1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,800 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com and 8 00:00:41,680 --> 00:00:49,040 Speaker 1: of course, on the Bloomberg. In London this morning, Jonathan 9 00:00:49,080 --> 00:00:51,720 Speaker 1: Lewyns of Capital Economics, Ed Hyman from ever Corps I 10 00:00:51,960 --> 00:00:54,360 Speaker 1: signed with a preview of banks earnings. Michael Mayo from 11 00:00:54,360 --> 00:00:56,319 Speaker 1: c L s A will join us as well. Befer. 12 00:00:56,360 --> 00:00:59,040 Speaker 1: Stephen King's here with us in the London studio, a 13 00:00:59,120 --> 00:01:01,480 Speaker 1: senior economic advice at HSBC. Great to have you with us, 14 00:01:01,600 --> 00:01:04,200 Speaker 1: Nice to be here. What what have you learned in 15 00:01:04,200 --> 00:01:06,720 Speaker 1: the two months since the US presidential election about the 16 00:01:07,400 --> 00:01:09,440 Speaker 1: the U s economy and where things are headed. Have 17 00:01:09,520 --> 00:01:12,680 Speaker 1: you reevaluate any of your initial sense of what it 18 00:01:12,720 --> 00:01:14,640 Speaker 1: was going to be like after Donald Trump was elected? Well, 19 00:01:14,680 --> 00:01:16,160 Speaker 1: a little bit. I mean part of the problem I 20 00:01:16,160 --> 00:01:18,480 Speaker 1: suppose is that the end of last year has some 21 00:01:18,560 --> 00:01:21,559 Speaker 1: pretty good data anyway, which is probably totally unrelated to Trump. 22 00:01:21,600 --> 00:01:23,320 Speaker 1: I got people quite excited about what was going to 23 00:01:23,400 --> 00:01:27,240 Speaker 1: happen during the course of seventeen. We also have a 24 00:01:27,360 --> 00:01:29,160 Speaker 1: big decision to make about how much of the kind 25 00:01:29,160 --> 00:01:32,440 Speaker 1: of Trump reflation trade will really materialize in terms of 26 00:01:32,440 --> 00:01:35,440 Speaker 1: fiscal policy. But I would strongly suggest that some of 27 00:01:35,480 --> 00:01:37,720 Speaker 1: the underlying problems the US economy has are things that 28 00:01:37,800 --> 00:01:40,360 Speaker 1: can't be dealt with simply through a dose of fiscal policy. 29 00:01:40,640 --> 00:01:44,760 Speaker 1: Most obviously that productivity growth has been pretty dismal, frankly 30 00:01:44,800 --> 00:01:46,959 Speaker 1: for a number of years now, despite all the new 31 00:01:46,959 --> 00:01:49,080 Speaker 1: technologies we see around US, and without a pickup a 32 00:01:49,120 --> 00:01:52,520 Speaker 1: productivity growth, which doesn't really respond so well to fiscal stimulus, 33 00:01:53,040 --> 00:01:55,040 Speaker 1: then you may struggle to see decent growth coming through. 34 00:01:55,160 --> 00:01:57,680 Speaker 1: When you look at productively growth. What's dragging it down? 35 00:01:58,040 --> 00:02:01,480 Speaker 1: What's been the principle that driver but weight unproductivity grow well. 36 00:02:01,480 --> 00:02:03,559 Speaker 1: I think part of the issue fund enough his age. 37 00:02:03,680 --> 00:02:06,600 Speaker 1: It's the fact that populations are aging. Their investment preferences 38 00:02:06,600 --> 00:02:10,000 Speaker 1: are beginning to shift. You're seeing investors increasingly wanting to 39 00:02:10,000 --> 00:02:12,320 Speaker 1: buy equities of a dividends and share buybacks, not for 40 00:02:12,440 --> 00:02:15,239 Speaker 1: long run capital gain, and that's actually changing the behavior 41 00:02:15,280 --> 00:02:17,639 Speaker 1: of companies themselves and much rather give money back to 42 00:02:17,680 --> 00:02:20,000 Speaker 1: their shareholders rather than to invest for the long term. 43 00:02:20,280 --> 00:02:22,680 Speaker 1: And the absence of investment basically means you end up 44 00:02:22,680 --> 00:02:25,440 Speaker 1: with weak of productivity growth. The other factor I think 45 00:02:25,480 --> 00:02:28,080 Speaker 1: is a quey and zero interest rates have probably distorted 46 00:02:28,440 --> 00:02:32,200 Speaker 1: the way in which capital markets work. You lift equity markets, 47 00:02:32,240 --> 00:02:34,440 Speaker 1: but if you're an unlisted company, you're a small company, 48 00:02:34,440 --> 00:02:36,679 Speaker 1: not able to access capital markets at all, you don't 49 00:02:36,680 --> 00:02:38,880 Speaker 1: get much of the benefit. So what tends to happen 50 00:02:39,080 --> 00:02:42,480 Speaker 1: is that the large, perhaps inefficient companies do pretty well, 51 00:02:43,240 --> 00:02:45,760 Speaker 1: but that makes the excess capacity to prevent the smaller 52 00:02:45,760 --> 00:02:48,880 Speaker 1: companies from coming in and shaking things up. After the election, 53 00:02:48,919 --> 00:02:51,799 Speaker 1: there was a lot of market enthusiasm. Is also eagerness 54 00:02:51,840 --> 00:02:55,840 Speaker 1: to hear more clear concrete policy proposals from the present elect. 55 00:02:55,919 --> 00:02:58,080 Speaker 1: Yesterday his first news conference, and I think hundred sixty 56 00:02:58,120 --> 00:02:59,920 Speaker 1: seven days I lent an ear to it in a 57 00:03:00,000 --> 00:03:02,040 Speaker 1: and seems like we've got a whole lot. What are 58 00:03:02,040 --> 00:03:03,640 Speaker 1: you listening for? What it's going to give you more 59 00:03:03,680 --> 00:03:05,360 Speaker 1: clarity about the direction of the U S economy from 60 00:03:05,360 --> 00:03:07,280 Speaker 1: the President elect and his team. Well, I'm following him 61 00:03:07,280 --> 00:03:12,239 Speaker 1: on Twitter, which is very important matter. You know, quite 62 00:03:12,320 --> 00:03:14,359 Speaker 1: quite a big way about the media landscapes as well. 63 00:03:14,840 --> 00:03:17,600 Speaker 1: And I think the big issue in one sense is 64 00:03:17,919 --> 00:03:21,600 Speaker 1: big focus on reflation currently, But there's a bigger issue 65 00:03:21,639 --> 00:03:23,440 Speaker 1: in one sense in terms of the architecture of the 66 00:03:23,440 --> 00:03:26,800 Speaker 1: global economy. It does Trump represent a kind of withdrawal 67 00:03:26,840 --> 00:03:29,880 Speaker 1: of the U s from its designing of the international 68 00:03:29,960 --> 00:03:32,960 Speaker 1: architecture is a more isolationist story, And if it is, 69 00:03:33,560 --> 00:03:35,240 Speaker 1: does that change all the rules of the game being 70 00:03:35,320 --> 00:03:37,680 Speaker 1: used to over the last sixty or seventy years. For example, 71 00:03:37,720 --> 00:03:40,440 Speaker 1: the cancelation of the Trans Pacific partnership might be an 72 00:03:40,440 --> 00:03:42,560 Speaker 1: indication that the US is no longer playing that role. 73 00:03:43,000 --> 00:03:46,400 Speaker 1: I like coming to London, Stephen King of HSBC, Jonathan 74 00:03:46,480 --> 00:03:52,040 Speaker 1: Lewins of Capital Economics out there. Edward Hyman is in London. 