WEBVTT - Surveillance: Bright Spot Is The Consumer, Marangi Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.920 Bloomberg dot com, and of course on the Bloomberg Tyler 0:00:28.000 --> 0:00:30.160 Ricks dropping bout the studio to get us up to space. 0:00:30.200 --> 0:00:33.919 The taker white title once again, net interest income, right, 0:00:34.000 --> 0:00:36.000 I think the price action that you were talking about 0:00:36.040 --> 0:00:37.920 down about one half of one percent sort of says 0:00:37.960 --> 0:00:41.159 it all. This feels sort of exactly what we were expecting. 0:00:41.240 --> 0:00:43.160 This is all in line with all of the other banks. 0:00:43.479 --> 0:00:46.199 We knew that the net interest income was going to 0:00:46.320 --> 0:00:49.360 miss slightly. Of course this did, but not by a ton. 0:00:49.760 --> 0:00:51.919 I think the outlook will be for Bank of America 0:00:52.000 --> 0:00:54.880 what they can forecast going forward now because we know 0:00:55.040 --> 0:00:57.520 that margins and net interest income needs to come down 0:00:57.600 --> 0:00:59.760 slightly for that full year. We've got a great top 0:01:00.160 --> 0:01:01.840 blog on the bloombook term it or just sort of 0:01:01.880 --> 0:01:04.320 breaking down the numbers and the commentary as these earnings 0:01:04.400 --> 0:01:07.080 come through from Wall Street and won't take away just 0:01:07.360 --> 0:01:10.679 the consumer business taking away revenue up, netting come up, 0:01:10.760 --> 0:01:14.480 credit provision staple. It's just taking over nicely, isn't it. John. 0:01:14.560 --> 0:01:17.040 This is my theme. I think this is a healthy consumer. 0:01:17.120 --> 0:01:19.080 We heard this from City Group, we heard this from 0:01:19.160 --> 0:01:22.120 JP Morgan. I spoke with the Wells Fargo CFO last night. 0:01:22.600 --> 0:01:25.160 They're saying that they are still very very much betting 0:01:25.240 --> 0:01:27.800 on the consumer. So despite the fact that loans are 0:01:27.800 --> 0:01:30.200 growing a little bit slowly, you have some mortgages that 0:01:30.280 --> 0:01:32.959 are coming in low low, You're having the credit card 0:01:33.040 --> 0:01:35.880 business really BEI as standout performer both within the branded 0:01:35.959 --> 0:01:38.760 cards of City Group in JP Morgan, I think the 0:01:38.840 --> 0:01:41.680 consumer here is still a very very strong story and 0:01:41.840 --> 0:01:44.120 something that the banks are betting on going forward. Well, 0:01:44.160 --> 0:01:47.040 Bank of America pretty much unchanged now in the pre market. 0:01:47.120 --> 0:01:49.080 We have the good fortune of having Chris Marangue in 0:01:49.120 --> 0:01:52.760 the studio as well. CA Belly Funds Co Chief Investment Officer. Chris, 0:01:52.840 --> 0:01:57.640 good morning to you your early take. Please, You've seen 0:01:57.640 --> 0:02:00.880 a lot of commonalities between Bank America Bank in New 0:02:00.960 --> 0:02:03.800 York and the banks yesterday. That is, um the impact 0:02:03.880 --> 0:02:07.800 of a flat curve UH and then offset by cost 0:02:07.880 --> 0:02:12.800 cuts UH, investment of technology and very large capital returns. 0:02:13.000 --> 0:02:15.800 Big buy back from Bank of America slightly smaller one 0:02:15.840 --> 0:02:17.720 from Bank and you or, but pretty impressive. Nonetheless, the 0:02:17.880 --> 0:02:20.720 single line John that I saw when hearings came out, 0:02:21.360 --> 0:02:23.079 it was about two thirds of the way down the 0:02:23.360 --> 0:02:27.880 you know, the propaganda seven percent of shares in the 0:02:28.000 --> 0:02:31.320 last twelve months. That's what we call intel, Like, that's 0:02:31.320 --> 0:02:34.600 what Intel did. They invented we almost twenty or thirty 0:02:34.680 --> 0:02:38.600 years ago. The use of cash by these banks speaks 0:02:38.639 --> 0:02:41.799 of everything Ben Bernanky talked about in the heat of 0:02:41.840 --> 0:02:43.680 early two thousand and eight. Well, they've had the big 0:02:43.720 --> 0:02:47.320 green light from the record. Can we do a shout 0:02:47.360 --> 0:02:51.360 out to Charles Peabody, I mean he called this absolutely 