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Speaker 2: Let's get a preview here of what we may here
Speaker 2: from this ft of reserve, this affternoon. Dennis Lockhart is
Speaker 2: a former Atlanta Fed president, joining us from Atlanta, Georgia
Speaker 2: via that zoom thing. Dennis, thanks so much for joining
Speaker 2: us here. I guess the market's looking for a twenty
Speaker 2: five basis point cut today.
Speaker 3: A do you think that's what we'll get? And be
Speaker 3: what kind of.
Speaker 2: Message you think Jay Powell wants to get across today.
Speaker 4: Well, I think it's almost a certainty that we'll get
Speaker 4: twenty five base points today. It would be a big
Speaker 4: surprise to everyone, so I put that aside. I don't
Speaker 4: think it's a question. The message coming out of this
Speaker 4: meeting will certainly describe the economy as strong, with the
Speaker 4: labor market cooling but not abruptly cooling, inflation coming down.
Speaker 4: I think you'll hear more of the same basic message
Speaker 4: that Powell has put out at previous press conferences, so
Speaker 4: it's sort of a steady as she goes. He'll explain
Speaker 4: that the committee believes that they can continue to cut
Speaker 4: rates through twenty twenty five, and he's not going to
Speaker 4: make much noise about the election. I don't think he'll
Speaker 4: say anything that suggests any reaction to it at all.
Speaker 4: In the short term, at least, the election won't have
Speaker 4: much influence.
Speaker 5: We don't know yet the impact on the economy of
Speaker 5: the new president's policies. Does that call for smaller rate
Speaker 5: increases in the future, or even applause until we get
Speaker 5: more clarity.
Speaker 4: Well, I wouldn't surprise me if they consider a skip,
Speaker 4: not necessarily a pause of putting a policy path on hold,
Speaker 4: but just the slowing of the process as early as January.
Speaker 4: I really don't expect that in December, although I would
Speaker 4: point out that in the September Summary of Economic Projections
Speaker 4: there were seven people who were looking to only seventy
Speaker 4: five basis points this year in twenty twenty four. That's
Speaker 4: a constituency for skipping in December if they continue to
Speaker 4: hold those views. So I think a skip in the
Speaker 4: one of the next two meetings, but more likely in
Speaker 4: January would allow them to take stock of what policies
Speaker 4: are likely to actually be implemented and rangers that they
Speaker 4: have in the outlook because of.
Speaker 2: That pretty big political event earlier this week. Dennis, how
Speaker 2: should the Federal Reserve, if at all, address it today?
Speaker 4: I don't think they should address it at all today.
Speaker 4: The formulation of monetary policy is not a political or
Speaker 4: politically influenced policy setting process. And you know, it's not
Speaker 4: as if he can ignore a question from the audience
Speaker 4: that brings it up. But I think what you'll find
Speaker 4: is power will stay very removed from anything that suggests
Speaker 4: a reaction to political events.
Speaker 5: Does the FED, oh of the markets, any guidance.
Speaker 4: The you know, the Fed, does it Fed oh the
Speaker 4: markets guidance? I think the Fed has been giving guidance
Speaker 4: that the direction of travel is in the direction of
Speaker 4: lower policy rates settings. They have to be indetermined as
Speaker 4: to where that will end. They just don't know. That
Speaker 4: depends a good deal on how the economy evolves over
Speaker 4: the coming months and next year or so. So I
Speaker 4: think guidance has been given. I doubt that you'll hear
Speaker 4: much in the way of amplification of that or elaboration
Speaker 4: on that. In this meeting, the direction is to a
Speaker 4: lower overall rate setting.
Speaker 2: Dennis, again, the FED cut race by fifty basis points,
Speaker 2: and as you just mentioned, there's the bias towards more
Speaker 2: rate cuts, yet yields to move sharply higher.
Speaker 3: Is that what's going on there for the average investor?
Speaker 4: I think there are a number of factors at work,
Speaker 4: but probably the one that deserves the most tension is
Speaker 4: the markets increasing their discount or pricing in some concern
Speaker 4: about the fiscal outlook both candidates. Basically, we're likely to
Speaker 4: be sustaining or even increasing deficits, and the proposals that
Speaker 4: are out there from Trump's campaign appear to be net
Speaker 4: inflation era and conceivably net fiscal fiscally unchanged in many respects,
Speaker 4: if not worse. So I think what the markets are
Speaker 4: seeing is that the fiscal outlook coming to grips with
Speaker 4: the reality of deficits in the rising debt as of
Speaker 4: now at least don't appear to be a priority, and
Speaker 4: they're pricing that into the longer term rates.
Speaker 5: WELLY ask you what you think the relationship should be
Speaker 5: between the President of the United States and the head
Speaker 5: of the Federal Reserve.
Speaker 4: President of the United States should stay out of trying
Speaker 4: to influence the FED in the direction of monetary policy.
Speaker 4: The FED should operate independently. I happen to have pretty
Speaker 4: strong feelings about this. I think it's globally a fundamental
Speaker 4: of good governance to allow your central bank to make
Speaker 4: its decisions independently, and the influence is simply in the
Speaker 4: nominations that the President makes for the Board of Governors
Speaker 4: and the chair, and after that, I think the setting
Speaker 4: up policy should be done independently with no interaction with
Speaker 4: the president.
Speaker 2: Dennis, do you think what's the risk here if you're
Speaker 2: the Federal Reserve? Is it inflation coming back? Is it
Speaker 2: the economy tilting into a recession? Where do you think
Speaker 2: the FED is kind of folk here on that balance?