75 00:03:52,080 --> 00:03:54,560 Speaker 1: We will speak to him on the spectrum phone line 76 00:03:54,560 --> 00:03:57,040 Speaker 1: here in a bit. Edward Hyman of ever Court, I 77 00:03:57,360 --> 00:04:00,200 Speaker 1: s I Mr Mayo will join us some clo say 78 00:04:00,240 --> 00:04:04,360 Speaker 1: on American banks. I'd listen. Tell me the nudge here 79 00:04:04,560 --> 00:04:08,000 Speaker 1: of the summation of HSBCS calls a lot of people 80 00:04:08,240 --> 00:04:12,120 Speaker 1: would say you you invented or certainly refine the modern 81 00:04:12,240 --> 00:04:17,839 Speaker 1: voice of HSBC research and your your house, without question 82 00:04:17,960 --> 00:04:21,960 Speaker 1: right now has the most interesting house call because it's 83 00:04:22,000 --> 00:04:25,839 Speaker 1: a set of outliers. You've got a week Sterling, week 84 00:04:26,000 --> 00:04:31,560 Speaker 1: US Tenure, interesting international economics and Asian twist in the 85 00:04:31,640 --> 00:04:34,520 Speaker 1: meetings that you observe as you write your book from 86 00:04:34,520 --> 00:04:38,640 Speaker 1: a distance. Maybe how does HSBC get to this interesting 87 00:04:38,760 --> 00:04:41,760 Speaker 1: set of outlier calls. Well, we started stuff, i think 88 00:04:41,760 --> 00:04:44,400 Speaker 1: a while ago, thinking about the world um in a 89 00:04:44,520 --> 00:04:47,000 Speaker 1: most sort of Japanese way than perhaps many people did, 90 00:04:47,360 --> 00:04:49,160 Speaker 1: and we thought that we were facing a world where, 91 00:04:49,160 --> 00:04:51,280 Speaker 1: by particularly in the West, growth was much lower than 92 00:04:51,320 --> 00:04:52,760 Speaker 1: have been the case in the past, part because the 93 00:04:52,800 --> 00:04:55,880 Speaker 1: soft productivity gains. Also because of high debts, you're gonna 94 00:04:55,880 --> 00:04:58,600 Speaker 1: see much more disinflactioning pressures. And what they're basically meant 95 00:04:58,720 --> 00:05:01,640 Speaker 1: was that the Matt Crow policies that would normally be 96 00:05:01,720 --> 00:05:04,560 Speaker 1: effective will be a whole lot less effective. Once you 97 00:05:04,640 --> 00:05:07,520 Speaker 1: reach those kinds of conclusions, everything else begins to fall 98 00:05:07,560 --> 00:05:09,880 Speaker 1: into place a little bit easier, particularly the call on 99 00:05:09,960 --> 00:05:13,320 Speaker 1: the treasury market. Then you also got a political issue, 100 00:05:13,320 --> 00:05:16,160 Speaker 1: which is that if you have a situation where globalization 101 00:05:16,200 --> 00:05:18,000 Speaker 1: appears no longer to be working quite so well. And 102 00:05:18,080 --> 00:05:21,080 Speaker 1: it's particularly true after the financial crisis you start to 103 00:05:21,120 --> 00:05:25,760 Speaker 1: see pressures coming through for more isolationist, nationalist policies, and 104 00:05:25,800 --> 00:05:28,480 Speaker 1: of course that feeds directly through into Brexit and also 105 00:05:28,480 --> 00:05:29,919 Speaker 1: perhaps to some of the debates we're going to have 106 00:05:29,960 --> 00:05:33,040 Speaker 1: this on that kind of growth as well. Yes, because 107 00:05:33,040 --> 00:05:34,920 Speaker 1: of course if you're seeing a kind of dislocation, then 108 00:05:34,920 --> 00:05:37,239 Speaker 1: things become more negative. I mean this this it's fast. 109 00:05:37,279 --> 00:05:40,320 Speaker 1: It's an honor to talk to HSBC Research today after 110 00:05:40,320 --> 00:05:43,960 Speaker 1: what we witnessed yesterday Washington, Kevin, Sir, really without important 111 00:05:43,960 --> 00:05:46,800 Speaker 1: interview when this conway coming up in this hour as well. 112 00:05:47,120 --> 00:05:48,479 Speaker 1: I wanted to ask you just we were talking with 113 00:05:48,520 --> 00:05:51,119 Speaker 1: Simon Kennedy are Brexit editor, yesterday about the G seven 114 00:05:51,120 --> 00:05:52,960 Speaker 1: and the G twenty, and it got me wondering about 115 00:05:52,960 --> 00:05:55,520 Speaker 1: the future of multi lateral institutions like that, like the 116 00:05:55,520 --> 00:05:57,000 Speaker 1: World Bank and the i m F as well. When 117 00:05:57,040 --> 00:06:00,440 Speaker 1: you you have this revised vision of the of the world, 118 00:06:01,040 --> 00:06:03,240 Speaker 1: where do institutions like that fit in well. Part of 119 00:06:03,240 --> 00:06:05,280 Speaker 1: the problem is that these institutions mostly were designed in 120 00:06:05,360 --> 00:06:07,960 Speaker 1: nineteen forty four at Bretton Woods, and they were designed 121 00:06:07,960 --> 00:06:11,640 Speaker 1: really for the victors um in the Second World War, 122 00:06:11,920 --> 00:06:13,960 Speaker 1: plus also the country they wanted to bring back into 123 00:06:13,960 --> 00:06:17,200 Speaker 1: the fold thereafter, most obviously Germany in Japan well, of course, 124 00:06:17,200 --> 00:06:20,400 Speaker 1: has changed enormously over the last thirty or forty years 125 00:06:20,400 --> 00:06:22,880 Speaker 1: as the rise of the emerging markets, particularly East Asia, 126 00:06:22,880 --> 00:06:26,000 Speaker 1: particularly China and also India, and those countries are not 127 00:06:26,000 --> 00:06:27,520 Speaker 1: really involved in the I m F and not really 128 00:06:27,560 --> 00:06:30,760 Speaker 1: involved in a significant way in these international institutions. And importantly, 129 00:06:30,839 --> 00:06:33,760 Speaker 1: China is now designing its own institutions a I B. 130 00:06:34,600 --> 00:06:38,120 Speaker 1: Shanghai Corporation, Organization of the Regional Comprehensive Econic Partnership. These 131 00:06:38,120 --> 00:06:40,320 Speaker 1: are all China led institutions, go nothing to do with 132 