1
00:00:00,880 --> 00:00:12,960
Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

2
00:00:13,480 --> 00:00:17,560
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:27,320
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg our

5
00:00:27,360 --> 00:00:29,520
Speaker 1: top story. In the last twenty four hours, we've had

6
00:00:29,560 --> 00:00:32,360
Speaker 1: twenty four hours of FED speak and very little sign

7
00:00:32,400 --> 00:00:34,519
Speaker 1: of any at all that the FED is ready to

8
00:00:34,560 --> 00:00:37,400
Speaker 1: make a move. The Richmond Fed president saying there's not

9
00:00:37,440 --> 00:00:39,760
Speaker 1: a strong case to push rates higher when inflation is

10
00:00:39,840 --> 00:00:42,680
Speaker 1: under control. There's not a strong case to move lower

11
00:00:43,000 --> 00:00:46,159
Speaker 1: when growth remains healthy. Here in New York to discuss

12
00:00:46,200 --> 00:00:49,960
Speaker 1: Troy Kyasky Skybridge Capital Co. Chief investment Officer. Good morning

13
00:00:50,000 --> 00:00:53,240
Speaker 1: to Troy. What do you make of that twenty four

14
00:00:53,240 --> 00:00:57,800
Speaker 1: hours of FED speak and nothing ready to validate market pricing?

15
00:00:57,800 --> 00:01:00,640
Speaker 1: Your thoughts? Yeah, Well, look, I think he just goes

16
00:01:00,680 --> 00:01:02,680
Speaker 1: back to the fact that they're very data dependent now

17
00:01:02,680 --> 00:01:04,920
Speaker 1: and we keep looking at the data and you know,

18
00:01:05,040 --> 00:01:07,840
Speaker 1: strip out trade conflict for now the consumers and exceptional

19
00:01:07,880 --> 00:01:10,119
Speaker 1: shape business fixed investment has been on a nice little

20
00:01:10,120 --> 00:01:13,240
Speaker 1: trend line um even though inflation softened and obviously the

21
00:01:13,319 --> 00:01:15,880
Speaker 1: labor market can't create two point seven million jobs around

22
00:01:15,880 --> 00:01:18,520
Speaker 1: pace for two point four there's really no reason to

23
00:01:18,640 --> 00:01:22,280
Speaker 1: cut in the short term. At the On the flip side, however,

24
00:01:22,440 --> 00:01:25,640
Speaker 1: is if you look at how low inflation remains, right,

25
00:01:25,680 --> 00:01:29,000
Speaker 1: there's certainly no reason the hikes. So having that view

26
00:01:29,080 --> 00:01:31,199
Speaker 1: of hey, we're going to see how the data comes

27
00:01:31,240 --> 00:01:33,440
Speaker 1: in and it's unclear which direction we're to go, we

28
00:01:33,440 --> 00:01:35,560
Speaker 1: think it's very healthy for markets, and it continues to

29
00:01:35,600 --> 00:01:39,160
Speaker 1: confuse this why markets are pricing in a more aggressive

30
00:01:39,160 --> 00:01:42,840
Speaker 1: cuts in the Do you think the market is vulnerable? Well,

31
00:01:42,880 --> 00:01:46,600
Speaker 1: there the rate markets are, the equity market, the marketing yes,

32
00:01:46,680 --> 00:01:49,560
Speaker 1: I think well, if you we want the clock two

33
00:01:49,640 --> 00:01:52,120
Speaker 1: or three weeks, we were more concerned it was vulnerable

34
00:01:52,200 --> 00:01:55,600
Speaker 1: because of that because trade and not the trade conflict

35
00:01:55,600 --> 00:01:59,040
Speaker 1: and not escalated so dramatically. Now that trade conflict has

36
00:01:59,160 --> 00:02:02,080
Speaker 1: escalated what we talked about before, the probability of of

37
00:02:02,080 --> 00:02:03,840
Speaker 1: a hike has gone down, even though they weren't that

38
00:02:03,920 --> 00:02:06,240
Speaker 1: high to start with, and the probability the next move

39
00:02:06,320 --> 00:02:08,560
Speaker 1: being a cut has gone up, but the timing and

40
00:02:08,639 --> 00:02:11,239
Speaker 1: magnitude are still very much in question, and we're not

