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Speaker 1: The Bloomberg Business Week Podcast with Carol Messer and Tim
Speaker 1: Stenebeck from Bloomberg Radio.
Speaker 3: As you mentioned earlier, that Hawk is cut by the
Speaker 3: Fed as expected, FED officials lowering their benchmark interest rate
Speaker 3: for a third consecutive time rain to the number of
Speaker 3: cuts they expect in twenty twenty five, signaling greater caution
Speaker 3: over how quickly they can continue reducing borrowing costs.
Speaker 4: Here's FED J J.
Speaker 3: Powell earlier at today's press conference.
Speaker 5: I think that the slower pace of cuts for next
Speaker 5: year really reflects both the higher inflation readings we've had
Speaker 5: this year and the expectation inflation will be higher. You
Speaker 5: saw in the SEP that risks and and uncertainty around
Speaker 5: inflation we see as higher. Nonetheless, we see ourselves as
Speaker 5: still on track to continue to cut.
Speaker 3: Okay, that of course is fedher J. Powell at today's
Speaker 3: press conference. Let's get into the FED decision. Michael Rosen
Speaker 3: is with us. He's chief investment officer at Angela's Wealth Management.
Speaker 3: They've got more than forty billion in assets under advisement
Speaker 3: and six point four billion in assets under management. Michael
Speaker 3: joining us from sunny and warm Santa Monica, California.
Speaker 6: Kind of different here.
Speaker 3: It's warm here, but it's rainy. And here in our
Speaker 3: Bloomberg and Director Broker's studio is Ira Jersey, Bloomberg Intelligence,
Speaker 3: Chief US interest rates Strategist. I want to start with
Speaker 3: you that hawkish ray cut that we were expecting safe
Speaker 3: to say we got it.
Speaker 7: Yeah, we cut it, but the market clearly wasn't fully
Speaker 7: priced for it, because otherwise, you know, we wouldn't be
Speaker 7: selling off ten bases points in ten year yields.
Speaker 3: These are big moves.
Speaker 7: Yeah, these are These aren't massively large in recent times,
Speaker 7: but they're at the same time, if we were fully
Speaker 7: priced for it, we wouldn't certainly be seeing ten basis
Speaker 7: point move. Where we do see the things that we
Speaker 7: were talking about this before we went on air, is
Speaker 7: you look at the pricing for what the Fed's terminal
Speaker 7: rate is going to be, and we're now pricing only
Speaker 7: for about another thirty ish basis points thirty five basis
Speaker 7: points of.
Speaker 3: Interesting little bit more than one move.
Speaker 7: Exactly, so not very much. So that suggests that the
Speaker 7: market still thinks that in the market does overshoot sometimes, right.
Speaker 7: But at the same time, you know, the market's now thinking, hey,
Speaker 7: maybe the Fed is seeing what we're seeing, and that's
Speaker 7: that the economy is okay, and they're going to cut
Speaker 7: one more time, maybe in March, and then they'll be done.
Speaker 8: So what specifically, in your view did traders here today
Speaker 8: from Fed Shair J. Powell that caused them to say,
Speaker 8: wait a second, we're not going to get as many
Speaker 8: cuts up, you know, apart from the summary of economic projections,
Speaker 8: but we're you know, the terminal rate could be just
Speaker 8: shy of you know.
Speaker 7: Well he said that they can move cautiously like that
Speaker 7: was actually in the prepared remarks, right, So there's a difference. Right,
Speaker 7: there's the prepared remarks, which are something that you know,
Speaker 7: they obviously prepare beforehand, and then we see those right too, Yeah,
Speaker 7: and you get it, well no, no, you get it
Speaker 7: at two thirty, right, So he reads them at two thirty,
Speaker 7: and then we get the.
Speaker 3: Seventy eight minutes of remarks he makes before the.
Speaker 7: And it's basically the statement that you get at two
Speaker 7: o'clock expanded. It gives you more detail of what's in,
Speaker 7: what they were talking about, what they were thinking, and
Speaker 7: the like. So that's important because that's like the whole
Speaker 7: committee's view. Then when you start to get into the
Speaker 7: Q and A, that's much more J Powell, Right, And
Speaker 7: sometimes he's talking about for the committee, and sometimes he's
Speaker 7: talking maybe a little bit more.
Speaker 3: Sometimes he's talking about some people.
Speaker 8: Yeah, well, exactly.
Speaker 2: Correct.
Speaker 7: And we did have a descent today, right, So we
Speaker 7: did have a hawkish descent. I mean, remember this was
Speaker 7: the first time for anyway, I wouldn't worry about Yeah,
Speaker 7: but yeah, I were here to keep us in line.
Speaker 4: Not exactly.
