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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on Apple car Play and

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Speaker 2: Android Auto with the Bloomberg Business App. Listen on demand

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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.

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Speaker 3: You're listening to Bloomberg Intelligence Radio. I'm Alex Steel alongside

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Speaker 3: Paul Sweeney. We cover all the top news for you

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Speaker 3: with our Bloomberg Intelligence analysts. They cover two thousand companies

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Speaker 3: and one hundred and thirty industries worldwide, and we're going

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Speaker 3: to do that now with one of them in relation

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Speaker 3: to Apple, So that stock is down to over one percent.

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Speaker 3: It's a tough tape for sure. But the news overnight

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Speaker 3: was that Apple has assembled about fourteen billion dollars worth

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Speaker 3: of iPhones in India in the last fiscal year. So

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Speaker 3: we want to get perspective with anurag Rana. He's Bloomberg

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Speaker 3: Intelligence senior technology analyst. He's the guy we go to

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Speaker 3: for all these kind of headlines on AOG. Always a pleasure.

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Speaker 3: Fourteen billion dollars worth of phone sounds like a lot,

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Speaker 3: is it.

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Speaker 4: No, it's not a whole lot, but at the end

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Speaker 4: of the day. You know, one of the things we

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Speaker 4: have seen that over the last two and a half

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Speaker 4: three years, Apple has been assembling its phone outside And

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Speaker 4: you know, for us, the real reason for that is

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Speaker 4: a couple of years ago there was a COVID big

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Speaker 4: issue in China. It had an impact on some of

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Speaker 4: the phones coming out, that had an impact on sales

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Speaker 4: and so forth. Now having said that, that was one reason.

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Speaker 4: Second Apple prior to the you know, you could say

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Speaker 4: the COVID issue was completely dependent on China for all

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Speaker 4: the assembly and their parts. Now what we are seeing

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Speaker 4: is they are moving out of the assembly from China

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Speaker 4: into other areas, mostly India. But one of the things

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Speaker 4: I tell everybody at the same time, they still make

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Speaker 4: most of the parts. So it's you know, if we

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Speaker 4: ever get into a problem with China in terms of

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Speaker 4: geopolitical issues, we still lean those parts to assemble the phone.

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Speaker 4: It's not as if you know, those those parts are

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Speaker 4: available all over the world.

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Speaker 5: An I just wonder how you know investors in Apple

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Speaker 5: view this China risk. Are they of the opinion I

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Speaker 5: assume that if they own stock in the company there,

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Speaker 5: they have some level of comfort with the China risk.

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Speaker 6: Here.

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Speaker 5: Did they just believe it's hey, you know, it's kind

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Speaker 5: of a mutually beneficial relationship Apple and China that at

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Speaker 5: the end of the day, that's what's going to keep

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Speaker 5: everything moving.

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Speaker 4: So well, I've seen two people, I mean two different buckets.

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Speaker 4: One is, people are extremely concerned about the US China

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Speaker 4: relationship in the long run. They obviously have you know,

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Speaker 4: they don't want to deal with Apple or any other

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Speaker 4: companies that you know, fall into that bucket. But the

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Speaker 4: others said, listen, this is spart and parcel of the

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Speaker 4: global world chain, supply chains, and most manufacturing companies are

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Speaker 4: dependent on China. Like it or not. They seem to

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Speaker 4: be okay with it, you know from our side, you know, yes, absolutely.

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Speaker 4: The biggest risk that Apple faces from a stock point

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Speaker 4: of view, from a revenue point of view, from a

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Speaker 4: supply chain point view, is if something happens between the

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Speaker 4: US and China, and we've talked about that quite a bit.

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Speaker 4: But from a sales point of view, I think it

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Speaker 4: is to me that's a bigger issue right now in

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Speaker 4: the medium term, because China accounts for eighteen to twenty

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Speaker 4: percent of total of Apples sale and frankly speaking, that

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Speaker 4: is the big growth engine, and we have seen over

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Speaker 4: the last twelve months of problems in that growth engine

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Speaker 4: because of whahweh do we how.

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Speaker 3: Much do they make these phones for in India versus China,

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Speaker 3: versus other areas, and trying to get a sense of

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Speaker 3: where they make, where the margins are, and what they

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Speaker 3: look like.

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Speaker 4: That's a very good question. And frankly speaking, we thought

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Speaker 4: when they started making more phones in China or sorry

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Speaker 4: in India, or we started seeing new phones coming out

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Speaker 4: of that, that would have an impact on their gross margins.

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Speaker 4: But they have managed it very well. And remember one

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Speaker 4: of these things, it's the factories that they outsource their

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Speaker 4: stuff to, and you know, it's kind of somebody else's headache.

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Speaker 4: But in the end, you know, Apple will have to

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Speaker 4: make some you could say concessions. But at the same time,

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Speaker 4: so far we have not seen any impact on Apple's

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Speaker 4: gross margins. I mean, surprisingly, we have seen them, you know,

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Speaker 4: hold up very nicely over the last two years.

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Speaker 5: Can you just kind of characterize the competitive landscape for

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Speaker 5: Apple in China visa the Huawei and other phones here

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Speaker 5: are they maintaining share, losing share, gaining share? How's Apple

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Speaker 5: doing so?

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Speaker 4: Apple has not done this you know, same number of

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Speaker 4: sales as WAWE over the last twelve months. Now. There

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Speaker 4: are two elements of it. One is the competitive landscape.

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Speaker 4: People are choosing Chinese phone so over a foreign brand,

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Speaker 4: So that's one aspect. The second aspect, which I'm hoping

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Speaker 4: is probably you know correct in the long run for

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Speaker 4: Apple's sake, is that Wawei didn't have a very you know,

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Speaker 4: brand new phone for several years, and this is their

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Speaker 4: first big new refresh, which is why people who have

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Speaker 4: been using Quawei phones in the past are going out

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Speaker 4: and refreshing their phone at a much faster clip. So

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Speaker 4: that could be the second reason Apple is doesn't have

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Speaker 4: that same you know, I would say, I mean, the

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Speaker 4: cache is still there. But typically what I would do

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Speaker 4: is if I have an Apple phone, you know, I'm

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Speaker 4: doing everything on it, you know, chat and the pictures

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Speaker 4: and every but in China, what happens is you do

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Speaker 4: a whole lot of your transactions using the the you know,

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Speaker 4: the the apps that you have or the super apps,

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Speaker 4: and for that you can download those app in any ecosystem.

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Speaker 4: So I would say, on a on a you know,

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Speaker 4: competitive basis, you are less prone to be an Apple

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Speaker 4: customer than you are in the Western world.

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Speaker 3: Well that's interesting. So and then to that point is

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Speaker 3: that what the regulation or the penalties in the EU

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Speaker 3: in the US is going to force Apple to do

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Speaker 3: an essence so it won't become that ecosystem in the

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Speaker 3: same way.

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Speaker 4: Well, there is no super app in the US that

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Speaker 4: is very much like v chat. I mean you could

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Speaker 4: you could say WhatsApp could be one of them. But

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Speaker 4: frankly speaking, I mean Apple has done such a good

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Speaker 4: job of uh you know, I would say, maintaining their

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Speaker 4: customer base in the in the US and in Europe.

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Speaker 4: That I mean, I don't I don't see that happening.

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Speaker 4: That is certainly a new app comes in and people

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Speaker 4: start using that over what's going on with Apple or

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Speaker 4: the habits that they have right now?

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Speaker 5: All right, Hona rock, I've got the iPhone eleven? Do

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Speaker 5: I upgrade? Now? Do? I? Wait? What am I doing here?

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Speaker 4: You should look at Wait till the September October, you

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Speaker 4: know framework, Because one of the things is, as we

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Speaker 4: talked about it last week, if in June they are

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Speaker 4: able to go out and convince the world that they

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Speaker 4: do have an AI play with new features coming in,

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Speaker 4: then you would need a little bit more firepower in

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Speaker 4: terms of the memory and the CPO that's going to

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Speaker 4: which means the next phone will have a faster version

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Speaker 4: of that. You know, I would wait for that because

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Speaker 4: you know you will you will have both the both

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Speaker 4: bigger memory as well as faster speeds.

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Speaker 3: Interesting, see, that's what they get you right, Like, once

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Speaker 3: you start, you can't leave that and closed ecosystem. It's

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Speaker 3: definitely a thing. So what's the next catalyst now for Apple?

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Speaker 3: What are you looking at? Well, any catalyst I guess

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Speaker 3: would be.

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Speaker 4: A big way. The June I mean that's it's Tune's

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Speaker 4: Worldwide Developers conference where there are to talk about AI

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Speaker 4: and what's a of Apple's AI strategy. That is the

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Speaker 4: only thing that can actually put some fire in this

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Speaker 4: particular you know, where is it down thirteen fourteen percent

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Speaker 4: year a year todate Because other than that, I mean,

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Speaker 4: we don't see China bouncing back this year, We don't

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Speaker 4: see any major new product announcement, and obviously Apple Vision

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Speaker 4: pro is not going to drive the overall growth rate

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Speaker 4: of the company. So it's the iPhone and if there

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Speaker 4: is anything that's out there that can force Paul to

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Speaker 4: go out and buy a new phone. I think that's

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Speaker 4: going to drive the next cycle.

