WEBVTT - Surveillance: Earnings Amid Inflation Worries

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<v Speaker 1>Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along

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<v Speaker 1>with Jonathan Ferrell and Lisa Brownwitz Jay Ley. We bring

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<v Speaker 1>you insight from the best and economics, finance, investment and

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<v Speaker 1>international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg

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<v Speaker 1>dot Com and of course on the Bloomberg terminal. Right now,

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<v Speaker 1>see Michel where us out of the London School of Economics.

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<v Speaker 1>There's some real distinction there with principal global investors in

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<v Speaker 1>their chief strategies. Seema, you are decidedly half full. What

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<v Speaker 1>do they half empty? People that the gloom crew, what

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<v Speaker 1>do they get wrong? I think I'm really concerned about

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<v Speaker 1>the fly shortages. Of course, I think the market is

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<v Speaker 1>really prev and now it's quite looking for the companies

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<v Speaker 1>which are we're looking away from the company which are

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<v Speaker 1>particularly vulnerable. And I think there's a lot of concerns

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<v Speaker 1>about growth. You know, growth is stoning, but it's still

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<v Speaker 1>pretty solid um and that should be enough to carry

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<v Speaker 1>us through. And certainly for risk assets, it's still a

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<v Speaker 1>supportive environment. When I look at the supportive environment here

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<v Speaker 1>and we saw the supportive environment from JP Morgan, what

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<v Speaker 1>will you look at for us forward tone that will

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<v Speaker 1>lead to supportive What do you want to hear on

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<v Speaker 1>those animals conference calls? Yeah? So I think for the banks, um,

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<v Speaker 1>it's going to be a little bit different, right because

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<v Speaker 1>they are going to be less vulnerable to some of

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<v Speaker 1>the supply bottle necks that we that we've been worried about.

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<v Speaker 1>They're less vulnerable to the energy prices. So what we

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<v Speaker 1>want to see from them is how do they see

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<v Speaker 1>the consumer panning out? Now the good thing for the

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<v Speaker 1>consumer is a little bit of a negative for banks,

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<v Speaker 1>So that's the thing that we need to watch. But

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<v Speaker 1>generally from earning seasons, we want to know what their

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<v Speaker 1>guidance is on profit margins. So how are they dealing

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<v Speaker 1>with that? Are they starting to be concerned about wage

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<v Speaker 1>pressures or is it something that they can write through

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<v Speaker 1>or in additionally, do they feel like they've got enough

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<v Speaker 1>pricing power to pass us onto consumers? So those are

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<v Speaker 1>the new since that we can be watching for. What

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<v Speaker 1>I have to say, I think we're expecting a pretty

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<v Speaker 1>solid earning season um and going into one it's just

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<v Speaker 1>about maybe slightly more challenging environments, but still pretty solid.

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<v Speaker 1>So the idea that Apple are reportedly by Bloomberg yesterday

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<v Speaker 1>it was going to cut productions significantly because of the

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<v Speaker 1>chip shortage, that it has not rippled through markets more.

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<v Speaker 1>Does that indicate to you that we've already priced in

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<v Speaker 1>all potential supply chain disruptions and that from here you

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<v Speaker 1>only have upside in terms of those pressures facing certain companies.

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<v Speaker 1>I think that there's definitely element of that. I think

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<v Speaker 1>the market has knows so much about the supply chain

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<v Speaker 1>issue then know that it's going to last until two

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<v Speaker 1>They've made that adjustment in terms of expectations. And on

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<v Speaker 1>top of that, you know, we all hate the word transitory,

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<v Speaker 1>but maybe some of these these problems for Apple are

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<v Speaker 1>likely to be transitory. This is just for so you know,

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<v Speaker 1>we should see them picking up some of those games

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<v Speaker 1>again once the supply shortages are finished. So is SEMA.

