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Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course on the Bloomberg. Let me bring in Michael
Speaker 1: Darden now, as I said, chief economist at mk M Partners,
Speaker 1: and let's start with that interview in the Wall Street Journal.
Speaker 1: There's been a series of these. He spoke to Fox
Speaker 1: Business yesterday. There was sort of an extended interview with
Speaker 1: The Financial Times a week ago as well. Tim me,
Speaker 1: this one had the greatest deal of substance, especially when
Speaker 1: it comes to the relationship with China and foreign exchange.
Speaker 1: Let's start with with the dollar and what he declared
Speaker 1: in that interview. Michael is somebody who's an investor in economist.
Speaker 1: What did you make it? What he had to say? Well, right, well,
Speaker 1: that was unusual It's unusual for a president to UH
Speaker 1: to weigh in on the foreign exchange value of the dollar.
Speaker 1: Typically the Treasury does that, and ultimately the Federal Reserve
Speaker 1: is the one that has the influence there. But where
Speaker 1: I'd like to take this is if President Trump really
Speaker 1: does believe that the dollar is too strong, that it's overvalued,
Speaker 1: what impact will that have on, you know, his selection
Speaker 1: to UH for future FED appointments. We have three open
Speaker 1: board seats on the FED that he can fill. He
Speaker 1: can also choose to replace FED chair Yelling and Vice
Speaker 1: chair Fisher as their terms come up next year. The
Speaker 1: presumption is that, you know, the Trump administration would move
Speaker 1: towards a more hawk ish FED, but that doesn't really
Speaker 1: jibe with his stay eatements about the dollar being too strong.
Speaker 1: So maybe that that aspect of conventional wisdom will ultimately
Speaker 1: be turned on his head and we won't see a
Speaker 1: move to a more hawkish FED or something that came
Speaker 1: up earlier on TV. Maybe he ends up asking Yellen
Speaker 1: to stay on. That would be a big shocker. It's
Speaker 1: not my call, but I think we need to at least,
Speaker 1: you know, put that out there. Just let me ask
Speaker 1: you about what this means in terms of process. Stephen
Speaker 1: manouch In, the Treasury Secretary, was traveling in Germany. He
Speaker 1: was going to the G seven Finance ministers meeting. In
Speaker 1: Our colleague Michael McKee asked him who speaks through the
Speaker 1: administration on currency and he said, in no inn certain terms,
Speaker 1: it is the President who does. He also said, though
Speaker 1: we should stay tuned for this semi annual report from
Speaker 1: the Treasury Department on Foreign Exchange and currencies. We're looking
Speaker 1: ahead to that that's supposed to come out here with
Speaker 1: within the month. Uh, he's been preempted by the president.
Speaker 1: I mean, what is there going to be anything in
Speaker 1: that you'll be looking to or does this sort of
Speaker 1: settle things? But the President said yesterday no, I think
Speaker 1: we you know, we know at this point that China
Speaker 1: will not be label the currency manipulator in the president's
Speaker 1: views on the dollar, or that he doesn't want it strengthening.
Speaker 1: He has a commitment to try to revive manufacturing and
Speaker 1: so you know, a rising or high dollar sort of
Speaker 1: is it is it headwind in in the face of
Speaker 1: that of that agenda. Um, so I don't you know,
Speaker 1: expect any any big surprises from the all right, Michael,
Speaker 1: where would the next surprise come from. We've been pretty
Speaker 1: surprised right over last two weeks. Is that are we
Speaker 1: going to go back to talking about tax reform or
Speaker 1: will healthcare really take precedence. Well that's a great point.
Speaker 1: I mean, um, there was just a story out on
Speaker 1: on Bloomberg yesterday that had quoted the President saying we
Speaker 1: need to move healthcare reform before we do tax reform.
Speaker 1: And the conventional wisdom after the A c A repeal
Speaker 1: and replace uh face planet was that, you know, we're
Speaker 1: going to move on to tax reform because that would
Speaker 1: be easier. The Treasury Secretary actually even made a statement
Speaker 1: similar to that. So now looks like, um, we might
Speaker 1: you know, might be looking at another attempt to to
Speaker 1: do healthcare reform before tax reform. And I think these
Speaker 1: things are it's being demonstrated that much easier said than done. Um,
Speaker 1: just the you know, the riffs within the Republican Party
Speaker 1: itself within Congress, let alone the Senate are making sweeping
Speaker 1: changes quite difficult. But so, Michael, would he not go
Speaker 1: for an easy win? Doesn't does he need to prove
Speaker 1: that he has the party together and he has the
Speaker 1: backing and if that's the case. Why focus on healthcare
Speaker 1: and not focus on something easier to get through. Yeah,
Speaker 1: that's a good point too. I mean I think ultimately,
Speaker 1: you know, the administration will be forced to go for
Speaker 1: quote unquote an easy win, meaning that the changes, whether
Speaker 1: it's regulation or taxation or healthcare, I think are going
Speaker 1: to be much more marginal. And you know, you could
Speaker 1: you could characterize that is quote unquote easy win. But
Speaker 1: sweeping changes they think are going to be very, very
Speaker 1: very difficult with the divisions uh in in Congress and
Speaker 1: the bar you know, thin majority in the U. S. Senate.
