Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: tend to politics. Now that debates in Nevada really was
Speaker 1: fine night in Las Vegas. Mike Bloomberg owns more wealth
Speaker 1: from the bottom a hundred and twenty five million Americans,
Speaker 1: A billionaire who calls women fat broads and horse faced lesbians.
Speaker 1: He has not managed his city very very well when
Speaker 1: he was there one candidate who wants to burn this
Speaker 1: party down and another candidate who wants to buy this
Speaker 1: party out. The campaign memo from mayor. Bloomberg said this
Speaker 1: morning that the only way that we get a nominee
Speaker 1: is if we step aside for him. I'm a New Yorker.
Speaker 1: I know how to take on an arrogant khan Man
Speaker 1: like Donald Trump that comes from New York. Jointing US
Speaker 1: now Terry Hynes Pangaea Policy Advisory found at Terry, we
Speaker 1: got to talk about the founder majority Andre of Bloomberg AMPE,
Speaker 1: the parent company of Bloomberg News. Mr Michael Bloomberg, how
Speaker 1: tough was that night for him? Terry? I think it
Speaker 1: was very tough for him, John, and I think the
Speaker 1: bottom line effect is that the Democratic race is likely
Speaker 1: more modeled and not clarified after Nevada South Carolina Super Tuesday.
Speaker 1: Remember the Bloomberg case. According to a staff memo found
Speaker 1: a couple of days ago, is that Sanders is the
Speaker 1: likely nominee unless Biden, Clobachar, and Buddhajo would drop out
Speaker 1: after Super Super Tuesday. Make it Sanders versus Bloomberg after
Speaker 1: that performance, that's much less likely to happen. Uh. By anyway,
Speaker 1: I'll stop there, no, Terry, I'm wondering whether Michael Bloomberg's
Speaker 1: entrance actually ended up how bang Bernie Sanders by taking
Speaker 1: some of the heat off him at Lisa. That's an
Speaker 1: awfully good question, and I think the short answer is
Speaker 1: I think it did. Uh combination of two things. One
Speaker 1: is it does take heat off of him. And secondly,
Speaker 1: you have people that I referred to and this morning
Speaker 1: is second tier candidates. I mean no disrespect. Uh Warren, Clovachar,
Speaker 1: budda Judge all tore each other up in order to
Speaker 1: get a run up the ladder and stay alive. And
Speaker 1: the combination of that with the deflation of Bloomberg, I
Speaker 1: think really helped Sanders. Yes, Terry, good morning. This is
Speaker 1: the third tier radio guy talking right now. Terry, and
Speaker 1: you and I have been you know, seen this before,
Speaker 1: the niceties of Kennedy nixt and you and I don't
Speaker 1: go back to Lincoln Douglas. But I guess that was fiery.
Speaker 1: Is well, something changed last night? What was it? I
Speaker 1: think what changed is that you have candidates to that.
Speaker 1: I mean, the market perception, I think in the general
Speaker 1: perception and political perception was that this race was going
Speaker 1: to get clarified and candidates were going to drop out.
Speaker 1: And I think what changed last night is that that
Speaker 1: is much less likely to happen. As I just mentioned.
Speaker 1: The other thing that changed, I think is that, uh,
Speaker 1: the other candidates were supposed to get the memo that
Speaker 1: the race was supposed to come down to a two
Speaker 1: person battle between Sanders and Bloomberg, and they didn't get
Speaker 1: that memo. Instead, quite the opposite, Terry. Everything you've said
Speaker 1: just opens the door to Senator Sanders running away with
Speaker 1: this and a question I'm going to ask now is
Speaker 1: what many people are thinking on Wall Street at the moment.