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<v Speaker 1>Are you against a big tech at this point, because

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<v Speaker 1>you do you see the pressure upwards and yields and

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<v Speaker 1>this idea that you're going to continue to see a

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<v Speaker 1>further correction there or do you think that it's time

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<v Speaker 1>to go back because they have suffered the most over

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<v Speaker 1>the past month and a half. Yeah, we are definitely

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<v Speaker 1>still supportive for big cap tech, make cap tech, and

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<v Speaker 1>the reason is that, yes, it's been a slightly challenging

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<v Speaker 1>environment with deals, but we do think that that's near

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<v Speaker 1>the top, right. We don't see that much additional movement

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<v Speaker 1>here from here on which is going to be particularly

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<v Speaker 1>steep or disruptive. And then just generally for big cap tech, yes,

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<v Speaker 1>there are supply change shortages which will impact them, but

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<v Speaker 1>the overall longer term demand is still really strong and

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<v Speaker 1>you know, as we said, the environment is getting slightly

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<v Speaker 1>more challenging. This is a time when you want balance

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<v Speaker 1>sheet You want the big profit margins, the companies that

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<v Speaker 1>have the power to deal with some of those maybe

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<v Speaker 1>margin pressures which can be facing the economy in the

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<v Speaker 1>next year or so. Sema, thank you. We have to

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<v Speaker 1>leave in their fantastic to catch up with you out

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<v Speaker 1>of London. As always Semi Shada, A principal Global Investors, Yeah,

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<v Speaker 1>this time is always different. As bank earnings, you bring

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<v Speaker 1>in Allison Williams, little big Intelligence senior bank analysts. Alison,

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<v Speaker 1>I want you to explain what Fortress JP Morgan looks like.

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<v Speaker 1>These are ratios you and I never studied. We never

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<v Speaker 1>framed tangible equity. The profitability seems overwhelming. Can it endure? Well,

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<v Speaker 1>some of it can. I would say that the two

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<v Speaker 1>big surprises that we got this quarter are are similar

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<v Speaker 1>to the drivers of positive surprises in recent quarters, and

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<v Speaker 1>that's the investment bank and the reserve releases. So the

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<v Speaker 1>reserve releases are something that really helps the bottom line

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<v Speaker 1>this year, hurt the bottom line last year, and so

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<v Speaker 1>obviously that's that's something that's not sustainable. The Global Investment

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<v Speaker 1>Bank continues to surprise to the upside this quarter. It's

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<v Speaker 1>really equities UM. Trading revenue growth very strong UM, advi

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<v Speaker 1>issory fees a new record UM. So so those are

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<v Speaker 1>key positives. I really set the bar ahead of Goldman

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<v Speaker 1>and Morgan Stanley tomorrow, but not interest income. That's the

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<v Speaker 1>key UM metric that investors are focusing on this quarter.

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<v Speaker 1>So for JP, Morgan came in banging line UM, which

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<v Speaker 1>is a bit neutral. But what investors are going to

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<v Speaker 1>be digging into our what are the prospects for loan

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<v Speaker 1>growth UM that can give us a little lift going forward.

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<v Speaker 1>And so I would say there's enough there to sort

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<v Speaker 1>of feed the optimism, but UM, but you know, nothing

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<v Speaker 1>over the top. So signs of green shoots is what

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<v Speaker 1>we're hearing from JP Morgan. We've heard that from Wells Fargo,

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<v Speaker 1>UM and and so some positives there, but I think

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<v Speaker 1>needs to get a little bit better Ellison. Broadly, this

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<v Speaker 1>is being taken as a positive for the economic story

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<v Speaker 1>as well as for other banks. And yet the advisory fees,

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<v Speaker 1>I want to really hone in on that the idea

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<v Speaker 1>that they hit a record. Could this be taking some

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<v Speaker 1>of the business of the market share away from the

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<v Speaker 1>likes of Morgan Stanley or is the market right to

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<v Speaker 1>shrug this off and says it's just basically a green

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<v Speaker 1>light for advisory businesses all across the street. I think

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<v Speaker 1>for M and A it is definitely the ladder. I mean,

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<v Speaker 1>I think it's going to be a great quarter for

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<v Speaker 1>all the banks. You know, the equity trading side of things,

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<v Speaker 1>I think is where you might be seeing a little

