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Speaker 2: All right, let's get back to the market's here. So
Speaker 2: equities continue to roll over. Bond market quite interesting. You
Speaker 2: had a sell off right when those CPI numbers hit.
Speaker 2: You had a spike in the two year yield, and
Speaker 2: then once the cash market opened for the equity market,
Speaker 2: bonds continued to really roll over, with yields moving significantly lower. Now,
Speaker 2: Ira Jersey, Bloomberg Intelligence Chief US interest rate strategist, it joins,
Speaker 2: us I shouldn't say significantly lower, but compared to where
Speaker 2: they were, it was quite a move. What are we
Speaker 2: making of the move today?
Speaker 3: Yeah, so, you know, after the CPI report came out,
Speaker 3: the market was thinking, oh, well, maybe the Fed is
Speaker 3: less likely to do a fifty basis point rate cut
Speaker 3: next week, and so we're going to readjust that front
Speaker 3: end yield. Once the you know, equity started to roll over,
Speaker 3: you also have seen a pretty big rally in European
Speaker 3: rates this morning our time, in the afternoon their time.
Speaker 3: And I think that that treasuries of have you know, one,
Speaker 3: have a flight to quality bid from the risk off
Speaker 3: in the US markets, but also are being pulled down
Speaker 3: a little bit by the global rate environment as well.
Speaker 3: So again, not huge moves on a day on day basis,
Speaker 3: but like you said, Alex, you know the fact that
Speaker 3: we were off by six basis points in two year
Speaker 3: yields and then you know, now we're essentially unchanged. You know,
Speaker 3: I think that's meaningful enough that the market is, you know,
Speaker 3: not one hundred percent sure right now and certainly has
Speaker 3: certainly been not priced for, you know, just the twenty
Speaker 3: five basis point cut next week.
Speaker 4: So how do you think our friends at the Federal
Speaker 4: Reserve will read this inflation data today?
Speaker 3: Yeah, So our view is is that this solidified the
Speaker 3: idea that a twenty five basis point rate cut is
Speaker 3: in the cards. You know, again, fifty is not impossible,
Speaker 3: and certainly the market doesn't think so either. But at
Speaker 3: the same time, you know, point two in point two
Speaker 3: percent inflation print is still above the Fed's target. So
Speaker 3: even though they want to cut interest rates because they're
Speaker 3: worried that the economy is starting to slip, and you know,
Speaker 3: certainly they've been focused more on employment than inflation in
Speaker 3: recent months, that they can start a slow rate cut cycle.
Speaker 3: I know some some houses on the street think that
Speaker 3: they could go twenty five and then fifty basis points
Speaker 3: for a couple of meetings there after, I suspect at
Speaker 3: the end of the day they're going to go twenty
Speaker 3: five basis points at every meeting. So the market maybe
Speaker 3: has gotten a little bit ahead of itself when you
Speaker 3: look at pricing for say January FED funds futures, or
Speaker 3: even two year yields for that matter.
Speaker 2: Yeah, So it seemed like what happened is once they
Speaker 2: got the print that that fifty bases point potential cut
Speaker 2: moved more to December. Rather than pricing it out, it
Speaker 2: just kind of pushed it off a little bit. Does
Speaker 2: that need to be pushed out even more and or
Speaker 2: is it taken out all together?
Speaker 5: Well?
Speaker 3: I think as a base case in the way that
Speaker 3: I'm thinking about how the economy might develop, and then
Speaker 3: what the FED reaction function and therefore the jusuring markets
Speaker 3: reaction function to that new economic news is that the
Speaker 3: economy is going to continue to slow, but not very quickly.
Speaker 3: So therefore the Federal Reserve will be able to be
Speaker 3: patient and go in twenty five basis point increments and
Speaker 3: then maybe at some point it might do a fifty,
Speaker 3: but I don't think that the Fed necessarily wants to
Speaker 3: because and certainly as a first and we've been saying
Speaker 3: this for months now, is that if the Federal Reserve
Speaker 3: were to start with a fifty basis point in rate cut,
Speaker 3: you know, that would be like a shock and awe
Speaker 3: kind of event. And I think that would show, you know,
Speaker 3: the market and maybe just that you know, main street
Speaker 3: main street businesses and households, that the fedce panicked and
Speaker 3: they see something maybe that's much weaker than most of
Speaker 3: the economic data that's coming in suggests. So I think
Speaker 3: that that would show some panic. And that's another reason
Speaker 3: to think, hey, they'll go twenty five's unless and until
Speaker 3: you wind up having you know, negative payroll print or
Speaker 3: even fifty thousand person payroll print. What would be enough
Speaker 3: for them to say, hey, the economy's you know, not
Speaker 3: growing anywhere near potential, so we really have to cut
Speaker 3: interest rates significantly. But until we get to that point
Speaker 3: in the data, I think that the Fed's going to
Speaker 3: go twenty five basis points. And you know, look, this
Speaker 3: is all like short term interest rate trader minutia quite frankly,
Speaker 3: and for the I think for the broader markets, you
Speaker 3: have to say, Okay, the Fed's an easing mode. The
Speaker 3: question is how fast and how far not necessarily are
Speaker 3: they going to be cutting rates?
Speaker 6: A right about thirty seconds left here the election.
Speaker 4: The treasury market, I don't think I heard the yield
Speaker 4: curve mentioned last night at the debate. But how do
Speaker 4: you guys frame out kind of the political risks here?
