Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Joint.
Speaker 1: To us here in New York City, I'm ready pleased
Speaker 1: to say Peter Hooper dropping by Deutsche Banks Securities Chief Economists.
Speaker 1: Good morning to Peter. Good morning Jonathan, great to catch
Speaker 1: up with you want today that global risk appetite appears
Speaker 1: to be returning. Are you confident that this has got
Speaker 1: some fundamental underpinnings. Well, John, I think there's several things
Speaker 1: at work here. One is, uh, you know, the the
Speaker 1: economy continues to tourtal along at three plus and recession
Speaker 1: people were concerned about near term reception risk. Those are receding.
Speaker 1: We put out a PC yesterday saying that there's a
Speaker 1: good chance at pal FED can achieve history here by
Speaker 1: avoiding a recession altogether. As you look into one, uh
Speaker 1: that that view could be having a bit of effect,
Speaker 1: And I think developments on the trade front probably overall
Speaker 1: a bit more positive. Certainly we're avoiding. Uh, it looks
Speaker 1: like we're avoiding a major trade war over NAFTA with Europe,
Speaker 1: and the Trump administration is pushing hard in the one
Speaker 1: area where there is a lot of bipartisan support because
Speaker 1: of each China. That's too much optimism for Friday morning, right,
Speaker 1: that's all gloom and doom Frinday. I mean, I'm waiting
Speaker 1: to go to cash. I mean, this is way do
Speaker 1: we allow this much optimism when we can allow it,
Speaker 1: We can allow it on a week where we've had
Speaker 1: that twenty five different economists talk about it downtown itxactly.
Speaker 1: You think it's different this time that you dare not
Speaker 1: right to in the pace that it's different this time.
Speaker 1: Tell me why it might be different this time. Well,
Speaker 1: we did actually put those words in the piece, uh,
Speaker 1: somewhat sheepishly. But it is different this time because you
Speaker 1: look at every recession we've had since the late nineteen forties,
Speaker 1: it's been a tight labor market and the FED tightening,
Speaker 1: but almost all of them have also been accompanied by
Speaker 1: a major investment overhang, overbuilding and housing, overbuilding and business
Speaker 1: equipment and structures. That's not there this time. I mean,
Speaker 1: this is that's what usually when when the FED starts
Speaker 1: to tighten, that's that's that kind of spending collapses and
Speaker 1: pushes you into recession. We don't have it. It's been
Speaker 1: a very slow gradual recovery. Housing vacancies are all all
Speaker 1: time highs, I mean all time lows. Excuse me, housing
Speaker 1: market quite tight. Uh. And no one says business capital
Speaker 1: has been booming this time around. Productivity growth still near
Speaker 1: historic lows. Uh. We we have a long ways to
Speaker 1: go there. So I think the Fed have some some
Speaker 1: some things going for it. So let's set up the
Speaker 1: framework for the way you think about things. Right now.
Speaker 1: Most of the people that come on this program look
Speaker 1: at four percent GDP growth and they say, yeah, great,
Speaker 1: But in we're heading for a recession potentially, you're saying
Speaker 1: we could come short of that, we could be doing okay,
Speaker 1: and that this time could be different. Typically, and I
Speaker 1: can't think of one historical example of whether the Federal
Speaker 1: Reserve is engineered a soft landing. Can you know? It
Speaker 1: hasn't happened before, But I think they have it. They
Speaker 1: have a chance this time. They do have to have
Speaker 1: a slowdown. We have to have a growth go below potential.
Speaker 1: It's got a drop below two percent, and we think
Speaker 1: it probably will be somewhere in the one one and
Speaker 1: a half percent range in twenty twenty. It will be
Speaker 1: a noticeable slow but it doesn't have to be a
Speaker 1: recession because you don't have that normal cyclical spending over
Speaker 1: spending which drives you down in place. We interrupt now.
Speaker 1: Jeffrey Frankel out with a great essay which I put
Speaker 1: out on Project Syndicate on China the President in Trade.
Speaker 1: He wrote an essay years ago I believe for M B. E. R.
Speaker 1: Dr Hooper about defining a recession and the I can
Speaker 1: we review. We haven't done this, John in Ages. But
Speaker 1: you know, the cannon is a recession is two negative
Speaker 1: GDP quarters And guys like you and Professor Frankel say, no,
Speaker 1: it isn't. It's more subtle than that. What's a recession? Well,
Speaker 1: a recession, you know, I'll go with a two negative
Speaker 1: quarters in GDP. That's that's not a bad proxy. Labor.