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Speaker 5: All right, Well, I'm heading down to Duke tomorrow Anarox,

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Speaker 5: so there's a reasonable chance I might bump into Tim Cook.

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Speaker 5: I'm going to make my dividend increase. Pitch. Yet again, he's.

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Speaker 3: Gonna run away from you probably, Yeah? Is that had

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Speaker 3: that conversation though, as you say, he's like, leave me alone.

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Speaker 5: Paul I said, would a kill you to put a

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Speaker 5: two and a half or three percent dividend yield on

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Speaker 5: this thing? All right, Honorrock, thanks so much for joining

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Speaker 5: us on rog ran a senior technology analyst Bloomberg Intelligence

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Speaker 5: from the Technology Growth Boomtown of Chicago, Illinois. Go figure that?

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Speaker 5: So AnyWho? So, yeah, we'll see the Apple. I think

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Speaker 5: if you're a shareholder, you just you have to be just.

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Speaker 5: I'll take the China risk, you know. I think the

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Speaker 5: bigger risk isn't necessarily so supply chain, but at the

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Speaker 5: competitive risk and the risks of my sales people, for

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Speaker 5: whatever reason, are in the we're not really buying American

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Speaker 5: stuff if we don't have to.

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Speaker 3: Well yeah, and also it disrupts the thesis that like

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Speaker 3: all of India is going to go buy an iPhone,

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Speaker 3: which is like all of China's going to go buy

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Speaker 3: an iPhone. Like, clearly we're seeing a difference in that

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Speaker 3: thesis too. So such a good point. Not a supply

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Speaker 3: chain issue with China, but just straight up demands.

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Speaker 5: Yeah, I think that could be the bigger issue.

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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on Apple car Play and

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Speaker 2: Android Auto with the Bloomberg Business. You can also listen

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Speaker 2: live on Amazon Alexa from our flagship New York station

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Speaker 2: just Say Alexa playing Bloomberg eleven thirty.

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Speaker 3: I'm interested to see we are breaching those technical levels

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Speaker 3: for the markets, but then what winds up happening to

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Speaker 3: buying the dip? Does that materialize or do we actually

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Speaker 3: get a proper longer. Francis Donald is chief a global

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Speaker 3: chief economist and strategist for Manual Life Investment Management, and

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Speaker 3: she joins us. Now, great person to talk to on this.

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Speaker 3: Do you think investors buy the dip on this?

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Speaker 4: Oh?

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Speaker 6: I'm not sure I'm there just yet, Alex. I mean,

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Speaker 6: we've been living in soft landing euphoria where everything is perfect,

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Speaker 6: growth is coming in just fine, but inflation is declining.

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Speaker 6: And we've said you can't have your cake and eat

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Speaker 6: it too Either growth will hold in too long, inflation

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Speaker 6: will reaccelerate and you will lose your rate cuts, which

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Speaker 6: is what's happening, or and I think this is the

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Speaker 6: next phase of this, growth will deteriorate and you will

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Speaker 6: no longer be in this soft landing narrative. So we

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Speaker 6: still have concerns that even though inflation is coming in sticky,

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Speaker 6: growth is going to decline in the second half of

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Speaker 6: the year. So what worries me. What worries me is

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Speaker 6: this word stagflationary is probably going to come back a

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Speaker 6: lot more in our narrative in the next three to

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Speaker 6: six months. That's a very difficult place for the Federal

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Speaker 6: Reserve to be. They're going to have to pick their

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Speaker 6: favorite child, Sophie's choice. Is it inflation or is it growth?

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Speaker 6: And I think it's a really difficult environment for risk assets.

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Speaker 6: They're going to have to deal with the worst of

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Speaker 6: both worlds.

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Speaker 5: No bueno. So how about the Federal Reserve bump? FED

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Speaker 5: Chairman J Powell. In the back of my mind, do

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Speaker 5: I have a scenario where I don't cut rates with

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Speaker 5: all this year.

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Speaker 6: Of course, that's always a scenario. I mean that team

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Speaker 6: and I sat down this morning. Our base case has

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Speaker 6: been the FED would go later but faster, but we'd

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Speaker 6: penciled in June to the starting point, and so I said, team,

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Speaker 6: you know, are we moving to September? And all of

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Speaker 6: us agreed. We got to wait. In the next twenty

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Speaker 6: four hours. There is so much FED speak coming forward,

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Speaker 6: and I think you know as well as I do.

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Speaker 6: It's not uncommon to see extra FED speak pop up

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Speaker 6: when you have big moves of this magnitude. So what

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Speaker 6: we want to know is not the data itself, but

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Speaker 6: what is going to be the interpretation of the data.

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Speaker 6: There were many categories in today's CPI that are not

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Speaker 6: going to flow through as strong to PCEE. Does Chair

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Speaker 6: Powell want to emphasize that? What about that wages are

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Speaker 6: decelerating fairly rapidly, and all of our leading indicators of

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Speaker 6: wages say, well, there's not going to be a wage

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Speaker 6: price spiral. If the FED wants to cut in June,

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Speaker 6: they have enough data to be able to say, hey,

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Speaker 6: we're going to cut in June. If they like to

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Speaker 6: take the opening the bond market gave them to go later,

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Speaker 6: then you'll probably hear a lot less from them in

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Speaker 6: the next twenty four hours. They'll try to stay mute.

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Speaker 6: But this is this part in the cycle where macro

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Speaker 6: forecasting and FED forecasting becomes a little less science and

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Speaker 6: a little more art. It's a lot more subjective. I

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Speaker 6: need to hear what Powell says, not just what the

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Speaker 6: data looks like.

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Speaker 3: And just talking about sort of market reaction. Euro dollars

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Speaker 3: down as much as one percent. We're now at one

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Speaker 3: spot oh seven, biggest drop since July. So we'll just

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Speaker 3: watch out for more of those superlatives as we go.

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Speaker 3: You mentioned the PCE CPI thing of a bob, and

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Speaker 3: I say a thing a bob because like, not everything

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Speaker 3: counts in the same way to get different baskets. But

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Speaker 3: you had the firmerical motor vehicle insurance costs and medical

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Speaker 3: care and both of those are what feeds into PCE differently,

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Speaker 3: So why how what does the FED talk about with that?

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Speaker 6: Whatever they want? And this is what's been really challenging

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Speaker 6: for us is there are measures like six month annualized

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Speaker 6: CPI X shelter. Heading into this was stub two percent.

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Speaker 6: That was totally enough for the FED to be cutting

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Speaker 6: or they can lean on the shelter side of the picture.

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Speaker 6: So this is a really challenging environment where the FED

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Speaker 6: can choose what numbers it wants to focus on. They

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Speaker 6: can tailor which data they reference to what they think

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Speaker 6: is the appropriate outcome. We're talking a lot about inflation here,

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Speaker 6: but let's not forget the job side of the picture.

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Speaker 6: The job side of the picture, when you look at

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Speaker 6: the leading indicators, is weakening and there on end, they

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Speaker 6: can say headline job growth is good, or they can

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Speaker 6: say full time jobs have been deteriorating very sharply, and

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Speaker 6: that suggests it's going to be labor market weakness. That's

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Speaker 6: why listening to the FED is going to become paramount,

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Speaker 6: and unfortunately, especially for those of us that are trying

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Speaker 6: to actively trade, it a lot more volatility and rates

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Speaker 6: in the next couple months.

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Speaker 5: All right, Well, if the underlying jobs data maybe is

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Speaker 5: not as strong as the headline data, and we have

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Speaker 5: persistent inflame here, it's got to be tough on the

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Speaker 5: consumer out there. How do you think about the US consumer?

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Speaker 6: Depends which consumer you are, I know there's a lot

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Speaker 6: of depends coming through here, and it's because we have

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Speaker 6: so much diversification and desynchronization. This is a really big term.

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Speaker 6: I mean, this week we had a horrible, horrible small

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Speaker 6: business optimism number. It was more like small business deep

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Speaker 6: pessimism number. That's very consistent with dark recessions. And yet

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Speaker 6: CEO confidence is off the charts. Look at consumer confidence

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Speaker 6: by income. High income consumers are feeling gosh, are good

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Speaker 6: and low income consumers are struggling. They're out of excess saving,

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Speaker 6: their credit cards are too expensive, they're going to linquid.

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Speaker 6: If you're a high income consumer, you're a saver. You're

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Speaker 6: benefiting from investment returns and house prices returns. You're a

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Speaker 6: really good shape. Let's not forget those high income consumers,

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Speaker 6: the top twenty percent. They spend thirty five percent of

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Speaker 6: all expenditures. So if you're a consumer right now that

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Speaker 6: is interest rate sensitive, you are feeling recessionary. If you

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Speaker 6: are not interest rate sensitive, then things look really pretty

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Speaker 6: for you. The key here is not to cherry pick

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Speaker 6: which side of theirs you're going to look at. It

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Speaker 6: is to understand from a policy perspective that the economic

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Speaker 6: experience across income groups and regions in the US is

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Speaker 6: very different and from an aggregate perspective to look top

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Speaker 6: down and say, what does this look like in totality,

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Speaker 6: not just looking at one side of the picture or

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Speaker 6: the other.

