WEBVTT - Fed Doesn't Need to Reduce Balance Sheet, Kocherlakota Says 0:00:00.120 --> 0:00:02.920 Brought you by Bank of America, Mary Lynch. Investing in 0:00:03.000 --> 0:00:07.840 local communities, economies and a sustainable future. That's a power 0:00:08.080 --> 0:00:12.360 of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated 0:00:12.760 --> 0:00:27.400 Member s I p C. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.840 --> 0:00:31.520 I'm Tom Keene with David Gura. Daily we bring you 0:00:31.560 --> 0:00:36.600 insight from the best in economics, finance, investment, and international relations. 0:00:37.000 --> 0:00:41.600 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 0:00:41.680 --> 0:00:49.000 of course on the Bloomberg. Let me bring in Michael 0:00:49.040 --> 0:00:51.720 Darden now, as I said, chief economist at mk M Partners, 0:00:51.760 --> 0:00:54.120 and let's start with that interview in the Wall Street Journal. 0:00:54.120 --> 0:00:55.880 There's been a series of these. He spoke to Fox 0:00:55.920 --> 0:00:58.320 Business yesterday. There was sort of an extended interview with 0:00:58.360 --> 0:01:00.120 The Financial Times a week ago as well. Tim me, 0:01:01.000 --> 0:01:03.480 this one had the greatest deal of substance, especially when 0:01:03.520 --> 0:01:06.000 it comes to the relationship with China and foreign exchange. 0:01:06.280 --> 0:01:08.600 Let's start with with the dollar and what he declared 0:01:09.000 --> 0:01:12.280 in that interview. Michael is somebody who's an investor in economist. 0:01:12.280 --> 0:01:14.720 What did you make it? What he had to say? Well, right, well, 0:01:14.760 --> 0:01:18.480 that was unusual It's unusual for a president to UH 0:01:18.640 --> 0:01:21.400 to weigh in on the foreign exchange value of the dollar. 0:01:21.480 --> 0:01:25.400 Typically the Treasury does that, and ultimately the Federal Reserve 0:01:25.520 --> 0:01:28.280 is the one that has the influence there. But where 0:01:28.280 --> 0:01:31.559 I'd like to take this is if President Trump really 0:01:31.600 --> 0:01:34.720 does believe that the dollar is too strong, that it's overvalued, 0:01:35.200 --> 0:01:38.760 what impact will that have on, you know, his selection 0:01:39.000 --> 0:01:42.319 to UH for future FED appointments. We have three open 0:01:42.360 --> 0:01:44.560 board seats on the FED that he can fill. He 0:01:44.640 --> 0:01:48.280 can also choose to replace FED chair Yelling and Vice 0:01:48.360 --> 0:01:51.200 chair Fisher as their terms come up next year. The 0:01:51.280 --> 0:01:55.440 presumption is that, you know, the Trump administration would move 0:01:55.560 --> 0:01:58.720 towards a more hawk ish FED, but that doesn't really 0:01:58.800 --> 0:02:01.960 jibe with his stay eatements about the dollar being too strong. 0:02:02.080 --> 0:02:06.000 So maybe that that aspect of conventional wisdom will ultimately 0:02:06.000 --> 0:02:08.480 be turned on his head and we won't see a 0:02:08.560 --> 0:02:11.639 move to a more hawkish FED or something that came 0:02:11.720 --> 0:02:15.440 up earlier on TV. Maybe he ends up asking Yellen 0:02:15.560 --> 0:02:17.520 to stay on. That would be a big shocker. It's 0:02:17.560 --> 0:02:19.480 not my call, but I think we need to at least, 0:02:19.760 --> 0:02:22.200 you know, put that out there. Just let me ask 0:02:22.240 --> 0:02:25.760 you about what this means in terms of process. Stephen 0:02:25.760 --> 0:02:28.240 manouch In, the Treasury Secretary, was traveling in Germany. He 0:02:28.280 --> 0:02:30.040 was going to the G seven Finance ministers meeting. In 0:02:30.040 --> 0:02:32.240 Our colleague Michael McKee asked him who speaks through the 0:02:32.320 --> 0:02:34.880 administration on currency and he said, in no inn certain terms, 0:02:34.880 --> 0:02:38.000 it is the President who does. He also said, though 0:02:38.000 --> 0:02:40.200 we should stay tuned for this semi annual report from 0:02:40.200 --> 0:02:44.080 the Treasury Department on Foreign Exchange and currencies. We're looking 0:02:44.120 --> 0:02:45.799 ahead to that that's supposed to come out here with 0:02:45.800 --> 0:02:48.480 within the month. Uh, he's been preempted by the president. 