00:06:40,360 --> 00:06:42,520 Speaker 1: the US. I want to up with the script here 133 00:06:42,800 --> 00:06:44,640 Speaker 1: is this is the day where we really begin to 134 00:06:44,680 --> 00:06:47,840 Speaker 1: turn to our Davos coverage and folks, our team getting 135 00:06:47,839 --> 00:06:50,640 Speaker 1: ready for all the radio coverage and what David will 136 00:06:50,640 --> 00:06:53,600 Speaker 1: be doing back in New York and the television coverage 137 00:06:53,640 --> 00:06:55,800 Speaker 1: as well. My phrase, I come up with a phrase 138 00:06:55,839 --> 00:06:59,719 Speaker 1: every year, Davos distracted, Davos bewildered, blah blah blah. This 139 00:07:00,320 --> 00:07:04,640 Speaker 1: it's populism, Trump's Davos, What will be the show. I 140 00:07:04,680 --> 00:07:06,520 Speaker 1: don't know if it's nice or not. I'm just trying 141 00:07:06,520 --> 00:07:09,320 Speaker 1: it out. And tell me what the shadow of Mr 142 00:07:09,360 --> 00:07:12,720 Speaker 1: Trump will be in a happy value in Switzerland. Well, 143 00:07:12,920 --> 00:07:14,640 Speaker 1: there's an odd thing about the list, which is that 144 00:07:15,360 --> 00:07:19,000 Speaker 1: Trump in one sense is exactly the antithesis of, of 145 00:07:19,720 --> 00:07:24,240 Speaker 1: the opposite of of anything that Davos really represents. He's 146 00:07:24,280 --> 00:07:27,200 Speaker 1: an isolationist. He's not someone who's particularly engaged in connecting 147 00:07:27,200 --> 00:07:29,240 Speaker 1: with other countries als from the world. He looks for 148 00:07:29,280 --> 00:07:32,480 Speaker 1: a narrative that blames other countries for the difficulties of 149 00:07:32,480 --> 00:07:34,440 Speaker 1: the US might be experiencing. And you go back to 150 00:07:34,480 --> 00:07:37,720 Speaker 1: Klaus Schwab and the spirit of Davos trying to connect 151 00:07:37,800 --> 00:07:41,120 Speaker 1: people together, and in one sense, Trump and his success 152 00:07:41,120 --> 00:07:43,880 Speaker 1: in the election represents something very very different. Um So 153 00:07:44,600 --> 00:07:48,160 Speaker 1: it's interesting if this is sort of literally experiencing once. 154 00:07:48,240 --> 00:07:50,440 Speaker 1: If you go back to Thomas Mann's Magic Mounting, which 155 00:07:50,440 --> 00:07:53,440 Speaker 1: of course is set in Davos in the just before 156 00:07:53,440 --> 00:07:55,440 Speaker 1: the First World War, it is exactly the same kind 157 00:07:55,480 --> 00:07:57,680 Speaker 1: of story. In that particular book, he talks about the 158 00:07:57,680 --> 00:08:00,680 Speaker 1: way in which people gather in Davos, you partly protubulk 159 00:08:00,720 --> 00:08:02,600 Speaker 1: of those is of course but they're looking down at 160 00:08:02,600 --> 00:08:05,080 Speaker 1: the world below them, thinking how odds the world. There 161 00:08:05,120 --> 00:08:07,080 Speaker 1: are kind of an elite who are in Davos in 162 00:08:07,080 --> 00:08:10,160 Speaker 1: a different kind of way, but they're disconnected from the 163 00:08:10,200 --> 00:08:12,360 Speaker 1: rest of the world. And in many cases Davils has 164 00:08:12,400 --> 00:08:14,920 Speaker 1: become disconnected, and Trump in one sense represents the tempt 165 00:08:14,960 --> 00:08:17,640 Speaker 1: by US voters to reconnect. Should Ping will be there 166 00:08:17,680 --> 00:08:20,160 Speaker 1: the president of China for the first time, it will 167 00:08:20,200 --> 00:08:21,960 Speaker 1: be interesting to hear from him his reaction to to 168 00:08:22,080 --> 00:08:25,040 Speaker 1: all of this help us under stands with what the 169 00:08:25,080 --> 00:08:27,400 Speaker 1: consequences would be if Donald Trump follows through with his 170 00:08:27,520 --> 00:08:30,640 Speaker 1: plan to label China currency manipulator. What's what's China? How 171 00:08:30,720 --> 00:08:34,800 Speaker 1: is China going to react to the changing world come January? Well, 172 00:08:34,800 --> 00:08:37,720 Speaker 1: there's a very odd position for China in anyways, which 173 00:08:37,760 --> 00:08:40,360 Speaker 1: is that on the one hand, it doesn't like the 174 00:08:40,360 --> 00:08:44,000 Speaker 1: whole issue of potential threatened terrorists. On the other hand, 175 00:08:44,040 --> 00:08:49,360 Speaker 1: with the abandonment of TPP, certainly Asia becomes evermore China's 176 00:08:49,440 --> 00:08:52,800 Speaker 1: own backyard. And that really matters because China has this 177 00:08:52,880 --> 00:08:57,480 Speaker 1: regional comprehensive economic partnership of potential trade deal it can 178 00:08:57,600 --> 00:09:00,640 Speaker 1: unveil and push through to other countries in Asia. Other 179 00:09:00,640 --> 00:09:03,320 Speaker 1: country's Asia may will be particularly encouraged about signing up 180 00:09:03,320 --> 00:09:05,199 Speaker 1: to it, but if it's the only game in town, 181 00:09:05,720 --> 00:09:07,280 Speaker 1: they're likely to end up doing so. So I think 182 00:09:07,280 --> 00:09:09,200 Speaker 1: the China in one sense, we're thinking this is great 183 00:09:09,240 --> 00:09:12,360 Speaker 1: because as the US withdrawals at the pivot to Asia 184 00:09:12,400 --> 00:09:15,400 Speaker 1: doesn't work quite as strongly as wasn't threatened ut to Obama, 185 00:09:15,559 --> 00:09:17,520 Speaker 1: we've got some more room to maneuver. So we might 186 00:09:17,559 --> 00:09:20,840 Speaker 1: lose out in the international global arena. We gained the 187 00:09:20,920 --> 00:09:23,600 Speaker 1: regional arena in Asia. Stephen, thank you so much for 188 00:09:23,600 --> 00:09:40,280 Speaker 1: the time. Today. Stephen King is with hs BC David 189 00:09:40,320 --> 00:09:45,839 Speaker 1: gurn Tom Keene in London. A spirited cities. Certainly June 190 00:09:46,480 --> 00:09:49,319 Speaker 1: David did not look like now there was a quiet 191 00:09:49,400 --> 00:09:53,520 Speaker 1: over the city. I remember that morning after Brexit. It 192 00:09:53,640 --> 00:09:56,840 Speaker 1: is back to a vibrancy that is superb Jonathan Lns 193 00:09:56,920 --> 00:10:00,680 Speaker 1: with us with Capital Economics Roger Brutle's Capit Economics. We 194 00:10:00,679 --> 00:10:04,920 Speaker 1: thank Mr Buddle for attendance. You're a number of days ago. 195 00:10:05,080 --> 00:10:08,000 