1 00:00:02,400 --> 00:00:09,119 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:09,119 --> 00:00:13,320 Speaker 1: Bloomberg Intelligence Podcast. Catch US Live weekdays at ten am 3 00:00:13,360 --> 00:00:15,800 Speaker 1: Eastern on Effle car Playing and Broid Auto with the 4 00:00:15,800 --> 00:00:19,720 Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts, 5 00:00:19,920 --> 00:00:22,280 Speaker 1: or watch US live on YouTube. 6 00:00:23,239 --> 00:00:24,720 Speaker 2: All right, let's get back to the market's here. So 7 00:00:24,760 --> 00:00:28,479 Speaker 2: equities continue to roll over. Bond market quite interesting. You 8 00:00:28,640 --> 00:00:31,200 Speaker 2: had a sell off right when those CPI numbers hit. 9 00:00:31,240 --> 00:00:33,040 Speaker 2: You had a spike in the two year yield, and 10 00:00:33,040 --> 00:00:35,040 Speaker 2: then once the cash market opened for the equity market, 11 00:00:35,200 --> 00:00:39,040 Speaker 2: bonds continued to really roll over, with yields moving significantly lower. Now, 12 00:00:39,680 --> 00:00:43,200 Speaker 2: Ira Jersey, Bloomberg Intelligence Chief US interest rate strategist, it joins, 13 00:00:43,280 --> 00:00:45,360 Speaker 2: us I shouldn't say significantly lower, but compared to where 14 00:00:45,360 --> 00:00:47,640 Speaker 2: they were, it was quite a move. What are we 15 00:00:47,720 --> 00:00:48,840 Speaker 2: making of the move today? 16 00:00:50,240 --> 00:00:53,000 Speaker 3: Yeah, so, you know, after the CPI report came out, 17 00:00:53,440 --> 00:00:55,960 Speaker 3: the market was thinking, oh, well, maybe the Fed is 18 00:00:56,040 --> 00:00:58,320 Speaker 3: less likely to do a fifty basis point rate cut 19 00:00:58,480 --> 00:01:01,120 Speaker 3: next week, and so we're going to readjust that front 20 00:01:01,200 --> 00:01:04,679 Speaker 3: end yield. Once the you know, equity started to roll over, 21 00:01:04,760 --> 00:01:08,200 Speaker 3: you also have seen a pretty big rally in European 22 00:01:08,280 --> 00:01:11,039 Speaker 3: rates this morning our time, in the afternoon their time. 23 00:01:11,640 --> 00:01:14,400 Speaker 3: And I think that that treasuries of have you know, one, 24 00:01:14,760 --> 00:01:16,840 Speaker 3: have a flight to quality bid from the risk off 25 00:01:16,880 --> 00:01:19,680 Speaker 3: in the US markets, but also are being pulled down 26 00:01:19,720 --> 00:01:21,960 Speaker 3: a little bit by the global rate environment as well. 27 00:01:22,040 --> 00:01:25,400 Speaker 3: So again, not huge moves on a day on day basis, 28 00:01:25,480 --> 00:01:28,160 Speaker 3: but like you said, Alex, you know the fact that 29 00:01:28,200 --> 00:01:30,560 Speaker 3: we were off by six basis points in two year 30 00:01:30,600 --> 00:01:33,360 Speaker 3: yields and then you know, now we're essentially unchanged. You know, 31 00:01:33,400 --> 00:01:37,119 Speaker 3: I think that's meaningful enough that the market is, you know, 32 00:01:37,200 --> 00:01:39,760 Speaker 3: not one hundred percent sure right now and certainly has 33 00:01:39,760 --> 00:01:42,880 Speaker 3: certainly been not priced for, you know, just the twenty 34 00:01:42,880 --> 00:01:45,480 Speaker 3: five basis point cut next week. 35 00:01:46,040 --> 00:01:48,760 Speaker 4: So how do you think our friends at the Federal 36 00:01:48,760 --> 00:01:53,320 Speaker 4: Reserve will read this inflation data today? 37 00:01:53,560 --> 00:01:56,720 Speaker 3: Yeah, So our view is is that this solidified the 38 00:01:56,720 --> 00:01:59,000 Speaker 3: idea that a twenty five basis point rate cut is 39 00:01:59,000 --> 00:02:02,640 Speaker 3: in the cards. You know, again, fifty is not impossible, 40 00:02:02,680 --> 00:02:06,160 Speaker 3: and certainly the market doesn't think so either. But at 41 00:02:06,160 --> 00:02:09,840 Speaker 3: the same time, you know, point two in point two 42 00:02:09,840 --> 00:02:13,760 Speaker 3: percent inflation print is still above the Fed's target. So 43 00:02:13,880 --> 00:02:16,360 Speaker 3: even though they want to cut interest rates because they're 44 00:02:16,400 --> 00:02:19,360 Speaker 3: worried that the economy is starting to slip, and you know, 45 00:02:19,440 --> 00:02:22,200 Speaker 3: certainly they've been focused more on employment than inflation in 46 00:02:22,280 --> 00:02:27,080 Speaker 3: recent months, that they can start a slow rate cut cycle. 47 00:02:27,480 --> 00:02:30,000 Speaker 3: I know some some houses on the street think that 48 00:02:30,040 --> 00:02:32,639 Speaker 3: they could go twenty five and then fifty basis points 49 00:02:33,240 --> 00:02:35,440 Speaker 3: for a couple of meetings there after, I suspect at 50 00:02:35,440 --> 00:02:36,920 Speaker 3: the end of the day they're going to go twenty 51 00:02:36,960 --> 00:02:39,600 Speaker 3: five basis points at every meeting. So the market maybe 52 00:02:39,639 --> 00:02:41,480 Speaker 3: has gotten a little bit ahead of itself when you 53 00:02:41,560 --> 00:02:45,600 Speaker 3: look at pricing for say January FED funds futures, or 54 00:02:45,600 --> 00:02:47,000 Speaker 3: even two year yields for that matter. 55 00:02:47,160 --> 00:02:49,360 Speaker 2: Yeah, So it seemed like what happened is once they 56 00:02:49,400 --> 00:02:52,000 Speaker 2: got the print that that fifty bases point potential cut 57 00:02:52,040 --> 00:02:54,720 Speaker 2: moved more to December. Rather than pricing it out, it 58 00:02:54,840 --> 00:02:57,000 Speaker 2: just kind of pushed it off a little bit. Does 59 00:02:57,000 --> 00:02:59,680 Speaker 2: that need to be pushed out even more and or 60 00:02:59,760 --> 00:03:01,080 Speaker 2: is it taken out all together? 61 00:03:02,320 --> 00:03:02,519 Speaker 5: Well? 62 00:03:02,560 --> 00:03:03,960 Speaker 3: I think as a base case in the way that 63 00:03:04,000 --> 00:03:06,760 Speaker 3: I'm thinking about how the economy might develop, and then 64 00:03:06,760 --> 00:03:09,919 Speaker 3: what the FED reaction function and therefore the jusuring markets 65 00:03:09,960 --> 00:03:13,200 Speaker 3: reaction function to that new economic news is that the 66 00:03:13,240 --> 00:03:16,280 Speaker 3: economy is going to continue to slow, but not very quickly. 67 00:03:16,360 --> 00:03:18,480 Speaker 3: So therefore the Federal Reserve will be able to be 68 00:03:18,560 --> 00:03:21,960 Speaker 3: patient and go in twenty five basis point increments and 69 00:03:22,000 --> 00:03:24,320 Speaker 3: then maybe at some point it might do a fifty, 70 00:03:24,680 --> 00:03:27,040 Speaker 3: but I don't think that the Fed necessarily wants to 71 00:03:27,080 --> 00:03:29,080 Speaker 3: because and certainly as a first and we've been saying 72 00:03:29,120 --> 00:03:31,680 Speaker 3: this for months now, is that if the Federal Reserve 73 00:03:31,720 --> 00:03:33,840 Speaker 3: were to start with a fifty basis point in rate cut, 74 00:03:34,639 --> 00:03:36,320 Speaker 3: you know, that would be like a shock and awe 75 00:03:36,400 --> 00:03:41,920 Speaker 3: kind of event. And I think that would show, you know, 76 00:03:42,160 --> 00:03:46,720 Speaker 3: the market and maybe just that you know, main street 77 00:03:47,480 --> 00:03:50,600 Speaker 3: main street businesses and households, that the fedce panicked and 78 00:03:50,680 --> 00:03:53,840 Speaker 3: they see something maybe that's much weaker than most of 79 00:03:53,840 --> 00:03:57,560 Speaker 3: the economic data that's coming in suggests. So I think 80 00:03:57,560 --> 00:03:59,600 Speaker 3: that that would show some panic. And that's another reason 81 00:03:59,640 --> 00:04:02,720 Speaker 3: to think, hey, they'll go twenty five's unless and until 82 00:04:03,000 --> 00:04:05,280 Speaker 3: you wind up having you know, negative payroll print or 83 00:04:05,840 --> 00:04:10,200 Speaker 3: even fifty thousand person payroll print. What would be enough 84 00:04:10,360 --> 00:04:12,760 Speaker 3: for them to say, hey, the economy's you know, not 85 00:04:12,840 --> 00:04:15,040 Speaker 3: growing anywhere near potential, so we really have to cut 86 00:04:15,120 --> 00:04:18,000 Speaker 3: interest rates significantly. But until we get to that point 87 00:04:18,080 --> 00:04:20,440 Speaker 3: in the data, I think that the Fed's going to 88 00:04:20,480 --> 00:04:22,840 Speaker 3: go twenty five basis points. And you know, look, this 89 00:04:22,920 --> 00:04:26,479 Speaker 3: is all like short term interest rate trader minutia quite frankly, 90 00:04:26,800 --> 00:04:28,640 Speaker 3: and for the I think for the broader markets, you 91 00:04:28,640 --> 00:04:30,640 Speaker 3: have to say, Okay, the Fed's an easing mode. The 92 00:04:30,760 --> 00:04:33,960 Speaker 3: question is how fast and how far not necessarily are 93 00:04:33,960 --> 00:04:35,000 Speaker 3: they going to be cutting rates? 94 00:04:36,240 --> 00:04:39,000 Speaker 6: A right about thirty seconds left here the election. 