Speaker 1: Let's talk a bit about trade. It was on the
Speaker 1: agenda at that summit in mar Lago in Florida last week,
Speaker 1: the President talking with this Chinese counterpart a bit about
Speaker 1: it help us with the path forward. Here. A few
Speaker 1: days before that, you have the Secretary of Commerce, Wilbur Ross,
Speaker 1: saying that he's now embarking on a ninety day undertaking
Speaker 1: to to look at the bad trade deals. I suppose,
Speaker 1: looking at this on a company by company basis. What
Speaker 1: do you expect the result of that to be in
Speaker 1: terms of what the administration does next? How do they
Speaker 1: leave things? I guess I'm asking in mar Lago. You
Speaker 1: know what what I'll be looking for is, I think
Speaker 1: what we need to focus on, or what markets care about,
Speaker 1: is we just need to avoid uh moving policy in
Speaker 1: an anti growth direction, meaning you know, you end up
Speaker 1: with a trade war you know, taking place, or a
Speaker 1: move towards aggressively protectionist policies. A smooth holy two point oh,
Speaker 1: and that you know those risks look like, if anything,
Speaker 1: they've receded recently, which is, you know, which is a
Speaker 1: positive at the margin. But the idea that we can
Speaker 1: just go in and cookie cutter renegotiate quote unquote bad
Speaker 1: trade deals, I think is something of a myth um.
Speaker 1: You know. The reality is we're probably not looking at
Speaker 1: sweeping changes there, and if there are sweeping changes, it
Speaker 1: would probably be to the negative side, and that's something
Speaker 1: we definitely want to avoid, you know. I I asked
Speaker 1: you about who. I was referencing the comment from Stephen Nuchambaut,
Speaker 1: who speaks for the Administration on currency when it comes
Speaker 1: to trade. Do we have a clear sense of that?
Speaker 1: I mentioned Secretary Commerce Will but Ross Robert Leitheiser, the
Speaker 1: nominee to be US Trade Representative. His nomination still held
Speaker 1: up in Congress, and then Peter Navarro floating on the
Speaker 1: periphery as well, heading up this National Trade councils Uh,
Speaker 1: do you have a sense of who's speaking for the
Speaker 1: administration and how complicating is it to have these three
Speaker 1: people all fighting over this issue? Right? Well, it does,
Speaker 1: you know, make for a bit of confusion. When you
Speaker 1: hear the President or you hear Mr. Navarro speak about trade,
Speaker 1: you definitely are getting you know, the populist, nationalist view
Speaker 1: um you know, more protectionist. But the other voices in
Speaker 1: Treasury at least seemed to be pushing the other way.
Speaker 1: So while that creates confusion, I also think it's an
Speaker 1: important firebreak against radical and potentially disruptive and damaging um,
Speaker 1: you know, policies in terms of moving towards aggressive trade
Speaker 1: protectionism or some kind of a trade war. Michaels are
Speaker 1: danger And we've talked a little bit about this also
Speaker 1: on TV that if he doesn't get healthcare through, that,
Speaker 1: if he doesn't get tax reformed through then to get
Speaker 1: that easier when he goes back to you know, um tariffs,
Speaker 1: adjusted border tax or things like that, I think. So,
Speaker 1: I mean it's interesting if you if you look at
Speaker 1: the history of the president. You know, his views on
Speaker 1: policies have evolved and changed over time. There's a lot
Speaker 1: of fluidity there, but on one specific issue, trade, going
Speaker 1: all the way back to the late eighties, I think
Speaker 1: he's run for president at least temporarily in every cycle
Speaker 1: going back to the late eighties, he's had this view
Speaker 1: of trade that's mercantilist, national a stick UH in zero
Speaker 1: sum and and so that is a concern at least
Speaker 1: for me, and I think it's a concern for markets
Speaker 1: as well. Just about thirty seconds left will come back
Speaker 1: your Michael just a bit, But to what degree are
Speaker 1: you paying attention to Washington when when you look at
Speaker 1: investment at large, how big a role is Washington playing. Well,
Speaker 1: it's probably overstated. I mean, as we saw with the
Speaker 1: attempt UH with repeal and replaced, it didn't go anywhere.
Speaker 1: Very difficult to to get sweeping changes to take place.
Speaker 1: That said, um there is a big focus on it,
Speaker 1: and certainly in the client meetings that I've been doing,
Speaker 1: we spend a lot of time talking about Washington, and
Speaker 1: then everybody complains that they're spending too much time talking
Speaker 1: about it and thinking about it. Um. So it's definitely topical.
Speaker 1: David Ger with Francine Lockwood Day. Tom Keane is on
Speaker 1: vacation this week, back in the chair on Monday. This
Speaker 1: is Bloomber Surveillance on Bloomberg Grady, we're talking with Michael
Speaker 1: Darda of m CAM Partners is the chief economist there.
Speaker 1: And let's talk a little bit about the Fed. There's
Speaker 1: been so much attention being paid now to the balance sheet,
Speaker 1: the parlor game shifts that focus from from rating creases,
Speaker 1: at at least partially to the balance sheet. Give us
Speaker 1: a sense of what you're thinking in light of what
Speaker 1: we've read from the minutes of the March meeting, and
Speaker 1: light of what we've heard from governors and presidents and
Speaker 1: from from Cherry yelling herself. So my thinking is that
Speaker 1: it looks like the Fed is basically on this course
Speaker 1: of quarter to quarter you rate hikes twenty five basis
Speaker 1: points per quarter until or unless something goes wrong, or
Speaker 1: as you mentioned, until they decided to start drinking the
Speaker 1: balance sheet, and then um New York Fed President Dudley
Speaker 1: said recently that when they do begin that process, probably
Speaker 1: they'll pause on the rate hikes for a while just
Speaker 1: to see how financial markets and liquidity conditions are developing.
Speaker 1: Uh So I think, you know, the dot plot gives
Speaker 1: us some sense of, you know, what the consensus view
Speaker 1: is on the FED in terms of prospective rate rises.