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Speaker 3: So and to that point, sort of just looking at

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Speaker 3: the areas where we saw increases versus decreases. I found

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Speaker 3: it was so interesting, not to like bore you guys,

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Speaker 3: but things like car insurance and clothing and personal care

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Speaker 3: and education and furniture that all went up, right, But

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Speaker 3: what went down on are things like the price of

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Speaker 3: butter for example, Grocery store foods went down, cereals and

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Speaker 3: bakery products so like go make croissants, so like it's hard.

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Speaker 3: So I wonder, are we in like a rolling inflation

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Speaker 3: scenario where we kind of saw that last year and

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Speaker 3: the year before when it comes to rolling recession in

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Speaker 3: certain areas of the equity market and industries. Are we

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Speaker 3: in that place right now?

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Speaker 6: Possibly? I mean on the flip side, goods are actually

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Speaker 6: in straight up deflation right now. So where we're seeing

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Speaker 6: the inflationary pressure is on the services side. But we

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Speaker 6: were a little bit worried today we're going through the number.

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Speaker 6: We said, Look, apparel is starting to pick up there's

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Speaker 6: enough categories that the momentum is moving in the wrong way,

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Speaker 6: So that's proving a little bit of concern for us.

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Speaker 6: One thing I can't help but think about is last year,

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Speaker 6: my team and I were saying constantly, hey, when the

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Speaker 6: Fed cuts rates, you won't be asking why. And yet

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Speaker 6: in December when Chair Powell pivoted, I constantly was asking

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Speaker 6: myself why what changed from October to December to really

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Speaker 6: create this movement? It didn't seem like a good idea.

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Speaker 6: And there's going to be criticism on Share Powell, I

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Speaker 6: think today, especially that he pivoted too early, He eased

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Speaker 6: indirectly and therefore inflated the economy a little bit too early.

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Speaker 6: I think that's going to be some of the pressure

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Speaker 6: he gets now. On the flip side, if they say, okay,

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Speaker 6: you know what, We're going to push out rate cut

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Speaker 6: expectations till later this year, you might see some of

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Speaker 6: that inflation come back. Is a veritable rollercoaster for our clients.

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Speaker 6: We tell them focus on the two year horizon. Two

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Speaker 6: years from now, rates will be much lower than where

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Speaker 6: they are now, whether they start in June, September or

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Speaker 6: frankly twenty twenty five is less relevant for most investors

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Speaker 6: than that two year cycle. So that's what we're advocating,

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Speaker 6: focusing on not big bets right now, not super tactical

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Speaker 6: bets right now, unless, of course you have.

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Speaker 5: To I like that too. Your view makes sense to me.

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Speaker 5: That being said, we do have the warp function on

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Speaker 5: Bloomberg terminal where people are kind of racing it out

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Speaker 5: month the month here. So are you guys in the

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Speaker 5: camp that says, hey, this Fed doesn't have to rush,

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Speaker 5: they can wait as long as they want.

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Speaker 6: Well, we're ver embarrassed on the economy compared to consensus.

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Speaker 6: We still have a recession in our forecast, and actually

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Speaker 6: today's inflation print, which tells us the Fed is going

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Speaker 6: to stay a little bit longer, amplifies our concerns about

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Speaker 6: recession risk for later this year and into twenty twenty five.

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Speaker 6: So we see twenty twenty five as being really underpriced

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Speaker 6: when it comes to easing. But for the rest of

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Speaker 6: this year, as I said, we're going to listen to

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Speaker 6: the a little bit in the next twenty four hours.

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Speaker 6: It's going to be June or September. Of course, we're

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Speaker 6: going to have a lot of short term focus on that,

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Speaker 6: but big market moves should really be driven off of

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Speaker 6: are we heading into a recession? Is it a traditional

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Speaker 6: easing cycle with hundreds of basis points of cuts? That's

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Speaker 6: going to be far more important for acid allocation decisions

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Speaker 6: or bonds and stocks than June or September.

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Speaker 3: Francis Francis Donald, thanks a lot, Manulife Senior chief chief

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Speaker 3: economist and strategist over there. Yeah, And that's so interesting too,

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Speaker 3: because when you take a look at what the forecast is,

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Speaker 3: does it matter why they cut, Like are they cutting

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Speaker 3: because the economy stinks? Or are they cutting because they're normalizing?

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Speaker 3: And if they're normalizing, that's not going to be like

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Speaker 3: three hundred bases points of cuts unless the economy super tanks.

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Speaker 3: So does that change how you allocate?

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Speaker 5: Yeah? Exactly right. And I think if I think what

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Speaker 5: a lot of folks took from today's data is in

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Speaker 5: any scenario, you can make a stronger case today that

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Speaker 5: they can wait a little bit.

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Speaker 3: Yeah or no, why aren't we talking about hikes?

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Speaker 5: Why aren't we talking Yeah? Right, yeah, that's no fun though.

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Speaker 3: No one always no fun and we don't like doing it,

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Speaker 3: But like, why aren't we actually like talking about it

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Speaker 3: at that point.

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Speaker 5: Yeah, exactly.

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Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on Apple car Play and

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Speaker 2: then broid Auto with the Bloomberg Business app. Listen on

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Speaker 2: demand wherever you get your podcasts, or watch us live

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Speaker 2: on YouTube.

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Speaker 3: I should point out the SEP is off the lows

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Speaker 3: of the session, just down eight tens of one percent.

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Speaker 3: I feel like my buying the dip question isn't as

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Speaker 3: crazy as maybe would have got two hours ago. So

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Speaker 3: let's ask it now to Shanna Sizzle, president and CEO

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Speaker 3: of better On Capital Management. She joints now on Zoom

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Speaker 3: from Chicago, Illinois. Shanna, do you buy the dip?

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Speaker 7: I always buy the dip?

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Speaker 8: Okay, But I mean, the market goes up more than

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Speaker 8: it goes down.

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Speaker 7: Why wouldn't you buy the dip. It's not like the

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Speaker 7: market's going to go permanently down.

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Speaker 8: I'm a big fan of buying on weakness, and there's

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Speaker 8: weakness today for good reason. Also, I feel the need

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Speaker 8: to tell you I heard your earlier comments about Funco

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Speaker 8: and I had to have my bubblehead in the shot

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Speaker 8: for that reason.

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Speaker 3: So is that a Funkco bubble head.

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Speaker 8: It is it is is that your head had to

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Speaker 8: do it.

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Speaker 7: That is supposed to be my head.

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Speaker 8: I don't know how accurate it looks, but that's supposed

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Speaker 8: to be my head. But I digress. No, I'm a

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Speaker 8: big fan of buying on weakness. We have strong economic growth.

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Speaker 8: CPI coming in hotter than expected.

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Speaker 7: Is an indication of that. We still have very strong demand.

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Speaker 8: I think the markets week obviously on the fact that

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Speaker 8: this makes a FED rate cut less likely. But I've

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Speaker 8: been saying all along that I thought the sixth that

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Speaker 8: was originally priced in earlier this year was a pipe

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Speaker 8: dream that would be more like three. Now I'm actually

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Speaker 8: going to go really far out on a limb here

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Speaker 8: and say I don't think they're cutting this year.

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Speaker 5: Torsten Slock over to Pollo Management agrees with you. He

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Speaker 5: was at with a note this morning. We're affirming that

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Speaker 5: call for him.

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Speaker 7: Sean.

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Speaker 5: So, when you think about your portfolio, think about the

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Speaker 5: stocks that you like out there. How much do you

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Speaker 5: worry about Federal Reserve policy, about the inst rate environment

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Speaker 5: visa v the fundamentals of those companies.

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Speaker 8: I think it affects some of the growthier names more

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Speaker 8: than an effect say a name like Fang, which is

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Speaker 8: on my list. That's an energy name. I think that's

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Speaker 8: more a supplied demand situation. I think the demand for

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Speaker 8: oil in particular isn't going anywhere anytime soon. But for

437
00:20:30,359 --> 00:20:34,560
Speaker 8: the growthier names, FED policy can really impact, you know,

438
00:20:34,840 --> 00:20:39,720
Speaker 8: the valuations and the potential upside because of just how

439
00:20:39,800 --> 00:20:41,080
Speaker 8: time value of money works.

440
00:20:42,400 --> 00:20:46,200
Speaker 7: Higher rates tend not to.

441
00:20:44,960 --> 00:20:48,239
Speaker 8: Be helpful for growth names because you've got to have

442
00:20:48,280 --> 00:20:51,280
Speaker 8: more growth and so you know, you can't get as

443
00:20:51,359 --> 00:20:54,119
Speaker 8: much of a premium as when rates are really lower.

444
00:20:55,000 --> 00:20:56,600
Speaker 7: But I don't worry about.

445
00:20:56,359 --> 00:20:59,480
Speaker 8: It too much because I think the overall tailwinds are

446
00:20:59,560 --> 00:21:03,840
Speaker 8: so compelling that even in a higher rate environment, higher

447
00:21:03,880 --> 00:21:07,280
Speaker 8: rates mean the economy is doing well, which will mean

448
00:21:07,320 --> 00:21:08,400
Speaker 8: that stock should do well.

