Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business
Speaker 1: Week inside from the reporters and editors who bring you
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Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol Messer
Speaker 1: and Tim Stenebek from Bloomberg Radio.
Speaker 2: Bank of America in particular, reporting that bank traders notching
Speaker 2: one of their best first quarters on record. The company
Speaker 2: also reaped the benefits of elevated borrowing costs the push
Speaker 2: nest interest pushed excuse me, net interest income of of
Speaker 2: analyst estimates. But the stock is slumping and there are
Speaker 2: good reasons why.
Speaker 3: Yeah, that's the good news, Carol. Stockdown three point three
Speaker 3: percent as we speak. Bank America reporting elevated expenses and
Speaker 3: charge offs for soured loans that were higher than analysts expected,
Speaker 3: failing to satisfy investors with a gain in its trading business.
Speaker 3: Charge offs totally one point five billion dollars of twenty
Speaker 3: six percent from the last three months of twenty twenty
Speaker 3: three was more than analysts foretasts.
Speaker 2: All right, let's bring in Bloomberg Intelligence Senior Global Banks
Speaker 2: analyst Alison Williams here in our Bloomberg Interactive Broker Studio.
Speaker 2: Is it all about the charge offs? Is that the
Speaker 2: big bummer?
Speaker 4: I mean, I think it's a lot of little things.
Speaker 4: And I'd also point out that all of banks are
Speaker 4: selling off, and you know, banks do not do well
Speaker 4: and risk off days, So let's start there. And you know,
Speaker 4: I think the other, I mean, the other disappointment is
Speaker 4: not interesting income that's been the story of the quarter.
Speaker 4: They did actually have a beat, and they actually showed
Speaker 4: sequential growth, which was positive versus what what analysts had
Speaker 4: expected and what.
Speaker 5: Other banks had expected. But they kept their views.
Speaker 4: Steady, just like the other big banks, and so you know,
Speaker 4: people are not happy about that. But I do think, like,
Speaker 4: let's look at the underlying trends. Right, the deposit costs
Speaker 4: are still going up, but at a slowing pace, and
Speaker 4: so we think that's that is positive, and we think
Speaker 4: it's prudent for these banks to just stay pat Bank
Speaker 4: of America is already a little bit more optimistic than banks.
Speaker 4: They're calling for a trough second quarter, so it's disappointing
Speaker 4: that it wasn't fourth quarter, but still more optimistic most.
Speaker 4: You know, if you look at consensus, it thinks like
Speaker 4: one queue of next year. But look at how fast
Speaker 4: things have changed. You know, you just had we've just
Speaker 4: had the discussion over the last few and it's right changed.
Speaker 4: So if you were bank management, would you be changing
Speaker 4: your guidance, you know, but so quickly it really just
Speaker 4: doesn't it's not helpful and it doesn't tend to be rewarding.
Speaker 4: But you know, and getting to charge offs, so you
Speaker 4: made the point them out charge offs. Credit card charge
Speaker 4: offs are always higher in the first quarter, delinquencies are lower,
Speaker 4: and if you look at the delinquency trends, they show
Speaker 4: that that pattern should continue to play out. The commercial
Speaker 4: real estate, I think people might have been taken them
Speaker 4: back a little bit, especially because Wells Fargo and JP Morgan,
Speaker 4: who are the bigger lenders, you know. Wells Fargo especially
Speaker 4: showed improvement in their US office. They showed improvement and
Speaker 4: multi family. But with Bank of America said is that
Speaker 4: they changed their models. They did some reevaluation, so maybe
Speaker 4: shows that they weren't as being as conservative and.
Speaker 5: So you got that uplifted charge offs.
Speaker 3: Any commentary from management about the strength of the consumer
Speaker 3: at Bank of America, because that's they've got a great
Speaker 3: view into the consumer with all the accounts.
Speaker 4: They have, they do and the consumer is still healthy.
Speaker 4: We keep hearing about the healthy consumer. I think where
Speaker 4: their spent disappointment is the commercial side of things, so
Speaker 4: card growth, and then you can argue how healthy it is, right,
Speaker 4: people are barring on their card to spend, but card
Speaker 4: growth is really you know, that's the blowout versus that's
Speaker 4: the only place where you're getting low growth. And that's
Speaker 4: why you saw a city JP Morgan the most exposure there.
Speaker 4: Bank of America has some exposure, so they're doing well
Speaker 4: and that business is doing.
Speaker 6: Meaning people carrying balances.
Speaker 5: What do you meaning people are carrying balances?
Speaker 3: So that's an interesting test. That's an interesting definition of
Speaker 3: strength of the consumer.
Speaker 1: Right.
