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Speaker 2: What's wonderful about this? Our guests get lost in the building,
Speaker 2: there's so many.
Speaker 3: Floors, get snacks and stuff, or they go shopping.
Speaker 2: You know, Madison Avenue is just so close joining us now,
Speaker 2: just back from the new Prada store.
Speaker 4: Thanks guys.
Speaker 2: Did you see the product expansion the store? They bought
Speaker 2: the building and they just blew it out one hundred
Speaker 2: percent is well? What does the luxury boom? Alicia Levine
Speaker 2: say about the caution the worry the consumer in America?
Speaker 2: I mean, there's like two worlds out there.
Speaker 4: It's two worlds out there. I mean, look, it's obvious.
Speaker 4: I think that if you just look at results of luxury.
Speaker 4: You know, asset prices have skyrocketed since twenty twenty, and
Speaker 4: global wealth owners have simply become wealthare And if you
Speaker 4: had your assets in the US, you're about seventy five
Speaker 4: percent wealthier than you were six years ago. And it's evident.
Speaker 4: I mean, if you just look at the airlines, they're
Speaker 4: talking about one hundred and ten dollars oil prices, raising
Speaker 4: estimates because demand is so.
Speaker 2: Rgic Christ fifty six fifty seven United Airlines out of Newark.
Speaker 2: It's the one benchmark I use in two cups of coffee.
Speaker 2: You go, it was seven five hundred dollars business class. Well,
Speaker 2: you'd be enjoying that this morning at ten one hundred.
Speaker 5: Oh boy, there you go.
Speaker 2: That's that's your list.
Speaker 5: So what do we do with Alicia?
Speaker 3: I mean, it seems like the market's trying to discount,
Speaker 3: trying to price.
Speaker 5: In I guess higher energy costs.
Speaker 3: I guess maybe some higher inflation, maybe even some slower
Speaker 3: economic growth.
Speaker 5: Has that changed the way you view the market?
Speaker 4: So it has not changed. And we've had some really
Speaker 4: interesting discussions in our investment Strategy Committee where we discuss
Speaker 4: all these things. And we came into the year, you know,
Speaker 4: overweight the US and we have a healthy allocation to
Speaker 4: international because we recognized earnings our moving higher, develop international
Speaker 4: and emerging markets for the first time in a long time.
Speaker 4: So we came into the year we were not one
Speaker 4: of the dollar is getting crushed shops. We were I'd
Speaker 4: say more ambivalent about it. This could see some dollar weakness,
Speaker 4: but not overall because the US economy is so strong,
Speaker 4: and we really expected close to three percent growth this year,
Speaker 4: you know, on January first, twenty twenty six, so we
Speaker 4: never really changed our views. You have to be concerned
Speaker 4: about tail risk. I think what we've seen since the
Speaker 4: cease fire and some of the leaks about what the
Speaker 4: discussions were about, you've got to bring the tails in right.
Speaker 4: You're not going to get the best case scenario where
Speaker 4: US owns oil globally, but you're not also getting you're
Speaker 4: not getting a catastrophe either. And so therefore, if I
Speaker 4: can dare say the word tariffs, which nobody has talked
Speaker 4: about in the last six weeks, I can say, if
Speaker 4: you go back a year ago, right, but the market
Speaker 4: priced in when it's not the worst case scenario, we
Speaker 4: bring in the left tail risk and we continue with
Speaker 4: our story. And the story is earners are moving higher
Speaker 4: three percent from the beginning of the year.
Speaker 2: Alicia Levine with this with BNY well through thrilled that
Speaker 2: she's with us this morning. She's under selling herself. I'll
Speaker 2: talk about that in a moment. Good morning around the world,
Speaker 2: Good morning across America. The way you choose to listen
Speaker 2: to us major good morning to YouTube. Alicia Levine was
Speaker 2: one of the first people to say, hey, stupid, look
Speaker 2: at YouTube. It's what everybody's using. Because her kids are
Speaker 2: glued to it, absolutely glued to it. They do. They
Speaker 2: look in they go Lego construction and there's like four
Speaker 2: hundred videos abound how to put legos together. Make sure
Speaker 2: you're underselling yourself. You had the courage here with your
Speaker 2: prodigious math skills to say, have courage stay in the market.
Speaker 2: The percentage of people, particularly institutions that were you know,
Speaker 2: they didn't where, they weren't in Chicago looking at cartosis
Speaker 2: and the answer is they missed this. Yep, what's the
Speaker 2: pop now after the shortcover?
