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Speaker 1: Let's get to our key interview this hour with Carlisle's
Speaker 1: David Rubinstein, David, of course, host of Peer to Peer
Speaker 1: Conversations on Bloomberg Television and radio. You can catch David's
Speaker 1: interview with FED chair j Powell on The David Rubinstein
Speaker 1: Show Peer to Peer, airing July twenty fourth at nine
Speaker 1: pm Wall Street Time on Bloomberg TV. Let's go to
Speaker 1: the source. David patiently waiting for us in our Washington
Speaker 1: DC bureau. David, great to have you here. We've been
Speaker 1: counting down to your conversation with Ja Powell. We watched.
Speaker 1: How did this come about? Was it planned for a
Speaker 1: long time?
Speaker 3: I'm just curious, Okay, Well, I am the chairman of
Speaker 3: the Economic Club of Washington, and in that capacity I
Speaker 3: often interview government leaders and business leaders and Jay Powell
Speaker 3: and had been somebody i'd interviewed before. He had worked
Speaker 3: at my firm a number of years ago, well before
Speaker 3: he was at the FED, and so we worked out
Speaker 3: a date that I would do this interview today, and
Speaker 3: we had about seven hundred people there and obviously a
Speaker 3: live TV audience.
Speaker 4: David, we were chuckling the whole time. I mean, this
Speaker 4: was like a really a powel that you don't see
Speaker 4: at press conference, as a powel that you don't see
Speaker 4: every day. It's clear that you too are familiar with
Speaker 4: one another. What did you want to get out of
Speaker 4: the interview? Because we know that he's not going to
Speaker 4: give us any indication about a rate path. He established
Speaker 4: that at the top of the interview, What did you
Speaker 4: want to get out of it?
Speaker 3: Well, I think it's always good to humanize well known people,
Speaker 3: and people can understand them better and the way they
Speaker 3: make decisions and the way they kind of handle their
Speaker 3: and I thought humanizing him would be always good. Clearly,
Speaker 3: when you're a chairman of the FED, you talk in
Speaker 3: what I've often called Fed speak, which is to say,
Speaker 3: it's very difficult for the average person to understand it.
Speaker 3: But Jay does a better job than some of his
Speaker 3: predecessors and speaking in common English because he's not a
Speaker 3: trained economist, and I just thought giving people an update
Speaker 3: on his perspectives on the economy would be a good thing.
Speaker 3: I mean, obviously, as you point out, he's not going
Speaker 3: to announce at an interview with me that he's lowering
Speaker 3: interest rates.
Speaker 4: You can't expect that.
Speaker 3: But I think he gave a pretty good description of
Speaker 3: how they decide to lower interest rates or increase interest rates,
Speaker 3: and I thought it was informative. And therefore I thought,
Speaker 3: you know, he accomplishes goal, which is the kind of
Speaker 3: you know, show people how he makes decisions, and I
Speaker 3: accomplish my goal, which is kind of humanize the chairman
Speaker 3: of the FED a little bit more than maybe he
Speaker 3: otherwise would be.
Speaker 4: Well, David, help us understand your relationship. You mentioned that
Speaker 4: you guys do go back years. Of course, he was
Speaker 4: a partner at the Carlisle Group before he went into
Speaker 4: public service. I'm wondering if you're in touch with him
Speaker 4: regularly now, if you consider him a friend, just give
Speaker 4: us an idea of your relationship with him.
Speaker 3: I wouldn't say I'm in touch with them regularly when
Speaker 3: you're a chairman of the FED, you know, I think
Speaker 3: it's somebody like me doesn't want to be calling them
Speaker 3: up all the time, and you know, I don't want
Speaker 3: to look like I'm trying to get information from him.
Speaker 3: And he worked at Karloff for years, but I wouldn't
Speaker 3: say I was his closest friend or vice versa. So
Speaker 3: I know him reasonably well. I've interviewed him, I think
Speaker 3: three times or four times at the Economic Club in Washington,
Speaker 3: and I have a good relationship with him, but I
Speaker 3: wouldn't say we're, you know, close as a friends. But
Speaker 3: I certainly like him and admire what he's done for
Speaker 3: the country and the job that he's had.
Speaker 1: You know what's interesting too, and something we've talked a
Speaker 1: lot about David is, you know, the neutral rate and
Speaker 1: what he thinks about that two percent goal that the
Speaker 1: Federal Reserve has. He said, the neutral rate is probably
Speaker 1: hired today. Monetary policy is restrictive, but not severely restrictive.
Speaker 1: I am curious how you see things. Do you think
Speaker 1: the neutral rate doesn't make sense anymore, that it does
Speaker 1: need to be higher? And what is your expectation or
Speaker 1: what you think the Fed should be doing when it
Speaker 1: comes to interest rates right now?
Speaker 3: Well, I think the country will do much better off
Speaker 3: listening to Jay Pal's vieues on where the interest rate
Speaker 3: should go than probably my views on interest rates. But
Speaker 3: I think it's a general sense that the market is
Speaker 3: believing that there will be a cut, and I think
Speaker 3: Jay made it clear that he doesn't listen to the
Speaker 3: political situation. So I have said in speeches that I
Speaker 3: thought it would be unlikely that the FED would want
Speaker 3: to cut during a presidential election period of time, but
Speaker 3: I think he's made it clear that that's not his
Speaker 3: view or the view of the FOMC, that if they
Speaker 3: think the data warrants a cut, they will have a cut.
