker 1: basically what we're trying to do here is is to 398 00:21:29,200 --> 00:21:31,920 Speaker 1: look at all this real time data that we're getting 399 00:21:31,920 --> 00:21:34,320 Speaker 1: on the economy and put it into an index to 400 00:21:34,359 --> 00:21:36,879 Speaker 1: see where we are relative to where we were before 401 00:21:36,960 --> 00:21:40,639 Speaker 1: the pandemic. Because it's you know, for the market as 402 00:21:40,680 --> 00:21:43,480 Speaker 1: a whole, and especially for financial stocks, which we specialize in. 403 00:21:43,880 --> 00:21:46,440 Speaker 1: When we can get back to that previous period of 404 00:21:46,440 --> 00:21:50,440 Speaker 1: economic activity is key to how much companies can earn, 405 00:21:50,560 --> 00:21:52,960 Speaker 1: how much banks can Credit losses are going to be 406 00:21:53,000 --> 00:21:55,520 Speaker 1: in all these factors that drive from drive stock. So 407 00:21:55,560 --> 00:21:58,479 Speaker 1: that's really why we put it together, and we gathered 408 00:21:58,480 --> 00:22:02,080 Speaker 1: about thirteen different UM indicators that are more real time 409 00:22:02,080 --> 00:22:04,120 Speaker 1: they were weekly in daily numbers that we're getting put 410 00:22:04,160 --> 00:22:07,200 Speaker 1: into this index. All right, So Fred, what's the index 411 00:22:07,320 --> 00:22:10,159 Speaker 1: been telling you over the last you know, four or 412 00:22:10,200 --> 00:22:13,359 Speaker 1: five six weeks. Yeah, Basically, what it's been showing us 413 00:22:13,440 --> 00:22:17,280 Speaker 1: is that the UH speed of the recovery is slowed um. 414 00:22:17,320 --> 00:22:20,600 Speaker 1: You know, essentially last week we had actually picked down slightly, 415 00:22:20,960 --> 00:22:22,960 Speaker 1: it was down zero point two pc, but it was 416 00:22:23,000 --> 00:22:25,760 Speaker 1: then that was the first downtick that we've seen since April. 417 00:22:26,040 --> 00:22:28,600 Speaker 1: But really what we've seen recently is is that these 418 00:22:28,680 --> 00:22:32,359 Speaker 1: numbers are showing a slow a slowing of the of 419 00:22:32,400 --> 00:22:35,439 Speaker 1: the recovery, which really I would say is in line 420 00:22:35,480 --> 00:22:38,480 Speaker 1: with the way most of us feel about what's going 421 00:22:38,520 --> 00:22:41,119 Speaker 1: on economically, and in line with some of the slow 422 00:22:41,200 --> 00:22:45,600 Speaker 1: down and the opening up of many of the states. So, Fred, 423 00:22:45,920 --> 00:22:48,800 Speaker 1: what will be the leading indicators? I mean, everybody would 424 00:22:48,840 --> 00:22:51,359 Speaker 1: like a V shaped recovery, and there's a lot of 425 00:22:51,440 --> 00:22:53,480 Speaker 1: letters out there, a lot of shapes and so on, 426 00:22:53,720 --> 00:22:57,920 Speaker 1: But what what will we see and then be able 427 00:22:57,960 --> 00:23:01,080 Speaker 1: to say, Okay, we're on the way back. Well, I 428 00:23:01,080 --> 00:23:03,359 Speaker 1: think what we need to see is we need to 429 00:23:03,359 --> 00:23:08,960 Speaker 1: see these indicators of UM UH mobility UM continue to 430 00:23:09,040 --> 00:23:11,280 Speaker 1: pick up those have been continued to be quite low. 431 00:23:11,720 --> 00:23:14,240 Speaker 1: We need to. We've seen some pretty good recovery in 432 00:23:14,280 --> 00:23:18,119 Speaker 1: the consumer um and the commercial side, but the employment numbers, 433 00:23:18,200 --> 00:23:20,040 Speaker 1: as as we all know, continue to be weak. So 434 00:23:20,320 --> 00:23:22,560 Speaker 1: I think right now, what we're looking at in terms 435 00:23:22,600 --> 00:23:24,360 Speaker 1: of shape, and you can see this in our chart 436 00:23:24,440 --> 00:23:26,560 Speaker 1: in terms of our index, is it's too much more 437 00:23:26,560 --> 00:23:30,440 Speaker 