1 00:00:02,640 --> 00:00:05,360 Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. You 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma Wicks. Each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,960 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:22,880 Speaker 1: at Bloomberg dot com. Well, we are just about through 8 00:00:23,079 --> 00:00:25,920 Speaker 1: the earnings results for the big banks. We had Morgan 9 00:00:25,960 --> 00:00:28,800 Speaker 1: Stanley report earnings this morning. Kind of a mixed bag, 10 00:00:28,840 --> 00:00:31,240 Speaker 1: I would say, from some of the big money center 11 00:00:31,360 --> 00:00:33,320 Speaker 1: banks and global investment banks. That kind of help us 12 00:00:33,360 --> 00:00:36,200 Speaker 1: pass through what we are seeing. We welcome Ken. Leon 13 00:00:36,320 --> 00:00:39,199 Speaker 1: Ken is a global director of Industry and Equity Research 14 00:00:39,280 --> 00:00:41,839 Speaker 1: at c f R. A Ken, thanks so much for 15 00:00:42,040 --> 00:00:44,519 Speaker 1: joining us. Let's start with Morgan Stanley since they just 16 00:00:44,560 --> 00:00:47,920 Speaker 1: printed this morning. What would you take away there? So 17 00:00:48,200 --> 00:00:51,800 Speaker 1: it was an earning speed eight sets and they did 18 00:00:51,840 --> 00:00:56,560 Speaker 1: this really on the more stable businesses and wealth management. 19 00:00:57,200 --> 00:01:01,920 Speaker 1: Asset management and cost control areas that are really a 20 00:01:01,960 --> 00:01:05,240 Speaker 1: burden right now are tied to the capital markets. Uh, 21 00:01:05,360 --> 00:01:10,960 Speaker 1: the equity underwriting was flat sixtent come down, m and 22 00:01:11,040 --> 00:01:13,240 Speaker 1: A has really fallen off for Morgan, failing at other 23 00:01:13,319 --> 00:01:16,479 Speaker 1: banks down eighteen percent, and of course trading as well. 24 00:01:16,840 --> 00:01:20,520 Speaker 1: UM has been weak with investors on the sidelines as 25 00:01:20,560 --> 00:01:24,800 Speaker 1: it relates to global worries about trade tariffs and things 26 00:01:24,880 --> 00:01:28,240 Speaker 1: like that. So Ken wired shares basically flat this morning. 27 00:01:29,480 --> 00:01:31,679 Speaker 1: Shares are flat UM, and I would say all the 28 00:01:31,760 --> 00:01:35,880 Speaker 1: large banks had a terrific four week performance, you know, 29 00:01:35,959 --> 00:01:39,759 Speaker 1: first starting with the June seven Federal Reserve approving their 30 00:01:39,800 --> 00:01:43,600 Speaker 1: capital plans. UM. Morgan Fanley is up about ten percent 31 00:01:43,760 --> 00:01:48,760 Speaker 1: since June. UM. Looking at the stock today, we reiterate 32 00:01:48,840 --> 00:01:51,400 Speaker 1: our by recommendation. We have a forty nine dollar target 33 00:01:51,440 --> 00:01:55,080 Speaker 1: price and feel that, uh, you know, the overhang just 34 00:01:55,360 --> 00:01:58,880 Speaker 1: on the capital markets, you know, for Morgan Stanley to 35 00:01:59,000 --> 00:02:00,600 Speaker 1: hit it out of the park or a fire on 36 00:02:00,640 --> 00:02:05,920 Speaker 1: all cylinders need to see improvement related to investment banking. 37 00:02:06,840 --> 00:02:08,680 Speaker 1: So Ken, let's talk to let's go to the capital 38 00:02:08,720 --> 00:02:11,280 Speaker 1: market side of the business for these big banks here 39 00:02:11,320 --> 00:02:13,600 Speaker 1: it's been you know, I'm just thinking back, you know, 40 00:02:13,720 --> 00:02:16,720 Speaker 1: three or four or five quarters, it's been very difficult 41 00:02:16,800 --> 00:02:19,000 Speaker 1: for these companies to put us some good numbers. And 42 00:02:19,040 --> 00:02:21,440 Speaker 1: I'm just wondering, is this kind of a a cyclical 43 00:02:21,600 --> 00:02:26,280 Speaker 1: issue just market conditions or is this something more secular 44 00:02:26,320 --> 00:02:30,080 Speaker 1: about just kind of the profitability that these capital markets 45 00:02:30,120 --> 00:02:33,520 Speaker 1: desks and businesses can generate for these big investment banks. 