Speaker 3: And therefore, the FED could do something at the end
Speaker 3: of July when they meet, or they could do something
Speaker 3: again when they meet in September. And my guess is
Speaker 3: that sometime before the FED meets after the election, they
Speaker 3: will do something. That'd be my current thinking. The economy
Speaker 3: could change, and obviously data is everything, but right now
Speaker 3: the markets are anticipating, and I think the FED is
Speaker 3: not shutting down the idea that something could happen before
Speaker 3: the election.
Speaker 1: Before the election, okay, do you think that the election
Speaker 1: in any way sways? I mean, we're all human, right,
Speaker 1: and we can say we're very objective, but we're human
Speaker 1: and impacted by lots of things that are going on
Speaker 1: in this world. Do you think that j Powell and
Speaker 1: policymakers at the FED might be swayed a little bit
Speaker 1: of small influence when it comes to the November election
Speaker 1: presidential election?
Speaker 3: I think the Fed, everything Jay says, is that they
Speaker 3: don't really pay attention to the election dates, and I
Speaker 3: think right now, since so many people pay attention to
Speaker 3: the markets and the interest rates where they are that
Speaker 3: I think that the FED will do what the data
Speaker 3: suggests is appropriate. And when the data gets to the
Speaker 3: point where they see inflation more or less getting the
Speaker 3: two percent and the economy softening a bit, I suspect
Speaker 3: they will not wait until after the election because they
Speaker 3: don't want to be seen as political. And therefore, while
Speaker 3: they might be criticized by some for lowering interest rates
Speaker 3: before the end of the before the election's over, I
Speaker 3: just think the FED has given enough signals, including today,
Speaker 3: that they're not going to worry about the election. They'll
Speaker 3: do what the data suggests is appropriate.
Speaker 1: I do wonder, David, as you said, you've talked with
Speaker 1: Jay Powell several times certainly in this format. So you
Speaker 1: monetary policy obviously in the economy first and foremost, and
Speaker 1: there are certain things that Jay Powell will go you
Speaker 1: guys laugh about some of the things he will obviously
Speaker 1: not reveal. But having said that, at the end of
Speaker 1: the conversation, when it comes to the things the Bloomberg
Speaker 1: audience cares so much about in terms of monetary policy
Speaker 1: and the economy, what was your key takeaway from j Powell?
Speaker 3: My key takeaway from the interview and with my discussion
Speaker 3: with him is that he's a man who's very much
Speaker 3: on top of the data. He enjoys the job, not
Speaker 3: worn out by it. Doesn't say well is to me,
Speaker 3: I have got all this pressure on my shoulders. I
Speaker 3: think he can deal with it quite well. He's used
Speaker 3: to it. He's been in the chair for quite some time.
Speaker 3: I think he's reasonably happy now with where the economy is. Remember,
Speaker 3: we didn't go into the hard landing that everybody was predicting.
Speaker 3: People thought there would be a recession that last year
Speaker 3: or this year. That didn't happen. So whoever gets credit
Speaker 3: for it, The Fed deserves some share of that credit
Speaker 3: because they manage the economy. Me into a really nice
Speaker 3: soft landing, so called, and so right now, while unemployment
Speaker 3: is going up, I don't think it's going up by
Speaker 3: such on a level that's scaring people. And I think
Speaker 3: the markets are in pretty good shape and the economy
Speaker 3: is in pretty good shape.
Speaker 4: He didn't want to comment on the market, the idea
Speaker 4: of the so called Trump trade returning after this weekend's
Speaker 4: horrific Yes, he was clear about that up on top,
Speaker 4: and I'm at the top of the interview. But I'm
Speaker 4: curious about your view and what you think is being
Speaker 4: priced into markets right now, David, the Fed chair not
Speaker 4: weighing in, but politically, what is being priced in right now?
Speaker 3: Well, clearly, the events of the weekend, no doubt scared
Speaker 3: a lot of people about the violence that is still
Speaker 3: prevalent in this country in many areas. Unfortunately, and so fortunately,
Speaker 3: we did not have an assassination, though one person did
Speaker 3: die tragically and another person still in the hospital for
Speaker 3: the wounds that that person suffered as well. Sad situation. Obviously,
Speaker 3: the investigation we'll figure out what the Secret Service could
Speaker 3: have done differently or better. I'm not an expert in
Speaker 3: that area, so I just can't say what they will find,
Speaker 3: but clearly we have an eliminated violence from our political situation.
Speaker 1: Unfortunately, David, you've served in the federal government. You were
Speaker 1: chief counsel to the US Senate Judiciaries Committee sub Committee
Speaker 1: back in the seventies, Deputy Assistant to the President for
Speaker 1: Domestic Policy during the Carter administration. The democracy has faced
Speaker 1: other heavy periods before. It feels rather heavy today. Is
Speaker 1: there something different this time around?
Speaker 2: You are, I.
Speaker 1: Feel like it's safe to say a student of history.