449
00:21:10,080 --> 00:21:12,879
Speaker 3: Fang is Diamondback Energy. Just to break that down, that

450
00:21:12,920 --> 00:21:15,080
Speaker 3: stock trades about two hundred and five dollars and eighty

451
00:21:15,080 --> 00:21:17,560
Speaker 3: five cents. So you mentioned that maybe the FED won't

452
00:21:17,600 --> 00:21:21,000
Speaker 3: cut at all. Does that pair back the amount of

453
00:21:21,040 --> 00:21:24,720
Speaker 3: cuts you expect overall in this cutting cycle, because that

454
00:21:24,760 --> 00:21:26,960
Speaker 3: would also dictate kind of how the economy is doing.

455
00:21:28,240 --> 00:21:28,560
Speaker 7: Yeah.

456
00:21:28,640 --> 00:21:31,800
Speaker 8: So I think that the FED has a target interest rate,

457
00:21:32,240 --> 00:21:34,479
Speaker 8: so I think they'll cut as much as they have

458
00:21:34,520 --> 00:21:36,920
Speaker 8: to get to what that target is, I think it's

459
00:21:36,920 --> 00:21:40,400
Speaker 8: probably somewhere between two to three and a half.

460
00:21:41,280 --> 00:21:42,080
Speaker 7: It's not zero.

461
00:21:42,359 --> 00:21:44,520
Speaker 8: I know we got used to zero, but it ain't zero,

462
00:21:45,640 --> 00:21:49,719
Speaker 8: and so I think we'll get there. If they have

463
00:21:49,800 --> 00:21:52,200
Speaker 8: to do it faster and there's less cuts, that means

464
00:21:52,200 --> 00:21:54,960
Speaker 8: that we've had some sort of economic instability.

465
00:21:55,960 --> 00:21:56,919
Speaker 7: That's how I look at it.

466
00:21:57,000 --> 00:22:00,040
Speaker 8: If there's more cuts, that means that we've achieved the

467
00:22:00,880 --> 00:22:04,720
Speaker 8: unicorn soft landing, which I'm still not convinced of, and

468
00:22:05,400 --> 00:22:08,199
Speaker 8: so I don't have an opinion on that.

469
00:22:08,320 --> 00:22:09,240
Speaker 7: I just think that.

470
00:22:09,240 --> 00:22:16,280
Speaker 8: More cuts means smoother landing, right, that's stupid thing when

471
00:22:16,280 --> 00:22:17,639
Speaker 8: you fly, you smooth landing.

472
00:22:17,680 --> 00:22:19,240
Speaker 7: Air air Force pilot.

473
00:22:19,520 --> 00:22:22,760
Speaker 8: Yeah, so we've achieved the smooth landing. The air Force

474
00:22:22,880 --> 00:22:23,399
Speaker 8: is in control.

475
00:22:23,800 --> 00:22:23,919
Speaker 3: Uh.

476
00:22:24,080 --> 00:22:27,000
Speaker 8: And if they have to cut fast and they're bigger cuts,

477
00:22:27,000 --> 00:22:29,320
Speaker 8: it's because there's some sort of economic stability and they

478
00:22:29,320 --> 00:22:30,520
Speaker 8: have to hit the deck really hard.

479
00:22:31,240 --> 00:22:33,000
Speaker 5: All right. So a name like in video, which is

480
00:22:33,000 --> 00:22:35,160
Speaker 5: a name we've talked about with you before you've you've

481
00:22:36,560 --> 00:22:39,720
Speaker 5: you guys own that. I can't think of an interest

482
00:22:39,800 --> 00:22:41,919
Speaker 5: rate scenario that would get me off of that story

483
00:22:41,960 --> 00:22:45,080
Speaker 5: because I mean, the fundamental drivers of AI. If you

484
00:22:45,280 --> 00:22:48,720
Speaker 5: really believe the growth potential of AI, that has got

485
00:22:48,800 --> 00:22:52,640
Speaker 5: to be a building block story in that. So how

486
00:22:52,640 --> 00:22:54,560
Speaker 5: does it, you know, the movement in today's market kind

487
00:22:54,560 --> 00:22:57,280
Speaker 5: of impact your thoughts about a big growth story like Nvidio.

488
00:22:58,400 --> 00:23:00,280
Speaker 7: Well, you and me both. I don't think the it

489
00:23:00,280 --> 00:23:02,119
Speaker 7: has any impact on Nvidia because of.

490
00:23:02,119 --> 00:23:06,800
Speaker 8: The AI trend We're so early on there. It's training

491
00:23:06,840 --> 00:23:10,360
Speaker 8: it like a twenty eight times forward earning multiple, which

492
00:23:10,400 --> 00:23:13,560
Speaker 8: is insane to me. I still look at like just

493
00:23:13,600 --> 00:23:16,119
Speaker 8: the sheer price of it over eight hundred and fifty

494
00:23:16,160 --> 00:23:19,960
Speaker 8: dollars per share, and that's intimidating because my cost basis

495
00:23:19,960 --> 00:23:25,720
Speaker 8: on it is two fifty. But not to brag or anything,

496
00:23:25,880 --> 00:23:28,119
Speaker 8: I don't own that much, dude, I don't own that

497
00:23:28,200 --> 00:23:30,960
Speaker 8: much and I haven't added to it. That just sounded

498
00:23:31,000 --> 00:23:35,679
Speaker 8: really obnoxious. But yeah, so I'm not sure I'm necessarily

499
00:23:35,680 --> 00:23:39,080
Speaker 8: a buyer, but I do find the twenty eight times

500
00:23:39,720 --> 00:23:44,080
Speaker 8: forward earnings compelling. So maybe I jump in here, especially

501
00:23:44,080 --> 00:23:47,040
Speaker 8: on weakness like today. If it got under say eight

502
00:23:47,119 --> 00:23:49,520
Speaker 8: twenty five, I would be jumping in all day long.

503
00:23:49,760 --> 00:23:54,119
Speaker 3: You also own Vertex Pharmaceuticals ticker VRT. X. It's a

504
00:23:54,160 --> 00:23:57,040
Speaker 3: biotech company, tell us more so.

505
00:23:57,080 --> 00:23:59,600
Speaker 8: That's a super volatile company. Biotech is not for the

506
00:23:59,600 --> 00:24:03,680
Speaker 8: phantom heart. But I like some of these healthcare names

507
00:24:03,760 --> 00:24:07,120
Speaker 8: right here, some of the more volatile ones actually, because

508
00:24:07,200 --> 00:24:09,959
Speaker 8: drug development is always volatile. You you know, you might

509
00:24:10,000 --> 00:24:11,679
Speaker 8: think you have something great and then you get to

510
00:24:12,119 --> 00:24:15,159
Speaker 8: you know, the stage three trials, and all of a sudden,

511
00:24:15,280 --> 00:24:20,280
Speaker 8: everything falls apart. Vertex has some great cystic fibrosis drugs.

512
00:24:20,480 --> 00:24:23,440
Speaker 8: The stock has been super volatile, but volatile to the upside,

513
00:24:23,600 --> 00:24:26,800
Speaker 8: so you get some really crazy movement in the stock,

514
00:24:26,840 --> 00:24:30,400
Speaker 8: but the stock has positive returns. I think they have

515
00:24:30,840 --> 00:24:33,439
Speaker 8: kind of a dominant position and system fibrosis, which is,

516
00:24:33,680 --> 00:24:37,080
Speaker 8: you know, a major concerned that's a major disease that

517
00:24:37,119 --> 00:24:39,920
Speaker 8: affects a lot of people, and those things are positive

518
00:24:39,960 --> 00:24:41,639
Speaker 8: for the stock. They have some great R and D

519
00:24:42,680 --> 00:24:44,320
Speaker 8: and those are the things that I think are the

520
00:24:44,400 --> 00:24:49,080
Speaker 8: key drivers. It's good management, smart balance sheet, all the

521
00:24:49,119 --> 00:24:49,520
Speaker 8: things you.

522
00:24:49,480 --> 00:24:51,760
Speaker 7: Look for in a good stock. But it is biotech,

523
00:24:51,840 --> 00:24:52,120
Speaker 7: so it.

524
00:24:52,080 --> 00:24:53,120
Speaker 8: Is not for the faint of heart.

525
00:24:53,400 --> 00:24:56,240
Speaker 5: Biotech not for the faint of heart. In Nvidia one

526
00:24:56,240 --> 00:24:58,760
Speaker 5: gard you not for the faint of heart? How do

527
00:24:58,800 --> 00:25:02,200
Speaker 5: you guys, screen for stock at your shop. I mean,

528
00:25:02,400 --> 00:25:06,320
Speaker 5: do you tend to go for growth? How do you screen?

529
00:25:07,440 --> 00:25:07,520
Speaker 6: So?

530
00:25:07,840 --> 00:25:10,560
Speaker 8: Oddly enough, my entire background, in all the years have

531
00:25:10,640 --> 00:25:15,320
Speaker 8: been in the business has been value. So I know

532
00:25:15,400 --> 00:25:19,560
Speaker 8: that seems strange looking at like my recommendations here, But

533
00:25:20,200 --> 00:25:24,640
Speaker 8: I don't screen the way that normal you would normally hear.

534
00:25:24,760 --> 00:25:30,640
Speaker 8: I started my career in manager research, and so I

535
00:25:30,720 --> 00:25:34,919
Speaker 8: used to meet with managers of funds, hedge funds, mutual funds,

536
00:25:34,920 --> 00:25:38,960
Speaker 8: ETFs all the time, and they talk about their socks, right,

537
00:25:39,080 --> 00:25:40,200
Speaker 8: So I got.