46 00:02:33,560 --> 00:02:37,920 Speaker 1: It's a great question, and related to capital markets, particularly banking, 47 00:02:38,000 --> 00:02:41,560 Speaker 1: it's it's cyclical. Um. You know, Morgan's Familey, Goldman and 48 00:02:41,639 --> 00:02:45,160 Speaker 1: JP Morgan are usually typically in the top three rankings 49 00:02:45,240 --> 00:02:49,240 Speaker 1: of anything you choose and underwriting, and then when it 50 00:02:49,280 --> 00:02:55,680 Speaker 1: relates to their business, Morgans Faniley has been really moving 51 00:02:55,680 --> 00:03:00,880 Speaker 1: away from kind of cyclical businesses to the ability to 52 00:03:00,919 --> 00:03:03,760 Speaker 1: have more stable recurring revenue and they're getting that from 53 00:03:03,760 --> 00:03:09,960 Speaker 1: a Lard's wealth management franchise and the ability to expand that. Um. 54 00:03:10,000 --> 00:03:13,360 Speaker 1: The difference really in performance for these stocks versus other 55 00:03:13,840 --> 00:03:18,919 Speaker 1: others in the financial sectors predictability. So um, yes, capital 56 00:03:19,040 --> 00:03:22,280 Speaker 1: markets is important, but I think directionally, whether you look 57 00:03:22,320 --> 00:03:25,840 Speaker 1: at a Morgan Stanley or Goldman Sachs diversifying it to retail, 58 00:03:26,200 --> 00:03:29,799 Speaker 1: they're they're looking for more predictable businesses that give investors 59 00:03:29,840 --> 00:03:33,200 Speaker 1: more confidence about their outlook. So Ken, you know, now 60 00:03:33,200 --> 00:03:36,200 Speaker 1: that we have the major US banks all reporting, I'm wondering, 61 00:03:36,400 --> 00:03:40,520 Speaker 1: what do you mean your big takeaways. The big takeaway 62 00:03:40,560 --> 00:03:44,360 Speaker 1: is focuses on the inverted deield curve or the forward curve, 63 00:03:44,680 --> 00:03:48,320 Speaker 1: which suggests um a narrowing of net interest margin and 64 00:03:48,360 --> 00:03:53,000 Speaker 1: then lower net interest income and calibrating what that does 65 00:03:53,080 --> 00:03:56,320 Speaker 1: for the earnings outlook. So that's a factor. But at 66 00:03:56,320 --> 00:03:59,040 Speaker 1: the same time, there's other inputs into net interest income, 67 00:03:59,080 --> 00:04:02,960 Speaker 1: which for the other large banks of that can be 68 00:04:03,080 --> 00:04:07,320 Speaker 1: you know, of their total net revenue UM it's growth 69 00:04:07,320 --> 00:04:11,240 Speaker 1: and investor accounts or in retail banking. Uh, the consumer 70 00:04:11,320 --> 00:04:16,520 Speaker 1: is very strong. Yet each of these banks has sensitivity 71 00:04:16,560 --> 00:04:19,640 Speaker 1: to net interest income, so they have to pull growth 72 00:04:20,000 --> 00:04:23,760 Speaker 1: from non interest income, which is their businesses, and then 73 00:04:23,800 --> 00:04:27,159 Speaker 1: also from cost control. The other big plus, because we 74 00:04:27,320 --> 00:04:30,760 Speaker 1: we've moved the story away from the capital plans, these 75 00:04:30,800 --> 00:04:34,160 Speaker 1: are very significant for all these acts. The ability to 76 00:04:34,320 --> 00:04:38,080 Speaker 1: have significant return of capital with buy back and dividend 77 00:04:38,200 --> 00:04:42,000 Speaker 1: increases including more in Stanley today now to ten point 78 00:04:42,080 --> 00:04:45,560 Speaker 1: seven billion buy back six pin point seven percent dividend 79 00:04:45,839 --> 00:04:50,040 Speaker 1: increased rays these banks are beginning to look at attractive 80 00:04:50,120 --> 00:04:53,960 Speaker 1: total return yield stocks and you could not say that 81 00:04:54,000 --> 00:04:57,240 Speaker 1: over the last seven to ten years. So I guess 82 00:04:57,279 --> 00:04:59,400 Speaker 1: can one thing I'm struggling with I mean, I get 83 00:04:59,400 --> 00:05:02,800 Speaker 1: the sort buy back dividend story. It's just an income story. 