Speaker 3: Yeah, so we put out our We put out a
Speaker 3: note on what we thought the big impactful things for
Speaker 3: the treasury market will be based on the election. Most
Speaker 3: of those are not expecting a big reaction on election
Speaker 3: day one way or the other, but nuanced things like
Speaker 3: who's the next FED share going to be that's going
Speaker 3: to matter if President Trump wins election again, it won't
Speaker 3: be Powell. Maybe for Kamila Harris it will be Powell,
Speaker 3: and if not, or probably someone else, and who was
Speaker 3: maybe a Biden appointee to the Fed. So those are
Speaker 3: the types of things that matter. And then of course,
Speaker 3: things like budget deficits. Neither of these candidates is likely
Speaker 3: to be a deficit hawk, so therefore you're likely to
Speaker 3: continue with relatively large budget deficits, and that obviously has
Speaker 3: an effect on pricing in the treasury market.
Speaker 2: Airah, Always a pleasure, Always great to catch up with you.
Speaker 2: Ira Jersey joining us. He is Bloomberg Intelligence, a senior
Speaker 2: US interest rate strategy.
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Speaker 2: So we got through the risk events, we got through
Speaker 2: the debate, we got through CPI, We were headed towards
Speaker 2: the FED. It looks like markets are now pricing in
Speaker 2: that twenty five basis points in September. So what do
Speaker 2: you do in that scenario? Nicole Webb Senior vice president,
Speaker 2: Financial advisor at Wealth Enhancement Group, and she joins us. Now, Nicole,
Speaker 2: does this take fifty off the table or does it
Speaker 2: push the fifty out to like a November or December.
Speaker 5: You know, we were of the camp that the FED
Speaker 5: probably wasn't going to step into this cutting cycle with
Speaker 5: fifty basis point cut, and so for us, the CPI
Speaker 5: today was largely in line with expectations obviously across the board,
Speaker 5: and for us it just didn't bear terribly much weight
Speaker 5: in the short term.
Speaker 4: So what are the key drivers here then, do you
Speaker 4: think of these markets going forward? Again, as Alex was
Speaker 4: just mentioned, we've gotten through a number of kind of
Speaker 4: external events here. What do you look to be kind
Speaker 4: of a driver for markets going forward?
Speaker 5: Yeah, Paul, I think you know, the market response over
Speaker 5: the last couple of weeks has really been and I
Speaker 5: would say even maybe this is some of what you're
Speaker 5: seeing this morning after the CPI, which, as I just mentioned, was.
Speaker 7: Largely in line.
Speaker 5: But it's this need for all of the fundamentals to
Speaker 5: hold up in support of equities. And so when you
Speaker 5: think of part of that being the disinflation story, part
Speaker 5: of that being the release of the pressure valve on
Speaker 5: the consumer, and then also you layer in the need
Speaker 5: for policy to go the right direction, corporate earnings, you know,
Speaker 5: to continue to perform. It really just puts a lot
Speaker 5: of weight on the market where you have valuations, high consensus,
Speaker 5: long equity, and then you also have a cooling economy,
Speaker 5: not just here but also globally, and so it's just
Speaker 5: going to be a lot of digestion we expect over
Speaker 5: the next couple of weeks, if not months.
Speaker 2: Yeah, talking about globally. I was talking to an oil
Speaker 2: trader today and he was at a conference over in Singapore. Yeah, no,
Speaker 2: it's a shocker, and he was saying that everyone used
Speaker 2: to think that China was just going to be a
Speaker 2: property issue, and now everyone, even the Chinese, are like,
Speaker 2: oh no, no, this is a real broader economic problem
Speaker 2: in China, just to talk about the weaknesses there. So
Speaker 2: what's the playbook, Nicole.
Speaker 5: Yeah, I think when you have a market that's digesting,
Speaker 5: to your point, Alex, the why it begs a question
Speaker 5: why are we slowing?
Speaker 7: And then does it change? And China's not a.
Speaker 5: Quick reversal, so that likely isn't changing in the short term,
Speaker 5: and we know that they're greater than fifteen percent of
Speaker 5: global GDP.
Speaker 7: That has a big ripple effect.
Speaker 5: And then you think of the restrictive policy landscape in
Speaker 5: the US, even a normalization of rates. To your point
Speaker 5: about not knowing exactly what that neutral rate is, it's
Speaker 5: going to take some time.
Speaker 7: And then you have excess savings declining.
Speaker 5: And so the last leg of that then being my
Speaker 5: fourth point, which is all doesn't sound overly optimistic, but
Speaker 5: you have the acceleration of earnings from the mega technology
Speaker 5: companies as they continue to increase that cap spent. And
Speaker 5: so when you think then about where we're going to
Speaker 5: invest money, still under this long bold thesis, we really
Speaker 5: are looking for places where you can expect earnings acceleration
Speaker 5: forward looking, where it's an environment that isn't necessarily in
Speaker 5: demand of global growth accelerating, but instead, if we normalize
Speaker 5: or we're okay with on trend, what are those pockets?
Speaker 5: And so you're already hearing this a lot that healthcare pocket,
Speaker 5: utilities pocket, the rep pocket, all of that votes favorably
Speaker 5: in the forward looking landscape over the next six months.
Speaker 4: You know, yesterday we had some big moves into the
Speaker 4: downside for some banking stocks led by JP Morgan and
Speaker 4: JP Morgan's.
Speaker 6: Week again today.
Speaker 4: So I guess calling into question a lot of industry
Speaker 4: leaders at a recent conference about the profitability for the
Speaker 4: upcoming quarter for the banks, how do you think about
Speaker 4: the financials as a whole.
