1 00:00:01,760 --> 00:00:04,200 Speaker 1: Thanks so much for joining us for the special holiday 2 00:00:04,360 --> 00:00:07,520 Speaker 1: edition of Bloomberg Daybreak. US markets are closed. 3 00:00:07,520 --> 00:00:08,480 Speaker 2: From Martin Luther. 4 00:00:08,360 --> 00:00:11,360 Speaker 1: King Day, I'm Nathan Hager, and coming up this hour, 5 00:00:11,520 --> 00:00:15,000 Speaker 1: we continue bank earnings with a preview of tomorrow's results 6 00:00:15,040 --> 00:00:18,080 Speaker 1: from Goldman Sachs and Morgan Stanley. We'll check back in 7 00:00:18,120 --> 00:00:22,759 Speaker 1: with Bloomberg Intelligence senior Global Banks analyst Alison Williams. Plus 8 00:00:22,800 --> 00:00:25,560 Speaker 1: we'll discuss the future of interest rates and the economy 9 00:00:25,640 --> 00:00:28,520 Speaker 1: in twenty twenty four. We've got a special conversation lined 10 00:00:28,600 --> 00:00:31,200 Speaker 1: up for you with the President of the Cleveland Fed, 11 00:00:31,400 --> 00:00:34,720 Speaker 1: Loretta Mester. First, though, we want to focus on oil 12 00:00:34,840 --> 00:00:37,360 Speaker 1: because that market got quite the jolt at the end 13 00:00:37,400 --> 00:00:41,360 Speaker 1: of last week. Crude jumped following escalating tensions in the 14 00:00:41,400 --> 00:00:44,240 Speaker 1: Red Sea. For more on the overall outlook for crude, 15 00:00:44,240 --> 00:00:47,159 Speaker 1: we are pleased to welcome Stephen Shork, the president of 16 00:00:47,200 --> 00:00:50,280 Speaker 1: the Short Group. Steven, I wonder how surprised you were 17 00:00:50,440 --> 00:00:54,160 Speaker 1: by those strikes on hoothy targets in Yemen and whether 18 00:00:54,240 --> 00:00:57,400 Speaker 1: it shakes your fundamental case for oil heading into the 19 00:00:57,400 --> 00:00:58,560 Speaker 1: balance of twenty twenty four. 20 00:00:58,840 --> 00:01:01,360 Speaker 3: Well, certainly if we look at recent in history, Nathan, 21 00:01:01,760 --> 00:01:05,120 Speaker 3: We've just been seeing escalation of tensions there in the 22 00:01:05,160 --> 00:01:08,800 Speaker 3: Middle East ever since it all started back on October seventh. 23 00:01:09,280 --> 00:01:13,320 Speaker 3: With regard to oil in prices, I've been falling client 24 00:01:13,440 --> 00:01:16,319 Speaker 3: since October that I've been flabbergasted by the lack of 25 00:01:16,360 --> 00:01:20,120 Speaker 3: our risk bringing in priced into this market. To quote Churchill, 26 00:01:20,200 --> 00:01:23,080 Speaker 3: I've said oil prices are riddle wrapped in a mystery 27 00:01:23,160 --> 00:01:26,560 Speaker 3: inside of enigma. So it's been nothing astonishing to me 28 00:01:26,720 --> 00:01:31,040 Speaker 3: that there really hasn't been the reaction I was expecting. 29 00:01:31,440 --> 00:01:33,760 Speaker 3: So back in October, this is what I wrote the 30 00:01:33,760 --> 00:01:36,240 Speaker 3: clients that you know, let's be clear that the war 31 00:01:37,440 --> 00:01:40,800 Speaker 3: between Hamas, or that Hamas declared on Israel, will not 32 00:01:40,880 --> 00:01:43,240 Speaker 3: be limited to a small strip of land between Egypt 33 00:01:43,240 --> 00:01:46,679 Speaker 3: and is Isel. Considering that Israel's finding the terrorist hydra 34 00:01:46,760 --> 00:01:49,600 Speaker 3: of Hamas has blot in Uchis, all of which are 35 00:01:49,640 --> 00:01:54,000 Speaker 3: backed by Iran, Duran dropped it certainly disguised war against 36 00:01:54,080 --> 00:01:57,040 Speaker 3: Israel and choose all out conflict and all bets are off. 37 00:01:57,160 --> 00:02:00,480 Speaker 3: The chance for disruption to tanker traffic through the moves, 38 00:02:00,760 --> 00:02:03,080 Speaker 3: which is the greatest choke point to the flow of 39 00:02:03,160 --> 00:02:06,840 Speaker 3: waterborne crudial in the world, is almost a given. So 40 00:02:06,920 --> 00:02:09,360 Speaker 3: we are looking at this threat, and of course we 41 00:02:09,480 --> 00:02:12,840 Speaker 3: know what's been happening in the Red City that tankers 42 00:02:12,880 --> 00:02:15,880 Speaker 3: are not and traders are not going to the Zuez. 43 00:02:15,960 --> 00:02:18,480 Speaker 3: They're going around the Horn of Africa to get to 44 00:02:18,880 --> 00:02:21,560 Speaker 3: markets in the West. Now, that is a long trip 45 00:02:21,600 --> 00:02:24,600 Speaker 3: that adds a lot of expense to the commodity, and 46 00:02:24,680 --> 00:02:27,960 Speaker 3: therefore we should be seeing higher oil price. But that 47 00:02:28,080 --> 00:02:31,920 Speaker 3: certainly hasn't been the case. So oil traders have in 48 00:02:32,040 --> 00:02:36,200 Speaker 3: my view, I've been whistling past the graveyard. They are 49 00:02:36,280 --> 00:02:40,040 Speaker 3: the go back to Mad magazine, the alfred E movemans 50 00:02:40,639 --> 00:02:43,560 Speaker 3: of the commodity in the world. Hey, what me worried? 51 00:02:43,639 --> 00:02:46,919 Speaker 3: With all of this potential risk to supply out there, 52 00:02:47,320 --> 00:02:50,760 Speaker 3: they have not reacted to this market now. So yes, 53 00:02:50,800 --> 00:02:53,880 Speaker 3: at the end of last week oil prices surged, but 54 00:02:54,320 --> 00:02:58,320 Speaker 3: I'm taking a wait and see attitude. Every provocation up 55 00:02:58,320 --> 00:03:01,519 Speaker 3: to this point had not led to sustained rally, so 56 00:03:02,080 --> 00:03:05,520 Speaker 3: I will believe this rally is sustainable when I see it. 57 00:03:05,919 --> 00:03:09,160 Speaker 3: So it's been a conundrum, and very interesting one at. 58 00:03:09,040 --> 00:03:11,760 Speaker 1: That, while we wait and see. Of course, the big 59 00:03:11,800 --> 00:03:14,679 Speaker 1: story for the oil market up to now has been 60 00:03:14,840 --> 00:03:19,640 Speaker 1: that we've had this imbalance of supply compared to demand. 61 00:03:20,160 --> 00:03:23,280 Speaker 1: Where do you see that shaking out? This idea that 62 00:03:23,440 --> 00:03:26,440 Speaker 1: we've got a glut of oil in the market, and 63 00:03:26,760 --> 00:03:30,640 Speaker 1: Saudi Arabia and Russia have been leading this push to 64 00:03:30,680 --> 00:03:34,760 Speaker 1: try to lower production targets via OLPEK plus. 65 00:03:34,920 --> 00:03:39,080 Speaker 3: Yeah. Absolutely. Now OPEK and OPECH plus inclusive of Russia 66 00:03:39,240 --> 00:03:42,680 Speaker 3: have had the wings cleft over the past fifteen years 67 00:03:42,920 --> 00:03:46,160 Speaker 3: because they've never had the competition that they're facing now 68 00:03:46,200 --> 00:03:49,800 Speaker 3: from non OPEC producers. So last year we had the 69 00:03:49,880 --> 00:03:53,640 Speaker 3: United States, led by the United States, Brazil in Guyana 70 00:03:54,080 --> 00:03:58,840 Speaker 3: leaving the world in production growth. So every barrel that 71 00:03:59,120 --> 00:04:02,200 Speaker 3: Saudi Arabia or Russia or any member of OPEC attempt 72 00:04:02,200 --> 00:04:05,440 Speaker 3: to take off the market has been replaced by non 73 00:04:05,560 --> 00:04:09,720 Speaker 3: OPEC production. So yes, last year twenty twenty three, we 74 00:04:09,800 --> 00:04:13,280 Speaker 3: had record non OPEQ production of one hundred and one 75 00:04:13,320 --> 00:04:17,280 Speaker 3: million barrels a day. The IEA, the International Energy Agency, 76 00:04:17,440 --> 00:04:19,800 Speaker 3: expects that to jump to one hundred and three million 77 00:04:19,839 --> 00:04:25,000 Speaker 3: barrels this year. So Saudi Arabia and Russia and price 78 00:04:25,279 --> 00:04:28,479 Speaker 3: hawks really have their work cut out for them because 79 00:04:28,480 --> 00:04:31,400 Speaker 3: they don't have the power in this market that they 80 00:04:31,440 --> 00:04:36,320 Speaker 3: had prior to the US shale gale, which began in 81 00:04:36,400 --> 00:04:38,240 Speaker 3: earnest about ten to twelve years ago. 82 00:04:38,720 --> 00:04:41,440 Speaker 1: So where does the power lie in the oil market 83 00:04:41,520 --> 00:04:44,840 Speaker 1: right now? Is it in the producers groups like opech 84 00:04:44,920 --> 00:04:47,760 Speaker 1: Plus or even the US now or is it more 85 00:04:47,800 --> 00:04:51,560 Speaker 1: on the demand side what we're seeing, particularly in demand 86 00:04:51,680 --> 00:04:55,120 Speaker 1: from developed markets and developing markets like China. 