95 00:04:40,400 --> 00:04:42,240 Speaker 4: The treasury market, I don't think I heard the yield 96 00:04:42,240 --> 00:04:44,480 Speaker 4: curve mentioned last night at the debate. But how do 97 00:04:44,600 --> 00:04:47,479 Speaker 4: you guys frame out kind of the political risks here? 98 00:04:48,200 --> 00:04:50,440 Speaker 3: Yeah, so we put out our We put out a 99 00:04:50,440 --> 00:04:53,880 Speaker 3: note on what we thought the big impactful things for 100 00:04:53,920 --> 00:04:56,359 Speaker 3: the treasury market will be based on the election. Most 101 00:04:56,360 --> 00:05:00,520 Speaker 3: of those are not expecting a big reaction on election 102 00:05:00,640 --> 00:05:03,240 Speaker 3: day one way or the other, but nuanced things like 103 00:05:03,279 --> 00:05:05,240 Speaker 3: who's the next FED share going to be that's going 104 00:05:05,320 --> 00:05:09,320 Speaker 3: to matter if President Trump wins election again, it won't 105 00:05:09,360 --> 00:05:12,440 Speaker 3: be Powell. Maybe for Kamila Harris it will be Powell, 106 00:05:12,440 --> 00:05:15,159 Speaker 3: and if not, or probably someone else, and who was 107 00:05:15,200 --> 00:05:18,160 Speaker 3: maybe a Biden appointee to the Fed. So those are 108 00:05:18,160 --> 00:05:19,760 Speaker 3: the types of things that matter. And then of course, 109 00:05:19,839 --> 00:05:23,920 Speaker 3: things like budget deficits. Neither of these candidates is likely 110 00:05:24,000 --> 00:05:26,680 Speaker 3: to be a deficit hawk, so therefore you're likely to 111 00:05:26,720 --> 00:05:30,560 Speaker 3: continue with relatively large budget deficits, and that obviously has 112 00:05:30,600 --> 00:05:33,040 Speaker 3: an effect on pricing in the treasury market. 113 00:05:33,480 --> 00:05:35,880 Speaker 2: Airah, Always a pleasure, Always great to catch up with you. 114 00:05:36,000 --> 00:05:39,080 Speaker 2: Ira Jersey joining us. He is Bloomberg Intelligence, a senior 115 00:05:39,200 --> 00:05:42,160 Speaker 2: US interest rate strategy. 116 00:05:42,440 --> 00:05:46,320 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 117 00:05:46,400 --> 00:05:49,920 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 118 00:05:49,960 --> 00:05:52,719 Speaker 1: Auto with the Bloomberg Business Act. You can also listen 119 00:05:52,839 --> 00:05:55,960 Speaker 1: live on Amazon Alexa from our flagship New York station. 120 00:05:56,320 --> 00:06:00,120 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 121 00:06:00,920 --> 00:06:02,840 Speaker 2: So we got through the risk events, we got through 122 00:06:02,839 --> 00:06:05,719 Speaker 2: the debate, we got through CPI, We were headed towards 123 00:06:05,720 --> 00:06:07,400 Speaker 2: the FED. It looks like markets are now pricing in 124 00:06:07,400 --> 00:06:09,960 Speaker 2: that twenty five basis points in September. So what do 125 00:06:10,000 --> 00:06:12,640 Speaker 2: you do in that scenario? Nicole Webb Senior vice president, 126 00:06:12,680 --> 00:06:16,680 Speaker 2: Financial advisor at Wealth Enhancement Group, and she joins us. Now, Nicole, 127 00:06:16,720 --> 00:06:19,320 Speaker 2: does this take fifty off the table or does it 128 00:06:19,360 --> 00:06:22,920 Speaker 2: push the fifty out to like a November or December. 129 00:06:23,640 --> 00:06:25,880 Speaker 5: You know, we were of the camp that the FED 130 00:06:26,000 --> 00:06:29,960 Speaker 5: probably wasn't going to step into this cutting cycle with 131 00:06:30,240 --> 00:06:33,359 Speaker 5: fifty basis point cut, and so for us, the CPI 132 00:06:33,400 --> 00:06:38,400 Speaker 5: today was largely in line with expectations obviously across the board, 133 00:06:38,839 --> 00:06:41,520 Speaker 5: and for us it just didn't bear terribly much weight 134 00:06:41,720 --> 00:06:43,200 Speaker 5: in the short term. 135 00:06:43,839 --> 00:06:46,279 Speaker 4: So what are the key drivers here then, do you 136 00:06:46,279 --> 00:06:48,520 Speaker 4: think of these markets going forward? Again, as Alex was 137 00:06:48,560 --> 00:06:51,839 Speaker 4: just mentioned, we've gotten through a number of kind of 138 00:06:52,000 --> 00:06:54,600 Speaker 4: external events here. What do you look to be kind 139 00:06:54,640 --> 00:06:57,080 Speaker 4: of a driver for markets going forward? 140 00:06:58,040 --> 00:07:01,400 Speaker 5: Yeah, Paul, I think you know, the market response over 141 00:07:00,960 --> 00:07:04,440 Speaker 5: the last couple of weeks has really been and I 142 00:07:04,480 --> 00:07:06,320 Speaker 5: would say even maybe this is some of what you're 143 00:07:06,360 --> 00:07:09,440 Speaker 5: seeing this morning after the CPI, which, as I just mentioned, was. 144 00:07:09,480 --> 00:07:10,240 Speaker 7: Largely in line. 145 00:07:10,280 --> 00:07:13,320 Speaker 5: But it's this need for all of the fundamentals to 146 00:07:13,440 --> 00:07:16,840 Speaker 5: hold up in support of equities. And so when you 147 00:07:16,880 --> 00:07:19,520 Speaker 5: think of part of that being the disinflation story, part 148 00:07:19,560 --> 00:07:21,600 Speaker 5: of that being the release of the pressure valve on 149 00:07:21,680 --> 00:07:24,480 Speaker 5: the consumer, and then also you layer in the need 150 00:07:24,520 --> 00:07:27,640 Speaker 5: for policy to go the right direction, corporate earnings, you know, 151 00:07:27,760 --> 00:07:32,240 Speaker 5: to continue to perform. It really just puts a lot 152 00:07:32,280 --> 00:07:36,720 Speaker 5: of weight on the market where you have valuations, high consensus, 153 00:07:36,840 --> 00:07:40,840 Speaker 5: long equity, and then you also have a cooling economy, 154 00:07:40,920 --> 00:07:43,800 Speaker 5: not just here but also globally, and so it's just 155 00:07:43,840 --> 00:07:46,960 Speaker 5: going to be a lot of digestion we expect over 156 00:07:47,000 --> 00:07:49,120 Speaker 5: the next couple of weeks, if not months. 157 00:07:49,240 --> 00:07:51,120 Speaker 2: Yeah, talking about globally. I was talking to an oil 158 00:07:51,200 --> 00:07:53,960 Speaker 2: trader today and he was at a conference over in Singapore. Yeah, no, 159 00:07:54,000 --> 00:07:56,880 Speaker 2: it's a shocker, and he was saying that everyone used 160 00:07:56,920 --> 00:07:58,760 Speaker 2: to think that China was just going to be a 161 00:07:58,800 --> 00:08:01,840 Speaker 2: property issue, and now everyone, even the Chinese, are like, 162 00:08:01,920 --> 00:08:04,840 Speaker 2: oh no, no, this is a real broader economic problem 163 00:08:04,840 --> 00:08:07,880 Speaker 2: in China, just to talk about the weaknesses there. So 164 00:08:07,960 --> 00:08:09,000 Speaker 2: what's the playbook, Nicole. 165 00:08:10,080 --> 00:08:13,640 Speaker 5: Yeah, I think when you have a market that's digesting, 166 00:08:13,640 --> 00:08:17,240 Speaker 5: to your point, Alex, the why it begs a question 167 00:08:17,400 --> 00:08:18,520 Speaker 5: why are we slowing? 168 00:08:18,560 --> 00:08:22,320 Speaker 7: And then does it change? And China's not a. 169 00:08:22,280 --> 00:08:24,960 Speaker 5: Quick reversal, so that likely isn't changing in the short term, 170 00:08:24,960 --> 00:08:27,280 Speaker 5: and we know that they're greater than fifteen percent of 171 00:08:27,320 --> 00:08:28,080 Speaker 5: global GDP. 172 00:08:28,560 --> 00:08:29,880 Speaker 7: That has a big ripple effect. 173 00:08:29,960 --> 00:08:32,559 Speaker 5: And then you think of the restrictive policy landscape in 174 00:08:32,600 --> 00:08:35,880 Speaker 5: the US, even a normalization of rates. To your point 175 00:08:35,920 --> 00:08:39,160 Speaker 5: about not knowing exactly what that neutral rate is, it's 176 00:08:39,160 --> 00:08:40,200 Speaker 5: going to take some time. 177 00:08:40,760 --> 00:08:42,880 Speaker 7: And then you have excess savings declining. 178 00:08:42,880 --> 00:08:45,320 Speaker 5: And so the last leg of that then being my 179 00:08:45,400 --> 00:08:48,480 Speaker 5: fourth point, which is all doesn't sound overly optimistic, but 180 00:08:48,760 --> 00:08:51,960 Speaker 5: you have the acceleration of earnings from the mega technology 181 00:08:52,040 --> 00:08:55,240 Speaker 5: companies as they continue to increase that cap spent. And 182 00:08:55,320 --> 00:08:59,040 Speaker 5: so when you think then about where we're going to 183 00:08:59,120 --> 00:09:03,079 Speaker 5: invest money, still under this long bold thesis, we really 184 00:09:03,120 --> 00:09:07,360 Speaker 5: are looking for places where you can expect earnings acceleration 185 00:09:08,120 --> 00:09:11,480 Speaker 5: forward looking, where it's an environment that isn't necessarily in 186 00:09:11,600 --> 00:09:17,400 Speaker 5: demand of global growth accelerating, but instead, if we normalize 187 00:09:17,520 --> 00:09:20,600 Speaker 5: or we're okay with on trend, what are those pockets? 188 00:09:20,640 --> 00:09:23,240 Speaker 5: And so you're already hearing this a lot that healthcare pocket, 189 00:09:23,559 --> 00:09:28,080 Speaker 5: utilities pocket, the rep pocket, all of that votes favorably 190 00:09:28,320 --> 00:09:31,480 Speaker 5: in the forward looking landscape over the next six months. 191 00:09:31,880 --> 00:09:34,280 Speaker 4: You know, yesterday we had some big moves into the 192 00:09:34,320 --> 00:09:37,640 Speaker 4: downside for some banking stocks led by JP Morgan and 193 00:09:37,679 --> 00:09:38,680 Speaker 4: JP Morgan's. 194 00:09:38,360 --> 00:09:39,079 Speaker 6: Week again today. 195 00:09:39,440 --> 00:09:41,559 Speaker 4: So I guess calling into question a lot of industry 196 00:09:41,640 --> 00:09:44,000 Speaker 4: leaders at a recent conference about the profitability for the 197 00:09:44,040 --> 00:09:46,120 Speaker 4: upcoming quarter for the banks, how do you think about 198 00:09:46,360 --> 00:09:47,800 Speaker 4: the financials as a whole. 