Speaker 7: I think that that person took the sword basically for
Speaker 7: probably two or three other people who also didn't want
Speaker 7: to cut today, right, because a lot of times what
Speaker 7: happens at the FED, and if you talk to former
Speaker 7: FED you know, FED governors and and FED presidents, they'll
Speaker 7: tell you, like, you know, one person to sent thing
Speaker 7: probably means it's really two to four you know, and
Speaker 7: or you know don't like it, but they kind of
Speaker 7: go along with it anyway, just so it doesn't seem like,
Speaker 7: you know, the whole committees out of way.
Speaker 3: Michael Rosen, come on in on this.
Speaker 4: Forgive us.
Speaker 3: We're just kind of digging down with Ira here. But
Speaker 3: is this a market with the selling that we're seeing,
Speaker 3: Do you, I don't know, rethink the outlook here in
Speaker 3: terms of equity positions or do you say, hey, some
Speaker 3: of those names that we're getting a little expensive valuations high,
Speaker 3: it's actually a buying opportunity. What you're thinking on this?
Speaker 4: Well, Carol, good to be with you. I actually think
Speaker 4: Ira has the right point. I think the market was
Speaker 4: priced to be more bullish perhaps than than actually it
Speaker 4: turned out to be, and we knew we would have
Speaker 4: a hawkish cut in race. But again, I think the
Speaker 4: market maybe was just a little bit too euphoric coming
Speaker 4: into this, and that's why maybe we're seeing the selloff,
Speaker 4: and you're seeing it in the areas that are much
Speaker 4: more interest rate sensitive, like real estate and consumer discretionary
Speaker 4: for example.
Speaker 3: So do you buy on this? Are you saying that
Speaker 3: these are opportunities? Do you say, well, wait a minute,
Speaker 3: this is a bit of a reset and so maybe
Speaker 3: a different environment for equities going forward.
Speaker 4: Yeah, I really don't think it's a reset. I think
Speaker 4: that I think actually the bond market's been been behind
Speaker 4: the curve, not the not the equity market. The uh.
Speaker 4: The the economy is strong, wages are up, incomes are up,
Speaker 4: profits are at record levels, and profits are really what
Speaker 4: drive equity markets over over time. So as long as
Speaker 4: profits are holding in and they are with a strong economy,
Speaker 4: we just saw, you know, an ease that that happened today.
Speaker 4: Every indication suggests to me that profits will remain remain
Speaker 4: on an upward trajectory, and that is still bullish for equities.
Speaker 4: I think I would focus on areas that are generating
Speaker 4: the profits, and those have been Those are the big
Speaker 4: tech companies, the big platform companies that generate tremendous amounts
Speaker 4: of cash and profits, and those have been the leaders,
Speaker 4: and I think those will continue to be the leaders
Speaker 4: as long as the profits remain strong. Areas that are
Speaker 4: more interest rates sensitive are going to be disappointed. With
Speaker 4: the economy strong, with inflation that has come down but
Speaker 4: not nearly enough, and in fact it's probably on the rise.
Speaker 4: At this point, interest rates are going to have to
Speaker 4: move higher. So anything interest rate sensitive is going to
Speaker 4: be facing a headwind.
Speaker 3: All right, So unfortunately got about a minute left here,
Speaker 3: So saving thirty forty seconds for you, Iris, So what's
Speaker 3: kind of I don't know, like, how do you think
Speaker 3: about do we all just pack up and just wait
Speaker 3: until twenty twenty five? Or what's your next focal point here?
Speaker 2: Well?
Speaker 7: I think you know four and a half percent for
Speaker 7: four point four to nine if you want to get
Speaker 7: really wonky, is a very important technical level for ten
Speaker 7: year treasure yield. So we break that, the next big
Speaker 7: level is four point seven percent, right, So if we
Speaker 7: break right where we are now, you could wind up
Speaker 7: seeing a pretty large kind of follow on move stops
Speaker 7: getting hit, and you can wind up seeing some more
Speaker 7: volatility in the rate market in a.
Speaker 3: Hurry, Michael saved actually fifteen seconds for you. So now
Speaker 3: do we start thinking about the next earnings? And I
Speaker 3: was just going to pull up JP Morgan. Dare I
Speaker 3: say January fifteenth earnings the next focal point just really quickly?
Speaker 2: Yeah?
Speaker 4: Absolutely, that'll once we get into the latter half of January,
Speaker 4: we'll start seeing the earnings come out and that will
Speaker 4: be the bellweather. I think you must move high from
Speaker 4: here though.
Speaker 3: All right, Michael Rosen, thank you so much, and of
Speaker 3: course our own Ira, Jersey, guys, thank you so much.
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Speaker 3: All Right, everybody, as you know, we are all in
Speaker 3: on the Fed today. Bank stock sensitive to monetary policy moves,
Speaker 3: really getting hit in a big way. I'm looking at
Speaker 3: the KBW Bank index falling down to its biggest one
Speaker 3: day drop in four months. I'm just checking. Is that
Speaker 3: the closed down?