84 00:05:03,320 --> 00:05:04,880 Speaker 1: But going back to what you were talking about with 85 00:05:04,880 --> 00:05:08,400 Speaker 1: the net interest margin, this has been offset in the 86 00:05:08,440 --> 00:05:11,719 Speaker 1: past years of financial oppression in the wake of zero 87 00:05:11,800 --> 00:05:17,120 Speaker 1: rate policies. It's been offset by much higher capital markets activity. 88 00:05:17,160 --> 00:05:18,960 Speaker 1: What does it say to you that we are not 89 00:05:19,080 --> 00:05:22,839 Speaker 1: seeing that acceleration in capital markets activity now and you 90 00:05:22,880 --> 00:05:26,599 Speaker 1: know the prospects going forward, even with lower rates ahead, 91 00:05:27,240 --> 00:05:30,240 Speaker 1: the prospects that perhaps capital markets are kind of done 92 00:05:30,440 --> 00:05:32,880 Speaker 1: as far as what they need to be doing well. 93 00:05:32,880 --> 00:05:37,120 Speaker 1: There's two areas here. First, related to interest rates, that 94 00:05:37,279 --> 00:05:39,479 Speaker 1: this is a reversal to where we were at the 95 00:05:39,560 --> 00:05:43,600 Speaker 1: end of last year. So analysts were factoring and rising rates, 96 00:05:43,680 --> 00:05:47,000 Speaker 1: perhaps two to three increases, and that went away, So 97 00:05:47,080 --> 00:05:49,839 Speaker 1: then of course that reverse net interesting income. The other 98 00:05:49,880 --> 00:05:52,480 Speaker 1: part of your question is really interesting and it really 99 00:05:52,520 --> 00:05:55,760 Speaker 1: ties to what's going to spur the capital markets. We 100 00:05:55,839 --> 00:06:00,240 Speaker 1: had Chairman Pal two weeks ago testifying essentially the worry 101 00:06:00,360 --> 00:06:04,360 Speaker 1: is about in the US at least investment capital investment 102 00:06:04,360 --> 00:06:09,120 Speaker 1: and plant and equipment um and there's been a delay 103 00:06:09,240 --> 00:06:13,680 Speaker 1: in doing that. There's also uncertainties that really tied to 104 00:06:13,839 --> 00:06:18,280 Speaker 1: CEO confidence. Uh the ability to invest here or overseas 105 00:06:18,760 --> 00:06:24,320 Speaker 1: or even mergers and acquisitions for all these banks is down. UM. 106 00:06:24,360 --> 00:06:28,400 Speaker 1: There is a good pipeline related to uh N N 107 00:06:28,480 --> 00:06:32,560 Speaker 1: a UM, but it's been very challenging right now because 108 00:06:32,720 --> 00:06:37,200 Speaker 1: the visibility is very difficult. Ken Leyan, thank you so 109 00:06:37,279 --> 00:06:39,279 Speaker 1: much for being with us and for all of your insights. 110 00:06:39,320 --> 00:06:42,120 Speaker 1: Can lea On, Global Director of Industry and Equity Research 111 00:06:42,160 --> 00:07:00,960 Speaker 1: at c f r A Research. It's ten thirty three 112 00:07:01,000 --> 00:07:03,440 Speaker 1: on Wall Street. Time to check in with Bloomberg Opinion. 113 00:07:03,480 --> 00:07:06,200 Speaker 1: We are so lucky to be joined by Shara O. 114 00:07:06,279 --> 00:07:10,600 Speaker 1: V Day Bloomberg opinion columnists focusing on all things technology. Obviously, 115 00:07:10,640 --> 00:07:13,560 Speaker 1: today the big story not just in technology but broadly 116 00:07:13,560 --> 00:07:17,760 Speaker 1: across stock markets. Netflix shares down more than ten percent. 