Speaker 5: Here, Yeah, I think first when we think about the banks,
Speaker 5: we have to remember that it was only a couple
Speaker 5: of weeks ago that we were at fresh fifty two
Speaker 5: week high on bank stocks, and so.
Speaker 7: Know that in and of itself, again going back to kind.
Speaker 5: Of where we are from evaluation and consensus perspective, the
Speaker 5: conversation around ANII, you know, it's expected to deteriorate. So
Speaker 5: the response there to some of the comments yesterday was,
Speaker 5: you know, again kind of to be expected and perhaps
Speaker 5: shouldn't have.
Speaker 7: Been new news.
Speaker 5: And then again curiosity around even though we were talking
Speaker 5: about delinquencies, there has been a consistent flatlining to delinquencies.
Speaker 5: We're not seeing an acceleration and growth and delinquency. And
Speaker 5: so again I think this goes back to where I
Speaker 5: kicked things off today, which is that we need a
Speaker 5: lot of fundamentals to stay in support of equities, and
Speaker 5: anything that looks like it's a deterioration of any of
Speaker 5: those fundamentals when you do have valuations as high as
Speaker 5: they are is going to put pressure both on sectors
Speaker 5: and on the index as a whole.
Speaker 2: Was really that decline yep, that's been in that decline
Speaker 2: was really confusing, Like we knew we knew it was
Speaker 2: going to be happening with rates, which was so odd.
Speaker 2: Tech last two days has been the quote unquote outperformer.
Speaker 2: That's safety trade, if I can say that right, you
Speaker 2: had the bit into bonds yesterday, you had the dollar
Speaker 2: moving hire as well, and you had that bit into tech.
Speaker 2: Is tech going to be that safety rotation trade?
Speaker 5: It's hard when you see pullbacks in the tech area
Speaker 5: where I mean we've been talking now for a few
Speaker 5: weeks that they were no longer the leader for calendar
Speaker 5: year twenty twenty four. That does look like an opportunity
Speaker 5: to be a buyer.
Speaker 7: In that space.
Speaker 5: Yes, we don't know in the short term what that
Speaker 5: return on invested capital is or how quickly we start
Speaker 5: to see those earning surprises to the upside on that
Speaker 5: investment made. But if you have a long thesis, if
Speaker 5: you are a long term investor, not a trader, these
Speaker 5: pullbacks do look like a time to deploy fresh money
Speaker 5: into that sector.
Speaker 4: Fixed income here we've had yields pulling pretty dramatically just
Speaker 4: on the tenure. We've gone from five percent to now
Speaker 4: today around three points six percent. Here, what are you
Speaker 4: doing in fixed income space? Are you taking credit risk?
Speaker 7: Yeah?
Speaker 5: You know, when it comes to fixed income, I think
Speaker 5: the probably the thing that we have spent the most
Speaker 5: time on recently is just are you almost better off
Speaker 5: on a one year staying in a money market? So
Speaker 5: if you don't believe there's going to be an acceleration
Speaker 5: to cooling and that the FED doesn't necessarily have to
Speaker 5: go into a rate cutting cycle as we think of
Speaker 5: it traditionally, but more into kind of this shaving rates
Speaker 5: down as we normalize the interest rate environment on a
Speaker 5: twelve year or a twelve year twelve month forward, you know,
Speaker 5: could you actually outperform a one year treasury sitting in
Speaker 5: a money market? And so there's kind of some of
Speaker 5: this playing around. But fixed income, we do think is
Speaker 5: going to continue to be a really valuable part of
Speaker 5: the portfolio, and we also expect to see a lot
Speaker 5: of flows into that sector. When you think just about
Speaker 5: where the concentration of wealth is in this country and
Speaker 5: the ages, it seems like a period in time in
Speaker 5: which you're going to see flows start to move away
Speaker 5: from some of that shorter duration investment into some of
Speaker 5: these longer including credit exposure areas of fixed income, and
Speaker 5: so from a flows perspective also, we think that will
Speaker 5: be favorable.
Speaker 2: It's interesting. Paul JP Morgan talked about how you won't
Speaker 2: see the money move from money market fens until the
Speaker 2: FED starts cutting more aggressively, like until they're deeper into
Speaker 2: the rate cutting cycle. So we're all like waiting for
Speaker 2: that rush. We might have to wait a little bit
Speaker 2: until that happens. For you, what's the next catalyst? Is
Speaker 2: it just gonna be the FED meeting or is there
Speaker 2: something else that you're looking at?
Speaker 5: Yeah, I mean to us, the first catalyst, Alex to
Speaker 5: your point would be, you know, post FED meeting, and
Speaker 5: is the dot plot? So what do we see, you
Speaker 5: know from members in terms of the trajectory of the
Speaker 5: rate cutting cycle we're entering. So if it is our
Speaker 5: first cut, what does that look like, you know, on
Speaker 5: the next twelve months?
Speaker 7: And I think even more importantly.
Speaker 5: Is how the FED speaks about the economy following the meeting.
Speaker 5: And what I mean by that is there's so much
Speaker 5: weight right now on is it twenty five, is it fifty?
Speaker 5: Is the second cut fifty basis points? And a lot
Speaker 5: of that has to come from how they talk about
Speaker 5: the setup of the economy beneath these cuts, and I
Speaker 5: think there will be a big fear response if you know,
Speaker 5: they aggressively start cutting, which really does signal that we
Speaker 5: are far too restrictive and the economy requires stimulation versus
Speaker 5: we're we're on a trajectory of normalization. And so you
Speaker 5: know that piece of it. And then the response from
Speaker 5: the housing sector in accordance to how the cuts go.
