Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 1: with Jonathan Ferrell and Lisa Brown Witz Jailey. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg
Speaker 1: dot com, and of course on the Bloomberg Termament. We
Speaker 1: are joined by the Chairman of CEGO of Bank of America.
Speaker 1: He's Mr Brian moynihan. Brian, thank you so much for
Speaker 1: your time today. So the FETE is made it official
Speaker 1: more or less. We need to pay attention to inflation
Speaker 1: and not clear exactly what we're doing, but we need
Speaker 1: to pay attention to it. And they didn't move anything
Speaker 1: except some dots on some plots. But where they did
Speaker 1: they get it right? Are they reacting in the right
Speaker 1: way at the right time or is it too much? Well?
Speaker 1: I think that first, David, good to see you again.
Speaker 1: Let me uh. I think there's three key points. The
Speaker 1: first point is about the virus, the vaccines and the variants.
Speaker 1: The second points about the dot plots, but what is
Speaker 1: the underlying FED predictions of economy, And the third points
Speaker 1: about thinking about this FED and where they we're nineteen.
Speaker 1: So first point, if you have the three VS virus
Speaker 1: variants and vaccines, you really have to listen that they
Speaker 1: need to see the whole that they were trying to
Speaker 1: fill between physical, physical stimulus and accommodation was to put
Speaker 1: the economy back to where it was and with the
Speaker 1: same growth characteristics are frankly even better growth characteristics. And
Speaker 1: if you look around the world, central banks are gonna
Speaker 1: struggles to win. This virus is behind him because at
Speaker 1: the end of the day, is that is the determined here.
Speaker 1: So if you think about India, think about what they
Speaker 1: went through over the last several weeks, think about in
Speaker 1: the UK delaying uh the full of reopening because of
Speaker 1: the variants. That's the variant question. You think about the
Speaker 1: US vaccines through half the population you can see and
Speaker 1: it's pretty open and the questions with the variance effect
Speaker 1: us to pay attention to the vaccine path. The second
Speaker 1: question was the dots, as you said, dot plots, and
Speaker 1: there's great debate whether he's add value at this point
Speaker 1: when they're put in there, it put in for a
Speaker 1: different purpose. But leaving that debate aside, the question is
Speaker 1: the FEDS economic projections. This year seven. Next year in
Speaker 1: the mid threes, the street actually is seven percent. Matches
Speaker 1: have fed this year, but next year Bank America security
Speaker 1: is and our team there and it's a great team
Speaker 1: is at five in the streets at high fours. If
Speaker 1: you believe the street in Bank of America are more
Speaker 1: right as you move through the year. The reality is
Speaker 1: the economy is growing much fashion it was, with much
Speaker 1: more fiscal stimus still to be spent in the customers accounts,
Speaker 1: much more opportunity for the economy around out and grow.
Speaker 1: And that's something people should pay attention to because last
Speaker 1: year this time this year's rate of growth was half
Speaker 1: of what it's turned out to be predicted to be.
Speaker 1: So if those economic growth predictions move, those dot plots
Speaker 1: will become uninteresting because I'll have to move because things
Speaker 1: will be moving faster. And the third things, think about
Speaker 1: two thousand nineteen, same fed, same chairs, different somewhat different people,
Speaker 1: the same research department. They were sitting there mid two
Speaker 1: thousand to two percent plus FED funds rate two percent,
Speaker 1: plush ten tenure Treasury rate. Economic projective forward growth was
Speaker 1: two percent. Unemployment in the threes. Think about that. Where
Speaker 1: we are now, We've got three times the growth rate
Speaker 1: projected next year, even two times the growth rate projected
Speaker 1: a FED unemployment rate projection in the low threes by
Speaker 1: the end of twenty three, high threes by next year,
Speaker 1: in low force bid force. This year there was a
Speaker 1: full employment and what was the only thing concerning them
Speaker 1: and nine team was wage growth. And you're seeing wage growth,
Speaker 1: so that'll be interesting. Tug A wars that seeing normalized.
Speaker 1: So Brian absolutely right. We're have a remarkable story and
Speaker 1: the bounce back of the economy and the growth. But
Speaker 1: what about inflation, because they also have taken way up
Speaker 1: the FED the projection on the PCU deflate or three
Speaker 1: point four percent core is three point o percent. What
Speaker 1: are you seeing? You have your tentacles in to so
Speaker 1: many consumers as well as small businesses more than anybody else.
Speaker 1: Are your customers seeing feeling real pressure from from price increases? Well,
Speaker 1: ye know. The great debate is yea, what is temporary?
Speaker 1: What is transitory? As at SFP, as toom Mus talk
Speaker 1: about this morning, these terms are used to try to
Speaker 1: signal what they think right now. The firm belief I
Speaker 1: think by the FET is most of this is transitory.
Speaker 1: We'll see But the question is what about the stickier things.
Speaker 1: Wage growth becomes sticky, and you're seeing that come back,
Speaker 1: and as unemployment rates come down and you're seeing you know,
Speaker 1: the pick up employement. We'll see what the new claims
Speaker 1: are this morning, but you're seeing unemploy the employment market titan.
Speaker 1: If you ask our small business customers last fall, their
Speaker 1: number one issue pandemic, pandemic, pandemic. This spring, number one
Speaker 1: issue getting people to work and supply chains, that's a
Speaker 1: whole different place. And that means inflation and characteristics are
Speaker 1: out there to be filled. But is it temporary? Is
Speaker 1: it transitory? Um? And there'll be a great debate about that,
Speaker 1: But I think it still comes down to what you
Speaker 1: think next year's projection for for economic growth is and
Speaker 1: what you see in wage growth leading into that, as
Speaker 1: to whether the stickier parts of this will happen. Now.