1: of a slush um as as one sporting goods apparel 438 00:23:30,600 --> 00:23:34,239 Speaker 1: UH logo looks like M And the real question, at 439 00:23:34,280 --> 00:23:36,560 Speaker 1: least in our minds is, you know what's going on 440 00:23:36,560 --> 00:23:40,600 Speaker 1: in Congress, what's going to happen with consumer income? When 441 00:23:41,000 --> 00:23:43,440 Speaker 1: this weekend? When when a lot of consumers who are 442 00:23:43,520 --> 00:23:45,800 Speaker 1: unemployed are going to quick getting that extra six hundred 443 00:23:45,800 --> 00:23:49,720 Speaker 1: dollars a week. So, Fred, you know KBW guys have 444 00:23:50,000 --> 00:23:53,520 Speaker 1: you know, really specialized in the financial services industry and 445 00:23:53,520 --> 00:23:57,399 Speaker 1: are really leading thought leaders there. What are you seeing 446 00:23:57,440 --> 00:24:00,400 Speaker 1: out of the bank earnings that we had last week 447 00:24:00,440 --> 00:24:02,760 Speaker 1: and we're still getting here? What are you hearing from 448 00:24:02,800 --> 00:24:05,720 Speaker 1: some of the banks as it relates to their outlook 449 00:24:05,880 --> 00:24:09,399 Speaker 1: for the economy? Uh, you know, their outlook for the 450 00:24:09,440 --> 00:24:14,360 Speaker 1: economy has um dissipated a bit recently, I think, especially 451 00:24:14,480 --> 00:24:16,080 Speaker 1: even as as soon as a month ago when we 452 00:24:16,119 --> 00:24:18,800 Speaker 1: came into their earnings they were into the reports, they 453 00:24:18,800 --> 00:24:21,359 Speaker 1: were still pretty optimistic. I think what we've seen is 454 00:24:21,359 --> 00:24:25,080 Speaker 1: they continued to post large provisions for future losses even 455 00:24:25,119 --> 00:24:28,280 Speaker 1: though there's few losses coming through. UM. They've actually seen 456 00:24:28,320 --> 00:24:32,320 Speaker 1: some good news on terms of the deferrals of loans. 457 00:24:32,600 --> 00:24:34,200 Speaker 1: A lot of folks have been able to pay those. 458 00:24:34,480 --> 00:24:36,560 Speaker 1: But there's a lot of nervousness right now, especially on 459 00:24:36,600 --> 00:24:40,000 Speaker 1: the consumer side, where you have a situation where the 460 00:24:40,040 --> 00:24:44,200 Speaker 1: savings rate in America has gone up significantly as consumers 461 00:24:44,240 --> 00:24:46,879 Speaker 1: have used these payments from the government to get a 462 00:24:46,880 --> 00:24:49,560 Speaker 1: handle on their debt. But this next phase for again 463 00:24:49,640 --> 00:24:52,280 Speaker 1: is something that I think UM is universally of some concern. 464 00:24:52,560 --> 00:24:55,000 Speaker 1: The good news on the financial side is that the 465 00:24:55,000 --> 00:24:58,359 Speaker 1: capital markets, as you know, UM, which you both are 466 00:24:58,359 --> 00:25:00,399 Speaker 1: watching on a on a real time bay, this has 467 00:25:00,440 --> 00:25:03,760 Speaker 1: been quite robust and that piece of the financial businesses 468 00:25:03,920 --> 00:25:06,720 Speaker 1: has done well. We saw so many banks put away 469 00:25:06,800 --> 00:25:12,760 Speaker 1: so many reserves. Will they be necessary, UM, Well, I 470 00:25:12,760 --> 00:25:15,080 Speaker 1: think we can all say we hope not, UM, but 471 00:25:15,359 --> 00:25:18,000 Speaker 1: we have to remember they have put in these big reserves. UM. 472 00:25:18,040 --> 00:25:22,160 Speaker 1: There's an accounting changes that required banks to be more 473 00:25:22,240 --> 00:25:24,399 Speaker 1: forward looking than they would have in the past UM, 474 00:25:24,440 --> 00:25:26,880 Speaker 1: and that's why we're seeing these big reserves even before 475 00:25:27,400 --> 00:25:30,720 Speaker 1: we see UM losses. Now we do think there will 476 00:25:30,760 --> 00:25:32,760 Speaker 1: be UM