199 00:09:47,600 --> 00:09:51,319 Speaker 5: Here, Yeah, I think first when we think about the banks, 200 00:09:51,320 --> 00:09:53,559 Speaker 5: we have to remember that it was only a couple 201 00:09:53,600 --> 00:09:56,120 Speaker 5: of weeks ago that we were at fresh fifty two 202 00:09:56,200 --> 00:09:58,640 Speaker 5: week high on bank stocks, and so. 203 00:10:00,080 --> 00:10:02,800 Speaker 7: Know that in and of itself, again going back to kind. 204 00:10:02,640 --> 00:10:06,720 Speaker 5: Of where we are from evaluation and consensus perspective, the 205 00:10:06,760 --> 00:10:11,880 Speaker 5: conversation around ANII, you know, it's expected to deteriorate. So 206 00:10:12,080 --> 00:10:15,640 Speaker 5: the response there to some of the comments yesterday was, 207 00:10:16,120 --> 00:10:19,280 Speaker 5: you know, again kind of to be expected and perhaps 208 00:10:19,320 --> 00:10:19,920 Speaker 5: shouldn't have. 209 00:10:19,880 --> 00:10:20,640 Speaker 7: Been new news. 210 00:10:21,640 --> 00:10:24,840 Speaker 5: And then again curiosity around even though we were talking 211 00:10:24,880 --> 00:10:29,280 Speaker 5: about delinquencies, there has been a consistent flatlining to delinquencies. 212 00:10:29,280 --> 00:10:32,120 Speaker 5: We're not seeing an acceleration and growth and delinquency. And 213 00:10:32,160 --> 00:10:34,760 Speaker 5: so again I think this goes back to where I 214 00:10:34,840 --> 00:10:37,680 Speaker 5: kicked things off today, which is that we need a 215 00:10:37,679 --> 00:10:40,280 Speaker 5: lot of fundamentals to stay in support of equities, and 216 00:10:40,360 --> 00:10:43,680 Speaker 5: anything that looks like it's a deterioration of any of 217 00:10:43,720 --> 00:10:46,920 Speaker 5: those fundamentals when you do have valuations as high as 218 00:10:46,960 --> 00:10:50,200 Speaker 5: they are is going to put pressure both on sectors 219 00:10:50,200 --> 00:10:51,439 Speaker 5: and on the index as a whole. 220 00:10:52,160 --> 00:10:55,680 Speaker 2: Was really that decline yep, that's been in that decline 221 00:10:55,720 --> 00:10:58,240 Speaker 2: was really confusing, Like we knew we knew it was 222 00:10:58,280 --> 00:11:00,360 Speaker 2: going to be happening with rates, which was so odd. 223 00:11:01,360 --> 00:11:04,199 Speaker 2: Tech last two days has been the quote unquote outperformer. 224 00:11:04,320 --> 00:11:06,240 Speaker 2: That's safety trade, if I can say that right, you 225 00:11:06,240 --> 00:11:08,200 Speaker 2: had the bit into bonds yesterday, you had the dollar 226 00:11:08,240 --> 00:11:11,000 Speaker 2: moving hire as well, and you had that bit into tech. 227 00:11:11,400 --> 00:11:14,840 Speaker 2: Is tech going to be that safety rotation trade? 228 00:11:16,880 --> 00:11:21,600 Speaker 5: It's hard when you see pullbacks in the tech area 229 00:11:21,800 --> 00:11:23,600 Speaker 5: where I mean we've been talking now for a few 230 00:11:23,640 --> 00:11:26,480 Speaker 5: weeks that they were no longer the leader for calendar 231 00:11:26,559 --> 00:11:29,920 Speaker 5: year twenty twenty four. That does look like an opportunity 232 00:11:30,040 --> 00:11:31,439 Speaker 5: to be a buyer. 233 00:11:31,120 --> 00:11:31,920 Speaker 7: In that space. 234 00:11:32,520 --> 00:11:35,440 Speaker 5: Yes, we don't know in the short term what that 235 00:11:35,559 --> 00:11:39,439 Speaker 5: return on invested capital is or how quickly we start 236 00:11:39,480 --> 00:11:42,079 Speaker 5: to see those earning surprises to the upside on that 237 00:11:42,160 --> 00:11:45,280 Speaker 5: investment made. But if you have a long thesis, if 238 00:11:45,320 --> 00:11:48,400 Speaker 5: you are a long term investor, not a trader, these 239 00:11:48,440 --> 00:11:51,480 Speaker 5: pullbacks do look like a time to deploy fresh money 240 00:11:51,480 --> 00:11:52,360 Speaker 5: into that sector. 241 00:11:53,440 --> 00:11:56,760 Speaker 4: Fixed income here we've had yields pulling pretty dramatically just 242 00:11:56,800 --> 00:11:58,800 Speaker 4: on the tenure. We've gone from five percent to now 243 00:11:59,000 --> 00:12:01,640 Speaker 4: today around three points six percent. Here, what are you 244 00:12:01,720 --> 00:12:04,120 Speaker 4: doing in fixed income space? Are you taking credit risk? 245 00:12:05,720 --> 00:12:06,560 Speaker 7: Yeah? 246 00:12:06,720 --> 00:12:08,480 Speaker 5: You know, when it comes to fixed income, I think 247 00:12:08,480 --> 00:12:11,240 Speaker 5: the probably the thing that we have spent the most 248 00:12:11,280 --> 00:12:16,480 Speaker 5: time on recently is just are you almost better off 249 00:12:16,520 --> 00:12:19,240 Speaker 5: on a one year staying in a money market? So 250 00:12:19,280 --> 00:12:22,840 Speaker 5: if you don't believe there's going to be an acceleration 251 00:12:22,960 --> 00:12:25,440 Speaker 5: to cooling and that the FED doesn't necessarily have to 252 00:12:25,440 --> 00:12:27,960 Speaker 5: go into a rate cutting cycle as we think of 253 00:12:28,000 --> 00:12:31,400 Speaker 5: it traditionally, but more into kind of this shaving rates 254 00:12:31,440 --> 00:12:34,600 Speaker 5: down as we normalize the interest rate environment on a 255 00:12:34,800 --> 00:12:38,360 Speaker 5: twelve year or a twelve year twelve month forward, you know, 256 00:12:38,679 --> 00:12:41,839 Speaker 5: could you actually outperform a one year treasury sitting in 257 00:12:42,280 --> 00:12:45,679 Speaker 5: a money market? And so there's kind of some of 258 00:12:45,679 --> 00:12:48,920 Speaker 5: this playing around. But fixed income, we do think is 259 00:12:48,920 --> 00:12:51,440 Speaker 5: going to continue to be a really valuable part of 260 00:12:51,480 --> 00:12:54,160 Speaker 5: the portfolio, and we also expect to see a lot 261 00:12:54,240 --> 00:12:56,680 Speaker 5: of flows into that sector. When you think just about 262 00:12:56,679 --> 00:13:00,040 Speaker 5: where the concentration of wealth is in this country and 263 00:13:00,080 --> 00:13:03,840 Speaker 5: the ages, it seems like a period in time in 264 00:13:03,840 --> 00:13:06,400 Speaker 5: which you're going to see flows start to move away 265 00:13:06,520 --> 00:13:10,240 Speaker 5: from some of that shorter duration investment into some of 266 00:13:10,280 --> 00:13:14,880 Speaker 5: these longer including credit exposure areas of fixed income, and 267 00:13:14,960 --> 00:13:17,160 Speaker 5: so from a flows perspective also, we think that will 268 00:13:17,160 --> 00:13:17,920 Speaker 5: be favorable. 269 00:13:18,200 --> 00:13:22,200 Speaker 2: It's interesting. Paul JP Morgan talked about how you won't 270 00:13:22,200 --> 00:13:24,560 Speaker 2: see the money move from money market fens until the 271 00:13:24,559 --> 00:13:27,719 Speaker 2: FED starts cutting more aggressively, like until they're deeper into 272 00:13:27,760 --> 00:13:29,840 Speaker 2: the rate cutting cycle. So we're all like waiting for 273 00:13:29,920 --> 00:13:31,719 Speaker 2: that rush. We might have to wait a little bit 274 00:13:32,120 --> 00:13:35,319 Speaker 2: until that happens. For you, what's the next catalyst? Is 275 00:13:35,360 --> 00:13:36,800 Speaker 2: it just gonna be the FED meeting or is there 276 00:13:36,800 --> 00:13:38,680 Speaker 2: something else that you're looking at? 277 00:13:40,640 --> 00:13:45,880 Speaker 5: Yeah, I mean to us, the first catalyst, Alex to 278 00:13:45,920 --> 00:13:48,360 Speaker 5: your point would be, you know, post FED meeting, and 279 00:13:49,240 --> 00:13:52,920 Speaker 5: is the dot plot? So what do we see, you 280 00:13:52,920 --> 00:13:57,360 Speaker 5: know from members in terms of the trajectory of the 281 00:13:57,440 --> 00:13:59,679 Speaker 5: rate cutting cycle we're entering. So if it is our 282 00:13:59,720 --> 00:14:02,560 Speaker 5: first cut, what does that look like, you know, on 283 00:14:02,640 --> 00:14:03,559 Speaker 5: the next twelve months? 284 00:14:03,600 --> 00:14:06,160 Speaker 7: And I think even more importantly. 285 00:14:06,040 --> 00:14:09,840 Speaker 5: Is how the FED speaks about the economy following the meeting. 286 00:14:10,120 --> 00:14:11,800 Speaker 5: And what I mean by that is there's so much 287 00:14:12,240 --> 00:14:14,880 Speaker 5: weight right now on is it twenty five, is it fifty? 288 00:14:15,040 --> 00:14:19,520 Speaker 5: Is the second cut fifty basis points? And a lot 289 00:14:19,520 --> 00:14:22,560 Speaker 5: of that has to come from how they talk about 290 00:14:22,760 --> 00:14:26,200 Speaker 5: the setup of the economy beneath these cuts, and I 291 00:14:26,200 --> 00:14:29,560 Speaker 5: think there will be a big fear response if you know, 292 00:14:29,600 --> 00:14:33,160 Speaker 5: they aggressively start cutting, which really does signal that we 293 00:14:33,240 --> 00:14:38,160 Speaker 5: are far too restrictive and the economy requires stimulation versus 294 00:14:38,480 --> 00:14:42,720 Speaker 5: we're we're on a trajectory of normalization. And so you 295 00:14:42,720 --> 00:14:45,480 Speaker 5: know that piece of it. And then the response from 296 00:14:45,520 --> 00:14:48,760 Speaker 5: the housing sector in accordance to how the cuts go. 297 00:14:49,200 --> 00:14:52,560 Speaker 5: We know we're under supply and housing. That's a huge 298 00:14:52,600 --> 00:14:55,560 Speaker 5: catalyst for expansion in the markets if we do start 299 00:14:55,600 --> 00:14:59,880 Speaker 5: to see a drive towards equilibrium in supply versus on 300 00:15:00,120 --> 00:15:01,360 Speaker 5: going demand for housing. 301 00:15:01,400 --> 00:15:02,680 Speaker 7: And so those. 