117 00:07:18,400 --> 00:07:23,000 Speaker 1: They reported yesterday after the bell that they missed their 118 00:07:23,000 --> 00:07:27,280 Speaker 1: subscriber forecast by what more than fifty percent, almost almost 119 00:07:27,320 --> 00:07:30,960 Speaker 1: fifty percent, and that it's a subscriber base dropped in 120 00:07:30,960 --> 00:07:34,560 Speaker 1: the United States. What happened? I do not know. I 121 00:07:34,600 --> 00:07:39,880 Speaker 1: think the company's company. What is your explanation? The company's 122 00:07:39,920 --> 00:07:44,840 Speaker 1: explanation was a couple of things. One is that Netflix 123 00:07:45,160 --> 00:07:48,840 Speaker 1: increased prices for most subscription plans, both in the United 124 00:07:48,880 --> 00:07:52,400 Speaker 1: States and in several other countries at the beginning of 125 00:07:52,400 --> 00:07:54,680 Speaker 1: this year. Starting at the beginning of this year, and 126 00:07:54,720 --> 00:07:58,440 Speaker 1: the company said that it missed its subscriber forecast um 127 00:07:58,480 --> 00:08:00,760 Speaker 1: even more than an expected in as places where it 128 00:08:00,840 --> 00:08:03,720 Speaker 1: increased prices, which to me shows a lack of pricing 129 00:08:03,760 --> 00:08:06,280 Speaker 1: power for Netflix. Right if if the idea of Netflix 130 00:08:06,360 --> 00:08:08,920 Speaker 1: is this thing is so valuable, people will pay whatever 131 00:08:08,960 --> 00:08:11,440 Speaker 1: it costs to get access to it, I think this 132 00:08:11,680 --> 00:08:14,480 Speaker 1: these second quarter numbers kind of deflated that idea. The 133 00:08:14,520 --> 00:08:18,760 Speaker 1: second issue Netflix raised was it has, you know, It's outs, 134 00:08:18,840 --> 00:08:21,680 Speaker 1: all of these kind of original programmings or stuff that 135 00:08:21,720 --> 00:08:24,880 Speaker 1: it buys and airs exclusively on Netflix, and it said 136 00:08:24,920 --> 00:08:27,280 Speaker 1: that the slate of programming in the second quarter drew 137 00:08:27,320 --> 00:08:30,720 Speaker 1: in fewer subscribers than it had expected, which is not 138 00:08:30,800 --> 00:08:34,160 Speaker 1: a great sign either for Netflix ability to kind of 139 00:08:34,160 --> 00:08:38,680 Speaker 1: pick must watch programming, or frankly, for this implicit promise 140 00:08:38,720 --> 00:08:42,360 Speaker 1: of Netflix that it doesn't really matter. Individual pieces of 141 00:08:42,400 --> 00:08:45,320 Speaker 1: content are not that material. The thing that matters is 142 00:08:45,360 --> 00:08:48,400 Speaker 1: this kind of buffet of offerings. So if people are 143 00:08:48,400 --> 00:08:51,560 Speaker 1: looking at that buffet and making a decision to turn 144 00:08:51,640 --> 00:08:55,120 Speaker 1: off Netflix or not subscribe to Netflix because of one 145 00:08:55,240 --> 00:08:59,000 Speaker 1: or two shows. That maybe indicates that individual pieces of 146 00:08:59,040 --> 00:09:02,120 Speaker 1: programming are more were important that Netflix suggests. And again 147 00:09:02,120 --> 00:09:06,319 Speaker 1: I think that that dense the thesis behind the optimistic 148 00:09:06,320 --> 00:09:09,600 Speaker 1: scenario about Netflix. Sure, I think you're spot on there. 