Speaker 1: The route is in our customers accounts. They still have
Speaker 1: sixty five sevent stiments dollars in those accounts. The average
Speaker 1: balance for people two to five thousand dollars of average
Speaker 1: balunc accounts are up three times and sitting there ready
Speaker 1: to be spent. You're seeing their spending growth year to
Speaker 1: date through the last through the fourteenth of June versus nineteen,
Speaker 1: not eighteen, but not twenty nineteen, meaning the no normal
Speaker 1: year growth that's very strong. So it's all set up
Speaker 1: that inflation could happen. That would be the great debate.
Speaker 1: But I think we have to get further into the
Speaker 1: question of what is transitory. So, Brian, the one thing
Speaker 1: that seems clear after the FETE has spoken is that
Speaker 1: we are changing sort of the dynamic. We were on
Speaker 1: a loosening phase. We're not going to start tightening. It's
Speaker 1: not clear when or how how fast we're gonna start tightening.
Speaker 1: What does that due to Bank of America's business at
Speaker 1: its core? And let's start if we could with trading.
Speaker 1: I mean, we've heard from a couple of your rivals
Speaker 1: here the trading is down the second quarter. Were you
Speaker 1: in the second quarter? But could this cause volatility of
Speaker 1: the tightening that could help your trading? Well, let's go
Speaker 1: back to the You know, our economics for economist projections
Speaker 1: are that the economy this quarter will be about the
Speaker 1: same size that was heading into the pandemic, which means
Speaker 1: that you're sort of restored differently constituted with shortages and supply, labor,
Speaker 1: unemployment not where we want. Spending that's migrated from panic
Speaker 1: to sort of do it yourself and now to go
Speaker 1: out and eat and things, restaurants spending up dramatically. Travel
Speaker 1: back to what is all that means economy continues to
Speaker 1: grow In terms of trading, you know, there's always a
Speaker 1: seasonality between the first quarter and the second quarter, and
Speaker 1: we're no different than other people. But the reality, if
Speaker 1: you really think about it, is vaulatility helps a trading group,
Speaker 1: but frankly, from a bank American perspective, you'd rather have
Speaker 1: the economy growing at a solid rate, unemployment down because
Speaker 1: any day that means great for the core business. That
Speaker 1: means great for the UH capital, for markets formation activity,
Speaker 1: less emergency and more normalized. And also it means great
Speaker 1: for loan demand and loan demand were stings start to
Speaker 1: pick up slowly as we moved through the months of April, April,
Speaker 1: May and June, which is better than it was obviously
Speaker 1: last fall or coming into their early spring. So so Brian,
Speaker 1: if ironers that you correctly sounded like you're sort of
Speaker 1: along with your rivals. They are on trading the Siddon quarter,
Speaker 1: which should come down am I understanding that correctly? If
Speaker 1: the market moves, you know, we all maintain our market
Speaker 1: share kind of moves together. So there's nuances that will know,
Speaker 1: we'll get into but when we get to the earnings
Speaker 1: and figure out what happens the last few weeks here,
Speaker 1: but you know, we're not gonna be a heck of
Speaker 1: a lot different from other people. So that I raised
Speaker 1: the question of Okay, what does it due to the
Speaker 1: rest of your business, particularly if we're into a tightening phase,
Speaker 1: as I say, it doesn't know, don't know how long
Speaker 1: it will take tightening phase. What does that do to
Speaker 1: things like net interest margin? Well, that interest margin, the
Speaker 1: deposit bounces are huge, and that's due to the amount
Speaker 1: of physical stimulus that went in the system and amount
Speaker 1: of monetary accommodation, so that deposit bounces are high. The loans.
Speaker 1: The good thing about the business is half our money
Speaker 1: comes from spread deposits and loans, and you're starting to
Speaker 1: see those loans stabilize as we came to the first
Speaker 1: quarter and start to grow this quarter at a modest pace.
Speaker 1: But our credit card balances, you know, fell from ninety
Speaker 1: billion dollars and seventy billion dollars, and that's those are
Speaker 1: the kinds of things indicate the cut are still getting
Speaker 1: back in the game. Our middle market draw rate onlines
Speaker 1: went from the forties to the low thirties. That's lower
Speaker 1: than we've ever seen it. It's stabilized there and starting
Speaker 1: to move out, you know. So I think we're in
Speaker 1: the what I call the twist of both rates and
Speaker 1: economy that you're seeing economy normalized in rates move up.
Speaker 1: Rates moving up helps our business, but if they're moving
Speaker 1: up the wrong reason, it doesn't help our business. So
Speaker 1: the good good thing for Bank America is when the
Speaker 1: US economy and the world economies are growing on a
Speaker 1: fundamental basis. As we look forward, richeld moving up. But
Speaker 1: let's be frank, it's pretty modest still as a practical matter.
Speaker 1: And and let's also be honest, the Fed continues to
Speaker 1: buy those bonds, which means there's more stimulus coming to
Speaker 1: the marketplace. Is there demand for the loans, because the
Speaker 1: problem doesn't seem to be the interest rates, it's more
Speaker 1: whether's demand. Are you seeing demand from your customers? We are,
Speaker 1: We're seeing as we came to this quarter. Uh so,
Speaker 1: our small business originations in two thousand, twenty one May.
Speaker 1: We're about our small business originations in two thousand, nineteen May,
Speaker 1: and that's it's finally crossed over in various areas and
Speaker 1: that's good. Now again, it's still not where it was.