Speaker 4: So look, thank you for that. It's not easy, as
Speaker 4: you know, I think. Here we're now looking at earning season.
Speaker 4: So now we got to the nitty gritty, what are
Speaker 4: the fundamentals going to tell us? So that three percent
Speaker 4: earnings increase in expectations driving into something like fifteen or
Speaker 4: sixteen percent earnings growth for the year has come from
Speaker 4: the energy sector, obviously, because the earnings are now massively
Speaker 4: positive and not negative materials. And also our old favorite
Speaker 4: of the tech sector, remember dance with the one that
Speaker 4: brought you. So that's what's driving earnings higher. What has
Speaker 4: not happened is that we haven't seen companies guide down.
Speaker 4: We haven't heard a discussion about hire input costs, and
Speaker 4: analysts have not put pen to paper yet because why
Speaker 4: would you. An earning season is this week starting and
Speaker 4: the next three weeks we will know a lot. So
Speaker 4: I guess that's what we're looking at. We're really looking at.
Speaker 4: You know, what are the sectors that are most exposed
Speaker 4: to higher input? Cause from the energy side, I'll say this,
Speaker 4: the airlines are remarkable. And we have a merger possible
Speaker 4: merger announcement this morning too, So.
Speaker 2: Okay, stop the show. We go to aircraft carrier Lander
Speaker 2: lives at Newark. Paul Sweeney, are you kidding me? No way?
Speaker 5: I mean way the regulators.
Speaker 3: So I asked Jen Rey, who's our you know, anti
Speaker 3: trust analyst at Bloomberg Intelligence where the regulators ever allowed
Speaker 3: that deal?
Speaker 5: And she's like, no way.
Speaker 2: Can you can you get her run? Or are you
Speaker 2: going to steal it? We're working on it. He steals
Speaker 2: our guest folks at ten am. It's flud. She's ruthless, scarletless,
Speaker 2: absolutely ruthless. January is world class in this. On This
Speaker 2: Paul Sweeney with Alisia Levine.
Speaker 5: At least before we got into this war.
Speaker 3: Aspect to the market, that black Swan, one of the
Speaker 3: bigger stories was just AI and how do I.
Speaker 5: Play AI now?
Speaker 3: Because it used to be I just buy the hyperscalers
Speaker 3: and whoever spending the money, that's where I want to
Speaker 3: own it. Now the market seems to be saying winners,
Speaker 3: losers were not sure kind of buckets.
Speaker 5: How do you guys think of it?
Speaker 4: So I think you want to look at what was
Speaker 4: working before the war, And interestingly, what was working before
Speaker 4: the war, about four or five months before was energy
Speaker 4: because energy is powering this. So energy is a winner
Speaker 4: from the war. Energy was a winner beforehand. So you
Speaker 4: want to play build out. You want to play things
Speaker 4: right because I think what we learned in the software
Speaker 4: sector that there's some risk to the terminal value as
Speaker 4: yet unknown what the discount should be. It looks like
Speaker 4: the market is paying you to play right because the
Speaker 4: discount and software has become so extreme. You've got names
Speaker 4: down fifty percent. But ultimately, I think what you're playing
Speaker 4: here is the hardware side, the scare city side, the
Speaker 4: energy side, the commodity side, and the builds out. And
Speaker 4: so we like industrials, we like energy, and we like
Speaker 4: materials here because that's what you are going to need
Speaker 4: for the build out. Now. The other thing if you
Speaker 4: look at just memory, is that that was this was
Speaker 4: a very sleepy area of the Semis that just exploded
Speaker 4: in the last eight months because that also was scared.
Speaker 5: Come from Michael.
Speaker 4: Yeah, others, What.
Speaker 2: Are your kids doing? Alicia Livin's kids are well behaved.
Speaker 2: What are they doing with a AI? Do you have
Speaker 2: like one problem child? It's totally all day in their
Speaker 2: bedroom just killing AI.
Speaker 4: No, but I wish I did. I wish I did.
Speaker 2: It's like the future. I'm waiting for some of the
Speaker 2: offspring to go. You know, well, I'm in anthropic this
Speaker 2: you know stuff I don't understand.
Speaker 5: Well, I mean, you talk to the kids. I mean,
Speaker 5: it is their life. It's not something that they use,
Speaker 5: it's just there.