302 00:15:02,920 --> 00:15:07,280 Speaker 5: Two things have a pretty high correlation, we expect, and 303 00:15:07,440 --> 00:15:10,920 Speaker 5: kind of we'll kind of handle the sentiment of investors 304 00:15:11,040 --> 00:15:11,960 Speaker 5: as we enter the end. 305 00:15:11,920 --> 00:15:12,320 Speaker 1: Of the year. 306 00:15:13,200 --> 00:15:15,320 Speaker 4: Very good, Nicole web Thank you so much for joining us. 307 00:15:15,360 --> 00:15:18,960 Speaker 4: Nicole Webb, senior vice president, financial advisor with Wealth Enhancement Group, 308 00:15:19,040 --> 00:15:20,760 Speaker 4: joining us from New York via zoom. 309 00:15:20,800 --> 00:15:26,040 Speaker 1: Here you're listening to the Bloomberg Intelligence Podcast. Catch us 310 00:15:26,080 --> 00:15:28,960 Speaker 1: live weekdays at ten am Eastern on Apple, car Play 311 00:15:29,000 --> 00:15:31,720 Speaker 1: and Android Otto with the Bloomberg Business app. Listen on 312 00:15:31,800 --> 00:15:35,040 Speaker 1: demand wherever you get your podcasts or watch us live 313 00:15:35,160 --> 00:15:37,000 Speaker 1: on YouTube. 314 00:15:37,800 --> 00:15:40,160 Speaker 2: Joining us now is Henry Detris, a managing partner and 315 00:15:40,200 --> 00:15:42,800 Speaker 2: director of Economic policy at Beta Partners. She's joining us. 316 00:15:42,840 --> 00:15:45,400 Speaker 2: She's in New Orleans. Actually, so hey, just real quick, 317 00:15:46,040 --> 00:15:48,480 Speaker 2: are you safe? Is it okay? Is the storm coming? 318 00:15:48,560 --> 00:15:48,640 Speaker 5: Like? 319 00:15:48,680 --> 00:15:49,640 Speaker 2: Are you bracing for it? 320 00:15:51,280 --> 00:15:53,520 Speaker 8: Probably right when I get off here, it'll come just 321 00:15:53,600 --> 00:15:56,840 Speaker 8: at the end of this interview. It's expected to hit tonight, 322 00:15:56,840 --> 00:15:58,280 Speaker 8: but it won't be too much of a big deal. 323 00:15:58,320 --> 00:16:00,880 Speaker 8: So I'm not surprised that oil stocks aren't moving too much. 324 00:16:01,320 --> 00:16:03,560 Speaker 8: We're used to this. This is what we prepare for. 325 00:16:03,720 --> 00:16:06,560 Speaker 2: Okay, fair enough, all right, so we got that part done. Clearly. 326 00:16:06,560 --> 00:16:08,360 Speaker 2: You were up late watching the debate with the spin 327 00:16:08,520 --> 00:16:12,480 Speaker 2: and all the like, what's your pitch? What's your two minute, 328 00:16:12,840 --> 00:16:15,400 Speaker 2: two minute, one minute, two sentence takeaway? 329 00:16:17,600 --> 00:16:20,440 Speaker 8: I think that Harris clearly ran away with the debate. 330 00:16:20,600 --> 00:16:23,720 Speaker 8: Trump missed a number of opportunities to stick to a 331 00:16:23,760 --> 00:16:27,160 Speaker 8: script and stick to policy, and I think that was 332 00:16:27,160 --> 00:16:29,440 Speaker 8: a mistake for him, and he could potentially have to 333 00:16:29,440 --> 00:16:32,000 Speaker 8: correct it with the second debate. I doubt one will 334 00:16:32,040 --> 00:16:35,560 Speaker 8: take place, but if the polling data starts to turn 335 00:16:35,640 --> 00:16:39,160 Speaker 8: against him, as Kamala Harris's sort of appeals to moderate 336 00:16:39,200 --> 00:16:42,200 Speaker 8: voters last night, should that work, he may have to 337 00:16:42,200 --> 00:16:43,240 Speaker 8: commit to another debate. 338 00:16:44,080 --> 00:16:46,520 Speaker 4: Henry, I'm just reading through your notes here, and you 339 00:16:46,560 --> 00:16:49,280 Speaker 4: make a point here about ninety five percent of the 340 00:16:49,320 --> 00:16:53,400 Speaker 4: electorate has already decided how they'll vote in November. 341 00:16:53,480 --> 00:16:56,760 Speaker 6: Did I read that right? And if so, is that 342 00:16:56,920 --> 00:16:58,640 Speaker 6: normal or is that crazy? 343 00:17:00,120 --> 00:17:00,320 Speaker 4: Yeah? 344 00:17:00,480 --> 00:17:03,520 Speaker 8: No, almost everybody has decided how they're going to vote. 345 00:17:03,520 --> 00:17:06,040 Speaker 8: There's only about five percent of the electorate that's undecided 346 00:17:06,119 --> 00:17:10,600 Speaker 8: right now. They're not you know, they're actively trying to 347 00:17:10,600 --> 00:17:13,480 Speaker 8: ignore politics, but they're going to engage post debate. They're 348 00:17:13,480 --> 00:17:15,320 Speaker 8: going to see clips from last night and start to 349 00:17:15,359 --> 00:17:19,760 Speaker 8: make a call. There was, interestingly, fourteen percent of viewers 350 00:17:19,840 --> 00:17:24,200 Speaker 8: last night thought that they maybe questioned their prior, their priors, 351 00:17:24,240 --> 00:17:26,800 Speaker 8: They thought they might, you know, be willing to change, 352 00:17:26,880 --> 00:17:28,919 Speaker 8: but then ultimately only four percent of them did. So 353 00:17:28,960 --> 00:17:32,240 Speaker 8: we have a really sticky, very partisan America and that's 354 00:17:32,240 --> 00:17:34,000 Speaker 8: going to make this election close until. 355 00:17:33,760 --> 00:17:34,239 Speaker 7: The very end. 356 00:17:35,280 --> 00:17:37,479 Speaker 2: What do you think can move the needle now? I mean, 357 00:17:37,480 --> 00:17:40,159 Speaker 2: in some ways, this was the public's first introduction to 358 00:17:40,240 --> 00:17:45,280 Speaker 2: Vice President Kamala Harris. President Trump is still unknown. Quantity. 359 00:17:45,640 --> 00:17:48,840 Speaker 2: But nonetheless, how do they then further this if there's 360 00:17:48,920 --> 00:17:49,879 Speaker 2: no second debate? 361 00:17:51,080 --> 00:17:53,960 Speaker 8: Right twenty three percent of Americans are still looking to 362 00:17:54,040 --> 00:17:58,199 Speaker 8: learn more about Kamala Harris's policies. Most of Americans already 363 00:17:58,200 --> 00:18:01,280 Speaker 8: know all of Donald Trump's policies. The real uphill battle 364 00:18:01,320 --> 00:18:04,840 Speaker 8: is on Kamala Harris's side right now. As my adds suggests, 365 00:18:04,840 --> 00:18:07,720 Speaker 8: Trump is winning this race. The electoral College favors him 366 00:18:08,080 --> 00:18:10,359 Speaker 8: in most swing states and within the margin of error 367 00:18:10,400 --> 00:18:12,800 Speaker 8: in every single swing state. So it's really up to 368 00:18:12,840 --> 00:18:15,399 Speaker 8: Harris to convey her home buyer tax credit and her 369 00:18:15,400 --> 00:18:19,200 Speaker 8: position on abortion, her thoughts on capital gains rates, corporate 370 00:18:19,240 --> 00:18:21,600 Speaker 8: tax rates, and sell that message to the American public. 371 00:18:21,800 --> 00:18:23,400 Speaker 8: And I would suggest that the onus is on her 372 00:18:23,440 --> 00:18:24,400 Speaker 8: to get that done. 373 00:18:24,760 --> 00:18:27,879 Speaker 4: Just on Bloomberg Radio on television, Henriette, just before we 374 00:18:27,920 --> 00:18:31,000 Speaker 4: came to you, we were listening to Canter Fitzgerald CEO 375 00:18:31,040 --> 00:18:34,520 Speaker 4: Howard Lutnick, who is a strong Trump supporter, make the 376 00:18:34,560 --> 00:18:36,880 Speaker 4: point that we've heard from a lot of folks that 377 00:18:37,520 --> 00:18:41,920 Speaker 4: VP Harris should be more accessible to the media, should 378 00:18:41,960 --> 00:18:46,680 Speaker 4: do interviews, should do town halls, press conferences. 379 00:18:46,920 --> 00:18:47,840 Speaker 6: What do you think about that? 380 00:18:49,119 --> 00:18:51,440 Speaker 9: I'm sure that she will as we go forward. 381 00:18:51,520 --> 00:18:55,000 Speaker 8: The next major event is not until October first, with 382 00:18:55,080 --> 00:18:56,280 Speaker 8: the vice presidential debate. 383 00:18:56,520 --> 00:18:58,040 Speaker 9: I think there's twenty. 384 00:18:57,800 --> 00:19:00,359 Speaker 8: Some odd days between now and then for the Hires 385 00:19:00,440 --> 00:19:04,920 Speaker 8: campaign to take a sit down with a major editorial 386 00:19:04,960 --> 00:19:09,439 Speaker 8: board and do more live town halls. What I think 387 00:19:09,760 --> 00:19:12,719 Speaker 8: Republicans want to see is her stand alone as opposed 388 00:19:12,760 --> 00:19:14,480 Speaker 8: to with Tim Wallas, which is of course what the 389 00:19:14,520 --> 00:19:17,480 Speaker 8: interview with Dada Bash on CNN was a few weeks back. 390 00:19:17,560 --> 00:19:19,560 Speaker 8: So I expect that she'll get out there, and the 391 00:19:19,560 --> 00:19:21,439 Speaker 8: fact that American voters want to know more about her 392 00:19:21,440 --> 00:19:23,840 Speaker 8: policies means that it is in her best interest to 393 00:19:23,880 --> 00:19:24,480 Speaker 8: do that as well. 394 00:19:24,640 --> 00:19:26,399 Speaker 2: What I also was noticing when I was reading a 395 00:19:26,400 --> 00:19:29,439 Speaker 2: lot of takes on independence who just weren't clear, is 396 00:19:29,480 --> 00:19:31,439 Speaker 2: that a lot of them are the people who go 397 00:19:31,520 --> 00:19:35,000 Speaker 2: to the store, buy stuff, come home and like it's 398 00:19:35,119 --> 00:19:38,119 Speaker 2: rough and economically it's really hard, and that the debate 399 00:19:38,200 --> 00:19:40,800 Speaker 2: last night didn't speak to that didn't speak to that 400 00:19:40,840 --> 00:19:43,320 Speaker 2: inflation or the economics. And you take a look at 401 00:19:43,359 --> 00:19:46,000 Speaker 2: the inflation data today, right, it's kind of a mixed 402 00:19:46,000 --> 00:19:48,320 Speaker 2: bag for everyone, But some of those core things like 403 00:19:48,480 --> 00:19:51,000 Speaker 2: eggs are still a lot higher, and those prices are 404 00:19:51,040 --> 00:19:55,160 Speaker 2: still a lot higher. How do the candidates really tackle 405 00:19:55,240 --> 00:19:57,480 Speaker 2: that in a meaningful way where people who are truly 406 00:19:57,560 --> 00:19:59,160 Speaker 2: undecided can get some clarity. 