0:02:48.520 --> 0:02:51.359 I mean, what is there going to be anything in 0:02:51.400 --> 0:02:53.040 that you'll be looking to or does this sort of 0:02:53.080 --> 0:02:56.040 settle things? But the President said yesterday no, I think 0:02:56.080 --> 0:02:59.000 we you know, we know at this point that China 0:02:59.080 --> 0:03:02.360 will not be label the currency manipulator in the president's 0:03:02.440 --> 0:03:04.959 views on the dollar, or that he doesn't want it strengthening. 0:03:04.960 --> 0:03:08.720 He has a commitment to try to revive manufacturing and 0:03:08.760 --> 0:03:11.640 so you know, a rising or high dollar sort of 0:03:11.840 --> 0:03:14.480 is it is it headwind in in the face of 0:03:14.560 --> 0:03:18.040 that of that agenda. Um, so I don't you know, 0:03:18.120 --> 0:03:21.400 expect any any big surprises from the all right, Michael, 0:03:21.400 --> 0:03:23.840 where would the next surprise come from. We've been pretty 0:03:23.840 --> 0:03:26.840 surprised right over last two weeks. Is that are we 0:03:26.919 --> 0:03:30.400 going to go back to talking about tax reform or 0:03:30.440 --> 0:03:33.680 will healthcare really take precedence. Well that's a great point. 0:03:33.720 --> 0:03:36.080 I mean, um, there was just a story out on 0:03:36.080 --> 0:03:39.480 on Bloomberg yesterday that had quoted the President saying we 0:03:39.560 --> 0:03:43.440 need to move healthcare reform before we do tax reform. 0:03:43.520 --> 0:03:47.320 And the conventional wisdom after the A c A repeal 0:03:47.360 --> 0:03:52.640 and replace uh face planet was that, you know, we're 0:03:52.680 --> 0:03:55.360 going to move on to tax reform because that would 0:03:55.400 --> 0:03:58.880 be easier. The Treasury Secretary actually even made a statement 0:03:58.880 --> 0:04:02.440 similar to that. So now looks like, um, we might 0:04:02.680 --> 0:04:05.680 you know, might be looking at another attempt to to 0:04:05.840 --> 0:04:09.000 do healthcare reform before tax reform. And I think these 0:04:09.040 --> 0:04:14.240 things are it's being demonstrated that much easier said than done. Um, 0:04:14.280 --> 0:04:17.279 just the you know, the riffs within the Republican Party 0:04:17.279 --> 0:04:22.039 itself within Congress, let alone the Senate are making sweeping 0:04:22.160 --> 0:04:25.120 changes quite difficult. But so, Michael, would he not go 0:04:25.279 --> 0:04:27.880 for an easy win? Doesn't does he need to prove 0:04:28.040 --> 0:04:29.919 that he has the party together and he has the 0:04:29.960 --> 0:04:32.800 backing and if that's the case. Why focus on healthcare 0:04:33.120 --> 0:04:35.719 and not focus on something easier to get through. Yeah, 0:04:35.720 --> 0:04:38.080 that's a good point too. I mean I think ultimately, 0:04:38.480 --> 0:04:40.960 you know, the administration will be forced to go for 0:04:41.160 --> 0:04:44.719 quote unquote an easy win, meaning that the changes, whether 0:04:44.760 --> 0:04:48.359 it's regulation or taxation or healthcare, I think are going 0:04:48.400 --> 0:04:51.599 to be much more marginal. And you know, you could 0:04:51.800 --> 0:04:54.680 you could characterize that is quote unquote easy win. But 0:04:54.839 --> 0:04:57.400 sweeping changes they think are going to be very, very 0:04:57.480 --> 0:05:01.240 very difficult with the divisions uh in in Congress and 0:05:01.320 --> 0:05:04.719 the bar you know, thin majority in the U. S. Senate. 0:05:05.040 --> 0:05:07.039 Let's talk a bit about trade. It was on the 0:05:07.040 --> 0:05:10.680 agenda at that summit in mar Lago in Florida last week, 0:05:10.720 --> 0:05:13.400 the President talking with this Chinese counterpart a bit about 0:05:13.440 --> 0:05:15.560 it help us with the path forward. Here. A few 0:05:15.640 --> 0:05:17.960 days before that, you have the Secretary of Commerce, Wilbur Ross, 0:05:17.960 --> 0:05:20.160 saying that he's now embarking on a ninety day undertaking 0:05:20.200 --> 0:05:22.520 to to look at the bad trade deals. I suppose, 0:05:22.560 --> 0:05:24.800 looking at this on a company by company