149 00:09:09,640 --> 00:09:11,240 Speaker 1: I think that and that raises I think probably the 150 00:09:11,280 --> 00:09:13,480 Speaker 1: big issue for a lot of people that are concerned 151 00:09:13,480 --> 00:09:16,200 Speaker 1: about this doctor bears out there that boy, it kind 152 00:09:16,240 --> 00:09:18,880 Speaker 1: of sounds and looks like it's starting to sound starting 153 00:09:18,880 --> 00:09:20,680 Speaker 1: to look like more of a just a traditional media 154 00:09:20,679 --> 00:09:23,400 Speaker 1: company where you gotta have hits, and you know, it's 155 00:09:23,400 --> 00:09:25,800 Speaker 1: not just about having the you know, there's the secret 156 00:09:25,800 --> 00:09:28,240 Speaker 1: sauce of oh I'm a streamer. Now did they talk 157 00:09:28,280 --> 00:09:30,920 Speaker 1: at all about uh, to what extent did they talk 158 00:09:30,960 --> 00:09:33,600 Speaker 1: about competition? Because we know that Disney Plus is launching 159 00:09:33,640 --> 00:09:36,559 Speaker 1: this year than a T and T Comcast or launching 160 00:09:36,559 --> 00:09:38,680 Speaker 1: their streamers next year? How did they kind of frame 161 00:09:38,720 --> 00:09:42,640 Speaker 1: that up? Netflix, at least in the second quarter, downplayed 162 00:09:42,720 --> 00:09:46,400 Speaker 1: the effective competition because it said, look, we were all 163 00:09:46,440 --> 00:09:52,439 Speaker 1: aware of these looming competing Netflix like services from HBO 164 00:09:52,720 --> 00:09:55,760 Speaker 1: or or from a T and T, s Time Warner division, 165 00:09:56,280 --> 00:09:59,920 Speaker 1: from Apple, from NBC down the road. But those haven't 166 00:10:00,080 --> 00:10:03,480 Speaker 1: started yet, right, So it's not like there's an immediate, uh, 167 00:10:03,960 --> 00:10:07,920 Speaker 1: competitive threat out there that is currently launched Disney. I 168 00:10:08,000 --> 00:10:11,480 Speaker 1: forgot to mention Disney. So there's nothing new necessarily on 169 00:10:11,520 --> 00:10:13,200 Speaker 1: the horizon. But you've got to think that some of 170 00:10:13,200 --> 00:10:17,480 Speaker 1: the competition, it's it's in people's brains, right. If you know, hey, 171 00:10:17,520 --> 00:10:20,040 Speaker 1: there's gonna be this new thing from Disney or from HBO, 172 00:10:20,440 --> 00:10:22,720 Speaker 1: maybe that plays in people's minds that they're kind of 173 00:10:22,720 --> 00:10:24,839 Speaker 1: saving money to see what Apple comes up with or 174 00:10:24,880 --> 00:10:27,120 Speaker 1: what Disney comes up with. But Netflix kind of said 175 00:10:27,160 --> 00:10:29,520 Speaker 1: that that wasn't a factor in the second quarter. So 176 00:10:29,640 --> 00:10:34,320 Speaker 1: this sounds bad, okay, I mean like just a suit 177 00:10:34,880 --> 00:10:39,160 Speaker 1: a stute analysis from Trunch and Trunch analysis. Um, this 178 00:10:39,240 --> 00:10:41,719 Speaker 1: all sounds really bad. And certainly you're seeing a big 179 00:10:41,760 --> 00:10:44,400 Speaker 1: stock price move. Looks at the bonds. Some of them 180 00:10:44,480 --> 00:10:46,440 Speaker 1: traded down, you know, a couple of cents on the 181 00:10:46,480 --> 00:10:50,079 Speaker 1: dollar yesterday, but there's still trading above par. And this 182 00:10:50,120 --> 00:10:52,720 Speaker 1: is a company that has relied on debt markets to 183 00:10:53,000 --> 00:10:55,760 Speaker 1: continue to burn cash, and it seems like debt markets 184 00:10:55,800 --> 00:10:59,080 Speaker 1: believe in them. They're saying, we believe and you're seeing investors, 185 00:10:59,440 --> 00:11:02,280 Speaker 1: analysts a cross wall streets saying we do believe also, 186 00:11:02,320 --> 00:11:03,880 Speaker 1: and we're going to say we should you should go 187 00:11:03,880 --> 00:11:06,600 Speaker 1: out and buy Netflix shares. What's the bull case from 188 00:11:06,640 --> 00:11:09,160 Speaker 1: here that this was just a temporary blip and that 189 00:11:09,200 --> 00:11:12,040 Speaker 1: we'll see Netflix gain its mojo in the third quarter. 