87 00:04:56,120 --> 00:04:58,960 Speaker 3: Yeah, absolutely, I do believe it's on the demand side. 88 00:04:58,960 --> 00:05:02,279 Speaker 3: Making where the oil bowl got it wrong at the 89 00:05:02,320 --> 00:05:07,280 Speaker 3: start of last year was this assumption that China, which 90 00:05:07,279 --> 00:05:11,240 Speaker 3: has been dormant really since the outbreak of COVID, that 91 00:05:11,360 --> 00:05:16,200 Speaker 3: economy has sputtered it ever since. And the thinking was 92 00:05:16,279 --> 00:05:19,160 Speaker 3: that in the first half of last year that all 93 00:05:19,200 --> 00:05:21,560 Speaker 3: of the demand from China was going to come back 94 00:05:21,680 --> 00:05:24,920 Speaker 3: and hit the market and really drive prices higher. Now 95 00:05:24,960 --> 00:05:31,000 Speaker 3: that never happened because the China economy is still sputtering now. Personally, Nathan, Professionally, Nathan, 96 00:05:31,360 --> 00:05:36,040 Speaker 3: I've been I've never been on the China bandwagon. And 97 00:05:36,920 --> 00:05:38,599 Speaker 3: my view was they're going to go the way, They're 98 00:05:38,600 --> 00:05:42,040 Speaker 3: going to grow older before they become an economic superpower 99 00:05:42,120 --> 00:05:45,560 Speaker 3: that will overtake the United States. So to me, China 100 00:05:45,600 --> 00:05:49,920 Speaker 3: today is looking more like Japan circa nineteen ninety two. 101 00:05:50,400 --> 00:05:52,919 Speaker 3: That's a wait and see. But the point now is 102 00:05:52,960 --> 00:05:57,159 Speaker 3: to answer your question. It's a demand driven market right now, 103 00:05:57,240 --> 00:06:00,520 Speaker 3: so the supply can react to that demand. And what 104 00:06:00,560 --> 00:06:03,400 Speaker 3: has happened is supply was held back and then we 105 00:06:03,560 --> 00:06:08,680 Speaker 3: came I'm coming right after COVID. Supply production came roaring 106 00:06:08,839 --> 00:06:12,160 Speaker 3: back over especially the past six months of last year, 107 00:06:12,200 --> 00:06:15,240 Speaker 3: and now we do have a market that's oversupplied. Demand 108 00:06:15,400 --> 00:06:19,000 Speaker 3: is not there and we know that, Nathan, because prices 109 00:06:19,040 --> 00:06:22,800 Speaker 3: today on the futures curve are incontangedom. That means that 110 00:06:22,880 --> 00:06:26,839 Speaker 3: prices are cheaper than they are three, six, nine months 111 00:06:26,839 --> 00:06:29,720 Speaker 3: from now. So if you are an oil trader, it 112 00:06:29,760 --> 00:06:32,400 Speaker 3: does not make sense to pull your oil out of 113 00:06:32,520 --> 00:06:35,840 Speaker 3: storage and sell it into a discounted market. Now. That 114 00:06:35,880 --> 00:06:38,760 Speaker 3: can only happen when demand is well below a supply, 115 00:06:38,920 --> 00:06:41,760 Speaker 3: and that's where we're at right now. And all of 116 00:06:41,800 --> 00:06:45,200 Speaker 3: my concerns about geopolitical risk with what's going on in 117 00:06:45,200 --> 00:06:47,760 Speaker 3: the Middle East, but look, this is the commodity markets. 118 00:06:48,240 --> 00:06:51,160 Speaker 3: All it takes is one big headline to change that narrative. 119 00:06:51,480 --> 00:06:54,239 Speaker 3: With last week's headline the one that changes the narrative, 120 00:06:54,839 --> 00:06:56,040 Speaker 3: We'll have to wait and see. 121 00:06:56,279 --> 00:06:59,880 Speaker 1: So Stephen, why do you think demand is as suppressed 122 00:07:00,160 --> 00:07:02,080 Speaker 1: oil as it is right now. Does it have to 123 00:07:02,120 --> 00:07:08,080 Speaker 1: do with macroeconomic headwinds, the transition to electrics, milder climate, 124 00:07:08,320 --> 00:07:09,360 Speaker 1: what do you see behind it? 125 00:07:09,640 --> 00:07:13,200 Speaker 3: Well, certainly is a part of it is, of course macroeconomic. 126 00:07:13,840 --> 00:07:16,480 Speaker 3: I'm concerned, have been concerned for well over a year 127 00:07:16,600 --> 00:07:20,760 Speaker 3: now about how squeezed the West consumer is. We're looking 128 00:07:20,760 --> 00:07:23,520 Speaker 3: at inflation, as we saw with the numbers last week 129 00:07:23,760 --> 00:07:27,040 Speaker 3: that are still out of control, especially for food costs, 130 00:07:27,440 --> 00:07:31,480 Speaker 3: So our earnings are being squeezed because of inflation. Credit 131 00:07:31,520 --> 00:07:36,000 Speaker 3: Card debt is well over one trillion dollars, an unimaginable number. 132 00:07:36,880 --> 00:07:39,600 Speaker 3: Interest if you carry debt on your credit card is 133 00:07:39,680 --> 00:07:42,920 Speaker 3: over twenty percent. So to me, my logic here is 134 00:07:42,960 --> 00:07:46,320 Speaker 3: that the consumer has to be squeezed. Yet we looked 135 00:07:46,320 --> 00:07:50,000 Speaker 3: at last Thanksgiving, we had near record demands for drivers, 136 00:07:50,200 --> 00:07:53,640 Speaker 3: for jet fuel, for travelers, So people are still spending money. 137 00:07:53,520 --> 00:07:57,000 Speaker 3: They're accumulating debt, but they're still spending money, and that 138 00:07:57,240 --> 00:08:01,320 Speaker 3: is helping to increase demand that this point. But the 139 00:08:01,360 --> 00:08:04,640 Speaker 3: other side of that coin here is with elasticities of 140 00:08:04,720 --> 00:08:09,680 Speaker 3: demand for any commodity. Now, with oil, you always had 141 00:08:09,840 --> 00:08:13,880 Speaker 3: strong demand regardless of price, regardless of price shock. That's 142 00:08:13,920 --> 00:08:18,040 Speaker 3: because we were always missing the other variable that impacts price, 143 00:08:18,200 --> 00:08:21,760 Speaker 3: and that is a substitute. And today we do have substitutes. 144 00:08:21,840 --> 00:08:25,240 Speaker 3: We have full electric, we have plugging electric hybrids, and 145 00:08:25,320 --> 00:08:29,600 Speaker 3: so each year those markets begin to gain on the 146 00:08:29,680 --> 00:08:33,720 Speaker 3: hydrocarbon markets and they start to erode demand. So yes, 147 00:08:34,000 --> 00:08:37,559 Speaker 3: part of it, I do think is demand from the consumer, 148 00:08:38,000 --> 00:08:40,839 Speaker 3: from the consumer side, but we haven't seen it yet. 149 00:08:40,880 --> 00:08:44,080 Speaker 3: But I just hasn't shown up in the numbers yet. 150 00:08:45,120 --> 00:08:48,319 Speaker 3: But clearly what we're looking at here is a combination 151 00:08:48,440 --> 00:08:52,480 Speaker 3: of demand and yes, the introduction of substitutes into this market. 