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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Joint.

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Speaker 1: To us here in New York City, I'm ready pleased

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Speaker 1: to say Peter Hooper dropping by Deutsche Banks Securities Chief Economists.

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Speaker 1: Good morning to Peter. Good morning Jonathan, great to catch

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Speaker 1: up with you want today that global risk appetite appears

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Speaker 1: to be returning. Are you confident that this has got

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Speaker 1: some fundamental underpinnings. Well, John, I think there's several things

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Speaker 1: at work here. One is, uh, you know, the the

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Speaker 1: economy continues to tourtal along at three plus and recession

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Speaker 1: people were concerned about near term reception risk. Those are receding.

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Speaker 1: We put out a PC yesterday saying that there's a

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Speaker 1: good chance at pal FED can achieve history here by

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Speaker 1: avoiding a recession altogether. As you look into one, uh

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Speaker 1: that that view could be having a bit of effect,

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Speaker 1: And I think developments on the trade front probably overall

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Speaker 1: a bit more positive. Certainly we're avoiding. Uh, it looks

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Speaker 1: like we're avoiding a major trade war over NAFTA with Europe,

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Speaker 1: and the Trump administration is pushing hard in the one

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Speaker 1: area where there is a lot of bipartisan support because

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Speaker 1: of each China. That's too much optimism for Friday morning, right,

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Speaker 1: that's all gloom and doom Frinday. I mean, I'm waiting

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Speaker 1: to go to cash. I mean, this is way do

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Speaker 1: we allow this much optimism when we can allow it,

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Speaker 1: We can allow it on a week where we've had

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Speaker 1: that twenty five different economists talk about it downtown itxactly.

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Speaker 1: You think it's different this time that you dare not

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Speaker 1: right to in the pace that it's different this time.

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Speaker 1: Tell me why it might be different this time. Well,

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Speaker 1: we did actually put those words in the piece, uh,

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Speaker 1: somewhat sheepishly. But it is different this time because you

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Speaker 1: look at every recession we've had since the late nineteen forties,

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Speaker 1: it's been a tight labor market and the FED tightening,

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Speaker 1: but almost all of them have also been accompanied by

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Speaker 1: a major investment overhang, overbuilding and housing, overbuilding and business

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Speaker 1: equipment and structures. That's not there this time. I mean,

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Speaker 1: this is that's what usually when when the FED starts

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Speaker 1: to tighten, that's that's that kind of spending collapses and

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Speaker 1: pushes you into recession. We don't have it. It's been

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Speaker 1: a very slow gradual recovery. Housing vacancies are all all

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Speaker 1: time highs, I mean all time lows. Excuse me, housing

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Speaker 1: market quite tight. Uh. And no one says business capital

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Speaker 1: has been booming this time around. Productivity growth still near

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Speaker 1: historic lows. Uh. We we have a long ways to

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Speaker 1: go there. So I think the Fed have some some

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Speaker 1: some things going for it. So let's set up the

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Speaker 1: framework for the way you think about things. Right now.

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Speaker 1: Most of the people that come on this program look

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Speaker 1: at four percent GDP growth and they say, yeah, great,

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Speaker 1: But in we're heading for a recession potentially, you're saying

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Speaker 1: we could come short of that, we could be doing okay,

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Speaker 1: and that this time could be different. Typically, and I

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Speaker 1: can't think of one historical example of whether the Federal

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Speaker 1: Reserve is engineered a soft landing. Can you know? It

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Speaker 1: hasn't happened before, But I think they have it. They

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Speaker 1: have a chance this time. They do have to have

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Speaker 1: a slowdown. We have to have a growth go below potential.

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Speaker 1: It's got a drop below two percent, and we think

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Speaker 1: it probably will be somewhere in the one one and

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Speaker 1: a half percent range in twenty twenty. It will be

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Speaker 1: a noticeable slow but it doesn't have to be a

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Speaker 1: recession because you don't have that normal cyclical spending over

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Speaker 1: spending which drives you down in place. We interrupt now.

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Speaker 1: Jeffrey Frankel out with a great essay which I put

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Speaker 1: out on Project Syndicate on China the President in Trade.