when we look at the stress and small 477 00:25:32,800 --> 00:25:36,320 Speaker 1: business UM and on the consumer. Unless there's this continued 478 00:25:36,720 --> 00:25:39,920 Speaker 1: UM kind of cares act level of support, you know, 479 00:25:39,960 --> 00:25:42,720 Speaker 1: we have to expect some bankruptcies and other issues to 480 00:25:42,880 --> 00:25:45,760 Speaker 1: pick up UM. Hopefully. The good news is is if 481 00:25:45,800 --> 00:25:50,760 Speaker 1: we see even UM U U shape recovery or kind 482 00:25:50,760 --> 00:25:54,119 Speaker 1: of not necessarily a V shape, that the reserves that 483 00:25:54,200 --> 00:25:55,520 Speaker 1: have been put up in the first half of this 484 00:25:55,640 --> 00:25:59,320 Speaker 1: year should get these financials through this crisis without having 485 00:25:59,320 --> 00:26:03,280 Speaker 1: to raise capital or cut dividends further. So Fred, just quickly, 486 00:26:03,359 --> 00:26:06,120 Speaker 1: the banks have been beaten up, the stocks UM. Where 487 00:26:06,119 --> 00:26:08,040 Speaker 1: does the good folks at k b W, where do 488 00:26:08,040 --> 00:26:11,480 Speaker 1: you guys see some opportunity. Well, like a couple of 489 00:26:11,480 --> 00:26:14,439 Speaker 1: areas we see Number one is, you know, selectively, we 490 00:26:14,480 --> 00:26:17,320 Speaker 1: think some of the banks, especially those you know that 491 00:26:17,359 --> 00:26:20,520 Speaker 1: are very strong in the capital markets UM can continue 492 00:26:20,520 --> 00:26:23,479 Speaker 1: to do well. We think the highest quality banks are 493 00:26:23,520 --> 00:26:25,680 Speaker 1: in a good position to get through this m JP 494 00:26:25,800 --> 00:26:29,119 Speaker 1: Morgan UM and we are recommending golden sacks based on 495 00:26:29,160 --> 00:26:32,680 Speaker 1: the capital markets activity. We also think that UM, that 496 00:26:33,040 --> 00:26:35,520 Speaker 1: folks should look over to Europe. Those banks over there 497 00:26:35,560 --> 00:26:37,920 Speaker 1: have been UM beat up much more than the US 498 00:26:37,960 --> 00:26:43,560 Speaker 1: banks and they're actually seen UM better indicators of recovery 499 00:26:43,600 --> 00:26:45,879 Speaker 1: than we are. UM. And also we don't have the 500 00:26:46,200 --> 00:26:49,000 Speaker 1: you know, the interest rates have come down significantly in 501 00:26:49,000 --> 00:26:50,760 Speaker 1: the US and is as you know, I think on 502 00:26:50,840 --> 00:26:53,000 Speaker 1: deals are below sixty basis points today and that's that's 503 00:26:53,000 --> 00:26:56,200 Speaker 1: a tough environment for U. Yeah. Hey, Fred, thanks so 504 00:26:56,280 --> 00:26:59,159 Speaker 1: much for joining us. Really appreciate your thoughts on the 505 00:26:59,280 --> 00:27:02,679 Speaker 1: KBW restoration Index. Will be following that, Fred Cannon, Global 506 00:27:02,720 --> 00:27:06,840 Speaker 1: director of Research at Keith Bruette and would based in 507 00:27:06,840 --> 00:27:09,399 Speaker 1: New York City. Again the KBW Restoration next, trying to 508 00:27:09,440 --> 00:27:13,680 Speaker 1: get a handle on the recovery of the US economy 509 00:27:14,040 --> 00:27:16,800 Speaker 1: on this side of the pandemic. Well, have more coming up. 510 00:27:17,240 --> 00:27:22,560 Speaker 1: This is Bloomberg. Thanks for listening to Bloomberg Markets podcast. 511 00:27:22,680 --> 00:27:26,080 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts 512 00:27:26,200 --> 00:27:29,720 Speaker 1: or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm 513 00:27:29,760 --> 00:27:32,400 Speaker 1: on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm 514 00:27:32,400 --> 00:27:35,040 Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can 515 00:27:35,080 --> 00:27:37,320 Speaker 1: always catch us worldwide at Bloomberg Radio.