Speaker 4: Well, I think they're focused on two things. Of course,
Speaker 4: as everyone knows, there's a dual mandate, so they have
Speaker 4: to pay attention to both employment and inflation. A stickiness
Speaker 4: of inflation at current levels, possibly a resurgence which could
Speaker 4: be based on some policy decisions that are made in
Speaker 4: the Trump administration. So that is a concern and a
Speaker 4: cracking of the good situation we have in employment markets today.
Speaker 4: I pay attention to initial claims. If you saw initial
Speaker 4: claims shoot up, it would suggest that people are being
Speaker 4: laid off and something is changing. So I think they'll
Speaker 4: keep their eye on both and try to preserve a
Speaker 4: rather good economy we have at the moment, and particularly
Speaker 4: a good employment situation.
Speaker 5: Can I ask you, being there in Atlanta, what was
Speaker 5: the message that you interpreted was sent by voters in
Speaker 5: the Atlanta, in Georgia and Atlanta in particular, and how
Speaker 5: should that be interpreted in the formulation of policy, whether
Speaker 5: it be monetary or fiscal.
Speaker 4: Well, I'm so maybe a little early to opine on
Speaker 4: what the message was from the electorate in Georgia, and Georgia,
Speaker 4: of course, was like many other states around the country
Speaker 4: where Trump carried the state and got the electoral votes
Speaker 4: from the state. You know. I think one message is
Speaker 4: that higher prices as a result of inflation, even with
Speaker 4: the argument that inflation is declining, higher prices really do
Speaker 4: affect the thinking of the voter, and I think that
Speaker 4: that was one of several factors that was not favorable
Speaker 4: to the Harris campaign. Prices rose during the hyperinflationary period
Speaker 4: we saw right after the pandemic. Inflation has been coming down,
Speaker 4: but the prices themselves have not been coming down, and
Speaker 4: that is a real constraint on consumptions in many households,
Speaker 4: and I think there was to some degree a vote
Speaker 4: against that reality.
Speaker 2: Dennis Lockhart, thank you so much for joining us. Dennis Lockhart,
Speaker 2: former Atlanta Fed President, joining us from Atlanta via zoom thing.
Speaker 2: And when I think about Atlanta, phenomenal city, I've got,
Speaker 2: you know, just over my career, Senia experienced the growth
Speaker 2: of Atlanta, having gone there for so many times and
Speaker 2: had a lot of investment banking clients there. Every single
Speaker 2: street is named Peachtree Streeter.
Speaker 5: I believe Dennis's firm is on peach Street.
Speaker 4: Right, Yeah, Basically something like something like thirty six streets
Speaker 4: have the word Peachtree in the so it's very easy
Speaker 4: to get confused. And then there are a lot of
Speaker 4: other institutions that to use the word Peachtree. So it's
Speaker 4: a certainly a Peachtree crazy city, to say the least.
Speaker 2: Dennis, thanks so much for joining us. Former FED president
Speaker 2: for Atlanta, Dennis Lockhart. Yeah, it's it's amazing. It's a
Speaker 2: huge city, cosmopolitan, global city, but yeah, somebody, you know what,
Speaker 2: it's Peachtree, but it's Peatree north West Southeast, and it's street,
Speaker 2: it's Avenue, it's this. And so before you had like GPS,
Speaker 2: you'd say, you give an address to a cab driver
Speaker 2: nine times at attendant, you take it to the wrong
Speaker 2: place because it's oh it's Peachtree Southeast you wanted, you know.
Speaker 5: It's like and of course home to Coca Cola.
Speaker 2: Yeah, it's an awesome town, that great stuff. And it's just
Speaker 2: been I tell you, it's just been one of those
Speaker 2: you talk about the you know, the growth of the
Speaker 2: sun Belt, and Atlanta was the first, you know, and
Speaker 2: just the dynamic growth just over the last.
Speaker 3: Thirty forty years has been extraordinary.
Speaker 2: So now I think like the fourth bag is market
Speaker 2: in the US, it's something huge like that.
Speaker 5: It's on my bucket list. I haven't been yet, oh dude.
Speaker 5: I mean, I think I've been through the airport, but
Speaker 5: that was Yeah.
Speaker 3: But the traffic is just brutal down there.
Speaker 2: It's one of those again in the growth of the Southeast.
Speaker 3: You know, these towns go.
Speaker 2: So quickly the traffic, you know that the instructure can't
Speaker 2: keep up. But anyway, getting the latest from Dennis Lockhart.
Speaker 1: Down there, you're listening to the Bloomberg Intelligence Podcast. Catch
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Speaker 2: Right, not nostiting it for Alex deal on Paul Swingeel
Speaker 2: Life here in our Bloomberg Interactive Brokers studio, streaming live
Speaker 2: on YouTube as well. It is FED Day, and after
Speaker 2: announcing what's widely expected to be a quarter point cut industrates,
Speaker 2: the FED will have to reassure markets it can manage
Speaker 2: the impact of a president elect who's valed a raft
Speaker 2: of new tariffs and tax cuts. What does that mean
Speaker 2: is FED Chairman j Palce did his job just get
Speaker 2: more difficult after twas Tuesday's political election results. Katerina sara
Speaker 2: Eva joints us here, a Federal.
Speaker 3: Reserve reporter from Bloomberg News.
Speaker 2: Katerina did FED chairman pals job get a little bit
Speaker 2: more difficult given the presidential election results from Tuesday?
