Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 1: We've been too long to wait.
Speaker 2: For Dana Peterson, Chief Economists at the Conference Board. With
Speaker 2: these market moves as well data, when you see a
Speaker 2: report like this with consumption that is buoyant, with the
Speaker 2: surprises in housing, do you have to shift your FED guests?
Speaker 3: Well, I would say that the Fed, well we have.
Speaker 3: Our guest was that there'd be one more interest rate hike.
Speaker 3: Maybe we're looking at two or even more, especially if
Speaker 3: inflation doesn't cool off and consumers continue to spend and
Speaker 3: the labor market remains bus So. The problem here is
Speaker 3: that you know, good news is bad news for the FED.
Speaker 4: Good news is bad news for the FED. And again
Speaker 4: you can sort of see that pricing reflected in the
Speaker 4: two year yield right now really spiking on the back
Speaker 4: of this print. Let's talk about initial jobless claims too,
Speaker 4: like Mike said, actually fell and that's been sort of
Speaker 4: the mystery of this economy is the resilience of resiliency
Speaker 4: of the labor market. When you think about the Fed's
Speaker 4: long path back to that two percent target, do we
Speaker 4: need to see weakness there or is there any scenario
Speaker 4: where okay, maybe things remain rosy on the jobs front,
Speaker 4: but we also see inflation continue to come down well.
Speaker 3: On the jobs front. When we ask CEOs, what are
Speaker 3: you doing about labor markets? At least the third are
Speaker 3: still hiring, but forty six percent are saying we're not
Speaker 3: doing anything. So that means they're hoarding labor. They're not
Speaker 3: letting people go because they think that if there is
Speaker 3: a soft spot or even a recession, it's gonna be short,
Speaker 3: it's gonna be shallow, it's not going to be that bad.
Speaker 3: And so they're just holding onto their workers because they
Speaker 3: spent so much time and effort and money attracting labor
Speaker 3: and also trying to keep them.
Speaker 4: What does that mean for wages that impulse to hoard
Speaker 4: labor here to hang on to that workforce, are employers
Speaker 4: having to raise wages even more from here.
Speaker 3: Well, in the same survey if CEOs, they said, yes,
Speaker 3: we do expect that over the next twelve months, we're
Speaker 3: going to have to continue to raise wages. Most of
Speaker 3: them said between three and five percent. That's a pretty
Speaker 3: big gap. But still in all the fact that they're
Speaker 3: even talking about raising wages is pretty critical, and certainly
Speaker 3: that spills down into consumer prices, which the FED is
Speaker 3: desperately trying to lower.
Speaker 2: Dand of the Conference Board has such a heritage with
Speaker 2: the measurement of the tone of business. What is your
Speaker 2: reporting now the granularity of the Conference Board on the
Speaker 2: mood of business America?
Speaker 3: Sure, well, we talked to CEOs and CFOs and all
Speaker 3: the seas out there, and it's really mixed. Some aer
Speaker 3: it really depends upon their industry. Some are saying things
Speaker 3: are bad, especially those in finance and tech, that you
Speaker 3: need to down right size their labor markets. And then
Speaker 3: we have others that are in consumer services and that
Speaker 3: they're saying now is awesome, It's really great. So I
Speaker 3: really think it depends upon the industry.
Speaker 2: Totally agree Dana Peterson with us. We're going to continue
Speaker 2: with her for a few more minutes as well, if
Speaker 2: you're joining us, I thought it would be a sleepy Thursday.
Speaker 2: Tom is wrong again, to say the least. A stunning
Speaker 2: reassessment of the strength of the American economy off GDP.
Speaker 2: Good morning to the optimists out there who see the
Speaker 2: glass have full. Also claims coming in, as Katie Greifeld
Speaker 2: mentioned as well. Features up twelve, they lifted earlier, still
Speaker 2: up nicely, Nastak up three tenths of a percent. But
Speaker 2: the bond market has been extraordinary with reassessment nine basis
Speaker 2: points three point seven nine percent on the ten year yield. Peterson,
Speaker 2: the first six months of the year have been wrong, wrong, wrong,
Speaker 2: for so many. It's just been extraordinarily difficult. Is that
Speaker 2: because of the pandemic. This is just is a jumble
Speaker 2: of economics and dynamics. This is, to use a cliche,
Speaker 2: this is original territory.
Speaker 3: This definitely is original territory. We have two things going
Speaker 3: on at the same time, the waterbed effect from the pandemic,
Speaker 3: where you have strong desire to spend on services after
Speaker 3: a lot of pent up demand when people were cooped up,
Speaker 3: and you also have labor shortages. Labor shortages are new
Speaker 3: in this sense, and the fact that you have so
Speaker 3: many baby boomers with experience leaving and so that's leaving
Speaker 3: a lot of employers short. So between strong demand for
Speaker 3: services and a limited desire to let people go, we're
Speaker 3: seeing the we're seeing consumer confidence and certainly consumer spending
Speaker 3: remain buoyant.
Speaker 1: Jobsday, July seven, what do you see.