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Speaker 1: He wrote an essay years ago I believe for M B. E. R.

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Speaker 1: Dr Hooper about defining a recession and the I can

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Speaker 1: we review. We haven't done this, John in Ages. But

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Speaker 1: you know, the cannon is a recession is two negative

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Speaker 1: GDP quarters And guys like you and Professor Frankel say, no,

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Speaker 1: it isn't. It's more subtle than that. What's a recession? Well,

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Speaker 1: a recession, you know, I'll go with a two negative

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Speaker 1: quarters in GDP. That's that's not a bad proxy. Labor.

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Speaker 1: Labor comes in here as well. You have to have

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Speaker 1: a significant increase in unemployment, a probably a fairly sharp one.

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Speaker 1: Typically labor market overshoots unemployment going well below the rout

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Speaker 1: and then zooms up in a relatively brief period. Going back,

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Speaker 1: we think this this zoom up can be a more

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Speaker 1: gradual process. We could think slow down, uh with with

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Speaker 1: a with a return to nehru over a couple of years,

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Speaker 1: can do it without going into a deep downturn and recess.

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Speaker 1: Where neighbor neighbor neighbor the non accelerating rate of unemployment,

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Speaker 1: no one else does wise it is it is. It

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Speaker 1: is exactly four point three five Now you know, it's

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Speaker 1: somewhere in the four and a quarter four and a

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Speaker 1: half percent range. The latest official number put out by

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Speaker 1: Congratual Budget Office I think was four or six. I

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Speaker 1: think you look at the f M CUM indications where

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Speaker 1: long run unemployment is longer term, it's it's four five

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Speaker 1: for four. I think probably we'll see it come down

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Speaker 1: a little bit next week to four or four. What

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Speaker 1: are the signs that we've gone through it? What are

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Speaker 1: the signs we've gone through it? Well? We are seeing

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Speaker 1: we are seeing a gradual uptrend in wage inflation. Now,

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Speaker 1: both the average hourly earnings and employment cost index, which

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Speaker 1: several years ago we're around one and a half percent,

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Speaker 1: have now gotten up close to three percent. It's been

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Speaker 1: a fairly steady march up as the labor market is tightened.

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Speaker 1: I think that's probably the best indicator. How do you

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Speaker 1: respond to yields? You wrote an important piece at Jorga

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Speaker 1: Bank earlier this summer on the yield curve. You told

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Speaker 1: everybody to calm down. But but in general, the yield

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Speaker 1: lift of the past ten days, how do you respond

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Speaker 1: to that? Uh, I'm saying, well, it's finally happening. We've

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Speaker 1: been expecting this for some time. We wouldn't be surprised

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Speaker 1: to see a ten year Ye'll get up somewhere closer

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Speaker 1: to three and a half percent by late next late

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Speaker 1: this year, early next year. Our our senses the economy

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Speaker 1: has a lot of momentum, the labor markets continuing to tighten.

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Speaker 1: Wage inflation has been rising price inflations back to where

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Speaker 1: the Fed wants it, and it's likely to overshoot a bit.

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Speaker 1: This is a recipe for the Fed to continue on

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Speaker 1: this gradual piece of right hikes. It doesn't make sense

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Speaker 1: that the tenure would would remain unchanged in this in

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Speaker 1: this environment until it looks like we're going into a slowdown,

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Speaker 1: and we don't think that will happen to the latter

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Speaker 1: part of next year. I think most people would agree

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Speaker 1: with that sentiment as well. Paid when I think what's

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Speaker 1: interesting about this week as a global risk appetite has

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Speaker 1: returned on a week where treasury yields half grinded higher.

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Speaker 1: We're sitting in Japan this morning as well. With jgbs

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Speaker 1: at the long end, you would started to drift high too.

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Speaker 1: I think we've got twenty eighteen heights in the Japanese

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Speaker 1: bond market in terms of yield. Do you think the

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Speaker 1: economy can withstand high treasury yields because so far it's

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Speaker 1: done absolutely fine. Oh, absolutely yes, I think you know. Uh.