0:02:51.480 --> 0:02:53.280 nailed this four years ago. So we've got to try 0:02:53.320 --> 0:02:56.280 to understand where the news hit. Where is the news hit, Chris, 0:02:56.400 --> 0:02:58.880 because sure then an interest income story is going to 0:02:58.960 --> 0:03:01.680 be weighing down some of these banks as the Federal 0:03:01.720 --> 0:03:03.760 Reserve cuts interest rates. That shouldn't be news for so 0:03:03.880 --> 0:03:06.679 many people. The buying back plants shouldn't be news. I 0:03:06.720 --> 0:03:09.440 think I think it's it's in the strength of the 0:03:09.480 --> 0:03:11.880 consumer franchise, the consumer business. Um. You know, again, we're 0:03:11.880 --> 0:03:14.919 seeing kind of mixed data on the economy. Industrial is 0:03:14.960 --> 0:03:17.320 rolling over, but the consumer hanging in there of good 0:03:17.360 --> 0:03:20.639 retail sales yesterday obviously, and the consumer has got to 0:03:20.680 --> 0:03:22.280 put their spending somewhere, and they're putting it on the 0:03:22.320 --> 0:03:25.760 credit card. Isn't that what's amazing about this particular regime 0:03:25.800 --> 0:03:28.320 in the markets, that the data is still good, that 0:03:28.400 --> 0:03:31.320 the earnings look okay, and the federal reserves about a 0:03:31.320 --> 0:03:33.679 cut interest rates maybe not just once, maybe twice, maybe 0:03:33.720 --> 0:03:36.400 even three times in the next twelve months. Chris, Yeah, 0:03:36.440 --> 0:03:37.880 So it makes you wonder what the FETE is seeing. 0:03:37.960 --> 0:03:39.960 And I guess the hope is that the FETE is 0:03:40.040 --> 0:03:42.320 wrong if they're seeing, you know, some really dark clouds 0:03:42.360 --> 0:03:44.520 on the horizon. Taylor, what else do you see here? 0:03:45.400 --> 0:03:47.720 I'll highlight trading revenue just because we know that we're 0:03:47.760 --> 0:03:50.040 looking at equity and fit. We do see that the 0:03:50.120 --> 0:03:53.880 trading revenue was abroad match I guess across the board, 0:03:53.880 --> 0:03:56.560 which is a good thing. Usually we've seen companies miss. 0:03:56.880 --> 0:03:59.840 The fit came in better than expected two point one 0:04:00.080 --> 0:04:02.520 versus two point oh eight billion dollars. So I like 0:04:02.640 --> 0:04:04.520 FI because you did see a big bond move at 0:04:04.560 --> 0:04:06.600 the end of the second quarter that helped them a 0:04:06.640 --> 0:04:09.040 little bit despite the low ball in the acquity market. Chris, 0:04:09.120 --> 0:04:11.240 you've been in Wall Street Observer for years. Deutsche Bank 0:04:11.280 --> 0:04:14.520 going through massive triage right now, What is your view 0:04:14.680 --> 0:04:17.880 of New York trading? As Taylor mentions Thick and the 0:04:17.960 --> 0:04:20.560 rest of it. It's not that it's a dinosaur. I 0:04:20.640 --> 0:04:23.960 know that's too inflammatory. But is there a future for 0:04:24.080 --> 0:04:28.480 these big banks to lock up capital to affect trading 0:04:29.040 --> 0:04:32.320 or does it drift away? Yeah? The outlook is not 0:04:32.440 --> 0:04:34.560 good and I mean you've seen that again, um in 0:04:34.640 --> 0:04:36.720 the earnings today for Bank of New York, which is 0:04:36.839 --> 0:04:39.520 obviously a very large custody business. Um. You know, the 0:04:39.760 --> 0:04:42.800 capital is going elsewhere. UM. You know, trading is a 0:04:42.880 --> 0:04:45.520 much less profitable business for a lot of reasons. UM. 0:04:45.720 --> 0:04:49.120 So you know, the bright spot has been certainly in 0:04:49.120 --> 0:04:53.600 the consumer and um, and it's not been in the 0:04:53.680 --> 0:04:55.960 New York trading. You own away from the too big 0:04:56.040 --> 0:04:58.400 to fail banks. American Express is a large holding, but 0:04:58.440 --> 0:05:01.560 you've got many other holdings that are removed. Is that 0:05:01.720 --> 0:05:04.120 like a sidecar banking or do you look at it 0:05:04.160 --> 0:05:07.159 almost as a separate industry from the banks. We're talking 0:05:07.160 --> 0:05:09.400 about this week that the big banks have a habit 0:05:09.440 --> 0:05:12.800 of blowing themselves up every decade or so. I