Speaker 1: You're running the day to day grind for Capital Economics, 196 00:10:08,000 --> 00:10:10,760 Speaker 1: and we changed your models a lot off of the 197 00:10:10,800 --> 00:10:15,880 Speaker 1: Trump election. No, we haven't changed our models. We have 198 00:10:16,559 --> 00:10:19,640 Speaker 1: factored in some boost to the U s economy from 199 00:10:19,800 --> 00:10:22,240 Speaker 1: the likely fiscal stimulus that we think will be delivered 200 00:10:22,760 --> 00:10:24,800 Speaker 1: towards the end of the first half of next year. 201 00:10:25,160 --> 00:10:27,320 Speaker 1: UM that's from the tax cuts. Were not expecting much 202 00:10:27,320 --> 00:10:30,320 Speaker 1: in terms of the infrastructure spending proposals. I think they 203 00:10:30,320 --> 00:10:34,959 Speaker 1: will face more resistance in Congress. But we've pushed our 204 00:10:35,360 --> 00:10:37,760 Speaker 1: forecast for the US economy up from two percent GDP 205 00:10:37,880 --> 00:10:40,760 Speaker 1: growth this year to two point seven percent GDP growth, 206 00:10:41,080 --> 00:10:42,880 Speaker 1: and we're expecting the FED to tighten a little bit 207 00:10:42,920 --> 00:10:46,720 Speaker 1: more quickly, partly in response to that additional boost. I 208 00:10:46,840 --> 00:10:49,720 Speaker 1: was interested reading your most most recent notes about a 209 00:10:49,720 --> 00:10:52,920 Speaker 1: line about how the media and competations with misapprehending at 210 00:10:52,920 --> 00:10:55,120 Speaker 1: the effects of of weakly stirling you you have an 211 00:10:55,120 --> 00:10:57,960 Speaker 1: outlies sense of that, what's your what's your argument there 212 00:10:58,000 --> 00:11:01,000 Speaker 1: that we're kind of getting that wrong. I mean, the 213 00:11:01,040 --> 00:11:04,560 Speaker 1: drop of exchange rate is partly about concerns about the 214 00:11:04,559 --> 00:11:06,840 Speaker 1: impact of the Brexit vote on the economy, and you 215 00:11:06,840 --> 00:11:08,920 Speaker 1: know the way that the Monetary Policy Committee will respond 216 00:11:08,960 --> 00:11:11,280 Speaker 1: to that by keeping interest rates lower perhaps than otherwise, 217 00:11:11,280 --> 00:11:14,840 Speaker 1: particularly relative to other central banks like the FED. But 218 00:11:14,960 --> 00:11:18,360 Speaker 1: it's also potentially a fairly powerful shock absorber for the economy, 219 00:11:18,679 --> 00:11:21,839 Speaker 1: which is something we've always argued even before the referendum, 220 00:11:22,200 --> 00:11:24,240 Speaker 1: and I think that's become very clear of a recent months, 221 00:11:24,240 --> 00:11:25,720 Speaker 1: both in terms of the boost that it's given to 222 00:11:25,720 --> 00:11:29,600 Speaker 1: the stock market, which of course has some positive macri 223 00:11:29,960 --> 00:11:33,199 Speaker 1: economic effects more broadly, but also we've seen it coming 224 00:11:33,200 --> 00:11:36,440 Speaker 1: through in terms of stronger export orders in the industrial surveys, 225 00:11:36,480 --> 00:11:38,600 Speaker 1: and that I think is helping to support sentiment and 226 00:11:39,080 --> 00:11:42,040 Speaker 1: activity in the export related parts of the economy as well. 227 00:11:42,720 --> 00:11:44,720 Speaker 1: There is an adverse impact, of course, which is higher 228 00:11:44,760 --> 00:11:48,040 Speaker 1: inflation um and that is going to have a negative 229 00:11:48,040 --> 00:11:50,640 Speaker 1: effect on consumer spending growth over the coming quarters, but 230 00:11:50,760 --> 00:11:52,839 Speaker 1: I don't think it will be too disastrous. What's your 231 00:11:52,880 --> 00:11:57,520 Speaker 1: inflation outlook now for the US? For the US, we're 232 00:11:57,520 --> 00:11:59,720 Speaker 1: expecting inflation to pick up a little bit more quickly 233 00:11:59,720 --> 00:12:02,079 Speaker 1: than the arkets are currently anticipation. And we felt for 234 00:12:02,120 --> 00:12:06,600 Speaker 1: a while that the economy was operating relatively close to capacity, 235 00:12:06,640 --> 00:12:08,840 Speaker 1: particularly in the labor market, and therefore that we were 236 00:12:08,840 --> 00:12:11,600 Speaker 1: going to see some pick up in pay pressures feeding 237 00:12:11,600 --> 00:12:13,800 Speaker 1: through into core inflation pressures as well. And that's one 238 00:12:13,840 --> 00:12:15,760 Speaker 1: of the reasons why we think that the FED will 239 00:12:15,800 --> 00:12:18,000 Speaker 1: tighten a bit more aggressively than the markets are currently 240 00:12:18,040 --> 00:12:21,440 Speaker 1: anticipating over the next year or so. Greg Villi is 241 00:12:21,520 --> 00:12:26,319 Speaker 1: just published and the Going Uns of Washington yesterday, and 242 00:12:26,440 --> 00:12:28,920 Speaker 1: one of his headlines is Trump is not a politician, 243 00:12:29,000 --> 00:12:32,560 Speaker 1: He's a CEO. Bring that over to the United Kingdom. 244 00:12:32,679 --> 00:12:36,120 Speaker 1: Is Theresa May a politician or is she going to 245 00:12:36,200 --> 00:12:40,160 Speaker 1: be acting like a CEO with the jumble that is Brexit? 246 00:12:41,679 --> 00:12:44,800 Speaker 1: I think so far she's behaved very much like a politician. 247 00:12:44,880 --> 00:12:48,000 Speaker 1: I mean, you know, some might say she's there largely 248 00:12:48,040 --> 00:12:51,719 Speaker 1: by default because she kept her head, you know, relatively 249 00:12:51,760 --> 00:12:55,800 Speaker 1: down and during the Brexit run up. Um So, in 250 00:12:55,840 --> 00:12:59,000 Speaker 1: that sense you could say that was a pretty political development. 