Speaker 4: So well, so the spending is healthy, but so the
Speaker 4: balances are growing. That's why I said, you know, you
Speaker 4: can argue right that you know, consumers having the ability
Speaker 4: to borrow is seen as well, there's capacity, right, that's
Speaker 4: a healthy thing. But as they use up that ability,
Speaker 4: is that really healthy? And if you look at City Group,
Speaker 4: you know they they actually raise their guidance on their
Speaker 4: private label card, which tends to skew you know, more
Speaker 4: towards the lower end of the scale. So it does
Speaker 4: show that, you know, are there some signs of cracks coming?
Speaker 2: Is there a net net takeaway for you, Allison watching
Speaker 2: all of these big banks, right, it's start on Friday
Speaker 2: and we finished or you know, we're kind of getting
Speaker 2: through it all in terms of the health of the
Speaker 2: big banks, and then what it tells us about kind
Speaker 2: of the broader business and consumer environment.
Speaker 4: So you know, I think again, if you back away
Speaker 4: the guidance, right, the stocks react to the guidance, the
Speaker 4: cost of deposits, that that's showing some stabilization.
Speaker 5: So that's a good thing.
Speaker 4: That means that you know the impact of higher rates
Speaker 4: on deposits and people shifting the money around, that's stabilizing.
Speaker 4: So obviously that could change depending on what happens with rates.
Speaker 4: We just talked about higher charge offs and higher charge
Speaker 4: of the card, but in general reserve releases across the banks,
Speaker 4: and that's not you know, card is forcing to go
Speaker 4: up at credit and the provisions are come, are you know,
Speaker 4: scaling back because the economy is turning out to be
Speaker 4: better than expected or better than feared, you might say, right,
Speaker 4: So and again that's right, So those things are positive
Speaker 4: you know, the cost side is still very inflated, so
Speaker 4: that's a negative. That's also sort of a knock on
Speaker 4: the Bank of America. And if you have revenue pressure
Speaker 4: and you have costs going up, bank investors don't like that. Finally,
Speaker 4: capital markets, you know, we had expected resilience.
Speaker 5: It was better than we thought.
Speaker 4: We have a choppy start to this quarter, but that's
Speaker 4: still gonna be really good for trading. That's a big
Speaker 4: source of revenue invested banking. The other thing that we're
Speaker 4: looking at really came in well in the first quarter.
Speaker 4: A lot of the banks talking about, you know, positive
Speaker 4: outlook for i POS.
Speaker 5: You know, these contents of markets are not.
Speaker 4: Yeah, they're starting to happen. Some of the performance in
Speaker 4: the first quarter IPOs is positive. Both JP Morgan and
Speaker 4: Goldman pointing to that, Morgan Stanley is saying, look, these companies,
Speaker 4: you know, at some point they have to make their
Speaker 4: they have to you know, make their decisions and execute
Speaker 4: regardless of the markets. But I think I think, you know,
Speaker 4: if if we have like a few more if the
Speaker 4: few days like this, yeah.
Speaker 5: Turn into more of a sustained trend, it's going to
Speaker 5: be tough.
Speaker 2: Allison Williams of our BI team, and we've got the
Speaker 2: KBW Bank index down one and a half percent.
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Speaker 7: Charlie mentioned Morgan Stanley shares.
Speaker 2: They are definitely rallying in today's session in a market
Speaker 2: where we're kind of little changed overall in the major
Speaker 2: equity averages. This is coming after Morgan Stanley's first quota
Speaker 2: revenue exceeded analyst expectations, helped out by its trading business
Speaker 2: that came in at five point thirty three billion dollars,
Speaker 2: cruising past analyst estimates, and also as its wealth management
Speaker 2: juggernaut also got back on track on that remember the
Speaker 2: news last week Morgan Stanley downplaying queries into its wealth
Speaker 2: management clients. That news last week did, as you know,
Speaker 2: send shares tumbling.
Speaker 3: Bank of America also reported and traders not one of
Speaker 3: their best first quarters on record, as the company also
Speaker 3: reaped the benefits of elevated borrowing costs that push net
Speaker 3: interest income above analyst estimates. We should note that all
Speaker 3: this came after Goldman, JP, Morgan City, Wells Fargo and others.
Speaker 3: Carol and the banking sector have reported as well. Bank
Speaker 3: of America right now down three point eight percent.
Speaker 2: All right, So we've got a guest who follows the
Speaker 2: financial sector. Cheryl Paid is back with us. She's senior
Speaker 2: portfolio manager at the investment manager from angel O Capital.
Speaker 7: She joins us from Atlanta.