Speaker 4: It's part of the research process, it's part of their
Speaker 4: process of learning, it's part of who they are.
Speaker 2: One of my heroes is Kent, a husband who wrote
Speaker 2: a book called Iceberg Risk. It's about you know, think
Speaker 2: of the Titanic movie with Kate Winslet and the other guy.
Speaker 2: They're on the tip of the bow looking at the icebergs.
Speaker 2: Except Ken opens a book with two statisticians. One of
Speaker 2: them is as nerdy as Alicia Levine, and they're certain
Speaker 2: they're not going to hit an iceberg because that's what
Speaker 2: the distribution says. And buried in his book is heavyweight
Speaker 2: binomial theorem on the xyz space the volatility matrix of
Speaker 2: a given derivative instrument. Can AI help you when you
Speaker 2: were at Chicago killing it?
Speaker 5: Oh?
Speaker 4: It helps all the time. It helps right now. We
Speaker 4: all use AI at the bank, all of us use
Speaker 4: it for everything, for daily, for everything.
Speaker 2: Forevery because I agree, my life would have been different.
Speaker 4: It would have been very different, the way our lives
Speaker 4: would have been different if we had, you know, technology
Speaker 4: in our pocket in a way. I mean some of
Speaker 4: us whose typewriters just going to say, just going to.
Speaker 2: Say, you know, they don't unlictit is too young, you
Speaker 2: didn't know what to typewrite. It help me alsha with
Speaker 2: the estimate forward on the standard of course, five hundred,
Speaker 2: everybody's recapitulate and seven thousand plus. Can I make some
Speaker 2: news today? Can we get to eight thousand?
Speaker 4: Can we get to eighth? O? Look, we're in print
Speaker 4: at seventy six hundred. Okay, three weeks ago when I
Speaker 4: kept it at seventy six hundred, and we're still there.
Speaker 4: It's Look, it's a midterm election year. Things get very volatile.
Speaker 4: Since nineteen thirty eight, the pattern has never been broken.
Speaker 4: As a historian, I'd have to say, if we just
Speaker 4: get away with a seven to nine percent draw down,
Speaker 4: I'll consider myself lucky. But we do see a rally
Speaker 4: into the year. I would think that you really have
Speaker 4: to pay attention to input costs here because right now
Speaker 4: expectations are for the highest margins. Ever, not sure that's realistic.
Speaker 2: Alicia, Thank you so much. Alicia Levine, head of investment
Speaker 2: strategy ban Why Wealth, thank her. Stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after this.
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Speaker 2: Shannon O'Neill owns a high ground on a study of
Speaker 2: Latin America. She drives so much of the research capability
Speaker 2: at the Consul on Foreign Relations. We're really honored she
Speaker 2: could show up, given a war, given a geopolitics, Shannon,
Speaker 2: the output of CFR and Foreign Affairs Magazine is a
Speaker 2: national treasure. Over the last what is it forty eight days? More? Yeah?
Speaker 2: We up to five? Oh yet close close, you know,
Speaker 2: whatever it is, Shannon, Michael O'Hanlon from Brooks in there,
Speaker 2: the gentleman from King's College writing on warre them halfway
Speaker 2: through the article, and on and on and on. Where's
Speaker 2: the realist thought? Now? The heritage of Kissinger, the heritage
Speaker 2: of Robert D. Kaplan, the heritage of Kindie Rice. Where's
Speaker 2: realist foreign policy given this war?
Speaker 6: Well, the great thing about CFRs there's a lot of perspectives,
Speaker 6: and we've got a great lineup of folks that look
Speaker 6: at Iran and look at the Middle East more broadly.
Speaker 6: But I think what we are seeing from lots of
Speaker 6: those scholars is, you know, looking at this and this
Speaker 6: is one of.
Speaker 2: The most difficult situations.
Speaker 6: And this is partly why the United States, for years
Speaker 6: there's been tensions with the Iranian regime, but nobody went
Speaker 6: to war because it was such a pickle to get
Speaker 6: out of. And we're seeing that. We're seeing that this
Speaker 6: asymmetric warfare basically which United States has a long history with.
Speaker 6: We're in that right now where they can shut down
Speaker 6: the strait of our rooves with some drones, with some
Speaker 6: fast foods. We have the most powerful navy in the world.