don't 0:05:12.839 --> 0:05:15.000 know that. So you know, you know, one of the 0:05:15.040 --> 0:05:16.760 things that we're not talking about this morning, of course, 0:05:16.839 --> 0:05:19.760 our credit our charge offs because they've been pretty good. 0:05:20.360 --> 0:05:22.080 That's not gonna last forever. At some point that's going 0:05:22.120 --> 0:05:24.279 to turn over, and these companies, these banks are going 0:05:24.320 --> 0:05:26.440 to report losses. We try to stay away from those 0:05:26.480 --> 0:05:29.480 by owning um, you know, fee based banks like the 0:05:29.520 --> 0:05:31.440 trust banks for example. I've got to talk about the 0:05:31.480 --> 0:05:33.480 technology sector with you as well, Chris, not just the 0:05:33.520 --> 0:05:36.640 financials before we let you go. G seven finance ministers 0:05:37.080 --> 0:05:39.840 meeting today to discuss the French proposal of a digital 0:05:39.960 --> 0:05:42.960 tax in Washington, d C. More tech hearings. What are 0:05:42.960 --> 0:05:45.640 your thoughts on what's going on just from a regulatory standford, 0:05:45.800 --> 0:05:48.200 from the tax standpoint, Not to get too cosmic at 0:05:48.240 --> 0:05:50.040 this hour of the morning before drinks, but you know, 0:05:50.400 --> 0:05:53.760 I think the this is a governments around the world 0:05:53.800 --> 0:05:56.000 trying to put the genie back in the bottle. They've 0:05:56.000 --> 0:05:58.719 seen these tech companies disert to mediate a lot of companies, 0:05:59.000 --> 0:06:02.440 costing a lot of job just youate local taxing authorities 0:06:02.640 --> 0:06:05.839 and now DISERTI mediating potentially the core function of government. 0:06:05.839 --> 0:06:08.480 Which is to issue and maintain a currency. Um. So 0:06:08.520 --> 0:06:10.599 they probably gone a little bit far, and the governments 0:06:10.640 --> 0:06:13.680 are pushing back along a lot of vectors antitrust, um, 0:06:13.920 --> 0:06:18.200 privacy and obviously cryptome to these issues shape the kind 0:06:18.240 --> 0:06:20.840 of companies, shape the kind of ideas that you have 0:06:21.000 --> 0:06:23.120 on the companies that you want to own. Well, listen, 0:06:23.120 --> 0:06:25.599 I think we look at regulatory risk across a lot 0:06:25.640 --> 0:06:27.760 of different industries. Certainly in media it is the key 0:06:27.839 --> 0:06:29.720 risk always will be the key risk, you know, owning 0:06:29.800 --> 0:06:32.120 cable companies for example, and so that's that's probably true 0:06:32.160 --> 0:06:34.080 for the for the tech companies as well, and that's 0:06:34.080 --> 0:06:37.960 time we got left. Give us some ringuey gabelly media update. 0:06:38.120 --> 0:06:42.000 You've been extraordinary in long term ownership of that, particularly 0:06:42.040 --> 0:06:46.360 with the elevation of Comcast over the last decade as well. 0:06:46.680 --> 0:06:49.240 Is the enthusiasm still there? It is. I guess what 0:06:49.400 --> 0:06:50.960 the media world is changing, and the way to play 0:06:51.000 --> 0:06:54.159 it is to own the broadband pipes, and that's Comcast 0:06:54.240 --> 0:06:56.720 and Charter in the US, liberty Global outside the US. 0:06:57.120 --> 0:06:58.839 And then you've got to be selective on the content. 0:06:58.920 --> 0:07:01.040 You need the scale companies Disney, or you need the 0:07:01.120 --> 0:07:06.279 niches like sports content the Braves MSG. Will the tech 0:07:06.360 --> 0:07:09.520 companies go after those sports rights? Are they going to 0:07:09.680 --> 0:07:12.520 rip those away from the traditional vendors? So they're gonna 0:07:13.360 --> 0:07:15.080 I think they will bid for them. Whether they win 0:07:15.120 --> 0:07:17.000 them or not is another question. I think the NFL 0:07:17.040 --> 0:07:21.320 would like to maintain football on broadcast for the foreseeable feature. 