Speaker 1: So probably two more this year, but I wouldn't rule
Speaker 1: out for if the data stays decent. I think they're
Speaker 1: going to continue to go a quarter to quarter. If
Speaker 1: we end up with you know, much weaker data or
Speaker 1: disruptive volatility, meaning to the extent that it looks like
Speaker 1: it might threaten the business cycle, they'll clearly, uh, they'll
Speaker 1: clearly stop. But I think, you know, the base case
Speaker 1: scenario is quarter by quarter rate hikes until they start
Speaker 1: to to to work on the balance sheet, probably later
Speaker 1: this year, early next year, so we proceed a pace.
Speaker 1: I wonder what would constitute an event big enough to
Speaker 1: derail moving ahead in the way that they want to. Well,
Speaker 1: at least from my perspective, you know, I'll be watching
Speaker 1: three indicators. One is credit markets. So when the FED
Speaker 1: initially started the taper and then was talking up rate rises,
Speaker 1: we started to see a big move up in the
Speaker 1: dollar and then pressure on credit markets. The conventional wisdom,
Speaker 1: as we talked about on on TV, this morning was
Speaker 1: that it was just an oil market story, but we
Speaker 1: did see a slowdown in the business cycle in the US.
Speaker 1: We had, um, you know, really from late fourteen into
Speaker 1: the middle of last year, pretty big deceleration in year
Speaker 1: over year nominal and even real GDP growth. So the
Speaker 1: conventional view was falling oil will boost growth, but in
Speaker 1: fact that was not the case. Um, So I'll be
Speaker 1: watching credit markets very closely and inflation expectations, and then uh,
Speaker 1: some of the monetary aggregates that don't include access reserves,
Speaker 1: like M one money growth for example, that one weakened
Speaker 1: a lot coming into early last year and now recovered
Speaker 1: back into two recovery ranges. So if those indicators look healthy,
Speaker 1: then I don't think we need to worry about the
Speaker 1: FED either raising rates further or potentially shrinking the balance sheet.
Speaker 1: If those indicators are rolling over, then we're gonna have
Speaker 1: to worry more. And then it's you know, there's some
Speaker 1: subjectivity in terms of what constitutes a material weakening, but
Speaker 1: I would just say a sustained, you know, adverse move
Speaker 1: in in any or all of those indicators, and I
Speaker 1: would become increasingly worried, worried, meaning Michael that they that
Speaker 1: it would actually stop the FED from hiking. What needs
Speaker 1: to happen for the Fed to actually say, you know
Speaker 1: what one right hike if at all this year. Well,
Speaker 1: I think you'd need to see ongoing softness in the
Speaker 1: macro data. So there's some concern that Q one GDP
Speaker 1: looks weak. I think it's you know, we'll have to
Speaker 1: see what the numbers suggest and then whether there's a
Speaker 1: bounce back in Q two. But the payroll figures, you know,
Speaker 1: we we got a disappointing report for March, but keep
Speaker 1: in mind that underlying organic labor for US growth is
Speaker 1: probably only k to k. And if it turns out
Speaker 1: that that headline number on payrolls, you know, you know,
Speaker 1: if it turns out that we either get upward revisions
Speaker 1: or we're bouncing back, the Fed's going to want to
Speaker 1: tighten further to to to temper that. So I think
Speaker 1: you'd need pretty weak data in a sustained fashion or
Speaker 1: what looks like disruptive volatility shocks. Is that dollar strength.
Speaker 1: It could be, but I think it would be They're
Speaker 1: not going to react to the dollar, uh per se.
Speaker 1: But if the dollar is moving, cup bold with adverse moves,
Speaker 1: in credit markets and inflation expectations, then they will definitely
Speaker 1: take note. It took a while for them to wake
Speaker 1: up to that moving into two thousand sixteen, but they
Speaker 1: eventually did move to the sidelines, and that was ultimately
Speaker 1: the right move. Uh. Conditions stabilized, and then the Fed
Speaker 1: was able to start raising rates late last year and
Speaker 1: was you know, and then followed up, um, you know,
Speaker 1: just recently. And those moves were not disruptive because they
Speaker 1: properly paused for a period of time, So no need
Speaker 1: to go there at this juncture. I don't think you
Speaker 1: know that you know that we're looking at those kinds
Speaker 1: of disruptions, so I think they'll be able to continue
Speaker 1: with quarter to quarter moves. Alright. Michael donnan, thanks so
Speaker 1: much for joining us today both on radio and television.
Speaker 1: Great to see it once again. Michael Darta, Chief Economists
Speaker 1: with m k M Partners here in our eleven three
Speaker 1: our studios in New York. M Ken Leon, who was
Speaker 1: kind enough to join us on television earlier this morning
Speaker 1: as well as we got this JP Morgan earnings. And
Speaker 1: before we dig into the numbers and in specific here, Ken,
Speaker 1: let me just ask you about broad themes. Friend and
Speaker 1: I were talking about the contrast here between equities trading
Speaker 1: and fixed income. What are you seeing shape up when
Speaker 1: you look at JP Morgan and you look at City
Speaker 1: this morning? The key is really in capital markets, where
Speaker 1: very strong for JP Morgan. It was mixed at best
Speaker 1: for City. UH. This may suggest the market share gains
Speaker 1: for JP Morgan, you know, obviously always near the top
Speaker 1: in terms of these league rankings for equity UH sixth
Speaker 1: income Underwriting, etcetera. UH. City trading also in areas related
Speaker 1: to equities was okay, but it seems that the year
Speaker 1: over year comparisons for City UM were at best okay. Uh.
Speaker 1: They did a beat in terms of the dollar star
Speaker 1: ten last year UM, but we really don't see across
Speaker 1: the board the same strength that we've seen in JP
Speaker 1: Morgan's results today. How much of a surprise was it
Speaker 1: to you when you got the read unfixed income trading
Speaker 1: from from JP Morgan again beating estimates with some some
Speaker 1: significance there. How big a surprise was that to you?