Speaker 2: Nate Swanson just publishing is a resident senior fellow. That
Speaker 2: means he gets our coffee, gets sharing his coffee. Is
Speaker 2: that means okay? You know, seriously, director for Iran, for
Speaker 2: the National Security Council, I mean Nate Swanson publishing this morning,
Speaker 2: Shannon O'Neill, Trump is still underestimating Tehran's resolve. Full the
Speaker 2: cultural aspects of Persia, the levant in America into the debate.
Speaker 6: You know, I think it's right. You see, if you remember,
Speaker 6: it seems like an eons ago, but just at the
Speaker 6: start of this year you saw the Trump administration go
Speaker 6: into Venezuela and remove the head of state there, set
Speaker 6: up a regime that's very friendly to the United States
Speaker 6: and has been exporting oil since then. And I think
Speaker 6: there probably was a little bit of a misperception that
Speaker 6: Iran could be as easy, and just as you're saying, right,
Speaker 6: there's a huge difference in terms of size, huge difference
Speaker 6: in terms of culture, huge difference in terms of the
Speaker 6: resolve of the regime and the ideological nature, which wasn't
Speaker 6: the case. So I think there's a mismatch here which
Speaker 6: has gotten us where we are today, Shannon.
Speaker 3: At this stage, what would be a reasonable I guess
Speaker 3: ceasefire agreement with Iran?
Speaker 5: And do we have the right people negotiating this?
Speaker 6: You know, it seems I think we may end up
Speaker 6: in a space there's lots of different possibilities, but we
Speaker 6: may end up in a space where we don't have
Speaker 6: a war. We have some oil coming out, but we
Speaker 6: don't really have oil either. We get into this freeze
Speaker 6: where it's not a hot war. But it's hard for
Speaker 6: me to see where we find real resolution here. So
Speaker 6: a shaky cease fire, but also challenges for the rest
Speaker 6: of the Middle East, right, because this isn't just now Iran.
Speaker 6: This has to do with Lebanon, it has to do
Speaker 6: with other parts of the Middle East, So it will
Speaker 6: be I can imagine a scenario where we're not in
Speaker 6: a hot war, but we continue to see these real
Speaker 6: tensions and flare ups.
Speaker 3: What are the next steps here? I mean, it seems like,
Speaker 3: you know, both sides are ratcheting up the rhetoric here.
Speaker 3: Is there an argument that this is a really, really
Speaker 3: a pressure point for a Ran, that they do need
Speaker 3: peace here in this region?
Speaker 6: You know, I think Iran has come out of this surprise. Well,
Speaker 6: there's a great column this morning from Javier Blass in
Speaker 6: Bloomberg that you know, I read it, I recommend everybody read.
Speaker 6: But the idea here is in the end, they kind
Speaker 6: of came out winning. Yes, they have had real challenges.
Speaker 6: There have been you know, leaders killed and the like,
Speaker 6: but they're selling more oil, they're making more money on
Speaker 6: the international markets, and they've been able to consolidate control
Speaker 6: in fun. I think the interesting thing here is while
Speaker 6: it's the United States and Iran that are negotiating here,
Speaker 6: the countries that have been hit hardest by this are
Speaker 6: those in Asia, right in many of these countries in
Speaker 6: the Philippines, and like they're really having a hard time
Speaker 6: keeping the lights on because they are the countries that
Speaker 6: took the oil, that took the natural gas and that
Speaker 6: really took lots of the petrochemicals, the helium. You know,
Speaker 6: Asian supply chains depend on a lot of what comes
Speaker 6: out of the Middle East. So that is an area
Speaker 6: of the world that is being hit hardest, even if
Speaker 6: they're not right after negotiating.
Speaker 2: What's to the headlines right now with doctor O'Neil, folks,
Speaker 2: I mean, this is a telegraph in London. Love their work,
Speaker 2: really really current, like t live for Bloomberg as well.
Speaker 2: China East tanker sails through Armas despite Trump blockade, and
Speaker 2: the trick is the tankers didn't go to Iranian ports.
Speaker 2: And there's if I read the quick article, folks, there's
Speaker 2: three tankers out there trying to slide by because they're
Speaker 2: not out of Iranian ports. I mean, what is your
Speaker 2: study of this, Shannon O'Neill. Of blockades, I mean, this
Speaker 2: is not Aubrey and maderin you know, a Patrick O'Brien
Speaker 2: Napoleonic War novel. Russell Crawl's not out in the Persian
Speaker 2: golf getting it done. How do blockades work, Shannon?