Speaker 1: When does this start to bleed into financial markets, Terry,
Speaker 1: When do we start to see that connection established with
Speaker 1: Senator Sanders and perhaps being the risk off candidate for
Speaker 1: off the people on the street. I think that takes
Speaker 1: a while, actually, John, the you know for a couple
Speaker 1: of reasons. One is that I think uh, markets and
Speaker 1: the general public both are slow to catch up to
Speaker 1: this um is that you know. Firstly, is that what
Speaker 1: happens is Super Tuesday, UH doesn't clarify as much as
Speaker 1: it's supposed to because the delegates are proportional. Uh, so
Speaker 1: you know, it's not a winner take all situations. Secondly,
Speaker 1: the Super Tuesday states generally split between Sandra states like
Speaker 1: California and other ones, mostly in the South, where what
Speaker 1: I would call non Bernies do a lot better, places
Speaker 1: like Texas, Virginia, North Carolina. So it's gonna be quite
Speaker 1: a while before that clarifies. And uh, you know, once
Speaker 1: if it clarifies in Sanders direction, I think I think frankly,
Speaker 1: that goes market positive because then it looks like Trump's
Speaker 1: likelier to win. But the longer this models, I think
Speaker 1: the longer, it's a market negative on balanced Tera Haynes,
Speaker 1: thank you so much. Appreciated this morning with pangea. Right now,
Speaker 1: we are thrilled to bring you a gentleman that some
Speaker 1: would say invented this ages ago, before Obama, before William
Speaker 1: Jefferson Clinton. There was a doctor from New York who
Speaker 1: was up in Vermont skiing and sugar bu and he said,
Speaker 1: I think I had to reinvent presidential politics. Hard Dean
Speaker 1: went on to reinvent the Iowa Caucus, and then he
Speaker 1: went on for leadership within his Democratic Party. Howard, we
Speaker 1: just got from Terry Haines sort of a grizzled, you know, strategy.
Speaker 1: Look from Washington, what did last night mean for the
Speaker 1: fabric of the Democratic Party, for the operatives, for the
Speaker 1: people in the States. People that have been Democratic, the
Speaker 1: thick and thin, they haven't changed parties, They've always been Democratic.
Speaker 1: You mentioned the moderate Democrats. What did all this fireworks
Speaker 1: mean for them last night? Well, first of all, thank
Speaker 1: you for the overinflated resident a. Secondly, uh, in all
Speaker 1: due respect to all the analysts, people from Washington usually
Speaker 1: had the last out here. What's gonna happen? So let
Speaker 1: me tell you what I think is gonna happen, which
Speaker 1: is very different. Uh, It's quite possible, although maybe won't happen,
Speaker 1: that all six of these candidates will go to Super Tuesday.
Speaker 1: That depends mostly on the finishes of Elizabeth Lawrence and
Speaker 1: Joe Bid if they finished decently in Nevada. Uh, in
Speaker 1: South Carolina, they're all going to Super Tuesday. Now, when
Speaker 1: you get to Super Tuesday, we have a rule that
Speaker 1: says if you don't get fiftent of the vote, you
Speaker 1: get zero delegate. That is gonna win out people out significantly. Uh.
Speaker 1: People are saying that Bernie's the front runner. I think
Speaker 1: that's the or buddhas Judge is the front runner. I
Speaker 1: think that's the mistake. After two states, they are mostly white,
Speaker 1: don't look anything like the Democratic Party. So, um, I'm
Speaker 1: guessing we're gonna have a shake out. But I'm guessing
Speaker 1: all six of these they're all six of these candidates
Speaker 1: could go on and win the nominations. As we saw
Speaker 1: last night. I thought it was a fantastic debate. What
Speaker 1: makes you think from the debate last night that all
Speaker 1: six could go on and win this Howard, because they're
Speaker 1: all attractive, they all did well, they're all smart and
Speaker 1: they all have their own different lanes. Okay, Well, let's
Speaker 1: talk about Matt Bloomberg. Because most people said he didn't
Speaker 1: have a good night. What did you say that suggests
Speaker 1: that he could go on and tite the nomination because
Speaker 1: he has so much money, he's all over the place,
Speaker 1: he's on the air. Um. Yes, he didn't have as
Speaker 1: good night as some of the others. This is the
Speaker 1: first debate. Everybody else has already doing in five or
Speaker 1: six of them. Um, So I don't think that's going
Speaker 1: to harm him greatly. He had to up his game,
Speaker 1: he knows that. But he's the one person up there
Speaker 1: who could come on as a novice and continue to
Speaker 1: do just fine. My guess is he may meet the
Speaker 1: percent thresholds in a number of states on Super Tuesday,
Speaker 1: and maybe even South Carolina. Howard, what do you think
Speaker 1: of Pete his criticism of Bernie Sanders and his followers
Speaker 1: and saying that he has to take responsibility for some
Speaker 1: of the vitriol that is being thrown by the people
Speaker 1: who are commonly known as Bernie prose I. Actually it
Speaker 1: helped two people. One was Pete Buddhi and the other
Speaker 1: was Bernie standards, that is an issue. There is a
Speaker 1: lot of resentment about that. I don't think that's anything
Speaker 1: close to the majority of Bernie Sanders, but that is
Speaker 1: going to be an issue in the campaign. Bernie now
Speaker 1: knows that, and he's gonna have to do something that
Speaker 1: I think he will poward one more question and get
Speaker 1: you off in your busy morning. I'm sure in democratic politics,
Speaker 1: if you put Hubert Humphrey up there last night, Scoop Jackson, frankly,
Speaker 1: if you put Hillary Clinton up there last night, where
Speaker 1: do they fit in right to left? Would they be
Speaker 1: the most right candidate up there? I mean that how
Speaker 1: far your party shifted? I think our party shifting to
Speaker 1: the center? I think, come on, I didn't hear that
Speaker 1: last night. Dr Dean, Well, you may you may not have,
Speaker 1: but I'll tell you what's on the ground. Five five
Speaker 1: congress people that we elected are significantly to the leftist center. Agreed,
Speaker 1: But Oklahoma, the voters are moving to the sound Howard.