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Speaker 1: I think the key issue here is when interest sensitive

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Speaker 1: spending globally interesting spending, the sensitive to US interest rates

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Speaker 1: globally begins to have complain I don't think it's until

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Speaker 1: the FED gets up to into the above three percent

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Speaker 1: and three and quarter three and a half percent range.

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Speaker 1: We're we're feeling some pain from emerging markets. Now, okay,

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Speaker 1: that's mostly idiosyncratic. It's it's not contagion on a big

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Speaker 1: on a big scale resulting from FED tightening. That will

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Speaker 1: probably come. I think we're expecting something probably sometime in

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Speaker 1: the second half next year. Uh, and that probably spill

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Speaker 1: over into you know this this this risk on will

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Speaker 1: become risk off and we'll see a drop in financial conditions.

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Speaker 1: And that was that's what's along with some slowing of

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Speaker 1: fiscal stimulus, that's what's going to generate this slowdown we're expecting.

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Speaker 1: In Peter is great to catch out with you some

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Speaker 1: really really thoughtful stuff from the Deutsche Bank team this

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Speaker 1: week Peter Hoop at deutche Bank Securities chief Economists. Reach

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Speaker 1: out to Peter and the team if you want to

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Speaker 1: get the research how the foul pal fed can make

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Speaker 1: history and White Tom Kane, it might be different this time.

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Speaker 1: It's a really thoughtful piece. And now we're gonna go

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Speaker 1: essentially to China because Free of Bemish of Pantheon has

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Speaker 1: real hands on living in Chinese China experience. I should

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Speaker 1: say for you, a good morning to you. What will

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Speaker 1: be the response of the I mean this party and

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Speaker 1: that's so much the people of China or President g

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Speaker 1: and the elite of China, but just the party apparatus

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Speaker 1: from see the shining Sea of China. What will there

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Speaker 1: be a response their response be to President Trump's trade war? Well,

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Speaker 1: I think at this stage we're seeing a very measured

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Speaker 1: response from the Chinese trying to kind of take the

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Speaker 1: high road, UM in that sense. And then I guess

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Speaker 1: your question really speaks to what what UM is going

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Speaker 1: to be the response of the people of of China

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Speaker 1: to the extent that one can one can generalize, and

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Speaker 1: will they accept the narrative, UM, that is coming from

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Speaker 1: the leaders on high that we're protecting you by not

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Speaker 1: escalating this trade war, by by not just responding to

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Speaker 1: Mr Trump's tweets. And I guess we can we can

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Speaker 1: hope at least that a lot of the kind of

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Speaker 1: if one wants to say, vitriol of that is coming

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Speaker 1: out of of the the U S side of this,

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Speaker 1: of this UM. So the negotiations, if we can even

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Speaker 1: call them negotiations, is UM. Maybe that starts to die

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Speaker 1: down a bit after the mid term elections. UM. Certainly

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Speaker 1: Mr Trump's most recent response, I'm not sure what the

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Speaker 1: venue was for that. It might have been more kind

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Speaker 1: of an audience type of response. I'm prepared to eat

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Speaker 1: my words on this, it will at any stage, and

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Speaker 1: then to revegitate them almost immediately afterwards if if the

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Speaker 1: story changes. But looking at the short terms, he leaves here. Um.

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Speaker 1: The what we've had this week is that we've had

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Speaker 1: a big escalation for Mr from Mr Trump at the

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Speaker 1: beginning of a week China and had a very measured

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Speaker 1: response to that. They they said five to ten percent

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Speaker 1: tariffs on on sixty billion of goods, which is kind

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Speaker 1: of a drop in the water, really in the bucket

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Speaker 1: um in the context of what's been imposed from from

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Speaker 1: Mr Trump. Mr Trump has said he's gonna he's gonna

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Speaker 1: slap the tariffs on on a further two hundred and

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Speaker 1: sixty seven billion of goods um as soon as China retaliates.