190 00:11:12,280 --> 00:11:15,120 Speaker 1: I think the bull case is that, as you said 191 00:11:15,160 --> 00:11:17,120 Speaker 1: that that this may be a blip, you see that 192 00:11:17,240 --> 00:11:19,920 Speaker 1: Netflix is expecting that it's going to return to more 193 00:11:20,040 --> 00:11:24,400 Speaker 1: normal kind of subscriber growth numbers in this current third quarter. 194 00:11:24,840 --> 00:11:28,920 Speaker 1: But let me make it clear Netflix does not exist 195 00:11:29,360 --> 00:11:33,840 Speaker 1: period without the faith of bond investors. This is a 196 00:11:33,880 --> 00:11:36,240 Speaker 1: company that is burning three to three and a half 197 00:11:36,280 --> 00:11:39,680 Speaker 1: billion dollars in cash every single year. It is not 198 00:11:39,960 --> 00:11:44,079 Speaker 1: financially sustainable unless it can continue to borrow money at 199 00:11:44,160 --> 00:11:48,000 Speaker 1: cheap rates. Otherwise there is no Netflix. And so anything 200 00:11:48,040 --> 00:11:52,040 Speaker 1: that dnse the story dense the optimism of both bond 201 00:11:52,120 --> 00:11:54,600 Speaker 1: and stock investors, which are kind of working in tandem 202 00:11:54,640 --> 00:11:58,920 Speaker 1: here on Netflix. Anything that that dnse, that story threatens 203 00:11:58,960 --> 00:12:03,199 Speaker 1: to kind of unraveled. This whole thing. Just a little 204 00:12:03,200 --> 00:12:07,120 Speaker 1: fun fact. Sure, Overday and I have bonded for for 205 00:12:07,280 --> 00:12:11,040 Speaker 1: months and months over the Netflix story because we share 206 00:12:11,360 --> 00:12:16,640 Speaker 1: joint interests account account, start account. We merely think that 207 00:12:16,720 --> 00:12:21,560 Speaker 1: bond investors are completely irrational? What and we do not. 208 00:12:22,280 --> 00:12:24,199 Speaker 1: I no longer write columns, so I'm not going to 209 00:12:24,320 --> 00:12:27,640 Speaker 1: say that. But they're just it's a hundred forty million 210 00:12:27,640 --> 00:12:30,600 Speaker 1: dollars of equity cushion underneath my I don't have to worry. 211 00:12:30,640 --> 00:12:33,160 Speaker 1: So that's that. That's kind of play. Bloomberg Opinion columnists. 212 00:12:33,200 --> 00:12:53,400 Speaker 1: You're overday, Thank you so much. Well, investors are trying 213 00:12:53,440 --> 00:12:56,120 Speaker 1: to gauge where the US economy is amidst you know, 214 00:12:56,200 --> 00:13:00,280 Speaker 1: weakening economies in Europe, slowing economy in China. How can 215 00:13:00,280 --> 00:13:03,080 Speaker 1: the US economy remain vibrant when many of its trading 216 00:13:03,120 --> 00:13:07,120 Speaker 1: partners are struggling to get the latest We welcome our guest, 217 00:13:07,280 --> 00:13:10,760 Speaker 1: God Lebanon, Chief Economists North America at the conference board. 218 00:13:11,200 --> 00:13:14,040 Speaker 1: Uh so, God, what's the data that you're seeing telling 219 00:13:14,080 --> 00:13:17,720 Speaker 1: you about the US economy? Well, so, our leading economic 220 00:13:17,800 --> 00:13:21,640 Speaker 1: index decline today, and that's not good news. But it's 221 00:13:21,640 --> 00:13:25,480 Speaker 1: not as bad as bad as it looks. I think 222 00:13:26,160 --> 00:13:30,520 Speaker 1: our index is slightly tilted towards the manufacturing sector, which 223 00:13:30,600 --> 00:13:34,640 Speaker 1: is doing not as well as the rest of the economy. Um. 224 00:13:35,400 --> 00:13:38,000 Speaker 1: I think, on the other hand, we have a very 225 00:13:38,040 --> 00:13:42,679 Speaker 1: strong consumer spending numbers in recent months. You know, there 226 00:13:42,720 --> 00:13:45,839 Speaker 1: was after the week winter there was a concern that 227 00:13:46,000 --> 00:13:50,240 Speaker 1: the consumer spending is going to remain in a slow territory. 