basis. What 0:05:24.839 --> 0:05:26.479 do you expect the result of that to be in 0:05:26.560 --> 0:05:29.480 terms of what the administration does next? How do they 0:05:29.520 --> 0:05:31.920 leave things? I guess I'm asking in mar Lago. You 0:05:31.960 --> 0:05:34.320 know what what I'll be looking for is, I think 0:05:34.440 --> 0:05:36.920 what we need to focus on, or what markets care about, 0:05:37.040 --> 0:05:40.920 is we just need to avoid uh moving policy in 0:05:40.960 --> 0:05:44.360 an anti growth direction, meaning you know, you end up 0:05:44.360 --> 0:05:47.080 with a trade war you know, taking place, or a 0:05:47.160 --> 0:05:52.360 move towards aggressively protectionist policies. A smooth holy two point oh, 0:05:52.440 --> 0:05:55.159 and that you know those risks look like, if anything, 0:05:55.160 --> 0:05:57.719 they've receded recently, which is, you know, which is a 0:05:57.720 --> 0:06:00.560 positive at the margin. But the idea that we can 0:06:00.600 --> 0:06:04.280 just go in and cookie cutter renegotiate quote unquote bad 0:06:04.360 --> 0:06:08.039 trade deals, I think is something of a myth um. 0:06:08.080 --> 0:06:10.280 You know. The reality is we're probably not looking at 0:06:10.320 --> 0:06:12.920 sweeping changes there, and if there are sweeping changes, it 0:06:12.960 --> 0:06:15.679 would probably be to the negative side, and that's something 0:06:15.760 --> 0:06:18.560 we definitely want to avoid, you know. I I asked 0:06:18.640 --> 0:06:21.520 you about who. I was referencing the comment from Stephen Nuchambaut, 0:06:21.520 --> 0:06:23.800 who speaks for the Administration on currency when it comes 0:06:23.839 --> 0:06:25.440 to trade. Do we have a clear sense of that? 0:06:25.560 --> 0:06:28.719 I mentioned Secretary Commerce Will but Ross Robert Leitheiser, the 0:06:28.760 --> 0:06:31.880 nominee to be US Trade Representative. His nomination still held 0:06:31.920 --> 0:06:34.240 up in Congress, and then Peter Navarro floating on the 0:06:34.240 --> 0:06:37.799 periphery as well, heading up this National Trade councils Uh, 0:06:37.880 --> 0:06:39.160 do you have a sense of who's speaking for the 0:06:39.160 --> 0:06:42.400 administration and how complicating is it to have these three 0:06:42.400 --> 0:06:45.720 people all fighting over this issue? Right? Well, it does, 0:06:46.400 --> 0:06:48.480 you know, make for a bit of confusion. When you 0:06:48.480 --> 0:06:51.840 hear the President or you hear Mr. Navarro speak about trade, 0:06:51.920 --> 0:06:56.400 you definitely are getting you know, the populist, nationalist view 0:06:56.800 --> 0:07:00.359 um you know, more protectionist. But the other voices in 0:07:00.440 --> 0:07:03.520 Treasury at least seemed to be pushing the other way. 0:07:03.560 --> 0:07:06.000 So while that creates confusion, I also think it's an 0:07:06.040 --> 0:07:12.040 important firebreak against radical and potentially disruptive and damaging um, 0:07:12.440 --> 0:07:15.280 you know, policies in terms of moving towards aggressive trade 0:07:15.280 --> 0:07:19.000 protectionism or some kind of a trade war. Michaels are 0:07:19.160 --> 0:07:21.000 danger And we've talked a little bit about this also 0:07:21.040 --> 0:07:23.480 on TV that if he doesn't get healthcare through, that, 0:07:23.520 --> 0:07:26.960 if he doesn't get tax reformed through then to get 0:07:27.000 --> 0:07:31.840 that easier when he goes back to you know, um tariffs, 0:07:32.120 --> 0:07:36.040 adjusted border tax or things like that, I think. So, 0:07:36.160 --> 0:07:38.160 I mean it's interesting if you if you look at 0:07:38.200 --> 0:07:40.960 the history of the president. You know, his views on 0:07:41.120 --> 0:07:44.280 policies have evolved and changed over time. There's a lot 0:07:44.320 --> 0:07:48.720 of fluidity there, but on one specific issue, trade, going 0:07:48.760 --> 0:07:50.680 all the way back to the late eighties, I think 0:07:50.680 --> 0:07:54.440 he's run for president at least temporarily in every cycle 0:07:54.920 --> 0:07:57.480 going back to the late eighties, he's had this view 0:07:57.560 --> 0:08:01.680 of trade that's