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Speaker 1: Welcome to the Bloomberg pm L podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Abramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg pm L podcast

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Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. You know,

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Speaker 1: at this point in the cycle, the economic cycle, a

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Speaker 1: lot of people are calling for the reflation of the U.

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Speaker 1: S economy. Uh, and and I want to get a

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Speaker 1: sense of how much reflation we're actually seeing on the ground.

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Speaker 1: I want to bring in Ward McCarthy, chief economist at Jeffreys.

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Speaker 1: We got some data this morning, more signs that retail

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Speaker 1: sales are accelerating, that we are seeing uh, inflation keeping

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Speaker 1: keeping up in Europe. Word, do you think that people

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Speaker 1: are at a quickly pricing in just how much inflation

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Speaker 1: is going to increase this year? Well, I think that

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Speaker 1: people are coming to the realization that the deflationary period

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Speaker 1: is over. UM. I've been expecting inflation to accelerate really

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Speaker 1: for the past year or so, and one of the

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Speaker 1: key developments on that front was when the commodity markets

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Speaker 1: bottomed in February. So as far as the CPI is concerned,

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Speaker 1: I think we could see a three percent print them

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Speaker 1: by the third quarter of this year. What does that

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Speaker 1: mean that precious metals such as gold might benefit, Well,

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Speaker 1: that historically has been the case. I'm not a gold

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Speaker 1: bug myself, so I tend to focus really more on

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Speaker 1: the implications for um, you know, the bond market especially

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Speaker 1: you know it also the stock market. Um. But let's

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Speaker 1: see bad for the bond market, good for the stock market. Well,

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Speaker 1: I think it would be good for the stock market

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Speaker 1: because it would be an indication that businesses are finally

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Speaker 1: getting some pricing flexibility that that they have not had

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Speaker 1: for quite some time. And of course the bond market's

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Speaker 1: going to price that end, especially at the long end

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Speaker 1: of the curve because of rising inflation and expectations. Where

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Speaker 1: there's a big debate that's raging among people who I

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Speaker 1: talked to, which is, at what point do you benchmark

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Speaker 1: bond yields rise to such a degree that it no

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Speaker 1: longer works to go to stocks to sort of there

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Speaker 1: is an alternative wage, or in other words, at what

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Speaker 1: point do people say, look, I'm going to go back

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Speaker 1: to bonds at least I'm gonna get three percent three

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Speaker 1: and a half percent yields and going to get my

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Speaker 1: money back. And will the rising yields start to actually

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Speaker 1: hurt stocks, Well, I think we're are ways off from

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Speaker 1: that actually happening. I think we're at the early stages

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Speaker 1: of a rising rate environment. So even though rates right

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Speaker 1: now might look attractive relative to what we've had um

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Speaker 1: over you know, a recent past, UM, the reality is

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Speaker 1: that you would probably lose is um in a longer

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Speaker 1: run because the bond prices are going to be falling

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Speaker 1: and um. So it's I think a ways off before

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Speaker 1: that's that's going to happen. What I think will somewhat

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Speaker 1: moderate at least the pace at which interest rates rise

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Speaker 1: is the fact that we still live in a quey world. Um.

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Speaker 1: But the b o J and the ECB SO US

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Speaker 1: rates are still very attractive relative to overseas rates. So

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Speaker 1: we'll continue to see institutional investors willing to buy the

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Speaker 1: US bond market even though prices are falling, just because

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Speaker 1: the rates are attractive to them. Uh. And that's especially

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Speaker 1: the case for life insurance companies that are really kind

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Speaker 1: of a box right now. With the liability streams going

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Speaker 1: forward that really are not a good match for their

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Speaker 1: asset streams. So there's sort of seems like they're competing factors. Here.

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Speaker 1: You have people who are sort of looking ahead seeing inflation,

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Speaker 1: saying yields over the longer term are going up from here,

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Speaker 1: and others like the life insurers that are saying we

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Speaker 1: need income. It looks more attractive in the US and

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Speaker 1: the rest of the world we're going to come in. Uh. Now,

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Speaker 1: given these sort of competing factors, where do you see

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Speaker 1: ten year US yields ending the year and where do

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Speaker 1: you see them in eighteen months from now? Well, I

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Speaker 1: think the direction is higher. So a year from now,

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Speaker 1: I don't think it's unreasonable to think that there'll be

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Speaker 1: a hundred a hundred basis points higher UM. But a

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Speaker 1: lot of the magnitude of the increase is going to

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Speaker 1: depend on what the new administration actually gets done on

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Speaker 1: its very ambitious fiscal plan. Uh. And I say that

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Speaker 1: not only because the fiscal plan has the potential to

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Speaker 1: significantly yet to growth UM, but it also has potential

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Speaker 1: suits significantly add to debt supply, both on the treasury

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Speaker 1: side and potentially on the private sexes. Um side as well.