41
00:02:11,280 --> 00:02:13,560
Speaker 1: gonna get clarity on that, we think until Q three

42
00:02:13,600 --> 00:02:15,680
Speaker 1: or Q four this year, when you see whether we

43
00:02:15,720 --> 00:02:18,320
Speaker 1: can sustain job growth at this level. It was interesting

44
00:02:18,360 --> 00:02:21,880
Speaker 1: listening to Chairman Powell yesterday evening. The acronyms have changed

45
00:02:21,919 --> 00:02:23,800
Speaker 1: a bit, but once again we see a category of

46
00:02:23,840 --> 00:02:25,959
Speaker 1: debt that is growing faster than the income of the

47
00:02:26,000 --> 00:02:28,720
Speaker 1: borrow was, even as lenders loose and underwriting standards. Not

48
00:02:28,760 --> 00:02:31,600
Speaker 1: only is the volume of debt high, but recent growth

49
00:02:31,600 --> 00:02:34,920
Speaker 1: has also been concentrated in the riskier forms of debt.

50
00:02:35,400 --> 00:02:38,920
Speaker 1: Now market participants don't often listen to the Federal Reserve

51
00:02:38,960 --> 00:02:41,720
Speaker 1: when they make trade recommendations, but quite clearly leftage lines

52
00:02:42,000 --> 00:02:45,880
Speaker 1: have come in for some criticism, Rightley, some in your opinion, Troy, certainly.

53
00:02:45,919 --> 00:02:47,600
Speaker 1: I mean it has some of the same hallmarks of

54
00:02:47,600 --> 00:02:50,320
Speaker 1: what happened in subprime right where you have insatiable demand

55
00:02:50,360 --> 00:02:53,840
Speaker 1: for triple A notes. Wherever there's demand for for triple

56
00:02:53,880 --> 00:02:56,440
Speaker 1: A investment, bankers are find ways to create it. And

57
00:02:56,520 --> 00:02:59,399
Speaker 1: given the weakening underwriting standards in that market, you've seen

58
00:02:59,400 --> 00:03:02,400
Speaker 1: an explore ocean of supply um And then if you

59
00:03:02,400 --> 00:03:04,760
Speaker 1: look at the underlying credit quality the borrowers debt to

60
00:03:04,800 --> 00:03:07,320
Speaker 1: IBADAH or leverage levels. I'm looking over a time here

61
00:03:07,360 --> 00:03:10,440
Speaker 1: from before on TV, leverage levels have gone up rather

62
00:03:10,639 --> 00:03:14,400
Speaker 1: rather substantially. So it does have the hallmarks of substantial

63
00:03:14,440 --> 00:03:17,840
Speaker 1: pain in the near term. Uh, once we eventually have

64
00:03:17,919 --> 00:03:20,960
Speaker 1: a recession or a pullback. And so UH from a

65
00:03:21,000 --> 00:03:24,560
Speaker 1: policy maker standpoint, they're not going to hike rates or

66
00:03:24,600 --> 00:03:28,519
Speaker 1: cut rates, or or change your whole framework for for

67
00:03:28,639 --> 00:03:32,920
Speaker 1: um for for regulation. However they're calling attention to the

68
00:03:32,919 --> 00:03:35,440
Speaker 1: problem is very important because the more you focus not

69
00:03:35,520 --> 00:03:38,680
Speaker 1: only US investors on the potential problem, but also Japanese

70
00:03:38,680 --> 00:03:41,080
Speaker 1: and European investors to have that demand for triple A,

71
00:03:41,440 --> 00:03:43,840
Speaker 1: the more the less likely are that it actually turns

72
00:03:43,880 --> 00:03:46,080
Speaker 1: into a systemic problem. So let's go to that ratio.

73
00:03:46,120 --> 00:03:48,680
Speaker 1: I mean price earnings ratio is comparing the price of

74
00:03:48,720 --> 00:03:51,640
Speaker 1: a stock to its earnings. Fine price to casual price.

75
00:03:53,080 --> 00:03:55,880
Speaker 1: You're looking at the debt and comparing it to the

76
00:03:55,920 --> 00:04:00,200
Speaker 1: operating income, and you pull over some depreciation effects as well.