152 00:08:52,600 --> 00:08:56,439 Speaker 1: I wonder where you see the transition to renewables standing 153 00:08:56,720 --> 00:08:59,560 Speaker 1: right now. We did get that news last week that 154 00:09:00,000 --> 00:09:02,160 Speaker 1: it Hurts is selling off a lot of its fleet 155 00:09:02,240 --> 00:09:05,960 Speaker 1: of electric vehicles. It's raised some doubts about the sustainability 156 00:09:06,000 --> 00:09:08,760 Speaker 1: of the EV market. Does that affect how things look 157 00:09:08,800 --> 00:09:10,080 Speaker 1: for you in the oil space? 158 00:09:10,400 --> 00:09:14,240 Speaker 3: Yeah? Absolutely. Now you know mea Koppley here, I do 159 00:09:14,440 --> 00:09:17,720 Speaker 3: drive an electric hybred and I love the darns thing. 160 00:09:17,800 --> 00:09:20,600 Speaker 3: It's a plug in so I can get between my 161 00:09:20,679 --> 00:09:25,280 Speaker 3: seventeen gallon tank in my electricity. And I'm a homebody 162 00:09:25,320 --> 00:09:28,520 Speaker 3: now because I'm an emptinester I can get, you know, 163 00:09:28,720 --> 00:09:32,640 Speaker 3: fifteen to sixteen hundred miles on that one tank of gas. 164 00:09:32,840 --> 00:09:36,079 Speaker 3: But here's the thing, Nathan, is I'm leasing that because 165 00:09:36,120 --> 00:09:39,400 Speaker 3: I'm waiting for the technology to continue to improve. So 166 00:09:39,520 --> 00:09:43,440 Speaker 3: this is the second electric hybrid I've leased over the 167 00:09:43,440 --> 00:09:46,840 Speaker 3: past six years. I have no interest in buying one, 168 00:09:46,920 --> 00:09:49,280 Speaker 3: and I would venture no one has an interest in 169 00:09:49,320 --> 00:09:53,680 Speaker 3: buying a used one because the technology will continue to improve. 170 00:09:54,040 --> 00:09:56,960 Speaker 3: So yes, the market, I do believe is hitting that 171 00:09:57,080 --> 00:10:01,439 Speaker 3: roadblock because there is an excess inventory of older technology 172 00:10:01,559 --> 00:10:05,599 Speaker 3: evs on the market. That rightfully, so no one really wants. 173 00:10:05,800 --> 00:10:09,360 Speaker 3: So clearly that is going to slow the transition to evs. 174 00:10:09,679 --> 00:10:13,320 Speaker 3: And let us keep in mind that'll evs with their 175 00:10:13,360 --> 00:10:18,200 Speaker 3: battery concerns with their security, which leads to the heavy metals. 176 00:10:18,240 --> 00:10:21,960 Speaker 3: So they are not in the greatest thing for the environment. 177 00:10:22,080 --> 00:10:24,760 Speaker 3: They're certainly not the greatest thing for security when you 178 00:10:24,840 --> 00:10:27,600 Speaker 3: consider that, where do we get all the medals that 179 00:10:27,640 --> 00:10:31,960 Speaker 3: go into those batteries. China and Russia, okay, two countries 180 00:10:32,000 --> 00:10:35,959 Speaker 3: they don't necessarily have the United States best interest at heart. 181 00:10:36,200 --> 00:10:38,280 Speaker 1: Thank you for this, Stephen, great having you with us 182 00:10:38,320 --> 00:10:42,000 Speaker 1: on this program. That's Stephen Short, the president of the 183 00:10:42,040 --> 00:10:44,720 Speaker 1: Short Group, and still to com on this holiday edition 184 00:10:44,760 --> 00:10:47,440 Speaker 1: of Bloomberg Daybreak, you might want to put thoughts of 185 00:10:47,480 --> 00:10:49,520 Speaker 1: a March rate cut on hold. 186 00:10:49,800 --> 00:10:50,680 Speaker 4: We speak with the. 187 00:10:50,559 --> 00:10:53,640 Speaker 1: President of the Federal Reserve Bank of Cleveland, lo Reda Master. 188 00:10:54,320 --> 00:10:54,680 Speaker 2: Next. 189 00:10:54,840 --> 00:10:57,880 Speaker 1: It's eighteen minutes past the hour. I'm Nathan Hager, and 190 00:10:57,960 --> 00:11:11,160 Speaker 1: this is BLAE. Welcome back to this special edition of 191 00:11:11,200 --> 00:11:14,160 Speaker 1: Bloomberg Daybreak. The US market is close for the Martin 192 00:11:14,240 --> 00:11:17,480 Speaker 1: Luther King holiday. I'm Nathan Hager. Turning it focus now 193 00:11:17,600 --> 00:11:21,120 Speaker 1: to the economy. Cleveland Fed President Loretta Mester says it 194 00:11:21,200 --> 00:11:24,280 Speaker 1: is premature to consider cutting interest rates as soon as 195 00:11:24,320 --> 00:11:27,760 Speaker 1: the central banks meeting in March. Mester spoke with Bloomberg 196 00:11:27,840 --> 00:11:31,840 Speaker 1: International Economics and Policy correspondent Michael McKee late last week. 197 00:11:32,000 --> 00:11:33,040 Speaker 1: Here's that conversation. 198 00:11:33,200 --> 00:11:36,280 Speaker 5: Now, one of the chances that wages are going to 199 00:11:36,280 --> 00:11:37,600 Speaker 5: push inflation back. 200 00:11:37,520 --> 00:11:41,839 Speaker 4: Up again, well, you know, you talk to district contacts 201 00:11:42,480 --> 00:11:46,000 Speaker 4: and wage setters, and what they do say is there's 202 00:11:46,040 --> 00:11:50,439 Speaker 4: been discernible the malavor market they would characterize, is still tight, 203 00:11:51,160 --> 00:11:53,640 Speaker 4: but it's not nearly as tight as it was before. 204 00:11:54,240 --> 00:11:58,320 Speaker 4: There's still you know, jobs at demand higher wages, but 205 00:11:58,440 --> 00:12:01,640 Speaker 4: the rate of increase of way pages has come down, 206 00:12:01,760 --> 00:12:04,800 Speaker 4: so again we see the adjustment coming. You know, if 207 00:12:04,800 --> 00:12:06,559 Speaker 4: you look at a lot of different indicators in the 208 00:12:06,640 --> 00:12:09,400 Speaker 4: labor market, what you see is that supply and a 209 00:12:09,440 --> 00:12:11,880 Speaker 4: manner coming into better balance. Part of that supply, the 210 00:12:12,000 --> 00:12:14,600 Speaker 4: labor force participation rate has gone up. People are coming 211 00:12:14,640 --> 00:12:16,720 Speaker 4: back into the labor market. 212 00:12:16,360 --> 00:12:18,240 Speaker 6: Which is great. I think that's a really. 213 00:12:18,000 --> 00:12:22,600 Speaker 4: Good development and that's helped us in a number of 214 00:12:22,640 --> 00:12:25,120 Speaker 4: ways because it basically we've been able to do the 215 00:12:25,200 --> 00:12:29,520 Speaker 4: disinflation at the same time labor market conditions remain healthy. 216 00:12:29,559 --> 00:12:32,000 Speaker 4: And that's me us not have to face a hard 217 00:12:32,040 --> 00:12:32,800 Speaker 4: trade off there. 218 00:12:32,880 --> 00:12:36,400 Speaker 6: We knew what the job was. The job one was. 219 00:12:36,360 --> 00:12:40,640 Speaker 4: To get that inflation that was exorbitant under control. We 220 00:12:40,760 --> 00:12:43,120 Speaker 4: have had good progress there, but we just have more 221 00:12:43,120 --> 00:12:43,960 Speaker 4: work to do there. 222 00:12:44,040 --> 00:12:47,800 Speaker 6: But this year is going to be one about really looking. 223 00:12:47,640 --> 00:12:50,920 Speaker 4: At the balance now between both parts of our mandate, 224 00:12:51,080 --> 00:12:53,000 Speaker 4: and so we're going to be focused on and I 225 00:12:53,040 --> 00:12:56,240 Speaker 4: certainly we focused on making sure that we continue to 226 00:12:56,280 --> 00:12:59,160 Speaker 4: get inflation on a sustainable and time we've had back 227 00:12:59,200 --> 00:13:03,600 Speaker 4: to two percent while we can maintain healthy labor market conditions. 228 00:13:03,880 --> 00:13:06,560 Speaker 5: You mentioned district contacts. I'm wondering what they're telling you 229 00:13:06,600 --> 00:13:07,800 Speaker 5: about their pricing power. 