Speaker 2: She serves as portfolio manager for the financial's Income Fund
Speaker 2: financial Strategies, Income Term Trust and the Dynamic Financial Strategies
Speaker 2: Income Term Trust. So, Cheryl, good to have you here
Speaker 2: with us. You look at the financial sector, the results
Speaker 2: that we've gotten from the big banks and what does
Speaker 2: it tell you? And not everyone is the same, we
Speaker 2: know not all the results were the same.
Speaker 7: But what were your key takeaways?
Speaker 8: Yeah, I think there's a couple things that we're looking at,
Speaker 8: and I think, first off, guidance is critical in today's
Speaker 8: environment more so than results generally, in terms of how
Speaker 8: banks are really adjusting to a higher for longer environment
Speaker 8: and how their positioned to benefit. On an NII side,
Speaker 8: I think what we've really seen thus far the reporting
Speaker 8: season is that results have generally beat expectations, but it's
Speaker 8: been largely from the FIA income side. So to your
Speaker 8: earlier commentary, we've seen capital market strength, We've seen you know,
Speaker 8: the M and A pipeline has been building. You've seen
Speaker 8: strength in investment banking and wealth management fees, and then
Speaker 8: also on the expense side. NII in general, I think
Speaker 8: has roughly hit the bar, but the forward guidance has
Speaker 8: been maybe a little disappointing versus byside expectations.
Speaker 3: What about potential concerns here as we've heard from the
Speaker 3: big banks already, concerns about the consumer, concerns about commercial
Speaker 3: real estate. What are your takeaways?
Speaker 8: Yeah, I think credit has remained remarkably benign. We've been
Speaker 8: looking for some normalization over the past couple of quarters, certainly,
Speaker 8: but what we've seen thus far I think holds us
Speaker 8: in good stead. We also got credit card monthly data
Speaker 8: out yesterday that showed the delinquencies are slowing again for
Speaker 8: the fifth consecutive months, So we feel generally pretty good
Speaker 8: about the consumer. There are some pockets on the low
Speaker 8: wear income side which we have some concerns about, but
Speaker 8: that's not really showing through in the numbers. Yet we've
Speaker 8: been more concerned clearly on the commercial real estate side,
Speaker 8: both office and multifamily. I think the takeaway from Wells
Speaker 8: Fargo they didn't increase their reserve on the office cur portfolio,
Speaker 8: So we do expect there will be bumps along the road,
Speaker 8: and there's certainly headline risk, but I think that will
Speaker 8: hit more in the regional bank space relative to the
Speaker 8: large caps or even the community banks.
Speaker 2: So we're the opportunities for you guys where you look
Speaker 2: at certainly debt issued by financial institutions, these are your
Speaker 2: investment opportunities.
Speaker 7: Where are you seeing the opportunities here?
Speaker 8: Yeah, I think we would generally think there's a Barbelle
Speaker 8: approach that makes sense in today's environment. We do like
Speaker 8: the large banks from a diversification perspective, more exposure to consumer,
Speaker 8: but also that fee income capital markets type business. And
Speaker 8: then on the smaller end of spectrum, I think there
Speaker 8: is value in both community bank equities and debt which
Speaker 8: are really benefiting from Here is a very strong deposit franchise,
Speaker 8: which is a benefit in a higher for longer world.
Speaker 8: A low cost funding base should help those franchises which
Speaker 8: are built on relationship banking. So we see value in
Speaker 8: both those ends of the spectrum, and I do think
Speaker 8: the regional banks are likely more challenged here again a
Speaker 8: little bit more of the office, commercial real estate exposure,
Speaker 8: higher funding costs, and probably a higher regulatory burden coming
Speaker 8: down the pike. So that's sort of how we think
Speaker 8: about it across the size spectrum. Yeah, I do also
Speaker 8: think that there is value in the debt side here,
Speaker 8: where you're seeing equity like returns for investment grade debt.
Speaker 8: Given some of the volatility over the last year, which
Speaker 8: is still remains a dislocated market, I.
Speaker 2: Want to push it a little bit on the regional banks.
Speaker 2: As you said, still challenged. What does that mean, Like,
Speaker 2: give me some idea, still challenge meeting, We're going to
Speaker 2: still have some problems. Maybe some regional banks are going
Speaker 2: to be taken out, They're going to be bought, Like
Speaker 2: what is what does challenge really mean to you?