Speaker 1: You respect past leaders and what they've done. How do
Speaker 1: you make sense of this particular political and historical period.
Speaker 3: Well, it's difficult to really put it in context right
Speaker 3: now because you can't really tell what the historical impact
Speaker 3: it is till many years afterwards. But right now the
Speaker 3: country seems to be fairly bitterly divided between the Democrats
Speaker 3: and Republicans. And it wasn't the case fifty years ago
Speaker 3: or so. When John Kenny ran for president against Richard
Speaker 3: Nixon teen sixty, they campaigned in most of the states
Speaker 3: because they didn't know how the states would go. Now
Speaker 3: the country's fairly divided, so we know how almost all
Speaker 3: the states are going to go. They're only five or six,
Speaker 3: maybe seven states where it's a kind of a swing state.
Speaker 3: So it's much different than it used to be. The
Speaker 3: tensions between both sides seem to be much greater than
Speaker 3: they used to be. Bipartisanship is something that is not
Speaker 3: as common as it used to be in Washington, d C.
Speaker 3: So I don't know whether the events of this weekend
Speaker 3: will scare people into saying we should try to, you know,
Speaker 3: be less i'd say violent in our rhetoric and less
Speaker 3: condemning of other sides. But clearly President Trump has suggested
Speaker 3: that he would make them more unifying speech than otherwise
Speaker 3: was going to make. And I think President Biden's speech
Speaker 3: last night was designed to also have a unifying impact.
Speaker 3: Whether you can unify our country in a way like this,
Speaker 3: I think we should, I don't know, but it will
Speaker 3: probably have some beneficial impact, though obviously the events were tragic.
Speaker 4: David, are you optimistic given the heated political environment right now?
Speaker 3: I'm optimistic that the country is in reasonable shape economically, politically,
Speaker 3: we can do more than than we have been doing
Speaker 3: to kind of bring the country together, and that part
Speaker 3: the jury is still out, but I'm hopeful that while
Speaker 3: the events were tragic over the weekend that there will
Speaker 3: have some beneficial impact in getting both sides, Democrats and
Speaker 3: Republicans to try to work together more cooperatively.
Speaker 1: Jay Powell said to you, predictions are very difficult, especially
Speaker 1: about the future. When you think about the future for
Speaker 1: the United States politically, economically, what's top of mind and
Speaker 1: curious if you have any plans to maybe want to
Speaker 1: be at the Federal Reserve. You guys talked about if
Speaker 1: it's a good job.
Speaker 3: Well, I think it's really hard to kind of say
Speaker 3: that all of a sudden, we're going to eliminate all
Speaker 3: the schisms that we've had in the last couple of years.
Speaker 3: Clearly there are a lot of tensions between the two
Speaker 3: side political sides. Jay Powell has been appointed by a
Speaker 3: Republican president and reappointed by Democratic president, and he's done
Speaker 3: a really good job of kind of walking a fine
Speaker 3: line of not trying to be seen as political or
Speaker 3: democratic or Republican. I think he deserves a lot of
Speaker 3: credit for that. I think he's an excellent job as
Speaker 3: Chairman of the FED.
Speaker 1: All right, I'm not going to ask you that about
Speaker 1: Chairman of the.
Speaker 4: Fed any thoughts, but you can answer if you want well.
Speaker 3: I think he's done a good job. I remember, this
Speaker 3: is not a job that anybody really thinks it is
Speaker 3: an easy job. Many people who have emerged from the job,
Speaker 3: you know, are generally applauded after they've served, but when
Speaker 3: they're serving, very often they get criticized by both sides.
Speaker 3: And it's hard to be chairman of the Fed. And
Speaker 3: in fact, as one chairman of the FED once said,
Speaker 3: William mc chesney Martin, my job is to take away
Speaker 3: the punch bowl at the party, which is to say,
Speaker 3: take away all the fun that you would you would
Speaker 3: want to get. And so that's the job of the
Speaker 3: chairman of the Fed, is to take away the punch bowl.
Speaker 4: And people don't like that absolutely.
Speaker 1: David Rubinstein, thank you so much. Busy day for you
Speaker 1: and so appreciate checking in with you. Bloomberg host and
Speaker 1: Carlile co founder and co chair David Rubinstein. You can
Speaker 1: catch his show and come Station with j Powell July
Speaker 1: twenty fourth at nine pm Wall Street Time on Bloomberg TV.
Speaker 4: This is Bloomberg.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 1: Let's not forget we are in the midst of the
Speaker 1: beginning of earning.
Speaker 4: It's just getting started, you know that, because the big
Speaker 4: banks are reporting. This is just the beginning, Carol.
Speaker 1: The official, unofficial start. Yeah, they did continue this morning
Speaker 1: Goldman Sachs reporting results. Stock is off its highs of
Speaker 1: its set of the session, but we did see some
Speaker 1: move to the upside. Goldman. Among the headlines the trading
Speaker 1: unit powering a surgeon earnings in the second quarter. It
Speaker 1: also plans to cut down on stock repurchases. After the
Speaker 1: fed's annual stress tests required to set aside more capital,
Speaker 1: the bank again pushing back against those results.