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Speaker 1: We haven't had that yet. We've had a kind of

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Speaker 1: with some some rhetoric um. But at this stage, if

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Speaker 1: he's willing to put off the twenty five percent until

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Speaker 1: January to laughter Christmas to laughter in the midtimes, because

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Speaker 1: of the to give businesses time to adjust, it doesn't

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Speaker 1: seem likely at this stage that we're going to see

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Speaker 1: him turn around and say, well, okay, well I'm going

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Speaker 1: to immediately slap on the carriers on the two hundred

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Speaker 1: and sixty seven. That's the short term answer to that,

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Speaker 1: and there's a very different longer term answer to that,

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Speaker 1: and certainly I see China and the US on a

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Speaker 1: collision course. Then well, I think the longer term outcome

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Speaker 1: warrants a much longer conversation at the time we have

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Speaker 1: this morning. I think there's plenty of things that investors

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Speaker 1: are interested in, But if I could pick two of them,

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Speaker 1: one is the trade conversation you've just laid out for us.

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Speaker 1: The second part is how China responds with policy tools

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Speaker 1: outside of trade. Are we shifting towards an easing bias?

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Speaker 1: And have we done that already? Were the signs that

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Speaker 1: you see Freyer that that's happening right now in China?

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Speaker 1: I think we are seeing that easing bias. I think

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Speaker 1: we would have seen that regardless of what was going

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Speaker 1: on in the trade wars by this stage of years.

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Speaker 1: One of the indicators that I look at most closely

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Speaker 1: is M one and M one is a great leading

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Speaker 1: indicator for China because it's such a banking um centric economy,

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Speaker 1: and there's shadow banking elements to that as well. But

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Speaker 1: the M one tends to have a good kind of

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Speaker 1: two or three quarter lead on on GDP growth, and

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Speaker 1: I'm talking for nominal GDP growth here, and that's been

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Speaker 1: showing a substantial slowdown UM since since the mid sixteen

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Speaker 1: and together that indicates that GDP growth would be slowing

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Speaker 1: into into the beginning of next year. UM, but we

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Speaker 1: are starting to see it pick up again now that

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Speaker 1: the Chinese easing response. We gotta rip up the scripture.

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Speaker 1: This is really important M one. You mean M one

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Speaker 1: in China, not M one in the United States right now.

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Speaker 1: Actually in the United States that we don't see so

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Speaker 1: much of that the money indicators being being so important.

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Speaker 1: But in China and the likes of Europe, even where

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Speaker 1: banks are more important than they are in in the

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Speaker 1: US as a kind of as financial intermediaries relatively speaking

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Speaker 1: relative to other forms of financing. M one in China

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Speaker 1: and particular, you're very good neading indicator. Freya Bemish. Thank

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Speaker 1: you so much greatly. I appreciate that. UH. This morning,

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Speaker 1: John Farren toom Kean are Bloomberg Interactive Broker Studios. We

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Speaker 1: are thrilled for the support from Interactor Brokers, and we're

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Speaker 1: also thrilled to bring you what I think, on an

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Speaker 1: almost theology basis, is the political interview of the weekend, UH.

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Speaker 1: The Gentleman from the sixth Congressional District of Pennsylvania. Ryan

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Speaker 1: Anthony Costello is in the absolute crosshairs of national gerrymandering

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Speaker 1: and also a centrist. How rare is that he joins

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Speaker 1: us now? Is he retires from Congress in a bit?

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Speaker 1: But Ryan, far more importantly is the idea that you've

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Speaker 1: had the courage to take a middle ground. You see

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Speaker 1: it in the statistics out by all the pundon's, the

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Speaker 1: Cook Report and and all that. How lonely is it

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Speaker 1: to be in the middle in Washington? There are other

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Speaker 1: members such as that. But what it does bring about,

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Speaker 1: Tom is uh, no matter what you do, you always

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Speaker 1: have about of the electorate uh ticked off at? Yeah,

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Speaker 1: sometimes it changes though. Sometimes it's the left, sometimes it's

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Speaker 1: the right, depending upon how is that changing? Right now?