230 00:13:07,960 --> 00:13:11,360 Speaker 4: So we hear mix as you would expect, right, So 231 00:13:11,520 --> 00:13:17,680 Speaker 4: we definitely have had our contexts tell us that pricing 232 00:13:17,840 --> 00:13:21,400 Speaker 4: pressures have eased, and from their side in terms of 233 00:13:21,400 --> 00:13:24,640 Speaker 4: their input prices that come down, but also their ability 234 00:13:24,720 --> 00:13:31,640 Speaker 4: to pass on past increases has been It's harder now, right, 235 00:13:31,640 --> 00:13:36,560 Speaker 4: customers are pushing back, not uniformly, so some firms have 236 00:13:36,640 --> 00:13:40,720 Speaker 4: been able to maintain pricing power, but there's fewer firms 237 00:13:40,720 --> 00:13:43,880 Speaker 4: that say, you know, we're not going to push back. 238 00:13:44,040 --> 00:13:46,839 Speaker 4: They have to sort of work to get those price 239 00:13:46,920 --> 00:13:49,319 Speaker 4: increases in. But at the same time, they've been able 240 00:13:49,360 --> 00:13:51,840 Speaker 4: to maintain their margins because you've seen goods prices and 241 00:13:51,880 --> 00:13:55,959 Speaker 4: input prices come down, and so you know, wages haven't 242 00:13:56,000 --> 00:13:58,360 Speaker 4: come down that much, but in terms of other input 243 00:13:58,480 --> 00:13:59,800 Speaker 4: costs they have come down. 244 00:14:00,200 --> 00:14:02,400 Speaker 6: Firms have been able to maintain their margins. 245 00:14:02,640 --> 00:14:05,640 Speaker 5: We're going to mix pictures as well from indicators like 246 00:14:06,000 --> 00:14:08,520 Speaker 5: initial job as claims, which have been flat on a 247 00:14:08,559 --> 00:14:11,600 Speaker 5: seasonally adjusted basis, but on a non seasonally adjusted basis 248 00:14:11,840 --> 00:14:14,160 Speaker 5: have spiked in the last few weeks. I'm wondering what 249 00:14:14,520 --> 00:14:17,200 Speaker 5: your business contacts in the district are telling you about 250 00:14:17,240 --> 00:14:20,600 Speaker 5: their plans for their labor force. Are they hiring, are 251 00:14:20,640 --> 00:14:23,920 Speaker 5: they status quo, or are they beginning to think they 252 00:14:23,960 --> 00:14:25,080 Speaker 5: might have to let some people go. 253 00:14:26,120 --> 00:14:29,360 Speaker 4: So we're not hearing much at all about letting people go. 254 00:14:29,480 --> 00:14:31,560 Speaker 4: I mean, you do hear from bankers that, you know, 255 00:14:31,600 --> 00:14:33,760 Speaker 4: in the areas where they're not making a lot of loans, 256 00:14:33,760 --> 00:14:37,240 Speaker 4: like mortgages, they've already reduced staff there, but there isn't 257 00:14:37,240 --> 00:14:40,480 Speaker 4: the kind of staff reductions that one would expect to 258 00:14:40,600 --> 00:14:43,080 Speaker 4: see if the economy was slowing materially. 259 00:14:43,240 --> 00:14:45,240 Speaker 6: A lot of our firms are. 260 00:14:45,160 --> 00:14:48,280 Speaker 4: Still looking for workers. They're still looking for workers, especially 261 00:14:48,320 --> 00:14:51,880 Speaker 4: with hard to find skills. But they do say there's 262 00:14:51,920 --> 00:14:56,880 Speaker 4: more applications and that fewer of their staff were quitting 263 00:14:57,440 --> 00:14:59,920 Speaker 4: to go look for another job, so the conditions are 264 00:15:00,080 --> 00:15:03,920 Speaker 4: still healthy. They still have plans to hire in areas 265 00:15:03,960 --> 00:15:07,640 Speaker 4: where they need workers, and they don't really have plans 266 00:15:07,640 --> 00:15:11,000 Speaker 4: to lay lay off any workers at this point there. 267 00:15:11,040 --> 00:15:14,320 Speaker 4: You know, their order books still look pretty decent. You know, 268 00:15:14,440 --> 00:15:16,680 Speaker 4: one thing that did happen is because it was so 269 00:15:16,920 --> 00:15:20,600 Speaker 4: hard to find workers and all the effort that went 270 00:15:20,680 --> 00:15:23,400 Speaker 4: into We do still continue to hear from firms that 271 00:15:23,480 --> 00:15:25,840 Speaker 4: say we're going to do what we have to do 272 00:15:25,920 --> 00:15:29,800 Speaker 4: to keep keep our workers on staff because it's just 273 00:15:29,920 --> 00:15:32,920 Speaker 4: so costly to the firm if we lose workers and 274 00:15:32,960 --> 00:15:35,000 Speaker 4: then we need to go back into the market told back. 275 00:15:35,040 --> 00:15:36,720 Speaker 4: So that's a good thing in the labor market in 276 00:15:36,840 --> 00:15:38,320 Speaker 4: terms of keeping. 277 00:15:38,040 --> 00:15:39,760 Speaker 6: People attached to the labor market. 278 00:15:40,320 --> 00:15:42,200 Speaker 4: And that's why I have, you know, I in my 279 00:15:42,280 --> 00:15:45,800 Speaker 4: own you know, baseline forecast. I have the unemployment rate 280 00:15:45,840 --> 00:15:49,000 Speaker 4: which is extremely low right now, ticking off a little bit, 281 00:15:49,080 --> 00:15:52,560 Speaker 4: but not really moving up that appreciably. And that's what 282 00:15:52,680 --> 00:15:58,320 Speaker 4: I mean by we can get inflation down by continuing 283 00:15:58,360 --> 00:16:01,840 Speaker 4: to keep some restricted in our monetary policy, but we 284 00:16:01,920 --> 00:16:05,240 Speaker 4: can also have the labor market remain healthy as. 285 00:16:05,080 --> 00:16:05,520 Speaker 6: We do that. 286 00:16:06,560 --> 00:16:08,840 Speaker 5: Janet Yellen, you know her, and she knows a little 287 00:16:08,880 --> 00:16:12,560 Speaker 5: something about monetary policy. I said last week that the 288 00:16:12,720 --> 00:16:16,720 Speaker 5: economy has achieved essentially a soft landing. Would you agree 289 00:16:16,800 --> 00:16:17,720 Speaker 5: or would you push back. 290 00:16:19,000 --> 00:16:22,320 Speaker 4: I think we're aiming to achieve a soft landing, and 291 00:16:22,360 --> 00:16:24,960 Speaker 4: I think the incoming information that we've seen and how 292 00:16:25,000 --> 00:16:28,720 Speaker 4: the economy has evolved has been consistent with that. But 293 00:16:28,840 --> 00:16:31,560 Speaker 4: you know, when you look out there are some risks 294 00:16:31,600 --> 00:16:35,640 Speaker 4: around the forecast, and of course my forecast is basically 295 00:16:35,680 --> 00:16:38,720 Speaker 4: a soft landing, and so you wouldn't want to say, Okay, 296 00:16:38,880 --> 00:16:42,680 Speaker 4: job done, We're on a good path to a soft landing. 297 00:16:42,680 --> 00:16:46,840 Speaker 4: It's it's basically you know made it. We just have 298 00:16:46,960 --> 00:16:49,440 Speaker 4: to keep attuned to the fact that, you know, we 299 00:16:49,520 --> 00:16:52,960 Speaker 4: need to calibrate our monetary policy so that we are 300 00:16:53,200 --> 00:16:56,040 Speaker 4: achieving the soft landing, and we have to be attuned 301 00:16:56,040 --> 00:16:59,320 Speaker 4: to risks around that and risk to both sides and remanding. 302 00:16:59,520 --> 00:17:02,880 Speaker 4: I mean, it's sense. Last year it was the inflation 303 00:17:02,960 --> 00:17:04,040 Speaker 4: part of the mandate. 304 00:17:03,800 --> 00:17:05,240 Speaker 6: Had to have our focus. 305 00:17:05,520 --> 00:17:09,240 Speaker 4: Now as the economy has come into better balance, right, 306 00:17:09,320 --> 00:17:12,960 Speaker 4: the risks have become more in balance as well, in 307 00:17:13,040 --> 00:17:13,440 Speaker 4: terms of. 308 00:17:13,400 --> 00:17:14,439 Speaker 6: Both sides of our mandate. 