251 00:12:59,720 --> 00:13:02,520 Speaker 1: Um I think in terms of, um what's going to 252 00:13:02,559 --> 00:13:04,040 Speaker 1: happen over the next year or so, in terms of 253 00:13:04,080 --> 00:13:08,800 Speaker 1: actually triggering Article fifty, negotiating what we hope is going 254 00:13:08,840 --> 00:13:11,360 Speaker 1: to be the best deal possible for the UK, trying 255 00:13:11,400 --> 00:13:14,000 Speaker 1: to sort of achieve the best trade off between perhaps 256 00:13:14,000 --> 00:13:17,800 Speaker 1: some more control over immigration but also continued access in 257 00:13:17,880 --> 00:13:19,800 Speaker 1: some form and other to the Single Market. She's going 258 00:13:19,800 --> 00:13:21,880 Speaker 1: to have to be a very skillful political skillful. And 259 00:13:21,960 --> 00:13:23,160 Speaker 1: this is where I want to go on, David, You're 260 00:13:23,240 --> 00:13:25,600 Speaker 1: much better at them, so jump in, But does does 261 00:13:25,600 --> 00:13:28,280 Speaker 1: a does the Prime minister ala Mr Trump in the 262 00:13:28,320 --> 00:13:30,800 Speaker 1: image of Mr Trump, does the Prime Minister who have 263 00:13:30,840 --> 00:13:36,360 Speaker 1: to quote unquote knock heads around? I've talked about knocking 264 00:13:36,400 --> 00:13:39,000 Speaker 1: heads around. I'm not sure she's in a position to 265 00:13:39,040 --> 00:13:41,880 Speaker 1: do that. I'm sure are you have been partners? Won't 266 00:13:42,320 --> 00:13:44,640 Speaker 1: won't you won't accept that she's in a position to 267 00:13:44,679 --> 00:13:48,120 Speaker 1: do that. But clearly what we're trying to do, or 268 00:13:48,120 --> 00:13:49,439 Speaker 1: what the government is going to try to do, is 269 00:13:49,480 --> 00:13:52,400 Speaker 1: get the best trade off between as I say, some 270 00:13:52,559 --> 00:13:57,600 Speaker 1: increased control over immigration, perhaps some reduction in regulation coming 271 00:13:57,600 --> 00:14:00,640 Speaker 1: from the European Union into the UK economy, but also 272 00:14:00,720 --> 00:14:03,440 Speaker 1: retaining as much access as we can to the Single Market, 273 00:14:03,760 --> 00:14:07,000 Speaker 1: or what the very least, preserving a strong trading relationship 274 00:14:07,040 --> 00:14:10,880 Speaker 1: with our European partners. I happen to think. But she's 275 00:14:10,920 --> 00:14:13,000 Speaker 1: got a good chance of achieving that. Actually, I think 276 00:14:13,200 --> 00:14:16,080 Speaker 1: that the noises of coming from our European partners are 277 00:14:16,120 --> 00:14:18,800 Speaker 1: reasonably encouraging. They're not all as one, of course, frances 278 00:14:18,840 --> 00:14:22,000 Speaker 1: taking awhile the harder line than Germany, but generally speaking, 279 00:14:22,040 --> 00:14:24,560 Speaker 1: and think the rest of the EU recognizes the importance 280 00:14:24,600 --> 00:14:27,320 Speaker 1: to them as well. As to the UK of maintaining 281 00:14:27,320 --> 00:14:39,920 Speaker 1: a strong relationship. Keep talking, You're making sterling story brought 282 00:14:39,960 --> 00:14:43,600 Speaker 1: you by Bank of America, Mary Lynch. Dedicated to bringing 283 00:14:43,600 --> 00:14:47,320 Speaker 1: our clients insights and solutions to meet the challenges of 284 00:14:47,360 --> 00:14:52,360 Speaker 1: a transforming world. That's the power of global connections. Mary Lynch, Pierce, 285 00:14:52,440 --> 00:15:00,280 Speaker 1: Fenner and Smith Incorporated Member s I p C. I 286 00:15:00,360 --> 00:15:03,400 Speaker 1: first read ed Hyman. This is a few years ago. 287 00:15:04,160 --> 00:15:09,880 Speaker 1: It's C. J. Lawrence where he literally invented chart paragraph chart. 288 00:15:10,640 --> 00:15:14,560 Speaker 1: He dovetails thought and wisdom and economics into what is 289 00:15:14,640 --> 00:15:18,640 Speaker 1: really going on in the economy like no one, of 290 00:15:18,720 --> 00:15:20,840 Speaker 1: course at a Himan of I s I. Ever core 291 00:15:20,960 --> 00:15:24,800 Speaker 1: I s I and Himan joins us from UH London. 292 00:15:25,160 --> 00:15:28,560 Speaker 1: I might note his UH public affairs with the Economic 293 00:15:28,600 --> 00:15:30,440 Speaker 1: Club of New York and also his support of Bowden 294 00:15:30,520 --> 00:15:33,400 Speaker 1: College and ed wonderful to have you with us. Tell 295 00:15:33,440 --> 00:15:37,400 Speaker 1: me about Trump economics. The reassuring words from you are important. 296 00:15:37,680 --> 00:15:43,240 Speaker 1: How will America adapt and adjust to Trump economics? There 297 00:15:43,240 --> 00:15:45,240 Speaker 1: are three There are three come in my view, there 298 00:15:45,240 --> 00:15:47,760 Speaker 1: are three factors that it works through. One is the 299 00:15:47,840 --> 00:15:53,360 Speaker 1: conventional like a tax cut or repatriation, infrastructure spending, defense spending. 300 00:15:53,400 --> 00:15:59,160 Speaker 1: The second is the regulation that can happen quickly is animals. 301 00:15:59,720 --> 00:16:02,440 Speaker 1: I saw on Bloomberg, which I can not live without, 302 00:16:03,480 --> 00:16:08,240 Speaker 1: a story this week that the farm farmers optimism has sword. 303 00:16:08,760 --> 00:16:13,040 Speaker 1: It went from two months ago two hundred thirty two. 304 00:16:13,360 --> 00:16:16,760 Speaker 1: So there are three channels, the regular channels, the regulation 305 00:16:17,040 --> 00:16:21,480 Speaker 1: and animal spirits ed. When I look at all of this, 306 00:16:21,680 --> 00:16:25,960 Speaker 1: what we know is on page eight of your acclaimed newsletters, 307 00:16:26,280 --> 00:16:29,160 Speaker 1: and folks, we protect the copyright of our guests. We're 308 00:16:29,200 --> 00:16:31,200 Speaker 1: not going to send you out the I S I literature. 309 00:16:31,240 --> 00:16:36,680 Speaker 1: Don't ask for it. You'll have some obscure railroad shipping chart. 310 00:16:37,440 --> 00:16:40,960 Speaker 1: What's the chart right now that shows Adheiman optimism on 311 00:16:41,000 --> 00:16:46,080 Speaker 1: the American experiment? What inside baseball market chart gives you 312 00:16:46,280 --> 00:16:51,800 Speaker 1: enthusiasm for economic growth? Is one that stands out like crazy. 313 00:16:52,120 --> 00:16:56,000 Speaker 1: Earlier this week, the small Business Optimism Index came yes 314 00:16:56,320 --> 00:16:59,200 Speaker 1: and it's been black luster all along. I'm sure you've 315 00:16:59,200 --> 00:17:02,360 Speaker 1: recorded it and it just searched. It went way up 316 00:17:03,120 --> 00:17:06,600 Speaker 1: in December, so that along I mentioned the optimism, but 317 00:17:06,720 --> 00:17:09,119 Speaker 1: the small business Cinema, which is where you get the 318 00:17:09,240 --> 00:17:12,560 Speaker 1: job's number, that has really spiked up. That's the start 319 00:17:12,560 --> 00:17:15,320 Speaker 1: of the week, Tim, And let me ask you about trade. 