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Speaker 1: What's the what's the marginal change now between a polarized

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Speaker 1: left and a polarized right? Or do we need to

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Speaker 1: wait farther to get to see that? I think it

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Speaker 1: probably uh farther to But of course the issue set uh,

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Speaker 1: you know change as I mentioned who maybe take coffee

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Speaker 1: of with. The goal obviously is always to try and

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Speaker 1: work to get to that eight twenty solution where you

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Speaker 1: can get percent of the people behind you. And I

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Speaker 1: do think where we're falling short is it on some

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Speaker 1: of these issues we can at eight twenty issues we mightn't.

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Speaker 1: We might not be getting a percent of an issue solved,

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Speaker 1: but we should be finding the areas where we you know,

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Speaker 1: get get the find where the consensus is. Do that,

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Speaker 1: and then the stuff we can't agree to, let let

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Speaker 1: that linger another day and fight for another day. A

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Speaker 1: pleasure to speak to you in terms of my Tuesday

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Speaker 1: evening reality. Early in November of two thousand sixteen, I

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Speaker 1: was standing in a living room, I believe I was

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Speaker 1: watching CNN, and there was a dawning reality that Secretary

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Speaker 1: Clinton would barely win Bucks County. I was thunderstruck and

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Speaker 1: how the president did so well in Bucks County. And

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Speaker 1: that was the first moment I realized we would have

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Speaker 1: a President Trump if that election was held today, with

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Speaker 1: the president get that close again in Bucks County, you know,

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Speaker 1: less than three thousand votes, he would not. There are

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Speaker 1: some polling I think that suggests that, uh, he's lost five,

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Speaker 1: maybe even ten points um in that county. Uh and

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Speaker 1: in that specific case, lower Bucks County, which has a

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Speaker 1: lot more I don't want to over generalize, but working

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Speaker 1: class UM voters uh saw and President Trump someone who

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Speaker 1: was going to disrupt the system, who was speaking their language. Uh,

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Speaker 1: you know, would be a trade deals or some other

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Speaker 1: um even cultural issues he felt spoke to them, they

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Speaker 1: felt spoke to them um at this point. And you're

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Speaker 1: right though, that is I think where the tipping point

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Speaker 1: for him in parts of Pennsylvania, Michigan, Wisconsin. I was

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Speaker 1: very surprised. I did not expect President Trump to win.

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Speaker 1: I thought Hillary Clinton in Bucks County or where I'm from,

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Speaker 1: Chester County, in the Philadelphia Star would have performed better

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Speaker 1: than she did. Within this Congressman, is the Tax Reform Act.

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Speaker 1: There's a couple of articles this week clearly suggesting in

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Speaker 1: the zeitgeist that it's not playing well with frontline, mainline Republicans.

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Speaker 1: It's only a product for the rich and the guilded

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Speaker 1: age that we live in. How the Republicans sell the

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Speaker 1: benefits of the new tax reform to the broad spectrum

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Speaker 1: of America, I think you have to do a couple

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Speaker 1: of things. Number One, we don't have invertens anymore. So.

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Speaker 1: The challenge here, I think you've correctly identified it is

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Speaker 1: in talking about how corporate tax reform benefits everyone. Uh,

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Speaker 1: that can get lost in the shuffle. It's an abstraction.

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Speaker 1: I think you have to point to the stock market,

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Speaker 1: you have to point to low unemployment, you have to

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Speaker 1: point to um the fact that companies aren't leaving America anymore.

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Speaker 1: That's one piece of the puzzle. The other one is

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Speaker 1: looking at the wage increased growth. We've seen in the

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Speaker 1: past year, wage increased growth of about three percent. That

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Speaker 1: significant final piece here is and this is a bigger

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Speaker 1: challenge because it hasn't happened yet. Folks have not filed obviously,

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Speaker 1: they tax research. Yet that's when you're going to see

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Speaker 1: that family, that middle and middle income class family ums

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Speaker 1: them aided. Again the generalization of a couple of thousand dollars.

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Speaker 1: We cannot rely as Republicans just on saying we pass

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Speaker 1: tax reform, the economy is going good, vote for us.