309 00:17:14,480 --> 00:17:16,639 Speaker 4: And I think that's the job this year, is to 310 00:17:16,680 --> 00:17:21,160 Speaker 4: make sure that we're calibrating our policy to maintain healthy 311 00:17:21,240 --> 00:17:25,480 Speaker 4: labor markets even as we continue the process to get 312 00:17:25,520 --> 00:17:27,320 Speaker 4: inflation back to two percent. 313 00:17:27,640 --> 00:17:30,719 Speaker 5: Okay, if you're calibrating your policy, how do you calibrate it? 314 00:17:31,200 --> 00:17:34,119 Speaker 5: Market thinks that May is the most likely month, but 315 00:17:34,119 --> 00:17:36,600 Speaker 5: there's still a very good chance that you might cut 316 00:17:36,800 --> 00:17:37,840 Speaker 5: rates in March. 317 00:17:38,640 --> 00:17:39,280 Speaker 3: Where are you. 318 00:17:40,160 --> 00:17:42,680 Speaker 4: Well, I mean, it's hard to predict the future, as 319 00:17:42,680 --> 00:17:45,320 Speaker 4: you know, and it's really going to be. 320 00:17:45,280 --> 00:17:47,240 Speaker 6: Dependent on how the economy evolves. 321 00:17:47,320 --> 00:17:51,600 Speaker 4: I think March is probably too early in my estimation 322 00:17:53,000 --> 00:17:56,720 Speaker 4: for a rate decline because I think we need to 323 00:17:56,760 --> 00:18:00,760 Speaker 4: see some more evidence. I think the December I report 324 00:18:00,920 --> 00:18:03,640 Speaker 4: just shows there's more work to do, and that work 325 00:18:03,720 --> 00:18:06,920 Speaker 4: is going to take restrictive monetary policy. But I do 326 00:18:07,000 --> 00:18:12,160 Speaker 4: think that as we see continuing disinflation and we could 327 00:18:12,160 --> 00:18:16,000 Speaker 4: get more evidence that is convincing that inflation is on 328 00:18:16,640 --> 00:18:20,280 Speaker 4: a sustainable, dour path to two percent, then I think, 329 00:18:20,320 --> 00:18:23,280 Speaker 4: you know, we'll have that conversation about, Okay, is it 330 00:18:23,359 --> 00:18:26,720 Speaker 4: time now when we look at inflation but also importantly 331 00:18:26,720 --> 00:18:32,320 Speaker 4: inflation expectations, right, is it time now to move the 332 00:18:32,400 --> 00:18:36,879 Speaker 4: inflation move our FED funds rate when monetary policies start 333 00:18:36,960 --> 00:18:38,400 Speaker 4: that process. 334 00:18:38,240 --> 00:18:39,880 Speaker 6: Of moving it back to a neutral rate. 335 00:18:39,920 --> 00:18:42,960 Speaker 4: And what I would say is I do sort of 336 00:18:42,960 --> 00:18:47,400 Speaker 4: the soft landing scenario right as being the most likely, 337 00:18:47,480 --> 00:18:49,159 Speaker 4: but I do think there's risks around it, and we 338 00:18:49,200 --> 00:18:51,200 Speaker 4: have to be attuned to both sides of the mandate. 339 00:18:51,359 --> 00:18:56,200 Speaker 4: So a reduction in the fund rate that is because 340 00:18:56,280 --> 00:19:00,400 Speaker 4: we try to keep monetary policy well calibrated to what's 341 00:19:00,440 --> 00:19:03,800 Speaker 4: happening on the inflation side of the mandate and epployment side. 342 00:19:04,080 --> 00:19:05,119 Speaker 6: That's different than. 343 00:19:05,000 --> 00:19:07,840 Speaker 4: Having to cut the rate because we're heading into a recession, 344 00:19:08,080 --> 00:19:13,280 Speaker 4: so you know, rate it decreases that heap the real rate, 345 00:19:13,600 --> 00:19:17,120 Speaker 4: you know, not from rising. So when inflation and inflation 346 00:19:17,200 --> 00:19:20,560 Speaker 4: expectations begin to come down, right, if you didn't do 347 00:19:20,640 --> 00:19:24,040 Speaker 4: anything to your funds rate, you'd actually be sort of, 348 00:19:24,800 --> 00:19:27,960 Speaker 4: you know, passively saying a tighter policy. That's the part 349 00:19:27,960 --> 00:19:29,960 Speaker 4: of the evaluation that we're going to have coming up. 350 00:19:30,240 --> 00:19:32,679 Speaker 4: But right now, the evaluation I think is and the 351 00:19:32,720 --> 00:19:36,800 Speaker 4: policy evaluation is how long are we needing to keep 352 00:19:36,880 --> 00:19:41,359 Speaker 4: industrates and ontarry policy the restrictive stance. The next phase 353 00:19:41,400 --> 00:19:45,080 Speaker 4: will be about, you know, okay, is it now we've 354 00:19:45,080 --> 00:19:48,679 Speaker 4: seen the conditions we need to start reducing the funds 355 00:19:48,720 --> 00:19:52,119 Speaker 4: rate and reducing our funds rate back to more neutral stance. 356 00:19:52,200 --> 00:19:54,520 Speaker 6: I don't think we're there yet. I would like to see. 357 00:19:54,359 --> 00:19:58,280 Speaker 4: More evidence that the economy is progressing as we expect 358 00:19:58,320 --> 00:20:01,479 Speaker 4: it to, as I expected too, before we can do that. 359 00:20:01,800 --> 00:20:05,359 Speaker 1: And that was Cleveland FED President Lorettamester speaking with Bloomberg's 360 00:20:05,400 --> 00:20:09,440 Speaker 1: Michael McKee. Still ahead on this holiday edition, of Bloomberg Daybreak. 361 00:20:09,440 --> 00:20:12,880 Speaker 1: We're watching for bank earnings tomorrow, will preview results from 362 00:20:12,920 --> 00:20:17,120 Speaker 1: Goldman Sachs and Morgan Stanley just ahead. It's thirty five 363 00:20:17,160 --> 00:20:21,040 Speaker 1: minutes past the hour. I'm Nathan Hager, and this is Bloomberg. 364 00:20:30,080 --> 00:20:31,800 Speaker 1: Bloomberg Radio is where. 365 00:20:31,600 --> 00:20:35,560 Speaker 2: You are get live business news and market headlines from anywhere, 366 00:20:35,560 --> 00:20:38,560 Speaker 2: twenty four hours a day via your mobile device. Listen 367 00:20:38,600 --> 00:20:41,800 Speaker 2: to the iHeartRadio ad tune in the Bloomberg Business app 368 00:20:41,880 --> 00:20:47,080 Speaker 2: and Bloomberg dot Com. 369 00:20:47,200 --> 00:20:50,680 Speaker 1: Welcome back to this special edition of Bloomberg Daybreak. Markets 370 00:20:50,720 --> 00:20:53,440 Speaker 1: in the US are closed for the Martin Luther King Holiday. 371 00:20:53,760 --> 00:20:56,440 Speaker 1: I'm Nathan Hager, and we're getting set for bank earnings 372 00:20:56,480 --> 00:21:00,399 Speaker 1: to resume this week. Goldman Sachs and Morgan Stanley report 373 00:21:00,440 --> 00:21:03,800 Speaker 1: fourth quarter results before the opening bell tomorrow. Of course, 374 00:21:03,840 --> 00:21:06,320 Speaker 1: this follows the slew of reports that we got from 375 00:21:06,359 --> 00:21:09,560 Speaker 1: the others of the Big six Wall Street banks last Friday. 