Speaker 6: I mean, the US could blockade all the ships. The
Speaker 6: question is geopolitically do they want to? I mean, as
Speaker 6: you Remember there's a planned meeting between she and Trump
Speaker 6: coming up in May, so just a month plus away.
Speaker 6: And you know, do you want to stop oil that
Speaker 6: China depends upon?
Speaker 4: Right?
Speaker 6: Trump doesn't want to see a pullback on the Chinese
Speaker 6: side there, and so perhaps they're going to let ships
Speaker 6: go through, not because they can't stop them, they could,
Speaker 6: but for g political reasons. You also saw, speaking of blockades,
Speaker 6: you saw the United States let a Russian tanker full
Speaker 6: of oil get into Cuba just a couple of weeks ago.
Speaker 6: So there is other reasons for the sort of geopolitical
Speaker 6: lens why you might let ships through.
Speaker 3: Shenon At this stage, do you think a diplomatic breakthrough
Speaker 3: is likely in the near term or are both sides
Speaker 3: just so entrench that maybe not.
Speaker 6: You know, they have said that they're going to go
Speaker 6: back to the table and have conversations, but it's hard
Speaker 6: for me to see what can be put on the
Speaker 6: table between the two governments that really leads to an agreement.
Speaker 6: I do think the Uuradians have been emboldened after what's
Speaker 6: happened over these last forty eight days to state their case.
Speaker 6: And for the Trump administration, while you know he often
Speaker 6: declares victory on various things. It's hard to see what
Speaker 6: the US could agree to. So I think a sort
Speaker 6: of a ceasefire or a continuing freezing of the conflict
Speaker 6: maybe where we end up for a while.
Speaker 2: Paul kind of do one Latin American question. Though Shannon's
Speaker 2: people aren't angry at Shannon Cuba. I remember my parents
Speaker 2: hiding the newspapers of the Cuban missile crisis. There's all
Speaker 2: that baggage. Are we beyond America's baggage on Cuba?
Speaker 7: No?
Speaker 6: I think here, actually, the Trump administration in the United
Speaker 6: States has has more leeway. This really is an area
Speaker 6: where there's a deeper set of connections, and the Cuban
Speaker 6: government right now is much more transactional than ideological, very
Speaker 6: different than the Iranian government. And so we do know
Speaker 6: that there's conversations going on between some in the Cuban
Speaker 6: government and some in the Trump administration. You know, perhaps
Speaker 6: there's a space there where you could find some sort
Speaker 6: of of deal or some sort of of agreement between
Speaker 6: the two. But you know, right now, I'm sitting in Miami,
Speaker 6: actually here down attending a conference, and obviously there's strong
Speaker 6: feelings down here about the future of Cuba.
Speaker 2: She's buying six thousand square feet and coral gables. Shannon Oni,
Speaker 2: congratulations to mister Frohman, to Kurt's Falen and all Foreign
Speaker 2: Affairs magazine. You people are leading the debate. Shannon O'Neil
Speaker 2: is with the Counsul on Foreign Relations. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on
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Speaker 2: Adam Farstrup right now, is leading the pack in chart
Speaker 2: and his set of charts in his research Don't Fall
Speaker 2: is absolutely to die for. He has a killer scattered
Speaker 2: dot chart here. That's a dark you know, it's like
Speaker 2: the dots with a fed It's like little Polka dot.
Speaker 2: It looks like a Damien Hurst print. Falling growth doesn't
Speaker 2: lower inflation expectations. Get his fabulous work from Schroeder where
Speaker 2: he has had a multi ascid. How do you put
Speaker 2: the charts together? Do you do it yourself at two am?
Speaker 8: Or do you have a team that helps We have
Speaker 8: an amazing team. So our economics team in London is
Speaker 8: the one that's really driven that scenario analysis you're looking for,
Speaker 8: looking at trying to help us understand what happens from
Speaker 8: here with this degree of uncertainty.
Speaker 2: The fact is the equity markets are walking away because
Speaker 2: double digit earnings expectation. Do Schroders believe double digit earnings
Speaker 2: will continue given a war?
Speaker 8: You know, it's the question we're debating this morning at
Speaker 8: four am, not two am. But we actually think that
Speaker 8: the earnings are pretty resilient from here, and we've been
Speaker 8: saying we sound like a broken record. You have that right,
Speaker 8: and you think, surely the risk of recession potentially is
Speaker 8: rising here. And I think it would be naive to
Speaker 8: say it's not that chart that you're referencing. A stagflationary
Speaker 8: risk scenario is really starting to come into frame.