Speaker 1: I totally take your point. I didn't see that in
Speaker 1: John Farrell's Las Vegas last night. I thought Budd was
Speaker 1: clearly centers. Uh, Colob Charwood centers Bloomberg wasn't able to
Speaker 1: get his message out, but I would guess that he
Speaker 1: was center to center right, probably the most conservative guy
Speaker 1: on the stage, although Amy might have been conservative person
Speaker 1: on the stage. Okay, Howard Dean, thank you. I think
Speaker 1: we have to leave it there just because of the time,
Speaker 1: but Dr Dean, thank you so much. Former how did
Speaker 1: the Democratic National Committee? Right now, we're looking at the
Speaker 1: Trade shares ahead of the market up twenty four percent,
Speaker 1: Morgan Stanley shares somewhat lower. This comes after Morgan Stanley
Speaker 1: so that it is buying e Trade in a thirteen
Speaker 1: billion dollar deal more than premium over where the shares
Speaker 1: price closed yesterday. Sationally Boss who covers all things financial
Speaker 1: here for us in Bloomberg Television and Bloomberg News, joining
Speaker 1: us in interactive broker studios. And there really is a
Speaker 1: question what is Morgan Stanley getting with this deal given
Speaker 1: where the valuation istionally Morgan Stanley for the masses. Lisa,
Speaker 1: So you have a bank here that used to mostly
Speaker 1: serve wealthy individual and they want to go way downstream.
Speaker 1: They want to serve thirteen million customers and they want
Speaker 1: to create a full scale bank, a full scale digital bank,
Speaker 1: and which they have checking and savings accounts for millions
Speaker 1: of people. All right, so back up. The idea here
Speaker 1: being that e trade caters to retail clients, not necessarily
Speaker 1: the millionaires and billionaires, and that bringing them in through
Speaker 1: their brokerage accounts will also generate more deposits and more
Speaker 1: wealth management and just that whole cross selling kind of
Speaker 1: chain of revenues. Correct, Yes, yes, and yes. So something interesting.
Speaker 1: Remember Morgan Stanley. If you googled it in the past,
Speaker 1: people would ask is Morgan Stanley and JP more even
Speaker 1: the same thing. Most people don't relate to Morgan Stanley
Speaker 1: because it's an investment bank, it's a wealth manager for
Speaker 1: wealthier people. But now they're saying they want everyone to
Speaker 1: know what Morgan Stanley is. Will this do it? I mean?
Speaker 1: Is it worth it? Analysts saying that this deal seems
Speaker 1: like it could be really lucrative for Morgan Stanley. Listen, Initially,
Speaker 1: the stock is not doing well. Investors on the front
Speaker 1: end are have their concerns. Why did those concerns exist?
Speaker 1: For more financial reasons? More likely, what does this mean
Speaker 1: for buybacks and capital return to shareholders? Strategically, it makes
Speaker 1: a lot of sense. Why is that James Gorman, former
Speaker 1: mckensey consultant, took over Morgan Stanley, made them one of
Speaker 1: the biggest managers in America, pushed up those margins and
Speaker 1: now is making that even bigger. He's been successful the
Speaker 1: first time around. We're getting to get in some of
Speaker 1: the numbers here. And Allison Williams was really clear about
Speaker 1: the overpaying here and what's fascinating here, and I like
Speaker 1: the equivalent of JP Morgan in their charge card business.