77
00:04:01,160 --> 00:04:03,720
Speaker 1: And yet people are worried about debt. And yet John

78
00:04:03,720 --> 00:04:05,800
Speaker 1: Farrell's telling us on the Real you'll see at one

79
00:04:05,880 --> 00:04:09,440
Speaker 1: pm Fridays on Bloomberg Television soon to be on eight

80
00:04:09,480 --> 00:04:14,520
Speaker 1: days a week. UM, that If you look at companies,

81
00:04:14,600 --> 00:04:19,040
Speaker 1: they can issue jillions of dollars of debt with four

82
00:04:19,120 --> 00:04:23,599
Speaker 1: phone calls six phone calls, So it depends on the market.

83
00:04:23,960 --> 00:04:26,960
Speaker 1: Levered loan markets have tightened up this year because the

84
00:04:27,440 --> 00:04:31,640
Speaker 1: demand for floating rate product has has waned significantly. That's

85
00:04:31,680 --> 00:04:33,960
Speaker 1: the irony of this, isn't it that the demand was

86
00:04:34,040 --> 00:04:36,440
Speaker 1: building and supply was mating demand is the FED was

87
00:04:36,440 --> 00:04:40,480
Speaker 1: writing interest, which is countertuits FED pulling back That has

88
00:04:40,480 --> 00:04:45,240
Speaker 1: actually drained some of the because of floating rate, yield

89
00:04:45,360 --> 00:04:49,600
Speaker 1: comes down and is less attractive. That I get that right, Yes,

90
00:04:49,680 --> 00:04:52,919
Speaker 1: So like think about it. Last September markets are priced

91
00:04:52,960 --> 00:04:56,320
Speaker 1: in two hikes in two thousand nineteen. Everybody's geared up

92
00:04:56,360 --> 00:04:59,400
Speaker 1: for a hike in December. So it's hey, floating rate

93
00:04:59,440 --> 00:05:01,760
Speaker 1: floating right, voading rate And so you had that tier

94
00:05:01,920 --> 00:05:04,440
Speaker 1: term froth in the market, which led to even tighter

95
00:05:04,440 --> 00:05:07,479
Speaker 1: spreads and weaker underwriting. Now that it's clear the Feds

96
00:05:07,560 --> 00:05:10,320
Speaker 1: not hiking twice this year, we can definitively say that

97
00:05:10,400 --> 00:05:13,120
Speaker 1: and may in fact cut next. You've seen much less demand.

98
00:05:13,200 --> 00:05:16,839
Speaker 1: Now in contrast for that, you have seen fixed supply

99
00:05:16,960 --> 00:05:19,279
Speaker 1: come up in the high yield market. So basically, what

100
00:05:19,400 --> 00:05:22,120
Speaker 1: CFOs are doing and investor bankers is flipping the new

101
00:05:22,160 --> 00:05:25,320
Speaker 1: supply from more floating nature to more fixed nature. Do

102
00:05:25,400 --> 00:05:27,720
Speaker 1: you think the FED warning ultimately isn't for Wall straight,

103
00:05:27,839 --> 00:05:31,360
Speaker 1: it's for the other market participants away from the institutional bakes.

104
00:05:31,440 --> 00:05:33,719
Speaker 1: Is the composition of the investors that are involved in

105
00:05:33,760 --> 00:05:35,640
Speaker 1: this part of the market changed over the last couple

106
00:05:35,640 --> 00:05:36,920
Speaker 1: of years. Do you think that's one they're a little

107
00:05:36,920 --> 00:05:38,720
Speaker 1: bit more concerned. Yeah, I think so. I mean, if

108
00:05:38,720 --> 00:05:42,200
Speaker 1: you see the increase in retail assets, not only in

109
00:05:42,320 --> 00:05:44,800
Speaker 1: high yield but also on lever loans, it's been quite dramatic.