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Speaker 1: There has to be more than that. The other thing,

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Speaker 1: I would say Democrats have really doubled and tripled down

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Speaker 1: on their counter messaging on this, and that's what the

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Speaker 1: other reason why I think it has not really been

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Speaker 1: embedded as a positive in the minds of every single

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Speaker 1: Republican voter or or every single independent or Democratic congresmand Cossello,

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Speaker 1: where this is the sixth District of Pennsylvania Congressman. As

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Speaker 1: you look across the aisle, there's, you know, developing Democrat

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Speaker 1: party strategy, one of progressive, one of what someone suggests

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Speaker 1: as extreme, and like the Republicans, trying to find a

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Speaker 1: path to the middle in a distant part of Pennsylvania.

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Speaker 1: I know you've never been to Pittsburgh, but just southwest

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Speaker 1: of Pittsburgh, Mr Lamb did better than good. Is one

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Speaker 1: of your great fears for the GOP is the Democrats

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Speaker 1: find more Connor Lambs well, uh, not too far from

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Speaker 1: me Burke's County, which I represent part of right now,

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Speaker 1: and Levining County as you head towards Hershey, Pennsylvania used

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Speaker 1: to be represented by Tim Holden, another blue dog Democrat.

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Speaker 1: And what you're finding is that Democrats who are who

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Speaker 1: do culturally connect with their region remind those Democratic voters

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Speaker 1: that voted for Trump that there are Democrats out there

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Speaker 1: like them. They're just looking for those kinds of Democrats.

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Speaker 1: They're going to have the same challenge that Republicans have,

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Speaker 1: and that is you have a progressive left, which if

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Speaker 1: you pull it, um pe socialism as favorable, right, I

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Speaker 1: mean that's really I mean we're talking really left type

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Speaker 1: progressive and so they have the same ideological tensions that

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Speaker 1: Republicans have at times. Um. And so you're sort of

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Speaker 1: seeing this strange mixture in the Democratic Party where they're

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Speaker 1: gonna have their own uh sets of issues. But in

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Speaker 1: certain parts of Pennsylvania and across the country in the Midwest,

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Speaker 1: and Pittsburgh is the Midwest. Um, Philadelphia, I would say, isn't.

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Speaker 1: But in the Midwest, no, no, it's not. I mean Pittsburgh.

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Speaker 1: I mean it's interesting. Pennsylvania's kind of the dividing line

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Speaker 1: between the Midwest and western Pennsylvania and the northeast. This

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Speaker 1: it's the Steelers verse Eagles baby, um and uh. In

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Speaker 1: the Midwest, those Democrats have to be not only they

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Speaker 1: have to be and they also have to be perceived

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Speaker 1: as different Democrats than the progressive left in order to win,

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Speaker 1: just like Republicans in my neck of the woods need

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Speaker 1: to be viewed as you know, your suburban moderate centrist Republican,

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Speaker 1: not your tea party anti establishment republican that's willing to

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Speaker 1: shut the government down. A lot of voters are not

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Speaker 1: going to go for that brand of Republicanism either. So

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Speaker 1: it's it creates I think, actually, Tom the kind of

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Speaker 1: America that we have, which is gone, that's constantly you know,

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Speaker 1: the wind shift a little bit, and you have to

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Speaker 1: reflect the passions of the time. But you also have

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Speaker 1: to demonstrate thoughtfulness and a degree of independence as a

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Speaker 1: member of Congress, because I think voters ultimately a lot

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Speaker 1: of voters who aren't just going to vote straight are

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Speaker 1: or straight d are looking for that uh, that that

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Speaker 1: independent brand and that check and balance on executive branch,

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Speaker 1: on regulatory agencies, and and are trying to focus on

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Speaker 1: local issues. Did you see did you see John Farrell

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Speaker 1: how the congressman got in that slam against the Pittsburgh Steelers.

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Speaker 1: I felt for a moment like I was doing drive

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Speaker 1: time Katie K Radio, CBS Radio, Pittsburgh. I do like

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Speaker 1: to see. I like the Steelers, but I love the

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Speaker 1: Oh you just thank god you're retiring congressman, Thank you

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Speaker 1: so much. Ryan at Castello from Philadelphia might point out,

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Speaker 1: and with Kevin Surreley all Eagles an important conversation there.