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Speaker 1: So I think the direction is a lot clearer than

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Speaker 1: the magnitude, But we'll get a better handle on that

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Speaker 1: after the first hundred and two hundred days of this

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Speaker 1: new government. Basis points that would take us to three

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Speaker 1: point on the tenure. Well, you know, just before we

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Speaker 1: get to these hundred days of the new administration, is

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Speaker 1: a possible we're going to get a rate hiding early February. Oh,

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Speaker 1: I don't think so. I think that the Fed is

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Speaker 1: sending us two messages, both at the December fo m

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Speaker 1: C meeting and more importantly, in the minutes that we've

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Speaker 1: seen since then. Uh, they made it clear that for

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Speaker 1: the first time they could see the potential for upside

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Speaker 1: risk to both growth and inflation, and as a consequence,

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Speaker 1: they may have to accelerate the normalization process, both of

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Speaker 1: raising rates and of shrinking the balance sheet. Now we're

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Speaker 1: beginning to see a debate, public debate. Yesterday President's Kaplan

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Speaker 1: and Harker, for example, talking about how the FED should

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Speaker 1: shrink the balance sheet. Next week we'll hear from more

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Speaker 1: doverage members like President's Dudley and Governor brainerd um So

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Speaker 1: there's going to be I think a lengthy debate both

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Speaker 1: within the UM, the walls of the f O m

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Speaker 1: C and also for public consumption about how the FED

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Speaker 1: is going to go about this. And I don't think

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Speaker 1: there'll be in a position to either raise rates or

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Speaker 1: start drinking the balance sheet by February. You know, there's

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Speaker 1: been some talk about the potential FED choices by President

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Speaker 1: elect Trump who would come in in two thousand and eighteen,

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Speaker 1: particularly for FED Chair Jenny Yellen. What have you gleaned

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Speaker 1: so far from some of the names that have been floated, Well,

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Speaker 1: they relatively high profile names. Uh, you know, John Taylor

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Speaker 1: was probably the first one to be circulated, but there

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Speaker 1: have been others since that time. I think the general

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Speaker 1: UM gist of the type of person that they will

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Speaker 1: be looking for as someone who's somewhat more rules based,

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Speaker 1: uh than we have seen UM in recent years. What

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Speaker 1: I think that no matter who comes in, they're going

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Speaker 1: to find out that, UM, you can be rules based,

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Speaker 1: but you're still going to want to have UM a

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Speaker 1: lot of flexibility and how you conduct policy. So I

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Speaker 1: expect Jenny Hillen is going to serve out this term. UM.

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Speaker 1: She has uh, you know, really done a great job

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Speaker 1: of taking the baton from Ben Bernake, and I think

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Speaker 1: she'll want to see her task through to fruition. Whether

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Speaker 1: or not, you know, she is appointed next year or not,

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Speaker 1: I think to a large degree will depend on how

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Speaker 1: the economy does this year and frankly, what actually has

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Speaker 1: done on the fiscal side. Thank you very much for

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Speaker 1: spending time with us. Ward McCarthy is the chief financial

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Speaker 1: economist for Jefferies and Company, speaking about the US economy

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Speaker 1: and the potential for interest rate increases. Lisa Bramwitz, do

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Speaker 1: you know what a medical village is? Well, we're going

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Speaker 1: to find out from John Lawerman. He is our healthcare

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Speaker 1: and hospital's reporter for Bloomberg News and he joins us

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Speaker 1: now from Boston to home to Bloomberg. You know, John,

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Speaker 1: thanks for being with us and a wonderful story. And

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Speaker 1: what if you just maybe begin by telling the anecdote

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Speaker 1: that leads the story, because I think that really kind

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Speaker 1: of sets the scene for the details. Well, I went