110
00:05:44,880 --> 00:05:47,280
Speaker 1: So you know, I think Pale did a good job

111
00:05:47,800 --> 00:05:50,800
Speaker 1: without being a sensationalist, highlighting the fact that there could

112
00:05:50,800 --> 00:05:53,600
Speaker 1: be material losses in the next recession. And that's been

113
00:05:53,640 --> 00:05:56,159
Speaker 1: our whole point, right. You know, when we hear people say,

114
00:05:56,360 --> 00:05:58,280
Speaker 1: you know, high levels of corporate credit are going to

115
00:05:58,360 --> 00:06:00,599
Speaker 1: cause a recession or the world's gonna and you know,

116
00:06:00,640 --> 00:06:02,480
Speaker 1: that's kind of silly, but but the reality is when

117
00:06:02,480 --> 00:06:04,760
Speaker 1: you go into a session with high leverage levels and

118
00:06:04,920 --> 00:06:08,680
Speaker 1: enormous growth and supply, you invariably have a substantial mark

119
00:06:08,760 --> 00:06:12,280
Speaker 1: to market and more more critically, realized losses. Right, it's

120
00:06:12,320 --> 00:06:15,440
Speaker 1: the realized losses that cost me. How are the realized

121
00:06:15,480 --> 00:06:19,080
Speaker 1: gains of hedge funds right now? I believe we're spx

122
00:06:19,120 --> 00:06:21,719
Speaker 1: whatever for the year or four percent off the highs?

123
00:06:21,760 --> 00:06:24,520
Speaker 1: I know it's a bear market. Yeah, but how are

124
00:06:24,640 --> 00:06:30,359
Speaker 1: hedge funds doing justifying making single digit returns in a

125
00:06:30,440 --> 00:06:34,560
Speaker 1: double digit world? That story is still working. Yeah, it's

126
00:06:34,560 --> 00:06:36,960
Speaker 1: obviously working less well than say five six years ago,

127
00:06:36,960 --> 00:06:39,240
Speaker 1: where there's much more demand. It's still working, but it's

128
00:06:39,240 --> 00:06:40,960
Speaker 1: still work. We'll think about it. So you look at

129
00:06:41,320 --> 00:06:43,880
Speaker 1: I'm I'm ready to think about it. No, No, So

130
00:06:43,920 --> 00:06:45,960
Speaker 1: look at the last few years. So obviously we've had

131
00:06:46,000 --> 00:06:49,520
Speaker 1: a strong seventeen, but investable assets were down last year. Right,

132
00:06:49,600 --> 00:06:53,279
Speaker 1: the quote unquote upper de style or quartel hedge funds,

133
00:06:53,440 --> 00:06:55,280
Speaker 1: you know, up three, four or five percent last year,

134
00:06:55,320 --> 00:06:57,640
Speaker 1: so that was adding value. You know, fixed income has

135
00:06:57,680 --> 00:07:00,640
Speaker 1: not done anything now for basically three years, so you know,

136
00:07:00,680 --> 00:07:03,640
Speaker 1: comfortably off of couring fixed income. But the tradeoff has

137
00:07:03,680 --> 00:07:06,599
Speaker 1: been and always will be. Are you willing to sacrifice

138
00:07:07,120 --> 00:07:12,120
Speaker 1: the extreme upside that equities provide? If you are, what

139
00:07:12,160 --> 00:07:14,120
Speaker 1: else are you going to own? Right? And if it's

140
00:07:14,160 --> 00:07:16,640
Speaker 1: fixed income, you're looking at very low interest rates. You've

141
00:07:16,640 --> 00:07:19,960
Speaker 1: just had rates drop dramatically. Bonds have rallied hard, so

142
00:07:20,000 --> 00:07:22,920
Speaker 1: there's a lot less upside there and unfortunately not high

143
00:07:23,000 --> 00:07:26,440
Speaker 1: yield and investment grade spreads or tied again. There aren't

144
00:07:26,440 --> 00:07:28,520
Speaker 1: that many other options besides equities where you can do

145
00:07:28,560 --> 00:07:31,560
Speaker 1: high single digits. There just aren't. Period full stop. Where

146
00:07:31,560 --> 00:07:37,000
Speaker 1: did you hold your salt conference in Las Vegas? Do

147
00:07:37,120 --> 00:07:38,800
Speaker 1: not know? You? And I we went to the period

148
00:07:39,600 --> 00:07:42,920
Speaker 1: are always Caesar's. Went over to Caesar's to bet on

149
00:07:43,360 --> 00:07:46,680
Speaker 1: English football or whatever we do we gotta do. We did, John,

150
00:07:46,760 --> 00:07:49,080
Speaker 1: we didn't get to the Bellagio and did we well,

151
00:07:49,120 --> 00:07:53,400
Speaker 1: I just I didn't get the invite. I saw ms