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Speaker 1: Betsy Graci research piece reads dense, It is loaded with math,

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Speaker 1: It is loaded with ratios, and it always ends up

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Speaker 1: being a smart dissertation on what's going on, She joins

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Speaker 1: us this morning, Betsy, the operating incomes of these beasts

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Speaker 1: continues to grow? Is there no end in sight? Does

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Speaker 1: the operating the profit of of our major banks? Does

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Speaker 1: it just continue to advance? You know, Tom, there's uh.

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Speaker 1: This note that we wrote is all about tech and

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Speaker 1: technology and investing in tech, and it is driving operating leverage.

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Speaker 1: And that's one of the key levers for why we

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Speaker 1: do have some improvement here in operating profit of the

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Speaker 1: US banks. US banks catching a bit of a bit

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Speaker 1: over the last week, Betsy, largely off the back of

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Speaker 1: this mild sort of statening of the yield curve back

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Speaker 1: up to a massive twenty six basis points two versus tens. Betsy,

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Speaker 1: how much support can you expect from the shape of

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Speaker 1: a yield curve going forward from here? Yeah, you know,

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Speaker 1: Jonathan's um state the curve definitely is a little bit

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Speaker 1: of a help. But um, that's not the only thing

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Speaker 1: that's driving our outlaws here for the institutions. You know,

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Speaker 1: number one is the operating leverage from this investment spent

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Speaker 1: in technology. And then you know, we also have I know,

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Speaker 1: a little bit of loan growth. It's not as much

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Speaker 1: as some people want, but you have a little bit

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Speaker 1: of you know, commercial industrial growth taking up here in

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Speaker 1: the third quarter, you expect to get more volume in

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Speaker 1: terms and long growth. Bet see what's driving that, Well,

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Speaker 1: you know we're talking about small numbers, right, We're talking

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Speaker 1: about three percent going to four percent, and that is

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Speaker 1: in a large part function of commercial industrial loans which

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Speaker 1: are beginning to accelerate. That's the function of companies beginning

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Speaker 1: some cap bax, as well as a little bit of

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Speaker 1: m and a investment. Betsy. I want to talk about

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Speaker 1: your wonderful research report, a collaborative effort by Morgan Stanley

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Speaker 1: and you know, I look at this report is almost

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Speaker 1: a two thousand nineteen, as you say, a call to

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Speaker 1: arms and folks. All you need to know about technology

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Speaker 1: is the following new entrants able to provide banking services

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Speaker 1: for up to cheaper Why don't you have a picture

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Speaker 1: of Jeff Bezos on the cover. Well, he's not into

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Speaker 1: banking directly yet, right yet, so, uh depiction on the cover, though,

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Speaker 1: I think does give you know this report the you know,

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Speaker 1: the background for the report, which is essentially a strategic

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Speaker 1: imperative for bank management to invest in the technology to

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Speaker 1: get four things right. You know, one is a customer

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Speaker 1: centric view and I do want to highlight here this

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Speaker 1: is a global effort. My colleague in London, Julia Miatto,

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Speaker 1: she really drove this note. UM. Importantly, the awards strategic

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Speaker 1: agenda has to be customer centric. Few at the heart

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Speaker 1: of the bank. Fix the legacy systems, make them work

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Speaker 1: for you, not against you. UM, embrace change and get

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Speaker 1: to scale. And you know, getting to scales can be

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00:25:15,960 --> 00:25:19,560
Speaker 1: through a variety of ways. Partnering with thin Tex, partnering

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Speaker 1: with the providers, or m and A. You know, it's

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00:25:22,240 --> 00:25:24,800
Speaker 1: it's one of those things. Yeah, but Amazon always wins

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Speaker 1: at This is the idea of retail players like Amazon

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00:25:28,119 --> 00:25:31,560
Speaker 1: come in to take on Fortress Diamond and Fortress mooining

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Speaker 1: Head and the rest or is it something more tech

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00:25:34,680 --> 00:25:41,520
Speaker 1: techy Google, you know, let's write code kind of stuff. Um.