Speaker 4: For more, we turned to David Conrad, managing director over
Speaker 4: at KBW right here in New York City. David, I'm
Speaker 4: first up politics front center after what happened over the weekend,
Speaker 4: and certainly the economy always front and center. We just
Speaker 4: talked with David Rubinstein, you interviewed FED SHO J. Powell
Speaker 4: at the Economic Club of Washington. Let's start with politics.
Speaker 4: I'm just curious how it might impact the sector that
Speaker 4: you cover and follow so closely banking.
Speaker 5: Yeah, first of all, thanks for having me on. You know,
Speaker 5: it's a big question mark for investors. Certainly, we saw,
Speaker 5: you know, when Trump was elected president the first time,
Speaker 5: a big bump of financials. Part of that was because
Speaker 5: they paid the highest tax rates and so the big
Speaker 5: tax cut really led that. But there was also a
Speaker 5: hope for deregulation and consolidation in the industry, and I
Speaker 5: think that latter point would probably hold true if he
Speaker 5: were to be re elected. I think there's a lot
Speaker 5: of pinned up demand for consolidation, which I think would
Speaker 5: open the doors for that. I think there's also another
Speaker 5: school thought of what may happen to inflation and the
Speaker 5: long end of the curve as well under that scene area,
Speaker 5: which which may put a little bit of pressure on financials.
Speaker 5: But I think overall, I think the conclusion would be
Speaker 5: if Trump were to win, it would be you know,
Speaker 5: less regulations and maybe opening the door for more inm andang.
Speaker 1: So maybe good for some of the big banks and
Speaker 1: some of the financial companies, maybe not necessarily for consumers.
Speaker 5: Well, I think maybe longer term, if if that one
Speaker 5: scenario were to be the case, where it turned out
Speaker 5: to be inflationaring a long end backed up, that would
Speaker 5: be the case. But I think you know that that's
Speaker 5: just one school of thought. But certainly, you know, we
Speaker 5: would we would expect, you know a little bit for
Speaker 5: the bigger banks and the and the broader m and
Speaker 5: a perspective, but also for you know, the regional banks
Speaker 5: for further consolidation would be you know, also an attractive
Speaker 5: place to be, all right.
Speaker 1: Having said that, we also as to mention David Rubinstein
Speaker 1: obviously of Carlisle but also hosts the show here at
Speaker 1: Bloomberg did interview fed jo J Palm. They talked about
Speaker 1: the economic environment. What color have you gotten from the
Speaker 1: big banks? Obviously Goldman this morning, but we had JP
Speaker 1: Morgan City Wells Fargo last week. What are you getting
Speaker 1: from those banks and their results and what it says
Speaker 1: to you about first of all, the security and health
Speaker 1: of our financial banking system and then also what it's
Speaker 1: telling us about the environment.
Speaker 5: Well, there's there's really two. It's really kind of split
Speaker 5: with what we've seen. First of all, capital markets we
Speaker 5: be waiting for this for a long time. Investment banking
Speaker 5: is up, you know, well over twenty percent fifty percent
Speaker 5: for JP Morgan year over year. So we saw a
Speaker 5: lot of underwriting and trading as well, and so we
Speaker 5: did see a pretty strong environment for capital markets. The
Speaker 5: flip side of it is those we didn't see really
Speaker 5: any loan demand outside of credit card borrowings, and so
Speaker 5: the loan demand is continues to be weak. And as
Speaker 5: we're at this peak and rates before maybe the FED
Speaker 5: starts to drop rates, we're getting the tailwind of deposit
Speaker 5: costs still, so consumers are still kind of adding higher
Speaker 5: rates on their deposits and that that's hurting the net.
Speaker 5: Interesting come, what's any other aspect too, is we're still
Speaker 5: seeing higher charge offs and credit cards. So I think
Speaker 5: that's right now more of the normalization state, but we
Speaker 5: are seeing higher charge offs there.
Speaker 4: How much higher do those charge offs go?
Speaker 5: Yeah, I think I think we're about at the normalized state.
Speaker 5: But the borrowing has increased materially, you know, over the
Speaker 5: past years, So I think for the most part, we're
Speaker 5: probably going to go up, you know, probably another fifty
Speaker 5: basis points. But you know, we've come from a one
Speaker 5: and a half percent rate to now pushing three and
Speaker 5: a half four percent, So I think we're near the
Speaker 5: top four the prime bowers in terms of the marginal
Speaker 5: increasing credit card boss.
Speaker 1: Hey, let's go through some of the banks. Obviously, Goldman
Speaker 1: reporting in today's session. I'm looking at Goldman shares. They're
Speaker 1: just off their highs. They're up about two percent. Go
Speaker 1: back to Friday. JP Morgan was down more than one
Speaker 1: percent on their results. You had City down almost two
Speaker 1: percent on its result, and if I pull up Wells Fargo,
Speaker 1: it was also we saw really taking a hit in
Speaker 1: the Friday trade. It was down about six percent. So
Speaker 1: walk us through those in particular, which names you might
Speaker 1: be a little bit more worried about, which ones you like?
Speaker 5: Yeah, I would say, first of all, JP Morgan was
Speaker 5: down on Friday, really more for positioning and its valuation.