Speaker 3: Well, it's possible that we'll continue to see job editions.
Speaker 3: We still have a lot of vacancies out there, which
Speaker 3: is probably disappointing the FED because they really wanted those
Speaker 3: vacancies to shrink. And the unemployment rate's probably still going
Speaker 3: to remain pretty low.
Speaker 2: He's going to remain pretty low. But come on, he's
Speaker 2: gotten nothing done here. What's a traction here for the
Speaker 2: Fed to meet the theory they are praying and hoping for.
Speaker 1: What's the path on that data?
Speaker 2: Q three, Q four.
Speaker 3: Well, what needs to happen is consumers need to feel
Speaker 3: that they might lose their jobs, right, so you have
Speaker 3: to kind of scare them into thinking they're going to
Speaker 3: become unemployed and that will cause them to pull back. Also,
Speaker 3: this excess savings that we've been talking about in aggregate,
Speaker 3: we think that's probably going to run out in the
Speaker 3: fall of this year, and so once that happens, and
Speaker 3: if consumers really believe something bad has happened is going
Speaker 3: to happen, which our indicators keep saying, then that will
Speaker 3: help slow the economy and thereby inflation.
Speaker 1: Dana, thank you so much.
Speaker 2: Dana Petersons the kind from board here off the shock
Speaker 2: of a third look at first quarter a GDP.
Speaker 4: Matthew Hornbach, global head of macro Strategy over at Morgan Stanley.
Speaker 4: Great to have you on the show. Joining on a
Speaker 4: morning where we have really a blistering column from Bill Dudley,
Speaker 4: of course, the former New York Fed President now a
Speaker 4: Bloomberg opinion columnist, writing that when you add up all
Speaker 4: the forces that he sees in the economy right now,
Speaker 4: he ends up with a four and a half percent
Speaker 4: ten year treasure yield. You wrote a few weeks ago
Speaker 4: that you expect ten your treasure yields to end the
Speaker 4: year at three and a half percent, So a lot
Speaker 4: of distance between those two numbers. Walk us through what
Speaker 4: you see that's going to push the ten year down
Speaker 4: to that level.
Speaker 5: Think thanks Katie for having me on the show. It's
Speaker 5: a pleasure to be back. Let's start with fiscal policy,
Speaker 5: for one. I mean, I think, you know, mister Dudley
Speaker 5: is correct in that fiscal policy had been playing a
Speaker 5: pretty supportive role for economic activity in the United States.
Speaker 5: In fact, just over the past twelve months, the federal
Speaker 5: government budget deficit total two trillion dollars, which was a
Speaker 5: one hundred percent increase from the twelve months before that.
Speaker 5: So over the past year or so, the economy has
Speaker 5: been supported by a fairly sizable fiscal deficit. But when
Speaker 5: we look at the projections that are coming out of
Speaker 5: the Congressional Budget Office and we incorporate that into our forecasting,
Speaker 5: we actually see that the rate of change of fiscal
Speaker 5: support is going to decelerate meaningfully over the next twelve
Speaker 5: months or so. So by the time we get to
Speaker 5: the middle of twenty twenty four, we're actually we're actually
Speaker 5: going to have a fairly large decline in the deficit,
Speaker 5: to the tune of about twenty five percent on a
Speaker 5: year of a year basis. So, you know, we do
Speaker 5: think that fiscal policy has been supportive of activity, probably
Speaker 5: keeping inflation elevated. But you know, over the next twelve months,
Speaker 5: we think that support fades pretty quickly.
Speaker 4: It's really interesting to hear you say that, because I mean,
Speaker 4: the narrative has been that, you know, the trillions of
Speaker 4: dollars that we saw on stimulus from the fiscal side
Speaker 4: during COVID really put us in the situation we're in
Speaker 4: now with that very sticky inflation we're seeing. But it
Speaker 4: sounds like you're making the argument that actually that's going
Speaker 4: to turn into a tailwind of sorts for the FED.
Speaker 5: Well, certainly with respect to bringing inflation down. I mean,
Speaker 5: our economists have core PCE inflation ending this year at
Speaker 5: three point four percent, which is fifty basis points below
Speaker 5: the fed's just released economic projections for inflation. So we
Speaker 5: do think that inflation will decelerate more meaningfully than the
Speaker 5: FED is expecting. And I think one of the key
Speaker 5: contributing factors there is the fading away of fiscal support.
Speaker 2: Armback with us with Morgan Stanley. We're gonna digress here
Speaker 2: right now, and this is Germane and we're going to
Speaker 2: begin a third quarter conversation with him. If you're a
Speaker 2: young Turk at Morgan Stanley, not the privilege, the pleasure,
Speaker 2: but the honor of being in Tokyo with Robert Allan
Speaker 2: Feldman is unmeasurable. Robbie Feldman was a huge supporter to
Speaker 2: me over the years with his true expertise on Japan
Speaker 2: culture and Jaman finance. And if you're Matt hornback to
Speaker 2: show up with doctor Feldman and Tokyo is pretty cool.
Speaker 1: Matt.
Speaker 2: You guys own Tokyo with Doctor Feldman and with your
Speaker 2: time there as well. Let us just get to the
Speaker 2: wisdom of what's it mean for Americans? If I get
Speaker 2: yen back up to one fifty, if I get week yen,
Speaker 2: what's the sowat for our listeners and viewers?
Speaker 5: Well, well, Tom, I think that the first thing I
Speaker 5: would need to do is change my necktie into a
Speaker 5: bow tie, which is of course your dress of choice
Speaker 5: as well as as well as Robbie Feldman's dress of choice.
Speaker 5: So I don't need to do that to start the conversation.
Speaker 5: But given that we don't have time, what I would
Speaker 5: say here is the takeaway for our listeners here is that, look,
Speaker 5: Japan is a wonderful holiday destination. I mean, with dollary
Speaker 5: in at one point fifty, it makes traveling to the
Speaker 5: country extraordinarily affordable. But it also does I think probably
Speaker 5: irk some policymakers in the country of Japan, and so
Speaker 5: we certainly have to be on the lookout for any
Speaker 5: kind of verbal or physical interaction, intervention into the currency
Speaker 5: markets if.
Speaker 2: We get if they're in an experiment. We saw that
Speaker 2: with Uaita yesterday at CenTra.
Speaker 1: There's going to.
Speaker 2: Be an unwinding of that experiment. Are these going to
Speaker 2: be smooth curves, continuous functions over days, weeks, months, or
Speaker 2: do you and Robbie and Morgan Stanley Japan suggest that
Speaker 2: we need to be aware that the failure of YCC
Speaker 2: could lead to real instabilities.
Speaker 5: Well, you know, so why y CC is an ongoing
Speaker 5: uh program that you know, probably lasts a bit longer.
Speaker 5: You know, from our perspective, the key detriment to y
Speaker 5: CC was when it came to the market functioning of
Speaker 5: the JGB market, the Japanese government bond market, you know.
Speaker 5: But the good news here is that functioning in that
Speaker 5: market has improved, and I think policy makers they are
Speaker 5: recognized as.
Speaker 2: I mean, this is really important, folks. There's demonstrably been
Speaker 2: an improvement there as they've tried to impute inflation into
Speaker 2: the into the into the mix. If we finally get
Speaker 2: YCC to turn and we get some form of dynamics
Speaker 2: I don't understand.
Speaker 1: And if we have the combination of Chinese.
Speaker 2: UH exported a disinflation, should we be shocked by an
Speaker 2: Asian disinflationary tendency out the next twelve months.
Speaker 5: I don't think we should be surprised at that time.
Speaker 5: I do think that at the end of the day,
Speaker 5: capitalism is going to try to find a way of
Speaker 5: reducing costs, and if that's moving some production to the
Speaker 5: country of Japan, which we've already seen in certain sectors
Speaker 5: of the global economy, then we should expect that to
Speaker 5: improve pricing power for consumers as they get alternative sources
Speaker 5: of production for goods and services.
Speaker 2: On a macro basis. Are you optimistic and equities end
Speaker 2: of the quarter? I know, you know Allen Zenner loaded
Speaker 2: the boat on equities here.
Speaker 1: You know in January you.
Speaker 2: And I didn't, Matt, But can you be optimistic about
Speaker 2: the ownership and acquisition of equities here forward?
Speaker 5: I think we can be relatively optimistic because but you know,
Speaker 5: when you're talking about Japan time, which is where we
Speaker 5: began the conversation, you know, equities in Japan look very
Speaker 5: attractive to us as well, So when you're talking about
Speaker 5: capital being exported out of Japan, let's say to the
Speaker 5: United States. I would say that's probably a bit more
Speaker 5: difficult of a move, especially with dollar yen, you know,
Speaker 5: approaching one hundred and fifty. That's something that people will
Speaker 5: have to think long and hard about because equities in
Speaker 5: Japan look attractive as well.
Speaker 2: Matt Hombach, thank you so much. A clinic there on Japan.
Speaker 2: He is with Morgan sounding at least aw someone joins
Speaker 2: us right now Investor Strategy to champion Morgan Global Wealth Management.
Speaker 2: I love, love love your note because it's for all
Speaker 2: the people out there, and you know who you are
Speaker 2: that don't own Apple. And what you're talking about in
Speaker 2: your note is you have to rebuild an equity portfolio?
Speaker 2: How do you reconstructuit?
Speaker 1: Easy?
Speaker 2: After I'm up two percent for the first half and
Speaker 2: that's not good enough?
Speaker 6: That's right. We are very focused on encouraging investors to
Speaker 6: start rebuilding the equity exposure that they want to carry
Speaker 6: with them through the next cycle. And big reason for
Speaker 6: that is that when we look at our anonymized kind
Speaker 6: of aggregate client data, it shows us that half of
Speaker 6: our clients own less equities than they did a year ago.
Speaker 6: So right now, rather than focusing on broad index valuations
Speaker 6: which are above their long term averages, we're looking for
Speaker 6: those pockets of value. And it's encouraging that if you
Speaker 6: strip out the seven biggest names, you actually find that
Speaker 6: the rest of the S and P five hundred is
Speaker 6: training below it's ten year forward looking price earnings.
Speaker 2: People.
Speaker 1: This is important, folks.
Speaker 2: I mean Marvin low In from Stay Street, which is
Speaker 2: a different remant than JP Morgan Global Wealth Management, but
Speaker 2: you've both got the same message and that people really
Speaker 2: aren't participating. They're in cash, they're cautious, they're nervous. Is
Speaker 2: buying a consumer like General Mills up no nine percent
Speaker 2: dividend increase yesterday, or proctoring gamble or name other things
Speaker 2: we never talk about on this show. You've got to
Speaker 2: hold people's hands for them to buy four hundred and
Speaker 2: twenty two shares odd lot of proctoring gamble.
Speaker 6: To some extent, right, But we are focused on different opportunities,
Speaker 6: certainly within the active management space, but also things like
Speaker 6: the overall composition of their allocation. We do think that
Speaker 6: leadership in this next cycle is going to look different
Speaker 6: than it did in the last, we're more focused on
Speaker 6: some real economy sectors, but complementing those exposures with these
Speaker 6: innovations that are kind of bubbling up, like artificial intelligence,
Speaker 6: of course, and really looking for value right now. And
Speaker 6: we're seeing that in other areas beyond just large cap equities,
Speaker 6: think US midcaps, think international equities, although our views there
Speaker 6: are shifting somewhat, and also complementing that equity risk exposure
Speaker 6: with a core bond duration position.
Speaker 4: I want to get to the leadership of the next cycle,
Speaker 4: but I want to start with that call that basically
Speaker 4: you're helping investors rebuild their equity positions. Really interesting because
Speaker 4: coming into twenty twenty three, this was built as the
Speaker 4: year of the bond, fixed income actually has income attached
Speaker 4: to Now midway through the year, it feels like it's
Speaker 4: kind of turned into a game of catchup, where those
Speaker 4: investors who had bought into the Year of the bond
Speaker 4: are now trying to catch up to that equity rally.
Speaker 6: Yeah, and for us, this call is not about trying
Speaker 6: to chase a rally. It's really about remembering what it
Speaker 6: is we hire stocks to do in a portfolio in
Speaker 6: the first place, and that's to be the engines of
Speaker 6: long term capital appreciation. If we zoom back out, I
Speaker 6: think this cool down and volatility that we have seen
Speaker 6: is giving us an opportunity to kind of reassess and
Speaker 6: move forward with cooler heads. So when I go back
Speaker 6: and think about something like our long term capital market assumptions,
Speaker 6: which suggests that over the course of the next ten
Speaker 6: to fifteen years, you're still going to be able to
Speaker 6: annualize total returns of seven and a half to ten
Speaker 6: percent inequities, It's like, why not now, especially when there
Speaker 6: is value to be found in the market.
Speaker 1: I love Lisa.
Speaker 2: In short terms, ten to fifteen years, it's a different.
Speaker 7: Out, got it.
Speaker 4: Well, let's talk about the leadership of the next ten
Speaker 4: to fifteen years of this next cycle that you mention.
Speaker 4: It's not going to be the previous leaders which is
Speaker 4: big cap tech. But when you think about some of
Speaker 4: those smaller companies, those mid sized companies, what's going to
Speaker 4: be the AI moment for those companies? You think about
Speaker 4: what's powered I just.
Speaker 2: All these kids in their aizeitis. Here's my AI, got
Speaker 2: a cut packard computer on my iPhone?
Speaker 1: Yeah, continue zeitgeist.
Speaker 7: Yeah.
Speaker 4: Well, in any case, I mean you think about You
Speaker 4: can make a lot of arguments about valuations on the fangs,
Speaker 4: et cetera, but still it feels like almost we had
Speaker 4: a reset when you think about again that AI moment.
Speaker 6: Indeed, and I think that leadership and kind of that
Speaker 6: theme will trickle down into some of those smaller cap companies.
Speaker 6: We're focused on the mid cap space rather than small
Speaker 6: caps because we do see a better valuation there, But
Speaker 6: looking forward towards the next cycle, I think we have
Speaker 6: to remember that playing AI doesn't just require picking out
Speaker 6: the enablers of it, but really thinking through some of
Speaker 6: the cross sector applications, whether that be you know, establishing
Speaker 6: factors of the future or rethinking supply chains. So you've
Speaker 6: got to kind of expand your purview and think about
Speaker 6: all of the different types of disruption that this could
Speaker 6: potentially buried.
Speaker 2: In a note, there's way too much ex this and
Speaker 2: X that, but X this and X that. Where JP
Speaker 2: Morgan coming up with is if you take this out,
Speaker 2: take that out, take stupid AI out, take Bitcoin out,
Speaker 2: and the rest the market's trading in a fourteen point
Speaker 2: eight multiple.
Speaker 1: One hundred and twelve.
Speaker 2: Percent of our audience doesn't agree with that statement. Give
Speaker 2: me an example of a sector group that's trading at
Speaker 2: a shocking multiple from twenty years.
Speaker 6: Ago, at a relative discount. You mean, yeah, I mean
Speaker 6: for us that's midcaps.
Speaker 2: That's Northwestern talk. I'm just talking cheap. She's talking a
Speaker 2: relative discount.
Speaker 1: Continue.
Speaker 6: Sure, so midcaps is a perfect example of that for us.
Speaker 6: You can play a lot of the same themes that
Speaker 6: investors are getting very excited about. But rather than fish
Speaker 6: in this overvalued pond, look at an area of the
Speaker 6: market that is more fairly so.
Speaker 2: I can retail Walmart's ridiculous. I'm sorry. I look at
Speaker 2: the single digit revenue growth the Walmart and I go
Speaker 2: to get it. You're looking at, you know, as a generalization,
Speaker 2: and given Walmart in MidCap.
Speaker 6: Sure, I'm not supposed to talk about single stocks here.
Speaker 2: I know on television trouble compliance.
Speaker 6: Yeah, yeah, you're getting at the right idea.
Speaker 2: I'm getting at the right end of this is I'm
Speaker 2: going down it.
Speaker 1: I'm going down it. Why did I get out of that?
Speaker 1: Save Metherine, give me, give me some help here.
Speaker 4: Let's talk quickly about duration, because you also write that
Speaker 4: now is the time to extend duration. Bill Dudley coming
Speaker 4: out on the other side of that trade this morning
Speaker 4: with a great column why is now the time?
Speaker 6: Look, I know Powell and other central bankers are talking
Speaker 6: very hawkishly, that was certainly the case yesterday. But our
Speaker 6: base case is still that the Fed probably only has
Speaker 6: one more interest rate hike in their pocket. So assuming
Speaker 6: that if you get a policy rate that's let's call
Speaker 6: it five point three percent, our model suggests that the
Speaker 6: fair value for the ten year yield is about three
Speaker 6: point eight not a big stretch from where we're trading today.
Speaker 6: But if the Fed should hike, you know, additionally, beyond that,
Speaker 6: for every twenty five basis point hike, that's an additional
Speaker 6: fifteen basis points of yield on the tenure. So we
Speaker 6: don't think that right now the entry point is looking
Speaker 6: too crazy. And our base case is that one year,
Speaker 6: two year, three years from now, those yields are going
Speaker 6: to be lower, and so we want to move into
Speaker 6: that not just for the opportunity to lock in those
Speaker 6: elevated yields, but also from the portfolio construction perspectives.
Speaker 1: Your chod. So this is really really valuable. This is
Speaker 1: the heart of the matter. Folks.
Speaker 2: You don't own Apple, you don't own Nvidia. What do
Speaker 2: you got to do? You got to rebuild this perfect language, rebuild,
Speaker 2: reconstruct a portfolio, and takes courage.
Speaker 1: To do that.
Speaker 2: It's very nice, at least awesome, Bon, thank you so much.
Speaker 2: Thank you that with JP Morgan Global Wealth Management, kna
Speaker 2: Haeik joins US now head of Research ednf Man, who's
Speaker 2: been wonderful about the plectic nature of commodities.
Speaker 1: I've got to go to.
Speaker 2: Copper is the litmus paper of the system. What does
Speaker 2: an ED and f Man call on copper?
Speaker 8: Yeah, I mean there's a reason why they call it
Speaker 8: doctor Copper, right. It is a flagship. It is the
Speaker 8: bell weather for where the economy is going. And if
Speaker 8: you look at the copper price to date, it's been
Speaker 8: less and spectacular. This was despite fundamentals being fairly bullish,
Speaker 8: very low stocks, historically tight stocks. They were expecting China
Speaker 8: to come and really sweep up demand and it just
Speaker 8: didn't happen. China's growth has been anemic and unfortunately, despite
Speaker 8: recent stimulus, it's not likely to grow as much as
Speaker 8: we were originally hoping. So even into the second half
Speaker 8: the year, I feel that copper prices could stay languishing
Speaker 8: at around current levels, maybe a little bit higher, but
Speaker 8: not too much.
Speaker 2: In the modern day, do we have a better understanding
Speaker 2: of China commodity inventories the idea of actually how much
Speaker 2: copper they have an inventory? Or is it a mystery?
Speaker 8: No, there is insight for sure, but you know, we
Speaker 8: have to take the data with a pinch of salt.
Speaker 8: I think if you for those who are maintaining supply
Speaker 8: demand and trade data, I think you can work out
Speaker 8: roughly how much China has got left in their in
Speaker 8: their warehouses. Just by extrapolation from their net export and
Speaker 8: net input situation. We we think that they probably are
Speaker 8: they are okay because domestic real estate and industrial products
Speaker 8: in China have not been buoyant, and that means their
Speaker 8: off take of copper has been underperforming quite substantially compared expectations.
Speaker 8: So I think that is the issue, you know, whether
Speaker 8: they have stocks to draw down upon or where they
Speaker 8: need to come to the world for more supplies. I
Speaker 8: just think they haven't got enough. You know, we have
Speaker 8: to wait to see the stimulus. Is there going to
Speaker 8: be an impact, maybe a lagged one. If they come
Speaker 8: and they can see some growth and recovery, that will
Speaker 8: definitely be something which will help, but for now my
Speaker 8: hopes are not too terribly high.
Speaker 4: And when you really dissect the price action in copper,
Speaker 4: of course, like you mentioned, it's called doctor copper for
Speaker 4: a reason. Typically, you know, it's seen as this proxy
Speaker 4: for global growth and the health of the economy. Is
Speaker 4: that still the message to take or when you look
Speaker 4: at this price action, is it more technical in nature?
Speaker 8: Well, no, I think it is. Actually it's still valid
Speaker 8: because it's very symptomatic at what's happening in the rest
Speaker 8: of the world. We're in a high interest rate environment.
Speaker 8: We've got a lot of flag suggesting recessiony environments later
Speaker 8: in the year. PMI numbers are all coming down. These
Speaker 8: are all data points that really fuel the copper market,
Speaker 8: and they are symptomatic also of the broader wider economy.
Speaker 8: It's been it's been weak, you know, it has not
Speaker 8: been as strong as expected. And this is despite interest
Speaker 8: rates going up. I mean, I think that's the biggest fear.
Speaker 8: If interest rates stay high, the demand is going to suffer.
Speaker 8: There are fears for industrial production. None of this boats
Speaker 8: well for Chinese sorry, copper demand and also reflective the
Speaker 8: border economy for sure.
Speaker 4: And kinda just broadening out from copper here. I want
Speaker 4: to get your thoughts on what happened this past week
Speaker 4: and of course the Wagner group marching on Moscow. It
Speaker 4: was interesting you saw a bigger reaction in wheat than
Speaker 4: you did in oil. As we try to track these
Speaker 4: geopolitical tensions. What is the market to watch here?
Speaker 8: Yeah, I think well, Number one, we don't know exactly
Speaker 8: what the situation is going to be. We had this
Speaker 8: military uprising. Does that we can putin or not? There
Speaker 8: are clearly some concerns there. An alternative to putin is
Speaker 8: something which really the market is not quite ready for,
Speaker 8: and we don't know how to process that even so
Speaker 8: I think that's going to be throughout all kinds of things.
Speaker 8: One thing we know is that oil is strategically important
Speaker 8: for Russia, So no matter who is in charge, they
Speaker 8: will make sure that they need those revenues. Wheat, Russia
Speaker 8: has a massive crop. It's still heavily exporting the record
Speaker 8: crop at harvested last crop and they're on track to
Speaker 8: do another one, so they're going to need that to
Speaker 8: come out of the country as well.
Speaker 2: Color one final, one final question, I really want you
Speaker 2: to sit on this and spend some time on it.
Speaker 2: The bombshell of the first half was the IMF call
Speaker 2: of tepid economic growth globally to twenty twenty eight. Now
Speaker 2: we've had a disastrous commodity cycle. Someone called a broad,
Speaker 2: lengthy structural disinflation and commodity we've been searching for a supercycle.
Speaker 2: We had a leg up here off of twenty twenty
Speaker 2: and then a pullback withither a broad index of commodity
Speaker 2: right now? Given the IMF call, can you give me
Speaker 2: any optimism and a blended commodity index right now?
Speaker 8: I think what you're going to do. You're gonna have
Speaker 8: to look for pockets of commodities that have individual fundamentals
Speaker 8: and supplied amount balances for individual markets that will give
Speaker 8: you pockets of optimism. So, for example, some of the
Speaker 8: soft commodities where today's El Nino weather phenomenon will mean
Speaker 8: that supply risks are heightened in the likes of sugar
Speaker 8: or palm oil, or cocoa or cotton. On the other hand,
Speaker 8: the issues we've mentioned before, that doesn't vote well for
Speaker 8: a broader complex of commodities, particularly if demand is going
Speaker 8: to start waning. Whether it's the IMF prediction or even worse.
Speaker 8: Having said that, I think if you look at prices,
Speaker 8: yes they've come off quite a bit, but they're still
Speaker 8: substantially elevated from what they were pre COVID. So if
Speaker 8: you compare twenty nineteen to current levels, requite a bit higher,
Speaker 8: and that reflects historically low levels of stocks. So we're
Speaker 8: not it's not a catastrophe. We are not even a
Speaker 8: super psycho either. But markets are not as well supplied
Speaker 8: or to us they were three years ago, and as
Speaker 8: a result of that, we're not going to be entirely
Speaker 8: immune to supply shocks. So whether it's copper inventories being
Speaker 8: low or even core supplies that are historically fairly tight,
Speaker 8: we're not really available. We're not can't really cope with
Speaker 8: a big sup.
Speaker 2: My shock Coniak, thank you so much, greatly appreciate it.
Speaker 2: With Ed and f Man alluding to some of what
Speaker 2: we heard from Wayeley and black Rock, Shehanali bask Our
Speaker 2: Bloomberg get the most boring guy at Morgan Stanley correspondent,
Speaker 2: who is this guy, mister whiff w ipf And we
Speaker 2: don't hear from him because he's not a slick investment
Speaker 2: banker is he.
Speaker 7: But not boring at all. As you know.
Speaker 9: The reason he's so well known is not Morgan Stanley.
Speaker 9: Is this grateful dead cover band and so well. It's
Speaker 9: interesting here about his move over to Credit Suez. Kalahar,
Speaker 9: the chairman of Credit SUITESE is known on Wall Street,
Speaker 9: known at Morgan Stanley for having one of the most
Speaker 9: loyal bases of people who have worked for him. That
Speaker 9: is something he's always understood. Now to bring over Tom
Speaker 9: Whip from Morgan Stanley after almost four decades to help
Speaker 9: lead this transition.
Speaker 7: Remember the complications here.
Speaker 9: Is not just a matter of bringing two behemon banks together,
Speaker 9: but making all the businesses work together. Something Morgan Stanley
Speaker 9: was able to do very early on was make the
Speaker 9: wealth management work with the investment bank and make the
Speaker 9: investment bank work for the wealth manager. That is something
Speaker 9: that UBS and Credit Suite have been trying to work forever.
Speaker 2: And what's so important to me is Whip had the
Speaker 2: worst job at Morgan Stanley. I mean this was im
Speaker 2: men's respect, folks. He's the liboard guy and more than
Speaker 2: anybody on the street, he's the guy who said the
Speaker 2: benchmark calculation. I think Mary Poppins, you know their railways
Speaker 2: to India, the librar funding of everything out there. We're
Speaker 2: going to stop doing it and we're going to have
Speaker 2: a new thing, which only Ira Jersey understands.
Speaker 1: And the answer is am I correct.
Speaker 2: Whip is the guy that led the charge on the
Speaker 2: migration up and what a boring job.
Speaker 1: That's what he's got to do at UBS.
Speaker 7: Boring but important and interesting.
Speaker 9: He was on the Alternative Reference Rates Committee ARCC, and
Speaker 9: that committee appointed somebody else from City.
Speaker 7: Group to lead that committee as well.
Speaker 9: So on Wall Street he was important for the Live
Speaker 9: or transition more than that. He has such a strong
Speaker 9: fixed income background for this reason as well. And remember
Speaker 9: post crisis, UBS really changed the base here of fixed
Speaker 9: income Exphich. He's at Credit suits and UBS are very
Speaker 9: very different. The risk tolerance is night and day, and
Speaker 9: so there are some very difficult decisions to be made
Speaker 9: about how the combined businesses operate moving forward.
Speaker 4: So he's got Grateful Dead, he's got the Live or
Speaker 4: Transition under his bill. Let's talk about what he's been
Speaker 4: tasked to do with UBS. Just going off the story,
Speaker 4: he's going to lead the bank's effort to integrate credit Suites'
Speaker 4: operations the Americas. When you think about that task versus
Speaker 4: what's going on in Europe, how does it compare.
Speaker 7: Listen, something that was interesting.
Speaker 9: People ask a lot about credits use what was left
Speaker 9: of the investment bank, and the reality is quite a lot.
Speaker 9: They have a big leverage loan operation. They still had
Speaker 9: a big trading operation, but it was kind of messy.
Speaker 9: Remember there was very many hiccups leading into the end there.
Speaker 9: And so if the Americas as well part of this,
Speaker 9: Remember I think that the talent story cannot be denied here.
Speaker 9: They're in the process of cutting a lot of jobs,
Speaker 9: figuring out the overlap. Clearly they're bringing people on the
Speaker 9: people that they need to kind of make this all
Speaker 9: work for them. And remember UBS in particular, they have
Speaker 9: a massive, massive, massive wealth management operation. They are financial
Speaker 9: advisors across the United States, and there's plenty of investment
Speaker 9: bankers in the US for both banks. So it is
Speaker 9: it is a large operation in the United States with
Speaker 9: a lot of concerns about how they bring together. Like
Speaker 9: I was saying, those cultural differences and livers tolerance of
Speaker 9: these banks.
Speaker 4: Well, broadly speaking, let's talk about that timeline. As you mentioned,
Speaker 4: they are obviously acting a lot of the credits suse
Speaker 4: to workforce. The big news out earlier this week is
Speaker 4: that reportedly UBS preparing to cut over half of the
Speaker 4: Credit Suite workforce. We know that they're also bringing people on.
Speaker 4: Is that the next phase. Should we be expecting more
Speaker 4: headlines to the effect of who is actually going to
Speaker 4: get this job done?
Speaker 7: Yeah?
Speaker 9: And you know, even just in the near term here,
Speaker 9: the way that UBS is operating is it's kind of
Speaker 9: a parent company to these two separate banking divisions Credits
Speaker 9: using UBS. At the end of August, we'll see the
Speaker 9: consolidated financial results. It's already making me kind of nauseous
Speaker 9: to think about what that will look like. And so yes,
Speaker 9: it's a very complicated integration.
Speaker 7: But both of these folks.
Speaker 9: Both Tom and con Kelleher, have seen difficult days before
Speaker 9: and banking.
Speaker 2: And where do you perceive UBS Credits Suite will end
Speaker 2: up in New York City? I mean, Katie brings up
Speaker 2: the geography of this. Let's forget about London, forget about Zurich.
Speaker 2: I got to believe they're going to maintain Zurich to
Speaker 2: some extent because of the politics. They don't have the
Speaker 2: politics in New York. Do they do you there?
Speaker 7: Politics and banking everywhere?
Speaker 2: Well, but I mean they don't have to talk to
Speaker 2: mayor Adams about it. You know, it's not Zurich is different.
Speaker 2: What is this going to look like in twenty four
Speaker 2: months in Manhattan?
Speaker 9: You know, that's a great question because remember I think
Speaker 9: about this a lot because Credit Sweez was in that
Speaker 9: iconic Madison Avenue building eleven Madison, and you know, you
Speaker 9: start to have bankers across the street really just what
Speaker 9: maybe ten or so blocks away over at UBS on
Speaker 9: Sixth Avenue. Different culture over there. It's starting to move over.
Speaker 9: I I even wonder it's going to happen to that
Speaker 9: least over in the Credit z'z building.
Speaker 7: And so yes, I mean they have a massive New
Speaker 7: York presence. And remember, for for both companies, Credit Switez.
Speaker 9: Does not have large wealth manager in the United States,
Speaker 9: to be clear, Ubs does, but they do have a
Speaker 9: large investment bank.
Speaker 7: I mean in the United States.
Speaker 2: What's important here? And you know, you know we're talking
Speaker 2: to Greifeld in Basset here. I mean they're looking out
Speaker 2: at the Hampton's, at the lobster role. But I mean
Speaker 2: this guy with this is a serious deadhead band. I mean,
Speaker 2: you know, Hell or high Water. They actually play. The
Speaker 2: guy with a blue T shirt on looks like Jerry Garcia.
Speaker 2: I mean, he's got the lookdown cold and if we
Speaker 2: got nothing to do. July third, rockaway Point the Sugar
Speaker 2: Bowl they're playing. I mean, Shanali, this is Bloomberg reporting.
Speaker 2: I think, Reddick, what do you think, folks? Retto keeper
Speaker 2: of the amex me, you just want.
Speaker 7: It to be very honest with you.
Speaker 9: I did want to write a story about his cover band,
Speaker 9: I just never got to it.
Speaker 7: Here's a big news patch.
Speaker 2: Report July third, on this new guy who's going to
Speaker 2: save UBS and credit sweet Well.
Speaker 9: Last time you got me to write about the piano
Speaker 9: Bart Davos, I got in trouble for it.
Speaker 1: So everyone who writes this is a cardinal.
Speaker 2: Everyone who writes about the piano Bart does get in trouble.
Speaker 2: This is a fact of like. This is to me
Speaker 2: a huge announcement. And again the imprint here of Colm
Speaker 2: Keller is extraordinary.
Speaker 9: The kind of Morgan Stanley UBS mirroring has always has
Speaker 9: been a big question. I remember a UBS banker once
Speaker 9: telling me that they were afraid that Morgan Stanley would
Speaker 9: want day by Credit Suite.
Speaker 7: He said it kept him up at night.
Speaker 9: And I remember when I was reporting, I covered both
Speaker 9: banks for what maybe almost ten years now more. Cohlm
Speaker 9: would be seen having a drink with clients at the
Speaker 9: Solme wine bar, which is right behind UBS, while he
Speaker 9: was at Morgan Stanley. So you know, there's a very
Speaker 9: close tie between all these businesses. Morgan Stanley was the behemoth,
Speaker 9: but it can't be discounted that COLMB has a tremendous
Speaker 9: amount of relationships not only among the banking ranks, but
Speaker 9: also among wealth management and wealth clients.
Speaker 2: Twenty seconds, we're into the weekend, the summer begins. How
Speaker 2: grim is it out there in Wall Street, Manhattan?
Speaker 9: The idea that UBS Credit Suite will be cutting that
Speaker 9: many tens of thousands of jobs at the same time
Speaker 9: as Goldman and GP Morgan and City Group are doing
Speaker 9: multiple rounds of layoffs is grim.
Speaker 7: There is very little capacity to bring on new bankers
Speaker 7: on Wall Street.
Speaker 2: Great reporting by Alexandra Harris at Bloomberg. HERA, mister whipp
Speaker 2: if I hope I'm pronouncing that right, He's gonna have
Speaker 2: a getaway, not an Alabama getaway. He's gonna have a
Speaker 2: Zurich getaway to help ubs bring in credit suite. Subscribe
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Speaker 1: I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen,
Speaker 1: and this is Bloomberg