mercantilist, national a stick UH in zero 0:08:01.840 --> 0:08:04.960 sum and and so that is a concern at least 0:08:04.960 --> 0:08:06.840 for me, and I think it's a concern for markets 0:08:06.880 --> 0:08:09.040 as well. Just about thirty seconds left will come back 0:08:09.080 --> 0:08:10.720 your Michael just a bit, But to what degree are 0:08:10.720 --> 0:08:12.680 you paying attention to Washington when when you look at 0:08:12.720 --> 0:08:16.280 investment at large, how big a role is Washington playing. Well, 0:08:16.320 --> 0:08:19.160 it's probably overstated. I mean, as we saw with the 0:08:19.200 --> 0:08:23.120 attempt UH with repeal and replaced, it didn't go anywhere. 0:08:23.600 --> 0:08:26.520 Very difficult to to get sweeping changes to take place. 0:08:26.640 --> 0:08:29.760 That said, um there is a big focus on it, 0:08:29.800 --> 0:08:32.120 and certainly in the client meetings that I've been doing, 0:08:32.920 --> 0:08:35.240 we spend a lot of time talking about Washington, and 0:08:35.280 --> 0:08:38.400 then everybody complains that they're spending too much time talking 0:08:38.440 --> 0:08:42.640 about it and thinking about it. Um. So it's definitely topical. 0:08:43.040 --> 0:08:45.080 David Ger with Francine Lockwood Day. Tom Keane is on 0:08:45.120 --> 0:08:48.240 vacation this week, back in the chair on Monday. This 0:08:48.320 --> 0:08:50.600 is Bloomber Surveillance on Bloomberg Grady, we're talking with Michael 0:08:50.640 --> 0:08:53.360 Darda of m CAM Partners is the chief economist there. 0:08:53.360 --> 0:08:55.240 And let's talk a little bit about the Fed. There's 0:08:55.240 --> 0:08:58.000 been so much attention being paid now to the balance sheet, 0:08:58.040 --> 0:09:00.320 the parlor game shifts that focus from from rating creases, 0:09:00.360 --> 0:09:02.840 at at least partially to the balance sheet. Give us 0:09:02.840 --> 0:09:04.640 a sense of what you're thinking in light of what 0:09:04.679 --> 0:09:07.000 we've read from the minutes of the March meeting, and 0:09:07.080 --> 0:09:09.600 light of what we've heard from governors and presidents and 0:09:09.640 --> 0:09:13.520 from from Cherry yelling herself. So my thinking is that 0:09:13.600 --> 0:09:16.160 it looks like the Fed is basically on this course 0:09:16.240 --> 0:09:20.199 of quarter to quarter you rate hikes twenty five basis 0:09:20.240 --> 0:09:24.280 points per quarter until or unless something goes wrong, or 0:09:24.360 --> 0:09:26.720 as you mentioned, until they decided to start drinking the 0:09:26.760 --> 0:09:32.680 balance sheet, and then um New York Fed President Dudley 0:09:32.920 --> 0:09:37.000 said recently that when they do begin that process, probably 0:09:37.040 --> 0:09:39.520 they'll pause on the rate hikes for a while just 0:09:39.559 --> 0:09:43.559 to see how financial markets and liquidity conditions are developing. 0:09:44.360 --> 0:09:46.760 Uh So I think, you know, the dot plot gives 0:09:46.840 --> 0:09:49.520 us some sense of, you know, what the consensus view 0:09:49.640 --> 0:09:52.560 is on the FED in terms of prospective rate rises. 0:09:52.600 --> 0:09:54.880 So probably two more this year, but I wouldn't rule 0:09:54.880 --> 0:09:57.360 out for if the data stays decent. I think they're 0:09:57.360 --> 0:10:00.320 going to continue to go a quarter to quarter. If 0:10:00.360 --> 0:10:02.720 we end up with you know, much weaker data or 0:10:02.880 --> 0:10:06.080 disruptive volatility, meaning to the extent that it looks like 0:10:06.120 --> 0:10:09.200 it might threaten the business cycle, they'll clearly, uh, they'll 0:10:09.240 --> 0:10:12.680 clearly stop. But I think, you know, the base case 0:10:12.679 --> 0:10:15.640 scenario is quarter by quarter rate hikes until they start 0:10:15.679 --> 0:10:18.560 to to to work on the balance sheet, probably later 0:10:18.600 --> 0:10:20.960 this year, early next year, so we proceed a pace. 0:10:21.559 --> 0:10:24.360 I wonder what would constitute an event big enough to 0:10:24.480 --> 0:10:27.400 derail moving ahead in the way that they want to. Well, 0:10:27.440 --> 0:10:30.280 at least from my perspective, you know, I'll