Speaker 8: Yeah, I'm not necessarily calling for a wave of bank
Speaker 8: failures by any means. I do think there will be
Speaker 8: a lot of M and A that comes out of
Speaker 8: the recent events and when we look for probably more
Speaker 8: headline risk in terms of some of the commercial real
Speaker 8: estate exposure could drive M and A activity. We did
Speaker 8: see a deal announced last night, and so the resurgence
Speaker 8: of M and A I think helps the regional bank space,
Speaker 8: especially as we're thinking about higher regulatory costs to come,
Speaker 8: as well as high expenses currently relative you know, to
Speaker 8: the large cabet banks from a scale perspective, So it's
Speaker 8: really sort of expenses, potential commercial real estate risk and
Speaker 8: higher costs to manage along the way.
Speaker 3: Cheryl, we just heard from Fetcho J. Powell talking about
Speaker 3: potentially delaying rate cuts being higher for longer, and I'm
Speaker 3: wondering about if, for example, we don't see any rate
Speaker 3: cuts from the FED this year, if that changes any
Speaker 3: part of your thesis thinking about the financials.
Speaker 8: That really benefits the more asset sensitive institutions and again
Speaker 8: potentially pressures the funding cost side. So that's really when
Speaker 8: it is important to dissect the funding base of these institutions.
Speaker 8: How much is in sort of lower cost you know,
Speaker 8: consumer sticky checking savings accounts versus higher cost money market
Speaker 8: CD type accounts, and that's you know, where you could
Speaker 8: see higher costs continue to remain a drag from a
Speaker 8: cost of funding perspective, but higher for longer with a
Speaker 8: balance sheet that reprices faster on the asset side should
Speaker 8: actually drive higher ANII guidance from a multitude of institutions,
Speaker 8: So I think that that puts most of the sector
Speaker 8: in a good place.
Speaker 2: You know, you guys look at credit like all kinds
Speaker 2: of iterations, if you will, you know, the moves in
Speaker 2: private credit, and certainly has been such a big discussion
Speaker 2: over the last couple of years. What are you seeing
Speaker 2: in terms of the strain and kind of your traditional financials,
Speaker 2: your traditional banks or who have gladly kind of given
Speaker 2: up playing in the middle market, if you will, when
Speaker 2: it comes to loans and issuing debt on behalf of
Speaker 2: some of those middle market corporate clients. I mean, what
Speaker 2: can you tell us and what are you seeing in
Speaker 2: today's environment in terms of moves continuing into the private
Speaker 2: credit world.
Speaker 8: Yeah, I think clearly you are seeing loan growth slowing
Speaker 8: at the banks. Some of it may be, you know,
Speaker 8: giving up some share at the margin to private credit.
Speaker 8: I do think it's a mix of that and also
Speaker 8: balance sheet optimization. I think capital remains key for the banks,
Speaker 8: and they're examining all ways to increase capital, whether it
Speaker 8: be you know, selling some non core assets some loan
Speaker 8: portfolios or just slowing growth. I think that will continue
Speaker 8: to remain a trend, and part of that business has been,
Speaker 8: you know, moving towards private credit for some time. It's
Speaker 8: a little bit different underwriting process, standards, et cetera. And
Speaker 8: so the banks are probably willing to see that type
Speaker 8: of UH portfolio in this environment.
Speaker 7: Yeah, it certainly has been the trend.
Speaker 2: Hey, one last question, because we you know, you talked
Speaker 2: about the large cat banks fee income and exposure to
Speaker 2: consumers that plays in their favor. Do you have an
Speaker 2: you know, when you look at the large cat banks,
Speaker 2: which we have focused on since they started reporting earnings
Speaker 2: on Friday, is there a name in the space that
Speaker 2: in particularly you think is a standout.
Speaker 9: Yeah.
Speaker 8: I mean, I think the two that we would call
Speaker 8: as probably the most attractive opportunities, you know, from a
Speaker 8: large cat perspective, JP Morgan, I think, has you know,
Speaker 8: a nice catalyst coming up in their investor day at
Speaker 8: the end of May. I think Guidance, while it was
Speaker 8: raised at her earnings, was a little disappointing, and maybe
Speaker 8: there's some upside potential there on a higher raise coming
Speaker 8: out of investor Day. And then we like City is
Speaker 8: more of the expense restructuring story, but that continues to
Speaker 8: show good execution in our opinion.
Speaker 7: All right, really appreciate it.
Speaker 2: A nice overview of certainly the big banks and really
Speaker 2: the financials overall, which has certainly been a focal point
Speaker 2: for investor.
Speaker 7: Cheryl.
Speaker 2: Thank you so much, Cheryl Pate. She's senior portfolio manager
Speaker 2: at angel O Capital. Joining us from Atlanta.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 2: The IMF by the way out today inching up its
Speaker 2: expectations for global economic growth this year, citing strength in
Speaker 2: the US and some emerging markets, while warning the outlook
Speaker 2: remains cautious amid persistent inflation and geopolitical risks, and while
Speaker 2: the world appears to have dodged a downturn, as a
Speaker 2: story in the upcoming new issue of Bloomberg Business Week
Speaker 2: points out, wars and economic nationalism are leaving many countries
Speaker 2: worse off this story, as we said, in the new
Speaker 2: issue a Bloomberg Business Week.