Speaker 5: We know we're under supply and housing. That's a huge
Speaker 5: catalyst for expansion in the markets if we do start
Speaker 5: to see a drive towards equilibrium in supply versus on
Speaker 5: going demand for housing.
Speaker 7: And so those.
Speaker 5: Two things have a pretty high correlation, we expect, and
Speaker 5: kind of we'll kind of handle the sentiment of investors
Speaker 5: as we enter the end.
Speaker 1: Of the year.
Speaker 4: Very good, Nicole web Thank you so much for joining us.
Speaker 4: Nicole Webb, senior vice president, financial advisor with Wealth Enhancement Group,
Speaker 4: joining us from New York via zoom.
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Speaker 2: Joining us now is Henry Detris, a managing partner and
Speaker 2: director of Economic policy at Beta Partners. She's joining us.
Speaker 2: She's in New Orleans. Actually, so hey, just real quick,
Speaker 2: are you safe? Is it okay? Is the storm coming?
Speaker 5: Like?
Speaker 2: Are you bracing for it?
Speaker 8: Probably right when I get off here, it'll come just
Speaker 8: at the end of this interview. It's expected to hit tonight,
Speaker 8: but it won't be too much of a big deal.
Speaker 8: So I'm not surprised that oil stocks aren't moving too much.
Speaker 8: We're used to this. This is what we prepare for.
Speaker 2: Okay, fair enough, all right, so we got that part done. Clearly.
Speaker 2: You were up late watching the debate with the spin
Speaker 2: and all the like, what's your pitch? What's your two minute,
Speaker 2: two minute, one minute, two sentence takeaway?
Speaker 8: I think that Harris clearly ran away with the debate.
Speaker 8: Trump missed a number of opportunities to stick to a
Speaker 8: script and stick to policy, and I think that was
Speaker 8: a mistake for him, and he could potentially have to
Speaker 8: correct it with the second debate. I doubt one will
Speaker 8: take place, but if the polling data starts to turn
Speaker 8: against him, as Kamala Harris's sort of appeals to moderate
Speaker 8: voters last night, should that work, he may have to
Speaker 8: commit to another debate.
Speaker 4: Henry, I'm just reading through your notes here, and you
Speaker 4: make a point here about ninety five percent of the
Speaker 4: electorate has already decided how they'll vote in November.
Speaker 6: Did I read that right? And if so, is that
Speaker 6: normal or is that crazy?
Speaker 4: Yeah?
Speaker 8: No, almost everybody has decided how they're going to vote.
Speaker 8: There's only about five percent of the electorate that's undecided
Speaker 8: right now. They're not you know, they're actively trying to
Speaker 8: ignore politics, but they're going to engage post debate. They're
Speaker 8: going to see clips from last night and start to
Speaker 8: make a call. There was, interestingly, fourteen percent of viewers
Speaker 8: last night thought that they maybe questioned their prior, their priors,
Speaker 8: They thought they might, you know, be willing to change,
Speaker 8: but then ultimately only four percent of them did. So
Speaker 8: we have a really sticky, very partisan America and that's
Speaker 8: going to make this election close until.
Speaker 7: The very end.
Speaker 2: What do you think can move the needle now? I mean,
Speaker 2: in some ways, this was the public's first introduction to
Speaker 2: Vice President Kamala Harris. President Trump is still unknown. Quantity.
Speaker 2: But nonetheless, how do they then further this if there's
Speaker 2: no second debate?
Speaker 8: Right twenty three percent of Americans are still looking to
Speaker 8: learn more about Kamala Harris's policies. Most of Americans already
Speaker 8: know all of Donald Trump's policies. The real uphill battle
Speaker 8: is on Kamala Harris's side right now. As my adds suggests,
Speaker 8: Trump is winning this race. The electoral College favors him
Speaker 8: in most swing states and within the margin of error
Speaker 8: in every single swing state. So it's really up to
Speaker 8: Harris to convey her home buyer tax credit and her
Speaker 8: position on abortion, her thoughts on capital gains rates, corporate
Speaker 8: tax rates, and sell that message to the American public.
Speaker 8: And I would suggest that the onus is on her
Speaker 8: to get that done.
Speaker 4: Just on Bloomberg Radio on television, Henriette, just before we
Speaker 4: came to you, we were listening to Canter Fitzgerald CEO
Speaker 4: Howard Lutnick, who is a strong Trump supporter, make the
Speaker 4: point that we've heard from a lot of folks that
Speaker 4: VP Harris should be more accessible to the media, should
Speaker 4: do interviews, should do town halls, press conferences.
Speaker 6: What do you think about that?
Speaker 9: I'm sure that she will as we go forward.
Speaker 8: The next major event is not until October first, with
Speaker 8: the vice presidential debate.
Speaker 9: I think there's twenty.
Speaker 8: Some odd days between now and then for the Hires
Speaker 8: campaign to take a sit down with a major editorial
Speaker 8: board and do more live town halls. What I think
Speaker 8: Republicans want to see is her stand alone as opposed
Speaker 8: to with Tim Wallas, which is of course what the
Speaker 8: interview with Dada Bash on CNN was a few weeks back.
Speaker 8: So I expect that she'll get out there, and the
Speaker 8: fact that American voters want to know more about her
Speaker 8: policies means that it is in her best interest to
Speaker 8: do that as well.