152
00:07:53,440 --> 00:07:55,360
Speaker 1: the Scarmie a couple of months ago and he said

153
00:07:55,400 --> 00:08:00,320
Speaker 1: we could go, and he didn't follow up. We need

154
00:08:00,360 --> 00:08:02,960
Speaker 1: to have Bloomberg radio spot at the Ocean House and

155
00:08:03,040 --> 00:08:05,360
Speaker 1: watch Hill the summer guys in August. I think that's

156
00:08:05,360 --> 00:08:08,920
Speaker 1: what I think that remote from what we Michael Bark,

157
00:08:09,880 --> 00:08:14,840
Speaker 1: you know, you guys get the v global audience. Watch

158
00:08:14,960 --> 00:08:17,560
Speaker 1: Hill is It's like it's like that city in Kansas

159
00:08:17,680 --> 00:08:20,320
Speaker 1: or literally wherever it is, which is the center of America.

160
00:08:20,680 --> 00:08:24,720
Speaker 1: Watch Hill is a geographic center between Red Sox fans

161
00:08:24,960 --> 00:08:30,400
Speaker 1: and Yankees fans. It's like there's a hotel ocean house

162
00:08:30,480 --> 00:08:32,640
Speaker 1: has a blue and red line right through the middle

163
00:08:32,720 --> 00:08:35,240
Speaker 1: of it, and on one side is Red Sox Nation

164
00:08:35,559 --> 00:08:38,160
Speaker 1: and the other side is the dreaded Yankees on the

165
00:08:38,240 --> 00:08:40,040
Speaker 1: other side. At the end of happened, it's like a

166
00:08:40,120 --> 00:08:44,160
Speaker 1: darby but happy there. They're a bit happening. Thank you

167
00:08:44,240 --> 00:08:48,199
Speaker 1: for having here. Um, it's it's early, you know. I

168
00:08:48,559 --> 00:08:51,120
Speaker 1: usually the season is over by now, but but it's

169
00:08:51,200 --> 00:08:54,640
Speaker 1: it's been an odd year in baseball. The seasons usually

170
00:08:55,240 --> 00:08:59,600
Speaker 1: there's comfy for me and the Red Sox season choose

171
00:08:59,640 --> 00:09:05,839
Speaker 1: you over at al, but we're not there yet. This

172
00:09:06,040 --> 00:09:08,360
Speaker 1: is a joy because David Kelly has a little bit

173
00:09:08,480 --> 00:09:12,240
Speaker 1: of experience and the ups and the downs and linking

174
00:09:12,360 --> 00:09:16,040
Speaker 1: here economics into what to do with your money. He

175
00:09:16,120 --> 00:09:18,680
Speaker 1: has a shingle out of JP Morgan Asset Management as

176
00:09:18,760 --> 00:09:22,160
Speaker 1: chief Global Strategists, which simply means you synthesize in a

177
00:09:22,240 --> 00:09:25,760
Speaker 1: whole bunch of different opinions to try to formulate a view.

178
00:09:26,200 --> 00:09:29,559
Speaker 1: His view changed in the last week. Uh No, And

179
00:09:29,760 --> 00:09:32,959
Speaker 1: I think it's it's just gradually slowing down. I mean,

180
00:09:33,040 --> 00:09:35,160
Speaker 1: we're you know, we still think the economy is on

181
00:09:35,559 --> 00:09:38,800
Speaker 1: a slowdown. I think what's what's significant though, is uh,

182
00:09:38,960 --> 00:09:42,000
Speaker 1: this increased trade rhetoric is what's the due to e M.

183
00:09:42,080 --> 00:09:44,079
Speaker 1: I saw a JP Morgan to headline an EM that

184
00:09:44,160 --> 00:09:47,599
Speaker 1: was pretty moldy. Can you stay no, it's yes, you

185
00:09:47,640 --> 00:09:49,000
Speaker 1: can say in the e M for the long run

186
00:09:49,040 --> 00:09:51,240
Speaker 1: and new old too, because trade trade wars are so

187
00:09:51,440 --> 00:09:54,800
Speaker 1: bad that eventually they burn out. And longer term, we

188
00:09:54,880 --> 00:09:58,440
Speaker 1: do think that emerging markets have demographics that we simply