Speaker 6: I think in a way, yeah, I mean, of course,
Speaker 6: you will try to you know, steer clear of anything
Speaker 6: politics related in his press conference, and you know, when
Speaker 6: he's asked about it going forward, they always try to
Speaker 6: remain a political But I think the reality of a
Speaker 6: new administration is that we are likely to see some
Speaker 6: policies that may stoke inflation a little bit or even growth. Right,
Speaker 6: it's not all negative, but it does mean, you know,
Speaker 6: it may change some things for the FED, and we've
Speaker 6: certainly seen that in banks. You know, some of the
Speaker 6: Wall Street economists and financial markets kind of repricing what
Speaker 6: they expect for the FED going forward.
Speaker 7: So what do you think we're going to get out
Speaker 7: of today? I feel like it's going to be a
Speaker 7: pretty boring FED meeting since they're locked in for twenty
Speaker 7: five basis points.
Speaker 8: But they probably won't want to.
Speaker 7: Say anything about the next meeting, certainly not about twenty
Speaker 7: twenty five.
Speaker 6: Right, Yeah, I think that's right. I think today should
Speaker 6: be pretty boring. They're probably going to deliver what we're
Speaker 6: all expecting, which is that quarter point cut, like you're saying,
Speaker 6: and then it's it's not one of the quarterly meetings,
Speaker 6: so we don't get updated economic forecasts from them, so
Speaker 6: there's not kind of those extras that we would get at,
Speaker 6: you know, that we got in September and that we'll
Speaker 6: get in December. And yeah, I think I think they're
Speaker 6: really going to want to leave the door open because
Speaker 6: we don't you know, we've had some economic data recently
Speaker 6: that has shown that things might be heating up a
Speaker 6: little bit again. So even outside of the election, we're
Speaker 6: seeing some strength in the economy that might have implications
Speaker 6: for the FED. And then also they we don't know
Speaker 6: what policies will be implemented. We were not going to
Speaker 6: have a new government in place until January and then
Speaker 6: you know, these things take a while, so the FED
Speaker 6: isn't going to want to kind of subscribe itself to
Speaker 6: anything that hasn't happened yet.
Speaker 2: So what do you think we'll hear from Chairman Pal
Speaker 2: today as it relates to the election. Is it just
Speaker 2: literally say nothing to dance around it, or just I
Speaker 2: guess kind of say, hey, you know, we're a political
Speaker 2: and we're fine.
Speaker 6: Yeah, I think that I think that is you know,
Speaker 6: both of those is what we'll see. And we've seen
Speaker 6: that all year. You know, this has been a big
Speaker 6: question for them. But yeah, they just they love to say, look,
Speaker 6: we have nothing to do with this. Our job is
Speaker 6: to react to what the economy is doing. Right, They'll
Speaker 6: they'll say things like Congress has given us this dual
Speaker 6: mandate stable prices and maximum employment. What we're focused on,
Speaker 6: and we're looking at the data as it comes in
Speaker 6: to figure out what we can do. And they'll probably
Speaker 6: repeat something that they've been saying this year as well,
Speaker 6: which is that policies well positioned to address anything that
Speaker 6: comes its way. So we're kind of in a you know,
Speaker 6: they've started cutting interest rates already, we're in a position
Speaker 6: where if they need to cut more, they can do that.
Speaker 6: If they need to pause for a while, they can
Speaker 6: do that. So I think they they see themselves as
Speaker 6: being kind of in a good place to be nimble
Speaker 6: and react.
Speaker 8: Is policy really restrictive here?
Speaker 7: I mean, I'm looking at six thousand right now on
Speaker 7: the S and P five hundred. Unemployment is at four percent,
Speaker 7: growth is at three percent? I mean, what are they
Speaker 7: restricting with these levels?
Speaker 6: Yeah, and we just got some really hot you know,
Speaker 6: earnings number not earning like worker earnings numbers today, So yeah,
Speaker 6: I think that's been earnings.
Speaker 8: Earnings also have been good, and we're.
Speaker 7: Expecting fourteen percent earnings growth in Q four and Q one.
Speaker 6: Yes, yeah, yeah, yeah, No, I mean that's been the
Speaker 6: million dollar question all along, Right, how are we restrictive?
Speaker 6: How restrictive are we? If we are, how is that
Speaker 6: even being transmitted to the economy right now? I mean,
Speaker 6: we know, for example, with mortgage rates, a lot of
Speaker 6: people are locked into low rates and it's not having
Speaker 6: the transmission effect it that it normally would. So it is,
Speaker 6: it's it's I think that's an open question. And I
Speaker 6: you know, I do wonder if we're going to start
Speaker 6: hearing more chatter of are they going to have to
Speaker 6: start hiking again if things get really out of hand?
Speaker 8: Paul, you're not locked into a low mortgage rate.
Speaker 3: No, I'm at six percent?
Speaker 7: And are your refinanced dreams dash by Trump dash Yeah.
Speaker 2: I mean the rates just kick back up here, all right?
Speaker 2: Katherina sorry, a Federal Reserve reporter for Bloomberg News. Thank
Speaker 2: you so much for joining us there, matt Before we
Speaker 2: let you go here and we go to Joe Matthew
Speaker 2: and bounce of power.
Speaker 3: What are you driving?
Speaker 9: Oh?
Speaker 7: Actually right now I'm driving a So for those who
Speaker 7: don't listen regularly, or watch my show. I drive a
Speaker 7: new car every week, so I'm always test driving a
Speaker 7: new vehicle for my podcast, Hot Pursuit with Hannah Elliott.
Speaker 7: Usually I'm in fancier cars, like maybe an Aston Martin
Speaker 7: or hot new Mercedes, a lot of BMW's I like
Speaker 7: a lot.
Speaker 8: Right now, I'm driving a Chrysler pacifica minivan.
Speaker 3: How's that going.