Speaker 6: Yeah, that's out on newstands later this week.
Speaker 3: It's already online though, at Bloomberg dot com, slash BusinessWeek
Speaker 3: and on the Bloomberg terminal. With the details we bring
Speaker 3: in a Bloomberg BusinessWeek Global Economic Center. Christina Lynn Blad
Speaker 3: she's joining us here in our Bloomberg studio. So, Christina,
Speaker 3: the devil, as they say, is in the details. When
Speaker 3: you have a ten thousand foot view of the global economy,
Speaker 3: things are starting. Things look pretty good depending on where
Speaker 3: you look. But then when you look closer, more on
Speaker 3: the ground, at least according to this story, there are
Speaker 3: some parts that are a little bit troubling.
Speaker 5: That's right.
Speaker 10: I think that everyone is breathing a collective sigh of
Speaker 10: relief that some of the major economies, including the US,
Speaker 10: seem to have dodged a downturn, and the global economy
Speaker 10: as a whole has. But then when you look beyond
Speaker 10: that headline figure, you know, even the slight upgrades to
Speaker 10: the forecast, you see that you know some really troubling stats, like,
Speaker 10: for example, four out of every ten people in the
Speaker 10: world live in a country where the government spends more
Speaker 10: on paying interest on the debt than on education and health.
Speaker 10: And so that from like just like a human gut
Speaker 10: likes thing is like horrible, right, But also think about
Speaker 10: how that constrains growth for those nations going forward. So yeah,
Speaker 10: so at the IMF meetings this week, I think that
Speaker 10: you know that that collective side of relief is quickly
Speaker 10: sort of being pushed aside to point to the problems
Speaker 10: that are out there.
Speaker 2: Debt, no doubt, you know, a problem when I think
Speaker 2: about years ago, right when we taught used to just
Speaker 2: talk about the US debt all the time and servicing
Speaker 2: the debt and how could we do it? And in
Speaker 2: a higher rate environment, it becomes much more problematic, whether
Speaker 2: it's for the US or other nations.
Speaker 7: The other thing I think.
Speaker 2: About is geopolitics, right, and you know we saw that
Speaker 2: certainly this weekend. You know, we are seeing new alliances
Speaker 2: geo politically, and you do wonder, you know, Christina, how
Speaker 2: that plays out economically as well.
Speaker 10: Right, So besides you know, real shooting wars, we also
Speaker 10: have what I think maybe a new front opening in
Speaker 10: this trade wars that the US is leading the fight
Speaker 10: on with Europe. Also, you know, joining and we saw
Speaker 10: Yellen coming back from her trip to China last week,
Speaker 10: already calling attention to the fact that China, that China
Speaker 10: has this overproduction problem as we're calling it, and you know,
Speaker 10: the German Chancellor is in China this week echoing the
Speaker 10: same kinds of ideas. So I think that we may
Speaker 10: expect to see new barriers coming into the US against
Speaker 10: you know, evs, Chinese evs, which already faced actually pretty
Speaker 10: big obstacles getting into the US market, but also like
Speaker 10: solar panels and things like that, areas where the US
Speaker 10: is investing lots of money to ramp up you know, capacity,
Speaker 10: manufacturer capacity here Christina.
Speaker 3: The story also brings up a part of the immigration
Speaker 3: conversation that I think does not get included when people
Speaker 3: talk a lot about migration, and that's the idea of
Speaker 3: what actually pushes.
Speaker 6: People to move to different countries.
Speaker 3: And the idea that if life is not good in
Speaker 3: parts of Sub Saharan Africa, or parts of Latin America
Speaker 3: or parts of South America, that spurs people to move
Speaker 3: to different parts of the world. Talk a little bit
Speaker 3: about that and how in some of these countries we
Speaker 3: could see even more migration, more immigration from these countries
Speaker 3: into other countries as a result of issues within the countries.
Speaker 5: Well, that's right.
Speaker 10: I mean there are many you know, what people call
Speaker 10: push factors to immigration, and the lack of opportunity at
Speaker 10: home is one of them.
Speaker 5: And that you know, that.
Speaker 10: Lack of opportunity isn't going to improve if governments are
Speaker 10: not able to invest in human capital, which is like
Speaker 10: health and education. And also, you know, climate change is
Speaker 10: another driver. You know, we're seeing that in Central America
Speaker 10: and these parts of the region called the Dry Corridor
Speaker 10: where a lot of you know, farmers have been forced
Speaker 10: out and are seeking you know, jobs in the US.