be watching 0:10:30.360 --> 0:10:33.400 three indicators. One is credit markets. So when the FED 0:10:33.480 --> 0:10:37.840 initially started the taper and then was talking up rate rises, 0:10:38.320 --> 0:10:40.320 we started to see a big move up in the 0:10:40.360 --> 0:10:44.480 dollar and then pressure on credit markets. The conventional wisdom, 0:10:44.520 --> 0:10:46.840 as we talked about on on TV, this morning was 0:10:46.880 --> 0:10:49.080 that it was just an oil market story, but we 0:10:49.160 --> 0:10:51.600 did see a slowdown in the business cycle in the US. 0:10:51.679 --> 0:10:55.000 We had, um, you know, really from late fourteen into 0:10:55.000 --> 0:10:57.839 the middle of last year, pretty big deceleration in year 0:10:57.880 --> 0:11:00.760 over year nominal and even real GDP growth. So the 0:11:01.000 --> 0:11:04.360 conventional view was falling oil will boost growth, but in 0:11:04.400 --> 0:11:07.840 fact that was not the case. Um, So I'll be 0:11:07.880 --> 0:11:12.640 watching credit markets very closely and inflation expectations, and then uh, 0:11:12.760 --> 0:11:16.480 some of the monetary aggregates that don't include access reserves, 0:11:16.559 --> 0:11:20.200 like M one money growth for example, that one weakened 0:11:20.200 --> 0:11:24.319 a lot coming into early last year and now recovered 0:11:24.320 --> 0:11:29.640 back into two recovery ranges. So if those indicators look healthy, 0:11:29.679 --> 0:11:31.360 then I don't think we need to worry about the 0:11:31.400 --> 0:11:35.400 FED either raising rates further or potentially shrinking the balance sheet. 0:11:35.440 --> 0:11:37.800 If those indicators are rolling over, then we're gonna have 0:11:37.840 --> 0:11:40.760 to worry more. And then it's you know, there's some 0:11:41.080 --> 0:11:44.680 subjectivity in terms of what constitutes a material weakening, but 0:11:44.760 --> 0:11:48.440 I would just say a sustained, you know, adverse move 0:11:48.559 --> 0:11:50.880 in in any or all of those indicators, and I 0:11:50.920 --> 0:11:55.560 would become increasingly worried, worried, meaning Michael that they that 0:11:55.640 --> 0:11:58.360 it would actually stop the FED from hiking. What needs 0:11:58.440 --> 0:12:00.240 to happen for the Fed to actually say, you know 0:12:00.280 --> 0:12:03.160 what one right hike if at all this year. Well, 0:12:03.200 --> 0:12:06.600 I think you'd need to see ongoing softness in the 0:12:06.640 --> 0:12:09.720 macro data. So there's some concern that Q one GDP 0:12:09.960 --> 0:12:12.079 looks weak. I think it's you know, we'll have to 0:12:12.120 --> 0:12:14.600 see what the numbers suggest and then whether there's a 0:12:14.600 --> 0:12:18.480 bounce back in Q two. But the payroll figures, you know, 0:12:18.559 --> 0:12:21.640 we we got a disappointing report for March, but keep 0:12:21.679 --> 0:12:24.920 in mind that underlying organic labor for US growth is 0:12:24.960 --> 0:12:29.600 probably only k to k. And if it turns out 0:12:29.640 --> 0:12:34.240 that that headline number on payrolls, you know, you know, 0:12:34.520 --> 0:12:36.720 if it turns out that we either get upward revisions 0:12:36.760 --> 0:12:38.640 or we're bouncing back, the Fed's going to want to 0:12:38.679 --> 0:12:42.280 tighten further to to to temper that. So I think 0:12:42.320 --> 0:12:46.079 you'd need pretty weak data in a sustained fashion or 0:12:46.120 --> 0:12:52.040 what looks like disruptive volatility shocks. Is that dollar strength. 0:12:52.440 --> 0:12:54.320 It could be, but I think it would be They're 0:12:54.360 --> 0:12:57.240 not going to react to the dollar, uh per se. 0:12:57.360 --> 0:13:01.679 But if the dollar is moving, cup bold with adverse moves, 0:13:01.679 --> 0:13:05.160 in credit markets and inflation expectations, then they will definitely 0:13:05.240 --> 0:13:07.360 take note. It took a while for them to wake 0:13:07.480 --> 0:13:10.480 up to that moving into two thousand sixteen, but they 0:13:10.480 --> 0:13:13.800 eventually did move to the sidelines, and that was ultimately 0:13:13.840 --> 0:13:17.120 the right move. Uh. Conditions stabilized, and then the