538
00:25:40,000 --> 00:25:42,000
Speaker 7: A lot of my ideas from them.

539
00:25:42,080 --> 00:25:44,880
Speaker 8: So I've met with thousands of managers at this point

540
00:25:44,880 --> 00:25:48,080
Speaker 8: in my career, and there are like a handful that

541
00:25:48,160 --> 00:25:52,240
Speaker 8: I think are amazing. And those handful are the ones

542
00:25:52,240 --> 00:25:54,199
Speaker 8: that I will look at their portfolios. I'll look at

543
00:25:54,200 --> 00:25:56,920
Speaker 8: their thirteen f's and and see what they own, maybe

544
00:25:56,920 --> 00:26:01,160
Speaker 8: pick up the phone and ask them and and write

545
00:26:01,200 --> 00:26:03,240
Speaker 8: out their reasoning, and then I'll do my own work

546
00:26:03,280 --> 00:26:05,480
Speaker 8: on the stock. See does it make sense to me?

547
00:26:05,760 --> 00:26:10,399
Speaker 8: Is this story something that I think is compelling? But

548
00:26:10,480 --> 00:26:12,840
Speaker 8: that's how we get my ideas. I don't screen for

549
00:26:12,920 --> 00:26:17,159
Speaker 8: stocks like most folks who sit there and pick you know,

550
00:26:17,640 --> 00:26:19,960
Speaker 8: twenty thirty forty stocks because they have to manage a

551
00:26:20,000 --> 00:26:22,640
Speaker 8: portfolio at any given time. I might be following ten

552
00:26:22,720 --> 00:26:26,040
Speaker 8: names because that's not the core of our business, but

553
00:26:26,960 --> 00:26:28,680
Speaker 8: that's kind of how I get my ideas.

554
00:26:28,880 --> 00:26:30,640
Speaker 5: Got you all right, Shannon, thank you so much for

555
00:26:30,960 --> 00:26:33,840
Speaker 5: joining us. Really appreciate that. Shanna Sissel, President and CEO

556
00:26:33,880 --> 00:26:35,720
Speaker 5: of ban Rhenn Capital Management.

557
00:26:37,280 --> 00:26:41,160
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

558
00:26:41,240 --> 00:26:44,760
Speaker 2: weekdays at ten am Eastern on applecar Play and Android

559
00:26:44,800 --> 00:26:47,600
Speaker 2: Auto with the Bloomberg Business Act. You can also listen

560
00:26:47,680 --> 00:26:50,800
Speaker 2: live on Amazon Alexa from our flagship New York station,

561
00:26:51,160 --> 00:26:53,920
Speaker 2: Just say Alexa Play Bloomberg eleven thirty.

562
00:26:54,800 --> 00:26:56,800
Speaker 5: All right, let's check in with one of our favorite

563
00:26:56,800 --> 00:27:00,600
Speaker 5: e congress. We'd like to talk about macro stuff Withjeffrey Cleveland.

564
00:27:00,600 --> 00:27:02,879
Speaker 5: He's the chief economist at paid In and Regal. He's

565
00:27:03,000 --> 00:27:06,600
Speaker 5: in that little hamlet out west called Los Angeles. Jeffrey,

566
00:27:06,600 --> 00:27:09,040
Speaker 5: thanks so much for joining us here. Boy, the kind

567
00:27:09,040 --> 00:27:10,840
Speaker 5: of a look at what's happened in the financial markets

568
00:27:10,840 --> 00:27:13,320
Speaker 5: here today. I don't think they were discounting this kind

569
00:27:13,320 --> 00:27:16,600
Speaker 5: of inflation print. What did you make about the CPI.

570
00:27:17,280 --> 00:27:20,639
Speaker 1: Well, someone said uggs earlier, and I just I just thought, ugly,

571
00:27:21,119 --> 00:27:23,280
Speaker 1: that's all I could think about. Yeah, I mean so

572
00:27:23,359 --> 00:27:27,000
Speaker 1: I think, as I always say, context matters for markets,

573
00:27:27,040 --> 00:27:31,359
Speaker 1: and the context going into this number was that January

574
00:27:31,520 --> 00:27:34,840
Speaker 1: was a fluke and February was a bump in the

575
00:27:34,920 --> 00:27:39,760
Speaker 1: road and things were going to settle down. And this,

576
00:27:39,760 --> 00:27:43,160
Speaker 1: this morning's number for CPI in particular, at another point,

577
00:27:43,200 --> 00:27:46,480
Speaker 1: for that tells me it's more than just a fluke.

578
00:27:46,760 --> 00:27:49,200
Speaker 1: A colleague just texted me and said, what's the technical

579
00:27:49,240 --> 00:27:52,240
Speaker 1: definition of a trend? And I said, you know, three months,

580
00:27:52,480 --> 00:27:55,119
Speaker 1: three months is a trend. And so I think we

581
00:27:55,200 --> 00:27:59,280
Speaker 1: have to have a trend here of stickier inflation, and

582
00:27:59,320 --> 00:28:02,720
Speaker 1: that's what's playing out. And you could say, now the

583
00:28:02,800 --> 00:28:05,959
Speaker 1: two year yield maybe is more fairly priced than it

584
00:28:06,040 --> 00:28:09,359
Speaker 1: was certainly at the start of the year, but we

585
00:28:09,400 --> 00:28:12,240
Speaker 1: still have a couple of rate cuts priced in, so

586
00:28:12,240 --> 00:28:16,560
Speaker 1: there might be more room for repricing here. Still, even

587
00:28:16,600 --> 00:28:18,840
Speaker 1: after today's number, do.

588
00:28:18,800 --> 00:28:21,359
Speaker 3: You believe that there'll be two cuts or do you

589
00:28:21,400 --> 00:28:23,160
Speaker 3: think we could be in a situation where we're talking

590
00:28:23,200 --> 00:28:25,280
Speaker 3: hikes in the next couple of months, or are we

591
00:28:25,320 --> 00:28:26,760
Speaker 3: talking about no cuts?

592
00:28:27,440 --> 00:28:29,240
Speaker 1: Last week I said June was off the table, and

593
00:28:29,280 --> 00:28:32,200
Speaker 1: I felt a little nervous about that until we saw

594
00:28:32,240 --> 00:28:34,479
Speaker 1: this number. So I think June is off, and then

595
00:28:34,520 --> 00:28:36,879
Speaker 1: I think you have to really wonder about July, and

596
00:28:36,920 --> 00:28:39,640
Speaker 1: then September is tough for me. I'm not saying the

597
00:28:39,640 --> 00:28:42,280
Speaker 1: FED is political. I'm just saying, do you really want

598
00:28:42,320 --> 00:28:46,440
Speaker 1: to start a cutting or an easy or to even

599
00:28:46,480 --> 00:28:50,239
Speaker 1: do just one right before an election? I think, you know,

600
00:28:50,720 --> 00:28:54,200
Speaker 1: if the data justified it, maybe, but if there's any

601
00:28:54,360 --> 00:28:56,000
Speaker 1: question mark, you wait.

602
00:28:56,400 --> 00:28:57,800
Speaker 5: So I think that.

603
00:28:57,680 --> 00:29:00,360
Speaker 1: Should really reduce the market should be reduce seeing the

604
00:29:00,400 --> 00:29:03,640
Speaker 1: probability of that September cut as well, so everything I

605
00:29:03,680 --> 00:29:05,400
Speaker 1: think is just going to get pushed out as possible.

606
00:29:05,440 --> 00:29:08,280
Speaker 1: We only get one, and that would be contingent upon

607
00:29:08,520 --> 00:29:11,880
Speaker 1: a second half that looks more like last year's second half,

608
00:29:12,560 --> 00:29:14,480
Speaker 1: which could happen here. I don't want to get too

609
00:29:14,560 --> 00:29:17,440
Speaker 1: caught up in the inflation many at the moment too

610
00:29:17,480 --> 00:29:20,960
Speaker 1: emotional about it, but it's entirely possible that we could

611
00:29:21,040 --> 00:29:22,520
Speaker 1: run the year without without.

612
00:29:22,320 --> 00:29:22,840
Speaker 6: Getting the caught.

613
00:29:22,840 --> 00:29:25,400
Speaker 1: At this point, I think that's a likely scenario that

614
00:29:25,480 --> 00:29:26,560
Speaker 1: investors should consider.

615
00:29:27,000 --> 00:29:29,320
Speaker 5: Jeffery, how about just kind of the economic call here,

616
00:29:29,440 --> 00:29:32,600
Speaker 5: soft landing, no landing, how do you kind of think

617
00:29:32,600 --> 00:29:34,760
Speaker 5: this see economies behaving right now?

618
00:29:34,800 --> 00:29:37,480
Speaker 3: I heard hot landing, hot landing. Yeah, I don't really

619
00:29:37,560 --> 00:29:39,600
Speaker 3: know what that is, but I heard about that today. Okay,

620
00:29:40,320 --> 00:29:42,400
Speaker 3: so we've been sort of operating with the no landing.