Speaker 10: So basically, I mean, I think the immigration topic is
Speaker 10: one that sort of kind of brings out focus to
Speaker 10: why we all need to be concerned about these problems
Speaker 10: that are far from our shores.
Speaker 5: You know.
Speaker 2: The other thing I think about is too, like the
Speaker 2: technology race, and we talk about it all the time,
Speaker 2: that's going on, and you do think about again, you're
Speaker 2: seeing just like in geopolitics or politics, you're seeing new
Speaker 2: alliances made, and we're seeing that in the same thing
Speaker 2: with technology, and you do wonder how that ultimately widens
Speaker 2: the gap between either developed nations versus the developing world,
Speaker 2: which and give me, I don't know, like give us
Speaker 2: the bigger picture of what's been happening pre pandemic in
Speaker 2: terms of closing the gap, if you will, between individuals.
Speaker 10: There was a clear trend before of a convergence between
Speaker 10: developed and developing countries. So people felt good about that
Speaker 10: about kind of like Okay, we're like we see progress,
Speaker 10: we see standards of living, you know, moving up. We
Speaker 10: saw tremendous poverty reductions in the three decades leading into
Speaker 10: the pandemic, but in twenty twenty two, there were twenty
Speaker 10: three million more people that lived in extreme poverty than
Speaker 10: before the start of the pandemic. So some of the
Speaker 10: trends that we're seeing now in terms of sort of
Speaker 10: fragmenting that you know, is one of the things people
Speaker 10: call it it risked leaving some countries left out of
Speaker 10: technological development because the US and China, you know, the
Speaker 10: frictions that are playing out. There's a lot more sort
Speaker 10: of the pushes because of national interest not sharing technology
Speaker 10: with other countries, using subsidies to bring more investment into
Speaker 10: your own country. So that's going to penalize other countries
Speaker 10: maybe at the beginning, it will be already we saw
Speaker 10: last year for example, like you know, with EVS, some
Speaker 10: European car makers were choosing to put their factors in
Speaker 10: the US rather than add new ones in Europe. Well,
Speaker 10: that's going does also affect other countries, you know, who
Speaker 10: are that are less developed and you know, and could
Speaker 10: could could stunt growth.
Speaker 2: Frankly, Yeah, so where do you I don't know, you know,
Speaker 2: when you guys, this is what you do. You track
Speaker 2: the global economy, what people are saying Wall Street, you know,
Speaker 2: you guys get into some of the expectations. What are
Speaker 2: we hearing from Wall Street analysts? Are they starting to
Speaker 2: kind of ratchet down or some of the global analysis
Speaker 2: in terms of expectations for global growth.
Speaker 7: Despite what the IMF says.
Speaker 10: Wall Street is still very fully engaged with the AI narrative.
Speaker 10: I don't really think, I mean, between you know, the
Speaker 10: FED watching and the AI you know exuberance, I don't
Speaker 10: really see that this is tempering expectations so much.
Speaker 5: And you know a major markets.
Speaker 3: Yeah, it does seem like this this part of the conversation, Carol,
Speaker 3: is lost to a lot of people.
Speaker 7: When you start breaking it down.
Speaker 6: Yeah, when you start breaking it down.
Speaker 3: I think this is not necessarily on a lot of
Speaker 3: people's radar in terms of how they're thinking about global growth.
Speaker 10: No, because I mean, I think especially in the US,
Speaker 10: I mean, we have been really lucky. I mean there
Speaker 10: have been downturns in parts of Europe, right, So yeah,
Speaker 10: I mean I think it's always been kind of a
Speaker 10: you know, a risk of these other stories not pushing,
Speaker 10: you know, pushing like to be heard and stuff. But
Speaker 10: I think that now we really do because of this divergence,
Speaker 10: you really risk not this story not you know, falling
Speaker 10: off the radar.
Speaker 5: Literally.
Speaker 7: Well you can read the whole story. It's in the
Speaker 7: upcoming new issue of Bloomberg Business.
Speaker 2: We can also find it already online at Bloomberg dot com,
Speaker 2: Slash BusinessWeek, and of course on the Bloomberg terminal. Christina,
Speaker 2: Thank you so much, Christina Limblad. She's Global Economics editor
Speaker 2: here at Bloomberg BusinessWeek.
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Speaker 2: We've been talking a lot about the real I mean
Speaker 2: right now again just reiterating some of those numbers ten
Speaker 2: year note off the ties of the day we did,
Speaker 2: but right now we're at four sixty seven. That to
Speaker 2: your note, which went above five percent today, Right now
Speaker 2: Tim just below it at four ninety seven.