Speaker 1: The first quarter is typically the strongest quarter for fixed
Speaker 1: income trading, and then in an arising rate environment and
Speaker 1: a little bit more of risk taking by let's call
Speaker 1: it institutional clients. All of this led to very strong results.
Speaker 1: We also got an indication of this really from the
Speaker 1: monthly market exchange data that we get. Can talk to
Speaker 1: me a little bit about city groups. So we're just
Speaker 1: getting the story generating the most revenue from fixed income
Speaker 1: trading in three years. Are you concerned that they won't
Speaker 1: be able to keep it up? It's likely that for
Speaker 1: this year that we will see flat up single digit
Speaker 1: for fixed income trading. UM. A lot relates to investor confidence,
Speaker 1: risk taking, and a fixed income trading along with equities,
Speaker 1: really have not seen a lot of volatility. Volatility tends
Speaker 1: to initially be good for trading revenue like fixed income,
Speaker 1: and then it creates a kind of a pocket where
Speaker 1: UH investors are on the sidelines. City group to consumer
Speaker 1: bank of revenue increasing one percent, that's actually a touch
Speaker 1: below what analysts were expecting. UM is that they're kind
Speaker 1: of a keyless. Hell yeah, that's right. So I don't
Speaker 1: think it speaks to the economy the confidence of you know,
Speaker 1: the consumer UM. You know, when you look at the
Speaker 1: products related to consumer lending, UM, you know, I would
Speaker 1: want to see numbers like, you know, three four percent growth,
Speaker 1: and it was only one percent for City. You know,
Speaker 1: City doesn't have the breaths of franchise and the mestic
Speaker 1: consumer banking. They are very strong in credit cards though,
Speaker 1: where the deficits as you see them when you look
Speaker 1: at these two earnings reports, where the problem of spots
Speaker 1: that that stand out to you. The problem spots really
Speaker 1: relate to UM as the last question with the consumer confidence,
Speaker 1: confidence from the CEOs for M and A mergers and
Speaker 1: acquisitions was actually down year over year, but it was
Speaker 1: made up by strong debt inequity underwriting, particularly I p
Speaker 1: O s like Snap in the first quarter where JP
Speaker 1: Morton was Elite, City was in it as well, So
Speaker 1: that's one year. A second area would be related to
Speaker 1: UM anything on as it speaks to the business climate
Speaker 1: and regulation. Right now, it's it's pretty much business as
Speaker 1: usual UM Again, it may not be in the results,
Speaker 1: but on expectations that in a Trump administration and pro
Speaker 1: business over the course of two thousands seventeen, we're going
Speaker 1: to see some easing on some of the guidelines, whether
Speaker 1: it be Dodge Frank or some of the agencies in
Speaker 1: terms of how they interpret bank regulation. We'll talk with
Speaker 1: ken Ley on a c f R A here as
Speaker 1: we get results from a city and Wells got results
Speaker 1: a little earlier this morning from JP Morgan. Just to
Speaker 1: get everyone up to speed on where things stand. We're
Speaker 1: going through those rings reports now JP Morgan starting its
Speaker 1: call with reporters. That's just under Wayne again. You can
Speaker 1: follow along at t L I V go on the
Speaker 1: BLOOMBERGAINSI listened to us here. Can you mentioned looking ahead
Speaker 1: to what may or may not happen out of Washington?
Speaker 1: How important to banks to the bank's bottom line is
Speaker 1: some sort of reform of financial regulation in the US.
Speaker 1: So the managements, uh, you know are very conservative, they're
Speaker 1: kind of living with the condition of Dodge Frank Um.
Speaker 1: I think it gets into some of the areas or
Speaker 1: or or products that they can get involved in with
Speaker 1: a little bit more risk taking. No one's going to
Speaker 1: remove capital requirements or put the banks who are the
Speaker 1: country at risk, um, but it's more on the edge
Speaker 1: of that ability to maybe enable them to take capital
Speaker 1: and put it, in a principle UM, into a little
Speaker 1: bit of risk your areas to get higher returns. I
Speaker 1: don't think it's the return of prompt trading UM. That's
Speaker 1: not going to happen. But um, I think the mandate
Speaker 1: from the Trump administration, both for the SEC, perhaps with
Speaker 1: the appointments over the next eighteen months with the Federal Reserve,
Speaker 1: is more of a accommodative environment. Four banks. We have
Speaker 1: about thirty seconds here before we'll go to break. We'll
Speaker 1: come back with you in just a little bit here,
Speaker 1: but let me ask you Ken, what we learned from
Speaker 1: Jamie Diamond this morning in terms of his outlook on
Speaker 1: the economy. We had his letter to shareholders at last
Speaker 1: week or the week before, it's all the fog, I
Speaker 1: can't remember which. But what do we learned today about
Speaker 1: the economy? Yeah, so, especially in the meat and potato
Speaker 1: areas of banking, which is consumer bank landing, and also business,
Speaker 1: particularly small uh business US. It's very good. We're seeing
Speaker 1: up up indicators for employment. We're seeing consumer is still confident,
Speaker 1: which means that the housing market is still very good,
Speaker 1: and consumer loans including auto loans, are are good as well.
Speaker 1: Can we haven't talked about Wells Fargo. We approach those
Speaker 1: earnings a little bit differently. Friend and I were discussing
Speaker 1: before we went to you on the phone. Obviously there's
Speaker 1: this fake account scandal still looming. When is this bank
Speaker 1: going to get beyond it? We saw the claw backs
Speaker 1: just a couple of days ago of John Stump's pay package.