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<v Speaker 1>bit more market shift, but equity advisory fees. And we

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<v Speaker 1>saw this from Jeffrey's earlier this month. You know, last

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<v Speaker 1>quarter was was a record for Jeffreys. They this quarter

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<v Speaker 1>a new record. UM JP Morgan, you know, triple what

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<v Speaker 1>we were a year ago. That's not that impressive given

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<v Speaker 1>it was a week year ago, but sizeable growth from

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<v Speaker 1>last quarter. And we do think that the fundamentals are

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<v Speaker 1>there for JP Morgan and for the bank's broadly UM

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<v Speaker 1>to continue this sort of record setting M and A

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<v Speaker 1>piece and listen for people in the audience right now

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<v Speaker 1>who aren't familiar with the way these earnings to deliver it.

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<v Speaker 1>On the front page, the first page, you get Jamie

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<v Speaker 1>Timonds comments down the right side of that page at

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<v Speaker 1>the bottom, there is this common here. This quarter, we

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<v Speaker 1>became the first bank to have branches in all of

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<v Speaker 1>the lower forty eight states. Now that's not news, Allison,

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<v Speaker 1>but we know there's been a big push here to

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<v Speaker 1>expand from the likes of JP Morgan and others. What's

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<v Speaker 1>the effort here, what's behind it and how important is it?

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<v Speaker 1>It is important, and this is a multi year plan

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<v Speaker 1>that's taking place at JP Morgan, similar at Bank of America.

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<v Speaker 1>They're already significant across the country, but you know, rounding

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<v Speaker 1>out their footprint, if you will. And so while there's

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<v Speaker 1>a lot of focus for banks on technology and the

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<v Speaker 1>digital side of things, that's that's really been sort of

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<v Speaker 1>a boon to the bottom line UM and increasingly focusing

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<v Speaker 1>on the top line UM. They are building branches in

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<v Speaker 1>new markets, and you know the banks are the global banks,

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<v Speaker 1>the biggest banks back American JP Morgan winning share where

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<v Speaker 1>they want and we think this sort of comes back

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<v Speaker 1>to UM. You know the level of technology investments that

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<v Speaker 1>that sort of helps them be more efficient broadly UM,

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<v Speaker 1>as well as you know, seeking out these new markets. Annison,

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<v Speaker 1>thank you as always Annison Williams JP moking up by

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<v Speaker 1>six tenths of one percent. A whole host of banks

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<v Speaker 1>are pulling agnis tomorrow and that's a government on Friday.

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<v Speaker 1>This is an important conversation. One of the great moments

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<v Speaker 1>of Bloomberg surveillance. John Farrell was there as well with

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<v Speaker 1>for Instant Laqua was Kenneth Rogoff and Joseph Stiglets on

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<v Speaker 1>set with us in Davos. It was a trenchant moment

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<v Speaker 1>in World Bank I m F history. We are honored

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<v Speaker 1>today to have Laureate Stiglets with us from Columbia University

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<v Speaker 1>to sketch out the uproar in Washington over data integrity. Joe,

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<v Speaker 1>I thought you covered so much ground in your project

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<v Speaker 1>Syndicate s A in your defense of the managing director

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<v Speaker 1>of the I m F The question seems to be,

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<v Speaker 1>if we're gonna do data, try to to data that's

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<v Speaker 1>not politically tinged. Have these meetings in these institutions that

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<v Speaker 1>you worked at, have they become too political? Well, there's

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<v Speaker 1>always going to be a political element. Uh. The report

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<v Speaker 1>that was the subject of all this controversy was the

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<v Speaker 1>Doing Business Report, and that was a report that was

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<v Speaker 1>always problematic. In fact, just a decade ago I testified

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<v Speaker 1>to Congress about why that was a bad report and

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<v Speaker 1>ought to be uh a scrapped. Uh. They said that

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<v Speaker 1>doing business meant doing well, and that meant not treating

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<v Speaker 1>your workers well, weakening labor market protections, lowering corporate income tax.