Fed 0:13:17.240 --> 0:13:19.760 was able to start raising rates late last year and 0:13:19.880 --> 0:13:22.760 was you know, and then followed up, um, you know, 0:13:22.880 --> 0:13:26.360 just recently. And those moves were not disruptive because they 0:13:26.480 --> 0:13:29.640 properly paused for a period of time, So no need 0:13:29.720 --> 0:13:32.720 to go there at this juncture. I don't think you 0:13:32.760 --> 0:13:34.880 know that you know that we're looking at those kinds 0:13:34.880 --> 0:13:37.800 of disruptions, so I think they'll be able to continue 0:13:37.800 --> 0:13:40.160 with quarter to quarter moves. Alright. Michael donnan, thanks so 0:13:40.280 --> 0:13:42.160 much for joining us today both on radio and television. 0:13:42.200 --> 0:13:44.400 Great to see it once again. Michael Darta, Chief Economists 0:13:44.400 --> 0:13:46.560 with m k M Partners here in our eleven three 0:13:46.559 --> 0:14:02.360 our studios in New York. M Ken Leon, who was 0:14:02.400 --> 0:14:04.439 kind enough to join us on television earlier this morning 0:14:04.480 --> 0:14:07.120 as well as we got this JP Morgan earnings. And 0:14:07.120 --> 0:14:09.640 before we dig into the numbers and in specific here, Ken, 0:14:09.720 --> 0:14:12.120 let me just ask you about broad themes. Friend and 0:14:12.120 --> 0:14:14.720 I were talking about the contrast here between equities trading 0:14:14.720 --> 0:14:16.840 and fixed income. What are you seeing shape up when 0:14:16.880 --> 0:14:18.640 you look at JP Morgan and you look at City 0:14:18.679 --> 0:14:24.640 this morning? The key is really in capital markets, where 0:14:25.640 --> 0:14:28.800 very strong for JP Morgan. It was mixed at best 0:14:28.880 --> 0:14:32.600 for City. UH. This may suggest the market share gains 0:14:32.680 --> 0:14:36.480 for JP Morgan, you know, obviously always near the top 0:14:36.520 --> 0:14:39.840 in terms of these league rankings for equity UH sixth 0:14:39.840 --> 0:14:46.280 income Underwriting, etcetera. UH. City trading also in areas related 0:14:46.320 --> 0:14:50.920 to equities was okay, but it seems that the year 0:14:51.000 --> 0:14:57.080 over year comparisons for City UM were at best okay. Uh. 0:14:57.120 --> 0:15:00.440 They did a beat in terms of the dollar star 0:15:00.520 --> 0:15:04.920 ten last year UM, but we really don't see across 0:15:05.000 --> 0:15:07.840 the board the same strength that we've seen in JP 0:15:08.000 --> 0:15:11.040 Morgan's results today. How much of a surprise was it 0:15:11.080 --> 0:15:13.600 to you when you got the read unfixed income trading 0:15:13.640 --> 0:15:17.000 from from JP Morgan again beating estimates with some some 0:15:17.120 --> 0:15:19.240 significance there. How big a surprise was that to you? 0:15:21.280 --> 0:15:24.080 The first quarter is typically the strongest quarter for fixed 0:15:24.120 --> 0:15:27.280 income trading, and then in an arising rate environment and 0:15:27.360 --> 0:15:30.320 a little bit more of risk taking by let's call 0:15:30.400 --> 0:15:34.600 it institutional clients. All of this led to very strong results. 0:15:35.000 --> 0:15:37.320 We also got an indication of this really from the 0:15:37.400 --> 0:15:42.520 monthly market exchange data that we get. Can talk to 0:15:42.560 --> 0:15:44.480 me a little bit about city groups. So we're just 0:15:44.480 --> 0:15:47.360 getting the story generating the most revenue from fixed income 0:15:47.360 --> 0:15:51.240 trading in three years. Are you concerned that they won't 0:15:51.240 --> 0:15:55.600 be able to keep it up? It's likely that for 0:15:56.040 --> 0:16:00.920 this year that we will see flat up single digit 0:16:01.040 --> 0:16:07.720 for fixed income trading. UM. A lot relates to investor confidence, 0:16:07.840 --> 0:16:12.000 risk taking, and a fixed income trading along with equities, 0:16:12.040 --> 0:16:16.600 really have not seen a lot of volatility. Volatility tends 0:16:16.640 --> 0:16:20.520 to initially be good for trading revenue like fixed income, 0:16:20.840 --> 0:16:24.160 and then it creates a kind of a pocket where 0:16:24.600 --> 0:16:28.480 UH investors are on the