189
00:09:58,480 --> 00:10:00,599
Speaker 1: don't have in the developed world. You know, over the

190
00:10:00,679 --> 00:10:03,760
Speaker 1: next five years, I expect e M stocks to perform

191
00:10:03,880 --> 00:10:07,440
Speaker 1: US stocks. But there's no doubt that in a world

192
00:10:07,480 --> 00:10:11,240
Speaker 1: of increased tension in the world with decreasing trade em

193
00:10:11,600 --> 00:10:13,000
Speaker 1: you know, is that the front lines and that that

194
00:10:13,080 --> 00:10:16,160
Speaker 1: will get hurt. You mentioned the nationalism word, the reality

195
00:10:16,200 --> 00:10:19,000
Speaker 1: of increased nationalism in China, at least the perception of

196
00:10:19,120 --> 00:10:23,200
Speaker 1: increased nationalism. It looks like the propaganda effort is intensified

197
00:10:23,520 --> 00:10:26,079
Speaker 1: somewhat over the last couple of weeks. What does that

198
00:10:26,280 --> 00:10:31,160
Speaker 1: mean for corporates US corporates operating in China right now?

199
00:10:31,600 --> 00:10:33,360
Speaker 1: I think it's pretty negative. I mean We've got to

200
00:10:33,440 --> 00:10:36,640
Speaker 1: remember this is a very raw nerve for the Chinese China.

201
00:10:36,720 --> 00:10:39,120
Speaker 1: You know, we think of China as sort of the

202
00:10:39,559 --> 00:10:42,559
Speaker 1: Communist Party, but even before that, Chinese nationalism was re

203
00:10:42,720 --> 00:10:44,640
Speaker 1: centered around the issue of trade. They don't want the

204
00:10:44,679 --> 00:10:48,319
Speaker 1: West bullying them specifically on the issue of trade. And so,

205
00:10:48,920 --> 00:10:51,800
Speaker 1: you know, I think she jimping is is a nationalist.

206
00:10:51,880 --> 00:10:55,839
Speaker 1: I think that, and this building nationalist sentiment will make

207
00:10:55,880 --> 00:11:00,040
Speaker 1: it tougher for US companies operating in China, and and

208
00:11:00,520 --> 00:11:03,520
Speaker 1: then more broadly, China is not a small player anymore.

209
00:11:04,040 --> 00:11:06,040
Speaker 1: I mean, I mean, if you look at the numbers

210
00:11:06,080 --> 00:11:09,080
Speaker 1: of the growth of China relative the United States, it's astonishing.

211
00:11:09,360 --> 00:11:12,240
Speaker 1: We're almost getting to a bipolar world in terms of

212
00:11:12,320 --> 00:11:15,720
Speaker 1: economic spheres of influence, and we need cooperation from China

213
00:11:15,800 --> 00:11:18,480
Speaker 1: on many many issues. So it's quite a dangerous thing

214
00:11:18,520 --> 00:11:21,360
Speaker 1: when the two biggest economic powers in the world are

215
00:11:21,440 --> 00:11:23,400
Speaker 1: butting heads like this. I'm sensitive to the fact that

216
00:11:23,440 --> 00:11:25,480
Speaker 1: you can't talk single nows. But something I'm sure that

217
00:11:25,520 --> 00:11:27,640
Speaker 1: will come up in conversation again and again and again

218
00:11:27,720 --> 00:11:30,000
Speaker 1: over the next couple of weeks is what happens to

219
00:11:30,080 --> 00:11:33,560
Speaker 1: the big consumer discretionary companies, the big companies like Apple

220
00:11:34,120 --> 00:11:37,440
Speaker 1: trying to export into China, or rather trying to sell

221
00:11:37,520 --> 00:11:41,319
Speaker 1: product in China, do you think and not for Apples specifically,

222
00:11:41,400 --> 00:11:44,319
Speaker 1: but more broadly, we face the very real prospect of

223
00:11:44,400 --> 00:11:47,640
Speaker 1: a boycotting in China. I think it's I think we

224
00:11:47,760 --> 00:11:50,839
Speaker 1: have to think about our global reputation, you know, I

225
00:11:50,880 --> 00:11:53,000
Speaker 1: mean we you know, it used to be around the