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<v Speaker 1>My view was progressive taxation, finances infrastructure, and that makes

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<v Speaker 1>anyfication makes for his funder economy. So you're absolutely right.

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<v Speaker 1>If you're going to have data, make sure that, by

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<v Speaker 1>its very nature it's not a political database. Joe Stiglers,

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<v Speaker 1>do you believe that Dr Georgieva wherever follows on from

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<v Speaker 1>David mal Pass at the World Bank? Will they be

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<v Speaker 1>tinged by this? Is she does she have too much

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<v Speaker 1>baggage now to do her job for the remaining three years?

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<v Speaker 1>Absolutely not. In fact, if you look closely at what

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<v Speaker 1>she did. She stood up for data integrity. What she

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<v Speaker 1>said is, we're not going to monkey with the methodology.

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<v Speaker 1>She instructed her staff to make sure the data is right,

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<v Speaker 1>do exactly what I would have done if I were

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<v Speaker 1>in a position. Uh. And it turned out that when

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<v Speaker 1>they looked at the data, there were some rounding errors

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<v Speaker 1>they suggested of things, and the difference. This whole controversy

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<v Speaker 1>is about whether China was an eighty third or seventy

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<v Speaker 1>five in the ranking, and that difference is not statistically significant.

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<v Speaker 1>It's basically a tie. So and what they said was

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<v Speaker 1>our data confirmed what we said before we the literal adjustment.

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<v Speaker 1>What they should have done is explained the lack of

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<v Speaker 1>statistical significance to this difference between seventy five and Professor Stiglett's.

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<v Speaker 1>There's a broader story here of increasing politicization of central

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<v Speaker 1>bankers in general, of some of the financial authorities around

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<v Speaker 1>the world. And I speak about this with the Federal

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<v Speaker 1>Reserve in particular, Randy Quarrel stepping down as the vice

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<v Speaker 1>chair of supervision. How much does this weaken the role

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<v Speaker 1>of the likes of the Federal Reserve going forward? At

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<v Speaker 1>a time when they are more pivotal than ever to markets.

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<v Speaker 1>You cannot remove our regulatory authorities from the political context.

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<v Speaker 1>You know, we had a crisis in two thousand eights.

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<v Speaker 1>Some people seem to have forgotten that, and one side

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<v Speaker 1>of our political spectrum says it didn't occur, uh and

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<v Speaker 1>we ought to uh deregulate. The other side says, two

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<v Speaker 1>thousand eight actually occurred. It occurred because we did not

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<v Speaker 1>have adequate regulation, and we need to maintain a strong

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<v Speaker 1>regulatory framework. That has become political, but it's also the

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<v Speaker 1>essence of economics, and the same thing goes for climate change.

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<v Speaker 1>Climate risk is a financial risk. Countries all over the

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<v Speaker 1>world have recognized it, but in the United States we

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<v Speaker 1>seem not to have fully taken this on board. And

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<v Speaker 1>I'm very concerned that the Chairman of the Federal Reserve

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<v Speaker 1>has not taken on board the real risks associated with

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<v Speaker 1>climate change to our financial system, to our banking system. Professor,

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<v Speaker 1>what do you say to the accusation that your own

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<v Speaker 1>thoughts might be shaped by around politics. I'm reading the

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<v Speaker 1>project Syndicate Pace. You defend the Mountains director of the IMF,

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<v Speaker 1>but you raised the issues with the World Bank President

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<v Speaker 1>David Malpass, which of course was supported by the former administration.

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<v Speaker 1>You're now going after the chairman of the Federal Reserve,

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<v Speaker 1>which of course was nominated by Republicans. What would you say,

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<v Speaker 1>bank to people that set your own views, Shank, buy

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<v Speaker 1>your own personal politics. Well, I mean, obviously I'm uh.