sidelines. City group to consumer 0:16:28.560 --> 0:16:31.800 bank of revenue increasing one percent, that's actually a touch 0:16:31.840 --> 0:16:36.000 below what analysts were expecting. UM is that they're kind 0:16:36.040 --> 0:16:39.520 of a keyless. Hell yeah, that's right. So I don't 0:16:39.520 --> 0:16:42.480 think it speaks to the economy the confidence of you know, 0:16:42.640 --> 0:16:45.560 the consumer UM. You know, when you look at the 0:16:45.640 --> 0:16:49.640 products related to consumer lending, UM, you know, I would 0:16:49.840 --> 0:16:54.000 want to see numbers like, you know, three four percent growth, 0:16:54.040 --> 0:16:56.440 and it was only one percent for City. You know, 0:16:56.520 --> 0:17:00.520 City doesn't have the breaths of franchise and the mestic 0:17:00.840 --> 0:17:04.280 consumer banking. They are very strong in credit cards though, 0:17:04.920 --> 0:17:06.680 where the deficits as you see them when you look 0:17:06.680 --> 0:17:09.480 at these two earnings reports, where the problem of spots 0:17:09.680 --> 0:17:14.159 that that stand out to you. The problem spots really 0:17:14.480 --> 0:17:19.679 relate to UM as the last question with the consumer confidence, 0:17:19.760 --> 0:17:22.720 confidence from the CEOs for M and A mergers and 0:17:22.760 --> 0:17:26.280 acquisitions was actually down year over year, but it was 0:17:26.400 --> 0:17:30.439 made up by strong debt inequity underwriting, particularly I p 0:17:30.560 --> 0:17:33.240 O s like Snap in the first quarter where JP 0:17:33.400 --> 0:17:36.040 Morton was Elite, City was in it as well, So 0:17:36.119 --> 0:17:39.240 that's one year. A second area would be related to 0:17:40.080 --> 0:17:44.800 UM anything on as it speaks to the business climate 0:17:44.960 --> 0:17:48.959 and regulation. Right now, it's it's pretty much business as 0:17:49.080 --> 0:17:52.800 usual UM Again, it may not be in the results, 0:17:52.840 --> 0:17:56.959 but on expectations that in a Trump administration and pro 0:17:57.200 --> 0:18:01.400 business over the course of two thousands seventeen, we're going 0:18:01.440 --> 0:18:04.280 to see some easing on some of the guidelines, whether 0:18:04.320 --> 0:18:07.240 it be Dodge Frank or some of the agencies in 0:18:07.359 --> 0:18:10.399 terms of how they interpret bank regulation. We'll talk with 0:18:10.440 --> 0:18:11.879 ken Ley on a c f R A here as 0:18:11.920 --> 0:18:14.679 we get results from a city and Wells got results 0:18:14.680 --> 0:18:16.679 a little earlier this morning from JP Morgan. Just to 0:18:16.680 --> 0:18:19.200 get everyone up to speed on where things stand. We're 0:18:19.200 --> 0:18:21.840 going through those rings reports now JP Morgan starting its 0:18:21.920 --> 0:18:24.440 call with reporters. That's just under Wayne again. You can 0:18:24.440 --> 0:18:27.119 follow along at t L I V go on the 0:18:27.119 --> 0:18:30.480 BLOOMBERGAINSI listened to us here. Can you mentioned looking ahead 0:18:30.480 --> 0:18:32.280 to what may or may not happen out of Washington? 0:18:32.359 --> 0:18:35.520 How important to banks to the bank's bottom line is 0:18:35.560 --> 0:18:38.679 some sort of reform of financial regulation in the US. 0:18:40.280 --> 0:18:45.200 So the managements, uh, you know are very conservative, they're 0:18:45.240 --> 0:18:49.040 kind of living with the condition of Dodge Frank Um. 0:18:49.080 --> 0:18:52.480 I think it gets into some of the areas or 0:18:52.760 --> 0:18:55.399 or or products that they can get involved in with 0:18:55.520 --> 0:18:57.800 a little bit more risk taking. No one's going to 0:18:57.880 --> 0:19:01.040 remove capital requirements or put the banks who are the 0:19:01.080 --> 0:19:04.320 country at risk, um, but it's more on the edge 0:19:04.320 --> 0:19:09.240 of that ability to maybe enable them to take capital 0:19:09.280 --> 0:19:12.920 and put it, in a principle UM, into a little 0:19:12.920 --> 0:19:14.879 bit of risk your areas to get higher returns. I 0:19:14.920 --> 0:19:18.520 don't think it's the return of prompt trading UM. That's 0:19:18.560 --> 0:19:22.040 not going to happen. But um, I think