Speaker 1: We we fell from nine hundred eighty billion dollars loans
Speaker 1: down to nine hundred billion dollars loans and it's moving
Speaker 1: up from there. But but the reality is that loan
Speaker 1: growth is actually the core business. That means the core
Speaker 1: in the line economy is going well and we expect
Speaker 1: that to continue. And if you think from the first
Speaker 1: quarter to the fourth quarter, you'll see that growth and
Speaker 1: deposits continue. You'll see that growth and loans continue, and
Speaker 1: that's good for banking generally and US in particular. But
Speaker 1: at the end of the day, we are in the
Speaker 1: part of the process where you're seeing companies need to hire,
Speaker 1: need to get goods to sell, need to get goods
Speaker 1: to manufacturer. And that's because a seven percent growth rate
Speaker 1: on an economy that is the size of American economy
Speaker 1: is unprecedented and we haven't seen that in our lifetime.
Speaker 1: So think about that online activity that will be good
Speaker 1: for Bank of americaud be good for America and that's
Speaker 1: what we gotta get focused on. Brian, give us a
Speaker 1: sense of how the pandemic want to change your business
Speaker 1: where it comes to digital. As I understand, you picked
Speaker 1: up a lot more digital users. Where is Bank of
Speaker 1: America right now? Well, the three things that happened in
Speaker 1: terms of digital in the pandemic. Number one, consumer adoption
Speaker 1: continued to go and by necessity it rounded out. What
Speaker 1: do you mean by that? We continue to grow consumer
Speaker 1: digital customers to forty point four million active digital customers today.
Speaker 1: But what happened is the amount of sales went from
Speaker 1: moving up to and now it's settling in in a
Speaker 1: high fifties six. That is very good because that means
Speaker 1: there's efficiency and effective as a reach of the market.
Speaker 1: But the important the second important thing was what it
Speaker 1: happened happened internally our ability to interact with customers, Our
Speaker 1: ability to relate to customers. Think about it, four or
Speaker 1: five quarters of record investment banking fees and customers couldn't
Speaker 1: We couldn't go see the customers do the to the
Speaker 1: pandemic restrictions, So that ability to operate differently, UH is
Speaker 1: really important. And the third thing is it went to
Speaker 1: various businesses. So our wealth management business adoption rates went
Speaker 1: through the roof. In our commercial businesses, the cash pro mobile,
Speaker 1: the numbers of users went up dramatically, an amount of
Speaker 1: activity went up dramatically, and so you're seeing it round
Speaker 1: out through all the businesses that the adoption of digital
Speaker 1: et cetera. It usage of digital is important and that
Speaker 1: gives us more flexibility to continue to manage expense as
Speaker 1: while we're not company, we'll talk about those expenses. Does
Speaker 1: that mean, as a practical matter, you could see your
Speaker 1: number of retail establishments go down. I think here's something like, Yeah,
Speaker 1: it's been coming down for years based on customer behavior,
Speaker 1: so it will continue to will continue to shape it.
Speaker 1: So yesterday, the day before, we open to Kentucky for
Speaker 1: the first time in our history. So think about that.
Speaker 1: So we're opening new markets. We Columbus, Cleveland, Cincinnati, Indianapolis, Minneapolis, UH, Denver,
Speaker 1: Salt Lake City UH, and then now Kentucky. I'm trying
Speaker 1: to think where else we've gone. All have been open
Speaker 1: of the last three or four years while we're shaping
Speaker 1: the distribution franchise and more markets have been in for
Speaker 1: two hundred years due to the fact that you know,
Speaker 1: the customer behavior changes, so we watched that carefully. In
Speaker 1: long term, we've had six thousand branches the high point
Speaker 1: and now we're forties. During that time, the customer satisfaction
Speaker 1: has gone up, which means the digital and other means
Speaker 1: of operating have replaced that activity. And that's a relentless
Speaker 1: trend which we're continue to work up. Brian, you've talked
Speaker 1: about the bounce back and consumer spending that you're seeing,
Speaker 1: and goodness knows, you have contacted a lot of consumers.
Speaker 1: You've got some of your rivals like City changing their
Speaker 1: credit standards on credit cards. We have JP Morgan really
Speaker 1: beefing up on marketing. Tell me what the competition of
Speaker 1: our credit cards and what Bank of America is doing well.