376 00:21:09,600 --> 00:21:11,600 Speaker 1: So here to get a set for the wrap up 377 00:21:11,720 --> 00:21:15,800 Speaker 1: of bank earning season is Alison Williams, Senior analysts for 378 00:21:15,840 --> 00:21:19,520 Speaker 1: Global banks and asset Managers at Bloomberg Intelligence. Good to 379 00:21:19,520 --> 00:21:22,359 Speaker 1: speak with you again, Alison. First off, let's get your 380 00:21:22,400 --> 00:21:24,560 Speaker 1: read on the results that we saw last Friday, it 381 00:21:24,600 --> 00:21:25,840 Speaker 1: was kind of a mixed bag, wasn't it. 382 00:21:26,840 --> 00:21:31,000 Speaker 7: I think that the core results across the banks in 383 00:21:31,119 --> 00:21:36,919 Speaker 7: terms of net interest income and operating expenses generally looked 384 00:21:37,080 --> 00:21:40,800 Speaker 7: pretty good. The difference there was a big difference in 385 00:21:40,880 --> 00:21:44,520 Speaker 7: terms of the guidance. So JP Morgan, whose net interest 386 00:21:44,560 --> 00:21:47,880 Speaker 7: income has proven the most resilient, and we did get 387 00:21:47,880 --> 00:21:51,960 Speaker 7: an upside surprise in the fourth quarter, they did guide 388 00:21:52,040 --> 00:21:57,200 Speaker 7: higher for that revenue for this year, and yes, they 389 00:21:57,240 --> 00:22:00,760 Speaker 7: also guided for higher costs butt net. We think Earning's 390 00:22:00,840 --> 00:22:04,439 Speaker 7: estimates are going up for JP Morgan. On the credit 391 00:22:04,480 --> 00:22:07,480 Speaker 7: card front, we know that credit card is driving a 392 00:22:07,520 --> 00:22:10,960 Speaker 7: majority of charge offs and provisions across the banks. But 393 00:22:11,040 --> 00:22:13,560 Speaker 7: JP Morgan's guidance came in about in line, I think 394 00:22:13,600 --> 00:22:20,080 Speaker 7: with expectations. And this is in contrast to some trends 395 00:22:20,080 --> 00:22:23,480 Speaker 7: at Wells Fargo, where we saw the expectations are that 396 00:22:23,480 --> 00:22:26,720 Speaker 7: that interest income is going to be lower this year 397 00:22:26,920 --> 00:22:30,480 Speaker 7: and in fact worse than the street had expected, even 398 00:22:30,520 --> 00:22:34,160 Speaker 7: though their fourth Quarternmber came in about in line with expectations. 399 00:22:34,920 --> 00:22:37,399 Speaker 7: And then expense is going to be higher than expected. 400 00:22:37,960 --> 00:22:41,879 Speaker 7: So estimates for JP Morgan going higher for Wells Fargo 401 00:22:42,040 --> 00:22:43,159 Speaker 7: going a bit lower. 402 00:22:43,560 --> 00:22:46,880 Speaker 1: So in terms of that balance between net interest income 403 00:22:47,080 --> 00:22:50,560 Speaker 1: and costs, how can we see that play out for 404 00:22:51,000 --> 00:22:53,400 Speaker 1: Morgan and Goldman when they report tomorrow. 405 00:22:54,040 --> 00:22:59,120 Speaker 7: So for Goldman and Morgan Stanley, really what we learned 406 00:22:59,480 --> 00:23:02,120 Speaker 7: from the bank, I think center is more on the 407 00:23:02,160 --> 00:23:04,840 Speaker 7: trading and investment banking fee side. Keep in mind that 408 00:23:06,160 --> 00:23:09,040 Speaker 7: these two banks are much more focused on the capital 409 00:23:09,080 --> 00:23:13,120 Speaker 7: market side of things. For Morgan Stanley, it's really the 410 00:23:13,160 --> 00:23:16,920 Speaker 7: wealth inflows that we're going to be watching. We had 411 00:23:17,119 --> 00:23:19,680 Speaker 7: very strong numbers from Morgan Stanley in the first half, 412 00:23:20,640 --> 00:23:23,440 Speaker 7: slow down more than expected in the third quarter, and 413 00:23:24,000 --> 00:23:26,840 Speaker 7: so what happens in the fourth quarter I think is 414 00:23:26,880 --> 00:23:29,320 Speaker 7: going to be key in terms of what the momentum 415 00:23:29,440 --> 00:23:32,639 Speaker 7: is there in that unit. James Gorman did set some 416 00:23:32,680 --> 00:23:38,520 Speaker 7: pretty aggressive goals for that business before handing off his 417 00:23:38,600 --> 00:23:43,280 Speaker 7: position to Ted Pick, who takes the reins this year 418 00:23:43,400 --> 00:23:47,080 Speaker 7: of the bank. And so the wealth business is really 419 00:23:47,119 --> 00:23:51,200 Speaker 7: what we're watching for at Morgan Stanley. Trading and investment 420 00:23:51,200 --> 00:23:54,160 Speaker 7: banking fees, which is another business that's important for Morgan 421 00:23:54,200 --> 00:23:58,760 Speaker 7: Stanley but more important for Goldman Sachs. We saw across 422 00:23:58,800 --> 00:24:03,440 Speaker 7: the banks that report on Friday generally a little bit 423 00:24:03,480 --> 00:24:07,120 Speaker 7: softer numbers unexpected across the board. Really where we saw 424 00:24:07,160 --> 00:24:09,600 Speaker 7: the weakness was at City Group and their fixed income 425 00:24:10,000 --> 00:24:14,879 Speaker 7: trading line. They talked about weaker commodities, weaker currencies, So 426 00:24:14,920 --> 00:24:18,000 Speaker 7: that is a little bit of a negative more towards 427 00:24:18,000 --> 00:24:23,040 Speaker 7: Goldman Sachs than Morgan Stanley. Morgan Stanley's trading business is 428 00:24:23,080 --> 00:24:25,399 Speaker 7: a little bit more focused on the equity trading side 429 00:24:25,400 --> 00:24:29,680 Speaker 7: of things, and so we're going to be watching results there. 430 00:24:30,280 --> 00:24:33,359 Speaker 7: What's interesting is Morgan Stanley and Goldman Sachs are the 431 00:24:33,400 --> 00:24:38,679 Speaker 7: two top players in that business. Goldman was the leader, 432 00:24:38,840 --> 00:24:41,879 Speaker 7: Morgan Stanley sort of took that position for several years, 433 00:24:41,880 --> 00:24:44,920 Speaker 7: but now Goldman Sachs is sort of back in the lead, 434 00:24:44,960 --> 00:24:47,600 Speaker 7: and so I think that's that's something that investors are 435 00:24:47,640 --> 00:24:50,399 Speaker 7: watching for, you know, more of the interest of bragging 436 00:24:50,480 --> 00:24:53,359 Speaker 7: rights because as the top two players, they are profitable 437 00:24:53,400 --> 00:24:54,879 Speaker 7: in those businesses. 438 00:24:54,720 --> 00:24:56,960 Speaker 1: And I guess leadership is probably going to be a 439 00:24:56,960 --> 00:25:00,520 Speaker 1: big focus for investors for both these banks. Right as 440 00:25:00,520 --> 00:25:03,960 Speaker 1: you mentioned, Ted Pick is coming in as the new 441 00:25:04,040 --> 00:25:07,440 Speaker 1: CEO of Morgan Stanley, and David Solomon has been facing 442 00:25:07,480 --> 00:25:11,040 Speaker 1: a lot of pressure from investors over the performance over 443 00:25:11,280 --> 00:25:16,320 Speaker 1: several quarters over at Goldman's Sex, how could leadership be 444 00:25:16,400 --> 00:25:19,560 Speaker 1: a focus for investors looking at these results. 445 00:25:20,440 --> 00:25:22,800 Speaker 7: So the big change, as you pointed out, is at 446 00:25:22,800 --> 00:25:26,560 Speaker 7: Morgan Stanley, and I think investors will be watching to 447 00:25:26,600 --> 00:25:31,240 Speaker 7: see what, if any changes Ted Pick will make to 448 00:25:31,280 --> 00:25:35,320 Speaker 7: the strategy. Keep in mind that Ted Pick really had 449 00:25:35,359 --> 00:25:39,520 Speaker 7: a lot of success in building the trading operations of 450 00:25:39,600 --> 00:25:43,159 Speaker 7: Morgan Stanley for the many for the many years that 451 00:25:43,240 --> 00:25:47,639 Speaker 7: he ran those businesses, the business has shifted more towards 452 00:25:47,640 --> 00:25:51,280 Speaker 7: wealth and asset management under Gorman. We don't expect that 453 00:25:51,840 --> 00:25:56,359 Speaker 7: shift will change, but we do wonder what kind of 454 00:25:56,400 --> 00:26:00,119 Speaker 7: investments and what kind of changes Pick may make to 455 00:26:00,160 --> 00:26:04,040 Speaker 7: the institutional size of the business since, as I said, 456 00:26:05,440 --> 00:26:09,200 Speaker 7: you know, some of their leadership has sort of gone 457 00:26:09,200 --> 00:26:13,840 Speaker 7: to Goldman Sachs. In the most recent couple of years, 458 00:26:13,880 --> 00:26:18,520 Speaker 7: Golden Sacks as of third quarter, has shown the strongest 459 00:26:19,040 --> 00:26:23,200 Speaker 7: gains in both FICK and equities trading over the long term. 460 00:26:23,800 --> 00:26:26,119 Speaker 7: And so despite a lot of the noise that we 461 00:26:26,240 --> 00:26:30,159 Speaker 7: hear around Goldman Sachs related to businesses that are not 462 00:26:30,680 --> 00:26:34,320 Speaker 7: the core, we do think that that's important for investors 463 00:26:34,359 --> 00:26:37,280 Speaker 7: to keep in mind. They have talked about building relationships 464 00:26:37,320 --> 00:26:42,720 Speaker 7: with top clients. They've delivered on success in those trading businesses. 