Speaker 1: Labor comes in here as well. You have to have
Speaker 1: a significant increase in unemployment, a probably a fairly sharp one.
Speaker 1: Typically labor market overshoots unemployment going well below the rout
Speaker 1: and then zooms up in a relatively brief period. Going back,
Speaker 1: we think this this zoom up can be a more
Speaker 1: gradual process. We could think slow down, uh with with
Speaker 1: a with a return to nehru over a couple of years,
Speaker 1: can do it without going into a deep downturn and recess.
Speaker 1: Where neighbor neighbor neighbor the non accelerating rate of unemployment,
Speaker 1: no one else does wise it is it is. It
Speaker 1: is exactly four point three five Now you know, it's
Speaker 1: somewhere in the four and a quarter four and a
Speaker 1: half percent range. The latest official number put out by
Speaker 1: Congratual Budget Office I think was four or six. I
Speaker 1: think you look at the f M CUM indications where
Speaker 1: long run unemployment is longer term, it's it's four five
Speaker 1: for four. I think probably we'll see it come down
Speaker 1: a little bit next week to four or four. What
Speaker 1: are the signs that we've gone through it? What are
Speaker 1: the signs we've gone through it? Well? We are seeing
Speaker 1: we are seeing a gradual uptrend in wage inflation. Now,
Speaker 1: both the average hourly earnings and employment cost index, which
Speaker 1: several years ago we're around one and a half percent,
Speaker 1: have now gotten up close to three percent. It's been
Speaker 1: a fairly steady march up as the labor market is tightened.
Speaker 1: I think that's probably the best indicator. How do you
Speaker 1: respond to yields? You wrote an important piece at Jorga
Speaker 1: Bank earlier this summer on the yield curve. You told
Speaker 1: everybody to calm down. But but in general, the yield
Speaker 1: lift of the past ten days, how do you respond
Speaker 1: to that? Uh, I'm saying, well, it's finally happening. We've
Speaker 1: been expecting this for some time. We wouldn't be surprised
Speaker 1: to see a ten year Ye'll get up somewhere closer
Speaker 1: to three and a half percent by late next late
Speaker 1: this year, early next year. Our our senses the economy
Speaker 1: has a lot of momentum, the labor markets continuing to tighten.
Speaker 1: Wage inflation has been rising price inflations back to where
Speaker 1: the Fed wants it, and it's likely to overshoot a bit.
Speaker 1: This is a recipe for the Fed to continue on
Speaker 1: this gradual piece of right hikes. It doesn't make sense
Speaker 1: that the tenure would would remain unchanged in this in
Speaker 1: this environment until it looks like we're going into a slowdown,
Speaker 1: and we don't think that will happen to the latter
Speaker 1: part of next year. I think most people would agree
Speaker 1: with that sentiment as well. Paid when I think what's
Speaker 1: interesting about this week as a global risk appetite has
Speaker 1: returned on a week where treasury yields half grinded higher.
Speaker 1: We're sitting in Japan this morning as well. With jgbs
Speaker 1: at the long end, you would started to drift high too.
Speaker 1: I think we've got twenty eighteen heights in the Japanese
Speaker 1: bond market in terms of yield. Do you think the
Speaker 1: economy can withstand high treasury yields because so far it's
Speaker 1: done absolutely fine. Oh, absolutely yes, I think you know. Uh.
Speaker 1: I think the key issue here is when interest sensitive
Speaker 1: spending globally interesting spending, the sensitive to US interest rates
Speaker 1: globally begins to have complain I don't think it's until
Speaker 1: the FED gets up to into the above three percent
Speaker 1: and three and quarter three and a half percent range.
Speaker 1: We're we're feeling some pain from emerging markets. Now, okay,
Speaker 1: that's mostly idiosyncratic. It's it's not contagion on a big
Speaker 1: on a big scale resulting from FED tightening. That will
Speaker 1: probably come. I think we're expecting something probably sometime in
Speaker 1: the second half next year. Uh, and that probably spill
Speaker 1: over into you know this this this risk on will
Speaker 1: become risk off and we'll see a drop in financial conditions.