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Speaker 1: to a hospital, Um, good morning. I went to a

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Speaker 1: hospital out in Kingston, New York. That's uh, that has

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Speaker 1: an operating room that was built I think about five

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Speaker 1: years ago for I believe it was five million dollars

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Speaker 1: um and it's never been used and they're actually not

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Speaker 1: going to use it. Um It's going to be renovated

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Speaker 1: and the space, the entire hospital space, which I believe

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Speaker 1: is now hospital it only has about fift occupancy rate,

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Speaker 1: and it's going to be renovated into what they call

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Speaker 1: a medical village, and it was I had never heard

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Speaker 1: the term before either, so I was really interested in

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Speaker 1: going out there and finding out what it all means.

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Speaker 1: And basically, this hospital, uh, the the parent that owns it,

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Speaker 1: they've decided that they're going to make it into an

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Speaker 1: outpatient center and they're doing that for a variety of reasons,

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Speaker 1: but it's mainly because they want to figure out ways

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Speaker 1: that they can continue to serve patients. A lot of

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Speaker 1: patients actually who come through their emergency room where they're

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Speaker 1: very they're very expensive to take care of, and they

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Speaker 1: want to UM care for those patients. And an outpatient

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Speaker 1: setting is opposed to inpatient, So impatient that somebody spent

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Speaker 1: a night in the hospital. Outpatient that somebody walks into

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Speaker 1: like say an office, something gets caring, that goes home

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Speaker 1: usually the same day, not always, but almost always the

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Speaker 1: same day. That's what outpatient U usually refers to and UM.

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Speaker 1: So they're uh, they're converting this hospital there there, it's

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Speaker 1: no longer going to be a hospital. They're moving its

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Speaker 1: services into another facility that's just a couple of blocks away.

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Speaker 1: And it's really a part of a trend that's going

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Speaker 1: on all of the country where hospitals UM are are

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Speaker 1: closing UM and UH. But even more than that, services

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Speaker 1: and hospitals are moving out of hospitals into other settings. Well, okay, John,

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Speaker 1: this has been going on for more than a decade,

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Speaker 1: right where you've had this consolidation of hospitals and this

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Speaker 1: sort of move to UH. As procedures are done in

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Speaker 1: an outpatient way, people are taking care of for less time.

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Speaker 1: People's hospital stays have been shortened by better technology. UM.

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Speaker 1: Is this sort of closure of some of the hospitals

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Speaker 1: problematic or is this just the natural evolution in medicine. Well,

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Speaker 1: it depends on you know, you talk about evolution. UM.

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Speaker 1: Sometimes evolution has UH, it can have a very tough

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Speaker 1: impact on you know, particular populations. And UM. I'm not

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Speaker 1: saying that this is the case in in in in

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Speaker 1: the community that I've visited, but in many communities where

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Speaker 1: hospitals closed uh, there aren't hospitals nearby to take care

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Speaker 1: of people. UM. Rural hospitals are the most vulnerable to

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Speaker 1: being closed. They're smaller, they uh, they draw in smaller

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Speaker 1: patient populations. UM, they have a less uh diverse suite

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Speaker 1: of services to offer. So there their patients more likely

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Speaker 1: to be sent to big city hospitals UM for uh

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Speaker 1: more complicated procedures. Procedures might that might provide more money

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Speaker 1: to hospitals, UM might provide more revenue. And so these

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Speaker 1: are the ones that are most um vulnerable to you know,

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Speaker 1: to uh to to having tough financials and to closing

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Speaker 1: and UM. But it but it's it's it's not just these.

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Speaker 1: I mean there are hospitals as well in big cities

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Speaker 1: that are consolidating getting smaller. There's hospital uh that we

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Speaker 1: wrote about in the story UM in New York. Actually

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Speaker 1: that's the Mount Sinai exactly right right. UM they've decided

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Speaker 1: to really scale down the size of one of their

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Speaker 1: facilities and uh really ramp up the procedures that they're providing.