Speaker 1: How desperate is this bank to get beyond it? And
Speaker 1: what's it going to happen? Well, it really starts with
Speaker 1: the senior management, and even in today's earnings release there's
Speaker 1: a tone of talking about um, you know, culture and
Speaker 1: doing right for the customer. Uh in the earnings release,
Speaker 1: um you know? With that, Uh, it also ties to
Speaker 1: how they measure performance for employees, particularly those you know
Speaker 1: who are at the bank branches, et cetera. So all
Speaker 1: this is part of rebuilding their brand. It's going to
Speaker 1: take some time. The results are okay, they're not great,
Speaker 1: but this is more of a traditional commercial lending bank
Speaker 1: than one like JP Morgan, which is global and all
Speaker 1: respects for the capital markets and investment banking. Can we
Speaker 1: talk at some length on this show about the European
Speaker 1: banks and you look at Credit Squeez, you look at
Speaker 1: Deutsche Bank. You've got chief executives who have big plans
Speaker 1: to turn those banks around, turn them into new entities.
Speaker 1: What's that? What's the Jamie Diamond or uh, what's Mr
Speaker 1: Corbat thinking he looks overseas to Europe and thinks about
Speaker 1: the role that he could play in rejiggering or reinventing
Speaker 1: banks here based in the US. I think we're what
Speaker 1: we're gonna hear from Jamie Diamond and JP Morgan at
Speaker 1: a thirty on the call is going to be that,
Speaker 1: you know, their rankings in Europe in particular is number
Speaker 1: one or two, and they are taking market share as
Speaker 1: some of the major European bank whether it be Deutsche Bank,
Speaker 1: credit Swists, Ubs, etcetera, continue to be shifting away from
Speaker 1: the investment banking capital market areas well sometimes a little
Speaker 1: bit of riskier and trading to the more conservative wealth
Speaker 1: management areas. Can you're breaking my heart? I'm in London.
Speaker 1: Is some European CEO at some point going to say
Speaker 1: enough is enough for is it regulation? That they'll say, well,
Speaker 1: the U S is deregulating or making their banks jobs easier,
Speaker 1: We're going to do the same. Yeah. So it's almost
Speaker 1: like a two tier issue as it relates to the
Speaker 1: UK and Europe. Of course with Brexit, um and where
Speaker 1: employees are going to be working under the new regimes.
Speaker 1: But um, you know, I think part of what we're
Speaker 1: seeing in Europe. You know, the economies are coming back,
Speaker 1: businesses getting better, um. But the strategies for the large
Speaker 1: banks seems to be a lot more conservative than before um.
Speaker 1: And then given you know some of the leading US
Speaker 1: banks JP, Morgan City, you know they're in a position
Speaker 1: just to gain share because they fixed some of those
Speaker 1: problems a little bit earlier. Do we are we expecting
Speaker 1: consolidation or some of the U s banks because you
Speaker 1: guys are so much stronger, although price the book it
Speaker 1: was looking a lot more expensive than the European banks.
Speaker 1: Can we expect some of the big US majors to
Speaker 1: come in Europe and buy things. It's a very good question,
Speaker 1: and I would say probably not. I mean, when you
Speaker 1: look at unless there's some unusual situation um, But generally um.
Speaker 1: You know, I think most of the major US banks
Speaker 1: have ground, have feet on the ground, if you will,
Speaker 1: in terms of a presence um um and both traditional
Speaker 1: investment banking and lending. I'm wondering here is we look
Speaker 1: at to what may or may not happen and watch
Speaker 1: you Just to reprise that in the last few seconds
Speaker 1: that we we have with you here on on surveillance. Uh,
Speaker 1: there's a great way. Uh. We know what regulatory reform
Speaker 1: lawmakers may be considering, whether it's going to be something
Speaker 1: that's going to come out of Congress. What what banks
Speaker 1: are agitating for. We talked about regulation and reform, regulation
Speaker 1: with a with a broad brush. What's likely to happen,
Speaker 1: what's likely to make the biggest difference to these banks. Well,
Speaker 1: you know, banks come in all different sizes, and I think, um,
Speaker 1: for most banks in the US, it's trying to get
Speaker 1: out of a lot of the restrictions from Dodd Frank
Speaker 1: just because they're so small. When you're talking about the
Speaker 1: larger global banks as we are today, um, it's it's
Speaker 1: really more fine tuning. They are still going to be
Speaker 1: bound by Dodd Frank, by a lot of the capital ratios.
Speaker 1: And where there's some wiggle room, it might be in
Speaker 1: some areas where they want to get into perhaps some
Speaker 1: trading products or businesses, but not in any big strokes.
Speaker 1: So I think generally when we think of deregulation, it's
Speaker 1: it's going to be to give something more for the
Speaker 1: smaller banks, and I think that's part of the mandate
Speaker 1: from the Trump administration. All Kelly on. Thanks so much
Speaker 1: for joining us today both on Bloombergs. Valance on radio
Speaker 1: and television. Ken leyon of CF are joining us on
Speaker 1: our phone lines. Brought you by Bank of America, Mary Lynch.
Speaker 1: Dedicated to bringing our clients insights and solutions to meet
Speaker 1: the challenges of a transforming world. That's the power of
Speaker 1: global connections. Mary Lynch. Pierce Federan Smith Incorporated, Member s
Speaker 1: I p C. He was for six years the President
Speaker 1: and CEO of the Federal Reserve Bank of Minneapolis. He's
Speaker 1: not the Line McKenzie, Professor of economics at the University
Speaker 1: of Rochester. Marianna Kutcha Lakota is also, I should point out,
Speaker 1: a columnist for Bloomberg View and he joins us on
Speaker 1: our phone line. Great to have you with us, and
Speaker 1: I know Francy Lackwell eager to to jump in here
Speaker 1: with some questions. Francy, Yeah, thank you so much. Mr
Speaker 1: Cantarlo Code. A great pleasure to have you, because this
Speaker 1: is the day after the interview that we've all read
Speaker 1: where President Trump for the first time is hinting that
Speaker 1: he's open to keeping Janet Yellen at the helm of
Speaker 1: the Fed. Will he well? Thanks First of all, thanks
Speaker 1: for all for having me on. Uh. You know, I
Speaker 1: don't know for sure what President Trump will do, but
Speaker 1: I was very heartened by his comments about Cherry Yellen.