465 00:26:43,119 --> 00:26:45,800 Speaker 7: The other area where they've focused on is the asset 466 00:26:45,840 --> 00:26:50,400 Speaker 7: management side of things. They are executing across against their 467 00:26:50,440 --> 00:26:54,120 Speaker 7: plan for the alternatives business. So those are two key 468 00:26:54,119 --> 00:26:57,919 Speaker 7: things to keep in mind. They're the bank has definitely 469 00:26:57,960 --> 00:27:01,639 Speaker 7: shifted over the past year. They narrowing their focus. So 470 00:27:03,400 --> 00:27:06,199 Speaker 7: you know, under prior management they had this expansion, they 471 00:27:06,200 --> 00:27:09,800 Speaker 7: were sort of reaching more towards the consumer, the retail 472 00:27:09,840 --> 00:27:13,080 Speaker 7: side of things. That's not something that Goldman has typically 473 00:27:13,119 --> 00:27:15,840 Speaker 7: been known for, and now we've seen over the past 474 00:27:15,880 --> 00:27:18,520 Speaker 7: year sort of retrenching and kind of going back to 475 00:27:18,760 --> 00:27:22,640 Speaker 7: their core business focus. That has certainly created a lot 476 00:27:22,720 --> 00:27:27,080 Speaker 7: of noise in terms of charges and sales and such 477 00:27:27,240 --> 00:27:32,280 Speaker 7: over the past year. We do think that their compensation costs, 478 00:27:33,160 --> 00:27:36,600 Speaker 7: while we know that they've had several charges related to 479 00:27:36,680 --> 00:27:38,840 Speaker 7: severns in the year, but we think that those costs 480 00:27:38,880 --> 00:27:42,560 Speaker 7: actually do tend to be a little bit more sticky 481 00:27:42,600 --> 00:27:47,640 Speaker 7: for the bank as the bank looks towards twenty twenty four, 482 00:27:48,320 --> 00:27:52,800 Speaker 7: and most of the most of the managements have been 483 00:27:52,840 --> 00:27:56,120 Speaker 7: more optimistic about investment banking fees this year What we're 484 00:27:56,160 --> 00:27:58,520 Speaker 7: going to be looking to hear from Goldman, Sachs and 485 00:27:58,600 --> 00:28:04,080 Speaker 7: Morgan Stanley relates really to what are their clients saying, 486 00:28:04,119 --> 00:28:08,920 Speaker 7: What are CEOs feeling, How confident are they can we 487 00:28:09,040 --> 00:28:12,320 Speaker 7: expect an uplift in deals. M and A is a 488 00:28:12,320 --> 00:28:16,119 Speaker 7: great business for the banks. It's also a good business 489 00:28:16,119 --> 00:28:20,440 Speaker 7: for the several boutiques they met. The companies have been 490 00:28:20,600 --> 00:28:25,480 Speaker 7: optimistic about this business for this year. Will we get 491 00:28:26,320 --> 00:28:28,880 Speaker 7: some reasons to support that optimism with results. 492 00:28:29,119 --> 00:28:31,159 Speaker 1: You raise a really good point when it comes to 493 00:28:31,200 --> 00:28:35,439 Speaker 1: the outlook for deal making into twenty twenty four and 494 00:28:35,720 --> 00:28:39,560 Speaker 1: the challenges that could be ahead in terms of an 495 00:28:39,600 --> 00:28:43,680 Speaker 1: elevated interest rate environment potentially that these banks could be 496 00:28:43,720 --> 00:28:47,200 Speaker 1: facing over the next several quarters. How could that play 497 00:28:47,200 --> 00:28:50,120 Speaker 1: out in what we're expecting from Goldman and Morgan Stanley. 498 00:28:50,920 --> 00:28:54,360 Speaker 7: So for Goldman and Morgan Stanley as it relates to 499 00:28:54,880 --> 00:28:59,240 Speaker 7: interest rates, what could be positive for the banks is 500 00:28:59,520 --> 00:29:05,720 Speaker 7: if the market implied federal reserve pivot does come to 501 00:29:05,920 --> 00:29:12,600 Speaker 7: fruition in twenty twenty four. So if in fact, managements 502 00:29:12,640 --> 00:29:17,960 Speaker 7: of corporations can get confident in the indust rate outlook, 503 00:29:18,080 --> 00:29:22,920 Speaker 7: in the economic policy outlook, perhaps that could feed into 504 00:29:23,000 --> 00:29:26,000 Speaker 7: more deals. If we get a lifting confidence, if we 505 00:29:26,040 --> 00:29:29,400 Speaker 7: get lower borrowing costs, that could be good for M 506 00:29:29,440 --> 00:29:32,000 Speaker 7: and A. We know that there's a fair amount of 507 00:29:32,000 --> 00:29:34,840 Speaker 7: cash sitting around on these companies ready to do deals. 508 00:29:35,160 --> 00:29:37,960 Speaker 7: It's really been a lot of the volatility and uncertainty 509 00:29:38,760 --> 00:29:42,880 Speaker 7: that has kept some of the managements on the sidelines. 510 00:29:43,280 --> 00:29:45,640 Speaker 1: Okay, lots to look forward to as we await those 511 00:29:45,680 --> 00:29:48,800 Speaker 1: results before the opening bell tomorrow from Goldman Sachs and 512 00:29:48,840 --> 00:29:53,760 Speaker 1: Morgan Stanley, thanks to Bloomberg Intelligence Senior banks analyst Alison Williams. 513 00:29:53,800 --> 00:29:56,280 Speaker 1: And still ahead on the special edition of Bloomberg day 514 00:29:56,280 --> 00:29:58,720 Speaker 1: Break for the Martin Luther King Holiday, We're going to 515 00:29:58,840 --> 00:30:02,400 Speaker 1: check in with black voters heading into a pivotal election cycle. 516 00:30:02,840 --> 00:30:05,760 Speaker 1: It's fifty minutes past the hour. I'm Nathan Hager, and 517 00:30:05,840 --> 00:30:20,520 Speaker 1: this is Bloomberg. Welcome back to this special edition of 518 00:30:20,560 --> 00:30:23,560 Speaker 1: Bloomberg Daybreak. The US market is closed for the Martin 519 00:30:23,640 --> 00:30:26,560 Speaker 1: Luther King Day holiday. I'm Nathan Hager, and as we 520 00:30:26,600 --> 00:30:29,320 Speaker 1: reflect on doctor King's legacy, we want to check in 521 00:30:29,400 --> 00:30:32,920 Speaker 1: with black voters as we head into a pivotal election cycle. 522 00:30:33,200 --> 00:30:36,280 Speaker 1: For that, we turned to Bloomberg Black Business Beat host 523 00:30:36,560 --> 00:30:37,240 Speaker 1: justin Milliner. 524 00:30:37,640 --> 00:30:41,080 Speaker 8: It is because of this congregation in the black community 525 00:30:41,120 --> 00:30:44,800 Speaker 8: of South Carolina, and not an exaggeration in Jim Clyburn, 526 00:30:45,200 --> 00:30:48,160 Speaker 8: that I stand here today as your president because of 527 00:30:48,200 --> 00:30:51,000 Speaker 8: all of you. That's a fact. 528 00:30:52,200 --> 00:30:55,760 Speaker 9: That's a fact, as President Joe Biden at a recent 529 00:30:55,800 --> 00:30:59,600 Speaker 9: event speaking to the largely black congregation at Mother Emmanuel 530 00:30:59,640 --> 00:31:03,800 Speaker 9: AMA in Charleston, South Carolina. It's a historic black church 531 00:31:04,000 --> 00:31:07,360 Speaker 9: where a white supremacist gunman killed nine people back in 532 00:31:07,400 --> 00:31:11,520 Speaker 9: twenty fifteen. It's no mistake that President Biden chose that 533 00:31:11,600 --> 00:31:14,880 Speaker 9: location as the site of one of his first appearances 534 00:31:14,960 --> 00:31:18,720 Speaker 9: of twenty twenty four as he ramps up his reelection campaign. 