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Speaker 1: That doesn't mean that people in New York City are

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Speaker 1: gonna have enough hospital beds. Obviously, there's hospitals everywhere in

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Speaker 1: New York. But but it it but it does UM

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Speaker 1: in many communities, it does remove the nexus of the

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Speaker 1: local healthcare system. Thank you so much. It's really a

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Speaker 1: fascinating story. John Lawerman, healthcare reporter for Bloomberg, talking about

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Speaker 1: the dwindling number of hospitals. To learn more about today's

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Speaker 1: earnings results from major banks, I want to bring in

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Speaker 1: Allison Williams, Senior financial research analyst for Bloomberg Intelligence. Allison,

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Speaker 1: thanks for being with us. I'm looking at JP Morgan's.

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Speaker 1: The shares are up about one and a half percent.

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Speaker 1: Let's go over the details of JP Morgan. What stood

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Speaker 1: out to you, uh in the in the report? So

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Speaker 1: I think for JP Morgan just in general solid quarter

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Speaker 1: and UM you know, costs basically right on target. That's

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Speaker 1: the key thing that investors look for UM from a

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Speaker 1: go forward rate thick trading, which tends to be a

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Speaker 1: little bit more fleeting, uh coming in also better than expected.

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Speaker 1: And so while that can be volatile, it can be

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Speaker 1: important because it is UM you know, a decent chunk

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Speaker 1: of their revenue and in looking for sort of optimism

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Speaker 1: for earnings estimates to help sort of justify share UM.

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Speaker 1: The share price moves analysts are going to be looking

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Speaker 1: for what is the run rate for revenue going into

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Speaker 1: next year. So JP Morgan beat analysts expectations with debt trading.

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Speaker 1: Bank of America did not. While they had a pretty

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Speaker 1: big increase, Uh, they did not. They did not beat

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Speaker 1: Why So I think what's difficult a lot of times

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Speaker 1: with the investment banks. Right as we saw Bank of

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Speaker 1: America miss um you know, sort of a twelve percent

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Speaker 1: gain um I think it was, and then you know

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Speaker 1: JP Morgan having this huge numbers percent gain. And so

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Speaker 1: from just a simplistic perspective, someone might look at that

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Speaker 1: and say, oh that, you know, JP Morgan's gaining share.

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Speaker 1: But I think a lot of times what it has

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Speaker 1: to do with is how are these banks positions, what

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Speaker 1: are the products that there strong, and then how did

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Speaker 1: those products perform? So JP Morgan, you know, just the

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Speaker 1: biggest and fix the biggest in rates, which was a

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Speaker 1: good business of rising volatility in that business. Bank of

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Speaker 1: America one of the areas that they're very strong in

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Speaker 1: is the municipal bond business, which, as we know, UM

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Speaker 1: had a very tough quarter. If you look at the

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Speaker 1: outflows in the in in the latter part of the

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Speaker 1: quarter following the election presidential election, you saw those really

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Speaker 1: driving overall bond mutual fun outflows so UM and that

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Speaker 1: really relates to some of the concerns around tax policy.

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Speaker 1: So obviously that's not good for trading, and that may

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Speaker 1: have been one of the areas that was more negative

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Speaker 1: for Bank of America Wells Fargo earnings of a dollar

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Speaker 1: three versus estimates for a dollar what about their mortgage

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Speaker 1: lending business. So I think for Wells Fargo, you know,

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Speaker 1: they earn more from the mortgage banking business than peers

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Speaker 1: around UM eight percent. And I think one of the

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Speaker 1: things that investors were sort of expecting this quarter is

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Speaker 1: to see UM, you know, what happened with their accounting.

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Speaker 1: We had this huge interest rate move, so we did

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Speaker 1: get some of that, But what people are tend to

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Speaker 1: more focus on is the origination side of the business,

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Speaker 1: right because that's cash, whereas UM you know, the other

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Speaker 1: part of it is accounting. We did see UM you know,

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Speaker 1: volumes coming in that the gain on sale sort of

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Speaker 1: coming down. I think investors had expected that. Again, what's

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Speaker 1: going in the market. We've seen a Cutton pipeline. Some

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Speaker 1: of that though is season also some of it's the

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Speaker 1: rate rise UH some of its seasonal in that business. UM.

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Speaker 1: I would be remiss if I didn't mention black Rock,

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Speaker 1: the first big S manager that also reported earnings UM.

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Speaker 1: They reported disappointing revenue gain even as they reported record inflows.