Speaker 2: What I also was noticing when I was reading a
Speaker 2: lot of takes on independence who just weren't clear, is
Speaker 2: that a lot of them are the people who go
Speaker 2: to the store, buy stuff, come home and like it's
Speaker 2: rough and economically it's really hard, and that the debate
Speaker 2: last night didn't speak to that didn't speak to that
Speaker 2: inflation or the economics. And you take a look at
Speaker 2: the inflation data today, right, it's kind of a mixed
Speaker 2: bag for everyone, But some of those core things like
Speaker 2: eggs are still a lot higher, and those prices are
Speaker 2: still a lot higher. How do the candidates really tackle
Speaker 2: that in a meaningful way where people who are truly
Speaker 2: undecided can get some clarity.
Speaker 8: This is why debates are so important for the challenger
Speaker 8: or the other candidate in this case, Donald Trump, to
Speaker 8: really hold her feet to the fire and say answer
Speaker 8: these questions speak to inflation, and Harris has to her credit,
Speaker 8: they will have a great track record to say it
Speaker 8: was seven eight nine percent two years ago and now
Speaker 8: it's down to under three percent. So there is a
Speaker 8: message that can be delivered from both sides, but they
Speaker 8: just weren't sticking to that script last night. Another reason
Speaker 8: why I think Trump would benefit from a second debate
Speaker 8: is because he could hammer those points home, which he
Speaker 8: should have done last night. I do think also, just
Speaker 8: to speak to the inflation data, gas prices still being low,
Speaker 8: to bring it back to the beginning of our conversation,
Speaker 8: is really important here. Gas prices factor into the American psyche.
Speaker 8: I would say, more than the price of eggs, So
Speaker 8: that being low I think does help Harris.
Speaker 4: So what is the role of the vice president candidates here?
Speaker 4: Did they move the needle all on a major election?
Speaker 9: I mean usually not.
Speaker 8: It's a much smaller audience that watches the vice presidential debate.
Speaker 9: They're not viewed as the leader of the country.
Speaker 8: We used to say that it's the least or the
Speaker 8: most like thankless job in DC. Obviously, Kamala Harris and
Speaker 8: Joe Biden's dynamic this year upended all of that. But
Speaker 8: in general, device presidential debate is not a blockbuster affair.
Speaker 8: They're usually pretty sleepy in fact, and a couple of
Speaker 8: cycles in the past few presidential election cycles you get
Speaker 8: fewer than fifty million or even thirty million viewers.
Speaker 2: October surprise, it does happen? Could there be one?
Speaker 7: Now?
Speaker 2: Like, let's look ahead. If there's not another debate, you
Speaker 2: want everyone wants Kamala Harris to speak more. What could
Speaker 2: an October surprise be?
Speaker 8: I think it would be ridiculous for anybody in a
Speaker 8: seat like mind to say that there won't be an
Speaker 8: October surprise in a year like this. I think at
Speaker 8: this point what I try to hone in on for
Speaker 8: investors is that it could very easily be foreign policy related.
Speaker 8: Israel Gaza, I think presents a stark opportunity for some
Speaker 8: sort of shock event that could be a problem, particularly
Speaker 8: for the Harris campaign since Joe Biden is the incumbent.
Speaker 8: I think the immigration data, the numbers have come down
Speaker 8: so rapidly since December via executive order. I don't see
Speaker 8: that changing a government shutdown is probably something that should
Speaker 8: be on people's radar. Trump tweeted about this last night,
Speaker 8: supporting a government shutdown that could be disruptive, but historically
Speaker 8: Republicans get blamed for that, so I don't think it's
Speaker 8: in his best interest.
Speaker 6: Thirty seconds, Henriette Taylor Swift endorsement. Does that mean anything?
Speaker 9: I think it does.
Speaker 8: We want to see his voter registration spikes, particularly in
Speaker 8: the twenty nine and under demographic.
Speaker 9: We've already seen that go through the roof.
Speaker 8: I believe it's eighty seven percent hyped up since twenty twenty,
Speaker 8: and of course you have three times higher registration rates
Speaker 8: for Black women, one hundred and forty seven for Latino women,
Speaker 8: and I think eighty seven percent is the number for
Speaker 8: all women. So that registration spike is what you'd want
Speaker 8: to watch, all.
Speaker 6: Right, Henrietta, thank you so much. We appreciate that.
Speaker 4: Heny toa Triz managing partner, a director of economic policy
Speaker 4: at Veda Partners joining us via Zoom from Louisiana again
Speaker 4: in the path of that incoming hurricane. So hopefully Henrietta
Speaker 4: and all the good folks down in that part of
Speaker 4: the world stay safe over the next twenty four hours.
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Speaker 4: YouTube dot com and search Bloomberg Podcast, and that's where
Speaker 4: you will find us. As Charlie is just reporting, we've
Speaker 4: got some selling in the stock market here today, perhaps
Speaker 4: on the back up a little bit higher than expected
Speaker 4: core inflation.
Speaker 6: Let's check it out with a professional here.
Speaker 4: Kim Farst, founder and Chief Investment Officer of Bouquet Capital Partners,
Speaker 4: joining us from Pittsburgh, PA via that Zoom thinks again
Speaker 4: more technology.
Speaker 6: How about that?
Speaker 4: Kim, Thanks so much for joining us here.
Speaker 6: Make of today's trading here and maybe the last two
Speaker 6: two or three days to trading been a lot of volatility.
Speaker 10: Sure, yeah, I think you know, as always, investors are
Speaker 10: pulled between the two poles of fear and greed, right,
Speaker 10: and I think this year has taught us that even
Speaker 10: with ho hum kind of economic data, that the market
Speaker 10: can go higher. And I think that is what keeps
Speaker 10: the greed into the market right now, is that we
Speaker 10: look at our recent past and say, hey, you know,
Speaker 10: Nvidia eclipsed all other stocks and then dragged six other
Speaker 10: stocks with them, you know, starting somewhere in the second quarter,
Speaker 10: and you know, portfolios turned out pretty good. But I
Speaker 10: guess wisely people are looking at the Fed and saying,
Speaker 10: are they too late?