Speaker 1: We've always taken a position to our credit card business
Speaker 1: it's about our core customers and getting a customer in
Speaker 1: the wallet and getting it used by those customers through
Speaker 1: the rewards systems that have so we have the only
Speaker 1: all company rewards. If you have a performed rewards, you
Speaker 1: get rewarded for your cards and your accounts of all types,
Speaker 1: and you get lower rates on your auto loans and
Speaker 1: stuff that so preferred rewards, the holistic rewards programs we
Speaker 1: focus on. The number one thing is the Great Bank
Speaker 1: of America capabilities delivered to you, and the car is
Speaker 1: part of that. And so you're seeing that card origination
Speaker 1: picked back up. It fell probably by seventy percent. It's
Speaker 1: back now at about lower than it was, and that's
Speaker 1: good for good news. Now they've got a bar on
Speaker 1: them and then they got to pay us for bar
Speaker 1: and on them, which which takes some time. But the
Speaker 1: roality is it's a it's a great business and we
Speaker 1: like it, but it's part of our core consumer business
Speaker 1: checking accounts, sorry of cards, auto loans, homeowns, be straightforward
Speaker 1: about it, serve those customers well on The team under
Speaker 1: de Nathan Asia does a great job with it. Finally, Brian,
Speaker 1: I know you said that you're hoping to get most
Speaker 1: of your people back into the offices by I think
Speaker 1: at mid September you've talked about are you going to
Speaker 1: require them to be vaccinated? Have you decided? Right now
Speaker 1: we're moving people back who are vaccinated, which we our
Speaker 1: team under Sherry Bronstein's leadership, our HR team has done
Speaker 1: a fabulous job for us in terms of managing through this, uh,
Speaker 1: not not with any playbook, but doing it because before
Speaker 1: nobody had this happened. They've done a great job. So
Speaker 1: we build a vaccine tool three or four months ago
Speaker 1: and capture voluntary capture. We have seventy plus thousand people
Speaker 1: and it's worth concentrating getting them back to work because
Speaker 1: that allows people to move about under the CDC guidelines
Speaker 1: with out masks and things like that. As more people
Speaker 1: get vaccinated, we keep bringing more back. We've got a
Speaker 1: lot of work to get those back. But the view
Speaker 1: is after labor Day, our view is all the vaccinate
Speaker 1: teammates were back and we'll be able to operate Fairlure
Speaker 1: normally and we'll then start to make provisions for the
Speaker 1: other teammates as we moved through the fall. Okay, Brian,
Speaker 1: thank you so very much for your time. That's Brian moynan.
Speaker 1: He is the chairman and CEO of Bank of America.
Speaker 1: David Rosenberg joining us from Rosenberg Research. Thrill that you
Speaker 1: could join us. David Rosenberg slices and dices inflation dynamics.
Speaker 1: Truly like no one I know. David. We had Goldman Saxon,
Speaker 1: He and you are so much on the same page
Speaker 1: of a slide of GDP back to something normal. At
Speaker 1: some point, if we get a hot seest sub three
Speaker 1: g d P, what does that do to Rosenberg inflation? Well, look,
Speaker 1: I think that if the economy slows down, especially with
Speaker 1: the fiscal withdrawal, we're going to be sing in the
Speaker 1: second half of the year. I think what happens in
Speaker 1: traditional economic terms is the output gap starts to widen again. Uh,
Speaker 1: it's going to bring this in platient run up. We've
Speaker 1: seen reverse course and should ultimately be very good news
Speaker 1: for a long duration assets. So that's really what the
Speaker 1: story there is. But let's say Tom, it was really
Speaker 1: I think less about the dots. The dots have no
Speaker 1: predicted powers. Historically, there was the fat taking this year's
Speaker 1: GDP growth from six and a half to seven percent.
Speaker 1: As you know, when you look at what's baked in
Speaker 1: already for the first half of the year, the Feds
Speaker 1: telling you that they're expecting fourth quarter growth to be
Speaker 1: close to five which is up materially from what they're
Speaker 1: in plicit before. What do you have into two thousand
Speaker 1: twenty two, though, they've got to get to two rate
Speaker 1: increases the year on and so much of it depends
Speaker 1: on that level of GDP. Do we get back to
Speaker 1: a potential GDP two percent? Do we go under three percent?
Speaker 1: What's your guestamate, Well, you know, look the FEDS over
Speaker 1: three percent. Uh. A lot of it depends on the
Speaker 1: fiscal backdrop. Um. But I think the fiscal drawal is
Speaker 1: so enormous um that you're gonna have to have. I mean,
Speaker 1: the FED is I implicitly assuming that private sector demand
Speaker 1: is going to be over six percent next year. I
Speaker 1: am nowhere close to that. I think the economy is
Speaker 1: gonna slow back below trend um starting probably in the
Speaker 1: third or fourth quarter of this year. UM. So I'm
Speaker 1: back the low potential growth for next year. Uh and
Speaker 1: uh And as a result of me, that reinforces my
Speaker 1: view that inflation is going to come back down more.
Speaker 1: The people thinking, David, do you think that the FED
Speaker 1: is committing an error here? Uh? Well, it's too early
Speaker 1: to say that. UM. You know, it's situational and everything
Speaker 1: is really about you know, now moving from moving from
Speaker 1: three um. And so it's still a few years down
Speaker 1: the road to say that Fed's going to make a mistake.
Speaker 1: Right now, they haven't really done anything. I mean, they're
Speaker 1: talking about talking about tapering, which is maybe happening earlier.
Speaker 1: The people pot but they haven't done anything, and they
Speaker 1: just you know, laid say. I guess that will it
Speaker 1: be Will it be a mistake? Should they follow through
Speaker 1: on the median dot plot projection there of hiking rates twice? Well,
Speaker 1: I think it probably will be. But you know that's
Speaker 1: based on that's based on my assumptions. Uh, And even
Speaker 1: on the fom s take a look, there's still a
Speaker 1: wide range of opinions. People look at the median dot plot.
Speaker 1: Not everybody has centered on the media. So I say
Speaker 1: that they haven't made a mistake yet. I thought that
Speaker 1: it was surprisingly either less stubbish um than uh. You
Speaker 1: know that I was certainly thinking about. But they haven't.