Speaker 1: Revenues are so dear and difficult in the business that
Speaker 1: everybody's extending out the x X axis the timeline, and
Speaker 1: they're making very clear the break even period on doing
Speaker 1: the trade is much longer than expected. If you heard
Speaker 1: from your sources, how long is long yet two to
Speaker 1: three years? Well, I would say that short. Financially, it
Speaker 1: makes sense for them to do this big strategic thing
Speaker 1: about becoming America's bank. Right to build a full scale,
Speaker 1: full service digital bank will take many years. So think
Speaker 1: about how long it took Gorman for for his first
Speaker 1: I want to go into your expertise then on Goldman
Speaker 1: saction were just at the investor day as well. At
Speaker 1: Lisa brilliantly brings up that this is the retailizing of
Speaker 1: Morgan Stanley. Okay, great? Is this essentially they're trying to
Speaker 1: get out front of Goldman Sack? Did they did they
Speaker 1: acquire a trade so somebody else wouldn't be able to
Speaker 1: buy it? This is a huge way to stay competitive, Tom, Yes, Right,
Speaker 1: Goldman sacs for for Gorman this morning to say that
Speaker 1: they are building a full scale digital bank. That is
Speaker 1: something that Goldman had said before. So how do they
Speaker 1: compete now in their own plan? Right? And we are
Speaker 1: seeing the Goldman Goldman Sacks shares down half percent in
Speaker 1: pre market trade. Waiting, but it's you're gonna be spoking
Speaker 1: with James Gorman, correct, with James James Gorman and Morgan
Speaker 1: Stanley later today. What is sort of the main question
Speaker 1: that you're hoping to get from him? Well, one thing
Speaker 1: I want to know about him is does this extent
Speaker 1: his tenure as CEO of the company. So we've been
Speaker 1: already looking at Morgan Stanley succession plan for some time. Also,
Speaker 1: remember Morgan Stanley is still the number one, two, or
Speaker 1: three investment bank every year depending on how you look
Speaker 1: at it, huge equity underwriter. Are the wealth managers now
Speaker 1: taking back the power of the bank. They are the
Speaker 1: number one stock trading firm in America. What does this
Speaker 1: acquisition mean for them? It's probably going to push them
Speaker 1: much further ahead. One thing, and this will be fascinating.
Speaker 1: Your conversation with Mr Gorman uh later today and this
Speaker 1: goes to ubs where axel Vever was heated this morning
Speaker 1: with me and Francine Management. But it's where it's where
Speaker 1: wealth management is? Is e trade well management or I
Speaker 1: love this idea that I can't remember where the Lisa
Speaker 1: said it. Uh, it's just nothing more than a digital bank.
Speaker 1: I mean, I want to be very very stray about that.
Speaker 1: I want to be very clear that Morgan Stanley was
Speaker 1: a wealth manager. What they want to become is a bank.
Speaker 1: They want to become a bank. What's a digital bank?
Speaker 1: What does that look like? I mean when you talk
Speaker 1: to Mr Solomon, Okay, but this is important. You talked
Speaker 1: to David Solomon, He's got a vision a digital bank.
Speaker 1: When you talk to Gorman today, is his vision the same?
Speaker 1: And how much is this just? You don't need the
Speaker 1: brick and mortar physical space which are being shown. Jamie
Speaker 1: is Jamie Diamond talking about a digital bank? He's just
Speaker 1: doing it. Can I give you somebody else here that
Speaker 1: should be a little concerned about this deal? Goldman had
Speaker 1: to go to Apple right there, the Google's, the Amazons
Speaker 1: and all of these tech companies in the world that
Speaker 1: wanted to get into banking, and Morgan Stanley is saying
Speaker 1: we don't need you. They're saying we can do this
Speaker 1: right now without big tech. Exactly interesting, that's actually fascinating.
Speaker 1: I mean, the idea being that big tech isn't necessary
Speaker 1: really going to have the seat at the table that
Speaker 1: a lot of people thought. Okay, so what are you
Speaker 1: gonna ask? Mr? Gorman? They give us an outline here.
Speaker 1: This is a really important interview. What the one one? Besides?
Speaker 1: You know, how long is he going to stay around? Listen,
Speaker 1: you're talking about Jamie Diamond. Jamie Diamond has been clipping
Speaker 1: up the heels of Morgan Stanley's massive stock trading business.
Speaker 1: So how does this deal fend off JP Morgan in
Speaker 1: that business? That's something people have not asked about. The
Speaker 1: question you asked me for how long will this take
Speaker 1: for you to become that full scale, beautiful digit box?
Speaker 1: And what is where is David Solomon? Yeah? Well that's
Speaker 1: the point. John Our next guest is great for writing
Speaker 1: half sentence headlines that get your B T I G.
Speaker 1: Why here's the reason why Tesla one up? Are you ready? Why?