Speaker 8: It's a hybrid. I gotta say I had never driven
Speaker 8: a minivan before.
Speaker 3: Two kids, so you should be in the market.
Speaker 9: Yeah.
Speaker 7: And I've spent so many years and spent so much
Speaker 7: money trying to avoid going to the minivan. I get
Speaker 7: an SUV that functions like a minivan but still looks tough,
Speaker 7: and I feel like I've been wasting.
Speaker 8: That cash because this is a pretty nice ride.
Speaker 7: I mean, it's not amazing, you know, but it's got
Speaker 7: the low load floor, it's kind of smooth sailing with
Speaker 7: the hybrid engine.
Speaker 8: It's pretty good.
Speaker 2: See there he goes. Yeah, we were twenty years we
Speaker 2: had the minivan thing. Now no Moss, Katerina, thank you
Speaker 2: so much for joining us.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 2: John Tucker sitting in for Alex Steel on Paul Sweeney
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Speaker 3: We are streaming live on YouTube as well.
Speaker 2: What does Donald Trump and the White House mean for
Speaker 2: big tech? Dan ives Join says he's managing director and
Speaker 2: senior equity analysts for web Bush Securities. Dan, I mean
Speaker 2: a lot of the questions for investors as released to
Speaker 2: big tech and the Trump administration is I mean, what
Speaker 2: does it mean for big tech writ large? But I'm
Speaker 2: want to start with Tesla because that's an industry that
Speaker 2: depends upon cooperation with the government.
Speaker 3: What do you think about Tesla?
Speaker 10: I mean from mosque betting on Trump, it might be
Speaker 10: the best poker move he ever made, That's right, and
Speaker 10: when you think about now, this is gonna really catalyze
Speaker 10: autonomous full self driving. A lot of the regulatory issues
Speaker 10: that Tessa's been dealing with, I think essentially Mussim go
Speaker 10: out the window here, Tariffs get pulled, which is negative
Speaker 10: for the ev industreet bullish for Tessa. Look, if you're
Speaker 10: a Tessa's shareholder, for Trump getting in is basically a
Speaker 10: Champagne moment, and I believe starts to unlock. We've told
Speaker 10: out on the show the trillion dollars of AI valuation
Speaker 10: now starting to get unlocked with Trump in the White House.
Speaker 5: Yeah, just because of the jump in the stock. Yes
Speaker 5: that Elon Mussey had a twenty six and a half
Speaker 5: billion dollars made back to Yeah, I guess it was
Speaker 5: a good trade. Can we talk regulation? What's the regulatory
Speaker 5: landscape gonna look like? What does that mean for tech?
Speaker 5: How do you gain that right now?
Speaker 10: But I think the biggest take any horror movie you want,
Speaker 10: that's really been what Kansman to tech tech. So so
Speaker 10: when you look at con of the FTC has really
Speaker 10: been that nightmare for big tech in terms of M
Speaker 10: and A deals, anything they do. And that's really that's
Speaker 10: been an issue that's been overhanging a lot of these stocks,
Speaker 10: not just Google, Apple and some others. I think the
Speaker 10: view is heavy view that she's gone at the FTC
Speaker 10: and that ultimately will let a much more friendly deal
Speaker 10: environment for tech.
Speaker 5: But doesn't that doesn't pertain to Europe though, what's uh
Speaker 5: or does.
Speaker 10: It sure now? And you're a big tech I mean
Speaker 10: they're used to find almost like cups of coffee there,
Speaker 10: so that's always they're always gonna get that from Brussels.
Speaker 10: But the big issue has been you know, Winter Coon
Speaker 10: from FTC has really been the big issue with her
Speaker 10: looking to be out. That's another part of this rally
Speaker 10: here because I think what it's gonna do is gonna
Speaker 10: be a tidal wave of M and A. You're gonna
Speaker 10: see big tech. You still have DJ and some other issues,
Speaker 10: but you see them more aggressive from an AI perspective,
Speaker 10: and and this is really what tack invessors want to see,
Speaker 10: less regulatory. And then we got to see a red
Speaker 10: sweep you combo that you know, that's something that's a
Speaker 10: that's a backdrop that's very very bullish for tech investors.
Speaker 2: There's been some comments from Trump and from President elect
Speaker 2: Vice President elect jd Vance negative towards maybe some social
Speaker 2: media and tech in general.
Speaker 3: How do you take that into account?
Speaker 10: Yeah, I mean, look, they're not fans of Google meta.
Speaker 10: The irony is you look at TikTok Trump getting in
Speaker 10: basically means TikTok to they're not going to get banned,
Speaker 10: and I don't think anything changes from an ownership perspective.
Speaker 2: So with President look Trump in the White House, what
Speaker 2: does that mean for TikTok?
Speaker 10: So from a twilight zone, even though he started to
Speaker 10: get the actual looking to get TikTok banned, here we
Speaker 10: are one eighty, it's the opposite actually not supporting a
Speaker 10: TikTok ban. So now TikTok doesn't get banned.
Speaker 1: Now.
Speaker 10: Part of that is because Trump is very negative towards
Speaker 10: Google Meta. So when you think about it from a
Speaker 10: tech perspective and you started a whittling the stocks yesterday,
Speaker 10: i'd expect that little twelve round battle that they'll be
Speaker 10: going through with Trump. In terms of some of the
Speaker 10: the issues around you know, what we's on social media
Speaker 10: section two thirty, which has obviously been the shield. So
Speaker 10: section two thirty is really what shields social media comingies legally,
Speaker 10: you know, and that's been a big contentious issue. The
Speaker 10: view is if Trump comes in, what happens to section
Speaker 10: two thirty. I don't think anything happens per se, But
Speaker 10: when you look at some of the risk quote unquote
Speaker 10: in terms of big tech, definitely on social media, and
Speaker 10: then clearly on the China issue in terms of He'll
Speaker 10: be a lot of harsher on tariffs. But now the
Speaker 10: difference is who's to his right as the whisper. It's Musk,
Speaker 10: So Musk is gonna be able I think, and the
Speaker 10: view is on the street navigate these issues when it
Speaker 10: comes to China tariffs, AI with now being the sort
Speaker 10: of whisper.