407 00:20:00,359 --> 00:20:03,480 Speaker 8: This is why debates are so important for the challenger 408 00:20:03,560 --> 00:20:06,080 Speaker 8: or the other candidate in this case, Donald Trump, to 409 00:20:06,200 --> 00:20:08,320 Speaker 8: really hold her feet to the fire and say answer 410 00:20:08,320 --> 00:20:13,119 Speaker 8: these questions speak to inflation, and Harris has to her credit, 411 00:20:13,200 --> 00:20:15,560 Speaker 8: they will have a great track record to say it 412 00:20:15,800 --> 00:20:18,480 Speaker 8: was seven eight nine percent two years ago and now 413 00:20:18,480 --> 00:20:20,919 Speaker 8: it's down to under three percent. So there is a 414 00:20:21,000 --> 00:20:24,040 Speaker 8: message that can be delivered from both sides, but they 415 00:20:24,160 --> 00:20:27,480 Speaker 8: just weren't sticking to that script last night. Another reason 416 00:20:27,480 --> 00:20:29,679 Speaker 8: why I think Trump would benefit from a second debate 417 00:20:30,160 --> 00:20:32,600 Speaker 8: is because he could hammer those points home, which he 418 00:20:32,600 --> 00:20:35,399 Speaker 8: should have done last night. I do think also, just 419 00:20:35,440 --> 00:20:39,760 Speaker 8: to speak to the inflation data, gas prices still being low, 420 00:20:39,840 --> 00:20:41,680 Speaker 8: to bring it back to the beginning of our conversation, 421 00:20:42,240 --> 00:20:45,880 Speaker 8: is really important here. Gas prices factor into the American psyche. 422 00:20:46,040 --> 00:20:47,960 Speaker 8: I would say, more than the price of eggs, So 423 00:20:48,080 --> 00:20:49,959 Speaker 8: that being low I think does help Harris. 424 00:20:50,640 --> 00:20:54,760 Speaker 4: So what is the role of the vice president candidates here? 425 00:20:55,040 --> 00:20:57,600 Speaker 4: Did they move the needle all on a major election? 426 00:20:58,800 --> 00:20:59,720 Speaker 9: I mean usually not. 427 00:21:00,040 --> 00:21:03,840 Speaker 8: It's a much smaller audience that watches the vice presidential debate. 428 00:21:03,960 --> 00:21:06,640 Speaker 9: They're not viewed as the leader of the country. 429 00:21:07,520 --> 00:21:10,320 Speaker 8: We used to say that it's the least or the 430 00:21:10,359 --> 00:21:13,720 Speaker 8: most like thankless job in DC. Obviously, Kamala Harris and 431 00:21:13,800 --> 00:21:16,919 Speaker 8: Joe Biden's dynamic this year upended all of that. But 432 00:21:17,119 --> 00:21:20,320 Speaker 8: in general, device presidential debate is not a blockbuster affair. 433 00:21:20,720 --> 00:21:24,040 Speaker 8: They're usually pretty sleepy in fact, and a couple of 434 00:21:24,080 --> 00:21:27,920 Speaker 8: cycles in the past few presidential election cycles you get 435 00:21:27,920 --> 00:21:30,200 Speaker 8: fewer than fifty million or even thirty million viewers. 436 00:21:30,640 --> 00:21:34,320 Speaker 2: October surprise, it does happen? Could there be one? 437 00:21:34,359 --> 00:21:34,560 Speaker 7: Now? 438 00:21:34,600 --> 00:21:37,760 Speaker 2: Like, let's look ahead. If there's not another debate, you 439 00:21:37,760 --> 00:21:40,160 Speaker 2: want everyone wants Kamala Harris to speak more. What could 440 00:21:40,200 --> 00:21:41,240 Speaker 2: an October surprise be? 441 00:21:42,560 --> 00:21:44,639 Speaker 8: I think it would be ridiculous for anybody in a 442 00:21:44,680 --> 00:21:46,239 Speaker 8: seat like mind to say that there won't be an 443 00:21:46,240 --> 00:21:49,560 Speaker 8: October surprise in a year like this. I think at 444 00:21:49,560 --> 00:21:51,159 Speaker 8: this point what I try to hone in on for 445 00:21:51,240 --> 00:21:54,359 Speaker 8: investors is that it could very easily be foreign policy related. 446 00:21:54,400 --> 00:21:57,840 Speaker 8: Israel Gaza, I think presents a stark opportunity for some 447 00:21:57,880 --> 00:22:01,720 Speaker 8: sort of shock event that could be a problem, particularly 448 00:22:01,720 --> 00:22:04,440 Speaker 8: for the Harris campaign since Joe Biden is the incumbent. 449 00:22:04,680 --> 00:22:07,520 Speaker 8: I think the immigration data, the numbers have come down 450 00:22:07,560 --> 00:22:10,760 Speaker 8: so rapidly since December via executive order. I don't see 451 00:22:10,760 --> 00:22:13,640 Speaker 8: that changing a government shutdown is probably something that should 452 00:22:13,640 --> 00:22:16,360 Speaker 8: be on people's radar. Trump tweeted about this last night, 453 00:22:16,400 --> 00:22:19,840 Speaker 8: supporting a government shutdown that could be disruptive, but historically 454 00:22:19,840 --> 00:22:21,800 Speaker 8: Republicans get blamed for that, so I don't think it's 455 00:22:21,800 --> 00:22:22,679 Speaker 8: in his best interest. 456 00:22:22,880 --> 00:22:26,399 Speaker 6: Thirty seconds, Henriette Taylor Swift endorsement. Does that mean anything? 457 00:22:27,720 --> 00:22:28,360 Speaker 9: I think it does. 458 00:22:28,480 --> 00:22:31,480 Speaker 8: We want to see his voter registration spikes, particularly in 459 00:22:31,520 --> 00:22:33,160 Speaker 8: the twenty nine and under demographic. 460 00:22:33,240 --> 00:22:35,040 Speaker 9: We've already seen that go through the roof. 461 00:22:35,080 --> 00:22:38,520 Speaker 8: I believe it's eighty seven percent hyped up since twenty twenty, 462 00:22:38,960 --> 00:22:42,240 Speaker 8: and of course you have three times higher registration rates 463 00:22:42,240 --> 00:22:46,080 Speaker 8: for Black women, one hundred and forty seven for Latino women, 464 00:22:46,320 --> 00:22:48,119 Speaker 8: and I think eighty seven percent is the number for 465 00:22:48,160 --> 00:22:50,800 Speaker 8: all women. So that registration spike is what you'd want 466 00:22:50,840 --> 00:22:51,520 Speaker 8: to watch, all. 467 00:22:51,440 --> 00:22:53,280 Speaker 6: Right, Henrietta, thank you so much. We appreciate that. 468 00:22:53,359 --> 00:22:56,639 Speaker 4: Heny toa Triz managing partner, a director of economic policy 469 00:22:56,640 --> 00:23:01,480 Speaker 4: at Veda Partners joining us via Zoom from Louisiana again 470 00:23:01,520 --> 00:23:04,920 Speaker 4: in the path of that incoming hurricane. So hopefully Henrietta 471 00:23:04,960 --> 00:23:06,359 Speaker 4: and all the good folks down in that part of 472 00:23:06,359 --> 00:23:08,719 Speaker 4: the world stay safe over the next twenty four hours. 473 00:23:10,160 --> 00:23:14,080 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 474 00:23:14,160 --> 00:23:17,640 Speaker 1: weekdays at ten am Eastern on Applecar Play and Android 475 00:23:17,680 --> 00:23:20,480 Speaker 1: Auto with the Bloomberg Business app. You can also listen 476 00:23:20,600 --> 00:23:23,680 Speaker 1: live on Amazon Alexa from our flagship New York station, 477 00:23:24,040 --> 00:23:28,600 Speaker 1: Just say Alexa Play Bloomberg eleven thirty. 478 00:23:28,359 --> 00:23:30,680 Speaker 4: Alex Oopaul Sweening live here in on our Bloomberginner Actor 479 00:23:30,720 --> 00:23:34,040 Speaker 4: Brokers studio. Streaming live on YouTube as well, So editver 480 00:23:34,119 --> 00:23:36,600 Speaker 4: YouTube dot com and search Bloomberg Podcast, and that's where 481 00:23:36,640 --> 00:23:39,080 Speaker 4: you will find us. As Charlie is just reporting, we've 482 00:23:39,080 --> 00:23:41,800 Speaker 4: got some selling in the stock market here today, perhaps 483 00:23:41,840 --> 00:23:43,560 Speaker 4: on the back up a little bit higher than expected 484 00:23:43,800 --> 00:23:45,040 Speaker 4: core inflation. 485 00:23:45,440 --> 00:23:47,080 Speaker 6: Let's check it out with a professional here. 486 00:23:47,160 --> 00:23:51,720 Speaker 4: Kim Farst, founder and Chief Investment Officer of Bouquet Capital Partners, 487 00:23:52,000 --> 00:23:55,120 Speaker 4: joining us from Pittsburgh, PA via that Zoom thinks again 488 00:23:55,200 --> 00:23:56,080 Speaker 4: more technology. 489 00:23:56,200 --> 00:23:56,720 Speaker 6: How about that? 490 00:23:57,359 --> 00:23:59,960 Speaker 4: Kim, Thanks so much for joining us here. 491 00:24:00,119 --> 00:24:02,440 Speaker 6: Make of today's trading here and maybe the last two 492 00:24:02,480 --> 00:24:04,399 Speaker 6: two or three days to trading been a lot of volatility. 493 00:24:05,480 --> 00:24:11,080 Speaker 10: Sure, yeah, I think you know, as always, investors are 494 00:24:11,119 --> 00:24:14,639 Speaker 10: pulled between the two poles of fear and greed, right, 495 00:24:15,200 --> 00:24:20,159 Speaker 10: and I think this year has taught us that even 496 00:24:20,640 --> 00:24:24,520 Speaker 10: with ho hum kind of economic data, that the market 497 00:24:24,600 --> 00:24:27,879 Speaker 10: can go higher. And I think that is what keeps 498 00:24:27,960 --> 00:24:31,320 Speaker 10: the greed into the market right now, is that we 499 00:24:31,320 --> 00:24:34,040 Speaker 10: look at our recent past and say, hey, you know, 500 00:24:34,200 --> 00:24:38,320 Speaker 10: Nvidia eclipsed all other stocks and then dragged six other 501 00:24:38,359 --> 00:24:42,320 Speaker 10: stocks with them, you know, starting somewhere in the second quarter, 502 00:24:42,920 --> 00:24:46,679 Speaker 10: and you know, portfolios turned out pretty good. But I 503 00:24:46,680 --> 00:24:50,600 Speaker 10: guess wisely people are looking at the Fed and saying, 504 00:24:50,640 --> 00:24:51,560 Speaker 10: are they too late? 505 00:24:52,119 --> 00:24:52,560 Speaker 7: Should? 