Speaker 7: Should?
Speaker 10: You know, we know they're going to lower interest rates,
Speaker 10: that's pretty clear, but how much and how fast? And
Speaker 10: I think too fast would indicate that the Fed is
Speaker 10: seeing trouble ahead and on either one of its mandates
Speaker 10: that it's supposed to take care of, and that would
Speaker 10: be stable prices and full employment. So you know which
Speaker 10: you put those two together, you have the whole economy, right,
Speaker 10: what else is there in the economy? But no investors
Speaker 10: are afraid that the FED is too late, too slow,
Speaker 10: and that we're going to get a hard landing. Now,
Speaker 10: as somebody who has seen a hard landing. In nineteen
Speaker 10: ninety three, Pittsburgh had a seventeen percent unemployment rate because
Speaker 10: of inflation and the steel market being forever changed. And
Speaker 10: I don't think we are headed for that kind of
Speaker 10: hard landing. Just to set expectations.
Speaker 2: So, Kim, I hear you, and then I look at
Speaker 2: what's happening with bank stocks, and I'm confused. I mean,
Speaker 2: regional banks are getting really hit. Broader big banks also
Speaker 2: getting really hit by news that we already knew, right, Like,
Speaker 2: we knew that rates were coming down, and in theory,
Speaker 2: if they come down less quickly, that should be better
Speaker 2: for their net interest income. Right, So are banks telling
Speaker 2: us something else right now?
Speaker 10: Well, I think they're really concerned about the consumer and borrowing,
Speaker 10: and specifically consumer borrowing. I don't know that regional banks
Speaker 10: would be all that much affected by it. It's usually
Speaker 10: credit cards, and I don't think that would see a
Speaker 10: whole lot of you know, housing issues because most of
Speaker 10: the borrowers have very low interest rates, and the most
Speaker 10: recent borrowers, you know, they're they're as everybody's been pointing out,
Speaker 10: the housing market is slowing and has slowed, So I'm
Speaker 10: not quite sure why the smaller banks are being sold off.
Speaker 10: Maybe it's you know, continuing commercial real estate issues, of
Speaker 10: which you know, nobody can pretend that they're not there.
Speaker 10: We don't to work five days a week anymore. You
Speaker 10: need less footprint. It's an issue, and it's something that
Speaker 10: remains unresolved.
Speaker 4: So Morgan Stanley's Mike Wilson saying that the AI trade
Speaker 4: may be fading here in this market and calls into
Speaker 4: question what will be the leadership for this market?
Speaker 6: How do you feel about that thought there?
Speaker 7: Sure?
Speaker 10: Well, I think it's a pretty good bet that most
Speaker 10: investors have overplayed their hand on the timeline of AI
Speaker 10: rollout and how deep and pervasive it is. You know,
Speaker 10: as somebody that is an ex technologist in AI, I
Speaker 10: don't see the killer app that are going to make
Speaker 10: Corporations and certainly not individuals pay for access to it.
Speaker 10: So right now it's a free service, but that could
Speaker 10: change in the future. It's probably going to change in
Speaker 10: the future, but we don't know how long of a timeline.
Speaker 10: You know, Wall Street wants it yesterday, not tomorrow, so
Speaker 10: and it's a pretty few or pretty many tomorrow's and
Speaker 10: in the future where we think AI is going to
Speaker 10: be a player. But you're right, where is the next area?
Speaker 10: I would say that investors that need to put money work,
Speaker 10: money to work, and we all do because we're saving
Speaker 10: in our four to one case, they should look at
Speaker 10: the smaller companies, the unloved companies that have good products.
Speaker 10: And I love the medium sized companies over a billion
Speaker 10: to maybe like twenty billion, because especially if they have
Speaker 10: great products and a stable balance sheet, they are able
Speaker 10: to live on through tough times. But also they are
Speaker 10: acquisition candidates, and as rates come down, we will see
Speaker 10: more mergers and acquisitions because the big need to have
Speaker 10: new products or the product growth, so they will do
Speaker 10: it either organically or by acquisition. And I think it's
Speaker 10: a pretty good idea to look at smaller companies, but
Speaker 10: not the smallest companies for addition to your portfolio.
Speaker 2: Okay, so the question where do you buy the dip?
Speaker 10: Where do you buy the dip? Well, that's market timing,
Speaker 10: isn't it. And I think we're all warned about that.
Speaker 10: So I think it's on a case by case basis
Speaker 10: that you have to look at each company and say,
Speaker 10: is this a good deal? If it goes ten percent lower?
Speaker 10: Am I going to be angry about having bought it?
Speaker 7: Right?
Speaker 10: Give yourself some kind of wiggle room and understand that
Speaker 10: you know, companies can go lower on all sorts of news.
Speaker 10: So I think you have to do it on a
Speaker 10: case by case basis. And you know this wasn't in
Speaker 10: my note to you guys earlier, but maybe energy is
Speaker 10: an area as well. It seems to be especially selling
Speaker 10: off hard. And I would certainly put energy as even
Speaker 10: bigger companies as well as the small to medium sized
Speaker 10: companies on your list on your shopping list, and look
Speaker 10: at them daily and say, is today the day I'm
Speaker 10: going to buy whatever it is? It is that simple, Kim.
Speaker 6: How about valuation?