621
00:29:43,120 --> 00:29:45,280
Speaker 1: You know, it would be an acceleration in GDP and

622
00:29:45,360 --> 00:29:48,520
Speaker 1: acceleration inflation, a new low in the unemployment rate. We're

623
00:29:48,560 --> 00:29:51,240
Speaker 1: not quite in that scenario yet. Maybe that's more the

624
00:29:51,280 --> 00:29:54,040
Speaker 1: hot the hot landing scenario. Then we said, okay, sticky,

625
00:29:54,160 --> 00:29:58,000
Speaker 1: sticky inflation. That's where inflation on core CPI hangs out.

626
00:29:58,480 --> 00:30:00,880
Speaker 1: I don't know three, you know, three eight to four percent,

627
00:30:01,080 --> 00:30:03,600
Speaker 1: somewhere in that range on a year on year basis,

628
00:30:03,800 --> 00:30:07,000
Speaker 1: good growth above trend growth, the unemployment rates stays low.

629
00:30:07,080 --> 00:30:09,160
Speaker 1: So it feels like that's the scenario we're with. We're

630
00:30:09,160 --> 00:30:12,760
Speaker 1: in the sticky inflation scenario. The soft landing is if

631
00:30:12,800 --> 00:30:15,600
Speaker 1: you need to see a further moderation and inflation. So

632
00:30:15,680 --> 00:30:18,720
Speaker 1: at present we're in we're not in the soft landing

633
00:30:18,960 --> 00:30:21,400
Speaker 1: scenario in my view. Now the ones I would say,

634
00:30:21,440 --> 00:30:24,160
Speaker 1: if people are getting too pessimistic about things, I mean,

635
00:30:24,240 --> 00:30:27,400
Speaker 1: there's a worse scenario, which would be a stagflation type

636
00:30:27,400 --> 00:30:29,600
Speaker 1: scenario where we do have this inflation that we're seeing,

637
00:30:29,880 --> 00:30:31,960
Speaker 1: but growth is struggling, and that is not what we're

638
00:30:31,960 --> 00:30:35,920
Speaker 1: seeing the jobs report on Friday. We're still seeing aggregate

639
00:30:35,960 --> 00:30:39,680
Speaker 1: income growth six to seven percent, So we're seeing good

640
00:30:39,680 --> 00:30:42,960
Speaker 1: income growth that is feeding into spending, that is keeping

641
00:30:43,000 --> 00:30:47,360
Speaker 1: price pressures. It's not a terrible situation. Good growth, higher

642
00:30:47,400 --> 00:30:51,080
Speaker 1: than expected inflation. So don't be too bearish about things

643
00:30:51,160 --> 00:30:53,600
Speaker 1: out there. I'm looking for a bond firm here, but

644
00:30:53,600 --> 00:30:56,080
Speaker 1: I feel like this is advice to the equity investors

645
00:30:56,120 --> 00:30:56,600
Speaker 1: in some way.

646
00:30:57,040 --> 00:30:58,480
Speaker 3: We get it. We get it. We were talking to

647
00:30:58,560 --> 00:31:01,000
Speaker 3: a Francis Donald a Manu Life earlier in the last hour,

648
00:31:01,440 --> 00:31:04,120
Speaker 3: and she basically, if I summarize that there is a

649
00:31:04,200 --> 00:31:06,480
Speaker 3: narrative out there that this is Powell's fault that he

650
00:31:06,600 --> 00:31:09,440
Speaker 3: called sort of the pivot in December two early and

651
00:31:09,480 --> 00:31:13,720
Speaker 3: that actually reignited the economy, I'm really loose in financial conditions.

652
00:31:14,000 --> 00:31:15,200
Speaker 3: Is is there truth to that?

653
00:31:16,400 --> 00:31:18,560
Speaker 1: I don't think so, you know, I want to defend

654
00:31:19,040 --> 00:31:20,960
Speaker 1: Chair Pally. I think he's done a great job. I'm

655
00:31:21,000 --> 00:31:24,240
Speaker 1: not being paid for this defense. But look, he said, hey,

656
00:31:24,320 --> 00:31:27,360
Speaker 1: we had great progress in the second half of last year.

657
00:31:27,760 --> 00:31:31,240
Speaker 1: If that progress continues. There's a case that we don't

658
00:31:31,360 --> 00:31:33,680
Speaker 1: need to be at five point thirty on the funds rate.

659
00:31:33,720 --> 00:31:34,400
Speaker 5: We can reduce.

660
00:31:34,920 --> 00:31:37,120
Speaker 1: We don't want to over type. That's what he said.

661
00:31:37,520 --> 00:31:39,360
Speaker 1: And he also said, we need to see greater confidence.

662
00:31:39,400 --> 00:31:41,320
Speaker 1: We want to see more data like we've seen in

663
00:31:41,360 --> 00:31:43,600
Speaker 1: the second half of last year. Well, guess what, everyone,

664
00:31:43,880 --> 00:31:46,240
Speaker 1: every investor can look at this. We have not seen

665
00:31:46,320 --> 00:31:48,240
Speaker 1: more data like we saw in the second half of

666
00:31:48,280 --> 00:31:50,960
Speaker 1: last year. It's come in hotter. So I think he

667
00:31:51,080 --> 00:31:54,280
Speaker 1: set it up nicely. The problem is investors they hear

668
00:31:54,680 --> 00:31:56,560
Speaker 1: what they want to hear. I do think a lot

669
00:31:56,560 --> 00:31:59,080
Speaker 1: of mom investors. It's been a painful couple of years.

670
00:31:59,120 --> 00:31:59,600
Speaker 3: I get it.

671
00:32:00,200 --> 00:32:03,880
Speaker 1: They wanted they wanted rates to go lower, they wanted cotts,

672
00:32:03,880 --> 00:32:06,320
Speaker 1: and so there was more hope than it was you know,

673
00:32:06,400 --> 00:32:08,960
Speaker 1: actual reading of the economic data. In my view, so

674
00:32:09,000 --> 00:32:10,960
Speaker 1: I don't blame the I don't blame the FED for this.

675
00:32:12,040 --> 00:32:14,800
Speaker 1: Investors need to look in the mirror and not find

676
00:32:14,800 --> 00:32:18,440
Speaker 1: some scapeboat out there and you know in foggy bottom

677
00:32:18,440 --> 00:32:18,800
Speaker 1: and d C.

678
00:32:19,520 --> 00:32:21,080
Speaker 5: All right, Jeffrey, thank you so much for joining U.

679
00:32:21,120 --> 00:32:24,240
Speaker 5: Jeffrey Cleveland, chief economist at paid in and regal based

680
00:32:24,240 --> 00:32:26,360
Speaker 5: in La joining us via zoom. In just moments, we're

681
00:32:26,400 --> 00:32:30,200
Speaker 5: going to be going to former US Treasury Secretary Larry Summers.

682
00:32:30,240 --> 00:32:32,360
Speaker 5: He'll be sitting down with Bloomberg's David Weston talk about

683
00:32:32,360 --> 00:32:33,160
Speaker 5: the CPI print.

684
00:32:33,360 --> 00:32:33,560
Speaker 4: YEP.

685
00:32:34,480 --> 00:32:37,000
Speaker 3: There's some interesting tidbits though that you just want to

686
00:32:37,040 --> 00:32:39,000
Speaker 3: dive into a little bit with the numbers. So apparently

687
00:32:39,120 --> 00:32:42,880
Speaker 3: care of invalids and the elderly at home soared five

688
00:32:42,960 --> 00:32:47,400
Speaker 3: point nine percent from February. Okay, how does the and

689
00:32:47,440 --> 00:32:49,200
Speaker 3: that's just you. You would imagine that's going to get

690
00:32:49,240 --> 00:32:53,160
Speaker 3: so much worse as the baby boomers age. It's gonna

691
00:32:53,160 --> 00:32:55,960
Speaker 3: be pretty dicey.

692
00:32:56,480 --> 00:33:00,400
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

693
00:33:00,440 --> 00:33:03,360
Speaker 2: weekdays at ten am Eastern on Apple car Play and

694
00:33:03,480 --> 00:33:06,400
Speaker 2: Android Auto with the Bloomberg Business Act. You can also

695
00:33:06,480 --> 00:33:09,960
Speaker 2: listen live on Amazon Alexa from our flagship New York station,

696
00:33:10,360 --> 00:33:13,120
Speaker 2: Just say Alexa play Bloomberg eleven thirty.

697
00:33:14,280 --> 00:33:18,200
Speaker 3: So lots of drama unfolding after that hot CPI pause,

698
00:33:18,200 --> 00:33:21,720
Speaker 3: I'm bringing it up the verb function WRP. That's where

699
00:33:21,760 --> 00:33:24,320
Speaker 3: you go to see what everyone's sort of thinking about

700
00:33:24,360 --> 00:33:26,720
Speaker 3: Wall Street and investors alike, about what the Fed's going

701
00:33:26,720 --> 00:33:30,600
Speaker 3: to do, and it's currently pricing in about two cuts. Man,

702
00:33:30,600 --> 00:33:33,240
Speaker 3: that is a very different kind of scenario than we

703
00:33:33,280 --> 00:33:36,040
Speaker 3: saw just a few months ago. Well, let's break it down.