506 00:24:52,760 --> 00:24:54,919 Speaker 10: You know, we know they're going to lower interest rates, 507 00:24:54,920 --> 00:24:58,080 Speaker 10: that's pretty clear, but how much and how fast? And 508 00:24:58,840 --> 00:25:01,639 Speaker 10: I think too fast would indicate that the Fed is 509 00:25:01,680 --> 00:25:07,680 Speaker 10: seeing trouble ahead and on either one of its mandates 510 00:25:07,720 --> 00:25:10,320 Speaker 10: that it's supposed to take care of, and that would 511 00:25:10,320 --> 00:25:15,040 Speaker 10: be stable prices and full employment. So you know which 512 00:25:15,280 --> 00:25:17,520 Speaker 10: you put those two together, you have the whole economy, right, 513 00:25:17,600 --> 00:25:22,160 Speaker 10: what else is there in the economy? But no investors 514 00:25:22,200 --> 00:25:27,800 Speaker 10: are afraid that the FED is too late, too slow, 515 00:25:28,200 --> 00:25:30,320 Speaker 10: and that we're going to get a hard landing. Now, 516 00:25:30,680 --> 00:25:33,400 Speaker 10: as somebody who has seen a hard landing. In nineteen 517 00:25:33,480 --> 00:25:38,280 Speaker 10: ninety three, Pittsburgh had a seventeen percent unemployment rate because 518 00:25:38,320 --> 00:25:42,439 Speaker 10: of inflation and the steel market being forever changed. And 519 00:25:42,520 --> 00:25:44,760 Speaker 10: I don't think we are headed for that kind of 520 00:25:44,840 --> 00:25:47,960 Speaker 10: hard landing. Just to set expectations. 521 00:25:48,280 --> 00:25:50,840 Speaker 2: So, Kim, I hear you, and then I look at 522 00:25:50,840 --> 00:25:53,239 Speaker 2: what's happening with bank stocks, and I'm confused. I mean, 523 00:25:53,280 --> 00:25:57,280 Speaker 2: regional banks are getting really hit. Broader big banks also 524 00:25:57,359 --> 00:26:01,399 Speaker 2: getting really hit by news that we already knew, right, Like, 525 00:26:01,440 --> 00:26:05,000 Speaker 2: we knew that rates were coming down, and in theory, 526 00:26:05,160 --> 00:26:07,520 Speaker 2: if they come down less quickly, that should be better 527 00:26:07,520 --> 00:26:10,480 Speaker 2: for their net interest income. Right, So are banks telling 528 00:26:10,560 --> 00:26:11,800 Speaker 2: us something else right now? 529 00:26:12,760 --> 00:26:15,800 Speaker 10: Well, I think they're really concerned about the consumer and borrowing, 530 00:26:16,040 --> 00:26:20,000 Speaker 10: and specifically consumer borrowing. I don't know that regional banks 531 00:26:20,000 --> 00:26:22,679 Speaker 10: would be all that much affected by it. It's usually 532 00:26:22,720 --> 00:26:25,560 Speaker 10: credit cards, and I don't think that would see a 533 00:26:25,560 --> 00:26:30,919 Speaker 10: whole lot of you know, housing issues because most of 534 00:26:30,960 --> 00:26:35,760 Speaker 10: the borrowers have very low interest rates, and the most 535 00:26:35,840 --> 00:26:41,080 Speaker 10: recent borrowers, you know, they're they're as everybody's been pointing out, 536 00:26:41,200 --> 00:26:45,000 Speaker 10: the housing market is slowing and has slowed, So I'm 537 00:26:45,000 --> 00:26:51,320 Speaker 10: not quite sure why the smaller banks are being sold off. 538 00:26:51,880 --> 00:26:56,520 Speaker 10: Maybe it's you know, continuing commercial real estate issues, of 539 00:26:56,560 --> 00:26:59,520 Speaker 10: which you know, nobody can pretend that they're not there. 540 00:26:59,560 --> 00:27:02,439 Speaker 10: We don't to work five days a week anymore. You 541 00:27:02,520 --> 00:27:06,000 Speaker 10: need less footprint. It's an issue, and it's something that 542 00:27:06,440 --> 00:27:08,600 Speaker 10: remains unresolved. 543 00:27:08,840 --> 00:27:13,919 Speaker 4: So Morgan Stanley's Mike Wilson saying that the AI trade 544 00:27:14,160 --> 00:27:17,160 Speaker 4: may be fading here in this market and calls into 545 00:27:17,200 --> 00:27:19,000 Speaker 4: question what will be the leadership for this market? 546 00:27:19,040 --> 00:27:20,960 Speaker 6: How do you feel about that thought there? 547 00:27:21,680 --> 00:27:21,960 Speaker 7: Sure? 548 00:27:22,040 --> 00:27:23,879 Speaker 10: Well, I think it's a pretty good bet that most 549 00:27:23,880 --> 00:27:28,320 Speaker 10: investors have overplayed their hand on the timeline of AI 550 00:27:28,520 --> 00:27:32,199 Speaker 10: rollout and how deep and pervasive it is. You know, 551 00:27:32,400 --> 00:27:36,440 Speaker 10: as somebody that is an ex technologist in AI, I 552 00:27:36,520 --> 00:27:38,960 Speaker 10: don't see the killer app that are going to make 553 00:27:40,440 --> 00:27:43,919 Speaker 10: Corporations and certainly not individuals pay for access to it. 554 00:27:44,000 --> 00:27:47,880 Speaker 10: So right now it's a free service, but that could 555 00:27:47,960 --> 00:27:50,000 Speaker 10: change in the future. It's probably going to change in 556 00:27:50,040 --> 00:27:52,640 Speaker 10: the future, but we don't know how long of a timeline. 557 00:27:52,960 --> 00:27:56,639 Speaker 10: You know, Wall Street wants it yesterday, not tomorrow, so 558 00:27:56,800 --> 00:27:59,720 Speaker 10: and it's a pretty few or pretty many tomorrow's and 559 00:28:00,080 --> 00:28:02,679 Speaker 10: in the future where we think AI is going to 560 00:28:02,720 --> 00:28:08,439 Speaker 10: be a player. But you're right, where is the next area? 561 00:28:08,600 --> 00:28:11,560 Speaker 10: I would say that investors that need to put money work, 562 00:28:12,480 --> 00:28:15,399 Speaker 10: money to work, and we all do because we're saving 563 00:28:15,400 --> 00:28:17,600 Speaker 10: in our four to one case, they should look at 564 00:28:17,600 --> 00:28:21,760 Speaker 10: the smaller companies, the unloved companies that have good products. 565 00:28:22,280 --> 00:28:27,720 Speaker 10: And I love the medium sized companies over a billion 566 00:28:27,840 --> 00:28:31,919 Speaker 10: to maybe like twenty billion, because especially if they have 567 00:28:32,080 --> 00:28:35,560 Speaker 10: great products and a stable balance sheet, they are able 568 00:28:35,600 --> 00:28:39,920 Speaker 10: to live on through tough times. But also they are 569 00:28:40,640 --> 00:28:45,480 Speaker 10: acquisition candidates, and as rates come down, we will see 570 00:28:45,600 --> 00:28:49,040 Speaker 10: more mergers and acquisitions because the big need to have 571 00:28:49,520 --> 00:28:53,920 Speaker 10: new products or the product growth, so they will do 572 00:28:53,960 --> 00:28:57,240 Speaker 10: it either organically or by acquisition. And I think it's 573 00:28:57,240 --> 00:29:01,520 Speaker 10: a pretty good idea to look at smaller companies, but 574 00:29:01,560 --> 00:29:05,800 Speaker 10: not the smallest companies for addition to your portfolio. 575 00:29:06,360 --> 00:29:08,840 Speaker 2: Okay, so the question where do you buy the dip? 576 00:29:10,320 --> 00:29:13,200 Speaker 10: Where do you buy the dip? Well, that's market timing, 577 00:29:13,320 --> 00:29:15,520 Speaker 10: isn't it. And I think we're all warned about that. 578 00:29:16,040 --> 00:29:19,040 Speaker 10: So I think it's on a case by case basis 579 00:29:19,480 --> 00:29:21,800 Speaker 10: that you have to look at each company and say, 580 00:29:22,360 --> 00:29:25,200 Speaker 10: is this a good deal? If it goes ten percent lower? 581 00:29:25,440 --> 00:29:27,640 Speaker 10: Am I going to be angry about having bought it? 582 00:29:27,920 --> 00:29:28,120 Speaker 7: Right? 583 00:29:28,200 --> 00:29:31,959 Speaker 10: Give yourself some kind of wiggle room and understand that 584 00:29:32,680 --> 00:29:35,880 Speaker 10: you know, companies can go lower on all sorts of news. 585 00:29:36,440 --> 00:29:38,120 Speaker 10: So I think you have to do it on a 586 00:29:38,160 --> 00:29:41,840 Speaker 10: case by case basis. And you know this wasn't in 587 00:29:41,880 --> 00:29:44,320 Speaker 10: my note to you guys earlier, but maybe energy is 588 00:29:44,360 --> 00:29:47,240 Speaker 10: an area as well. It seems to be especially selling 589 00:29:47,280 --> 00:29:50,880 Speaker 10: off hard. And I would certainly put energy as even 590 00:29:50,880 --> 00:29:54,520 Speaker 10: bigger companies as well as the small to medium sized 591 00:29:54,520 --> 00:29:57,880 Speaker 10: companies on your list on your shopping list, and look 592 00:29:57,880 --> 00:30:00,200 Speaker 10: at them daily and say, is today the day I'm 593 00:30:00,240 --> 00:30:04,760 Speaker 10: going to buy whatever it is? It is that simple, Kim. 594 00:30:04,840 --> 00:30:05,720 Speaker 6: How about valuation? 595 00:30:06,800 --> 00:30:10,080 Speaker 4: It's obviously it's important when you know in the securities 596 00:30:10,120 --> 00:30:13,360 Speaker 4: business that you're in, But how do you employ valuation? 597 00:30:13,480 --> 00:30:16,840 Speaker 4: How high is it on your list of you know, 598 00:30:16,960 --> 00:30:19,840 Speaker 4: decision factors for buying or selling security? 599 00:30:20,840 --> 00:30:24,760 Speaker 10: Well, actually I don't look at it in just in isolation. 600 00:30:25,240 --> 00:30:25,400 Speaker 7: Right. 