320 00:17:15,320 --> 00:17:16,800 Speaker 1: By all accounts from a lot of the guests that 321 00:17:16,840 --> 00:17:18,840 Speaker 1: we talked to on this program, that's the biggest X 322 00:17:18,840 --> 00:17:22,400 Speaker 1: factor going forward here. How concerned are you about trade policy? 323 00:17:22,440 --> 00:17:24,960 Speaker 1: And as you forecast out, how much of a drag 324 00:17:25,000 --> 00:17:26,680 Speaker 1: could that be if we see more tariffs, if we 325 00:17:26,720 --> 00:17:28,879 Speaker 1: see more protectionism here in the US. What kind of 326 00:17:28,880 --> 00:17:30,720 Speaker 1: effect do you see that having on the U s economy? 327 00:17:32,119 --> 00:17:36,080 Speaker 1: It's just a major risk, pure and simple. I think 328 00:17:36,080 --> 00:17:38,600 Speaker 1: the US economy I listened to your show all the time. 329 00:17:39,119 --> 00:17:41,760 Speaker 1: I think the US economy is doing better than you 330 00:17:41,760 --> 00:17:45,639 Speaker 1: guys portrayed. I could probably run the US. Almost every 331 00:17:45,640 --> 00:17:48,359 Speaker 1: city I go to is doing really well. So I 332 00:17:48,359 --> 00:17:51,439 Speaker 1: think the US economy is doing is doing fine. So 333 00:17:51,560 --> 00:17:53,639 Speaker 1: if we have drags from the dollar going up or 334 00:17:53,640 --> 00:17:56,720 Speaker 1: interest rates going up, our trade, I think the US 335 00:17:56,760 --> 00:18:00,639 Speaker 1: economy can take it. But I find this pretty a 336 00:18:00,760 --> 00:18:05,680 Speaker 1: pretty fuzzy area of concern. And when you look at 337 00:18:06,280 --> 00:18:09,000 Speaker 1: the economy, C plus I plus G plus n X 338 00:18:09,240 --> 00:18:13,680 Speaker 1: all are looking for increased investment, and yet productivity challenges 339 00:18:13,680 --> 00:18:16,639 Speaker 1: are within the statistics. What indications do you see that 340 00:18:16,720 --> 00:18:20,159 Speaker 1: will actually get investment that will lead to jobs, that 341 00:18:20,200 --> 00:18:24,399 Speaker 1: will lead to wage growth but we've been having comment 342 00:18:24,400 --> 00:18:26,639 Speaker 1: as you know, we've been having jobs, jobs, jobs for 343 00:18:26,920 --> 00:18:30,080 Speaker 1: seven or eight years now and now wages that was 344 00:18:30,280 --> 00:18:32,720 Speaker 1: that was last week. But you know wages are now 345 00:18:32,800 --> 00:18:37,439 Speaker 1: moving up. So that's all coming together. But proctivity is 346 00:18:37,440 --> 00:18:43,320 Speaker 1: still obviously a major negative. My guess is that if 347 00:18:43,320 --> 00:18:47,000 Speaker 1: the commuty picks up, proctivity will pick up with it, 348 00:18:47,080 --> 00:18:51,000 Speaker 1: simply because people are selling more, serving more, flying more, 349 00:18:51,320 --> 00:18:53,840 Speaker 1: driving more, and it will be a bit of a 350 00:18:53,880 --> 00:18:56,480 Speaker 1: headstake that they will look better for a little bit. 351 00:18:56,880 --> 00:18:59,520 Speaker 1: They will find out years down the road on the 352 00:18:59,560 --> 00:19:03,159 Speaker 1: cap back. Uh, we'll see at the animals and I 353 00:19:03,200 --> 00:19:06,359 Speaker 1: mentioned earlier, get Capex to pick up. I've seen plenty 354 00:19:06,400 --> 00:19:10,639 Speaker 1: of evidence is picking up. Uh, but it's still lack left, okay, 355 00:19:10,760 --> 00:19:12,919 Speaker 1: Ed iim and thank you so much. With abcor S. 356 00:19:13,000 --> 00:19:16,480 Speaker 1: I were thrilled that he could join us in London today. 357 00:19:17,240 --> 00:19:32,000 Speaker 1: This is Bloomberg. We begin the bank earning season. I 358 00:19:32,040 --> 00:19:35,199 Speaker 1: believe JP Morgan tomorrow joining us now, gentleman who has 359 00:19:35,200 --> 00:19:38,800 Speaker 1: given us just years of perspective. Michael Mayo will see 360 00:19:38,920 --> 00:19:41,800 Speaker 1: us c U s l A. Michael, good morning. When 361 00:19:41,840 --> 00:19:45,159 Speaker 1: I look at the banks there, I guess banking on 362 00:19:45,800 --> 00:19:49,960 Speaker 1: a Trump reflation. I had a chart today showing curve flattening, 363 00:19:50,359 --> 00:19:52,919 Speaker 1: a bit of an EBB here rolling over of the 364 00:19:52,960 --> 00:19:56,639 Speaker 1: good news of November eight for the curve, how do 365 00:19:56,680 --> 00:19:59,719 Speaker 1: you frame that within the earnings you'll see now and 366 00:19:59,720 --> 00:20:03,040 Speaker 1: in the coming years. Can you just say reflation and 367 00:20:03,080 --> 00:20:07,080 Speaker 1: it's good for banks? Well, tom uh Tomorrow is a 368 00:20:07,119 --> 00:20:10,600 Speaker 1: big day. You have three large banks reporting their fourth 369 00:20:10,680 --> 00:20:13,720 Speaker 1: quarter and four year two thousand sixteen results JPM Oregon, 370 00:20:13,800 --> 00:20:17,679 Speaker 1: Bank America, and Wells Fargo. And this is a big 371 00:20:17,920 --> 00:20:21,800 Speaker 1: day in terms of three two trillion dollar banks reporting 372 00:20:21,800 --> 00:20:24,600 Speaker 1: their results. And I have two words that sum up 373 00:20:24,720 --> 00:20:28,479 Speaker 1: my view of these results, and those two words are 374 00:20:29,000 --> 00:20:32,639 Speaker 1: who cares? You have a lot of noise, You have 375 00:20:32,680 --> 00:20:34,760 Speaker 1: a lot of information, You have hundreds of pages of 376 00:20:34,800 --> 00:20:37,440 Speaker 1: information that will be disclosed tomorrow. But I think it's 377 00:20:37,480 --> 00:20:42,040 Speaker 1: more about looking ahead. And as you uh conveyed, you know, 378 00:20:42,119 --> 00:20:49,399 Speaker 1: interest rates, along with regulation, revenue, credit costs, capital levels, 379 00:20:49,480 --> 00:20:53,560 Speaker 1: capital markets, and the president elect Donald Trump, those are 380 00:20:53,720 --> 00:20:58,680 Speaker 1: much far bigger impacts on the the outlook for banks 381 00:20:58,680 --> 00:21:01,719 Speaker 1: and any one quarter, and I think the US banking 382 00:21:01,720 --> 00:21:06,280 Speaker 1: industry is at a unique inflection point. Banks are on 383 00:21:06,400 --> 00:21:11,160 Speaker 1: the doorstep from transitioning from value destruction to value creation. 