Speaker 1: And that was that's what's along with some slowing of
Speaker 1: fiscal stimulus, that's what's going to generate this slowdown we're expecting.
Speaker 1: In Peter is great to catch out with you some
Speaker 1: really really thoughtful stuff from the Deutsche Bank team this
Speaker 1: week Peter Hoop at deutche Bank Securities chief Economists. Reach
Speaker 1: out to Peter and the team if you want to
Speaker 1: get the research how the foul pal fed can make
Speaker 1: history and White Tom Kane, it might be different this time.
Speaker 1: It's a really thoughtful piece. And now we're gonna go
Speaker 1: essentially to China because Free of Bemish of Pantheon has
Speaker 1: real hands on living in Chinese China experience. I should
Speaker 1: say for you, a good morning to you. What will
Speaker 1: be the response of the I mean this party and
Speaker 1: that's so much the people of China or President g
Speaker 1: and the elite of China, but just the party apparatus
Speaker 1: from see the shining Sea of China. What will there
Speaker 1: be a response their response be to President Trump's trade war? Well,
Speaker 1: I think at this stage we're seeing a very measured
Speaker 1: response from the Chinese trying to kind of take the
Speaker 1: high road, UM in that sense. And then I guess
Speaker 1: your question really speaks to what what UM is going
Speaker 1: to be the response of the people of of China
Speaker 1: to the extent that one can one can generalize, and
Speaker 1: will they accept the narrative, UM, that is coming from
Speaker 1: the leaders on high that we're protecting you by not
Speaker 1: escalating this trade war, by by not just responding to
Speaker 1: Mr Trump's tweets. And I guess we can we can
Speaker 1: hope at least that a lot of the kind of
Speaker 1: if one wants to say, vitriol of that is coming
Speaker 1: out of of the the U S side of this,
Speaker 1: of this UM. So the negotiations, if we can even
Speaker 1: call them negotiations, is UM. Maybe that starts to die
Speaker 1: down a bit after the mid term elections. UM. Certainly
Speaker 1: Mr Trump's most recent response, I'm not sure what the
Speaker 1: venue was for that. It might have been more kind
Speaker 1: of an audience type of response. I'm prepared to eat
Speaker 1: my words on this, it will at any stage, and
Speaker 1: then to revegitate them almost immediately afterwards if if the
Speaker 1: story changes. But looking at the short terms, he leaves here. Um.
Speaker 1: The what we've had this week is that we've had
Speaker 1: a big escalation for Mr from Mr Trump at the
Speaker 1: beginning of a week China and had a very measured
Speaker 1: response to that. They they said five to ten percent
Speaker 1: tariffs on on sixty billion of goods, which is kind
Speaker 1: of a drop in the water, really in the bucket
Speaker 1: um in the context of what's been imposed from from
Speaker 1: Mr Trump. Mr Trump has said he's gonna he's gonna
Speaker 1: slap the tariffs on on a further two hundred and
Speaker 1: sixty seven billion of goods um as soon as China retaliates.
Speaker 1: We haven't had that yet. We've had a kind of
Speaker 1: with some some rhetoric um. But at this stage, if
Speaker 1: he's willing to put off the twenty five percent until
Speaker 1: January to laughter Christmas to laughter in the midtimes, because
Speaker 1: of the to give businesses time to adjust, it doesn't
Speaker 1: seem likely at this stage that we're going to see
Speaker 1: him turn around and say, well, okay, well I'm going
Speaker 1: to immediately slap on the carriers on the two hundred
Speaker 1: and sixty seven. That's the short term answer to that,
Speaker 1: and there's a very different longer term answer to that,
Speaker 1: and certainly I see China and the US on a
Speaker 1: collision course. Then well, I think the longer term outcome
Speaker 1: warrants a much longer conversation at the time we have
Speaker 1: this morning. I think there's plenty of things that investors
Speaker 1: are interested in, But if I could pick two of them,
Speaker 1: one is the trade conversation you've just laid out for us.
Speaker 1: The second part is how China responds with policy tools
Speaker 1: outside of trade. Are we shifting towards an easing bias?
Speaker 1: And have we done that already? Were the signs that
Speaker 1: you see Freyer that that's happening right now in China?
Speaker 1: I think we are seeing that easing bias. I think
Speaker 1: we would have seen that regardless of what was going
Speaker 1: on in the trade wars by this stage of years.