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Speaker 1: At this stage, we believe the banks are you know

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Speaker 1: that embrace change and put their customers at the heart

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Speaker 1: of their I T platforms. It's more of the techie

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Speaker 1: techy and you know, my my opinion, more of the

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Speaker 1: tech techies five than the we're gonna be taken over

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00:25:58,560 --> 00:26:02,320
Speaker 1: by Big Tex. But hey, this is an evolving discussion, right,

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Speaker 1: Who's gonna who's gonna leave the charge on? This? Is

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Speaker 1: Mr Diamond doing it? There's another bank that has best

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Speaker 1: practices on the new technology. You know we have in

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00:26:14,600 --> 00:26:18,159
Speaker 1: here global note um, a group of institutions that we

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00:26:18,280 --> 00:26:20,720
Speaker 1: think are best in classmates about twelve or fifteen of

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00:26:20,800 --> 00:26:23,760
Speaker 1: them out of the US. We're talking about Bank of

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00:26:23,760 --> 00:26:28,679
Speaker 1: America and JPM and Bank of America in the consumer

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Speaker 1: space is really leading the pack. Interesting. Interesting, Well, just

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Speaker 1: one more piece of gossip before we let you go, Betsye,

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Speaker 1: And that is the theme this week of a zeitgeist

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Speaker 1: at Bank of America is not getting it done in

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Speaker 1: investment banking, folks. For all of you that know the

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Speaker 1: investment bankers never wear bow ties. They don't know who

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Speaker 1: a C. Milan is. They're smooth guys out in the Hampton's. Yes,

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00:26:53,400 --> 00:26:56,280
Speaker 1: that's what I'm saying exactly, Betsy, give us an update

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Speaker 1: on investment banking for Mr moynihan, what's really going on there?

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Speaker 1: You know? Look, um, my opinion here is that in

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00:27:06,080 --> 00:27:09,719
Speaker 1: Bay their focus is, as you will know, Tom quality

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00:27:09,760 --> 00:27:15,040
Speaker 1: growth right, and quality growth means uh dick tier knitting.

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Speaker 1: And I view that they're investment banking business is more

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00:27:19,800 --> 00:27:26,520
Speaker 1: of a corporate centric, client centric and flow driven more

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00:27:26,680 --> 00:27:30,280
Speaker 1: of the plain vanilla. Yeah, that's called you're too young

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00:27:30,400 --> 00:27:32,720
Speaker 1: for this, Betsy, but that's called doing a chemical bank.

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Speaker 1: But the answers that's what they want to get back to, right, well,

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00:27:36,320 --> 00:27:40,000
Speaker 1: I think that's where they are. Yeah, yeah, excuse me, Betsy,

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00:27:40,240 --> 00:27:44,720
Speaker 1: very quickly, what's your single best buy right now? Topic

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00:27:44,920 --> 00:27:49,719
Speaker 1: State Streets? Okay, very good, Betsy Grace. Well please, yes,

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00:27:49,840 --> 00:27:53,840
Speaker 1: we want to know why. Okay, So look, State Street

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00:27:54,080 --> 00:27:56,159
Speaker 1: is our topic in US large cat banks, and the

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00:27:56,280 --> 00:28:00,479
Speaker 1: main reason is that they have come under some pressure

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00:28:00,480 --> 00:28:03,399
Speaker 1: of a stock recently when they announced the CRD acquisition,

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00:28:03,480 --> 00:28:07,159
Speaker 1: which is a technology play in my opinion, and I

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00:28:07,440 --> 00:28:09,800
Speaker 1: believe the market is being too punitive on that and

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00:28:10,040 --> 00:28:11,920
Speaker 1: happy to get into that more. You know, another time

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Speaker 1: if you want, no, We're gonna can't do it right now.

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Speaker 1: Betsy Gracy, thank you so much for Morgan Stanley. Congratulations

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Speaker 1: on this important research piece on technology and with banking,

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Speaker 1: of course. Betsy Grace of Morgan Stanley, thanks for listening

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Speaker 1: to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews

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00:28:35,720 --> 00:28:40,920
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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00:28:41,520 --> 00:28:44,840
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

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Speaker 1: can always catch us worldwide. I'm Bloomberg Radio