384 00:21:11,200 --> 00:21:13,560 Speaker 1: And when we say that on Wall Street, we talk 385 00:21:13,640 --> 00:21:17,800 Speaker 1: about returns exceeding the cost of capital, earning your cost 386 00:21:17,840 --> 00:21:20,919 Speaker 1: to capital. The US banking industry has not earned it 387 00:21:21,000 --> 00:21:23,320 Speaker 1: cost to capital for the last decade. We think over 388 00:21:23,320 --> 00:21:25,440 Speaker 1: the next year or two they will and this will 389 00:21:25,480 --> 00:21:27,919 Speaker 1: be only the second time in twenty five years that 390 00:21:27,960 --> 00:21:29,840 Speaker 1: will be the case. Mike, what kind of insight are 391 00:21:29,880 --> 00:21:31,720 Speaker 1: we gonna get from these banks about what they're thinking 392 00:21:31,760 --> 00:21:33,879 Speaker 1: when it comes to regulatory reform and Washington d C. 393 00:21:34,000 --> 00:21:36,280 Speaker 1: In other words, you have the possibility of a policy change. 394 00:21:36,560 --> 00:21:38,879 Speaker 1: Are we going to see them reckoning with that in 395 00:21:38,920 --> 00:21:42,359 Speaker 1: the statements on the calls tomorrow? Why? That is the 396 00:21:42,359 --> 00:21:44,520 Speaker 1: main question to mar What is the outlook. What's the 397 00:21:44,560 --> 00:21:48,680 Speaker 1: impact of the new Trump administration if they pull back 398 00:21:49,200 --> 00:21:52,040 Speaker 1: some of the regulation from Dodd Frank? Will banks be 399 00:21:52,080 --> 00:21:55,160 Speaker 1: allowed to take more risk? Will the infrastructure spending lead 400 00:21:55,200 --> 00:21:57,879 Speaker 1: to additional loan growth? What about the change and the 401 00:21:57,880 --> 00:22:00,720 Speaker 1: interest rate environment? So those are going to be the question. 402 00:22:00,800 --> 00:22:03,320 Speaker 1: Have you seen animal spirits kick in yet? You know, 403 00:22:03,440 --> 00:22:05,879 Speaker 1: we think you will see some of the impact of 404 00:22:05,920 --> 00:22:09,440 Speaker 1: animal spirits on the fee revenues at banks you've seen 405 00:22:09,640 --> 00:22:13,480 Speaker 1: volumes um and values increase in the fourth quarter. If 406 00:22:13,520 --> 00:22:16,000 Speaker 1: you look at the SMP, it was up three percent 407 00:22:16,040 --> 00:22:18,719 Speaker 1: in the fourth quarter, Equity volumes were up seven percent, 408 00:22:19,000 --> 00:22:21,920 Speaker 1: and fixed income volumes were up over ten percent. That's 409 00:22:22,040 --> 00:22:24,199 Speaker 1: versus the third quarter. So you're going to see some 410 00:22:24,280 --> 00:22:27,520 Speaker 1: of that benefit, especially in the capital market results. On 411 00:22:27,600 --> 00:22:30,120 Speaker 1: the other hand, traditional bank lending, which is still more 412 00:22:30,160 --> 00:22:33,800 Speaker 1: than half the bank revenues, you shouldn't see as big 413 00:22:33,800 --> 00:22:36,280 Speaker 1: an impact from that yet that that's to come now 414 00:22:36,320 --> 00:22:39,080 Speaker 1: that the ten year has gone up. It's come down 415 00:22:39,119 --> 00:22:41,159 Speaker 1: recently a little bit, but versus you know, the election 416 00:22:41,240 --> 00:22:44,479 Speaker 1: is it's come up. Loan grows hangs in there. So 417 00:22:44,520 --> 00:22:47,600 Speaker 1: you're seeing, you know, at the beginning of a bottom 418 00:22:47,640 --> 00:22:51,720 Speaker 1: and what's been some sluggish revenues. Michael Mayo CLSA with this. Mike, 419 00:22:51,760 --> 00:22:53,480 Speaker 1: I look at Bank of America and just to pick 420 00:22:53,480 --> 00:22:57,840 Speaker 1: a line, operating income four billion, thirty three billion before 421 00:22:57,880 --> 00:23:01,760 Speaker 1: the crisis, the creator to five billion. They builded back. 422 00:23:01,840 --> 00:23:05,320 Speaker 1: Michael Mayo throws things. They throw things that you, etcetera. 423 00:23:05,600 --> 00:23:09,480 Speaker 1: Twenty four billion, twenty three billion, four billion the last 424 00:23:09,480 --> 00:23:13,200 Speaker 1: three fiscal years. But are they a growth company? Can 425 00:23:13,240 --> 00:23:16,920 Speaker 1: they add operating income from year. Well, Bank America is 426 00:23:16,960 --> 00:23:20,080 Speaker 1: a microcosm of the U S banking industry at large. 427 00:23:20,760 --> 00:23:24,840 Speaker 1: Revenue growth for US banks has been the worst this 428 00:23:24,920 --> 00:23:28,840 Speaker 1: decade in eighty years. But that's been the case for 429 00:23:28,880 --> 00:23:31,399 Speaker 1: a few years, and we think the banking industry is 430 00:23:31,440 --> 00:23:34,240 Speaker 1: going to break out of that. You've had two percent 431 00:23:34,400 --> 00:23:36,600 Speaker 1: revenue growth for the last four years. We think that 432 00:23:36,600 --> 00:23:40,000 Speaker 1: would be four percent for the next four years before 433 00:23:40,160 --> 00:23:43,000 Speaker 1: any benefit from a Trump bump, So you could get 434 00:23:43,040 --> 00:23:46,480 Speaker 1: to the upper single digits potentially. So if that a 435 00:23:46,560 --> 00:23:49,240 Speaker 1: growth company is certainly growth compared to where the industry 436 00:23:49,280 --> 00:23:52,159 Speaker 1: has been this decade, how quickly can these big banks 437 00:23:52,160 --> 00:23:55,040 Speaker 1: maneuver based on what results have been So you've got 438 00:23:55,200 --> 00:23:58,359 Speaker 1: a fixed income up, stock trading revenue up. Are we 439 00:23:58,400 --> 00:24:01,080 Speaker 1: going to see change to the the contours of these 440 00:24:01,080 --> 00:24:03,159 Speaker 1: banks where they're putting people as a result of that? 441 00:24:03,200 --> 00:24:05,600 Speaker 1: How long does it take them to make fundamental changes 442 00:24:05,640 --> 00:24:07,639 Speaker 1: to how they operate? Well, one thing we know is 443 00:24:07,640 --> 00:24:12,080 Speaker 1: that the US banks are positioned a favorably versus European banks. 