Speaker 1: Because the public is buying. I mean, you don't need
Speaker 1: any more than that. He's here to talk about his
Speaker 1: former boss at U B. S jude In Emmanuel strategist
Speaker 1: right now, disclaimers everywhere. So when you were, you were,
Speaker 1: you were brass Rey Lip there, I've been there many
Speaker 1: times in Zurich down the street you and Mr Mahdi
Speaker 1: where there? You know, what's the what's the body language?
Speaker 1: Are you seeing your former employer? Well, look, it has
Speaker 1: been a difficult decade, let's say to be a European bank. Um.
Speaker 1: You know the question is it's not just uh specific
Speaker 1: to that company, it's are you going to get any
Speaker 1: relief from these just unremitting headwinds with regard to the
Speaker 1: zero interest rate environment? We would actually argue that there
Speaker 1: is a possibility you're going to get leadership transition in Germany.
Speaker 1: You right, if you looked at the debate stage last night,
Speaker 1: we know one thing. We are our deficit. You know,
Speaker 1: I'm a trillion bid. You know you know it's yesterday
Speaker 1: was saying at Deutsche Bank with two days ago, with
Speaker 1: a with a GDP slowdown, the deaths that I believe
Speaker 1: was touristing could go out to two trillion dollars Jule,
Speaker 1: and I don't want to get you in trouble with
Speaker 1: your General Council of bt I G, but you brought
Speaker 1: up a really important point, and this goes to the
Speaker 1: heart of your matter and equity strategy. With the dampening
Speaker 1: that's out there, the zero bound that's out there is scale.
Speaker 1: The only solution for corporations worldwide M and A combinations
Speaker 1: is that the only path forward on the revenue side. Well,
Speaker 1: it's not just the revenue side, it's just you know,
Speaker 1: the speed of innovation UM and the changing landscape along
Speaker 1: with our view that when you specifically look at this
Speaker 1: transaction in the financial industry, that the retail investor is
Speaker 1: likely to become an ever more important factor UM as
Speaker 1: millennials inherit the greatest wealth transfer of all time and
Speaker 1: they're under invested chronically. So so the answer is, yes,
Speaker 1: it is. It makes sense. It certainly makes sense in
Speaker 1: the financial engage. Cannot just sort of take you a
Speaker 1: little bit further into the round of getting into troubles,
Speaker 1: just the culture difference of working at a Swiss bank
Speaker 1: versus a U S firm. How stark is that still
Speaker 1: in Junion. Well, again, a lot of this has to
Speaker 1: do with if you think about the margin pressure of
Speaker 1: a European bank and and the tension, the extra tension
Speaker 1: that you're under in this zero interest rate environment, as
Speaker 1: opposed to this notion that you know, the FED, the
Speaker 1: US FED is the only central bank to successfully escape
Speaker 1: zero interest rates and to give you know, a margin
Speaker 1: of profitability back to US banks. You're answering these rude
Speaker 1: questions so well, I think you could be a seventh
Speaker 1: debater in charge, just waiting for him to tell me
Speaker 1: that he signed an ND and he can't talk about
Speaker 1: what happened. To watch yourself, then we'll have a real disclaimer.
Speaker 1: Continued J and fantastic to have you with us. Let's
Speaker 1: talk about this teflon SMP five hundred. Shall we What
Speaker 1: breaks the mood? What breaks this ragime? I always think
Speaker 1: it's important not to talk about where we think things
Speaker 1: should or shouldn't be, but think about where we are,
Speaker 1: what investors are responding to, and perhaps more importantly, what
Speaker 1: they are not responding to. Right now. What's your take
Speaker 1: on those kind of themes at the moment? Well, well,
Speaker 1: Tom set set the table perfectly. You know. Our view
Speaker 1: is that, particularly when you look at your today and
Speaker 1: specifically the month of February, you are seeing something that
Speaker 1: you haven't seen in several years, and that is the
Speaker 1: public has become an engaged buyer of stocks, whether they're
Speaker 1: electric vehicle makers or you know, technology or what have you.