601 00:30:26,440 --> 00:30:29,080 Speaker 10: I'm a growth ish manager. I have growth at a 602 00:30:29,080 --> 00:30:32,520 Speaker 10: reasonable price. So I'm always thinking that the company that 603 00:30:32,560 --> 00:30:34,880 Speaker 10: I'm going to buy is going to grow, and it 604 00:30:34,920 --> 00:30:37,880 Speaker 10: will grow more into its valuation, So I will look 605 00:30:37,920 --> 00:30:43,840 Speaker 10: at pees that other value oriented managers probably will not. 606 00:30:44,520 --> 00:30:47,160 Speaker 10: But that being said, you also have to understand in 607 00:30:47,200 --> 00:30:50,920 Speaker 10: a declining rate environment, you should expect to pay a 608 00:30:51,000 --> 00:30:54,280 Speaker 10: higher PE. And that's because of the math behind the 609 00:30:54,320 --> 00:30:57,000 Speaker 10: whole discounted cash flow equation, which we're not going to 610 00:30:57,000 --> 00:31:01,240 Speaker 10: go into at this point. But I also think it's 611 00:31:01,360 --> 00:31:04,400 Speaker 10: extremely important not to look at them in isolation, but 612 00:31:04,680 --> 00:31:08,480 Speaker 10: to their competitors and to their industry, because each industry 613 00:31:08,520 --> 00:31:14,080 Speaker 10: has a different PE profile where it's merited most because 614 00:31:14,120 --> 00:31:18,720 Speaker 10: the balance sheets are completely different, right, Like a software 615 00:31:18,760 --> 00:31:22,760 Speaker 10: company is different than I don't know, a cement making 616 00:31:23,040 --> 00:31:25,640 Speaker 10: or a steel making company that has a lot of plant, 617 00:31:25,680 --> 00:31:28,640 Speaker 10: property and equipment. So those are the kind of things 618 00:31:28,680 --> 00:31:33,200 Speaker 10: that change your perception of a PE, whether it's rich 619 00:31:33,800 --> 00:31:35,959 Speaker 10: or you know, fairly valued. 620 00:31:36,280 --> 00:31:39,000 Speaker 2: And this is a great setup into talking about last 621 00:31:39,080 --> 00:31:41,200 Speaker 2: night's debate because from the way you invest in stocks 622 00:31:41,200 --> 00:31:44,280 Speaker 2: and how you look at structural trends, even in cyclical 623 00:31:44,320 --> 00:31:47,520 Speaker 2: areas of the market, how do you think about who's 624 00:31:47,560 --> 00:31:49,840 Speaker 2: going to be running the White House over four years? 625 00:31:49,880 --> 00:31:53,040 Speaker 2: Like what are there areas that that actually impacts how 626 00:31:53,160 --> 00:31:55,320 Speaker 2: Kim Forest looks at the market. 627 00:31:56,240 --> 00:31:59,280 Speaker 10: What does but slowly because I don't know. I have 628 00:31:59,360 --> 00:32:04,479 Speaker 10: this quaint idea that the president, regardless of who it is, 629 00:32:05,120 --> 00:32:10,680 Speaker 10: actually is the executive of the government, and that Congress 630 00:32:10,720 --> 00:32:14,280 Speaker 10: gives them a budget. So things like I don't know, 631 00:32:14,400 --> 00:32:17,880 Speaker 10: housing grants of twenty five thousand dollars that still has 632 00:32:17,920 --> 00:32:21,520 Speaker 10: to go through a Congress, and that is a very 633 00:32:21,560 --> 00:32:25,160 Speaker 10: slow process. So I am glacial, and I try to 634 00:32:25,160 --> 00:32:29,360 Speaker 10: look for bigger trends that eclipse politics. So I'm not 635 00:32:29,640 --> 00:32:33,360 Speaker 10: terribly concerned about what's going to happen other than taxation. 636 00:32:33,600 --> 00:32:36,800 Speaker 10: Taxation is one of those things that can come in fast, 637 00:32:37,120 --> 00:32:42,720 Speaker 10: but any of the more spending of the government and 638 00:32:42,800 --> 00:32:46,960 Speaker 10: areas in which they spend, it's more glacial than we 639 00:32:47,360 --> 00:32:48,680 Speaker 10: ever want to consider. 640 00:32:50,080 --> 00:32:51,680 Speaker 6: All Right, Kim, thank you so much for joining us. 641 00:32:51,720 --> 00:32:55,400 Speaker 4: Kim Forrest, Founder and chief investment Officer, Boca Capital Partners 642 00:32:55,520 --> 00:32:58,960 Speaker 4: from Pittsburgh, PA. 643 00:32:59,040 --> 00:33:02,920 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 644 00:33:03,000 --> 00:33:06,520 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 645 00:33:06,560 --> 00:33:09,320 Speaker 1: Auto with the Bloomberg Business app. You can also listen 646 00:33:09,440 --> 00:33:12,560 Speaker 1: live on Amazon Alexa from our flagship New York station. 647 00:33:12,920 --> 00:33:15,680 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 648 00:33:17,240 --> 00:33:20,040 Speaker 2: We're broadcasting to you live from Interactor Broker Studio right 649 00:33:20,080 --> 00:33:24,000 Speaker 2: here in Midtown Manhattan. The headline that truly truly caught 650 00:33:24,040 --> 00:33:27,000 Speaker 2: my eye today was UniCredit finally making a move on 651 00:33:27,000 --> 00:33:29,000 Speaker 2: Commerce Bank. This is something that I that I've heard 652 00:33:29,080 --> 00:33:32,720 Speaker 2: rumors about four years and UniCredit building a nine percent 653 00:33:32,760 --> 00:33:35,120 Speaker 2: stake in the German Bank and apparently has planned to 654 00:33:35,200 --> 00:33:38,440 Speaker 2: enter into talks with the lender, raising the possibility of 655 00:33:38,480 --> 00:33:42,960 Speaker 2: a takeover that could truly reshape Europe's banking landscape. Joining 656 00:33:43,000 --> 00:33:46,000 Speaker 2: us now for Morris Philip Richards, Bloomberg Intelligence Senior analyst 657 00:33:46,040 --> 00:33:50,280 Speaker 2: for European Banks, Philip, would the German government let this happen? 658 00:33:51,440 --> 00:33:51,640 Speaker 1: Yeah? 659 00:33:51,720 --> 00:33:53,920 Speaker 11: Hi, it's an interesting one. As you say, this is 660 00:33:53,960 --> 00:33:56,640 Speaker 11: not a new boomed deal. It's been going on for 661 00:33:56,840 --> 00:33:58,920 Speaker 11: lit you well over a decade now. In terms of 662 00:33:58,960 --> 00:34:01,960 Speaker 11: big cross boarded deal. The simplication mains any big cross 663 00:34:01,960 --> 00:34:05,120 Speaker 11: bordered in transaction among European banks still hasn't happened in 664 00:34:05,120 --> 00:34:07,840 Speaker 11: the last fifteen years since the crisis. So will it 665 00:34:07,920 --> 00:34:10,680 Speaker 11: happen now? Yes, it's possibility, but there's still a lot 666 00:34:10,719 --> 00:34:13,680 Speaker 11: of hurdles I'm left in terms of the German government 667 00:34:13,719 --> 00:34:16,880 Speaker 11: allowed specifically when it would flag is the German market 668 00:34:16,920 --> 00:34:18,759 Speaker 11: is very different to all the other European markets, so 669 00:34:18,800 --> 00:34:21,719 Speaker 11: it's got a very big cooperative or mutual society. They've 670 00:34:21,719 --> 00:34:24,000 Speaker 11: got the Sparkas and the Landers banks. So actually the 671 00:34:24,080 --> 00:34:26,480 Speaker 11: private banks Deutsche Bank and Commerce Bank are a much 672 00:34:26,520 --> 00:34:30,000 Speaker 11: smaller part of the overall market, and therefore could they 673 00:34:30,000 --> 00:34:32,160 Speaker 11: take out the second biggest German bank? I think it 674 00:34:32,239 --> 00:34:33,640 Speaker 11: is possible on that front. 675 00:34:34,680 --> 00:34:36,840 Speaker 6: Would it be a good deal for Unit Credit? 676 00:34:37,000 --> 00:34:39,000 Speaker 4: I guess what I'm asking is how good of a 677 00:34:39,000 --> 00:34:41,800 Speaker 4: management team, how good of a franchise is UniCredit? 678 00:34:43,440 --> 00:34:43,640 Speaker 1: Well? 679 00:34:43,800 --> 00:34:45,319 Speaker 11: Is it a good deal? I mean that will come 680 00:34:45,360 --> 00:34:47,360 Speaker 11: down to the price. And one good thing about Commerce 681 00:34:47,360 --> 00:34:50,520 Speaker 11: Bank is is pricing is a low level. Even after 682 00:34:50,600 --> 00:34:53,600 Speaker 11: rallying twenty percent about today, is still trading about half 683 00:34:53,640 --> 00:34:56,480 Speaker 11: book value in terms of what you get for it. Yes, 684 00:34:56,560 --> 00:34:58,600 Speaker 11: the earnings have been very, very weak for the last 685 00:34:58,600 --> 00:35:01,120 Speaker 11: fifteen years, one of the low return and equity of 686 00:35:01,160 --> 00:35:03,680 Speaker 11: all banks in Europe, but they have increased massively with 687 00:35:03,760 --> 00:35:06,360 Speaker 11: rate risers across Europe. Of course, the flip pide to that, 688 00:35:06,480 --> 00:35:08,920 Speaker 11: of course is great interstrate's now going down, So the 689 00:35:09,040 --> 00:35:11,400 Speaker 11: question becomes what will happens to Commerce Bank's earning is 690 00:35:11,440 --> 00:35:13,960 Speaker 11: going forward? And frankly they're probably going to be going 691 00:35:14,000 --> 00:35:16,719 Speaker 11: down and therefore that's where the pressure on them will lie. 692 00:35:16,800 --> 00:35:18,640 Speaker 11: So are they getting a good deal or they're paying 693 00:35:18,840 --> 00:35:21,360 Speaker 11: almost at the top and terms of their earning potential? 694 00:35:21,640 --> 00:35:24,840 Speaker 2: What what company would that make UniCredit like, would this 695 00:35:24,920 --> 00:35:29,000 Speaker 2: be a giant investment bank and a giant retail bank. 696 00:35:30,120 --> 00:35:33,759 Speaker 11: Well, they will become the third largest European bank if 697 00:35:33,800 --> 00:35:36,040 Speaker 11: they did the deal in terms of a market cap basis. 