228 00:13:50,320 --> 00:13:54,120 Speaker 1: But that's not the case. Um So, I think the 229 00:13:54,880 --> 00:13:57,400 Speaker 1: decline in the leading index is not as bad as 230 00:13:57,400 --> 00:13:59,679 Speaker 1: it looks. It's interesting though, to me, because this is 231 00:13:59,720 --> 00:14:03,640 Speaker 1: the story we keep hearing. The consumer is strong, industrials 232 00:14:03,800 --> 00:14:08,280 Speaker 1: and corporate America feeling less certain and certainly seeing less investment. 233 00:14:08,800 --> 00:14:13,280 Speaker 1: Uh So, is this sort of indicative of the consumer 234 00:14:13,360 --> 00:14:17,080 Speaker 1: being a lagging indicator and manufacturers being out front in 235 00:14:17,080 --> 00:14:21,080 Speaker 1: the economic cycle or the other way around. Well, in general, 236 00:14:21,880 --> 00:14:27,440 Speaker 1: consumer spending is actually leading business investment historically. I think 237 00:14:27,720 --> 00:14:30,960 Speaker 1: part of the weakness that we are seeing now in 238 00:14:31,000 --> 00:14:33,880 Speaker 1: business investment and in manufacturing is a result of the 239 00:14:33,920 --> 00:14:37,360 Speaker 1: weakness in the rest of the world. But I think, 240 00:14:37,600 --> 00:14:42,360 Speaker 1: and you know, if if manufacturing and business investment will 241 00:14:42,440 --> 00:14:45,920 Speaker 1: remain slow at some point, it will impact hiring and 242 00:14:45,920 --> 00:14:49,000 Speaker 1: and consumer spending as well. But at the moment, there 243 00:14:49,040 --> 00:14:56,320 Speaker 1: seems to be some stronger, stronger growth, independent growth, I 244 00:14:56,320 --> 00:14:59,320 Speaker 1: would say, from the consumer. So when we talk about 245 00:14:59,360 --> 00:15:01,560 Speaker 1: you highlight the man facturing sector we've we've had some 246 00:15:01,600 --> 00:15:04,640 Speaker 1: evidence that that has been weakening over the last several quarters. 247 00:15:05,360 --> 00:15:06,840 Speaker 1: I'm just trying to parse out how much of that 248 00:15:07,000 --> 00:15:10,800 Speaker 1: is just kind of trade concerns, Um, you know, maybe 249 00:15:11,560 --> 00:15:13,880 Speaker 1: corporate spending kind of pulling back in the face of 250 00:15:13,960 --> 00:15:16,360 Speaker 1: uncertainty about trade. Or is it just the kind of 251 00:15:16,360 --> 00:15:18,720 Speaker 1: a slowing or just part of the cycle here we 252 00:15:18,760 --> 00:15:20,520 Speaker 1: are ten plus years into a cycle. Do you have 253 00:15:20,520 --> 00:15:22,480 Speaker 1: a sense of how much it's just Hey, it's just 254 00:15:22,520 --> 00:15:25,160 Speaker 1: the psychle versus boy, I'm really concerned about some of 255 00:15:25,200 --> 00:15:28,720 Speaker 1: these macro geopolitical issues. I think it's it's both. We 256 00:15:28,720 --> 00:15:32,320 Speaker 1: we sometimes have cycles in manufacturing that don't spread to 257 00:15:32,360 --> 00:15:35,760 Speaker 1: the rest of the economy. Like twenty fifteen twenty sixteen 258 00:15:35,800 --> 00:15:40,440 Speaker 1: we had a genuine recession in manufacturing that the economy 259 00:15:40,480 --> 00:15:43,880 Speaker 1: continued to grow. I think the manufacturing, as I said, 260 00:15:44,000 --> 00:15:46,560 Speaker 1: is more impacted by the rest of the world, and 261 00:15:46,640 --> 00:15:50,200 Speaker 1: there is some significant weakness in some parts of the world. 