Speaker 5: Well, if you're an investor in Nvidio, how do you,
Speaker 5: for the instance, how do you view this?
Speaker 10: The way you view this is that you know, initially
Speaker 10: you'd say maybe negative on China tariffs and what that
Speaker 10: could do for godfather of Ai Jensen and video. The
Speaker 10: reality is that with Musk in there, cool hand will
Speaker 10: ultimately prevail. I don't really see any major risk from
Speaker 10: an Nvidio perspective to some extent, maybe more of those
Speaker 10: chips going toward US instead of China, which is ultimately
Speaker 10: just bullish or big tech. That's why any which way
Speaker 10: you kind of take this, it's bullish US tech, bearish
Speaker 10: China tech. But the Musk and the and just him
Speaker 10: being integral in sixteen hundred Pennsylvania Avenue is very important
Speaker 10: in terms of the view and the tech trade. It's
Speaker 10: not some two or two bureaucrat that that's ultimately grandstand.
Speaker 10: They're trying to get through some tariffs. Now you got
Speaker 10: Must that has I think the best pulse in terms
Speaker 10: of what's going on broader attack and AI.
Speaker 2: So you seem to think that Elon Musk is gonna
Speaker 2: play a active role in this Trump administration.
Speaker 10: He is going to play a significant role now unofficient.
Speaker 10: Now is he gonna be a cabinet No, because then
Speaker 10: that that's very complicated in terms of his ownership and
Speaker 10: what he'd have to do for his stock. But he's
Speaker 10: essentially gonna be called it AI ambassador, call it unofficial
Speaker 10: cabinet whisper. Must will have a very important role in
Speaker 10: this White House, specifically around driving AI. And that's also
Speaker 10: why like autonomous is gonna be front and center, because
Speaker 10: that's he is very focused on autonomous in terms of
Speaker 10: potentially Trump accelerating some of those autonomous FSD issues. And
Speaker 10: that is key to the stock because we believe that's
Speaker 10: worth a trillion dollars alone in terms of the AI
Speaker 10: autonomous story.
Speaker 5: Just a broader question for you can text satisfy the
Speaker 5: market expectations, I.
Speaker 10: Think, and we've told about it on the show. I
Speaker 10: mean demand the spy is still fifteen to one. So
Speaker 10: the Bears in their spreadsheets ten four in New York
Speaker 10: City office building, they can see AI in those spreadsheets.
Speaker 10: I think numbers go up across the board ten to
Speaker 10: fifteen percent going into next year. And our view is
Speaker 10: it's goldilocks. Fed's gonna cut one hundred hundred and fifty BIPs.
Speaker 10: You still have six trillion sidelines and we are talking
Speaker 10: about AI revolution. It is still call at nine to
Speaker 10: thirty pm in the AI party that goes to four am.
Speaker 2: Best pick right here, Dan thirty seconds.
Speaker 10: The messy of AI. Polunteer because the area and again
Speaker 10: when you look use cases, pouneers, they're in that mount
Speaker 10: rushmore of course with Jensen with Microsoft with what we
Speaker 10: names like service now as well Pounteer driving it from
Speaker 10: a use case perspective, and still many institutions, I mean,
Speaker 10: you know, very negative. Unpollunteer. I love the setup of
Speaker 10: this story over the coming years.
Speaker 5: Jell me Buffett, will that shirt to you about the
Speaker 5: way again?
Speaker 10: He did, And the thing is this was a shirt.
Speaker 10: I was actually gonna give it to Key, but he
Speaker 10: actually he said it was a little too little two.
Speaker 2: John, I don't think he can go You can't go
Speaker 2: out like this after Labor Day. But Dan i'ves skin
Speaker 2: pull it off.
Speaker 3: He can pull it off.
Speaker 2: Dan I's managing director, Senior ecurianos a webush security securities traintings.
Speaker 2: Here in our Bloomberg Interactive Brokers Studio.
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Speaker 2: Bloomberg Interactive Broker Studio or streaming live on YouTube as well. Madam,
Speaker 2: not sure if you're aware of my Milwaukee theory and
Speaker 2: my Milwaukee theories pound for pound, some of the best
Speaker 2: money managers in the world are Milwaukee.
Speaker 3: I had no idea.
Speaker 8: I thought you were going to say motorcycles.
Speaker 2: No, no, Early Davidson, Baby, I know, I know the
Speaker 2: hog Hog. I don't know what's going on out there.
Speaker 2: Maybe it's the University of Wisconsin. But one of those
Speaker 2: folks joins us right now. Janet Rilling, Senior portfolio manager,
Speaker 2: head of Plus fixed Income and Allspring Global, invests me
Speaker 2: because A. Maletti was one of my first clients and
Speaker 2: she's one of the smartest folks Bloomberg and Active Broker
Speaker 2: Studios where Janet finds herself. Janet today versus maybe a
Speaker 2: couple of days ago, has your view of the bond market,
Speaker 2: the treasury market, the Federal Reserve? Is that change given
Speaker 2: what's happened politically here in this country in the past
Speaker 2: couple of days.