Speaker 1: I think that, uh, it shows that he's thinking about
Speaker 1: that job in the right way, which is, you know,
Speaker 1: Cherry Yellen has done what she is supposed to do
Speaker 1: is chair of the Fed, which is to keep unemployment
Speaker 1: low and to uh have inflation be close to target.
Speaker 1: That's what you're looking for in terms of what the
Speaker 1: chair is supposed to be achieving in their in their job.
Speaker 1: And so I think it's going to be very hard
Speaker 1: for for President Trump to to find find good reasons
Speaker 1: for to say that the Chair has not been able
Speaker 1: to doing her job right. And he also said that
Speaker 1: he likes low interest rate policies. Right. This is again
Speaker 1: a reversal to what he's said in the past. But
Speaker 1: have you ever met a president that didn't like low
Speaker 1: and was right policy? Well, there there's some true to that,
Speaker 1: although I think that um. Actually, if you track what
Speaker 1: President Trump is said in the past of monetary policy, UM,
Speaker 1: he has said, uh sometimes something extremely hawkish, expressed uh
Speaker 1: expressed positive sentiments where it's gold standard I think on
Speaker 1: on on an occasion. On the other hand, he's also
Speaker 1: in the past expressed um recognition for why low interest
Speaker 1: rates are valuable for business in terms of being able
Speaker 1: to and and in terms of being able to stimulate
Speaker 1: growth in demand. So um, you know, I think yesterday
Speaker 1: we heard the doubbish President Trump. We might hear from
Speaker 1: the hawkish President Trump down the road as well. Um,
Speaker 1: But certainly, if you have a pro growth agenda, as
Speaker 1: the President has has voiced, low low interest rates, you're
Speaker 1: gonna be your friend there. And the challenge for the
Speaker 1: Fed is, Look, they're they're not about keeping in strates low.
Speaker 1: Their trying. Their job is to keep inflation at target
Speaker 1: and keep employment at matt at maxim And they have
Speaker 1: to us any will I know, UM not paying attention
Speaker 1: what the presidents preferences are on this on this matter?
Speaker 1: Did they have to? I mean, I think of what
Speaker 1: he said yesterday. I think about this ongoing debate in
Speaker 1: Washington about the prospects for for a fiscal stimulus. Uh
Speaker 1: did what he said yesterday give them any more grounds
Speaker 1: to debate this? Um? You know? And when they next meet,
Speaker 1: say in Washington, Well, you know, I think a big
Speaker 1: question for the FED is not so much the President's
Speaker 1: preferences for low interest rates, but rather, um are they
Speaker 1: how likely is physical stimulus? And then what is that?
Speaker 1: What is that physical stimulus going to mean for the
Speaker 1: for the economy UM in terms of inflationary pressures? And
Speaker 1: I guess you could say the president as comment yesterday
Speaker 1: meets uh infrastructure UM made it clearer. The administration still
Speaker 1: very very much pro infrastructure UM. But beyond that, you know,
Speaker 1: it's really everything that the President says is really trying
Speaker 1: to They're trying to filter into what's the outlook for
Speaker 1: the economy. What's the outlook for inflation, employment going to be? UM?
Speaker 1: I personally, you know if I, if I still on
Speaker 1: the committee, wouldn't take too much from one interview along
Speaker 1: those lines. Let me ask you about the balance sheet.
Speaker 1: The FED weighing what to do with this four point
Speaker 1: five trillion dollar balance sheet. The debate now seeming to
Speaker 1: center on whether or not the FED can effectively unwind
Speaker 1: that balance sheet while continuing to raise rates. What's your
Speaker 1: I've used the analogy can the Fed walk and chew
Speaker 1: gum at the same time? How difficult is it going
Speaker 1: to be for the Fed to do both. Yeah. First
Speaker 1: of all, um, there's really no need and I certainly
Speaker 1: said this when I was a committee member, I can
Speaker 1: I can say it now again. There's really no reason
Speaker 1: for the FED to reduce the balance sheet. It can
Speaker 1: uh continue the tight economic conditions as needed with the
Speaker 1: current size of the balance sheet. UM, so there's really
Speaker 1: no no need for it to h to reduce about sheet. Eventually,
Speaker 1: the number as the economy continues to grow and it
Speaker 1: is a long ways off thenment of access reserves that
Speaker 1: the banking system has or returned to um pre pre
Speaker 1: crisis levels just because of growth in the economy. So
Speaker 1: there's no real reason for why the FIT has to
Speaker 1: reduce the balance sheet. With that said, there's a lot
Speaker 1: of discussions, as you and your listeners have heard about
Speaker 1: the whether or not the FED will change its reinvestment policy.