0:07:21.440 --> 0:07:25.120 Chris Rank, thank you so much, appreciated. Particularly thank you 0:07:25.160 --> 0:07:27.520 to the Bank Analysis Taylor Riggs, thank you so much 0:07:28.320 --> 0:07:45.280 as well to the Bank of America. With an erneys, 0:07:45.320 --> 0:07:47.480 John Fair and I felt that we really should touch 0:07:48.240 --> 0:07:51.240 and what is truly a changing day for the United 0:07:51.320 --> 0:07:53.640 States of Europe. Maria today, it's knee deep in this. 0:07:54.280 --> 0:07:57.320 She is in Shantilly. Is that how you pronounce it? 0:07:57.640 --> 0:08:04.200 Maria Chantilly, France Shante And this is where whipped cream 0:08:04.320 --> 0:08:06.800 was invented. What's important for you to know. It's Maria's 0:08:07.280 --> 0:08:10.760 uh talking to us on her phone from from the castle. 0:08:10.960 --> 0:08:14.040 It's like this Gorgiosity castle where you think they do 0:08:14.240 --> 0:08:17.560 a you know, a fancy French film, and it's the 0:08:17.680 --> 0:08:21.920 place of the gastrom the whipped cream, where they figured 0:08:21.960 --> 0:08:25.480 out sugar and cream years ago. You were there with 0:08:25.560 --> 0:08:29.440 a French finance minister. Uh, Maria and I thought he 0:08:29.640 --> 0:08:34.719 was extraordinary about the new Europe and their pushback to 0:08:34.920 --> 0:08:41.359 technology and particularly Libra. What was his tone about Facebook's 0:08:41.440 --> 0:08:46.640 technical effort. I think Tom and very simple terms. They 0:08:46.720 --> 0:08:50.160 hate it. They hate the idea behind uh Libra. They 0:08:50.240 --> 0:08:53.079 just don't like it because they don't understand what is 0:08:53.480 --> 0:08:57.679 the endgame. They don't like the idea that Facebook to 0:08:58.480 --> 0:09:02.400 almost vibally row the Europeans are trying to prop up 0:09:02.400 --> 0:09:05.000 the euro This is an issue, and also that they 0:09:05.120 --> 0:09:08.720 take the scandals with the data and the privacy issues 0:09:08.880 --> 0:09:13.000 very seriously. So they really don't like it. John. The bitcoin, 0:09:13.600 --> 0:09:16.480 if I'm thinking French now, the bitcoin has moved forced 0:09:16.520 --> 0:09:21.160 standard deviations plus two the minus two in like six days. 0:09:22.120 --> 0:09:25.880 I mean that's the volatility of So Tom, you've identified 0:09:25.920 --> 0:09:29.120 a space, an area where there is some unity at 0:09:29.160 --> 0:09:31.640 the G seven today for finance ministers. It's the era 0:09:31.880 --> 0:09:33.960 of division that I think is going to be revealing 0:09:34.000 --> 0:09:37.439 through the day between the Treasury Secretary Stephen Manuchin and 0:09:37.559 --> 0:09:40.360 Bruno La Maire. Maria talked to me about the digital 0:09:40.480 --> 0:09:43.560 tax that the French want to implement, who it impacts, 0:09:43.880 --> 0:09:47.800 and the pushback we could get from the United States. Today. Well, 0:09:47.880 --> 0:09:49.959 the French will tell you this is a country that 0:09:50.120 --> 0:09:53.120 is a sovereign nation, and uh, they want to go 0:09:53.200 --> 0:09:55.680 ahead with this, and they have already in fact voted 0:09:55.720 --> 0:09:57.960 and favor up this and the Senate. So what happened 0:09:58.440 --> 0:10:00.760 unless there's an agreement and an we ce D level, 0:10:00.880 --> 0:10:03.439 which is frankly what the French are hoping for, But 0:10:03.559 --> 0:10:05.959 it hasn't really happened as quickly as they wanted to. 0:10:06.200 --> 0:10:08.400 They just decided to go ahead and do it alone. 0:10:08.880 --> 0:10:11.200 The Americans will do it. They think there's an almost 0:10:11.280 --> 0:10:14.200 anti American bias in many of the decisions that are 0:10:14.280 --> 0:10:17.600 taken in France, and that companies are punished just because 0:10:17.640 --> 0:10:19.800 they do well in the Europeans simply don't have that 0:10:19.920 --> 0:10:22.120 kind of technology, so that could be an issue. And 0:10:22.240 --> 0:10:25.040 also the dollar. I think that the Europeans are aware 0:10:25.120 --> 0:10:27.319 the Trump's like the weak dollar and that could have 0:10:27.400 --> 0:10:31.520 an impact on the Europe. What's a digital tax? I mean, 0:10:31.600 --> 0:10:35.520 what do we tell who's taxing what when where? Well, 0:10:35.600 --> 0:10:38.200 this is the whole point of this thing. The French said, 0:10:38.480 --> 0:10:41.280 let's just uh not being naive. We know that in 0:10:41.400 --> 