Speaker 2: But when you look at what's happening with the.
Speaker 8: Earnings power in US equities today, we're seeing companies continuing
Speaker 8: to maintain that optimism. They haven't cut their forecasts yet.
Speaker 8: Whether that's a degree of uncertainty or unwillingness to acknowledge
Speaker 8: energy prices or not yet.
Speaker 2: Yeah, we say ninety eight dollars a parallel.
Speaker 3: Yeah, absolutely, so Adam, here in the US, how do
Speaker 3: you think about asset allocation, stocks.
Speaker 5: Bonds, and commodities alternatives. I know, where are you guys
Speaker 5: today versus maybe where you were at the beginning of
Speaker 5: the year.
Speaker 8: So where we are today is really starting to wonder
Speaker 8: about the diversification pieces of our portfolio that have worked
Speaker 8: to this point. So things like energy. Look at the
Speaker 8: volatility that we've now had in the energy price. Can
Speaker 8: any of us actually map out I'm not smart enough
Speaker 8: anyways to figure out the spread between the future's market
Speaker 8: and energy and the physical market and energy. So you
Speaker 8: look at the data spread the data brent rather and
Speaker 8: so from an allocation standpoint, we still like equities.
Speaker 2: The question is do you start.
Speaker 8: Moving back into government bonds for that downside protection as
Speaker 8: recession risk starts to increase from here the valuations are
Speaker 8: come back a little bit right now, so maybe that's
Speaker 8: an attractive play.
Speaker 5: And in US equities we had i think, starting late last.
Speaker 3: Year heading into this year of rotation out of what
Speaker 3: had been kind of the higher multiple higher growth tech
Speaker 3: names MAGS seven into some more cyclical kind of stories
Speaker 3: even small to mid mid mid cap for that matter.
Speaker 3: Was that a short term trade or is that something
Speaker 3: we're still we should be still thinking about.
Speaker 8: I think there's some short term trades out of that.
Speaker 8: I think, particularly in the small cap market, we have
Speaker 8: yet to see really that durable earnings coming through in
Speaker 8: the broad market, So you have to be very selective.
Speaker 8: We think within small caps when you look at that
Speaker 8: cyclical trade versus the more defensive trade, a lot of
Speaker 8: that is going to hinge on. Do we get that
Speaker 8: stagflationary outcome? Technology? I think still has legs to go
Speaker 8: on it despite all of the disruptions. You were talking
Speaker 8: about private credit. I mean, we're getting into private markets here.
Speaker 8: But you know, when you look at Anthropic, they grew
Speaker 8: from nine billion to thirty billion in revenue right over
Speaker 8: what was at nine or twelve months, and that was
Speaker 8: limited by their access to compute.
Speaker 2: Does all the earnings growth come from such a narrow
Speaker 2: set of sections? My reading over the last seventy two
Speaker 2: hours is everybody's revisiting this question. Like Paul, it's shocking
Speaker 2: if you say, okay, there's ten percent earnings growth, where
Speaker 2: are that growth's coming from?
Speaker 8: Discuss I mean, it is so interesting, Tom, because we
Speaker 8: have seen this playing out and that concentration does continue
Speaker 8: to drive the earnings premium in the US. And I'll
Speaker 8: give a shout out back to Bloomberg and the brilliant
Speaker 8: Odd Lots podcast from Saturday when they talked about the
Speaker 8: difference between earnings and free cash flow and this paper
Speaker 8: that's out from the FED, because that actually goes to
Speaker 8: the heart of what you're talking about. Free cash flow
Speaker 8: has been driven higher by the earnings of tech. Specifically,
Speaker 8: if tech is becoming more capital intensive, what happens to
Speaker 8: free cash flow goes down?
Speaker 2: Yep?
Speaker 8: What does that mean for the US equity market? I
Speaker 8: think this is what we're going to be wrestling with
Speaker 8: over the next thirty six months.
Speaker 2: Is it just issue bonds? Paul, come on, yeah, they could.
Speaker 5: You're at Duke, it's.
Speaker 2: Open, You're at Duke. It's an eighty degree yep. April afternoon.
Speaker 2: Are you're doing Merton and Mediglia? Honey, No, I'm on
Speaker 2: the golf. Just issue just issue bonds.
Speaker 5: Yeah, exactly, that's what.
Speaker 2: That's what. That's what's you know, Shiffman would.