444 00:24:12,080 --> 00:24:16,200 Speaker 1: European banks are on their you know, on their heels. Uh. 445 00:24:16,280 --> 00:24:18,960 Speaker 1: They don't have the same capital and balance sheets to 446 00:24:19,119 --> 00:24:23,080 Speaker 1: deploy as the US banks, and so you know that 447 00:24:23,080 --> 00:24:25,879 Speaker 1: that that's for certain. Um, we think the banks are 448 00:24:25,920 --> 00:24:28,000 Speaker 1: going to keep their expense culture. There's been a lot 449 00:24:28,000 --> 00:24:30,560 Speaker 1: of fits and starts. We do think revenue growth will improve, 450 00:24:30,840 --> 00:24:32,720 Speaker 1: but still not be at the level of a couple 451 00:24:32,720 --> 00:24:35,600 Speaker 1: of decades ago. So you get better revenue growth with 452 00:24:35,720 --> 00:24:38,680 Speaker 1: better expense control. At the same time, having said that, 453 00:24:38,720 --> 00:24:42,240 Speaker 1: if animal spirits really kick in, then you could see 454 00:24:42,240 --> 00:24:44,600 Speaker 1: Wall Street, you know, hiring a few more people in 455 00:24:44,640 --> 00:24:49,240 Speaker 1: certain areas. When you look at you mentioned the European banks. 456 00:24:49,440 --> 00:24:51,800 Speaker 1: Are there lessons to be learned by the American banks 457 00:24:51,800 --> 00:24:54,520 Speaker 1: as they watch what's playing out in Europe. Well, I 458 00:24:54,560 --> 00:24:57,600 Speaker 1: think the lesson for the European banks is raise capital 459 00:24:57,640 --> 00:25:00,440 Speaker 1: when you can. It's really amazing that capital of are 460 00:25:00,920 --> 00:25:03,800 Speaker 1: as low as they've been, and you didn't have major 461 00:25:03,840 --> 00:25:07,800 Speaker 1: capital raises by the European banks. Since a decade ago, 462 00:25:08,600 --> 00:25:14,080 Speaker 1: US banks have increased tangible equity by seven billion dollars, 463 00:25:14,119 --> 00:25:18,840 Speaker 1: increased cash by one trillion, and increased the core deposits 464 00:25:18,880 --> 00:25:23,520 Speaker 1: core funding by three trillion. These are astronomical figures. This 465 00:25:23,600 --> 00:25:26,639 Speaker 1: is the biggest build up on tangible equity, cash, and 466 00:25:26,720 --> 00:25:30,360 Speaker 1: deposits in US banking history. And that's created the most 467 00:25:30,440 --> 00:25:34,080 Speaker 1: resilient U S bank balance sheets in a generation. Give 468 00:25:34,160 --> 00:25:36,920 Speaker 1: us by whole cell here within the group that we're 469 00:25:36,920 --> 00:25:40,800 Speaker 1: going to hear from. Where's the Mayo enthusiasm among the 470 00:25:40,840 --> 00:25:44,199 Speaker 1: too big, too big to fail? Well, Tom, I was 471 00:25:44,240 --> 00:25:46,520 Speaker 1: on your show last spring when we said we're the 472 00:25:46,560 --> 00:25:49,720 Speaker 1: most bullish we've been in twenty years. Um. This is 473 00:25:49,760 --> 00:25:52,760 Speaker 1: the first time, UH, in over twenty years that we've 474 00:25:52,760 --> 00:25:56,239 Speaker 1: recommended all the five to six largest banks. Um. So 475 00:25:56,359 --> 00:26:00,119 Speaker 1: we are not saying, you know, outright self for anything 476 00:26:00,200 --> 00:26:02,480 Speaker 1: right now. And you know, bank stocks are up fifty 477 00:26:02,840 --> 00:26:05,359 Speaker 1: from their lows. We think there's another fifty percent to 478 00:26:05,400 --> 00:26:07,919 Speaker 1: go over the next three years. But we certainly like 479 00:26:08,000 --> 00:26:12,600 Speaker 1: City Group, JP, Morgan and Bank America, we're still Morgan Stanley. 480 00:26:12,600 --> 00:26:15,000 Speaker 1: We think Goldman Sachs goes to an all time high 481 00:26:15,240 --> 00:26:17,040 Speaker 1: in the next six and twelve. What does what does 482 00:26:17,160 --> 00:26:20,879 Speaker 1: Mr Corbett do to change the second derivative and critically 483 00:26:21,240 --> 00:26:25,399 Speaker 1: more importantly, forget about the tactical, the more strategic first derivative? 484 00:26:25,480 --> 00:26:29,360 Speaker 1: City Group? What's his to do list? As bullish as 485 00:26:29,400 --> 00:26:31,679 Speaker 1: we are, you know, one message to the banks is 486 00:26:31,760 --> 00:26:34,879 Speaker 1: don't confuse brains with the bull market and just because 487 00:26:34,960 --> 00:26:38,479 Speaker 1: the ray outlook and GDP might get better, Um, that 488 00:26:38,520 --> 00:26:41,600 Speaker 1: doesn't mean you're able to sit on your hands. And 489 00:26:41,880 --> 00:26:43,960 Speaker 1: not all banks will be earning their cos to capital 490 00:26:44,000 --> 00:26:46,359 Speaker 1: at the same time. We think some you know banks 491 00:26:46,400 --> 00:26:48,399 Speaker 1: hit that magic level you know, they did in twenty 492 00:26:48,480 --> 00:26:51,280 Speaker 1: six or seventeen, but for City Group it could still 493 00:26:51,280 --> 00:26:53,959 Speaker 1: be three four years away. So we do think that 494 00:26:54,080 --> 00:26:57,640 Speaker 1: City Group needs to take more control of its destiny, 495 00:26:57,680 --> 00:27:01,119 Speaker 1: and we think they should consider selling off more assets. 496 00:27:01,200 --> 00:27:02,920 Speaker 1: They've shrunk a lot, They've gone a long way, but 497 00:27:02,960 --> 00:27:05,119 Speaker 1: they haven't gone far enough. And at some point, if 498 00:27:05,160 --> 00:27:07,440 Speaker 1: you can't earn your cos to capital, we have to say, 499 00:27:07,520 --> 00:27:09,720 Speaker 1: is this the right strategy? Is this the right management 500 00:27:09,800 --> 00:27:12,480 Speaker 1: team to get it done? So we'll still have pointed questions, 501 00:27:12,720 --> 00:27:14,800 Speaker 1: you know, for City Group, they don't report tomorrow, they 502 00:27:14,800 --> 00:27:18,040 Speaker 1: report next week. Excuse me, There's never been a moment 503 00:27:18,040 --> 00:27:21,240 Speaker 1: where Mr Mayo did not have a pointed question for 504 00:27:21,320 --> 00:27:23,760 Speaker 1: anybody in a suit and tie to bank. Michael Mayo, 505 00:27:23,880 --> 00:27:26,680 Speaker 1: thank you so much, greatly appreciated with c l s 506 00:27:26,720 --> 00:27:38,919 Speaker 1: A and timely observations there on the City Group. Thanks 507 00:27:38,920 --> 00:27:43,359 Speaker 1: for listening to the Bloomberg Surveillance Podcast. Subscribe and listen 508 00:27:43,440 --> 00:27:48,760 Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. 509 00:27:49,520 --> 00:27:52,399 Speaker 1: I'm out on Twitter at Tom Keene. David Gura is 510 00:27:52,520 --> 00:27:56,280 Speaker 1: at David Gura. Before the podcast, you can always catch 511 00:27:56,359 --> 00:28:12,320 Speaker 1: us worldwide. 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