704
00:33:36,080 --> 00:33:39,600
Speaker 3: Sally Bakewell is Bloomberg US Finance team leader and she

705
00:33:39,760 --> 00:33:42,000
Speaker 3: joins us. Now, Sally, as we dig through here, how

706
00:33:42,000 --> 00:33:44,600
Speaker 3: many reports are in your inbox about pushing a FED

707
00:33:44,880 --> 00:33:46,720
Speaker 3: cut back from June two?

708
00:33:48,440 --> 00:33:52,000
Speaker 9: Yes, approximately two thousand of the mire in my in box.

709
00:33:53,080 --> 00:33:56,560
Speaker 9: And I think the sort of the level of uncertainty remains,

710
00:33:56,600 --> 00:33:58,280
Speaker 9: but I guess they are. There is this sort of

711
00:33:58,320 --> 00:34:01,760
Speaker 9: clear expectation of a path to cutting and around that.

712
00:34:01,800 --> 00:34:05,480
Speaker 9: Wall Street banks which will start reporting on Friday, are

713
00:34:05,840 --> 00:34:08,080
Speaker 9: probably going to have to be rethinking some of the

714
00:34:08,120 --> 00:34:10,840
Speaker 9: guidance they've given on one of their key sources of revenue,

715
00:34:10,840 --> 00:34:11,200
Speaker 9: which is.

716
00:34:11,239 --> 00:34:12,200
Speaker 3: Net interest income.

717
00:34:12,800 --> 00:34:15,480
Speaker 9: They had, you know, just a few months ago worn

718
00:34:15,560 --> 00:34:18,360
Speaker 9: that they would probably have to probably see a slide

719
00:34:18,400 --> 00:34:21,239
Speaker 9: in this metric. But it's looking like they'll be able

720
00:34:21,280 --> 00:34:23,080
Speaker 9: to up some of the guidance on this now.

721
00:34:23,520 --> 00:34:26,040
Speaker 5: Yeah, it's interesting. I'm looking at the reporters in this

722
00:34:26,120 --> 00:34:28,640
Speaker 5: story on your team here put in some you know,

723
00:34:28,719 --> 00:34:31,160
Speaker 5: showed some of the big banks for providing twenty twenty

724
00:34:31,160 --> 00:34:34,680
Speaker 5: four guidance and pretty conservative looking, and I guess it

725
00:34:34,680 --> 00:34:36,640
Speaker 5: reflected kind of what they were thinking at the time,

726
00:34:36,680 --> 00:34:39,279
Speaker 5: which is the markets pricing and six rate cuts. We

727
00:34:39,320 --> 00:34:42,400
Speaker 5: have to reflect that in our P and L. So

728
00:34:42,440 --> 00:34:44,440
Speaker 5: do you think we'll see revised guidance here? Is that

729
00:34:44,840 --> 00:34:45,800
Speaker 5: some of the issues?

730
00:34:46,440 --> 00:34:49,919
Speaker 9: I mean, I think that's what analysts expect. I think

731
00:34:50,080 --> 00:34:53,200
Speaker 9: investors are also optimistic of that. And the big question

732
00:34:53,360 --> 00:34:57,000
Speaker 9: seems to be JP Morgan. It is being looked at

733
00:34:57,040 --> 00:35:00,160
Speaker 9: as one that did have particularly conservative guidance at about

734
00:35:00,239 --> 00:35:03,359
Speaker 9: ninety billion of net interest income for twenty twenty four,

735
00:35:04,280 --> 00:35:08,160
Speaker 9: and it may have to up that based on the

736
00:35:08,160 --> 00:35:10,759
Speaker 9: fact that you know that was they brought that out

737
00:35:10,760 --> 00:35:13,360
Speaker 9: when you know they're expecting as many as six rate cuts,

738
00:35:13,360 --> 00:35:15,319
Speaker 9: and now if they're only two, they'll they'll probably have

739
00:35:15,400 --> 00:35:17,680
Speaker 9: to revise it. And Wells Fargo is another one being

740
00:35:17,680 --> 00:35:19,840
Speaker 9: discussed in the same vein. But I think analysts is

741
00:35:19,840 --> 00:35:21,640
Speaker 9: saying a lot of the big banks, which are sort

742
00:35:21,640 --> 00:35:24,799
Speaker 9: of more asset sensitive than the regional lenders, could have

743
00:35:24,920 --> 00:35:26,080
Speaker 9: to rethink their guidance.

744
00:35:26,600 --> 00:35:29,640
Speaker 3: But that only holds in a good way if the

745
00:35:29,680 --> 00:35:31,920
Speaker 3: loan demand is also good, right, I mean, that's the

746
00:35:31,920 --> 00:35:34,839
Speaker 3: whole idea. Will loan demand be good?

747
00:35:35,320 --> 00:35:39,000
Speaker 9: Well, I think for the as we see banks reporting

748
00:35:39,040 --> 00:35:42,160
Speaker 9: earnings on Friday, we are expecting to see quite a

749
00:35:42,200 --> 00:35:45,680
Speaker 9: subdued loan demand because the sort of lagging effect of

750
00:35:45,760 --> 00:35:49,640
Speaker 9: higher rates is still ongoing. But yes, interest rates come down,

751
00:35:49,680 --> 00:35:52,120
Speaker 9: that is in theory sort of big tail wind for

752
00:35:52,360 --> 00:35:56,080
Speaker 9: lending because people start to borrow more. And I think

753
00:35:56,120 --> 00:35:59,359
Speaker 9: it should in theory be a sort of positive thing.

754
00:35:59,360 --> 00:36:02,279
Speaker 9: But there are there remain uncertainties here that might sort

755
00:36:02,280 --> 00:36:06,480
Speaker 9: of cloud the kind of expectations that loan demand could

756
00:36:06,480 --> 00:36:07,239
Speaker 9: come roaring back.

757
00:36:07,760 --> 00:36:09,920
Speaker 5: Yeah, I mean just on Monday, just looking in this

758
00:36:11,080 --> 00:36:13,800
Speaker 5: article here from Bloomberg. On Monday, JP Morgan chief executive

759
00:36:13,840 --> 00:36:17,000
Speaker 5: Officer Jamie Diamond delivered a warning on the economy. So

760
00:36:17,800 --> 00:36:20,240
Speaker 5: you know, he might say, there was CFO and investor

761
00:36:20,280 --> 00:36:22,400
Speaker 5: relations person saying, well, wait wait wait, wait, wait wait wait,

762
00:36:22,440 --> 00:36:24,239
Speaker 5: I don't think we need to be taking up our

763
00:36:24,239 --> 00:36:25,799
Speaker 5: guidance here a little bit because he may have some

764
00:36:25,880 --> 00:36:27,680
Speaker 5: underlying concerns about the economy exactly.

765
00:36:27,760 --> 00:36:30,239
Speaker 9: And actually, you know people are saying that potentially JP

766
00:36:30,360 --> 00:36:33,520
Speaker 9: Morgan anyway, waits till it's invested a if it wants

767
00:36:33,520 --> 00:36:35,520
Speaker 9: to boost its guidance and does it then, and that's

768
00:36:35,560 --> 00:36:39,160
Speaker 9: in late May, but definitely, I mean Jamie Diamond, he

769
00:36:39,239 --> 00:36:42,720
Speaker 9: kind of gave his his couched assessment of the economy,

770
00:36:42,760 --> 00:36:45,760
Speaker 9: which is that consumers remain healthy and they are spending,

771
00:36:45,840 --> 00:36:49,040
Speaker 9: but there are all kinds of inflation repressures. There's this

772
00:36:49,160 --> 00:36:53,400
Speaker 9: very difficult geopolitical backdrop the transition to sort of green,

773
00:36:54,080 --> 00:36:58,240
Speaker 9: a greener economy, ongoing fiscal spending, all these inflationary pressures

774
00:36:58,239 --> 00:37:00,840
Speaker 9: that actually are a big overhang to sort of, you know,

775
00:37:00,920 --> 00:37:05,279
Speaker 9: a really robust economy continuing, and that could definitely end

776
00:37:05,360 --> 00:37:07,920
Speaker 9: up dampening sort of the consumer's ability to borrow.

777
00:37:08,000 --> 00:37:10,680
Speaker 5: And that investor day for JP Morgan is May twentieth.

778
00:37:10,719 --> 00:37:14,359
Speaker 3: All right, marketing calendar. Maybe we should yeah, oh good,

779
00:37:14,360 --> 00:37:19,160
Speaker 3: idea take radio down there. Okay, here's my pet, Peeve Marcus.

780
00:37:19,360 --> 00:37:22,000
Speaker 3: So we are familiar with Marcus. Okay, it's Goldman Sachs's

781
00:37:22,040 --> 00:37:25,680
Speaker 3: high yield savings account. Right. They lowered their rate ten

782
00:37:25,800 --> 00:37:30,839
Speaker 3: basis points on what Friday. That's not okay. The Fed

783
00:37:30,920 --> 00:37:35,040
Speaker 3: hasn't done anything. What's going on? And that's my personal

784
00:37:35,080 --> 00:37:38,200
Speaker 3: way of talking about the deposit beta when it comes

785
00:37:38,239 --> 00:37:40,480
Speaker 3: to these big banks. And then what the Fed's doing.

786
00:37:40,560 --> 00:37:42,880
Speaker 9: Right, I mean I think that all they continue to

787
00:37:42,920 --> 00:37:47,520
Speaker 9: be under pressure to stop customers going to other high

788
00:37:47,560 --> 00:37:50,760
Speaker 9: yielding options, and I suspect that's you know what Marcus

789
00:37:50,840 --> 00:37:51,239
Speaker 9: is doing.