Speaker 1: The public is back in. So from for where we stand,
Speaker 1: you know, you're at a very sort of unique juncture
Speaker 1: where you've shaken off a lot of the coronavirus and
Speaker 1: the political concerns because the public is a buyer. I
Speaker 1: think a lot of at least the near term, is
Speaker 1: how the flow of news goes and does that cause
Speaker 1: the public to have less of an appetite over the
Speaker 1: next four to six weeks uh in terms of buy stock,
Speaker 1: we think long term, actually, the key to the public
Speaker 1: buying stocks and the key to moving markets higher is
Speaker 1: something you know, we've all talked about for a number
Speaker 1: of months in that the psychology of higher yields starts
Speaker 1: to coalesce. And to that end, when you look at
Speaker 1: yesterday's numbers to c P p I come in very,
Speaker 1: very hot, whether it's explained away or not, tells you
Speaker 1: the environment may be changing. I want to pick up
Speaker 1: on that because today you're seeing a rally resoom in bonds,
Speaker 1: and you have seen a rally pretty consistently with yesterday,
Speaker 1: perhaps a slight pause in that. Do you think the
Speaker 1: story being told in bond markets right now is incongruent
Speaker 1: with the story being told in stocks. It's a massive disconnect,
Speaker 1: there's no question about it. And when we look at it,
Speaker 1: it was a disconnect last year, and it's certainly a
Speaker 1: disconnect on the sector level and the equity markets, you know,
Speaker 1: with this incredible out performance in utilities for one um,
Speaker 1: and when you think about the evolution of last year,
Speaker 1: there was a time in in September when we made
Speaker 1: what we think is actually going to be a defensible
Speaker 1: global yield low. Is that the story came together. But
Speaker 1: the coronavirus has sort of put sand in the wheels.
Speaker 1: How long can this divirgins happen exist? For I would
Speaker 1: say that given the dynamics of we're gonna know over
Speaker 1: the next month or two what the path of this
Speaker 1: exogenous variable, being the coronavirus, is likely you know, in
Speaker 1: the expectation is will clear up in April, but also
Speaker 1: you know the uncertainty surrounding the election. It's going to
Speaker 1: be resolved sometime between now and an election day. Julian
Speaker 1: Emmanuel will this bt I G Chief Equity and derivtive strategies. Julian,
Speaker 1: I want to go and I don't want to talk
Speaker 1: about E trade Morgan Stanley, I understand it's inappropriate, but
Speaker 1: I want to speak to you about the kind of
Speaker 1: companies that are seeing low single digit flat revenue growth
Speaker 1: right now? What bogey do they need to desire? Do
Speaker 1: they just to get back to nominal GDP four percent
Speaker 1: of those days done? Can you get valued in this
Speaker 1: market with mid single digit revenue growth? Well, the issue
Speaker 1: there is that kind of low and slow grower. Actually,
Speaker 1: for the most part, their stock price has outperformed massively
Speaker 1: over the last couple of years, explainers because they are
Speaker 1: in sectors that are perceived as to be defensive and
Speaker 1: bond proxies. For the most part, what we would say
Speaker 1: is if we are about to go into an environment
Speaker 1: where yields however gently because central banks are still behind uh,
Speaker 1: you know, monetary accommodation, but yields on the long end,
Speaker 1: if they do pick up, that will become a challenge
Speaker 1: stock proprice performance metric. Well, what's your number on revenue growth?
Speaker 1: Will you say? In any sector? Is it? Five percent?
Speaker 1: Revenue growth? Is the appropriate numbers. That's what we're thinking
Speaker 1: about this year. And that's reasonably consistent with earnings growth progressions.
Speaker 1: Huge statement because I thought, you know, honeywell out with
Speaker 1: eight percent organic sales like twelve eighteen months ago. All
Speaker 1: these companies are doing two in three ish four percent?
Speaker 1: Is that good enough? So, Judian, what supports an eighteen
Speaker 1: nineteen times multiple? Exactly? Well, at this point it is
Speaker 1: the yield for the most part, and the monetary accommodation.
Speaker 1: But our view is what will continue to support it
Speaker 1: after we look through some of the headwinds facing markets.
Speaker 1: Is the rotation out of you know, trillions of dollars
Speaker 1: of fixed income exposure and trillions of dollars of money
Speaker 1: market exposure as high as the depth of the financial
Speaker 1: crisis and intests having that conversation ten years ago, Julian,
Speaker 1: ten years ago, I remember having those conversations in London,
Speaker 1: people talking about the big moves coming out of fixed
Speaker 1: income and into equities. You watch, it will be the
Speaker 1: equity guys will fixed income world. It has been for
Speaker 1: the last ten years. I know we've had a great bullmarket,
Speaker 1: but just in terms of the flows, haven't really left
Speaker 1: fixed income, have they? No, they haven't. And actually that's
Speaker 1: part of the surprise of this year. Our thesis was
Speaker 1: is that you'd start to see them move out and intaquities,
Speaker 1: but you're seeing the wall of cash going into fix
Speaker 1: coom and equities. Don't be a stranger. This has been
Speaker 1: really good, Jillian Emmanuel, thank you so much. As BT
Speaker 1: let us digress here. We got a lot going on
Speaker 1: this morning, and we need to get back to econ
Speaker 1: one on one. How about American economic growth? And of
Speaker 1: course the backdrop here is the oddities of the labor market.