Speaker 11: Well, we do have new information and we can remove
Speaker 11: some scenarios off the table because we do know some
Speaker 11: things about what our government's going to look like in
Speaker 11: twenty twenty five. When it comes to the Fed, however,
Speaker 11: I think the Fed is on the same path. They
Speaker 11: are looking to get off of restrictive level of rates.
Speaker 11: The expectation, of course today is that twenty five basis
Speaker 11: point rate cut, and I think as they look forward,
Speaker 11: they're going to continue to want to move in that direction.
Speaker 11: But they two now have more information, though still not
Speaker 11: enough to really know what policies will be implemented. So
Speaker 11: I think they're going to be a cautious in terms
Speaker 11: of how they interpret the election results, but they are
Speaker 11: certainly aware of them, and I think down the road
Speaker 11: that is going to influence their path.
Speaker 7: Yeah, we had priced in about one hundred and seventy
Speaker 7: basis points of cuts for next year for twenty twenty five,
Speaker 7: and right now the terminal with the WRP function is
Speaker 7: showing only about eighty basis points of cuts for next year.
Speaker 7: So the market has moved substantially in terms of pricing.
Speaker 7: Obviously you can see it in the long end well
Speaker 7: across the curve, but especially on the long end as
Speaker 7: well of the treasury yields.
Speaker 8: Do you think that we turn that around?
Speaker 7: Is that just a knee jerk reaction to Donald Trump
Speaker 7: winning the presidency. Is it possible that rates on the
Speaker 7: ten year go back under four or do you see
Speaker 7: them headed back towards five.
Speaker 11: I do think it's possible that they move back under four.
Speaker 11: You know, we did learn with this change in government
Speaker 11: that you know, we'll probably have a pretty supportive fiscal
Speaker 11: outlook for growth, So that's something that you know will
Speaker 11: keep things growing. On the other hand, the prospect of
Speaker 11: tariffs leads to potentially more upward pricing pressure. So with
Speaker 11: that in place, I mean it's a balance. The tariffs
Speaker 11: will take quite some time to first of all get
Speaker 11: in place if the policy is successful, and then to
Speaker 11: work its way through the economy. In the meantime, you know,
Speaker 11: I think there is the opportunity for rates to start
Speaker 11: coming back down after people have digested all all of
Speaker 11: the information. Inflation, though it does still need to be
Speaker 11: top of mind. You know, it is not at the
Speaker 11: Fed's target. It's been moving in the right direction, but
Speaker 11: it's been sticky, and you know that that is going
Speaker 11: to be a focus for the bond market. And certainly
Speaker 11: if the bond market is of the view that we're
Speaker 11: going to continue to grow the deficit, that's going to
Speaker 11: weigh on rates, and so it's probably more likely we'll
Speaker 11: be in this range. But I do think it's possible
Speaker 11: we can go back below four.
Speaker 2: All right, So given that backdrop, do I just sit
Speaker 2: in my two year treasury and get four point two percent?
Speaker 3: Or are I take some credit risk out there?
Speaker 11: Well, it's certainly tempting to stay at the front end,
Speaker 11: particularly money markets, right, We know a lot of folks
Speaker 11: have stayed in money markets. But what we have to
Speaker 11: remember is those yields will continue to reset lower as
Speaker 11: the FED continues to cut rates, and we do think
Speaker 11: that will persist. The FED does want to move off
Speaker 11: of this restrictive level, so to avoid that reinvestment risk,
Speaker 11: it can make sense to start moving out the curve.
Speaker 11: And in terms of credit, we do know credit spreads
Speaker 11: are rich, but the economic outlook is quite good, and
Speaker 11: so credit spreads could stay narrow for quite some time.
Speaker 11: So we're not recommending a full overweight in corporate credit,
Speaker 11: but we do think some allocation there makes sense to
Speaker 11: get that incremental yield. Stay highly diversified, that's quite important.
Speaker 11: But you know, if you're just huddled in the front end,
Speaker 11: you're really positioned for one scenario rather than be diversified
Speaker 11: for what is likely a wide range of scenarios.
Speaker 7: In terms of stocks, we're just thirty five points away
Speaker 7: from S and P six thousand. I mean, it's pretty
Speaker 7: unbelievable as I look down at my screen and I
Speaker 7: see fifty nine to sixty six on the S and
Speaker 7: P five hundred right now, you know, there are very
Speaker 7: few strategists who even have this as a year end target,
Speaker 7: let alone a twenty twenty five target.
Speaker 8: Do you think we have more room to run here?
Speaker 11: Well, you know, again, I think we're setting up for
Speaker 11: a good growth environment. We have more clarity on tax policy,
Speaker 11: and from the corporate side, I think that is supportive.
Speaker 11: It allows companies to make decisions to invest, you know,
Speaker 11: to continue to add to capital expenditures to fuel that
Speaker 11: future growth. So I think that is about a lot
Speaker 11: of the optimism that's baked in. But we have seen
Speaker 11: in the past, you know, the knee jerk reaction after elections,
Speaker 11: people extrapolating things. It's not going to be totally clear sailing.
Speaker 11: There's going to be you know, more talk about what
Speaker 11: is the tariff policy? What impact will that have working
Speaker 11: its way through the supply chain. You know, the input
Speaker 11: costs could be impacted. Retailers that you have a lot
Speaker 11: of goods that come from China could impact their margins
Speaker 11: or else they have to pass that along to the consumer.
Speaker 11: So we're going to have to continue to watch how
Speaker 11: the consumer is doing through all of this. But I
Speaker 11: think at the outset, certainly having more certainty and tax
Speaker 11: policy and decision making by corporate America is helpful in
Speaker 11: the fixed income world.