Speaker 4: It's obviously it's important when you know in the securities
Speaker 4: business that you're in, But how do you employ valuation?
Speaker 4: How high is it on your list of you know,
Speaker 4: decision factors for buying or selling security?
Speaker 10: Well, actually I don't look at it in just in isolation.
Speaker 7: Right.
Speaker 10: I'm a growth ish manager. I have growth at a
Speaker 10: reasonable price. So I'm always thinking that the company that
Speaker 10: I'm going to buy is going to grow, and it
Speaker 10: will grow more into its valuation, So I will look
Speaker 10: at pees that other value oriented managers probably will not.
Speaker 10: But that being said, you also have to understand in
Speaker 10: a declining rate environment, you should expect to pay a
Speaker 10: higher PE. And that's because of the math behind the
Speaker 10: whole discounted cash flow equation, which we're not going to
Speaker 10: go into at this point. But I also think it's
Speaker 10: extremely important not to look at them in isolation, but
Speaker 10: to their competitors and to their industry, because each industry
Speaker 10: has a different PE profile where it's merited most because
Speaker 10: the balance sheets are completely different, right, Like a software
Speaker 10: company is different than I don't know, a cement making
Speaker 10: or a steel making company that has a lot of plant,
Speaker 10: property and equipment. So those are the kind of things
Speaker 10: that change your perception of a PE, whether it's rich
Speaker 10: or you know, fairly valued.
Speaker 2: And this is a great setup into talking about last
Speaker 2: night's debate because from the way you invest in stocks
Speaker 2: and how you look at structural trends, even in cyclical
Speaker 2: areas of the market, how do you think about who's
Speaker 2: going to be running the White House over four years?
Speaker 2: Like what are there areas that that actually impacts how
Speaker 2: Kim Forest looks at the market.
Speaker 10: What does but slowly because I don't know. I have
Speaker 10: this quaint idea that the president, regardless of who it is,
Speaker 10: actually is the executive of the government, and that Congress
Speaker 10: gives them a budget. So things like I don't know,
Speaker 10: housing grants of twenty five thousand dollars that still has
Speaker 10: to go through a Congress, and that is a very
Speaker 10: slow process. So I am glacial, and I try to
Speaker 10: look for bigger trends that eclipse politics. So I'm not
Speaker 10: terribly concerned about what's going to happen other than taxation.
Speaker 10: Taxation is one of those things that can come in fast,
Speaker 10: but any of the more spending of the government and
Speaker 10: areas in which they spend, it's more glacial than we
Speaker 10: ever want to consider.
Speaker 6: All Right, Kim, thank you so much for joining us.
Speaker 4: Kim Forrest, Founder and chief investment Officer, Boca Capital Partners
Speaker 4: from Pittsburgh, PA.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: We're broadcasting to you live from Interactor Broker Studio right
Speaker 2: here in Midtown Manhattan. The headline that truly truly caught
Speaker 2: my eye today was UniCredit finally making a move on
Speaker 2: Commerce Bank. This is something that I that I've heard
Speaker 2: rumors about four years and UniCredit building a nine percent
Speaker 2: stake in the German Bank and apparently has planned to
Speaker 2: enter into talks with the lender, raising the possibility of
Speaker 2: a takeover that could truly reshape Europe's banking landscape. Joining
Speaker 2: us now for Morris Philip Richards, Bloomberg Intelligence Senior analyst
Speaker 2: for European Banks, Philip, would the German government let this happen?
Speaker 1: Yeah?
Speaker 11: Hi, it's an interesting one. As you say, this is
Speaker 11: not a new boomed deal. It's been going on for
Speaker 11: lit you well over a decade now. In terms of
Speaker 11: big cross boarded deal. The simplication mains any big cross
Speaker 11: bordered in transaction among European banks still hasn't happened in
Speaker 11: the last fifteen years since the crisis. So will it
Speaker 11: happen now? Yes, it's possibility, but there's still a lot
Speaker 11: of hurdles I'm left in terms of the German government
Speaker 11: allowed specifically when it would flag is the German market
Speaker 11: is very different to all the other European markets, so
Speaker 11: it's got a very big cooperative or mutual society. They've
Speaker 11: got the Sparkas and the Landers banks. So actually the
Speaker 11: private banks Deutsche Bank and Commerce Bank are a much
Speaker 11: smaller part of the overall market, and therefore could they
Speaker 11: take out the second biggest German bank? I think it
Speaker 11: is possible on that front.
Speaker 6: Would it be a good deal for Unit Credit?
Speaker 4: I guess what I'm asking is how good of a
Speaker 4: management team, how good of a franchise is UniCredit?
Speaker 1: Well?
Speaker 11: Is it a good deal? I mean that will come
Speaker 11: down to the price. And one good thing about Commerce
Speaker 11: Bank is is pricing is a low level. Even after
Speaker 11: rallying twenty percent about today, is still trading about half
Speaker 11: book value in terms of what you get for it. Yes,
Speaker 11: the earnings have been very, very weak for the last
Speaker 11: fifteen years, one of the low return and equity of
Speaker 11: all banks in Europe, but they have increased massively with
Speaker 11: rate risers across Europe. Of course, the flip pide to that,
Speaker 11: of course is great interstrate's now going down, So the
Speaker 11: question becomes what will happens to Commerce Bank's earning is
Speaker 11: going forward? And frankly they're probably going to be going
Speaker 11: down and therefore that's where the pressure on them will lie.
Speaker 11: So are they getting a good deal or they're paying
Speaker 11: almost at the top and terms of their earning potential?
Speaker 2: What what company would that make UniCredit like, would this
Speaker 2: be a giant investment bank and a giant retail bank.