Speaker 5: It's pe is near the high watermark for its historical range,
Speaker 5: you know, pushing twelve and a half thirteen times twenty
Speaker 5: twenty five numbers. So it's an over owned name. It's
Speaker 5: a very popular name. I think fundamentally was very strong.
Speaker 5: But that's just technicals on ownership on why you kind
Speaker 5: of pulled back. They didn't change their guidance materially, and
Speaker 5: so that was maybe modestly disappointing, but I think that's
Speaker 5: more on valuation Goldman, you know, I think it's really
Speaker 5: the place you want to be right now. You want
Speaker 5: to be a market sensitive revenues. You want to kind
Speaker 5: of be in the place where investment banking still probably
Speaker 5: operating twenty percent below normalized levels, so there's a lot
Speaker 5: of momentum with revenues there. I also think what's interesting
Speaker 5: about Goldman is their restructure and the balance sheet both
Speaker 5: you know, limiting consumer exposure, but also you know, unwinding
Speaker 5: some heavy capital components of their their on balance sheet
Speaker 5: equity investments, and so that's going to free up a
Speaker 5: lot of capital. I think buybacks may be a little
Speaker 5: bit lower from this current quarter, as you mentioned earlier,
Speaker 5: but still very strong. You know, City is a long
Speaker 5: term turnaround story, you know. I think actually the quarter
Speaker 5: though itself was a little bit disappointing. They had you know,
Speaker 5: they had a headline beat, but in reality they missed
Speaker 5: on revenues. They had strong wealth of performance, which was
Speaker 5: which was needed there that that has been struggling had
Speaker 5: a really strong performance there, but they had declining service
Speaker 5: services revenue and they didn't perform as well on trading
Speaker 5: as Goldman or JP Morgan did. And then lastly, you know,
Speaker 5: Wells got beat up a little bit. That's also a
Speaker 5: long turnaround story. They disappointed on their NII guide as
Speaker 5: well as their expense guide, and so that was a
Speaker 5: bit of a setback in the long term story there.
Speaker 4: Hey, David, help us move this forward to tomorrow when
Speaker 4: we hear from Morgan Stanley and we hear from Bank
Speaker 4: of America. Starting with Bank of America, such a great
Speaker 4: read on the consumer. What should we be looking for?
Speaker 4: What should our investing audience be looking for?
Speaker 5: I think with Bank of America it's two components which
Speaker 5: are really the same. I think originally, you know, initially
Speaker 5: on the print you want to look at the deposit
Speaker 5: costs and see was Wells Fargo's higher deposit costs a
Speaker 5: read through for b of A or was it isolated
Speaker 5: to Wells Fargos. So we want to see if the
Speaker 5: quarter of a quarter increase in deposit cost is low
Speaker 5: double digits or is it more like JP Morgan that
Speaker 5: was up five dips quarter on quarter. The second thing
Speaker 5: that's important is they're earning guidance that will come up
Speaker 5: on the call. We anticipate really positive guidance for NII
Speaker 5: for Bank of America, and that's partly because the reason
Speaker 5: why we like to start because it's under earning in
Speaker 5: several areas. For instance, they have some interest rates swabs
Speaker 5: that are over its commercial loan book, which is really
Speaker 5: brought down the yield. They're actually only yielding Fed funds
Speaker 5: levels for their for their commercial loan book. As those
Speaker 5: roll over, we think it's gonna be a material pickup
Speaker 5: in those yields. And so we think you know that
Speaker 5: because of that, because of credit cards, we think it
Speaker 5: will have higher NII towards the end of the year.
Speaker 1: David, really quickly fifteen seconds, she got new money to commit.
Speaker 1: What name do you put it in among those big
Speaker 1: banks you just talked about, and very quickly please.
Speaker 5: Yeah, I think it's Goldman Sachs. I think the other
Speaker 5: name we haven't mentioned is Bank in New York that
Speaker 5: is actually the best supporter we saw for Friday and
Speaker 5: it was five and a half percent.
Speaker 1: All right, David, thank you so much. David Conrady's managing
Speaker 1: director over at KBW. The KBW bank and index, by
Speaker 1: the way, is up about fifteen percent year to date.
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Speaker 1: Donald Trump Indeed Confirmation has depict the junior Senator from
Speaker 1: the state of Ohio, JD. Evans, as his running mate,
Speaker 1: having said that let's get to our next guest, because
Speaker 1: someone who really is just so great at as I said,
Speaker 1: tying together Wall Street, the economy, and obviously throwing in politics,
Speaker 1: and someone we turn to a lot to make sense
Speaker 1: of our tumultuous times. And we're talking about Peter at Order.
Speaker 1: He is economist, he did work on Wall Street. He
Speaker 1: writes a newsletter called Financial Insights. He's an adjunct professor
Speaker 1: of economics at William and May. He's also the author
Speaker 1: of the book The Confidence Map, Charting a Path from
Speaker 1: Chaos to Clarify, which came out last year.
Speaker 4: Hey, Peter joins us from Pennsylvania. Peter, good to have
Speaker 4: you back with us. Look, we got to ask you
Speaker 4: about the breaking news here. The former president who has
Speaker 4: not officially been nominated yet has tapped Rising Republic and
Speaker 4: Star JD Vance as is running mate. I know you're
Speaker 4: here to talk about economics, but certainly the economy is
Speaker 4: tied to politics. How are you interpreting this news.