Speaker 1: One of the indicators that I look at most closely
Speaker 1: is M one and M one is a great leading
Speaker 1: indicator for China because it's such a banking um centric economy,
Speaker 1: and there's shadow banking elements to that as well. But
Speaker 1: the M one tends to have a good kind of
Speaker 1: two or three quarter lead on on GDP growth, and
Speaker 1: I'm talking for nominal GDP growth here, and that's been
Speaker 1: showing a substantial slowdown UM since since the mid sixteen
Speaker 1: and together that indicates that GDP growth would be slowing
Speaker 1: into into the beginning of next year. UM, but we
Speaker 1: are starting to see it pick up again now that
Speaker 1: the Chinese easing response. We gotta rip up the scripture.
Speaker 1: This is really important M one. You mean M one
Speaker 1: in China, not M one in the United States right now.
Speaker 1: Actually in the United States that we don't see so
Speaker 1: much of that the money indicators being being so important.
Speaker 1: But in China and the likes of Europe, even where
Speaker 1: banks are more important than they are in in the
Speaker 1: US as a kind of as financial intermediaries relatively speaking
Speaker 1: relative to other forms of financing. M one in China
Speaker 1: and particular, you're very good neading indicator. Freya Bemish. Thank
Speaker 1: you so much greatly. I appreciate that. UH. This morning,
Speaker 1: John Farren toom Kean are Bloomberg Interactive Broker Studios. We
Speaker 1: are thrilled for the support from Interactor Brokers, and we're
Speaker 1: also thrilled to bring you what I think, on an
Speaker 1: almost theology basis, is the political interview of the weekend, UH.
Speaker 1: The Gentleman from the sixth Congressional District of Pennsylvania. Ryan
Speaker 1: Anthony Costello is in the absolute crosshairs of national gerrymandering
Speaker 1: and also a centrist. How rare is that he joins
Speaker 1: us now? Is he retires from Congress in a bit?
Speaker 1: But Ryan, far more importantly is the idea that you've
Speaker 1: had the courage to take a middle ground. You see
Speaker 1: it in the statistics out by all the pundon's, the
Speaker 1: Cook Report and and all that. How lonely is it
Speaker 1: to be in the middle in Washington? There are other
Speaker 1: members such as that. But what it does bring about,
Speaker 1: Tom is uh, no matter what you do, you always
Speaker 1: have about of the electorate uh ticked off at? Yeah,
Speaker 1: sometimes it changes though. Sometimes it's the left, sometimes it's
Speaker 1: the right, depending upon how is that changing? Right now?
Speaker 1: What's the what's the marginal change now between a polarized
Speaker 1: left and a polarized right? Or do we need to
Speaker 1: wait farther to get to see that? I think it
Speaker 1: probably uh farther to But of course the issue set uh,
Speaker 1: you know change as I mentioned who maybe take coffee
Speaker 1: of with. The goal obviously is always to try and
Speaker 1: work to get to that eight twenty solution where you
Speaker 1: can get percent of the people behind you. And I
Speaker 1: do think where we're falling short is it on some
Speaker 1: of these issues we can at eight twenty issues we mightn't.
Speaker 1: We might not be getting a percent of an issue solved,
Speaker 1: but we should be finding the areas where we you know,
Speaker 1: get get the find where the consensus is. Do that,
Speaker 1: and then the stuff we can't agree to, let let
Speaker 1: that linger another day and fight for another day. A
Speaker 1: pleasure to speak to you in terms of my Tuesday
Speaker 1: evening reality. Early in November of two thousand sixteen, I
Speaker 1: was standing in a living room, I believe I was
Speaker 1: watching CNN, and there was a dawning reality that Secretary
Speaker 1: Clinton would barely win Bucks County. I was thunderstruck and
Speaker 1: how the president did so well in Bucks County. And
Speaker 1: that was the first moment I realized we would have
Speaker 1: a President Trump if that election was held today, with
Speaker 1: the president get that close again in Bucks County, you know,
Speaker 1: less than three thousand votes, he would not. There are
Speaker 1: some polling I think that suggests that, uh, he's lost five,
Speaker 1: maybe even ten points um in that county. Uh and
Speaker 1: in that specific case, lower Bucks County, which has a
Speaker 1: lot more I don't want to over generalize, but working
Speaker 1: class UM voters uh saw and President Trump someone who
Speaker 1: was going to disrupt the system, who was speaking their language. Uh,
Speaker 1: you know, would be a trade deals or some other
Speaker 1: um even cultural issues he felt spoke to them, they
Speaker 1: felt spoke to them um at this point. And you're
Speaker 1: right though, that is I think where the tipping point
Speaker 1: for him in parts of Pennsylvania, Michigan, Wisconsin. I was
Speaker 1: very surprised. I did not expect President Trump to win.