Speaker 3: Probably a good time to talk to Jimmy Lee because
Speaker 3: he says that investors have become more comfortable about interest
Speaker 3: rates staying higher for longer, assuming it's due to the
Speaker 3: economy staying strong.
Speaker 6: And that's kind of Carol, what we heard from j Powellton.
Speaker 7: Yeah, right, that's the caveat.
Speaker 2: This is of course coming and an interesting time where
Speaker 2: we try to figure out what happens for the rest
Speaker 2: of the year when it comes to FED rate moves.
Speaker 2: Let's get to Jimmy Lee, as you said, setting them up,
Speaker 2: so while founder and CEO at Wealth Consulting Group back
Speaker 2: with us from Vegas. So, Jimmy, you do say investors
Speaker 2: have become more comfortable about interest rates staying higher for longer.
Speaker 2: It is the caveat, the big caveat that the US
Speaker 2: economy stays strong. Looks like the case right now. So
Speaker 2: walk us through your thinking and what could possibly go.
Speaker 11: Wrong that's une, Carol and Tim. Yeah, I think that
Speaker 11: investors have gotten comfortable with higher rates. Obviously, margins have
Speaker 11: been good enough for companies to produce good earnings over
Speaker 11: the last few quarters, and earnings estimates have gone up
Speaker 11: over the last you know, few months.
Speaker 9: So I think, you know, so far, everybody's positive.
Speaker 11: But what's on everybody's mind today is this pullback that
Speaker 11: we've gotten because yules have gone up because of the
Speaker 11: inflation data that.
Speaker 9: We've seen recently. But I would have expected that a
Speaker 9: ten percent first quarter.
Speaker 11: While I liked it and our clients love it, we
Speaker 11: needed a little bit of a pullback, and you know,
Speaker 11: I wish it wasn't due to inflation data being hotter
Speaker 11: than expected. But you know, we're really talking about one
Speaker 11: ten to one percent higher last month right on some
Speaker 11: of the numbers. That has caused all the friction here.
Speaker 11: And I agree that it asn't you know, the trend
Speaker 11: isn't lower right now. But I'm contraring in a little
Speaker 11: bit thinking of that inflation dam might look better, you know,
Speaker 11: down the road.
Speaker 9: I've been seeing that for a while.
Speaker 11: I've been wrong, But I hope that's the case, and
Speaker 11: that the FED does get to cut sooner than later.
Speaker 11: In today's pal speech, really didn't, you know, tell people
Speaker 11: that that's what he was thinking and trying to get
Speaker 11: people more comfortable with the idea.
Speaker 9: That the FED is going to keep interest rates higher
Speaker 9: for longer.
Speaker 7: You sound hesitant, you sound a little tentative.
Speaker 11: Well, you know, I actually believe that inflation is coming down,
Speaker 11: and there's certain areas that have been really difficult for inflation,
Speaker 11: including housing that comes in a month after month being
Speaker 11: a big portion of why inflation continues to look so
Speaker 11: bad in some cases. But then you know, you have
Speaker 11: to things, you have to look at everything in relatively speaking,
Speaker 11: and it's still headed in the right direction. So what
Speaker 11: Pale did say today is he still believes the base
Speaker 11: case is that inflation's coming down, and I don't think
Speaker 11: that the Fed's going to raise rates like some people
Speaker 11: are thinking.
Speaker 9: I do believe we're going to get some cuts.
Speaker 11: I'm not sure how many at this point, but if
Speaker 11: inflation data does come in better in the second half
Speaker 11: of the year, then I think that the FED wants
Speaker 11: to cut sooner than before.
Speaker 9: Right before the election.
Speaker 3: Hey, Jimmy, I'm just pulling up on the terminal here
Speaker 3: doing some quick calculations, we're down from all time highs
Speaker 3: on the S and P five hundred by a mere
Speaker 3: three point six percent. So to put into context the
Speaker 3: selloff that we've seen just in the last week or so,
Speaker 3: is this.
Speaker 6: A buying opportunity yet for you and your clients.
Speaker 9: I do believe, Tim, that we could get some more selling.
Speaker 9: But yes, if you have fresh cash.
Speaker 11: I think these dips are opportunities to get in the market,
Speaker 11: and I think that the end of the year, I
Speaker 11: think we'll end up higher than we're at today. The big,
Speaker 11: you know, the biggest part of trying to time the
Speaker 11: market correctly that's difficult is that seventy five percent of
Speaker 11: the time, historically speaking, stocks are hired twelve months later,
Speaker 11: and so it's very difficult to short and for most
Speaker 11: investors that are you know, normal Americans trying to stay
Speaker 11: for retirement and to stay retired and not run out
Speaker 11: of money, you know, investing for the long term.