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Speaker 1: This just sort of highlights the difficulty with the E

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Speaker 1: t F industry that is very low cost UM. Do

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Speaker 1: you think that black Rock is going to have to

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Speaker 1: cut more people at this point? So black Rock, UM,

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Speaker 1: you know, they actually did come into the their quarter

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Speaker 1: actually came in a little bit better, helped by the

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Speaker 1: expense side, and they actually did have some UH cuts

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Speaker 1: earlier in the year, which was which was sort of

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Speaker 1: unique for them. That's just not something UH in general.

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Speaker 1: But you know, they basically they positioned that more as

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Speaker 1: a sort of longer term positioning. As far as the

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Speaker 1: revenue trend that that you're speaking of, I think we

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Speaker 1: did see black Rock kind of come in back in

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Speaker 1: October and make some feed cuts to some of their

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Speaker 1: E t F s and that's really been successful in

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Speaker 1: garnering a lot of flows and to the extent that

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Speaker 1: you know that is a scale business. Black Rock and

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Speaker 1: Vanguard UM just taking in a ton of money in

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Speaker 1: that business. Uh, and that's not a people intensive business.

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Speaker 1: It is lower margin into a low, lower few revenue margin,

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Speaker 1: but has a huge benefit from scale. Thank you so much,

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Speaker 1: Alison Williams. Always wonderful to hear from you to make

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Speaker 1: sense of all of the earnings that we're getting out.

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Speaker 1: Alison Williams, she uh knows everything there is to know

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Speaker 1: about the finance industry and she'll be busy next week

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Speaker 1: as well, because we have earnings from City Bank and

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Speaker 1: a variety of other banks. Yeah, it'll be interesting to

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Speaker 1: see whether they beat as well at following in JP

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Speaker 1: morgins footsteps, Alison Williams, Senior Banks analysts for Bloomberg Intelligence.

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Speaker 1: Chrysler plunged more than sixteen percent yesterday. Today it's rebounding

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Speaker 1: a little bit. Shares are up a little bit more

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Speaker 1: than four percent. This is after emissions by elatitions. Accusations

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Speaker 1: were lodged against Chrysler, and traders are trying to figure

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Speaker 1: out what this will mean and how much this will

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Speaker 1: cost the company. I want to bring in Jamie Butter's

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Speaker 1: who covers autos for us at Bloomberg News. He is

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Speaker 1: speaking to us from Detroit. Jamie can you make sense

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Speaker 1: of this. Why are people kind of going back to

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Speaker 1: Fiat Chrysler. Well, they're really trying to sort out what's

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Speaker 1: going on because it is so unusual. Um, you know,

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Speaker 1: the automakers can modify, you know, it requires a lot

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Speaker 1: of programming for anything as complicated as you know, a

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Speaker 1: diesel engine and uh uh filtering that has to go

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Speaker 1: with it and how they operate and extreme heat and

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Speaker 1: cold and various environments. So sometimes they put the software

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Speaker 1: pieces on and sometimes the e p A UH has

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Speaker 1: questions about them, and typically they argue them out and

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Speaker 1: then get it solved. And according to the FCA's view

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Speaker 1: is that we're still trying to sort out whether this

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Speaker 1: is okay or not. And you're calling a press conference.

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Speaker 1: And so when you see the press conference as an investor,

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Speaker 1: you're thinking, oh my god, this is serious. This is

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Speaker 1: like Volkswagen. But in the Volkswagen case in September, I mean,

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Speaker 1: the regulators had already extracted a confession out of Volkswagen.

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Speaker 1: You know, it took eleven meetings between the California Air

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Speaker 1: Resources Board and VW before they finally came back and said,

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Speaker 1: we don't have any more explanations. You caught us with

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Speaker 1: the defeat device, and uh, you know, christs are saying

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Speaker 1: this is in no way a defeat device. These are

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Speaker 1: just regular things that we're trying to discuss and make

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Speaker 1: sure that we're all on the same page about. And

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Speaker 1: so they're the company is very frustrated, and investors, of course,

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Speaker 1: they're kind of in the dark. They see this initial

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Speaker 1: signal that makes them think, you know, this could be

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Speaker 1: as terrible as Volkswagen. Uh, and then they hear the

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Speaker 1: company saying this is really nothing. Uh. You know, some

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Speaker 1: skepticism about companies saying that that an issue involving maybe

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Speaker 1: the Justice Department as well as the e p A

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Speaker 1: is nothing. But you know, certainly, with the being the