Speaker 1: I thought Hillary Clinton in Bucks County or where I'm from,
Speaker 1: Chester County, in the Philadelphia Star would have performed better
Speaker 1: than she did. Within this Congressman, is the Tax Reform Act.
Speaker 1: There's a couple of articles this week clearly suggesting in
Speaker 1: the zeitgeist that it's not playing well with frontline, mainline Republicans.
Speaker 1: It's only a product for the rich and the guilded
Speaker 1: age that we live in. How the Republicans sell the
Speaker 1: benefits of the new tax reform to the broad spectrum
Speaker 1: of America, I think you have to do a couple
Speaker 1: of things. Number One, we don't have invertens anymore. So.
Speaker 1: The challenge here, I think you've correctly identified it is
Speaker 1: in talking about how corporate tax reform benefits everyone. Uh,
Speaker 1: that can get lost in the shuffle. It's an abstraction.
Speaker 1: I think you have to point to the stock market,
Speaker 1: you have to point to low unemployment, you have to
Speaker 1: point to um the fact that companies aren't leaving America anymore.
Speaker 1: That's one piece of the puzzle. The other one is
Speaker 1: looking at the wage increased growth. We've seen in the
Speaker 1: past year, wage increased growth of about three percent. That
Speaker 1: significant final piece here is and this is a bigger
Speaker 1: challenge because it hasn't happened yet. Folks have not filed obviously,
Speaker 1: they tax research. Yet that's when you're going to see
Speaker 1: that family, that middle and middle income class family ums
Speaker 1: them aided. Again the generalization of a couple of thousand dollars.
Speaker 1: We cannot rely as Republicans just on saying we pass
Speaker 1: tax reform, the economy is going good, vote for us.
Speaker 1: There has to be more than that. The other thing,
Speaker 1: I would say Democrats have really doubled and tripled down
Speaker 1: on their counter messaging on this, and that's what the
Speaker 1: other reason why I think it has not really been
Speaker 1: embedded as a positive in the minds of every single
Speaker 1: Republican voter or or every single independent or Democratic congresmand Cossello,
Speaker 1: where this is the sixth District of Pennsylvania Congressman. As
Speaker 1: you look across the aisle, there's, you know, developing Democrat
Speaker 1: party strategy, one of progressive, one of what someone suggests
Speaker 1: as extreme, and like the Republicans, trying to find a
Speaker 1: path to the middle in a distant part of Pennsylvania.
Speaker 1: I know you've never been to Pittsburgh, but just southwest
Speaker 1: of Pittsburgh, Mr Lamb did better than good. Is one
Speaker 1: of your great fears for the GOP is the Democrats
Speaker 1: find more Connor Lambs well, uh, not too far from
Speaker 1: me Burke's County, which I represent part of right now,
Speaker 1: and Levining County as you head towards Hershey, Pennsylvania used
Speaker 1: to be represented by Tim Holden, another blue dog Democrat.
Speaker 1: And what you're finding is that Democrats who are who
Speaker 1: do culturally connect with their region remind those Democratic voters
Speaker 1: that voted for Trump that there are Democrats out there
Speaker 1: like them. They're just looking for those kinds of Democrats.
Speaker 1: They're going to have the same challenge that Republicans have,
Speaker 1: and that is you have a progressive left, which if
Speaker 1: you pull it, um pe socialism as favorable, right, I
Speaker 1: mean that's really I mean we're talking really left type
Speaker 1: progressive and so they have the same ideological tensions that
Speaker 1: Republicans have at times. Um. And so you're sort of
Speaker 1: seeing this strange mixture in the Democratic Party where they're
Speaker 1: gonna have their own uh sets of issues. But in
Speaker 1: certain parts of Pennsylvania and across the country in the Midwest,
Speaker 1: and Pittsburgh is the Midwest. Um, Philadelphia, I would say, isn't.