0:10:45.280 Europe there's many low tax your dedctions like the Irish Republic, 0:10:45.400 --> 0:10:47.720 and we know the money that gets made in France 0:10:47.800 --> 0:10:53.439 ultimately goes UH Channeled or Ireland, so we don't like 0:10:53.600 --> 0:10:55.600 that companies and main money here will have to pay 0:10:55.679 --> 0:10:59.120 taxes in this country. It is also strange because these 0:10:59.160 --> 0:11:02.120 companies will tell you you don't really understand how we operate, 0:11:02.320 --> 0:11:04.120 and the French will tell you, well, we need to 0:11:04.240 --> 0:11:06.600 raise money. This is something that the president has said 0:11:06.640 --> 0:11:09.120 he wants to do. The French are very keen on 0:11:09.240 --> 0:11:11.880 this idea of new capitalists and mostly respondent to the 0:11:11.960 --> 0:11:15.280 Yellow vest and they want to go ahead with this. Okay, fine, 0:11:15.320 --> 0:11:18.719 but great. What's the Irish response to this? Well, this 0:11:18.960 --> 0:11:21.559 is where it gets very tricky because the Irish will 0:11:21.640 --> 0:11:25.200 tell you we don't want our situation to change because 0:11:26.080 --> 0:11:28.559 jobs are on the line and we have to speak 0:11:28.600 --> 0:11:30.880 as one voice. We don't like the fact that the 0:11:31.000 --> 0:11:33.800 French just came in and stormed the European Union with 0:11:33.880 --> 0:11:37.200 this idea and didn't actually to conscious like the Dutch 0:11:37.360 --> 0:11:39.800 the Irish and they're against it. So you can see 0:11:39.800 --> 0:11:42.680 it's so problematic to get done at an EU level. 0:11:43.200 --> 0:11:49.480 I recommend uh Maria la Capentannier like Cuisine de Vatel 0:11:49.920 --> 0:11:52.520 Chateau chant Oh, I love it when you speak French 0:11:53.800 --> 0:11:56.679 people say toma, but if but if I can just 0:11:56.720 --> 0:11:59.880 stay very quickly. Their French are actually down playing the 0:12:00.000 --> 0:12:02.760 whole lavishness here, like his Amadal Macron and one his 0:12:02.880 --> 0:12:06.079 ministers was caught up in his Scandalcauds of his very 0:12:06.160 --> 0:12:10.360 lavish The French are pulling back from that. Well, what 0:12:10.480 --> 0:12:12.840 are you telling me? They're going to McDonald's and shenti 0:12:13.679 --> 0:12:17.040 all the number two value meal. Well they'll tell you. 0:12:17.840 --> 0:12:19.839 You know, we can just call back. Wait, wait, wait, 0:12:21.600 --> 0:12:23.960 we don't have to go all out. We gotta make 0:12:24.000 --> 0:12:26.240 some news today, Maria. Have you ever have you ever 0:12:26.320 --> 0:12:32.959 been into McDonald's. I happen many times. Thank you so much, 0:12:45.840 --> 0:12:48.760 John Farewn, Tom Keane. Right now with what has become 0:12:48.880 --> 0:12:54.040 always an interesting and interview, but particularly across all of 0:12:54.080 --> 0:12:59.080 the Bloomberg world, has become exceptionally important. He is Mitchell Rochelle, 0:13:00.000 --> 0:13:02.960 and he's not selling real estate. He's an accountant at 0:13:03.040 --> 0:13:07.640 PwC where he counts the beans. Let's start with what 0:13:08.000 --> 0:13:11.520 Bloomberg eleven three oh Boston, one of six one FM 0:13:13.280 --> 0:13:18.600 in Washington care about, which is the taxes on real estate? 0:13:19.200 --> 0:13:21.079 Now we're on a number of quarters. What have we 0:13:21.240 --> 0:13:25.760 learned about the Trump tax effect on real estate for 0:13:25.880 --> 0:13:29.600 these big Democratic cities that they went after. You used 0:13:29.600 --> 0:13:32.920 to have a partner when you own real estate in 0:13:33.160 --> 0:13:35.760 one of these states, which was the federal government, because 0:13:35.920 --> 0:13:38.920 you could could you could deduct your property taxes, which 0:13:38.920 --> 0:13:42.600 are exorbitant in some of those jurisdictions. And that partner's gone. 0:13:43.280 --> 0:13:46.160 And when people are making the decision to buy versus rent, 0:13:46.600 --> 0:13:50.240 absent that partner, they're thinking rent makes it better. What 0:13:50.360 --> 0:13:53.120 have you learned in the last two quarters about what 0:13:53.360 --> 0:13:57.480 people are doing when they see those that decision tree 0:13:57.520 --> 0:14:00.160 of cash out the door. A lot of the are 0:14:00.240 --> 0:14:04.199 staying put. So if they're renting, um, they're staying in 0:14:04.280 --> 0:14:06.000 the in the place where they're renting. If they have 0:14:06.120 --> 0:14:09.079 a starter home, they're staying in the starter home UM. 0:14:09.400 --> 0:14:12.800 Or they're just picking up and moving to Florida or Texas. 