Speaker 1: They haven't done anything yet. I mean, look when you
Speaker 1: look at the dots. When they were first introduced by
Speaker 1: Bernankei in early two thousand and twelve, the funds rate
Speaker 1: was pressing against zero. For the next two years, the
Speaker 1: dot plot showed, you know, point seven five they were
Speaker 1: gonna hike rate three times. So we know with hindsight
Speaker 1: they never did that, and I guess that they race
Speaker 1: rates three times. It would have been a mistake, but
Speaker 1: they never carried through the dots. So to say that
Speaker 1: they made a mistake way too premature to say that
Speaker 1: right now, did you so don't see the inflation right
Speaker 1: in your notes you talk about uh cp I gets
Speaker 1: all the attention, and that's up, but the index is
Speaker 1: not accelerating. And if the Fed is even thinking about
Speaker 1: raising rates, why would you like gold here? Well, look,
Speaker 1: I haven't been banging my fist on gold for for months. Um,
Speaker 1: you know I've got dramatically over sold at the lows
Speaker 1: several months ago, it's backed up and now it's rolling
Speaker 1: over again. I mean a lot of the gold analysts
Speaker 1: are saying we can correct all the way down in
Speaker 1: the context of what could still be a secular bowlt
Speaker 1: market and gold nothing moves on the straight line. But
Speaker 1: you know, you folks are talking earlier about the backup
Speaker 1: or less negative results in real rates. Well, golds caught
Speaker 1: a time warm relationship with real rates, and the real
Speaker 1: rates back up here and the dollar continues to strengthen,
Speaker 1: then it's such as gold enditing price in US dollars
Speaker 1: is going to take it on the chin, including most
Speaker 1: commodity prices. Uh So, for the time being. As long
Speaker 1: as real rates back up here are the dollars that's
Speaker 1: broke above the Twitter day moving average, BOLD is going
Speaker 1: to remain under some near turned downward pressure. So to
Speaker 1: say that I'm bullets on gold right now because they've
Speaker 1: been affected, or bullog gold right now, I'd be saying,
Speaker 1: you know that the near term rests similar to the downside.
Speaker 1: David Rosenberg, thank you so much, greatly appreciate it. This
Speaker 1: morning he's with Rosenberg Research. A little much more for
Speaker 1: Mr Rosenberg in the coming days as he writes on inflation.
Speaker 1: Alan Ruskin with the Standard Deutsche Banker Chief international Strategist,
Speaker 1: Alan I, I look at where we are right now.
Speaker 1: That what an interesting press conference yesterday, and I've really
Speaker 1: got to ask you about this phrase substantial further progress.
Speaker 1: We're making a joke about it, but on a theoretical basis,
Speaker 1: out of the textbooks you've used, what is substantial fur
Speaker 1: their progress? How do you define that? Well, Tom, I
Speaker 1: think what you saw yesterday was that the dual mandate
Speaker 1: is so important and at it's both uh, the progress
Speaker 1: you make on the inflation side, but also you know,
Speaker 1: of course the progress you make on the employment labor
Speaker 1: market side, and the market up until now has been
Speaker 1: emphasizing the labor market and the lack of progress there.
Speaker 1: But I think what you finally saw was recognition from
Speaker 1: the FED on the importance of the other side of
Speaker 1: the dual mandate, the inflation side. So um, you know,
Speaker 1: it really depends on what you're looking at on the
Speaker 1: labor market side. I think even there, Chairman Power was
Speaker 1: very optimistic when he starts to speak about the longer
Speaker 1: term view on the labor market, and when you look
Speaker 1: at the Fed's forecasts on the labor market, including an
Speaker 1: unemployment rate of three point eight percent at the end
Speaker 1: of two around four and a half percent at the
Speaker 1: end of this year, those are very you know, consistent
Speaker 1: with substantial progress. The substantial progress could be a green
Speaker 1: light for other central banks given your international preview. Did
Speaker 1: he green light other central banks yesterday to begin to
Speaker 1: nudge read so up as they choose. I don't think
Speaker 1: other central banks are using this flexible average inflation targeting regime,
Speaker 1: certainly not in a religious way that the FED seemed
Speaker 1: to be up until yesterday, So I think there's no
Speaker 1: sort of green lighting per se. I think the FED
Speaker 1: was standing out is really looking like the ultra Dvish
Speaker 1: central bank within the G ten group. UM, I don't
Speaker 1: think it really changes things materially. What you are, however,
Speaker 1: seeing is that some of the central banks that were
Speaker 1: leaning to be more on the hawkish side, like the
Speaker 1: Norgious Bank on our signaling that they will raise rates,
Speaker 1: not not just a taper, but actually raise rates in September.
Speaker 1: So you do have, you know, some central banks that
Speaker 1: are well ahead of the Federal Reserve. There were before
Speaker 1: yesterday and they are after After yesterday, we have seen
Speaker 1: more central banks start to raise rates than cut rates.
Speaker 1: I think there have been eighty four central bank actions
Speaker 1: globally this year. At the beginning of the year, Um,
Speaker 1: there were more cuts and now we're seeing that skewed
Speaker 1: towards hikes. Um. When are we going to see though
Speaker 1: the big ones follow or or is that the way
Speaker 1: it's going to be? Is the easy be really gonna
Speaker 1: wait until after the Fed? Look, I think the big
Speaker 1: ones are, you know, holding back for the most part.
Speaker 1: I think the e c B is also you know,
Speaker 1: obviously said they're not going to taper through Q three.
Speaker 1: There also on this you know, this attempt to look
Speaker 1: at things and see how things are going to change.