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Speaker 1: final days of the Obama administration, there's some sense that,

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Speaker 1: like with the p A ruling on mileage today, there's

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Speaker 1: some efforts to put the Trump administration into a difficult

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Speaker 1: position or or for the e p A to demonstrate

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Speaker 1: their value and their necessity to the incoming administration. Well, Jamie,

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Speaker 1: and this is serious stuff because not just the VW

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Speaker 1: executives have been the target of the Justice Department, but

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Speaker 1: we've learned today that three Takata executives have been charged

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Speaker 1: in the United States as part of that criminal case

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Speaker 1: to uh mislead federal regulators over the manufacture of those

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Speaker 1: faulty air backs. So there are potentially serious consequences. Yeah. Absolutely,

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Speaker 1: we're seeing you know, really aggressive enforcement out of Washington.

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Speaker 1: And some of it is a backlash to the financial crisis,

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Speaker 1: where you know, the overall health of the U. S

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Speaker 1: economy in the world economy was put in danger and

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Speaker 1: and you know, and no one was really prosecuted. No,

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Speaker 1: none of nobody who UH led to the financial meltdown

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Speaker 1: was prosecuted for that. And so there's been this greater

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Speaker 1: effort to you know, go after the bad guys and

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Speaker 1: make sure you get the executives are held accountable the

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Speaker 1: same as as other people might be. But in but

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Speaker 1: in some of these cases it's uh, I mean, it

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Speaker 1: definitely raises mistakes for what maybe, to Mr Marconi's view,

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Speaker 1: would have been just an administrative, you know, set of

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Speaker 1: meetings in a normal circumstance. Jamie, Um, you flicked at this.

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Speaker 1: The Environmental Protection Agency they announced that it's keeping vehicle

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Speaker 1: efficiency standards intact through the model year. How significant is

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Speaker 1: this for automakers? It's huge. You know so if you

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Speaker 1: you know, the Obama administration set out these long term goals,

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Speaker 1: but they agreed to a mid term review presumably would

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Speaker 1: hit the middle of the term. Would be kind of

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Speaker 1: when he's seventeen, and the standards get much steeper, much

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Speaker 1: quicker from for vehicles that are categorized as light trucks,

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Speaker 1: which is predominantly pick ups, SUVs, and minivans, which happened

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Speaker 1: to be where the Chrysler makes all their money and

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Speaker 1: then some so you know, they make jeeps, they make

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Speaker 1: ram trucks, they make they used to make the town

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Speaker 1: and country and now they have a new minivan called

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Speaker 1: the PACIFICA. You know, it's hugely important to the Chrysler,

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Speaker 1: but also to afford Chevy uh you know, GM, Jams,

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Speaker 1: brands and others. So uh, you know, they were looking

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Speaker 1: forward to a mid term review where they could state

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Speaker 1: their case and explain that while they've been able to

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Speaker 1: produce sufficient vehicles for the last four years, uh, you know,

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Speaker 1: getting that much more efficient would be very difficult and

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Speaker 1: very costly, that's the industry's view, and regulate. The E

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Speaker 1: p A and and others say, you've done just find

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Speaker 1: so far and there's really nothing to worry about it,

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Speaker 1: no reason not to lock in these rules. And so

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Speaker 1: you know, Mr Marconi spoke at length about this on

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Speaker 1: Sunday saying, you know, this was supposed to be a

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Speaker 1: regulatory review and instead we got an adjudication. You know,

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Speaker 1: they didn't feel like they got to make their case,

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Speaker 1: and the e p A just uh rammed it through

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Speaker 1: and and try to put this in place, and it'll

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Speaker 1: told it will be much more difficult for the Trump

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Speaker 1: administration to have a review. I know you're gonna be

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Speaker 1: following this for us. Jamie Butters is our US autos

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Speaker 1: reporter Bloomberg News, joining us from our bureau in Detroit.

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Speaker 1: Thanks for listening to the Bloomberg pan L podcast. You

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Speaker 1: can subscribe and listen to interviews at iTunes, SoundCloud, or

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Speaker 1: whatever podcast platform you prefer. I'm Pim Fox. I'm out

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Speaker 1: there on Twitter at pim Fox. I'm out there on

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00:23:54,200 --> 00:23:57,440
Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You

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Speaker 1: can always catch us worldwide on Bloomberg Radi