Speaker 1: It would be the sort of the first step. I
Speaker 1: think the important thing for the FED is not to
Speaker 1: think about the balance sheet is some separate object off
Speaker 1: on the side, but rather as part of a collective
Speaker 1: package of stimulus. So if you're going to start halting reinvestments,
Speaker 1: for example, that's got to mean that you're going to
Speaker 1: be raising rates more slowly. If because you're ultimate objective
Speaker 1: is to be achieving UM inflation of two percent and
Speaker 1: maximum employment. If you're if you're halting reinvestments, that's going
Speaker 1: to be tightening policies through your balance sheet, and then
Speaker 1: you're going to want to keep rates lower than you
Speaker 1: would otherwise. Right, So what is the one key data
Speaker 1: point that actually you would be looking at at this
Speaker 1: point to give us clues on policy timing. Well, you know,
Speaker 1: I think that from the FEDS point of view. So
Speaker 1: I'll talk first from the FENS point of you, and
Speaker 1: then I'll give a couple of my own thoughts. I
Speaker 1: think the FED is continue to watch unemployment. I think
Speaker 1: that they are, you know, Chair set earlier this week
Speaker 1: that unemployment was now lower than what the Committee as
Speaker 1: a whole sauce is stainable for the long run. Uh,
Speaker 1: That's something I've concerned. If you want to listen to
Speaker 1: FED speakers, and they're not going to be happy with
Speaker 1: that stain continue be true for for for over an
Speaker 1: extended period um. And that's why I think and I
Speaker 1: think they worry that if they don't continue to tighten gradually,
Speaker 1: they're gonna have to type very rapidly at some point
Speaker 1: and cause a reception. My own view is an unemployment
Speaker 1: is not a a great metric for the health of
Speaker 1: the lab market. Right now, we really continue to be
Speaker 1: watching employment. The big question is, you know, how can
Speaker 1: you bring in people off the sidelines back into the
Speaker 1: workforce without generating undue wage pressures and inflationary pressures. We've
Speaker 1: seen it had so much success in the last three
Speaker 1: or four years, and that to mention, I would really
Speaker 1: like to see the FIT continue to keep stimulus in place,
Speaker 1: be very patient about raising rates in order to to
Speaker 1: to to stimulate demand, bringing more workers who are currently
Speaker 1: people who would work who are currently not in the
Speaker 1: labor force. UM. I think you can do that without
Speaker 1: generating wage or inflationary pressures right in the little time
Speaker 1: we have left. Can I ask about the overseas market.
Speaker 1: We're seeing about three trillion dollars of negative yielding government
Speaker 1: bonds have turned, you know, turning positive in recent months.
Speaker 1: What does that mean for treasury buying? You know, I
Speaker 1: think the treasury market continues to be um one of
Speaker 1: the most liquid in the in the world, and so
Speaker 1: I think what that means is that individual price movements
Speaker 1: doesn't don't have really big effects on on the state
Speaker 1: of demand for for treasuries. UM, I think we can
Speaker 1: be pretty comfortable and continue to be offertable that treasuries
Speaker 1: are are just uh. If one kind of buyer steps
Speaker 1: away from the market, there's another buyer who's gonna be
Speaker 1: willing to step in at a price that's very close
Speaker 1: to what that previous buyer was paying. So I don't,
Speaker 1: I don't. I don't see these these moves as being
Speaker 1: very material at this point. I great to speak with you,
Speaker 1: as always, darting to Cutch Lacoda, the former president and
Speaker 1: CEO of the federaltor Bank of Minneapolis, now the Line mckenzy,
Speaker 1: Professor of Economics at the University of Rochester. I've been
Speaker 1: looking forward to this interview all day. We're now joined
Speaker 1: by the Minister of State for Petroleum Resources of Nigeria.
Speaker 1: He is one Emmanuel eBay Cachichool and Minister you join
Speaker 1: us from A One Studios in Washington. I remember a
Speaker 1: great interview that you gave me here in London. And
Speaker 1: of course one of your strongest points, apart from being
Speaker 1: a great analyst, is also having a wonderful Twitter page.
Speaker 1: Why reach everyone to go and follow you, sir on
Speaker 1: there you're in d c um actually meeting with the
Speaker 1: excell and CEO. Will you be talking about opaque or
Speaker 1: investments lively investments. We've already had that meeting meeting to
Speaker 1: place in Dallas yesterday and we focused on my on
Speaker 1: my own side, I focused on trying to see what
Speaker 1: we needed to do to remove all about restrictions there
Speaker 1: to enable ex A Mobile invest more in Nigeria. On
Speaker 1: their own side, they also went through the processes and
Speaker 1: the concerns that they have as the available funds for
Speaker 1: investments are tightening by the day and so countries have
Speaker 1: got to compete for this, and so they laid out
Speaker 1: what their concerns were in the fiscal areas and the
Speaker 1: and the policy areas and what we needed to do
Speaker 1: to get a big portion of that pie. Minister on
Speaker 1: a larger scale, how can Nigeria secure the necessary investment
Speaker 1: to boost out as long as, for example, the oil
Speaker 1: producing Delta region remains unsafe, well, I wouldn't use the
Speaker 1: word and safe is actually becoming safe over the last
Speaker 1: three months. Who haven't had an incident. We're beginning to
Speaker 1: engage them a lot more deeply a multi militancer issues.
Speaker 1: Our production is beginning to go wepinion to address model,
Speaker 1: systemic and fiscal issues that have been in the systems,
Speaker 1: physical and policy issues. Recently renegotiated the areas of debt
Speaker 1: and debted necessary oil companies whatever us experience work that
Speaker 1: a five year programming. How to pay for that work
Speaker 1: like a new process of cash call payments. So we're
Speaker 1: taking polishly the issues that we needed to take on.