262 00:15:51,200 --> 00:15:55,360 Speaker 1: So I think, um, it is a lot because of that. 263 00:15:55,680 --> 00:15:59,520 Speaker 1: But if consumer spending continues to grow at three plus 264 00:15:59,520 --> 00:16:03,080 Speaker 1: per cent and manufacturing at some point will pick up. So, 265 00:16:03,160 --> 00:16:04,800 Speaker 1: just to put this in a perspective, the zero point 266 00:16:04,800 --> 00:16:09,000 Speaker 1: three pc decline in the leading economic indicators. The index 267 00:16:09,400 --> 00:16:12,880 Speaker 1: is the first decline since last December. And you talked 268 00:16:12,920 --> 00:16:15,720 Speaker 1: about the manufacturing how that let it, But the housing 269 00:16:15,800 --> 00:16:18,360 Speaker 1: side of things, the real estate side, I'm trying to 270 00:16:18,400 --> 00:16:21,040 Speaker 1: figure out where that fits into the narrative because that 271 00:16:21,200 --> 00:16:25,080 Speaker 1: also contributed to the decline. Yeah, so housing has been 272 00:16:25,080 --> 00:16:29,080 Speaker 1: a weakness for a year. But I think one of 273 00:16:29,160 --> 00:16:33,440 Speaker 1: the main implications of the large drop in interest rates 274 00:16:33,480 --> 00:16:37,160 Speaker 1: that we have in the economy, and and over a 275 00:16:37,360 --> 00:16:41,120 Speaker 1: hundred basis point drop in long term rates will boost 276 00:16:41,160 --> 00:16:45,560 Speaker 1: the economy, and so a lot of the impact should 277 00:16:45,600 --> 00:16:48,840 Speaker 1: be through housing. We are seeing already some increase in 278 00:16:49,320 --> 00:16:55,240 Speaker 1: mortgage applications and I think housing will will improve for 279 00:16:55,320 --> 00:16:58,680 Speaker 1: the rest of the year. So, God, where are you 280 00:16:58,800 --> 00:17:02,480 Speaker 1: in the recession discussion? But there are certain parties out there, 281 00:17:02,480 --> 00:17:05,040 Speaker 1: a certain factions in the marketplace that feel like, Gee, 282 00:17:05,040 --> 00:17:06,840 Speaker 1: the timing, if nothing else would lead us to a 283 00:17:06,880 --> 00:17:10,560 Speaker 1: recession perhaps by mid twenty What is your data telling you. 284 00:17:11,440 --> 00:17:15,320 Speaker 1: I think the leading indicators are good for three to 285 00:17:15,400 --> 00:17:19,000 Speaker 1: six months and they're not signaling any recession during that time. 286 00:17:19,640 --> 00:17:23,840 Speaker 1: Beyond that, I think we have to think what what 287 00:17:23,880 --> 00:17:28,000 Speaker 1: will cause a recession? There could things could pop up, 288 00:17:28,440 --> 00:17:32,119 Speaker 1: but at the moment, I don't see anything obvious that 289 00:17:32,240 --> 00:17:35,960 Speaker 1: will cause a recession. So I think it's as likely 290 00:17:36,000 --> 00:17:39,000 Speaker 1: to happen in twenty twenty one, or twenty twenty two, 291 00:17:39,680 --> 00:17:43,080 Speaker 1: or or twenty twenty. But it's it's not the fact 292 00:17:43,080 --> 00:17:46,680 Speaker 1: that we just broke the historical record for the longest 293 00:17:46,760 --> 00:17:50,000 Speaker 1: expansion doesn't by itself mean that we are about to 294 00:17:50,040 --> 00:17:52,560 Speaker 1: face a recession. God Levanon, thank you so much for 295 00:17:52,600 --> 00:17:55,320 Speaker 1: being with us. God levan and is chief economist for 296 00:17:55,440 --> 00:17:58,679 Speaker 1: North America at the conference port Thanks for listening to 297 00:17:58,680 --> 00:18:01,399 Speaker 1: the Bloomberg Penl podcasts. You can subscribe and listen to 298 00:18:01,480 --> 00:18:04,720 Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer. 299 00:18:04,920 --> 00:18:07,600 Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm 300 00:18:07,640 --> 00:18:10,560 Speaker 1: Lisa Abram Woyds. I'm on Twitter at Lisa Abram Woyds. One. 301 00:18:10,760 --> 00:18:13,359 Speaker 1: Before the podcast, you can always catch us worldwide. I'm 302 00:18:13,400 --> 00:18:14,240 Speaker 1: Bloomberg Radio.