Speaker 8: Yeah, that's the close four point three percent of.
Speaker 3: Yeah, because it looks like there it's continuing to drop
Speaker 3: I think in the aftermarket.
Speaker 8: Just yeah, that's not surprising given what we heard from
Speaker 8: Trump just now and also concerns maybe that the sell
Speaker 8: off continues into tomorrow's session.
Speaker 3: It's a really good point, right, I mean just kind
Speaker 3: of layering more and more stuff. We should put out
Speaker 3: shares of the publicly held New Jersey based Connect One
Speaker 3: Bank Corp. Which is the parent company of Connect One Bank.
Speaker 3: It too, not surprisingly like a lot of other names,
Speaker 3: a lot of banking names getting hit. Let me just
Speaker 3: pull up the closed down seven percent in today's session.
Speaker 3: We should point out that the bank has nine point
Speaker 3: eighty nine billion in assets, count small businesses and construction
Speaker 3: companies among its customers. It's why we always love to
Speaker 3: check in with Frank Sorrentino. He's chairman and CEO of
Speaker 3: Connect One Bank or and he joins us from Englewood Cliffs,
Speaker 3: New Jersey. The company has about a nine hundred and
Speaker 3: eleven million dollar market cap. Company Frank, good to see you.
Speaker 3: What stands out for you today in today's FED decision?
Speaker 3: Your stock, like most bank stocks, getting hammered the whole
Speaker 3: market really across the board. Is there something ominous coming?
Speaker 2: So great to be back with you, Carolynton.
Speaker 6: I find it always fascinating that good news brings negative markets. Right,
Speaker 6: So a stronger economy and a place where people are
Speaker 6: doing well and strong employment and you know all the
Speaker 6: other things that define a more robust economy and the
Speaker 6: market sells off. So certainly, I don't think there was
Speaker 6: any surprise that today's bed action interest rates being lowered
Speaker 6: by twenty five basis points some rhetoric around future cuts
Speaker 6: not being as much as the market wanted, and I
Speaker 6: think that's what really drove.
Speaker 2: A lot of the sell off today.
Speaker 6: And so there was a lot of enthusiasm and optimism,
Speaker 6: certainly in the banking system about much lower interest rates. Well,
Speaker 6: that's not really going to happen. On the flip side,
Speaker 6: I think we're going to start to see potentially a
Speaker 6: steepening yield curve for banks, and so ultimately I think
Speaker 6: it will be a good thing.
Speaker 8: So one reason we like to talk to you, and
Speaker 8: I know Carol's got some questions about bank net interest
Speaker 8: margin and stuff, but I want to go right to
Speaker 8: your clients because one reason we love talking to you.
Speaker 8: And if people were paying attention to you, gosh, anytime
Speaker 8: in the last two years when you've been on our program,
Speaker 8: then they wouldn't be surprised at how good the economy
Speaker 8: has been over the last couple of years, because you
Speaker 8: repeatedly were beating that drum, saying the companies that are
Speaker 8: lending with us. The companies that are our customers, the
Speaker 8: small businesses, the construction companies, they are doing well right now.
Speaker 8: How are they doing compared to over the last two years?
Speaker 7: For you?
Speaker 6: Look, I think I've said this before. You know what
Speaker 6: we are seeing today. We are still in quite a
Speaker 6: robust economy. The vast majority of our clients are reporting
Speaker 6: good news. Is there some normalization going on within the
Speaker 6: economy today? You know from all the post COVID, the
Speaker 6: monetary policy, the expansion of the Fed balance sheet, liquidity
Speaker 6: in the system. Sure, is that all beginning to normalize
Speaker 6: and we're getting to a more consistent with historical norms
Speaker 6: relative to interest rates and growth rates and everything else.
Speaker 2: Yes, that's happening.
Speaker 6: Is anyone really saying that the economy is weak today?
Speaker 6: I don't see it. People are still our clients are
Speaker 6: still saying it.
Speaker 2: Is difficult to hire staff today.
Speaker 6: People are demanding more money, Supplies cost more. There is
Speaker 6: a little bit of inflation still within the economy, but
Speaker 6: certain things are beginning to level off.
Speaker 2: Rents are beginning to level off a bit.
Speaker 6: Potentially, housing prices are reaching a point where they're becoming
Speaker 6: I don't want to say unaffordable, but they're certainly get
Speaker 6: reaching that that the edge of people's affordability spectrum. Interest
Speaker 6: rates are playing a role there. There's been a lot
Speaker 6: of of of of desire to see interest rates come
Speaker 6: down a bit. I don't think it's going to happen.
Speaker 6: I think we are in a very strong cycle and
Speaker 6: I think it's going to continue certainly. If you if
Speaker 6: you think about everything that we're talking about doing in
Speaker 6: this next uh uh uh you know, next administration.