0:14:13.080 --> 0:14:16.400 And and that is a force of nature we're seeing it. Mitch, 0:14:16.400 --> 0:14:18.360 would love your thoughts on the economictics we've got this 0:14:18.520 --> 0:14:20.880 morning as well. We had to drop an apartment building 0:14:21.360 --> 0:14:23.960 outweighed by a pickup in single family projects. Is that 0:14:24.080 --> 0:14:26.440 something you're seeing play out too well. But it's interesting 0:14:26.480 --> 0:14:32.400 about apartment John is that's probably overbuilt. There's clearly the shift, 0:14:32.480 --> 0:14:35.120 and I would argue that it's almost become secular. People 0:14:35.160 --> 0:14:38.120 are just saying I'm never gonna own um. So there. 0:14:38.280 --> 0:14:42.280 That's been happening for a while. Apartment developers and reads 0:14:42.360 --> 0:14:45.080 and have been building apartments and they're just pumping the 0:14:45.160 --> 0:14:48.360 brakes there because in some markets they're seeing rent reductions 0:14:48.480 --> 0:14:50.560 because they just have too much product in the market. 0:14:50.680 --> 0:14:53.080 We've seen that in New York City a little bit. 0:14:53.160 --> 0:14:57.600 New York is an island metaphorically and in reality. So 0:14:57.880 --> 0:15:00.560 it's hard to tell because there's a lot of gratification 0:15:00.600 --> 0:15:02.200 and what's going on the market. But if you look 0:15:02.280 --> 0:15:06.320 at you mentioned University of Michigan, you look at ann Arbor, 0:15:06.960 --> 0:15:09.320 rents are dropping. My son's a student there and rents 0:15:09.360 --> 0:15:12.360 have fall in. That's what he says. No, that's for 0:15:12.760 --> 0:15:17.560 I'm the guarante or in the least. No, it's not 0:15:17.640 --> 0:15:21.840 all going into his venmo on the side. When you 0:15:21.920 --> 0:15:23.440 when you look at real estate, we're gonna have you 0:15:23.520 --> 0:15:25.320 come back here. But when you look at the national 0:15:25.400 --> 0:15:28.720 picture right now, and everybody wants to know, is when 0:15:28.800 --> 0:15:33.400 the prices actually start going up with that enthusiasm, which 0:15:33.440 --> 0:15:35.400 you were we not. It ain't out there, is it. Well, 0:15:35.480 --> 0:15:37.840 what the problem is if you look at data nationally, 0:15:37.960 --> 0:15:40.280 home prices continue to go up because of the supply 0:15:40.360 --> 0:15:43.360 and demand in balance. But if you're selling your home 0:15:43.680 --> 0:15:46.200 and if it's above a maybe a six d thousand 0:15:46.200 --> 0:15:49.360 dollar price point, it certainly doesn't feel that way because 0:15:49.440 --> 0:15:51.800 there's a lot less demand above that price point. The 0:15:51.880 --> 0:15:54.720 starter home market's interesting. What's going on right now? You 0:15:54.800 --> 0:15:57.680 have baby boomers who are selling their home and downsizing 0:15:58.080 --> 0:16:00.880 and competing with the millennial generation Asian buying their first 0:16:01.040 --> 0:16:03.880 so they're actually competing. Children are competing with their parents 0:16:03.920 --> 0:16:06.840 because starter homes in Washington, starter homes in New York, 0:16:06.880 --> 0:16:09.920 starter homes in Boston, and four other Sanford, good morning, 0:16:10.000 --> 0:16:13.280 San Francisco. What's a what's the starter home? John in 0:16:13.400 --> 0:16:17.320 New York? One point five million? Right? But that's on again, 0:16:17.360 --> 0:16:20.000 this crazy island. That's the problem, isn't it. You take 0:16:20.040 --> 0:16:23.880 an hour car ride or train ride away, and the 0:16:23.960 --> 0:16:27.800 starter home can be four hundred thousand dollars and that's 0:16:27.840 --> 0:16:31.880 a conventional mortgage that's very accessible, and but that could 0:16:31.920 --> 0:16:34.680 be the same home that you know, a baby boomers 0:16:34.760 --> 0:16:37.040 moving up and trying to get a smaller home. Mitch, 0:16:37.080 --> 0:16:39.520 I'd love you thought some more monetary policy hasn't hasn't done. 0:16:39.520 --> 0:16:42.320 We've seen a load of mortgage refinancing activity as rights 0:16:42.360 --> 0:16:45.800 have dropped, blower. Have we seen any increase in purchasing now? 0:16:46.120 --> 0:16:48.600 It's interestingly enough, John, I would have thought that it 0:16:48.640 --> 0:16:51.000 would have fueled more. But the problem is, I've said 0:16:51.320 --> 0:16:54.040 probably before on this show, you can't buy a house 0:16:54.120 --> 0:16:58.000 that's not for sale. And when existing home inventory nationally 0:16:58.160 --> 0:17:01.040 is four point three months, it doesn't matter how they 0:17:01.520 --> 0:17:03.720 load the rates go, you just can't buy a house 0:17:03.760 --> 0:17:06.359 that's not Alowe, but you just said, you just said that. 0:17:06.440 --> 0:17:09.040 I contradict myself, you know, but you just said above 0:17:09.080 --> 0:17:11.280 six hundred thousand, there's a ton of houses for sale. 0:17:11.320 --> 0:17:12.760 There's a ton of house But the problem is the 0:17:12.840 --> 0:17:15.360 buyers that they don't have a bid that high. Right, 0:17:15.440 --> 0:17:19.040 So the buyers are very robust in the six hundred 0:17:19.119 --> 0:17:22.160 thousand and below and then the six thousand above, because 0:17:22.240 --> 0:17:25.280 what's happening is those are the people who are downsizing 0:17:25.400 --> 0:17:27.920 in many cases and going into that lower price point. 0:17:28.160 --> 0:17:30.480 Let's come back, Mr Show with US always fascinating with 0:17:30.560 --> 0:17:33.200 p WC and some of the real estate trends that 0:17:33.359 --> 0:17:52.080 we see nationwide. There are little jewels you can get 0:17:52.160 --> 0:17:54.879 from JP Morgan. We protect the copyright of all our guests. 0:17:55.440 --> 0:18:00.760 One m Feroli with two simple pages in one more 0:18:00.880 --> 0:18:07.440 paragraph that is absolutely brilliant on the global ramifications, the 0:18:07.520 --> 0:18:12.520 global dimensions of all this, our starred Bologna of the 0:18:12.640 --> 0:18:16.560 modern federal bank. We begin with Michael farrowle looking at 0:18:16.680 --> 0:18:21.440 martially and crosses of our current accounts and global interest rates. 0:18:21.880 --> 0:18:27.240 Michael is Jerome Powell's central banker to the world. Uh. Well, 0:18:27.320 --> 0:18:29.520 the set has always been pretty central, at least in 0:18:29.520 --> 0:18:31.879 the post war period. Uh. And he has been, of 0:18:31.960 --> 0:18:35.240 course of the past few weeks or months more sensitive 0:18:35.280 --> 0:18:37.800 to global development. So the set has always been influencing 0:18:37.920 --> 0:18:40.600 global developments, and more recently they've been taking I think 0:18:40.760 --> 0:18:43.880 larger account of what's happening abroadect. But even without global 0:18:44.000 --> 0:18:47.800 influences our start in the US, what would have come 0:18:47.840 --> 0:18:51.440 down meaningfully over the past twenty years. So we're in 0:18:51.520 --> 0:18:56.400 a disinflation lower terminal rate mode which you canonize four 0:18:56.480 --> 0:19:00.960 or five years ago. Michael, explain the global ammifications. Is 0:19:01.040 --> 0:19:05.360 it just as simple is there exporting disinflation and outright 0:19:05.480 --> 0:19:10.199 deflation to the United States. Right, So interest rates are 0:19:10.280 --> 0:19:12.879 obviously low in the US, and we often talk about 0:19:12.960 --> 0:19:17.520 economists often talk about that as reflecting slower trend growth 0:19:17.640 --> 0:19:22.560 due to demographics, productivity, etcetera. However, there's an important global 0:19:22.600 --> 0:19:26.080 dimension here, which is that the US obviously has run 0:19:26.160 --> 0:19:29.080 a large current account deficit over the past couple of decades, 0:19:29.119 --> 0:19:32.800 which