Speaker 8: What is a structured product or what are structured products?
Speaker 8: Because a lot of people tell me that's where I
Speaker 8: need to look.
Speaker 3: How do you guys think about that?
Speaker 11: Well, first of all, we would agree, I think that's
Speaker 11: a good place to look.
Speaker 2: Those others vage backed securities, asset backed securities, that kind
Speaker 2: of thing.
Speaker 11: Yeah, it's really a range of securities. So agency mortgage
Speaker 11: back securities is the largest part of that market, but
Speaker 11: abs or asset backed securities, which actually has a wide
Speaker 11: range of exposures. I mean it can be consumer like
Speaker 11: credit cards, it can be auto exposures, but also some
Speaker 11: company exposures, franchise deals like five Guys as an example
Speaker 11: of a franchise deal. So it's delicious, delicious. Yeah, So
Speaker 11: that's the way you could get exposure to that, you know,
Speaker 11: very diversified exposures there. That's part of our our view
Speaker 11: of what the appeal is to structured product and a
Speaker 11: very important part of the investment grade part of the
Speaker 11: fixed income market.
Speaker 7: So you're not talking like buffer products, You're not talking
Speaker 7: like you know, capped gains and protect in against losses.
Speaker 8: When you talk about structure.
Speaker 11: No thinking about you know, cash flow streams, that are
Speaker 11: packaged in a way that focus on different parts of
Speaker 11: the market. So you know, a pool of credit card
Speaker 11: balances would be one example of ABS.
Speaker 2: There's other exposures too.
Speaker 11: Commercial mortgage backed securities is another segment of structured product.
Speaker 11: Certainly an area where like office properties have been under pressure,
Speaker 11: but it's a very wide space, and so there are
Speaker 11: things beyond commercial or office properties, things like leisure, retail,
Speaker 11: and many of those properties are doing quite well. So
Speaker 11: that's another avenue for structure product.
Speaker 7: Student housing, adult living or senior living facilities.
Speaker 3: US versus non US. What do you guys at all
Speaker 3: spring do we do both?
Speaker 11: We think that being diversified globally makes a lot of sense.
Speaker 11: European credit, for example, is an interesting area. You can
Speaker 11: look at valuation there compared to the US currently it
Speaker 11: slightly tilts in the favor of European credit, and it's
Speaker 11: a way to just diversify your portfolio bit more. We
Speaker 11: like the triple B area of European credit and then
Speaker 11: that higher rung and high yield the double B.
Speaker 2: All right, good stuff, Jennet, thanks so much for joining.
Speaker 2: You're based in monomy. Can pronounce this and I've been
Speaker 2: doing it for four Yearsnomine.
Speaker 11: Falls Menomine falls, right, and that.
Speaker 2: Was originally Dick Strong Strong asset Management. We're out there,
Speaker 2: and I think he just went to University of Wisconsin
Speaker 2: picked out like the best students every year.
Speaker 8: I mean, I've heard your Milwaukee theory before.
Speaker 6: Yes, and it's.
Speaker 2: Yeah and so and downtown Milwaukee. There's some old, krusty
Speaker 2: little firms down there that have been managing little money
Speaker 2: you'd never heard of, but they've been doing it for
Speaker 2: like generations.
Speaker 3: I don't know what's going on there, but it sounds.
Speaker 8: Fantastic to me. I love Laverne and Shirley.
Speaker 6: Yeah.
Speaker 7: Who didn't Donald Trump say it wasn't a very nice
Speaker 7: place to I don't.
Speaker 8: Know it wasn't He he used a more colorful term.
Speaker 3: I thought that was the truth.
Speaker 8: Or is that all that too?
Speaker 2: You could have been as well, right, Janet Really, senior
Speaker 2: portfolio manager and head of plus fixed income Allspring Global
Speaker 2: Investments in a greater Milwaukee area.
Speaker 3: Will call it.
Speaker 2: Deputy's here in our New York in Orector Brokers studio.
Speaker 2: Coming to New York because it is the world capital.
Speaker 1: Of course, you're listening to the Bloomberg Intelligence podcast Catch
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Speaker 2: Kanucker sitting in for Alex Steele on Paul Sweeny. Were
Speaker 2: live here in our Bloomberg Interactive Broker's studio, and we're
Speaker 2: also streaming live on YouTube. In a few minutes, we're
Speaker 2: going to check on with Alison Williams. She covers the
Speaker 2: big banks for Bloomberg Intelligence and what blew me away yesterday, John,
Speaker 2: was the move in the banks. You had companies a
Speaker 2: good jillion dollars in market cap like JP Morgan, Goldman,
Speaker 2: Sachs up ten eleven, twelve percent.
Speaker 5: Most of this is based on what they think is
Speaker 5: going to be the new regulatory regime or lack.
Speaker 2: There lack thereof I think is how I understand it.
Speaker 2: This basl and it's just basle endgame, bazil three. These
Speaker 2: are global rules for banking that were enacted after the
Speaker 2: Great Financial Crisis.
Speaker 5: And yes, how do you get rid of global rules
Speaker 5: or you just ignore them?
Speaker 2: Well, we basically I think you're just going to kind
Speaker 2: of ignore them. But I think that's kind of the deal.
Speaker 2: But I mean, it just it just means greater profitability
Speaker 2: potentially for some of the big banks in the US.
Speaker 2: And we saw just huge moves here, so we want
Speaker 2: to figure out what's going on. Alison Williams can help
Speaker 2: us there. Alison Williams, she's the senior ALM. She covers
Speaker 2: all the big global investment banks for Bloomberg Intelligence. Alison,
Speaker 2: why did the banks rally so much yesterday on the
Speaker 2: news of Donald Trump becoming the president elect?