Speaker 9: You don't want to try to get in and out
Speaker 9: of the markets. I don't think. I don't think it's
Speaker 9: a good strategy.
Speaker 11: But relying on more on financial planning strategies of making
Speaker 11: sure that you have enough money sitting in a bucket
Speaker 11: that's not going down ever due to a stock market.
Speaker 11: If you need the money for living expenses or other purchases,
Speaker 11: then those are the kind of ideas that we like
Speaker 11: to have clients employ. Not trying to time the market.
Speaker 3: I know, of course, not trying to time the market.
Speaker 3: But if you say there could be some more selling ahead,
Speaker 3: what could prompt that more selling? We're just fresh inflation
Speaker 3: data or fresh economic data that continues to show we're
Speaker 3: in a hot economy.
Speaker 11: Well in a short run, certainly, probably the inflation data
Speaker 11: is the biggest variable, but geopolitical risk is another one.
Speaker 11: And so if the situation in Iran and Israel escalates
Speaker 11: to an issue, that could cause a lot of short
Speaker 11: term selling. I think that's very very possible. We hope
Speaker 11: that doesn't happen and things settle down so that lives
Speaker 11: are not lost that don't need to be lost, but
Speaker 11: we don't want that to escalate, and so geopolitical risk
Speaker 11: has been on the top of my list all year long,
Speaker 11: along with stick your inflation data, and certainly what's going
Speaker 11: on over there is not helping oil prices, which you know,
Speaker 11: I filled up the tank yesterday in my big truck
Speaker 11: and there with a lot of gas and a lot
Speaker 11: of money, and so I know a lot of people
Speaker 11: are facing that today. But I think, you know, if
Speaker 11: interest rates do come down, I think it will help
Speaker 11: with a lot of activity in certain areas of market,
Speaker 11: including housing. They'll be more inventory, you know, and more
Speaker 11: supply for people to be.
Speaker 9: Able to purchase.
Speaker 11: And we need lower rates though, so that mortgage rates
Speaker 11: are lower and people want to, you know, move in
Speaker 11: and out of their houses like normal.
Speaker 3: Hey, Jimmy, we talk about evs all the time. So
Speaker 3: I got to ask in Las Vegas, you have a
Speaker 3: big truck, why are you still driving internal combustion engine
Speaker 3: and not like you know, Ribban or F one fifty
Speaker 3: lightning or something.
Speaker 1: You know what.
Speaker 11: I still like my cars a little bit more traditional,
Speaker 11: and you know, I do have a truck out of
Speaker 11: one of the vehicles that I own, and so at
Speaker 11: some point that might turn into more of an EV
Speaker 11: type hybrid vehicle, who knows, but not at this point
Speaker 11: right now.
Speaker 1: Yeah.
Speaker 3: I mean, Tesla's one of the worst performers in the
Speaker 3: S and P five hundred today, down almost forty percent
Speaker 3: Carol so far this year. Another down day for the company.
Speaker 3: And one of the things we talk about all the
Speaker 3: time is people making their choice for the next vehicle,
Speaker 3: not necessarily being an EV, but being a traditionalized vehicle.
Speaker 7: Right.
Speaker 2: Remember we've talked about hybrids are much more have been
Speaker 2: in demand as of late. So interesting, Hey, listen just
Speaker 2: thirty seconds, Jimmy, if you had new money to commit
Speaker 2: in this market, where would you put it? Would you
Speaker 2: maybe look at the treasury trade? You know, especially when
Speaker 2: we've seen rates move up here?
Speaker 9: Keryl, absolutely so.
Speaker 11: I think that if you're a bond investor, having more
Speaker 11: duration right now is not a bad idea, even though
Speaker 11: rates could go higher in the short run. You know,
Speaker 11: you could lose a little bit of a net asset
Speaker 11: value in that way, but maybe dollar cost averaging into
Speaker 11: longer dated bonds. And I think investors should be set
Speaker 11: up in more cyclical sectors, getting prepared for lower environment,
Speaker 11: even though we're not there yet.
Speaker 9: I think you need to get ahead of it.
Speaker 11: I think that the potential trade in things like real
Speaker 11: estate could happen very fast and you can have a
Speaker 11: big bounce back in intra sensitive stocks and instructors.
Speaker 7: All right, so appreciate it as always.
Speaker 2: Jimmy Lee, Founder and chief executive officer at Wealth Consulting Group,
Speaker 2: joining us from Las Vegas.
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