means we import more financial capital, are a net 0:19:32.880 --> 0:19:36.800 importer of financial capital and all else equel that's pushing 0:19:36.880 --> 0:19:39.320 down interest rates in the US. So it's not just 0:19:39.600 --> 0:19:43.080 the saving and investment balance in the US that's influencing 0:19:43.119 --> 0:19:46.040 our interest rates, but the saving and investment balance abroad, 0:19:46.320 --> 0:19:49.920 and those factories seem like they are almost surely pushing 0:19:49.960 --> 0:19:51.760 down interest rates in the US. And Paul, you know 0:19:51.880 --> 0:19:56.560 the equation, I are equals g plus omega alpha over 0:19:56.680 --> 0:20:00.360 are my eyes are alpha over tow. I think, what's 0:20:00.359 --> 0:20:02.919 he doing with all the Greek letters in the summer, Michael, 0:20:03.040 --> 0:20:07.080 I was, I was sticking with the pictures, the graphs. So, Michael, 0:20:07.080 --> 0:20:09.679 I mean, we talk about in the globalization, the world's 0:20:09.720 --> 0:20:12.159 getting smaller, but boy, you take a look at the 0:20:12.280 --> 0:20:15.200 U s economy still relatively strong in the face of 0:20:15.440 --> 0:20:20.320 you know, just extraordinary weakness in Europe, deceleration in China. 0:20:20.880 --> 0:20:22.720 What's the great No one's really sure. How do you 0:20:22.800 --> 0:20:24.560 kind of square that circle here? How long do you 0:20:24.640 --> 0:20:28.000 expect the US to kind of remain relatively strong rest 0:20:28.359 --> 0:20:31.040 versus the rest of the world. Well, I think the 0:20:31.119 --> 0:20:34.520 strength has really to two factors. One is, most importantly 0:20:34.560 --> 0:20:37.240 has been the consumer, which we saw yesterday, continues to 0:20:37.359 --> 0:20:40.879 just power ahead right through June and probably into the 0:20:40.960 --> 0:20:44.760 rest of the summer. The second factor is that government 0:20:44.840 --> 0:20:47.760 has actually been pretty strong at all levels state, local, 0:20:47.840 --> 0:20:50.920 and federal government spending. That is so I think that 0:20:51.080 --> 0:20:54.600 has those two factors that helped inflate the US. UH. 0:20:54.960 --> 0:20:57.320 You know, we as in Greenspan famous words, we can't 0:20:57.359 --> 0:21:00.800 remain an island of prosperity forever, but we do think 0:21:00.920 --> 0:21:03.320 that we'll see some slowing in the second half, but 0:21:03.480 --> 0:21:06.080 that you know, some of these domestic factors should keep 0:21:06.160 --> 0:21:08.359 us doing all right in the second half, maybe a 0:21:08.400 --> 0:21:13.159 little a little flower than Michael. What is global autarchy 0:21:13.480 --> 0:21:17.879 or estimated at what are we talking about? Our tarchy 0:21:18.200 --> 0:21:22.960 is a a state of the world, uh, an economic 0:21:23.040 --> 0:21:25.760 concept of a country that doesn't trade with the rest 0:21:25.840 --> 0:21:28.080 of the world. So you know, country like North Korea 0:21:28.119 --> 0:21:30.680 would be considered autarchy. Okay, but it's also at the 0:21:30.760 --> 0:21:36.680 margin the country the president Trump wines in that direction. Yes, yes, 0:21:36.920 --> 0:21:41.560 in that direction, that's called at the margin, professor. To 0:21:41.680 --> 0:21:43.800 the extent we close ourselves off to trade to the 0:21:43.840 --> 0:21:45.640 rest of the world, we're also gonna close ourselves off 0:21:45.680 --> 0:21:48.119 to capital flows to the rest of the world. Just 0:21:48.160 --> 0:21:51.639 as a matter of arithmetic. Uh, that probably wouldn't be 0:21:51.760 --> 0:21:54.080 a good idea because the rest of the globe is 0:21:54.200 --> 0:21:56.680 financing a lot of our investment right now. We're not 0:21:56.760 --> 0:21:59.359 saving enough now, we couldn't move in a direction of 0:21:59.440 --> 0:22:03.160 saving more, which would involve, at least at the policy level, 0:22:03.280 --> 0:22:06.520 reducing federal deficits. But that doesn't seem to be you know, 0:22:06.560 --> 0:22:08.920 a big priority right now. So an absence of higher 0:22:09.000 --> 0:22:11.960 domestic saving, we need for and say, I think to 0:22:12.480 --> 0:22:15.600