Speaker 6: I'm not at all surprised him. Jd. Vance is situated
Speaker 6: perfectly in the center of the country. He is a
Speaker 6: figure who has played extraordinarily well at both ends of
Speaker 6: the economic spectrum. And I think that for Trump, he
Speaker 6: is an ardent supporter. He will be loyal and as
Speaker 6: he's demonstrated throughout this campaign, he is a fighter for
Speaker 6: the Trump presidency.
Speaker 1: And forgive me your book, of course, the Confidence Map,
Speaker 1: charting a path from chaos to clarity. There's a lot
Speaker 1: going on here, So Peter, forgive my mistake there Having
Speaker 1: said that, do you feel like we have more chaos
Speaker 1: in this market in an economic environment or more clarity?
Speaker 6: So I think that the market has really taken the
Speaker 6: boost in former President Trump's popularity as an indicator of inevitability.
Speaker 6: If I've read one word in the last seventy two hours,
Speaker 6: it's landslide. And I think that with that, investors now
Speaker 6: feel free to look at all things Trump presidency related
Speaker 6: You've mentioned in prison stocks and firearm makers. But I
Speaker 6: think that this is a clear sense that investors believe
Speaker 6: in the inevitability of the outcome, and that is something
Speaker 6: that we tend to see with geopolitical events, that they
Speaker 6: don't matter until the crowd sees them as inevitable, and
Speaker 6: then everybody plays catch up.
Speaker 4: But is it inevitable? I mean, there's still three months
Speaker 4: to the election, more than three months, Peter.
Speaker 6: Yeah, there are words that I don't like as a
Speaker 6: sentiant expert. I hate the words unstoppable, inevitable, and saleable.
Speaker 6: You know, go back to the twenty sixteen presidential campaign
Speaker 6: and there's a Time magazine cover that says, you know,
Speaker 6: can anyone stop Hillary Clinton? Then you look at the
Speaker 6: polls over that campaign, and that marked the high water mark.
Speaker 6: And so the risk for the Trump campaign is that
Speaker 6: this represents this sense of inevitability, represents a major peak
Speaker 6: in confidence, and that we see some sort of retreat.
Speaker 6: Is it enough for, you know, to make a difference
Speaker 6: in November. We'll see. But I'd also say at the
Speaker 6: same time, Tim, there is a sense of defeatedness among
Speaker 6: Democrats that's equally comparable and so you have both extremes
Speaker 6: in mood on broad display today.
Speaker 1: So hm, So I'm thinking about investors who are listening
Speaker 1: and trying to kind of connect all the you know,
Speaker 1: and at the same time you talk about this kind
Speaker 1: of feeling of inevitability in terms of the outcome of
Speaker 1: the November election, posters will say, you don't really know
Speaker 1: until two weeks before, although we'll watch the momentum and
Speaker 1: a lot can happen in the next few months. Having
Speaker 1: said that, how do you think about then what this
Speaker 1: all means, Peter, for what conclusions should investors be thinking
Speaker 1: about when they've got to just invest in this environment?
Speaker 1: Do they hold off? Can they make decisions?
Speaker 3: So?
Speaker 6: I think investors have to plan for what they can imagine,
Speaker 6: but also be well prepared for what they can't. This
Speaker 6: is a time where, you know, if I look at
Speaker 6: the FED and AI and now the Trump, what we've
Speaker 6: seen in terms of the Trump momentum, there is a
Speaker 6: sense of inevitability and omnipotence that is multi dimensional. And
Speaker 6: so I find that a fascinating contrast to the backdrop
Speaker 6: of geopolitical uncertainty and social unrest that we see. And
Speaker 6: so I think investors need to be positioned for the
Speaker 6: potential event that we see something come out of the
Speaker 6: blue that up ends confidence in a way that they're
Speaker 6: not prepared for.
Speaker 1: Is it anything, I'm just thinking this political environment keeps
Speaker 1: reminding us that something can just come out of the
Speaker 1: blue at this point.
Speaker 6: Yeah, I mean it is so striking. That parallels to
Speaker 6: the late nineteen sixties. I mean there too, we had
Speaker 6: markets at record highs and yet significant social political unrest
Speaker 6: below the scenes that inevitably took its toll on the markets.
Speaker 4: Not to mention a DNC that also happened in Chicago.
Speaker 4: I'm wondering, Peter about what those events could be. I mean,
Speaker 4: we didn't a lot of people didn't see a pandemic coming.
Speaker 4: That was a surprise to a lot of folks. What
Speaker 4: should be on our investor audience radar?
Speaker 6: I think investors should be paying attention to what's happening
Speaker 6: in Ukraine. If we've seen anything, it is that low
Speaker 6: natural gas prices tend to create energy in the Kremlin,
Speaker 6: So I'm focused there. I think that we need to
Speaker 6: appreciate geopolitically, broadly speaking, that it's not left or right
Speaker 6: that matters. It's all about the incumbent versus the opposition,
Speaker 6: and so this is an environment where we will vote
Speaker 6: out incumbents no matter their political identity and alignment. And
Speaker 6: so investors need to be thinking about what does a
Speaker 6: G seven world, what does a G thirty world look
Speaker 6: like without incumbents in place?