Speaker 9: So we see three things.
Speaker 12: So the big one is less regulation. Secondly, higher industrates,
Speaker 12: and then third we really see some momentum for fee revenue,
Speaker 12: which has really been powering the big banks that I cover.
Speaker 12: So the regulation is the big one, and it's not
Speaker 12: just some of the specific issues for the banks as
Speaker 12: a whole and one or two banks, but it is just,
Speaker 12: you know, the feeling that the pendulum can swing the
Speaker 12: other way right, so that there won't be new regulations
Speaker 12: and that some of the things that are sort of
Speaker 12: in the pipeline could be watered down or pushed out.
Speaker 12: So you were just speaking about BOSO three, So that
Speaker 12: BOSO three endgame has been the big one for the
Speaker 12: largest banks, and you know, Basil dictates that all jurisdictions
Speaker 12: around the world have to do.
Speaker 9: Some form of implementation.
Speaker 12: But the US proposal that came out in twenty twenty
Speaker 12: three was really much stricter than we saw in other regions.
Speaker 12: We had already had some expectations that would be watered
Speaker 12: down from you know, comments that Powell had made and
Speaker 12: also comments from bar in September, so some of that
Speaker 12: was sort of in the stocks, but I think the
Speaker 12: feeling is, you know, from our regulatory group that the
Speaker 12: things could either get pushed further out or they could
Speaker 12: be watered down even further. And so that's good for
Speaker 12: the banks because their excess capital is something like five
Speaker 12: to fifteen percent of their market caps. So definitely that
Speaker 12: was something aiding a city group in Wells Fargo as
Speaker 12: well as someone like Morgan, Stanley and Goldman, where even
Speaker 12: with the water, even with the sort of lighter touch
Speaker 12: in September, they were still going to have a deficit
Speaker 12: in their capital.
Speaker 9: So some positive news on that front.
Speaker 12: Also, as you know, you know, Wells Fargo has had
Speaker 12: this asset cap for a long time.
Speaker 9: City Group.
Speaker 12: There's been some concerns, especially around when they reported their results,
Speaker 12: that they could face more scrutiny. So just a particular
Speaker 12: easing I think also benefited those couple of banks. And
Speaker 12: then there are some other things related to card and
Speaker 12: consumer and finance as well. On the interest rate funds,
Speaker 12: all these banks are positioned for higher rates, so we
Speaker 12: know that we'll be watching the FED in terms of
Speaker 12: short term rates, but I think in general that also
Speaker 12: got a lift. And then finally from our viewpoint, the
Speaker 12: big thing is that we see momentum fees and that's
Speaker 12: been a huge boost to the earnings for these banks.
Speaker 5: Just back to the Bunzel three endgame rules, the idea
Speaker 5: is give me the dummies version. You had to set
Speaker 5: aside more capital basically in case things went south, so
Speaker 5: the financial institutions wouldn't ruin the economy, right, So that's
Speaker 5: freed up. Does that now go back to shareholders? Is
Speaker 5: that the idea?
Speaker 12: That that is the idea, and so Boso three endgame rules. So,
Speaker 12: as you know, Baso three is something that sort of
Speaker 12: came after the financial crisis, and there's been many iterations.
Speaker 12: Thus the reference to this last set of rules as endgame.
Speaker 9: And basically what that.
Speaker 12: Dictated was that as they measure their risk weighted assets,
Speaker 12: there would be big increases in that and thus they'd
Speaker 12: be having to hire, you know, hold more capital against that.
Speaker 12: And so based on third quarter earnings and fourth quarter requirements,
Speaker 12: their excess capital was five to fifteen percent of their
Speaker 12: market cap. Under the BOSO three rules, that would turn
Speaker 12: to deficits across the bank, so they would have to
Speaker 12: find a way to increase their capital. There is a timeline,
Speaker 12: so they probably would have done that through internal capital generation.
Speaker 12: But to your point, they that would have been capital
Speaker 12: that they could not return to shareholders.
Speaker 5: Has the most capital to be returned to shareholders.
Speaker 12: Well, based on the requirements today City Group, their excess
Speaker 12: capital is something like fifteen percent of their market cap.
Speaker 5: Okay, all right, and.
Speaker 12: I would and I would point out also that you
Speaker 12: know these banks have and so by the way, like
Speaker 12: the banks do sort of target holding a buffer to
Speaker 12: the requirement. So there's a little bit of that, but I.
Speaker 9: Think you know, in general, it is the fact that
Speaker 9: buybacks will likely go up.
Speaker 12: These banks already have buy back programs in place so
Speaker 12: they can execute on them.
Speaker 9: But it's also the math.
Speaker 12: If you have higher equity, your return on equity is
Speaker 12: going to be lower, and that's how investors' value stock.
Speaker 12: So there is definitely the higher buybacks, but also I
Speaker 12: think it is the sentiment that is helping bank multiples.
Speaker 12: This specific regulation, but also less regulation in general. I
Speaker 12: didn't talk about with regard to regulation is less antitrust.
Speaker 12: So that's good for M and A and that's really
Speaker 12: why you saw Goldman and Morgan Stanley very the stocks
Speaker 12: reacting to that.
Speaker 2: Allison, thanks so much for joining us. Alison Williams, senior
Speaker 2: analyst covering the global banks around the world for Bloomberg
Speaker 2: Intelligency Space down in our Princeton office.
Speaker 3: Again, the banks had a big, big.
Speaker 2: Move higher yesterday that really got people's attention thinking that
Speaker 2: they will be a better regulatory place under a Trump administration.
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