Speaker 1: The Bank of Japan is not looking at things for
Speaker 1: you know, the next three or four years really in
Speaker 1: a way, so they're very much on hold. The Bank
Speaker 1: of England maybe is a little bit more hawkish than
Speaker 1: the other central banks. But I think when you look
Speaker 1: at global markets, it's a federal reserve. I mean, we
Speaker 1: just saw it yesterday that, um, you know, it's what
Speaker 1: the federal Reserve does that's going to dictate I think
Speaker 1: going all asset prices. Lisa a great piece out yesterday
Speaker 1: on Bloomberg Opinion about the financial risk that we're seeing
Speaker 1: rate risk intertwined uh with credit risk, And today I
Speaker 1: saw a story on private equity. They've been pumping more
Speaker 1: leverage loans onto the books of their companies than they
Speaker 1: have in the last fourteen years because of these low rates.
Speaker 1: Is this a dangerous situation certainly for someone like myself
Speaker 1: intends to emphasize the assets cycle is ultimately driving the
Speaker 1: business cycle. Um, there's plenty of signs of a bullians really,
Speaker 1: and I think the Fed has been very restrained, just
Speaker 1: to put it charitably, in terms of the way they've
Speaker 1: spoken about, you know, the ideas of bubbles of bubble letts, etcetera.
Speaker 1: So I think you know the the example you cite
Speaker 1: on the leverage loan side. I think one could just
Speaker 1: look in terms of just some of the more orthodox measures,
Speaker 1: the most obvious being, you know, just equity p ratios,
Speaker 1: just say that, yes, there are dangerous signs there, and
Speaker 1: you know it's not obviously just as surprises, but now
Speaker 1: where we've seen it in consumer prices, I mean the
Speaker 1: danger is upon us really in a sense. So, um,
Speaker 1: you know that the whose action and I think the
Speaker 1: FED did the minimum yesterday, So I want to talk
Speaker 1: a little bit about the market reaction. We did get
Speaker 1: an immediate knee jerk increase in rates as the FED
Speaker 1: took a more hawkish till makes sense today you're getting
Speaker 1: some buying people coming in and seeing some opportunity. At
Speaker 1: what point does the international aspect of the bond market,
Speaker 1: the fact that if the US does tighten, they look
Speaker 1: better on a relative basis, their yields are higher, the
Speaker 1: dollar strengthens, people go into these bonds and yields go lower.
Speaker 1: How much without the rest of the world moving, does
Speaker 1: the balance of motion and go to the lower when
Speaker 1: it comes to bond yields even with a more hawkish FED.
Speaker 1: Well these I mean, you know, we just have to
Speaker 1: think back to Q one, where the bond market was
Speaker 1: very much in the frame and the bears were, you know,
Speaker 1: very much taking up the running and quarter two has
Speaker 1: been very very different, and the dynamic there's different because
Speaker 1: on the supply side, the Federal Reserve, you know, it's
Speaker 1: obviously been holding huge treasury balances that the Treasury has
Speaker 1: now been running down, so the net issuance, particularly the
Speaker 1: last couple of months is going to be negative. So
Speaker 1: that supply side has been very helpful for the bond market.
Speaker 1: And then on the demand side, obviously got the Federal
Speaker 1: Reserve dominance sort of taking down, you know, it's close
Speaker 1: to say, sixty percent of issuance quarter by quarter, but
Speaker 1: on top of that over the last few months, but
Speaker 1: you know, we really have got good data for March
Speaker 1: and April. Foreigners stepped up their game as well. So
Speaker 1: our foreigners do seem to be interested in US bonds
Speaker 1: and Treasury bonds in particular when you see heels above
Speaker 1: one point five percent. So previously I thought, look here
Speaker 1: the ten you can easily get to two and a
Speaker 1: half percent. You know two's tens to fifty basis points
Speaker 1: is not unusual, but I think what you're seeing in
Speaker 1: this low yield environment is that and this will restrain
Speaker 1: the bond market. But Corter two has been a special
Speaker 1: because of the issuance science. I think there's definitely a
Speaker 1: danger that when we get past this rundown of treasury
Speaker 1: cash balances, bond heels are going to start backing up
Speaker 1: in a more material way. That's really interesting basically waiting
Speaker 1: for the taper to actually begin. Just to sort of
Speaker 1: wrap this all together, Did anything change about your investing
Speaker 1: thesis after yesterday's FED meeting? Yeah, I think things did
Speaker 1: change because the FED has really been you know, ultra
Speaker 1: ultra dovish, really and you know, I still think they're dovish.
Speaker 1: I still think, you know, there's an argument that there
Speaker 1: should be finishing tapering at the time when they're starting
Speaker 1: to talk about tapering, so you know, we're still you know,
Speaker 1: dealing with an ultra dovish FED. But I think they're
Speaker 1: catching up with the market. And the key element is
Speaker 1: is the FED behind the curve or not or certainly
Speaker 1: behind the market, because you know, if they lag behind
Speaker 1: the market, then for example, in the FX arena, the
Speaker 1: dollar will tend to be weak if they catch up,
Speaker 1: and certainly if they're ahead of them pocket then the
Speaker 1: doll is strong. So you know, we're at that cusps
Speaker 1: really when we're making up on mind just exactly where
Speaker 1: the fit fits in relation to the marketplace. Ellen Russ
Speaker 1: can thank you so much, greatly, greatly appreciated this morning
Speaker 1: with Deutsche Bank there John Gollob writes two and three
Speaker 1: page notes that are massively sector dependent and data dependent,
Speaker 1: and we're thrilled that he joins us this morning in
Speaker 1: his optimism. John Gollob, I like what you say about
Speaker 1: high sales growth companies. It's a struggle. It's a it's
Speaker 1: a yin yang kind of thing there. Tell me about
Speaker 1: the substantial further progress of high sales growth companies. Well,
Speaker 1: you know, what we've seen is that the market has
Speaker 1: been a value driven market and growth is lagged. But
Speaker 1: if you look at kind of growth on steroids, these
Speaker 1: are companies with higher sales growth, not just higher earnings growth.