Speaker 1: Brett Ryan really slices and dices for Deutsche Bank. They've
Speaker 1: got a wonderful team over there. And what's interesting isn't
Speaker 1: what I would call as a general statement an optimistic house.
Speaker 1: I've got more cautious Brett. Have you marked down your
Speaker 1: g d P recently? Can you even tell me twelve
Speaker 1: months run rate of GDP is two point zero or
Speaker 1: dare I say below two? Hey? Tom good morning, and
Speaker 1: uh yeah, I mean the data this morning. The silly
Speaker 1: said seems to be speaking of fly Me to the Moon,
Speaker 1: um in terms of of Frank Sinatra tunes. But that's
Speaker 1: probably a weather impact there. But on our GDP call,
Speaker 1: you know, we're still a two two on Q four
Speaker 1: over Q four basis, but we are Q one number
Speaker 1: is one four. And what we're trying to point out
Speaker 1: here is that the Fed's narrative and the markets narrative
Speaker 1: is that the strong labor market and consumer spending is
Speaker 1: going to carry the day, you know, through this soft
Speaker 1: patch and business investment in trade right. And what we're
Speaker 1: doing is we're pointing out some where there could be
Speaker 1: some cracks in that story. And we've been talking about
Speaker 1: this for a few months now. The slowing in an
Speaker 1: hour's worked, the slowing and wage growth, and more recently
Speaker 1: the spiked down in job opening and job openings have
Speaker 1: been um, you know, a bit of a leading indicator.
Speaker 1: Passengers a payroll. I want to get out of front
Speaker 1: of Richard Claren. He's on the desk start right now
Speaker 1: speaking to Steve Lisa, and I'm sure that's a good conversation.
Speaker 1: Clarid is of course out with the headline fundamental, the
Speaker 1: US economy are strong. Give us an update on your
Speaker 1: your FED rate cuts right now? One or two this year?
Speaker 1: Where's Deutsche Bank? We actually, we don't think they cut
Speaker 1: this year. We think they're able to hold off until
Speaker 1: next year as they transition to a soft form of
Speaker 1: average inflation targeting, and we think their initial move will
Speaker 1: be to, you know, use forward guidance to try to
Speaker 1: gin up inflation expectations and then when you know, our
Speaker 1: inflation forecast, we don't see core core PC getting back
Speaker 1: above two percent wow in the next year, and so
Speaker 1: eventually they're going to have to be They're going to
Speaker 1: be forced to, you know, sort of prove that they're
Speaker 1: committed to the strategy. I just don't. I just want
Speaker 1: to say we're killing it. Maria has Greenspan on it
Speaker 1: right now. We talked him a couple of weeks ago.
Speaker 1: Our good friend Richard Clarence on CNBC. We have Brett
Speaker 1: Ryan of Deutsche Bank. We are winning. Brett's crushing it.
Speaker 1: But Brett says something really important, So let's not bury
Speaker 1: the lead. Ethan is crashing the labor market right now, Bret.
Speaker 1: That's a nonconsensus cold isn't it. Yeah, I think I
Speaker 1: think it's it's what the let's mean to be clear,
Speaker 1: all of the you know, the um you know, unemployment
Speaker 1: rate says, you know, job markets really healthy, right, And
Speaker 1: what we're saying is that you're seeing some cracks in
Speaker 1: labor demand, right. You know, first firms start to slow
Speaker 1: hours worked, then they start to slow wages and wage
Speaker 1: growth and push back on that. If margins are being
Speaker 1: squeezed or demand seems to be falling off, the last
Speaker 1: shoe to drop is blame workers off. And that's when
Speaker 1: you get a recession, right, And so firms are reluctant
Speaker 1: to lay workers off because it is still a tight
Speaker 1: labor market, but the hiring trend has been falling. I mean,
Speaker 1: you know, and that that's to be expected somewhat um.
Speaker 1: But now we're just seeing a few more signs where
Speaker 1: of of where demand may be slowing for labor. And
Speaker 1: you know, if if it can, if it continues on
Speaker 1: on a gradual trend, then that's okay. But you have
Speaker 1: to be you just have to be worried a little
Speaker 1: bit more concerns than it. Most people seem to be
Speaker 1: appreciating of how strong the labor market will break. Give
Speaker 1: me a sense of just your conversations with clients at
Speaker 1: the moment, your market participants. How receptive are they to
Speaker 1: this argument? Did they turn around to you and say,
Speaker 1: but you might be right, but until I see it
Speaker 1: in claims, I'm not going to do anything. What kind
Speaker 1: of responses do you hear? Yeah? It definitely claims is
Speaker 1: a common argument. Um, And and that's that's for sure.