Speaker 2: These things all have some inflationary components.
Speaker 6: So we are going to see a strong economy first.
Speaker 6: So in my opinion, as far as I can say.
Speaker 3: So, Frank, then why did the FED cut rates? Which
Speaker 3: is the kind of the question I think our Mike
Speaker 3: McKee ask, I feel like this is the five year
Speaker 3: old to j pout, Why so? Why so? Why why
Speaker 3: cut rates? If the economy is robust, Like you say.
Speaker 6: Look, I think the data that the FED is looking
Speaker 6: was looking at. They're looking in longer term, you know,
Speaker 6: segments of time, and they have a what they want
Speaker 6: to get to, which is a neutral rate, and I
Speaker 6: think this is part of their program to get there.
Speaker 6: I don't serve on the FED, so I don't know
Speaker 6: for sure. I don't know exactly what data they're looking at,
Speaker 6: but clearly they're seeing signs that they can get to
Speaker 6: a certain point in the interest rate curve on the
Speaker 6: short end that meets with the program that they believe
Speaker 6: brings us full employment, low inflation, and and and gets
Speaker 6: the economy to continue to move on. You have to
Speaker 6: say they've done a pretty good job up until now.
Speaker 6: I don't know that anybody should have been surprised by
Speaker 6: today's action, but I understand the point, like why lower rates,
Speaker 6: But I don't think it's a month by month, you know, decision.
Speaker 6: I think these are decisions that they make with a
Speaker 6: bigger period of time in mind.
Speaker 8: Well, people clearly surprised given the equity market reaction, in
Speaker 8: the bond market reaction. Hey, one thing we wanted you
Speaker 8: to weigh in on is the political environment, which we
Speaker 8: know that CEOs don't love to do, but this is
Speaker 8: the world we live in. We just learned that President
Speaker 8: Donald Try that he as opposed to the proposed short
Speaker 8: term government funding bill that has just been floated by Congress.
Speaker 8: This according to Fox News, who cited a conversation with Trump,
Speaker 8: What does that mean to you? And what does the
Speaker 8: you know, another four years of Donald Trump mean to you,
Speaker 8: given what we learned about him twenty seventeen to twenty
Speaker 8: twenty one, how are you preparing for it?
Speaker 2: Well?
Speaker 6: Look, I again, I think where I try to look
Speaker 6: at the economy. I try to look at our clients.
Speaker 6: I try to look at how these things are going
Speaker 6: to impact them. And the only thing that concerns me
Speaker 6: about things like we heard today is creating a level
Speaker 6: of uncertainty. And you know, the one thing that business
Speaker 6: and the economy really wants is certainty. They want to
Speaker 6: understand where things are headed. How can they make plans,
Speaker 6: and how can they run go about running their lives,
Speaker 6: running their businesses. And whenever there's any level of uncertainty,
Speaker 6: and you know, talking about the federal budget and whether
Speaker 6: we're going to fund it or not, and whether people
Speaker 6: are going to get paid you know, government employees, that
Speaker 6: creates uncertainty and that's generally just not good.
Speaker 3: Hey just got about a minute left. So how frustrating
Speaker 3: is that for you? You've got to make decisions. I mean,
Speaker 3: you guys expanded your reach. Last time we talked with
Speaker 3: you in September, we talked about that. So you're growing,
Speaker 3: but I mean, how hesitant are you to do things
Speaker 3: because you're not quite sure the policy that's going to
Speaker 3: come from this White House? And got about thirty forty seconds.
Speaker 6: You know what, whether it's this administration or any other administration,
Speaker 6: I look at you know, what's going on on the ground,
Speaker 6: and I am very bullish about what I see, certainly
Speaker 6: in our market area, certainly around what we're doing here
Speaker 6: as a nation. We are the greatest nation on the planet.
Speaker 6: We live in one of the greatest parts of the nation.
Speaker 6: I'm very bullish about our economy. And so I make
Speaker 6: those decisions, and you know, we all here connect one
Speaker 6: make those decisions based on what our clients are telling
Speaker 6: us and what their needs are. And so we feel
Speaker 6: pretty good about where things where things have been, as
Speaker 6: you said, I've been saying the same thing for the
Speaker 6: last couple of years, and where things are going?
Speaker 3: Are you as a robust and your outlook as you
Speaker 3: were three months ago part of the election, and again
Speaker 3: just got it about ten seconds.
Speaker 6: I think things that I think there will be we
Speaker 6: will see some winners and losers as.
Speaker 2: We move forward.
Speaker 6: Okay, and it may be slightly less robust, but robust.
Speaker 3: Them, the less, all right good stuff, as always Frank Sorrentino,
Speaker 3: Chairman CEO connect One Bank or This.
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