535 00:31:19,640 --> 00:31:23,080 Speaker 9: Black voters have long been an important voting block for 536 00:31:23,120 --> 00:31:27,480 Speaker 9: Democrats and for Biden. Bloomberg White House correspondent A. Caleb 537 00:31:27,520 --> 00:31:30,760 Speaker 9: Gardner talked to me about how South Carolina is symbolic 538 00:31:30,880 --> 00:31:32,400 Speaker 9: for Biden and his campaign. 539 00:31:32,680 --> 00:31:36,200 Speaker 10: He became president because he had a big primary win 540 00:31:36,280 --> 00:31:39,640 Speaker 10: in South Carolina after not performing well in the first 541 00:31:39,680 --> 00:31:43,160 Speaker 10: two primaries, and that really turned around his candidacy. And 542 00:31:43,200 --> 00:31:46,400 Speaker 10: that's a huge part because of the significant black population 543 00:31:46,880 --> 00:31:49,360 Speaker 10: in South Carolina. So I think it's an owde and 544 00:31:49,520 --> 00:31:53,160 Speaker 10: acknowledgment of how Black voters have paved this way to 545 00:31:53,200 --> 00:31:55,680 Speaker 10: the White House for him, and also that he's willing 546 00:31:55,720 --> 00:31:59,040 Speaker 10: to invest in them again, and he is acknowledging that 547 00:31:59,080 --> 00:32:01,080 Speaker 10: he needs to court them, he needs to speak directly 548 00:32:01,120 --> 00:32:04,080 Speaker 10: to them if he wants them to turn out for him. 549 00:32:04,080 --> 00:32:06,120 Speaker 10: And I think that also comes at a time where 550 00:32:06,160 --> 00:32:09,040 Speaker 10: we've seen in polling that Black voters are not the 551 00:32:09,120 --> 00:32:11,600 Speaker 10: happiest with Joe Biden. He's not very popular with them 552 00:32:11,640 --> 00:32:12,240 Speaker 10: at this time. 553 00:32:12,640 --> 00:32:13,480 Speaker 2: He is not. 554 00:32:14,040 --> 00:32:17,280 Speaker 9: Recent polling from Bloomberg News and Morning Consulted has support 555 00:32:17,320 --> 00:32:20,680 Speaker 9: for Biden in the black community slipping. Bloomberg White House 556 00:32:20,720 --> 00:32:23,880 Speaker 9: Politics reporter Christian Hall has been on the campaign trail, 557 00:32:24,320 --> 00:32:26,920 Speaker 9: and when he's spoken to black voters, he says he 558 00:32:26,920 --> 00:32:30,760 Speaker 9: hears a lot about the economy, and he's starting to 559 00:32:30,800 --> 00:32:34,480 Speaker 9: hear a lot more about another presidential candidate. 560 00:32:34,720 --> 00:32:36,960 Speaker 11: A lot of the sentiment that you're seeing right now 561 00:32:37,120 --> 00:32:39,320 Speaker 11: of how black voters are feeling, a lot of it 562 00:32:39,400 --> 00:32:42,160 Speaker 11: is rooted in the economy. They're not happy with what 563 00:32:42,200 --> 00:32:45,800 Speaker 11: they're seeing from Joe Biden. A candidate that's kind of 564 00:32:45,800 --> 00:32:49,080 Speaker 11: picking up some traction with black voters, I would say 565 00:32:49,280 --> 00:32:53,960 Speaker 11: is Donald Trump. I know, it sounds really wild, considering 566 00:32:54,000 --> 00:32:56,360 Speaker 11: the rhetoric that Trump has had in the past and 567 00:32:56,600 --> 00:33:00,320 Speaker 11: some of the racially divisive language that he's used, but 568 00:33:00,360 --> 00:33:02,800 Speaker 11: Black voters are really interested in what he's saying, and 569 00:33:02,840 --> 00:33:06,960 Speaker 11: I think that as the election continues, we're going to 570 00:33:07,040 --> 00:33:10,960 Speaker 11: see Donald Trump kind of trying to court black voters 571 00:33:11,040 --> 00:33:11,920 Speaker 11: more and more. 572 00:33:12,120 --> 00:33:14,760 Speaker 9: Bloombers A Kayla Gardner says that if there's a pathway 573 00:33:14,800 --> 00:33:17,680 Speaker 9: for Trump with black voters, it might be less to 574 00:33:17,720 --> 00:33:20,200 Speaker 9: do with what Trump is offering and more to do 575 00:33:20,320 --> 00:33:21,640 Speaker 9: with what Biden isn't. 576 00:33:22,040 --> 00:33:25,200 Speaker 10: I think black voters right now are in a wait 577 00:33:25,280 --> 00:33:29,240 Speaker 10: and see mode. They want to see more from President Biden. 578 00:33:29,920 --> 00:33:33,400 Speaker 10: He really hasn't done that many events before this event 579 00:33:33,440 --> 00:33:37,400 Speaker 10: in South Carolina, specifically talking to it focused on black voters. 580 00:33:37,480 --> 00:33:40,040 Speaker 10: So I think they're really watching to see whether he 581 00:33:40,120 --> 00:33:43,600 Speaker 10: is going to actually get in full campaign mode and 582 00:33:43,640 --> 00:33:46,480 Speaker 10: go across the country and court these voters. He really 583 00:33:46,520 --> 00:33:50,880 Speaker 10: has been focused on sort of these Middle America voters 584 00:33:50,880 --> 00:33:53,440 Speaker 10: for a very long time, which of course tend to 585 00:33:53,480 --> 00:33:57,800 Speaker 10: be wider than the average metropolitan city, and I think 586 00:33:57,840 --> 00:33:59,680 Speaker 10: they've felt a little bit left behind. 587 00:34:00,080 --> 00:34:04,080 Speaker 11: What's really happening is more than ever before in history, 588 00:34:04,200 --> 00:34:08,359 Speaker 11: black voters are open to their two different options, right. 589 00:34:08,760 --> 00:34:10,880 Speaker 11: I think in the past we saw a lot of 590 00:34:11,600 --> 00:34:14,640 Speaker 11: black Democratic voters saying, you know, we have to vote 591 00:34:14,680 --> 00:34:18,160 Speaker 11: for Democrats. This is what you know we were raised 592 00:34:18,160 --> 00:34:20,759 Speaker 11: to do through the civil rights movement movement. We have 593 00:34:20,880 --> 00:34:23,400 Speaker 11: to use our vote and support you know, this party. 594 00:34:23,880 --> 00:34:26,760 Speaker 11: And I think we're seeing more than ever black voters 595 00:34:26,760 --> 00:34:29,640 Speaker 11: saying I am open to someone who's going to represent 596 00:34:29,680 --> 00:34:30,320 Speaker 11: me the best. 597 00:34:30,520 --> 00:34:33,239 Speaker 9: That's Bloomberg Christian Hall and of course Bloomberg'sai Kayla Gardner, 598 00:34:33,280 --> 00:34:35,879 Speaker 9: who are both doing great reporting on this. If we 599 00:34:36,000 --> 00:34:38,520 Speaker 9: do end up with a Biden Trump rematch, a lot 600 00:34:38,520 --> 00:34:42,320 Speaker 9: of pulling now sees that race being pretty close. So Nathan, 601 00:34:42,440 --> 00:34:44,719 Speaker 9: it looks like how all these candidates do with black 602 00:34:44,800 --> 00:34:47,040 Speaker 9: voters could end up making a pretty big difference by 603 00:34:47,040 --> 00:34:48,160 Speaker 9: the time we hit November. 604 00:34:48,600 --> 00:34:51,320 Speaker 1: Our thanks to Bloomberg's Justin Milliner as well as Stephen 605 00:34:51,400 --> 00:34:54,440 Speaker 1: Shark of the Short Group and Bloomberg Intelligence senior banks 606 00:34:54,440 --> 00:34:57,359 Speaker 1: analyst Alison Williams, we'd like to thank you as well 607 00:34:57,400 --> 00:35:00,000 Speaker 1: for joining us on this holiday. We will be back 608 00:35:00,200 --> 00:35:03,799 Speaker 1: tomorrow ahead of the market open on Bloomberg Daybreak, but 609 00:35:03,880 --> 00:35:06,760 Speaker 1: for now, stay with us. Today's top stories and global 610 00:35:06,800 --> 00:35:10,360 Speaker 1: business headlines are coming up right now.