Speaker 1: Do you think right now something that you look at, Peter,
Speaker 1: just one last question. We've got about a minute or
Speaker 1: so left here that you do talk think about the
Speaker 1: gap between mood and financial markets. Is there a wide
Speaker 1: gap at this point in your view?
Speaker 6: Is a gap that I don't believe has ever been wider.
Speaker 6: I mean, I look at the mood of those at
Speaker 6: the very bottom and it bears no resemblance to the
Speaker 6: record highst that we're seeing in the financial markets, and
Speaker 6: that to me is deeply troubling.
Speaker 4: We have one minute left, is the what are possible
Speaker 4: implications of that?
Speaker 6: Well, those at the very bottom mood wise, it's all
Speaker 6: about me here now, and see that they don't care
Speaker 6: about the concerns of others. They don't plan for the future.
Speaker 6: There's an impulsivity and a high emotion that goes along
Speaker 6: with behaviors that tends to run counter to the interests
Speaker 6: of investors.
Speaker 1: All right, kind of leave it on that note, Peter,
Speaker 1: thank you as always so appreciated. Peter at order of course,
Speaker 1: joining us there. As we mentioned economist, he's worked on
Speaker 1: Wall Street. His newsletter of Financial Insights, something that we
Speaker 1: get regularly and read it. He's an adjunct professor of
Speaker 1: economics over at Will and Mary in Virginia. And his book,
Speaker 1: of course, The Confidence Map, something that we've talked about.
Speaker 1: You can check out our past podcast to hear that conversation,
Speaker 1: The Confidence Map, charting a path from chaos to clarity.
Speaker 1: Peter Course, joining us there from Pennsylvania. I'm brother Marco,
Speaker 1: a journal How about you let me drive?
Speaker 3: No, no, no, no, ple's gone to drive, honey, please, how
Speaker 3: do the riding gravel?
Speaker 5: Let's mate, I want to try it.
Speaker 7: It's a good question.
Speaker 2: This is the drive to the Clothes dot com.
Speaker 5: I think we'll buy a run.
Speaker 2: Yelling on on Bluebird Radio.
Speaker 1: All right, TikTok. Everybody got about eighteen nineteen minutes left
Speaker 1: in today's trading session. Bouncing around on the equity side
Speaker 1: of things. But we are up across the borders. You
Speaker 1: just heard from Charlie. But call it a little changed
Speaker 1: at this hour. We're definitely off our peaks of the session,
Speaker 1: but we, you know, have been thinking could we get
Speaker 1: another record on the S and P five hundred today.
Speaker 4: Bill Maleney just reminded us to look at Bitcoin up
Speaker 4: six percent today.
Speaker 1: Well, this plays into what folks have said, the Trump
Speaker 1: trade is on.
Speaker 4: Yeah, so okay, yeah, we'll see what our.
Speaker 1: Guest has to say. Marion Bartel's is with us. She's
Speaker 1: chief investment strategist for sanct Sanctuary Wealth and she joins
Speaker 1: us once again in New York City. Marianne, good to
Speaker 1: have you back with us. I'm not quite sure where
Speaker 1: to start, but we have asked a lot of folks
Speaker 1: over the last couple of hours about this Trump trade.
Speaker 1: You've watched a lot of market cycles, political or other.
Speaker 1: How are you thinking about today's market environment and what
Speaker 1: really matters to the investment trade.
Speaker 7: That's a great question, Carol.
Speaker 8: Obviously, what we have been seeing since the presidential debate
Speaker 8: between Trump and Biden and the events over the weekend
Speaker 8: with the attempts on Trump's life are totally unprecedented. But
Speaker 8: we started making the argument that once we saw how
Speaker 8: Biden before during the debate, we started to see the
Speaker 8: markets start pricing in a Trump win, and I'm sure
Speaker 8: you've had other guests talk about all the betting sites.
Speaker 8: The betting sites are heavily now leaning towards a Trump
Speaker 8: win after the events this weekend, and we really started
Speaker 8: to see the markets also pivot after the CPI report.
Speaker 8: The CPI report came in better than expected, and we've
Speaker 8: really started to see a shift out of technology, particularly semmies,
Speaker 8: into cyclicals. And we think that has a lot to
Speaker 8: do with the direction of interest rates, with the market
Speaker 8: pricing in the FED cutting rates in September and really
Speaker 8: starting to price in a soft landing.
Speaker 7: So there's a lot of moving parts to the market, right,
Speaker 7: But yes.
Speaker 1: Is that more significant, Marianne? Like I said, you understand
Speaker 1: the markets seen a lot of cycles. Is it really
Speaker 1: what matters? And I would agree with you since those
Speaker 1: inflation prints that there's been a very different narrative and
Speaker 1: rate story, if you will, We've really seen rates all
Speaker 1: along the US curve moved down. Is it much more
Speaker 1: about that story versus an outcome for the presidential election
Speaker 1: or tell me it's both.
Speaker 8: At the end of the day, Carol, what is most
Speaker 8: important about the direction of equities over time is earnings,
Speaker 8: and we're in the early stages of getting.