0:13:26.320 --> 0:13:31.520
<v Speaker 1>The issues we we're talking about regulation, uh, climate change

0:13:31.880 --> 0:13:34.920
<v Speaker 1>are issues I feel very deeply about. But they're also

0:13:34.960 --> 0:13:41.000
<v Speaker 1>economic issues. Uh. In the case of David Malpass, Bloomberg

0:13:41.040 --> 0:13:46.600
<v Speaker 1>itself exposed the attempt of David Malpas to interfere with

0:13:46.640 --> 0:13:50.240
<v Speaker 1>the methodology that was used in the Doing Business Report,

0:13:50.720 --> 0:13:56.000
<v Speaker 1>a far graver concern than telling your staff to make

0:13:56.000 --> 0:13:59.839
<v Speaker 1>sure the numbers are right. And yet it is so

0:14:00.240 --> 0:14:05.240
<v Speaker 1>strange that there has been no discussion about that intervention

0:14:05.880 --> 0:14:12.000
<v Speaker 1>in the methodology of fire rap concern than uh, what

0:14:12.160 --> 0:14:15.080
<v Speaker 1>she did when she was trying to maintain integrity of

0:14:15.160 --> 0:14:19.040
<v Speaker 1>the data given the methodology. Professor, we appreciate your time,

0:14:19.120 --> 0:14:21.480
<v Speaker 1>We always do. Thank you your contribution this morning. Judge

0:14:21.480 --> 0:14:24.120
<v Speaker 1>Stiglitz there, the Columbia University professor and of course the

0:14:24.200 --> 0:14:32.960
<v Speaker 1>novad laureate in Economic We had some technical difficulties with

0:14:33.000 --> 0:14:35.680
<v Speaker 1>Fatty bro a little bit earlier this hour. I understand

0:14:35.680 --> 0:14:37.720
<v Speaker 1>we can catch up with him right now. The International

0:14:37.800 --> 0:14:41.440
<v Speaker 1>Energy Agency executive director, fancy forgive me, we gotta cut

0:14:41.440 --> 0:14:43.520
<v Speaker 1>this shot because we had some technical difficulties with you.

0:14:43.600 --> 0:14:46.800
<v Speaker 1>But let's start right here. The energy transition is increasingly

0:14:46.800 --> 0:14:50.120
<v Speaker 1>difficult right now worldwide because consumers are starting to see

0:14:50.440 --> 0:14:54.200
<v Speaker 1>higher prices of fossil fuels. How compromises that transition at

0:14:54.200 --> 0:14:59.880
<v Speaker 1>the moment, sir, thank you. I think that might be

0:15:00.240 --> 0:15:04.160
<v Speaker 1>misunderstanding or some people are trying to portrayed in a

0:15:04.240 --> 0:15:09.640
<v Speaker 1>way as if the current market classes is the first

0:15:10.600 --> 0:15:14.320
<v Speaker 1>classis of the clean energy transitions, and the current station

0:15:14.400 --> 0:15:17.160
<v Speaker 1>with natural gas or oil or coal, it is not

0:15:17.280 --> 0:15:20.960
<v Speaker 1>into the clean energy transitions. There are different fundamental drivers

0:15:21.200 --> 0:15:24.480
<v Speaker 1>for that, and in my view, clean energy is not

0:15:24.600 --> 0:15:29.160
<v Speaker 1>the cause, but the solution to this problem we have.

0:15:29.480 --> 0:15:32.479
<v Speaker 1>So therefore it is important to put this in a perspective.

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<v Speaker 1>And the press of oil you were just talking about

0:15:37.440 --> 0:15:42.960
<v Speaker 1>a few minutes ago. Today it is above eighty dollars.

0:15:42.960 --> 0:15:47.560
<v Speaker 1>But today we the world consumes about ninety six million

0:15:47.560 --> 0:15:50.560
<v Speaker 1>bullars per day, and only two thousand nineteen the world

0:15:50.760 --> 0:15:54.160
<v Speaker 1>was consuming much higher hundred million bars per day of

0:15:54.160 --> 0:15:57.880
<v Speaker 1>oil and the press was sixty dollars. So we cannot

0:15:58.240 --> 0:16:02.040
<v Speaker 1>talk about the lack of investment to oil or other things.