Speaker 1: They're really doing quite poorly and they remain expense of
Speaker 1: So think about some of these more speculative companies. We
Speaker 1: think that they're going to going to lag in the
Speaker 1: current environment. And we continue to believe that even with
Speaker 1: the FEDS saying what they did yesterday that the value
Speaker 1: cyclical trade is gonna work in the market's gonna be strong.
Speaker 1: And what's great here in radio you can't see it
Speaker 1: but galu But you know, forget about having the fancy
Speaker 1: bookcase behind you. Lisa Gollub's got Henry Kissingers Magisterial World
Speaker 1: Order behind him. That was my book of the Years
Speaker 1: million years ago, with two really pressian chapters on America.
Speaker 1: Still true today. So what's the world order going forward?
Speaker 1: If you're gonna have that tone behind your head when
Speaker 1: it comes to a potential hawk ish FED doesn't kill
Speaker 1: off some of the transformation that we've seen in equity markets,
Speaker 1: like increase in meme trading, like the increase in spac issuance. Well,
Speaker 1: let's let's put this in perspective. We know there's inflation everywhere.
Speaker 1: We had a five percent inflation prints on CPI, a
Speaker 1: six post persition of inflation prints on PPI, and the
Speaker 1: FIT was acknowledging it, and they said, okay, we may
Speaker 1: have to raise rates in two years from now. At
Speaker 1: the end of twenty three, expectations of sixty basis points
Speaker 1: and and and in a market that or economy that
Speaker 1: is on fire, if they didn't acknowledge, um, what we're
Speaker 1: all seeing, I think they would have lost credibility. So yeah,
Speaker 1: they you know, they took a little bit of our
Speaker 1: candy away. We were incrementally unhappy. We're one percent of
Speaker 1: all off of all time eyes. But I don't think
Speaker 1: that that we're really changing this. This is still zero money.
Speaker 1: And and unfortunately, I think that some of the specular
Speaker 1: trades are going to continue to work because it is
Speaker 1: still a very combinative environment. All Right, we'll go from
Speaker 1: the speculative to I guess the more stable companies here, John,
Speaker 1: When we talk about evaluations in this market, there was
Speaker 1: an argument being made last year and into this year
Speaker 1: here that a lot of the highest valuations were actually
Speaker 1: assigned to some of the highest growth companies, at least
Speaker 1: on a revenue basis. Here. Is that still the case
Speaker 1: going forward? It is? And that was actually the point
Speaker 1: of that note that that Tom was mentioning, is that
Speaker 1: the market's expensive, but it's not the average company that's
Speaker 1: that's out of whack. It's really the stuff at the
Speaker 1: very top from evaluation perspective, and a lot of these
Speaker 1: things are very speculative in nature. Um those stocks we
Speaker 1: think are going to be vulnerable, and which is probably
Speaker 1: a good thing for investors who do the fundamental work
Speaker 1: and focus on the underlying earnings and cashitlows and all
Speaker 1: that boring stuff. John John from Coventry emails and he says,
Speaker 1: did you guys stop talking and ask him what SPX
Speaker 1: is gonna do? What's your standard reports target? Out one year?
Speaker 1: We have you know, we have the highest UM target
Speaker 1: according to Bloomberg Survey at fort hundred. That's a little
Speaker 1: bit less than ten percent. That's pretty bullish. We think
Speaker 1: that earnings are gonna be about two hundred UM, which
Speaker 1: you know that that's a that's a big you know
Speaker 1: that that's a big number. But companies are beating really
Speaker 1: really strongly. Hopping at this is great. John sending more
Speaker 1: questions Lucy Jonathan. There's a question of how far we
Speaker 1: can project this into the future. Are we still bringing
Speaker 1: the returns of the future to the present or is
Speaker 1: this something that's sustainable with ten percent returns foreseeable for
Speaker 1: a number of years out for the SMP you know,
Speaker 1: I think that was one of the challenges with the
Speaker 1: FED report that you were seeing a more of a
Speaker 1: dispersion of what the FED governors were seeing because there's
Speaker 1: just so many unknowns on how this reopening is going
Speaker 1: to do. The real question is when do we get
Speaker 1: to normal, because then you would expect, you know, your
Speaker 1: typical eight percent return. I don't think we're gonna get
Speaker 1: to normal from an equity perspective until the early to
Speaker 1: mid part of three. At that point in time, the
Speaker 1: Fed's probably already moved. At that point in time, GDP
Speaker 1: is already growing at two percent, back in line with
Speaker 1: normal history. Between now and then, I think stocks continue
Speaker 1: to be on fire and value continues to win. You
Speaker 1: have been killing it. Look at twelve trailing market returns.
Speaker 1: Folks to know that John got all the credit. Sweez
Speaker 1: has just absolutely nailed it there with a bold call
Speaker 1: out to SPX. I'll triangulate and find out what that
Speaker 1: means for the dal Jones industrial average. Eric Adams joins
Speaker 1: us semoral candidate in the June primary. And this has
Speaker 1: a national I should point out really a national view
Speaker 1: as well as what we see. I was thunderstruck, Eric,
Speaker 1: and I don't know where you came in on this.