the mandate 0:19:22.080 --> 0:19:26.399 from the Trump administration, both for the SEC, perhaps with 0:19:26.520 --> 0:19:29.480 the appointments over the next eighteen months with the Federal Reserve, 0:19:30.000 --> 0:19:34.840 is more of a accommodative environment. Four banks. We have 0:19:34.880 --> 0:19:36.679 about thirty seconds here before we'll go to break. We'll 0:19:36.720 --> 0:19:38.000 come back with you in just a little bit here, 0:19:38.040 --> 0:19:39.439 but let me ask you Ken, what we learned from 0:19:39.480 --> 0:19:41.520 Jamie Diamond this morning in terms of his outlook on 0:19:41.560 --> 0:19:43.720 the economy. We had his letter to shareholders at last 0:19:43.760 --> 0:19:45.679 week or the week before, it's all the fog, I 0:19:45.680 --> 0:19:47.800 can't remember which. But what do we learned today about 0:19:47.800 --> 0:19:51.880 the economy? Yeah, so, especially in the meat and potato 0:19:52.160 --> 0:19:56.600 areas of banking, which is consumer bank landing, and also business, 0:19:56.800 --> 0:20:02.159 particularly small uh business US. It's very good. We're seeing 0:20:02.400 --> 0:20:07.800 up up indicators for employment. We're seeing consumer is still confident, 0:20:07.880 --> 0:20:10.560 which means that the housing market is still very good, 0:20:10.960 --> 0:20:14.480 and consumer loans including auto loans, are are good as well. 0:20:14.600 --> 0:20:17.480 Can we haven't talked about Wells Fargo. We approach those 0:20:17.480 --> 0:20:19.480 earnings a little bit differently. Friend and I were discussing 0:20:19.520 --> 0:20:22.440 before we went to you on the phone. Obviously there's 0:20:22.440 --> 0:20:25.600 this fake account scandal still looming. When is this bank 0:20:25.640 --> 0:20:27.639 going to get beyond it? We saw the claw backs 0:20:27.680 --> 0:20:31.160 just a couple of days ago of John Stump's pay package. 0:20:31.560 --> 0:20:33.399 How desperate is this bank to get beyond it? And 0:20:33.400 --> 0:20:37.040 what's it going to happen? Well, it really starts with 0:20:37.200 --> 0:20:40.400 the senior management, and even in today's earnings release there's 0:20:40.440 --> 0:20:45.240 a tone of talking about um, you know, culture and 0:20:45.359 --> 0:20:49.040 doing right for the customer. Uh in the earnings release, 0:20:49.400 --> 0:20:52.480 um you know? With that, Uh, it also ties to 0:20:53.160 --> 0:20:57.760 how they measure performance for employees, particularly those you know 0:20:57.840 --> 0:21:00.280 who are at the bank branches, et cetera. So all 0:21:00.400 --> 0:21:03.280 this is part of rebuilding their brand. It's going to 0:21:03.400 --> 0:21:07.320 take some time. The results are okay, they're not great, 0:21:07.920 --> 0:21:11.960 but this is more of a traditional commercial lending bank 0:21:12.080 --> 0:21:16.480 than one like JP Morgan, which is global and all 0:21:16.560 --> 0:21:21.200 respects for the capital markets and investment banking. Can we 0:21:21.280 --> 0:21:23.200 talk at some length on this show about the European 0:21:23.240 --> 0:21:25.240 banks and you look at Credit Squeez, you look at 0:21:25.240 --> 0:21:27.679 Deutsche Bank. You've got chief executives who have big plans 0:21:27.720 --> 0:21:31.000 to turn those banks around, turn them into new entities. 0:21:31.760 --> 0:21:34.520 What's that? What's the Jamie Diamond or uh, what's Mr 0:21:34.600 --> 0:21:38.000 Corbat thinking he looks overseas to Europe and thinks about 0:21:38.000 --> 0:21:41.080 the role that he could play in rejiggering or reinventing 0:21:41.119 --> 0:21:44.000 banks here based in the US. I think we're what 0:21:44.040 --> 0:21:47.640 we're gonna hear from Jamie Diamond and JP Morgan at 0:21:47.680 --> 0:21:49.800 a thirty on the call is going to be that, 0:21:50.160 --> 0:21:53.960 you know, their rankings in Europe in particular is number 0:21:53.960 --> 0:21:58.240 one or two, and they are taking market share as 0:21:58.320 --> 0:22:02.520 some of the major European bank whether it be Deutsche Bank, 0:22:03.040 --> 0:22:07.720 credit Swists, Ubs, etcetera, continue to be shifting away from 0:22:07.960 --> 0:22:12.120