0:16:02.240 --> 0:16:04.680
<v Speaker 1>There is enough oil in the in the world, but

0:16:05.200 --> 0:16:08.440
<v Speaker 1>the high oil process must be a result of other

0:16:08.560 --> 0:16:11.720
<v Speaker 1>things rather than the lack of capacity or lack of investments.

0:16:12.560 --> 0:16:15.440
<v Speaker 1>As a representative both of the energy industry as well

0:16:15.480 --> 0:16:18.400
<v Speaker 1>as a proponent of trying the transition to a cleaner

0:16:18.520 --> 0:16:21.360
<v Speaker 1>energy future, do you think the price of oil should

0:16:21.400 --> 0:16:25.120
<v Speaker 1>stay high, should go even higher to expedite the transition period.

0:16:25.440 --> 0:16:32.240
<v Speaker 1>I think the clrent pricess oil gas coal process are

0:16:32.680 --> 0:16:39.680
<v Speaker 1>a serious challenge for the global economic recovery through higher inflation,

0:16:40.280 --> 0:16:43.840
<v Speaker 1>and it's such a those process I would like to

0:16:43.840 --> 0:16:48.560
<v Speaker 1>see as lower than they are now. But regardless of

0:16:48.600 --> 0:16:53.520
<v Speaker 1>the process, a clean energy is coming very strongly. It

0:16:53.680 --> 0:16:57.000
<v Speaker 1>is the electric cars, it is the the solar, it

0:16:57.160 --> 0:17:01.160
<v Speaker 1>is the bed. Just today I just saw the electric cars.

0:17:01.160 --> 0:17:06.440
<v Speaker 1>Says in China the largest car manufacturers, it is more

0:17:06.440 --> 0:17:09.600
<v Speaker 1>than twenty percent of all the cars sold in China

0:17:09.680 --> 0:17:13.639
<v Speaker 1>are electric cars. Same in Europe. It is going to

0:17:13.680 --> 0:17:18.119
<v Speaker 1>grow and it will end up I expect a big

0:17:18.160 --> 0:17:22.199
<v Speaker 1>impact on the will demand. We shouldn't be fixated what

0:17:22.359 --> 0:17:25.040
<v Speaker 1>is happening today in the markets as a result of

0:17:25.160 --> 0:17:29.480
<v Speaker 1>the unsustainable economic recovery around the world. Just to get

0:17:29.480 --> 0:17:34.200
<v Speaker 1>a bit beyond beyond this, and I expected the current

0:17:34.359 --> 0:17:38.639
<v Speaker 1>climate policies of many governments from China to the United States,

0:17:38.720 --> 0:17:43.040
<v Speaker 1>United States to Europe and others, we have significant implications

0:17:43.160 --> 0:17:46.720
<v Speaker 1>for the global energy markets. Fancy, we have to leave

0:17:46.720 --> 0:17:48.560
<v Speaker 1>it there. We had to kind of show off some

0:17:48.560 --> 0:17:50.760
<v Speaker 1>technical difficulties. Funny, please come back soon. We'll have a

0:17:50.800 --> 0:17:53.800
<v Speaker 1>longer conversation on an important topic. Funny people that the

0:17:53.840 --> 0:17:58.919
<v Speaker 1>II executive director. This is the Bloomberg Surveillance Podcast. Thanks

0:17:58.920 --> 0:18:02.000
<v Speaker 1>for listening to and us live weekdays from seven to

0:18:02.080 --> 0:18:06.119
<v Speaker 1>ten am Eastern on Bloomberg Radio and on Bloomberg Television

0:18:06.480 --> 0:18:10.520
<v Speaker 1>each day from six to nine am for insight from

0:18:10.520 --> 0:18:15.080
<v Speaker 1>the best in economics, finance, investment, and international relations. And

0:18:15.160 --> 0:18:20.359
<v Speaker 1>subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg

0:18:20.359 --> 0:18:24.040
<v Speaker 1>dot com, and of course on the terminal. I'm Tom Keane,

0:18:24.080 --> 0:18:26.160
<v Speaker 1>and this is Bloomberg