Speaker 11: Well, they will become the third largest European bank if
Speaker 11: they did the deal in terms of a market cap basis.
Speaker 11: Obviously Commerce Bank is almost entirely now a retail and
Speaker 11: commercial bank is sold or the investment banking operations that
Speaker 11: had after the financial crisis, So this is amount of
Speaker 11: case of expanding in terms of that retail commercial space.
Speaker 11: UniCredit have a big presence in Germany already through hyper
Speaker 11: Variants Bank, so one of the attractions sort of deal
Speaker 11: for them would be combining that so Commerce Bank and
Speaker 11: hyper Ryans and therefore trying to get the cost and
Speaker 11: neues out of them. But say it's lament on a
Speaker 11: commercial retail side rather than invest in banking.
Speaker 4: So Philip talked to us about I mean just the
Speaker 4: German banking market right now in general from a competitive
Speaker 4: landscape that does there need to be consolidation.
Speaker 11: Does they?
Speaker 8: Yes?
Speaker 11: I mean it's probably the least consolidated market in Europe
Speaker 11: in terms of as you said, you've got this huge
Speaker 11: number of cooptive banks or sparkasms, et cetera. So it
Speaker 11: is a very difficult and diluted market. But the fact is,
Speaker 11: you know, Commerce Bank yourself has got a sub ten
Speaker 11: percent market share. So even if you've got it, did
Speaker 11: buy it and combined hypervides with them, they're still probably
Speaker 11: just getting over about that ten percent mark. So will
Speaker 11: it change the dial in Germany? Not at all, you know,
Speaker 11: because we're only talking in a thirty percent subsector in
Speaker 11: terms of the private banks, with seventy percent or so
Speaker 11: off the market you know, is in this mutual side.
Speaker 2: So you were talking earlier that this has been rumored
Speaker 2: for ten years. I remember talking about this at least
Speaker 2: six plus years ago. Also, why do you think that
Speaker 2: now could be actually the moment?
Speaker 11: Well you asked us about you know, what they get
Speaker 11: into Commerce Bank. We heard last night actually the CEO
Speaker 11: of Commerce Bank said he were not renew as tenor
Speaker 11: which miss farres at the end of next year, so
Speaker 11: you know that does open a hole at the top
Speaker 11: of the bank would obviously be in traction for them.
Speaker 11: There's one potential way of doing it. Who would have
Speaker 11: bought Commerce Bank given the excessive risks they had, say
Speaker 11: three or four years ago, where we had the commercial
Speaker 11: real estate risks, we had the bank trading at point
Speaker 11: three times book value. We had earnings are very very low,
Speaker 11: So in a way the risk has gone away a
Speaker 11: lot of Commerce Bank because simply because the earnings are
Speaker 11: much stronger now because of those rate rises. Also, the
Speaker 11: German state government took a big stake in the bank,
Speaker 11: so as they sell that further and further down, that's
Speaker 11: part of the way Munichledate built their state. Today that
Speaker 11: obviously becomes more and more attractive because it comes more into
Speaker 11: the private sector. So there are a number of more
Speaker 11: reasons why it could happen, but doesn't mean anything will
Speaker 11: happen then.
Speaker 4: No, is this going to ignite maybe a little bit
Speaker 4: more discussion about more across M and A trades just
Speaker 4: broadly defined across Europe.
Speaker 11: Without any doubt it will trigger more EMINECE spectation today
Speaker 11: and I think The fact that you said the temperate
Speaker 11: stake and yet the share then rally twenty percent shows
Speaker 11: that the market doesn't think this is the end of
Speaker 11: the story, and there's going to be more of a
Speaker 11: deal and the potential by bid for Commerce Bank is possible.
Speaker 11: That said, you know, why has there been no big
Speaker 11: m and a across the sector now for fifteen years?
Speaker 11: And because a number of the regulary hurdles are main
Speaker 11: You know, there's not a single rule book across Europe,
Speaker 11: government interference, people don't want to leave their biggest banks
Speaker 11: and be taken over by a foreign institution, et cetera.
Speaker 11: All these hurdles and nothing's actually changed on that front.
Speaker 11: That's all the still the same today. So you know,
Speaker 11: no big deals have happened. Could this be the first, Yes,
Speaker 11: but it's by no means certain it will thirty seconds.
Speaker 2: If the deal does happen, would the bank be able
Speaker 2: to like, lend more and do stuff.
Speaker 11: I think I would have said yes three years ago
Speaker 11: just because of the week of financial position that Commerce
Speaker 11: Bank was in. I think because of the eight hikes,
Speaker 11: now is in a much stronger position. It's got a
Speaker 11: service capital position itself, so there's no real barriers in
Speaker 11: terms of the supply side, their potential to lend more.
Speaker 11: What's restraining them from growing Actually more the week at
Speaker 11: Germany econmy and we're hearing more about that over the
Speaker 11: press in the last few days, and that's what's being
Speaker 11: hold them back. And thrankly nothing changes with this unique
Speaker 11: credit deal there those heard will still remain. So no,
Speaker 11: I don't think this would really help in terms of
Speaker 11: the lending or the growth potential. It's much more think
Speaker 11: about the synergies in terms of the cost takeout potential.
Speaker 2: So maybe that like the framing of the deal could
Speaker 2: have changed versus like six years ago. All Right, thanks
Speaker 2: a lot, Philip Richards, Bloomberg Intelligence, Senior analyst for European banks,
Speaker 2: on that nine percent stake the UniCredit now has in
Speaker 2: Commerce Bank.
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