698 00:35:36,560 --> 00:35:39,160 Speaker 11: Obviously Commerce Bank is almost entirely now a retail and 699 00:35:39,160 --> 00:35:41,960 Speaker 11: commercial bank is sold or the investment banking operations that 700 00:35:42,080 --> 00:35:44,719 Speaker 11: had after the financial crisis, So this is amount of 701 00:35:44,800 --> 00:35:47,280 Speaker 11: case of expanding in terms of that retail commercial space. 702 00:35:47,600 --> 00:35:50,279 Speaker 11: UniCredit have a big presence in Germany already through hyper 703 00:35:50,360 --> 00:35:53,000 Speaker 11: Variants Bank, so one of the attractions sort of deal 704 00:35:53,080 --> 00:35:55,400 Speaker 11: for them would be combining that so Commerce Bank and 705 00:35:55,480 --> 00:35:57,480 Speaker 11: hyper Ryans and therefore trying to get the cost and 706 00:35:57,560 --> 00:35:59,279 Speaker 11: neues out of them. But say it's lament on a 707 00:35:59,320 --> 00:36:01,800 Speaker 11: commercial retail side rather than invest in banking. 708 00:36:02,880 --> 00:36:05,680 Speaker 4: So Philip talked to us about I mean just the 709 00:36:05,760 --> 00:36:09,000 Speaker 4: German banking market right now in general from a competitive 710 00:36:09,280 --> 00:36:13,799 Speaker 4: landscape that does there need to be consolidation. 711 00:36:14,600 --> 00:36:14,920 Speaker 11: Does they? 712 00:36:15,040 --> 00:36:15,200 Speaker 8: Yes? 713 00:36:15,280 --> 00:36:18,440 Speaker 11: I mean it's probably the least consolidated market in Europe 714 00:36:18,440 --> 00:36:20,279 Speaker 11: in terms of as you said, you've got this huge 715 00:36:20,360 --> 00:36:23,719 Speaker 11: number of cooptive banks or sparkasms, et cetera. So it 716 00:36:23,800 --> 00:36:26,640 Speaker 11: is a very difficult and diluted market. But the fact is, 717 00:36:26,640 --> 00:36:28,520 Speaker 11: you know, Commerce Bank yourself has got a sub ten 718 00:36:28,560 --> 00:36:31,160 Speaker 11: percent market share. So even if you've got it, did 719 00:36:31,160 --> 00:36:34,000 Speaker 11: buy it and combined hypervides with them, they're still probably 720 00:36:34,040 --> 00:36:37,160 Speaker 11: just getting over about that ten percent mark. So will 721 00:36:37,160 --> 00:36:39,520 Speaker 11: it change the dial in Germany? Not at all, you know, 722 00:36:39,560 --> 00:36:42,120 Speaker 11: because we're only talking in a thirty percent subsector in 723 00:36:42,239 --> 00:36:44,719 Speaker 11: terms of the private banks, with seventy percent or so 724 00:36:44,840 --> 00:36:47,760 Speaker 11: off the market you know, is in this mutual side. 725 00:36:48,040 --> 00:36:49,920 Speaker 2: So you were talking earlier that this has been rumored 726 00:36:49,960 --> 00:36:51,799 Speaker 2: for ten years. I remember talking about this at least 727 00:36:51,840 --> 00:36:54,799 Speaker 2: six plus years ago. Also, why do you think that 728 00:36:55,040 --> 00:36:56,800 Speaker 2: now could be actually the moment? 729 00:36:58,200 --> 00:36:59,719 Speaker 11: Well you asked us about you know, what they get 730 00:36:59,719 --> 00:37:02,640 Speaker 11: into Commerce Bank. We heard last night actually the CEO 731 00:37:02,719 --> 00:37:04,839 Speaker 11: of Commerce Bank said he were not renew as tenor 732 00:37:04,880 --> 00:37:07,080 Speaker 11: which miss farres at the end of next year, so 733 00:37:07,280 --> 00:37:08,960 Speaker 11: you know that does open a hole at the top 734 00:37:09,000 --> 00:37:10,960 Speaker 11: of the bank would obviously be in traction for them. 735 00:37:11,600 --> 00:37:13,960 Speaker 11: There's one potential way of doing it. Who would have 736 00:37:13,960 --> 00:37:16,480 Speaker 11: bought Commerce Bank given the excessive risks they had, say 737 00:37:16,520 --> 00:37:18,720 Speaker 11: three or four years ago, where we had the commercial 738 00:37:18,760 --> 00:37:20,759 Speaker 11: real estate risks, we had the bank trading at point 739 00:37:20,800 --> 00:37:23,919 Speaker 11: three times book value. We had earnings are very very low, 740 00:37:24,120 --> 00:37:26,080 Speaker 11: So in a way the risk has gone away a 741 00:37:26,080 --> 00:37:28,680 Speaker 11: lot of Commerce Bank because simply because the earnings are 742 00:37:28,760 --> 00:37:31,600 Speaker 11: much stronger now because of those rate rises. Also, the 743 00:37:31,640 --> 00:37:35,160 Speaker 11: German state government took a big stake in the bank, 744 00:37:35,400 --> 00:37:37,839 Speaker 11: so as they sell that further and further down, that's 745 00:37:37,880 --> 00:37:40,920 Speaker 11: part of the way Munichledate built their state. Today that 746 00:37:40,960 --> 00:37:43,200 Speaker 11: obviously becomes more and more attractive because it comes more into 747 00:37:43,200 --> 00:37:45,480 Speaker 11: the private sector. So there are a number of more 748 00:37:45,520 --> 00:37:47,680 Speaker 11: reasons why it could happen, but doesn't mean anything will 749 00:37:47,719 --> 00:37:48,319 Speaker 11: happen then. 750 00:37:48,280 --> 00:37:51,040 Speaker 4: No, is this going to ignite maybe a little bit 751 00:37:51,080 --> 00:37:53,719 Speaker 4: more discussion about more across M and A trades just 752 00:37:53,760 --> 00:37:55,360 Speaker 4: broadly defined across Europe. 753 00:37:55,760 --> 00:37:58,600 Speaker 11: Without any doubt it will trigger more EMINECE spectation today 754 00:37:58,600 --> 00:38:00,600 Speaker 11: and I think The fact that you said the temperate 755 00:38:00,719 --> 00:38:03,480 Speaker 11: stake and yet the share then rally twenty percent shows 756 00:38:03,480 --> 00:38:05,080 Speaker 11: that the market doesn't think this is the end of 757 00:38:05,080 --> 00:38:06,600 Speaker 11: the story, and there's going to be more of a 758 00:38:06,640 --> 00:38:10,280 Speaker 11: deal and the potential by bid for Commerce Bank is possible. 759 00:38:10,520 --> 00:38:12,359 Speaker 11: That said, you know, why has there been no big 760 00:38:12,480 --> 00:38:15,000 Speaker 11: m and a across the sector now for fifteen years? 761 00:38:15,040 --> 00:38:17,160 Speaker 11: And because a number of the regulary hurdles are main 762 00:38:17,400 --> 00:38:19,920 Speaker 11: You know, there's not a single rule book across Europe, 763 00:38:20,280 --> 00:38:22,880 Speaker 11: government interference, people don't want to leave their biggest banks 764 00:38:22,920 --> 00:38:25,439 Speaker 11: and be taken over by a foreign institution, et cetera. 765 00:38:25,520 --> 00:38:28,120 Speaker 11: All these hurdles and nothing's actually changed on that front. 766 00:38:28,160 --> 00:38:30,799 Speaker 11: That's all the still the same today. So you know, 767 00:38:30,920 --> 00:38:33,840 Speaker 11: no big deals have happened. Could this be the first, Yes, 768 00:38:34,040 --> 00:38:36,719 Speaker 11: but it's by no means certain it will thirty seconds. 769 00:38:37,160 --> 00:38:40,160 Speaker 2: If the deal does happen, would the bank be able 770 00:38:40,200 --> 00:38:41,800 Speaker 2: to like, lend more and do stuff. 771 00:38:43,640 --> 00:38:45,719 Speaker 11: I think I would have said yes three years ago 772 00:38:45,840 --> 00:38:47,760 Speaker 11: just because of the week of financial position that Commerce 773 00:38:47,760 --> 00:38:49,720 Speaker 11: Bank was in. I think because of the eight hikes, 774 00:38:49,760 --> 00:38:51,960 Speaker 11: now is in a much stronger position. It's got a 775 00:38:52,000 --> 00:38:55,120 Speaker 11: service capital position itself, so there's no real barriers in 776 00:38:55,200 --> 00:38:58,000 Speaker 11: terms of the supply side, their potential to lend more. 777 00:38:58,160 --> 00:39:00,359 Speaker 11: What's restraining them from growing Actually more the week at 778 00:39:00,360 --> 00:39:02,719 Speaker 11: Germany econmy and we're hearing more about that over the 779 00:39:02,760 --> 00:39:05,200 Speaker 11: press in the last few days, and that's what's being 780 00:39:05,440 --> 00:39:08,120 Speaker 11: hold them back. And thrankly nothing changes with this unique 781 00:39:08,120 --> 00:39:11,040 Speaker 11: credit deal there those heard will still remain. So no, 782 00:39:11,160 --> 00:39:12,719 Speaker 11: I don't think this would really help in terms of 783 00:39:12,719 --> 00:39:15,080 Speaker 11: the lending or the growth potential. It's much more think 784 00:39:15,080 --> 00:39:17,440 Speaker 11: about the synergies in terms of the cost takeout potential. 785 00:39:17,480 --> 00:39:19,399 Speaker 2: So maybe that like the framing of the deal could 786 00:39:19,400 --> 00:39:21,279 Speaker 2: have changed versus like six years ago. All Right, thanks 787 00:39:21,280 --> 00:39:24,640 Speaker 2: a lot, Philip Richards, Bloomberg Intelligence, Senior analyst for European banks, 788 00:39:24,800 --> 00:39:27,239 Speaker 2: on that nine percent stake the UniCredit now has in 789 00:39:27,440 --> 00:39:28,279 Speaker 2: Commerce Bank. 790 00:39:28,560 --> 00:39:33,080 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify, 791 00:39:33,280 --> 00:39:36,480 Speaker 1: and anywhere else you'll get your podcasts. Listen live each 792 00:39:36,520 --> 00:39:39,880 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 793 00:39:39,960 --> 00:39:43,400 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 794 00:39:43,480 --> 00:39:46,640 Speaker 1: You can also watch us live every weekday on YouTube 795 00:39:46,719 --> 00:39:48,480 Speaker 1: and always on the Bloomberg Journal