Speaker 1: But in the Midwest, no, no, it's not. I mean Pittsburgh.
Speaker 1: I mean it's interesting. Pennsylvania's kind of the dividing line
Speaker 1: between the Midwest and western Pennsylvania and the northeast. This
Speaker 1: it's the Steelers verse Eagles baby, um and uh. In
Speaker 1: the Midwest, those Democrats have to be not only they
Speaker 1: have to be and they also have to be perceived
Speaker 1: as different Democrats than the progressive left in order to win,
Speaker 1: just like Republicans in my neck of the woods need
Speaker 1: to be viewed as you know, your suburban moderate centrist Republican,
Speaker 1: not your tea party anti establishment republican that's willing to
Speaker 1: shut the government down. A lot of voters are not
Speaker 1: going to go for that brand of Republicanism either. So
Speaker 1: it's it creates I think, actually, Tom the kind of
Speaker 1: America that we have, which is gone, that's constantly you know,
Speaker 1: the wind shift a little bit, and you have to
Speaker 1: reflect the passions of the time. But you also have
Speaker 1: to demonstrate thoughtfulness and a degree of independence as a
Speaker 1: member of Congress, because I think voters ultimately a lot
Speaker 1: of voters who aren't just going to vote straight are
Speaker 1: or straight d are looking for that uh, that that
Speaker 1: independent brand and that check and balance on executive branch,
Speaker 1: on regulatory agencies, and and are trying to focus on
Speaker 1: local issues. Did you see did you see John Farrell
Speaker 1: how the congressman got in that slam against the Pittsburgh Steelers.
Speaker 1: I felt for a moment like I was doing drive
Speaker 1: time Katie K Radio, CBS Radio, Pittsburgh. I do like
Speaker 1: to see. I like the Steelers, but I love the
Speaker 1: Oh you just thank god you're retiring congressman, Thank you
Speaker 1: so much. Ryan at Castello from Philadelphia might point out,
Speaker 1: and with Kevin Surreley all Eagles an important conversation there.
Speaker 1: Betsy Graci research piece reads dense, It is loaded with math,
Speaker 1: It is loaded with ratios, and it always ends up
Speaker 1: being a smart dissertation on what's going on, She joins
Speaker 1: us this morning, Betsy, the operating incomes of these beasts
Speaker 1: continues to grow? Is there no end in sight? Does
Speaker 1: the operating the profit of of our major banks? Does
Speaker 1: it just continue to advance? You know, Tom, there's uh.
Speaker 1: This note that we wrote is all about tech and
Speaker 1: technology and investing in tech, and it is driving operating leverage.
Speaker 1: And that's one of the key levers for why we
Speaker 1: do have some improvement here in operating profit of the
Speaker 1: US banks. US banks catching a bit of a bit
Speaker 1: over the last week, Betsy, largely off the back of
Speaker 1: this mild sort of statening of the yield curve back
Speaker 1: up to a massive twenty six basis points two versus tens. Betsy,
Speaker 1: how much support can you expect from the shape of
Speaker 1: a yield curve going forward from here? Yeah, you know,
Speaker 1: Jonathan's um state the curve definitely is a little bit
Speaker 1: of a help. But um, that's not the only thing
Speaker 1: that's driving our outlaws here for the institutions. You know,
Speaker 1: number one is the operating leverage from this investment spent
Speaker 1: in technology. And then you know, we also have I know,
Speaker 1: a little bit of loan growth. It's not as much
Speaker 1: as some people want, but you have a little bit
Speaker 1: of you know, commercial industrial growth taking up here in
Speaker 1: the third quarter, you expect to get more volume in
Speaker 1: terms and long growth. Bet see what's driving that, Well,
Speaker 1: you know we're talking about small numbers, right, We're talking
Speaker 1: about three percent going to four percent, and that is
Speaker 1: in a large part function of commercial industrial loans which
Speaker 1: are beginning to accelerate. That's the function of companies beginning
Speaker 1: some cap bax, as well as a little bit of
Speaker 1: m and a investment. Betsy. I want to talk about
Speaker 1: your wonderful research report, a collaborative effort by Morgan Stanley
Speaker 1: and you know, I look at this report is almost
Speaker 1: a two thousand nineteen, as you say, a call to
Speaker 1: arms and folks. All you need to know about technology