Speaker 1: But in the debate transcript, I looked at once again
Speaker 1: the fancy suit and Ties have a middle class definition
Speaker 1: of a hundred and thirty seven thousand income per year,
Speaker 1: and one of the candidates said, wait a minute, it's
Speaker 1: more like fifty four thousand a year. Explain to me
Speaker 1: if you are mayor where your middle class is define
Speaker 1: middle class in your New York City. Well, and that's
Speaker 1: a that's a moving target. As I stated during the debate,
Speaker 1: when you looked at the United Ways report of New
Speaker 1: Yorkers have a sufficiency deficit. So if you have a
Speaker 1: family of four and you're making a hundred and fifty
Speaker 1: thousand dollars a year and you're living in Park Slope,
Speaker 1: you are challenging to actually make ends meet. And there
Speaker 1: are many parts of the city where based on your income,
Speaker 1: your family, your rent, and dealing with everything from student
Speaker 1: loans to tuition. You know, it's a very difficult time
Speaker 1: for middle class New Yorkers. And we have decimated the
Speaker 1: middle class in the city and if not throughout the
Speaker 1: entire country. Part of the decimation of the middle class
Speaker 1: is their fear of crime. Certainly, we've learned at Bloomberg
Speaker 1: in the last number of weeks, crime is front and center. Uh,
Speaker 1: there's a lot of people talking. Eric Adams, I would
Speaker 1: suggest war the blue was a police officer. I want
Speaker 1: you to provide the distinction of your approach to NYPD
Speaker 1: versus the candidates who don't have your public service. And
Speaker 1: that's a great question because many of the candidates refused
Speaker 1: to talk about this real issue of crime. They wanted
Speaker 1: to look at public safety through the eyes of a
Speaker 1: bumper sticker or slogan. Unless we clear the prerequisite to
Speaker 1: prosperity is public safety and justice. We're not going to
Speaker 1: recover as a city or country if we don't get
Speaker 1: this crime under control. No one is going to come
Speaker 1: here as a tourist, a multi billion dollar industry if
Speaker 1: you have three year children shot in Times Square, no
Speaker 1: one wants to ride out subways to get back into
Speaker 1: the office spaces if you're slash or shove to the
Speaker 1: subway system on the subway tracks. And so my goal
Speaker 1: is number one, get gun violence under control. We want
Speaker 1: to put in place a plain closed anti gun unit
Speaker 1: there zero and or gun and gang violence, use out
Speaker 1: gun suppression unit to really collaborate together with our other
Speaker 1: agencies to identify who's using the guns, stopping guns from
Speaker 1: coming into our city, and then we must deal with
Speaker 1: our street homeless problem, really dealing with the mental health
Speaker 1: illnesses that we're facing. We're losing the quality of life.
Speaker 1: No one is going to stay in the city or
Speaker 1: building the city if we're viewed as a city that's
Speaker 1: not seen. Uh. Certainly so, uh, Mr Adams. Obviously a
Speaker 1: prerequisite to that prosperity is public safety. So is education here.
Speaker 1: A lot of folks want to know how what's your
Speaker 1: approach gonna be with regards to the public school systems here,
Speaker 1: with regards to staffing, and more importantly, with reguards to
Speaker 1: the prosperity of our children. Well said? Well said? Listen,
Speaker 1: let me tell you the biggest embarrassment in this city,
Speaker 1: uh is how we treat our children in education. Education
Speaker 1: is not K through twelve. That's wrong. The neurologists and
Speaker 1: pediatricians would tell you. Education is pregnancy through profession. We
Speaker 1: must make sure that every area of a vacation is
Speaker 1: handled right, everything from nutrition on when mothers are pregnant
Speaker 1: to the time that we give them the right too
Speaker 1: they need and brain development. But also are the real embarrassment.
Speaker 1: Sixty five of black and brown children never reach proficiency
Speaker 1: in the department education in the city. So one, we
Speaker 1: must return the joy of learning in our schools. We
Speaker 1: must look into internships. Externships, leaning too, vocational trainings allowed
Speaker 1: the business community, our tech and other industries to be
Speaker 1: part of the curriculum that we develop in our school systems.
Speaker 1: And then we must get technology in our schools, access
Speaker 1: to WiFi and all the twos our children need. And finally,
Speaker 1: our fundation not be based solely on what happens in
Speaker 1: a school building. We need to look at the issues
Speaker 1: around the schools as well. Is your vision centered around
Speaker 1: the public school system? Mr Adams? My business is surrounding
Speaker 1: lifted up excellence. If that needs charter schools, public school
Speaker 1: private schools, let's duplicate successful schools in our city and
Speaker 1: go across the country to do so. I got forty
Speaker 1: five seconds, Eric, How are you gonna cut costs? How
Speaker 1: are you going to manage costs in a city where
Speaker 1: costs are unmanageable? I'll city is dysfunctional as cities across
Speaker 1: America's Americas, they are number one. We're going to reign
Speaker 1: in a three to five percent of cutting all of
Speaker 1: our agencies. There's a lot of fat. We have a
Speaker 1: twenty billion dollar increase in our budget. Uh, there's just
Speaker 1: too much waste and mismanagement. And we're not going to
Speaker 1: hurt those communities that were hardest hit during COVID and
Speaker 1: even pre COVID. UH. This city is manageable. Taxpayers are
Speaker 1: doing their dollars of doing the right things by paying
Speaker 1: their taxes. It's time for us to do the right
Speaker 1: thing with government by using those dollars correctly. We're too expensive,
Speaker 1: too bureaucratic, and too difficult to do business in this city.
Speaker 1: And that's going to change day one. He is from Brooklyn.
Speaker 1: Eric Adams, thank you so much for joining us twenty
Speaker 1: seven at the mayoral effort here with that very unique voting.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
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Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg