Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Bitcoin
Speaker 1: is up more than one hundred and fifty percent year
Speaker 1: to date. That is a stunning number. And it's not
Speaker 1: just Bitcoin. Cryptocurrencies of all types have been on fire,
Speaker 1: from ethereum to light coin to z cash. All of
Speaker 1: these cryptocurrencies has to have soared over more than ninety
Speaker 1: billion dollars market cap in the past just the past
Speaker 1: seven days. To understand what this is? Is Is this a bubble?
Speaker 1: I am very happy to bring in Ron Quaranta. He
Speaker 1: is the founder and chairman of the Wall Street Blockchain Alliance,
Speaker 1: and he joins me here in the Bloomberg eleven three
Speaker 1: oh studios in New York City. Run what is going
Speaker 1: on here? Are we experiencing a mass bubble that will
Speaker 1: end in tears? Good morning, Good to be here again. UM,
Speaker 1: I would suggest we're actually looking at the emergence and
Speaker 1: we have this conversation with a lot of our members.
Speaker 1: Potentially a new class of asset, a new way to
Speaker 1: gian Alpha. So there's certainly a bit of the hype cycle.
Speaker 1: I mean last evening Bitcoin of course, Mark, And by
Speaker 1: way of context, if you purchased around this time in bitcoin,
Speaker 1: you would have spent eight cents. The total market cap,
Speaker 1: as you mentioned, is approaching over you know. Okay, So
Speaker 1: if you think about a currency, right, there's a lot
Speaker 1: of controversy over is Bitcoin a currency? Are some of
Speaker 1: these other cryptocurrencies truly currencies? And typically for something to
Speaker 1: be considered a currency, it needs to have some level
Speaker 1: of stability. It needs to be backed by at least
Speaker 1: the full faith in a nation and a sovereignty to
Speaker 1: uphold a certain kind of trade agreement or something underneath it.
Speaker 1: And when you see this d of volatility, doesn't that
Speaker 1: challenge the concept of bitcoin as a currency. Yeah, it
Speaker 1: certainly challenges the concept of um the type of investment
Speaker 1: that it might represent. But what I can tell you
Speaker 1: is that again in the conversations with our with our
Speaker 1: members and the market, Bitcoin and ether and all of
Speaker 1: these cryptocurrencies are really representing a different type of investment,
Speaker 1: a different type of asset class. So how industry is
Speaker 1: looking at it, how investment manages. Some of our fastest
Speaker 1: growing demographic are asset managers looking at this different type
Speaker 1: of tradeable commodity. But but okay, so understood. So in
Speaker 1: other words, you're saying, it's institutions that are coming in,
Speaker 1: uh to invest it in it as an asset class.
Speaker 1: Of course, it's a little confusing to me because currency
Speaker 1: typically the reason why people will invest in it is
Speaker 1: a sort of a wager on the health of a country.
Speaker 1: But it just sort of in its own right, what
Speaker 1: is it? If it's not going to be adopted on
Speaker 1: more platforms, then it's it's really a useless kind of asset. Well,
Speaker 1: I think what you're looking at is the the wager
Speaker 1: on the adoption of blockchain, the underlying blockchain technology across
Speaker 1: different indie street segments. That is really where the value
Speaker 1: is being derived with a perceived value over time, the
Speaker 1: digital currencies, the digital assets, these tokens represent what we
Speaker 1: often say is the the seeping of blockchain technology across
Speaker 1: the canvas of financial markets. So it's very interesting. Abby
Speaker 1: Abigail Johnson, CEO of Fidelity this week, can Mountains not
Speaker 1: only expressed her deep interest in underlying blockchain technology, but
Speaker 1: the fact that Fidelity dot com customers will be able
Speaker 1: to see digital currency information on Fidelity dot Com coming
Speaker 1: up soon. So, in other words, as blockchain is adopted,
Speaker 1: these cryptocurrencies will more easily be adaptable to the big
Speaker 1: institutions as far as a transfer of money, and will
Speaker 1: therefore be more useful. One thing that people have speculated
Speaker 1: is that bitcoin in particular has been an instrument for
Speaker 1: Chinese wealthy individuals who want to get their money out
Speaker 1: of the country without having to be slammed down by
Speaker 1: some of these capital control rules. Do you think that
Speaker 1: that's what's going on here? I I don't think it is,
Speaker 1: and I think there's some of that potentially happening, and
Speaker 1: I can tell you in the conversations that we have
Speaker 1: within the w s b A. I don't think that's
Speaker 1: the main driver of the price appreciation that you're seeing
Speaker 1: for bitcoin and other digital currencies, even increase just in
Speaker 1: this past week. Yeah, I really, I truly believe that
Speaker 1: that's representative of global financial markets interest. Um So by
Speaker 1: way of example, again, um recently, the SEC had an
Speaker 1: opportunity to review an e t F based on bitcoin,
Speaker 1: which they rejected, but UM did take the opportunity to
Speaker 1: review that rejection. So there is the possibility in the
Speaker 1: not too distant future for a bitcoin based et okay.
Speaker 1: But why now? So? I think the market really is
Speaker 1: looking for something that is unique and differentiating, and digital
Speaker 1: currencies digital assets represent that differentiation. So we can talk
Speaker 1: about blockchain, the underlying technology that's reinventing how Wall Street
Speaker 1: and financial markets do what they do. You can look
Speaker 1: at digital currencies and digital assets as a as a
Speaker 1: different type of exposure to that different asset class. You
Speaker 1: can look at really beginning to understand that cutting edge
Speaker 1: of financial market investment. So when you look at digital tokens,
Speaker 1: for example, you're looking at a re evaluation of how
Speaker 1: investment decisions are made, how asset allocation will happen, how
Speaker 1: alpha is UH pursued, for example. So in other words,
Speaker 1: people are investing in cryptocurrencies is a proxy for investing
Speaker 1: in blockchain technology more broadly, and its adoption across financial
Speaker 1: industries correct and some in some deep measure. It's a
Speaker 1: reflection of that wage of will blockchain reinvent how financial
Speaker 1: services work? Doesn't really serve as a proxy though, because
Speaker 1: if you think about it, not all these cryptocurrencies are
Speaker 1: going to survive. That's absolutely true. When you look at
Speaker 1: the the universe of digital currencies, there's well over seven
Speaker 1: hundred of them. Most of them is not going to stay.
Speaker 1: That will not say that will not sustain. But those
Speaker 1: that have the deepest liquidity, the greatest access to multiple
Speaker 1: market places, those that are representative of the best and
Speaker 1: deepest innovation. So when you look at ether, for example,
Speaker 1: ethereum um. Recently there was an Enterprise are Enterprise alliance
Speaker 1: where global corporate organizations are getting together and we participated
Speaker 1: in that alliance to understand how Ethereum rewrites how certain
Speaker 1: processes across global financial markets operate. Those will be the
Speaker 1: ones that succeed over time. So going forward, what are
Speaker 1: you looking for to make sure that this is not
Speaker 1: a bubble and then it can be sustainable coming out
Speaker 1: of financial services for for many years, when you see
Speaker 1: double digit increases on a day by day basis, you
Speaker 1: begin to be concerned. Um, So there is some and
Speaker 1: I would I don't think anyone certainly within a W
Speaker 1: S B A would deny there's some level of hype
Speaker 1: in in some measure UM. But this this does seem
Speaker 1: to be a sustainable rise UM. So we'll see some
Speaker 1: of the froth come out of the bubble of some
Speaker 1: of this UM. But the conversations we have asset managers
Speaker 1: hedge funds deeply interested in the long term viability of
Speaker 1: digital currency as part of the portfolio fascinating. Thank you
Speaker 1: so much for joining us. It's definitely a hot topic
Speaker 1: and one that we will be talking more about. Run
Speaker 1: quaranta founder and chairman of the Wall Street Blockchain Alliance,
Speaker 1: which is based in New York City, and he joins
Speaker 1: us here in our Bloomberg eleven at three oh Studios
Speaker 1: in New York City. The indusseries have brought into cries
Speaker 1: are crawling to a new record highs. Dave Wilson is
Speaker 1: here in the Bloomberg eleven three oh studios with me
Speaker 1: right now. He is the stocks editor, columnist and blogger
Speaker 1: for m Live Go on the Bloomberg that we all
Speaker 1: love to hear from every day. Dave, what is driving
Speaker 1: this melt up? Oh? Really, it's a pretty broad based advance.
Speaker 1: But if you had to point to one area in particular,
Speaker 1: you look at the retailers. Mean, John Tucker just mentioned
Speaker 1: what's going on with Best Buy, with that stock up
Speaker 1: almost fIF but certainly not the only company that we're
Speaker 1: seeing rising in response to earnings. Uh. You think about
Speaker 1: p v H, which is Calvin Klein and Tommy Hilfiger.
Speaker 1: Their numbers are out and that stocks up four point
Speaker 1: eight percent. Uh. You see Alter Beauty, which is everything
Speaker 1: from beauty supplies to a salon to you name it,
Speaker 1: one stop shopping, and those shares are higher by three
Speaker 1: and a half percent. So you know, perhaps some of
Speaker 1: the latest numbers at least, you know, for that area,
Speaker 1: I mean, providing some relief. I mean one interesting example
Speaker 1: of Signet Jeweler's Uh you know, the stock took a
Speaker 1: hit yesterday in response to results from Tiffany. Its numbers
Speaker 1: come out and they're not good. Uh, and the stock
Speaker 1: takes a hit before the opening bell, and it's made
Speaker 1: back that loss and moved higher by nine tenths of
Speaker 1: a per cent. So you know, it goes to show
Speaker 1: you that even for some of these companies that have
Speaker 1: been taking a bit of a beating lately, uh, there
Speaker 1: is at least some uh sense of recovery. So you know,
Speaker 1: you kind of with things in that perspective, and you
Speaker 1: see why you're you're seeing some strength in the market here,
Speaker 1: you know. And before we dig into retailers, I just
Speaker 1: want to note you have bond yields in the US
Speaker 1: headed a touch lower. You had yesterday's meeting minutes which
Speaker 1: were actually really interesting for the first time in a while,
Speaker 1: and actually told us something that we did not know,
Speaker 1: which was details about the fed's plan to unwind its
Speaker 1: balance sheet, and it showed that, frankly, it was not
Speaker 1: going to be done at any kind of pace that
Speaker 1: would cause any disruption to the markets. So it's sort
Speaker 1: of this odd goldilocks scenario that's definitely I'm sure helping
Speaker 1: prop up stocks as well as suppress bond heields and
Speaker 1: boost bond prices. Were still back in this sort of
Speaker 1: you know market that's a wash in central bank cash.
Speaker 1: It's not going away, No, it's not. And let's face
Speaker 1: it to mean the central bankers are doing everything they
Speaker 1: can not to surprise the market because they don't want
Speaker 1: any real sort of shocks. I mean, we certainly had
Speaker 1: a shock, you know, in a sense a week ago
Speaker 1: we saw shares take a it and since then, I mean,
Speaker 1: you're talking about an S and P five hundred that's
Speaker 1: headed for six straight games. What's been up every day
Speaker 1: since that recovery? So it's almost like the by the
Speaker 1: dip behavior that we've seen emerge in the last couple
Speaker 1: of years of stocks and rallied is really kind of
Speaker 1: carrying forth as we go on here. All right, so
Speaker 1: let's dig a little bit more into best Buy and
Speaker 1: some of the retailer results that are propping up some stocks.
Speaker 1: Best Buy in particular up more than fifteen percent so
Speaker 1: far today. I want to bring in Joseph Feldman. He's
Speaker 1: senior managing director and retail analyst at telse Group who
Speaker 1: covers best Buy. And you know, is this just a
Speaker 1: case of a Nintendo console that is boosting everything or
Speaker 1: is Best by actually doing something different to get customers
Speaker 1: into the brick and mortar that distinguishes it from some
Speaker 1: of the online retailers. I think Best by doing something
Speaker 1: different and has been doing something different for a while now. Um,
Speaker 1: you know, they several years ago they embarked on this
Speaker 1: transformation where they re level set their business model and
Speaker 1: you know, brought prices down, They figured out how to
Speaker 1: compete more directly online. They're very good at in terms
Speaker 1: of um, you know, ship from store, pick up at store,
Speaker 1: leveraging all sorts of you know, omni channel or multi
Speaker 1: channel retail, uh, combining digital and physical. And I think
Speaker 1: that's been a big difference for them. Uh, you know,
Speaker 1: they are they go to source at this point. They
Speaker 1: are the last man standing of sorts and they're making
Speaker 1: the most of it. They're a very efficient operator. So
Speaker 1: we can we talk a little bit about how they're
Speaker 1: combining the brick and mortar in the digital in a
Speaker 1: way to give them an edge. Sure, So as an example,
Speaker 1: you know, I think it's over online orders are actually
Speaker 1: picked up at the store. You know. Now one would think, well, oh,
Speaker 1: everybody wants to just buy a TV online and have
Speaker 1: a trip to their house, but you know what, a
Speaker 1: lot of people like to go into the store. They
Speaker 1: may pick up the accessories, they may confirm the order
Speaker 1: that they bought. They may be sitting at their US
Speaker 1: right now at the office and and saying, you know what,
Speaker 1: I need to pick something up on the way home,
Speaker 1: and they'll purchase it and one it the same day.
Speaker 1: So you get the immediate gratification of that. That's one
Speaker 1: thing another thing is again leveraging their inventory to ship
Speaker 1: from the store directly. Um. You know they can do that,
Speaker 1: and they can they so they're combining the best of
Speaker 1: both worlds, you know. And when a few years ago
Speaker 1: when they lowered prices on all their products to be
Speaker 1: everyday same price with Amazon and Walmart and others, it
Speaker 1: took away that showrooming aspect, because if you're in the
Speaker 1: store anyway, you may as well buy it and walk out.
Speaker 1: You know. It's it's fascinating to me. I'm looking at
Speaker 1: best Buy shares up more than thirty seven percent now
Speaker 1: on the year, a massive increase for a retailer that's
Speaker 1: supposed to be on its deathbed because it's a retailer
Speaker 1: and it's got breaking border shops. You know, I have
Speaker 1: to wonder. I do want to ask you. When Dave
Speaker 1: and I were were here yesterday talking with Sema Shop
Speaker 1: Bloomberg Intelligence, we were talking about Signet and some of
Speaker 1: the other retailers lows which reported disappointing earnings yesterday. UM,
Speaker 1: and she was talking about how one potential headwind is
Speaker 1: a deterior deteriorating consumer credit worthiness that we've seen in
Speaker 1: increasing card charge offs and increasing too linquencies. I'm wondering
Speaker 1: at a place like best Buy, does that matter? No,
Speaker 1: it absolutely doesn't matter. I mean, you know to the
Speaker 1: extent that the consumer you know, has too much debt
Speaker 1: already and then you know, can't maybe get more access
Speaker 1: because you know, with large ticket items like a TV
Speaker 1: or computer or other things, the consumer often is using
Speaker 1: credit to to make that purchase. Uh. And and I
Speaker 1: know that we've seen credit levels have been on the rise,
Speaker 1: you know, more of it's been driven by home and
Speaker 1: car uh than than actual you know, instore retail purchases.
Speaker 1: But we are seeing that. But that also may be
Speaker 1: a sign that the the economy is a little bit
Speaker 1: better employments, better consumers feeling a little bit you know,
Speaker 1: more more secure in their position. Well, does this mean
Speaker 1: she you, the fact that best Buy delivered these results,
Speaker 1: does this mean to you that retail has turned the
Speaker 1: corner and that there is a balancing out between the
Speaker 1: online and the brick and mortar, and the sweet spot
Speaker 1: lies somewhere that some of these retailers can still compete.
Speaker 1: I I I agree with your statements, with the exception
Speaker 1: of I'm not sure that best buys Best Buys emblematic
Speaker 1: of where retail should be or maybe headed um in
Speaker 1: terms of, you know, combining the best of physical and
Speaker 1: digital and leveraging service and and customer you know, information
Speaker 1: within the stores. But at the same time, you know,
Speaker 1: I don't. I think it's hard to say. I mean,
Speaker 1: the department stores have been under a lot of pressure lately. Um,
Speaker 1: you know, some of the apparel retailers have been under
Speaker 1: some pressure. You know, not everybody is Best Buy just
Speaker 1: further along in in resetting that operating format for themselves,
Speaker 1: and it may not translate to every other sector. And
Speaker 1: it's still early days for for a lot of people,
Speaker 1: and it's still really for best By even Well, you know,
Speaker 1: one other story that we're watching today one of the
Speaker 1: retailer Sears. A lot of people have been writing Sears
Speaker 1: obituary for a long time, right, I mean, it's like
Speaker 1: the company that's that just refusing to die but aw
Speaker 1: to right, and then today it reported earnings that were
Speaker 1: way better than people expected, and it shares her up
Speaker 1: more than twenty percent. I mean, I did not think
Speaker 1: I would be saying that about Sears Holding Corporation. I mean,
Speaker 1: this is the retailer that Eddie Lampard has basically been
Speaker 1: pumping with his own personal cash to sort of keep
Speaker 1: it hoppling along. And yet here we are, it's pushing
Speaker 1: out its debt maturities and it's delivering uh sales gains
Speaker 1: that that are better than than people had ever expected.
Speaker 1: How is this possible? I mean again, does this sort
Speaker 1: of speak to that narrative of you know, perhaps not
Speaker 1: all retailers, as you were saying before, not all retailers
Speaker 1: are turning the corner and finding that balance, but there
Speaker 1: are some out there that are finding some edge in
Speaker 1: there to sort of compete with Amazon and get on
Speaker 1: their get on their their feet. Yeah. I think I
Speaker 1: think that the series issue is more one of an
Speaker 1: expectations game where the expectations were so low and so bad,
Speaker 1: and in to your point, yesterday they got a lifeline
Speaker 1: by extending the debt out to January, with even an
Speaker 1: option to extend it to July of next year. So effectively,
Speaker 1: there was a lot of negative sentiment around the name,
Speaker 1: or the assumption that that Sears was going to have
Speaker 1: to file for bankruptcy sometimes this year, and now that
Speaker 1: does not seem to be the case. And then you
Speaker 1: compare the expectations for the performance and in terms of
Speaker 1: their first quarter operating performance, and it did certainly better.
Speaker 1: But let's not let's mistake the fact that I think
Speaker 1: the Seares comp was down twelve and Tamart was down
Speaker 1: ten or eleven percent, you know, like it was not
Speaker 1: uh strong numbers to say the least, with both businesses down.
Speaker 1: You know, this is interesting to me because the fact
Speaker 1: that people are then piling back in suggests to me
Speaker 1: that that traders are desperate to get a deal right,
Speaker 1: and people have been sort of circling the retail industry
Speaker 1: which has been so beaten up, and they're saying, look,
Speaker 1: when can we pump our money in here and get
Speaker 1: in on the bottom right. I mean, I know that
Speaker 1: I've talked to many distress debt investors and people talk
Speaker 1: about that. I mean, uh, dave I want to bring
Speaker 1: in here? I mean, do you get the sense that
Speaker 1: there is some sort of bottom fishing and you know
Speaker 1: the fact that any less disappointing results is going to
Speaker 1: result in some massive pop because people are just desperate
Speaker 1: to find a cheap stock. If I put it that way,
Speaker 1: I mean, the bottom fishing is one of those phrases
Speaker 1: that you kind of fall back on when you lack
Speaker 1: a better idea. Here's another one shortcovering the idea buying
Speaker 1: back shares that you previously sold. Figure the stocks going down,
Speaker 1: and you bring that up in the case of Sears
Speaker 1: because something like six almost of the shares available for
Speaker 1: trading have been sold short. So there's a lot of
Speaker 1: speculation that you know, sears Is future is kind of
Speaker 1: going the way of its past several years. So you know,
Speaker 1: in that context, you get any piece of positive uh news.
Speaker 1: And let's face it that I mean, they did sell
Speaker 1: their Craftsman tool brand to Stanley back Black and Decker
Speaker 1: in the quarter. That figured into the numbers, and so
Speaker 1: that may be explain why the comparisons were off. Nonetheless,
Speaker 1: you've got all these people betting against the company, and
Speaker 1: sometimes that gets a little painful, and you see these
Speaker 1: kinds of reversals and Joe, yeah, alright, fine bottom fishing
Speaker 1: perhaps wasn't the best uh description of it, but Joe,
Speaker 1: I wanted to get your take. I mean, we're getting
Speaker 1: to the end here of the earning season, and a
Speaker 1: lot of these companies that that you cover from lows
Speaker 1: two of Walmart's to home depot of staples. I mean,
Speaker 1: it's sort of a motley crew as far as the
Speaker 1: results go. I mean, is there any theme, any new
Speaker 1: theme that's sort of emerging from this earning season for
Speaker 1: retailers that you think people will take uh going forward
Speaker 1: to influence their investing decisions. I think what you saw
Speaker 1: is that whether delays and tax refunds, there were definitely
Speaker 1: some exogenous factors so to speak, that that really did
Speaker 1: have an impact on retail sales. And I do think that,
Speaker 1: you know, the the relative to expectations that trends have
Speaker 1: been a little bit better. Trends have gotten better in April.
Speaker 1: It seems like they've continued to be better in May.
Speaker 1: And you know, you can't ignore the fact that the
Speaker 1: consumers in relatively healthy position. I mean, obviously there's a
Speaker 1: lot of pressures. There's healthcare costs, and there's you know,
Speaker 1: gas prices going up a little bit, but you know,
Speaker 1: for the most part, you know, employment were at seemingly
Speaker 1: full employment, and interest rates are still relatively low, and
Speaker 1: home prices are going up, so the consumer is armed
Speaker 1: with the ability to spend. And I think that another
Speaker 1: theme that we've seen is I do believe, you know,
Speaker 1: more retail specific You're actually going to start seeing a
Speaker 1: little more investment in the stores again, because the store
Speaker 1: experience is still crucial, even you have to combine it
Speaker 1: with digital. And I think that retailers were so focused
Speaker 1: on technology for the past few years and fixing up
Speaker 1: that side of the business that they're now going to
Speaker 1: be kind of shifting back a little towards the stores.
Speaker 1: But this is interesting. This is interesting to me. In
Speaker 1: other words, you're saying that retailers are going to start
Speaker 1: putting more money into their physical locations and trying to
Speaker 1: combine the digital with those. I'm trying to imagine what
Speaker 1: that would look like. Which company, which retailer would you call?
Speaker 1: You wander over to Columbus Circle today where Amazon has
Speaker 1: started its first New York bookstore now open. So you
Speaker 1: know that's part of it, no doubt. Uh. And when
Speaker 1: you figure that, you know Amazon is going in that direct.
Speaker 1: They have a few of the bookstores they're looking to
Speaker 1: open at least one more in the city here, and
Speaker 1: so it's understandable what have you got as a retailer
Speaker 1: that Amazon doesn't have, at least before these openings. And
Speaker 1: it's a storefront, it's a way for people to get
Speaker 1: to you. But but isn't this more than that, Because
Speaker 1: an investment in a store could mean making it more
Speaker 1: of an experience. It could be making making it into
Speaker 1: an event space in a way where people can even
Speaker 1: order the merchandise and pick it up there. But it
Speaker 1: doesn't necessarily have to be uh, the classic brick and
Speaker 1: mortar experience. Joe, Yeah, I think you're right, And I
Speaker 1: think that's what retails are trying to get at and
Speaker 1: and and to your point, I mean the Amazon there,
Speaker 1: they understand that there's their need to be close to
Speaker 1: the to the consumer. I mean, look, I know the
Speaker 1: rapid growth in retail is all digital or online, whatever
Speaker 1: you want to call it. It's still only what overall
Speaker 1: retail sales. It's going to twenty probably in the next decade.
Speaker 1: But still of the business is still going to be
Speaker 1: touching a store in some way. Returns touch the store.
Speaker 1: And oh, by the way, when you bring in a return,
Speaker 1: oftentimes you buy more or do an add on or
Speaker 1: do something different in the store. If you're picking up
Speaker 1: at the store, you can do add on sales. And
Speaker 1: to your if you can create kind of an experience
Speaker 1: in some theater within the store and better service that
Speaker 1: can help to drive drive sales. Joseph Alban, thank you
Speaker 1: so much for joining us. Joseph Feldman is Senior Managing
Speaker 1: Director and retail analyst Telsea Group, talking about best Buy
Speaker 1: and all things retail, and of course our big thanks
Speaker 1: to Dave Wilson, Bloomberg SX editor, blogger on M Live,
Speaker 1: go on the Bloomberg and a columnist here at Bloomberg News.
Speaker 1: We want to take a moment to let you know
Speaker 1: about something new from Bloomberg. Starting right now, you can
Speaker 1: use our io s app or our new Google Chrome
Speaker 1: extension to scan any news story on any website, instantly
Speaker 1: revealing relevant news and market data from Bloomberg and other
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Speaker 1: no matter where you're reading the news, you can bring
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Speaker 1: Learn more at Bloomberg dot com slash lens. Right now,
Speaker 1: I want to bring in Kolar Kadani's chief US economist
Speaker 1: for Bloomberg Intelligence, who's here to break down what we
Speaker 1: learned yesterday from the meeting minutes that were released from
Speaker 1: the f O m c S May second and third meeting. Uh.
Speaker 1: Usually these minutes are not that instructive people parts specific
Speaker 1: words as far as growth accelerating, whether you know, there's
Speaker 1: any kind of uh, just tenuousness as far as the strength,
Speaker 1: the strength and the economy on the behalf of FED members.
Speaker 1: But this time these were exciting minutes. Yes, they were
Speaker 1: relatively exciting. So you know, as you mentioned, normally the
Speaker 1: minutes kind of fill in some of the gaps of
Speaker 1: the relatively short meeting statement. But recently the minutes have
Speaker 1: been providing clues or additional clues regarding what the FEDS
Speaker 1: balance sheet unwind will look like in terms of when
Speaker 1: it will start and how it will be executed. Just
Speaker 1: to put this into perspective, so, the Federal Reserve has
Speaker 1: about four and a half trillion dollars of assets on
Speaker 1: its books, including about two and a half trillion dollars
Speaker 1: worth of US treasuries. They're one of the biggest holders
Speaker 1: of treasuries in the in the US dept market. Uh.
Speaker 1: And here they are. They've built up this war chest
Speaker 1: of debt and now they're trying to figure out how
Speaker 1: to shrink it, uh, for a variety of different reasons.
Speaker 1: And now they're coming out with a plan that could
Speaker 1: potentially shake the markets absolutely and so just under two
Speaker 1: trillion and mortgage backed securities as well. So this does
Speaker 1: provide some distortion into the markets, which was desirable at
Speaker 1: the time they were doing it. It was a form
Speaker 1: of economic stimulus. But you know, as as with most things,
Speaker 1: say the party comes to an end and they need
Speaker 1: to unwind and need to but they want to for
Speaker 1: a variety of reasons. Well, they do need to, uh
Speaker 1: basically start removing policy accommodation and so uh you know,
Speaker 1: whether they're doing that through interest rate increases or balance
Speaker 1: sheet production, right, you know, you could make the argument
Speaker 1: they need to do one versus the other. But they
Speaker 1: do need to start normalizing policy as the economy normalizes,
Speaker 1: meaning that the unemployment rate has basically returned to normal,
Speaker 1: GDP growth is back to normal, inflation is very nearly
Speaker 1: back to normal, but policy is set at day still
Speaker 1: very accommodative stance. Assuming they raise rates at the June meeting,
Speaker 1: which in the minutes they suggested that that was a
Speaker 1: very strong possibility it's priced in on future is almost right.
Speaker 1: So assuming that they raise rates at the June meeting,
Speaker 1: now they are just back to where rates stood at
Speaker 1: the low point of the last economic cycle, the low
Speaker 1: level that actually was part of the reason for the
Speaker 1: inflation of the housing bubble. So the FED is very
Speaker 1: sensitive that if you keep rates too low for too long,
Speaker 1: you create financial and market distortions. Uh, and I think
Speaker 1: that's a significant motivating factor for them to continue on
Speaker 1: this very gradual path towards a higher level of interest rates.
Speaker 1: And sort of to get to the minutes, what they outlined,
Speaker 1: which I thought was so fascinating was, uh, the way
Speaker 1: that they would stop reinvesting the money that they got
Speaker 1: back from bonds that they hold. In other words, as
Speaker 1: things paid down, do they put that money back into
Speaker 1: the market or not? And they basically said, we will
Speaker 1: put it, we will, will will not put some of
Speaker 1: it in the market, and we will tap the amount
Speaker 1: that we won't put back in the market at a
Speaker 1: certain level, and then we'll increase that cap every three months,
Speaker 1: right exactly. So they've continually narrowed down the range of options.
Speaker 1: One option, which was dismissed a while ago, was actively
Speaker 1: selling the assets on the balance sheet. They ruled that out.
Speaker 1: The next most aggressive scenario was to just end reinvestment,
Speaker 1: so for mortgages prepaid or a treasury security matures, they
Speaker 1: would not reinvest that into what new securities now what
Speaker 1: they're doing. If they had done that, that would to
Speaker 1: an wild unwind of the balance sheet. I I compare
Speaker 1: this to a fire hose that you're not holding onto
Speaker 1: the end, just whipping back and forth. Some months you'd
Speaker 1: have as little as about five billion rolling off, and
Speaker 1: then other months you might have to billion rolling off,
Speaker 1: and that would be very difficult for the markets to digest.
Speaker 1: So instead they have this UH cap basically where they'll say, okay,
Speaker 1: well let x amount run off and the rest will
Speaker 1: be reinvested, and the cap will start off very small
Speaker 1: I think probably two billion as a reasonable estimate, UH,
Speaker 1: and then that will be that's extremely small. This is
Speaker 1: tiptoeing in because they don't want the markets to have
Speaker 1: a tantrum. So you start off at maybe two billion,
Speaker 1: and then inch that up to what we'll call cruising speed,
Speaker 1: which I think could reasonably be in the vicinity of
Speaker 1: ten billion. When are they going to give more details?
Speaker 1: They said that more details will be coming soon. They'll
Speaker 1: continue to the discussions at the June meeting, which again
Speaker 1: should be a light lift because they're raising rates that's
Speaker 1: already agreed upon basically by between the markets and the Fed.
Speaker 1: UH the economic assessment fairly straightforward. That gives him a
Speaker 1: lot more time to discuss this. I think over the
Speaker 1: course of the summer, and there's a number of instances.
Speaker 1: So we have a June press conference, we have midyear
Speaker 1: testimony before Congress, and we have the Jackson Hole FED
Speaker 1: conference in late August. Lots of details to come soon.
Speaker 1: This was kind of a brilliant move to calm down markets,
Speaker 1: and markets certainly rallied in response to this because it
Speaker 1: was not the fire hose situation. Car Ka Donna always
Speaker 1: wonderful to talk with you. Kadonna's chief US economist for
Speaker 1: Bloomberg Intelligence. We are hearing more about what's going to
Speaker 1: happen with James Comee, the former head of the FBI,
Speaker 1: and his potential testimony in front of Congress. He had
Speaker 1: has agreed to testify, but that may not happen due
Speaker 1: to a number of things. And before we get to that,
Speaker 1: I just want to uh tell you about a statement
Speaker 1: that was just released from President Trump issued by the
Speaker 1: White House, talking about leaks, he said, the alleged leaks
Speaker 1: coming out of government agencies are deeply troubling. This comes
Speaker 1: after the United Kingdom Prime Minister Tresa May raised questions
Speaker 1: about its relationship, the UK's relationship with the US and
Speaker 1: its willingness to share information with the US given the
Speaker 1: degree of leaks and how frequently they seem to be
Speaker 1: happening with private information getting shared in newspapers. Chris Strom
Speaker 1: as national security reporter for Bloomberg, and before we get
Speaker 1: to what's going to happen with James, comey uh, and
Speaker 1: we are awaiting. Just to sort of remind you we
Speaker 1: are waiting. President Trump is going to speak at NATO
Speaker 1: headquarters in Brussels, and we will bring that to you
Speaker 1: live when we get there. But Chris, I wanted to
Speaker 1: get your take on leaks. And you know, we have
Speaker 1: heard so much about you know, there are too many
Speaker 1: leaks coming out of national intelligence agencies. What is your
Speaker 1: sense of the path forward were the White House with
Speaker 1: respect to cracking down on these leaks and are these
Speaker 1: leaks really coming at a much faster pace than ever before?
Speaker 1: But yeah, I think a lot of people have been
Speaker 1: expecting the White House to take action against the leaks
Speaker 1: that have been happening. Uh they kind of it's also
Speaker 1: important to kind of recognize that they're falling into different categories.
Speaker 1: The pressure that Trump is facing right now is coming
Speaker 1: from you know, the the the UK in terms of
Speaker 1: leaking the information about the uh, the bombing suspect um,
Speaker 1: and that tends has become from law enforcement uh officials. UM.
Speaker 1: The other leaking that's that's been happening has been uh,
Speaker 1: you know, on the on the intelligence side of things,
Speaker 1: and about the Trump Russia investigation, and so you know,
Speaker 1: for a while now, the administration has been indicating, indicating
Speaker 1: that they're going to ramp up their their pursuit of leakers,
Speaker 1: and that's what we're seeing now. You know. I do
Speaker 1: want to, uh just reiterate that we are awaiting comments
Speaker 1: from President Trump and he is walking to the podium
Speaker 1: uh with NATO leaders, Chris, I know that you will
Speaker 1: be listening to this as well everybody in the intelligence community,
Speaker 1: as this has to do with how much potentially he
Speaker 1: may talk about how much NATO members will contribute to
Speaker 1: the effort to fight ISIS and this has been a
Speaker 1: big focus and UH there has been an increased uh
Speaker 1: sort of agreement on fighting isis based on what we
Speaker 1: just saw in Manchester, the tragedy where there was a
Speaker 1: bombing at an Ariana Grande concert. Real quick, Chris, can
Speaker 1: you just give me a quick sense what's your under
Speaker 1: over about whether James Comey is actually going to testify
Speaker 1: uh in front of US Congress. I would say at
Speaker 1: this point probably not in the in the near term.
Speaker 1: I think that what's going to happen is that Jim
Speaker 1: Comey is going to defer to h to Maller, the
Speaker 1: Special Council. They have a long history and I think
Speaker 1: for for Mulla's point of view, Comy is one of
Speaker 1: his core core witnesses UH to potential crimes being committed
Speaker 1: in a lot of knowledge about the investigation, I think
Speaker 1: Toomey will defer them all. So you think that he's
Speaker 1: probably not going to end up testifying in front of Congress.
Speaker 1: Not in the short term. I think like we're gonna
Speaker 1: have to wait and get through some of the initial
Speaker 1: investigative steps that Muller wants to take. He wants to
Speaker 1: get things kind of nailed down and then see if
Speaker 1: he can allow Comey to go forward. And what about
Speaker 1: the White House? Could the White House engage in any
Speaker 1: actions to prevent Comey from testifying? Is that even on
Speaker 1: the table at this point, Yes, we have, we have
Speaker 1: heard that there's there's consideration being given to the White
Speaker 1: House exerting executive privilege over over Comey's ability to testify
Speaker 1: and over Comey's the ability of of lawmakers to get
Speaker 1: access to the memos that Comey, that Comey wrote. And
Speaker 1: um that then that's the whole different that's that's a
Speaker 1: whole different situation at the White House is in a
Speaker 1: cert executive Chris, Chris Strom, thank you so much for
Speaker 1: joining us. Chris Troms, National Security Port for Bloomberg. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to into Views at Apple Podcasts, SoundCloud,
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
Speaker 1: abramowits one before the podcast. You can always catch us
Speaker 1: worldwide on Bloomberg Radio.