Speaker 5: Say, yeah, exactly, no problem there.
Speaker 2: So all right, So.
Speaker 3: We do have this higher energy complex out there it
Speaker 3: seems like it's going to be higher for longer. What
Speaker 3: does that mean for inflation? What does that mean for growth?
Speaker 3: Are you guys changing your outlook or changing your position
Speaker 3: your portfolio?
Speaker 2: Yeah?
Speaker 8: So I think the first thing to reiterate here is
Speaker 8: this idea that none of us has certainty on what
Speaker 8: path happens from here. It hinges on the next tweet.
Speaker 8: And so this is where the scenario analysis really matters.
Speaker 8: If you map in a scenario of one hundred and
Speaker 8: fifty dollars barrel oil for a tracted period of time,
Speaker 8: we see that putishing inflation higher by almost a percent
Speaker 8: over time. When you think about the second order impacts, right,
Speaker 8: because it's not just the energy price itself, and that's
Speaker 8: where we think you actually have to spend your time. Now,
Speaker 8: what happens to food prices, what happens to manufacturing input prices,
Speaker 8: what happens to labor? With this uncertainty about AI.
Speaker 2: But to go back to your academics and your great
Speaker 2: work at first or over the years, I'm going to answer,
Speaker 2: the corporations are incredibly malleable, and they have lots of
Speaker 2: width to cut expenses if they have to. That's the
Speaker 2: history of our lives. They cut with a vengeance when
Speaker 2: they have to, that's right.
Speaker 8: But what happens to demand destruction in that scenario when
Speaker 8: we have all these questions about the labor market?
Speaker 2: So what are you modeling GDP for it?
Speaker 8: So you model an initial hit with no dynamic response
Speaker 8: to GDP of about fifty basis points on GDP. But
Speaker 8: this demand destruct action is the thing we now have
Speaker 8: to answer because look at just we've had this discussion
Speaker 8: of airlines and saying, you know, we're resilient, we've got
Speaker 8: hedges in through May. But what's happening in Europe right now?
Speaker 8: Europe has have that got two weeks of jet fuel left?
Speaker 2: Right. I agree with you on this because I full disclosure, folks.
Speaker 2: I got half my family on the phone to the
Speaker 2: Pacific rim thank you mister Lazier T mobile and always
Speaker 2: supporting him. I mean, this is not in the American
Speaker 2: zeitgeist right now that they're running out of things. Yep,
Speaker 2: that's right.
Speaker 8: So when you run out of things, right, it's almost
Speaker 8: our commodity team talks about like a reverse.
Speaker 2: COVID situation, right, I haven't heard this. It's good.
Speaker 8: So you think about we've ignored running out of things,
Speaker 8: and that supply shock might be coming across the board. Rationing.
Speaker 8: I mean, you're talking about gas stations in Australia not
Speaker 8: having diesel fuel right now.
Speaker 2: Yep.
Speaker 8: Manufacturing might not be open five days a week in
Speaker 8: parts of Asia.
Speaker 2: Right.
Speaker 8: And the tankers, right, there's a great chart out there
Speaker 8: the tankers that the last orders are actually coming through.
Speaker 8: So we've had the physical supplies coming through and now
Speaker 8: the tankers are running out.
Speaker 2: Yeah, Adam, thank you so much. What a great brief.
Speaker 2: And Forrester, whether this is schroeders to stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 2: Hermann Schan nailed krtosis, particularly the krtosis of the banking system.
Speaker 2: We get an update this morning. Just an open question.
Speaker 2: We've been so busy here with the newshow, folks Futures
Speaker 2: Up eighteen. How did Citygroup do versus the larger Brethren?
Speaker 7: City Group did great, probably the best of the three
Speaker 7: that reported today, really strong results across all of its businesses, markets, wealth, services.
Speaker 7: Really interestingly, their returns on Tanaba equity thirteen point five percent,
Speaker 7: much higher than their ten to eleven percent they're targeting
Speaker 7: for the year. So starting off the year greats. We'd
Speaker 7: expect to hear more from management on expectations for returns
Speaker 7: going forward.
Speaker 5: It's nice.
Speaker 3: I mean, the stock has doubled over the past twelve months.
Speaker 3: It's the turnaround is there, which has been long, long,
Speaker 3: long way coming since a great financial crisis. Arguably, how
Speaker 3: do you position or how does Citygroup position itself vis
Speaker 3: a v JP Morgan, you know, Bank of America, even
Speaker 3: the Goldens and the Morgan Stanleys of the world.