Speaker 7: Second quarter earnings.
Speaker 8: So it's been our view earnings are going to be
Speaker 8: better than expected, and that the market probably is also
Speaker 8: starting to price in where they're seeing earnings next year,
Speaker 8: and at least from the analysts bottom up, there's still
Speaker 8: forecasting double digit growth in earnings. So I think earnings
Speaker 8: are the main driver, but the topics of today are
Speaker 8: also going to have an additional factor on top of
Speaker 8: how stocks Behave.
Speaker 4: You have a target range of fifty six hundred to
Speaker 4: fifty eight hundred for the S and P five hundred,
Speaker 4: we're right now at fifty six twenty five, Marianne, Are
Speaker 4: you going to raise that range before the end of
Speaker 4: the year.
Speaker 8: So we didn't technically raise our range, but I did
Speaker 8: about a month ago, or maybe a little bit more
Speaker 8: than a month ago. Try to take a longer term
Speaker 8: view on what is the true track that the market
Speaker 8: is on, and I think the true track is a
Speaker 8: range of six thousand to seven thousand. The question is
Speaker 8: do we get a good correction in the fall? Can
Speaker 8: we get a good ten percent correction, because I think
Speaker 8: that sustains prices of the market over time, or do
Speaker 8: we continue to rally and get so extended that we
Speaker 8: have a deeper correction going into next year. But either way,
Speaker 8: what I've argued is that the secular trend for the
Speaker 8: market is a bull market, and I see this market
Speaker 8: powering higher into.
Speaker 7: Twenty twenty nine, twenty thirty.
Speaker 8: Probably we'll have a bear market before then, but don't
Speaker 8: be frightened away from it, because I still think we're
Speaker 8: going to power higher.
Speaker 1: So that's six thousand to seven thousand. What's the timeframe
Speaker 1: on that for the S and P five hundred.
Speaker 7: You know, Carol, that's a great question.
Speaker 8: You know, sometimes it's hard to put a timeframe. I've
Speaker 8: thought that that's kind of a fools game to really
Speaker 8: do a long term target. I'm comfortable over the next
Speaker 8: two years reaching that target for the market.
Speaker 4: Over the next two years. Okay, go ahead, Carol.
Speaker 1: Well, and so as you said, well, you know, at
Speaker 1: some point we'll get a bear market recession in there
Speaker 1: somewhere as well. I mean, one of the things that
Speaker 1: we've seen, certainly in the conversation coming out of Jay Powell.
Speaker 1: We just talked to David Rubinstein of Carlisle Group, who
Speaker 1: interviewed Jay Powell Earlier today at the Economic Club in Washington,
Speaker 1: Jay Powell talking a lot more about the dual mandate
Speaker 1: and more specifically, not just the inflation side of the equation,
Speaker 1: but what's going on in softness in the labor market.
Speaker 1: Is a recession kind of a given thing at some
Speaker 1: point as well?
Speaker 7: In your view?
Speaker 8: Historically, Carol, we used to have recessions every four you,
Speaker 8: I know, so if you're going to use history as
Speaker 8: a barometer, at some point between now and twenty twenty
Speaker 8: nine to twenty thirty, we probably should have a recession,
Speaker 8: but it would be a recession that would take stocks
Speaker 8: down but give investors an opportunity to buy. I don't
Speaker 8: think it would be a major bear market that flits
Speaker 8: us into.
Speaker 7: What I call a secular bear market.
Speaker 8: So I think with the AI coming into play, will
Speaker 8: get increased productivity over time. I think the market behavior
Speaker 8: is very similar to nineteen ninety five to two thousand,
Speaker 8: and I think we're around nineteen ninety five, so I
Speaker 8: think we still have a very long runway for equities
Speaker 8: to go up.
Speaker 4: Do you think though, that they'll end with a crash
Speaker 4: like we saw at the end of the dot com bubble?
Speaker 8: I've actually agree with ed Yard Danny that it's the
Speaker 8: Roaring twenties. And I went back and compared the Nasdaq
Speaker 8: one hundred to the Dow because that's the one that
Speaker 8: we have back into the twenties, and the technical patterns
Speaker 8: between today and that period are frighteningly very close. So
Speaker 8: when I think we're in the early stages of a bubble,
Speaker 8: and if we're correct about that, it.
Speaker 7: Will not end in a positive way.
Speaker 5: Yeah.
Speaker 4: So yeah, it sarves to remind everybody. After the Roaring
Speaker 4: Twenties came the Great Depression, which started in nineteen twenty nine.
Speaker 4: So are you saying that you're looking at a situation
Speaker 4: like that.
Speaker 8: I'm not calling for a depression, but you could have
Speaker 8: markets collapse fifty sixty percent.
Speaker 7: And that's painful. That's painful to watch your portfolio to
Speaker 7: be cut in half.
Speaker 4: Yeah, that's a major hair imagining it right now.
Speaker 1: I don't want to imagine it. But yep, markets go up,
Speaker 1: markets go down. Mariann So good to check in with
Speaker 1: you once again. Marian Bartel's chief investments Jack just for
Speaker 1: Sanctuary Wealth joining us in New York City.
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