Speaker 1: So I think the climate is getting better. Clearly for
Speaker 1: countries who have been very stable in these sort of
Speaker 1: areas and the Gulf countries, we need to We have
Speaker 1: some catching up to do. We need to run fairly
Speaker 1: fast to be able to catch up with the getting
Speaker 1: our environments saying and clean and clear and inviting for investors. Ministers,
Speaker 1: Since you're meeting the excellent CEO, I want to talk
Speaker 1: a little bit more about some of the oil majors
Speaker 1: in Nigeria. For example, has filed corruption charges against Shell
Speaker 1: but also any for allegedly paying bribes to secure and
Speaker 1: oil block. What's going to be the next step in
Speaker 1: that process. Well, I've tried to distinguish between the issues
Speaker 1: of criminality involved and it's is essential that for transparency purposes,
Speaker 1: we deal with those those issues, and like you know,
Speaker 1: our present is very full postal and anti massive anti
Speaker 1: corruption drive to clean up this system. So that's welcome,
Speaker 1: but that's not taking away the advantage of the big
Speaker 1: fields bankers outwe or part of postuantities blocks. So what
Speaker 1: I've said is we're going to put it into different
Speaker 1: dimensions once save the existing deals so that that way
Speaker 1: at least we can continue a massive investment and growth
Speaker 1: that we're trying to send the oil or area on
Speaker 1: on this field. This field is going to train relattle
Speaker 1: of our funder a thousand barrels into the system. But
Speaker 1: then we need to go back and look at the
Speaker 1: transaction itself. And frankly, if of a billion dollars of
Speaker 1: split as bribes to individuals and which whichever way, then
Speaker 1: that is money belonging to the government that was under
Speaker 1: the table, and we need to find a wealth sitting
Speaker 1: down with the oil community to get better attempts and
Speaker 1: get back some of that money back on back on
Speaker 1: the table. Ministo the i A today said global oil
Speaker 1: inventory is probably increased in the first quarter. However, they
Speaker 1: also said that OPEX implementation is near perfect. Do you
Speaker 1: expect OPEC to extend production cuts into the second half.
Speaker 1: I'm not sure we have an alternative. We've got to
Speaker 1: um that is what has kept the markets table at
Speaker 1: the sort of over fifty dollar price bar barrel that
Speaker 1: would send over the last one one and a half months.
Speaker 1: So we need to oversustain that when that ends in June.
Speaker 1: We need to condue some monitor and ensure that the
Speaker 1: efficiency is absolute efficiency in terms of compliant. But more
Speaker 1: important than that, we need to begin to collaboratively bringing
Speaker 1: other players who have so far not participated. US is
Speaker 1: a big issue because the SOFA not being very willing
Speaker 1: to have conversations on this, and in any case, the
Speaker 1: shell production US is throwing quite some numbers back into
Speaker 1: the field and so complicating the dynamics of of monitoring.
Speaker 1: But ultimately, and one of those who optimistic that somewhere
Speaker 1: down the road everybody else Russia, the US and the
Speaker 1: Restidan and we're sitting need for a very stable oil
Speaker 1: market about for cons in mesself, for producers, but with
Speaker 1: Nigeria actually joined the others in cutting production. If the
Speaker 1: deal is extended for the moment, you're actually exempt from
Speaker 1: having to cut. This was because of the unique issues
Speaker 1: were having the Niger delta area. Where my anticipation is
Speaker 1: that if all things been equal, if the infrastructure has
Speaker 1: repaired and all that, somewhere around the October November time frame,
Speaker 1: U see us back into proper production numbers. And once
Speaker 1: we do that, then when we're obviously willing to join
Speaker 1: and join the courts. We're a very strong member of
Speaker 1: Wookpack and would let us support to pack. Minister. Talking
Speaker 1: to me a little bit more about your your trip
Speaker 1: to Texas. So you when do you leave DC to
Speaker 1: go there? No, I already I came from Texas, just
Speaker 1: come back right. Yes, the trip was largely I've been
Speaker 1: going around most of the chairman suits in most of
Speaker 1: the major oil companies that did he and I about
Speaker 1: a month ago. I have just an exam mobile. I
Speaker 1: been doing Chevron during the otic next month and I
Speaker 1: have I'm lined up to do this smpthing for TOTALA
Speaker 1: for Shell that the whole idea is live. Whatever the
Speaker 1: local manager policies, Let's talk to the big players. Let's
Speaker 1: stalk to the guys who make the decision. See what
Speaker 1: it is we need to do, See what the perception
Speaker 1: of the policies that I'm putting in place are see
Speaker 1: what areas of collaboration we can do and ensure that
Speaker 1: we're getting a big piece of that that investment, and
Speaker 1: how I'm challenging them to stop looking at Nagera just
Speaker 1: in terms of crude or your production, but also to
Speaker 1: diversify their businesses. What was the one thing that surprised
Speaker 1: you the most in Texas um one. I won't call
Speaker 1: it a surprise. I've been a member of that team.
Speaker 1: Like you know, I worked for the mobile phone nearly
Speaker 1: fifteen systein years of my career before I left to
Speaker 1: this job, so I could predictably tell where they will stand.
Speaker 1: Where do they stand? The need for firmer policies, need
Speaker 1: for transparency to continue in the way we're doing it,
Speaker 1: a need for great better fiscal conditions and neblet and
Speaker 1: continue to put some of the investment funds that they
Speaker 1: have towards Niger than towards other other developing competent nations.
Speaker 1: But more more important and more more full courses is
Speaker 1: the finified that as far as consent invest in Nigeria,
Speaker 1: we'll skip the Nigose. Yes, thank you so much. It's
Speaker 1: always a great pleasure to speak to the Minister of
Speaker 1: States for Petroleum and Resources of Nigeria. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
Speaker 1: on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: out on Twitter at Tom Keene. David Gura is at
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio, brought you by Bank of America Mary Lynch.
Speaker 1: Dedicated to bringing our client's insights and solutions to meet
Speaker 1: the challenges of a transforming world. That's the power of
Speaker 1: global connections. Mary Lynch, Pierce, Fenner and Smith Incorporated, Member
Speaker 1: s I p C