Speaker 5: How does City position itself nowadays?
Speaker 2: Right?
Speaker 7: So, really strong areas in markets, particularly in rates trading,
Speaker 7: really strong services business moving cast around for their corporate clients.
Speaker 7: That's been the crown jewel for the longest time. They're
Speaker 7: weaker in the US, specifically in consumer banking. They don't
Speaker 7: have a really strong branch presence. So there was a
Speaker 7: Bloomberg News article about a month ago saying that they
Speaker 7: might be interested in buying a large regional bank just
Speaker 7: to bolster their deposit presence, because.
Speaker 5: Everywhere if you're in New York, yes.
Speaker 7: They are not in sort of like your your areas
Speaker 7: that you're a betther, they're not. So they've retreated and
Speaker 7: gotten rid of a lot of their branches, which now
Speaker 7: has been to the detriments.
Speaker 2: Do they have a Plano Texas? I mean, Paul's good question,
Speaker 2: I mean is what's coming is is Jane Fraser is
Speaker 2: going to say, Okay, we need to migrate from New
Speaker 2: York right somewhere else. Is that what's ahead?
Speaker 7: What GP Morgan has shown And to your earlier question, Paul,
Speaker 7: is that JP Morgan is growing their branches everywhere. You
Speaker 7: can look in there and your shareholder letter that just
Speaker 7: came out last week and they talked about Alabama of
Speaker 7: all places, growing their branches. Saw the whole thing, right,
Speaker 7: And so City Group just doesn't have that. They have
Speaker 7: a very thin branch precedents that's really just focused on
Speaker 7: the large country.
Speaker 2: The heritage is John Reid in Riston, and it's international
Speaker 2: banking Mexico. They got rid of it that right, is
Speaker 2: that their future is to really lead on international banking.
Speaker 7: Well, they're reducing their footprint internationally as well they're trying.
Speaker 7: They only have about fifty one percent steak in their
Speaker 7: Mexican business.
Speaker 2: Now I'm lost. Then what are they doing right?
Speaker 7: So simplifying their businesses, focusing on returns and then potentially
Speaker 7: growing the US deposit base.
Speaker 3: Yeah, I mean again, a stock's doubled over the last year.
Speaker 3: It's taken so so long. I mean, no, kid, it's
Speaker 3: even for the great financial I sold my stock the
Speaker 3: second I literally.
Speaker 5: As I'm walking out the door, I'm so much.
Speaker 2: Can you do a shout out? Mike Mayo? He's been
Speaker 2: long city Girl. When you back when he was fat,
Speaker 2: before you get the before I did the weightlifting and
Speaker 2: all that stuff. Back when he's a chubby old lad,
Speaker 2: he was long City group. But finally it's paid off.
Speaker 3: Especially so what's the takeaway from just today with the
Speaker 3: big banks?
Speaker 2: Yeah, there's something good.
Speaker 7: Business is great. I think the market's quibbling over some
Speaker 7: net interesting income noise for JP Morgan that really, in
Speaker 7: the grand scheme of things, doesn't really move the needle
Speaker 7: for US. And then Weils Fargo had a bit of
Speaker 7: a some margin compression, so there's going to be questions
Speaker 7: about that on the call. But overall, everything looks really good.
Speaker 2: How the regional's doing what you used to cover? Yeah,
Speaker 2: it's still cover.
Speaker 7: You had a real job of an emphasis. I guess
Speaker 7: today regions are going to do great. Some of the
Speaker 7: trends that we're talking about for the largest banks are
Speaker 7: are happening for the region as well. Strong balance sheet growth,
Speaker 7: particularly in commercial commercial lending. Your your core small business
Speaker 7: borrower is coming back, and so that's been lifting results
Speaker 7: for the regionals expect for this year margins are going
Speaker 7: to be stable, and then you have a shareholder returns
Speaker 7: in dividends and bibecks.
Speaker 2: It's way too much Optimism's got it, Alicia levin her
Speaker 2: can we get side? Can we get somebody in here?
Speaker 2: Gloomy credit in person in here? Something Tucker's coming in
Speaker 2: Herbert Chan, thank you, thank you, thank you so much. Seriously, folks,
Speaker 2: Mister Chan will be publishing today for Bloomberg Intelligence, and
Speaker 2: that's a must read on the Bloomberg terminal.
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