790
00:37:51,360 --> 00:37:53,960
Speaker 3: Oh they cut it. Oh, I say cut it ten

791
00:37:54,000 --> 00:37:58,520
Speaker 3: basis points Okay, okay, to be fair, right, it's like

792
00:37:58,520 --> 00:38:00,600
Speaker 3: four point six percent. They took it to four point

793
00:38:00,600 --> 00:38:01,319
Speaker 3: five or something like that.

794
00:38:01,600 --> 00:38:04,400
Speaker 5: Put it on an account of your size. That's real money.

795
00:38:04,480 --> 00:38:07,520
Speaker 3: I mean, we're looking like billions at this point. But still,

796
00:38:07,600 --> 00:38:09,000
Speaker 3: I mean, but the idea that they're already kind of

797
00:38:09,040 --> 00:38:11,800
Speaker 3: front running cuts that may not happen or September.

798
00:38:11,600 --> 00:38:12,960
Speaker 7: Wow, I mean that's fascinating.

799
00:38:13,160 --> 00:38:15,040
Speaker 5: So what are the bank? Yeah? So what are the banks?

800
00:38:15,160 --> 00:38:18,640
Speaker 5: I mean, as we were talking about before, one of

801
00:38:18,680 --> 00:38:21,640
Speaker 5: the things is just simply are they making loans out there?

802
00:38:23,080 --> 00:38:25,680
Speaker 5: Are they suffering charge offs? So what do we think

803
00:38:25,680 --> 00:38:27,160
Speaker 5: that we're going to hear from the banks as relates

804
00:38:27,200 --> 00:38:30,560
Speaker 5: to credit quality and charge offs of their loans? They

805
00:38:30,600 --> 00:38:32,240
Speaker 5: think things like that because I know that's a big metric.

806
00:38:32,400 --> 00:38:36,200
Speaker 9: Well, I think charge offs are expected to be pretty

807
00:38:36,239 --> 00:38:39,719
Speaker 9: stable actually, and again I think that's another sort of

808
00:38:39,719 --> 00:38:43,120
Speaker 9: signifier and indication of consumers being in relatively decent health,

809
00:38:43,160 --> 00:38:46,680
Speaker 9: but of course they were reliant to a degree on

810
00:38:46,760 --> 00:38:48,880
Speaker 9: a lot of the savings they are massed during the pandemic,

811
00:38:49,000 --> 00:38:52,360
Speaker 9: and those of course have faded and will continue to fade.

812
00:38:52,719 --> 00:38:57,640
Speaker 9: So again, the situation with charge offs seems pretty stable

813
00:38:57,640 --> 00:38:59,680
Speaker 9: at the moment, but there are those headwinds. And I

814
00:38:59,719 --> 00:39:02,439
Speaker 9: think also a lot of banks are expected to set

815
00:39:02,480 --> 00:39:05,880
Speaker 9: aside more money in provisions this quarter than they have

816
00:39:06,000 --> 00:39:09,000
Speaker 9: done in the previous quarter a year ago, which is

817
00:39:09,040 --> 00:39:11,480
Speaker 9: another indication that they see sort of storm clouds on

818
00:39:11,480 --> 00:39:14,040
Speaker 9: the horizon and that people will start to default on

819
00:39:14,080 --> 00:39:16,359
Speaker 9: their loans, and loans will sell, and they all need

820
00:39:16,400 --> 00:39:18,000
Speaker 9: to be able to cover the cost of those.

821
00:39:18,200 --> 00:39:20,440
Speaker 3: We've seen M and A started to pick up, investment

822
00:39:20,480 --> 00:39:22,480
Speaker 3: banking started to pick up. Is that going to be

823
00:39:22,640 --> 00:39:25,040
Speaker 3: squashed a bit if we still have higher for longer?

824
00:39:25,719 --> 00:39:26,399
Speaker 3: I think this.

825
00:39:26,440 --> 00:39:30,520
Speaker 9: Is really interesting. It seems like a lot of the

826
00:39:30,560 --> 00:39:34,600
Speaker 9: investment community and companies have gotten somewhat used to this,

827
00:39:34,840 --> 00:39:39,040
Speaker 9: the current interest rates situation and the current uncertainty, which

828
00:39:39,080 --> 00:39:41,759
Speaker 9: sounds a little bit paradoxical to say, and for that

829
00:39:41,880 --> 00:39:45,320
Speaker 9: reason they have been more willing to do some deals.

830
00:39:45,360 --> 00:39:48,680
Speaker 9: We've seen a pickup in deals. We've seen IPOs sort

831
00:39:48,680 --> 00:39:52,680
Speaker 9: of start to slightly rebound, so I think higher for

832
00:39:52,800 --> 00:39:57,000
Speaker 9: longer hasn't been a huge there's been a persistent deal

833
00:39:57,040 --> 00:39:58,920
Speaker 9: slump for months and months and months. But investors have

834
00:39:59,200 --> 00:40:01,720
Speaker 9: started to get used to to this sort of uncertain

835
00:40:01,800 --> 00:40:03,439
Speaker 9: rate path, I think, and so they have been coming

836
00:40:03,440 --> 00:40:05,200
Speaker 9: out of the woodwork a little bit interesting.

837
00:40:05,400 --> 00:40:07,160
Speaker 3: Or could you see the certainty Well you're the former

838
00:40:07,160 --> 00:40:09,480
Speaker 3: investor there coming in us in banker. Is it the

839
00:40:09,560 --> 00:40:12,200
Speaker 3: rate or is it just a certainty or the trajectory?

840
00:40:12,320 --> 00:40:14,839
Speaker 5: It's just the trajectory here. So I mean, I think,

841
00:40:14,880 --> 00:40:17,839
Speaker 5: you know, we're I think the market's more normalised. We're

842
00:40:17,880 --> 00:40:21,200
Speaker 5: seeing investment grade market be very robust because you know,

843
00:40:21,360 --> 00:40:23,520
Speaker 5: they can get deals done and so they're going to

844
00:40:23,560 --> 00:40:24,960
Speaker 5: get them done. Could they have gotten them done at

845
00:40:25,000 --> 00:40:27,920
Speaker 5: a lower rate two years ago, Yeah, but that's that's

846
00:40:27,920 --> 00:40:29,440
Speaker 5: two years ago. Here we are, I mean need to

847
00:40:29,480 --> 00:40:32,680
Speaker 5: we need to fund growth. So again just a trajectory

848
00:40:32,760 --> 00:40:35,800
Speaker 5: of where things are going. So anyway, Sally, thank you

849
00:40:35,880 --> 00:40:37,960
Speaker 5: so much. We appreciate it. Sally bake Well, us finance

850
00:40:38,000 --> 00:40:41,480
Speaker 5: team leader for Bloomberg News uh with the article out

851
00:40:41,520 --> 00:40:44,439
Speaker 5: today from her team Wall Street banks may redo key

852
00:40:44,480 --> 00:40:47,600
Speaker 5: profit guidance on fewer red cuts, i e. Take net

853
00:40:47,640 --> 00:40:50,400
Speaker 5: interest income forecast a little bit higher.

854
00:40:50,480 --> 00:40:52,480
Speaker 3: Yeah, that'd be really interesting to be and just that

855
00:40:52,880 --> 00:40:54,600
Speaker 3: even if they don't do it for their earning season,

856
00:40:54,680 --> 00:40:57,399
Speaker 3: like recalibrating it, just the commentary on the calls will

857
00:40:57,400 --> 00:40:59,160
Speaker 3: be quite interesting and I'm sure that analysts will be

858
00:40:59,200 --> 00:41:01,680
Speaker 3: all over them to add that question. So that'll be

859
00:41:02,080 --> 00:41:04,360
Speaker 3: very interesting indeed. And also for the JP Morgan, the

860
00:41:04,360 --> 00:41:06,400
Speaker 3: city in the Bank of America, the consumer part of

861
00:41:06,440 --> 00:41:09,480
Speaker 3: it and how their charge offs are doing and what

862
00:41:09,520 --> 00:41:11,680
Speaker 3: their read is on the consumer. As Frances Donald was

863
00:41:11,680 --> 00:41:15,560
Speaker 3: talking about, just two totally different worlds, two totally different consumers.

864
00:41:15,640 --> 00:41:19,360
Speaker 5: Yep. Absolutely, So we'll see JP Morgan reporting on Friday,

865
00:41:19,400 --> 00:41:22,040
Speaker 5: so that'll be You're off though, I'm off you darnel right,

866
00:41:22,080 --> 00:41:22,319
Speaker 5: I'm long.

867
00:41:22,560 --> 00:41:23,760
Speaker 3: He's not going to care till Monday.

868
00:41:24,000 --> 00:41:28,520
Speaker 2: This is the Bloomberg Intelligence podcast, available on apples, Spotify,

869
00:41:28,719 --> 00:41:31,640
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870
00:41:31,719 --> 00:41:35,280
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871
00:41:35,400 --> 00:41:38,840
Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business app.

872
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Speaker 2: You can also watch us live every weekday on YouTube

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Speaker 2: and always on the Bloomberg Terminal