Speaker 1: is the following new entrants able to provide banking services
Speaker 1: for up to cheaper Why don't you have a picture
Speaker 1: of Jeff Bezos on the cover. Well, he's not into
Speaker 1: banking directly yet, right yet, so, uh depiction on the cover, though,
Speaker 1: I think does give you know this report the you know,
Speaker 1: the background for the report, which is essentially a strategic
Speaker 1: imperative for bank management to invest in the technology to
Speaker 1: get four things right. You know, one is a customer
Speaker 1: centric view and I do want to highlight here this
Speaker 1: is a global effort. My colleague in London, Julia Miatto,
Speaker 1: she really drove this note. UM. Importantly, the awards strategic
Speaker 1: agenda has to be customer centric. Few at the heart
Speaker 1: of the bank. Fix the legacy systems, make them work
Speaker 1: for you, not against you. UM, embrace change and get
Speaker 1: to scale. And you know, getting to scales can be
Speaker 1: through a variety of ways. Partnering with thin Tex, partnering
Speaker 1: with the providers, or m and A. You know, it's
Speaker 1: it's one of those things. Yeah, but Amazon always wins
Speaker 1: at This is the idea of retail players like Amazon
Speaker 1: come in to take on Fortress Diamond and Fortress mooining
Speaker 1: Head and the rest or is it something more tech
Speaker 1: techy Google, you know, let's write code kind of stuff. Um.
Speaker 1: At this stage, we believe the banks are you know
Speaker 1: that embrace change and put their customers at the heart
Speaker 1: of their I T platforms. It's more of the techie
Speaker 1: techy and you know, my my opinion, more of the
Speaker 1: tech techies five than the we're gonna be taken over
Speaker 1: by Big Tex. But hey, this is an evolving discussion, right,
Speaker 1: Who's gonna who's gonna leave the charge on? This? Is
Speaker 1: Mr Diamond doing it? There's another bank that has best
Speaker 1: practices on the new technology. You know we have in
Speaker 1: here global note um, a group of institutions that we
Speaker 1: think are best in classmates about twelve or fifteen of
Speaker 1: them out of the US. We're talking about Bank of
Speaker 1: America and JPM and Bank of America in the consumer
Speaker 1: space is really leading the pack. Interesting. Interesting, Well, just
Speaker 1: one more piece of gossip before we let you go, Betsye,
Speaker 1: And that is the theme this week of a zeitgeist
Speaker 1: at Bank of America is not getting it done in
Speaker 1: investment banking, folks. For all of you that know the
Speaker 1: investment bankers never wear bow ties. They don't know who
Speaker 1: a C. Milan is. They're smooth guys out in the Hampton's. Yes,
Speaker 1: that's what I'm saying exactly, Betsy, give us an update
Speaker 1: on investment banking for Mr moynihan, what's really going on there?
Speaker 1: You know? Look, um, my opinion here is that in
Speaker 1: Bay their focus is, as you will know, Tom quality
Speaker 1: growth right, and quality growth means uh dick tier knitting.
Speaker 1: And I view that they're investment banking business is more
Speaker 1: of a corporate centric, client centric and flow driven more
Speaker 1: of the plain vanilla. Yeah, that's called you're too young
Speaker 1: for this, Betsy, but that's called doing a chemical bank.
Speaker 1: But the answers that's what they want to get back to, right, well,
Speaker 1: I think that's where they are. Yeah, yeah, excuse me, Betsy,
Speaker 1: very quickly, what's your single best buy right now? Topic
Speaker 1: State Streets? Okay, very good, Betsy Grace. Well please, yes,
Speaker 1: we want to know why. Okay, So look, State Street
Speaker 1: is our topic in US large cat banks, and the
Speaker 1: main reason is that they have come under some pressure
Speaker 1: of a stock recently when they announced the CRD acquisition,
Speaker 1: which is a technology play in my opinion, and I
Speaker 1: believe the market is being too punitive on that and
Speaker 1: happy to get into that more. You know, another time
Speaker 1: if you want, no, We're gonna can't do it right now.
Speaker 1: Betsy Gracy, thank you so much for Morgan Stanley. Congratulations
Speaker 1: on this important research piece on technology and with banking,
Speaker 1: of course. Betsy Grace of Morgan Stanley, thanks for listening
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