Speaker 1: Claims are the best labor market indicator out there, and
Speaker 1: we've written about that, especially continuing claims until you see
Speaker 1: can continuing claims in an eighteen fifty type range or
Speaker 1: at seventeen twenty six today. Um, you really don't have
Speaker 1: to be that concerned. Uh, but you know, for sure,
Speaker 1: I think people are recognizing that, you know, as we
Speaker 1: get into the back half of the year in political
Speaker 1: uncertainty sets, and maybe you want to end given the
Speaker 1: credit spreads are at tights, maybe you want to take
Speaker 1: a little bit of risk off here and start to question,
Speaker 1: you know, where could everybody be wrong? My head is
Speaker 1: spinning here. I've got Brett Bryan on, folks, and he's
Speaker 1: giving me this caution on labor John, as you brilliantly
Speaker 1: caught and I got Richard Claire to given me headlines
Speaker 1: saying it's a good picture in monetary policy's accommodative. Brett,
Speaker 1: why are we talking about a rate cut? Well, I
Speaker 1: think the market certainly like praising a rate cut by
Speaker 1: the middle of the year. Um, you know, some on
Speaker 1: the back of the coronavirus. I think that's that's feeling
Speaker 1: some of it. But you know, maybe you know the
Speaker 1: bond markets seeing sort of similar things that we are.
Speaker 1: But what does Deorger Banks say, what are you telling
Speaker 1: me we're going to justify a rate cut with a
Speaker 1: two point two percent GDP growth? Yeah, it's hard, it's
Speaker 1: hard to envision that, right, But you know, the Fed
Speaker 1: cut seventy five basis points last year and the economy
Speaker 1: is still managed to eke out close to two percent growth,
Speaker 1: And so you know, it's it's I think it's it's
Speaker 1: finding a calibration of we're in a permanently low rate environment,
Speaker 1: or not permanently, but at least for a long period
Speaker 1: of time a low rate environment. Just how low that
Speaker 1: is in order to be accommodative. The Feds still sort
Speaker 1: of you know, feeling around in the dark around about that.
Speaker 1: When you talk about the cracks in the labor market.
Speaker 1: There's a question of how long it is before people
Speaker 1: start using the R word again, the recession, because that's
Speaker 1: pretty much off the table at this point. What where
Speaker 1: did we push that back to. Well, I think, you know,
Speaker 1: we we haven't been calling for recession yet. UM. I
Speaker 1: think it's notable that the Fed's preferred measure of the
Speaker 1: of the yield curve these three months and then the
Speaker 1: eighteen months forward is inverted again. And that's been what
Speaker 1: the their research has shown has been one of the
Speaker 1: best indicators in terms of recession from a curve perspective. Um.
Speaker 1: You know, it's it's hard, it's it's it's hard to
Speaker 1: call these things, very difficult to call these what's going
Speaker 1: to be the straw that breaks the camel's back? You know,
Speaker 1: is it going to be? Um? You know, a financial
Speaker 1: story of financial conditions story. UM. But I think one
Speaker 1: of the things that we're focused on, you know, financial
Speaker 1: conditions look really good, but that's in contrast to what
Speaker 1: some of the fundamentals the I s M and the
Speaker 1: non manufacturing is M, which have they've stabilized, but they're
Speaker 1: not strongly rebounding. Um. You know, Today's Philly Fed. The
Speaker 1: headline looks really good, but that's there's gonna be that's
Speaker 1: definitely a weather boost there. The details are more mixed,
Speaker 1: and so you know, I think. And it's also what
Speaker 1: does the recession look like? Right? It's you're gonna you know,
Speaker 1: you're gonna get a recessions sometimes in the next few years.
Speaker 1: The question is how deep is it? What does it
Speaker 1: look like? It's two thousand type scenario where you have
Speaker 1: two quarters of cap acts down and two quarters of
Speaker 1: rising and the poignant or is it, you know, eight disasters.
Speaker 1: It's probably not going to be two nine, right, Bratt,
Speaker 1: We're gonna leave Brett Ryan, we gotta leave it. I'm sorry,
Speaker 1: Brett Ryan with Deutsche Bank at this point. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
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