226
00:11:53,080 --> 00:11:57,680
Speaker 1: world that American stuff was regarded as cool and America

227
00:11:57,760 --> 00:12:00,240
Speaker 1: was regarded as cool, and I'm not sure that's the

228
00:12:00,280 --> 00:12:03,320
Speaker 1: case right now, and that I think, even even beyond

229
00:12:03,559 --> 00:12:07,400
Speaker 1: a more blunt nationalistic, you know, boycott, I think the

230
00:12:07,440 --> 00:12:09,600
Speaker 1: fact that that our reputation is not what it walls

231
00:12:09,840 --> 00:12:11,760
Speaker 1: is a problem. Not that I've ever darkened the door,

232
00:12:11,840 --> 00:12:13,280
Speaker 1: but if you look at the jazz bar at the

233
00:12:13,320 --> 00:12:16,199
Speaker 1: Peace Hotel in Shanghai is sort of a nexus on

234
00:12:16,280 --> 00:12:19,040
Speaker 1: the bond our Americans going to be welcome there in

235
00:12:19,160 --> 00:12:22,559
Speaker 1: one year or five years or ten years. Well, you know,

236
00:12:22,720 --> 00:12:25,920
Speaker 1: I think people around the world tend to be pretty um,

237
00:12:26,080 --> 00:12:29,719
Speaker 1: you know, kind to individuals. But but it's uh what

238
00:12:29,800 --> 00:12:31,839
Speaker 1: I mean business, I mean, come on, business lights And

239
00:12:32,200 --> 00:12:33,720
Speaker 1: not that I would know this, but they don't want

240
00:12:33,760 --> 00:12:35,319
Speaker 1: to stay at the wal door for story. They want

241
00:12:35,360 --> 00:12:39,360
Speaker 1: to go down the bone and state that it's always

242
00:12:39,400 --> 00:12:43,000
Speaker 1: a story and there's always a bond. It's the greatest

243
00:12:43,080 --> 00:12:46,720
Speaker 1: jazz bar in Asia. Okay, are we our business people

244
00:12:47,360 --> 00:12:50,200
Speaker 1: and journalists and newspeople, are they going to be allowed

245
00:12:50,240 --> 00:12:53,520
Speaker 1: in the jazz bar at the Peace Hotel and years?

246
00:12:53,559 --> 00:12:55,839
Speaker 1: I don't well, I don't have a specific answer for

247
00:12:56,040 --> 00:12:58,839
Speaker 1: for that. But but the but on the but the

248
00:12:58,920 --> 00:13:01,720
Speaker 1: five years issue is inportant. Look, we have an election

249
00:13:01,760 --> 00:13:04,360
Speaker 1: coming up in the United States in you know, eighteen months,

250
00:13:04,480 --> 00:13:08,439
Speaker 1: less than eighteen months, and uh, at that point, you know,

251
00:13:08,520 --> 00:13:11,360
Speaker 1: if somebody else, you know, I tried to say how

252
00:13:11,440 --> 00:13:13,480
Speaker 1: the politics is, but if the president gets re elected,

253
00:13:13,640 --> 00:13:15,760
Speaker 1: he will not have as much of a political interest

254
00:13:15,840 --> 00:13:18,600
Speaker 1: in stirring up the base with sort of nationalist frenzy.

255
00:13:19,080 --> 00:13:21,200
Speaker 1: If the president is not re elected and somebody else

256
00:13:21,280 --> 00:13:24,200
Speaker 1: comes in, it's hard to believe that whoever would replace

257
00:13:25,440 --> 00:13:27,839
Speaker 1: the president would be as aggressive on trade as Donald

258
00:13:27,840 --> 00:13:30,800
Speaker 1: Trump has been. So either way, I'm not sure that

259
00:13:31,240 --> 00:13:33,439
Speaker 1: the the effort on the U S side or the

260
00:13:33,440 --> 00:13:35,679
Speaker 1: aggression of the U S side, aggressiveness in the U

261
00:13:35,800 --> 00:13:38,040
Speaker 1: S side with regarded trade is going to be um

262
00:13:38,160 --> 00:13:40,400
Speaker 1: as strong. After the next election. As it is right now,

263
00:13:40,520 --> 00:13:42,800
Speaker 1: we are consumed with a tride story at the moment

264
00:13:43,200 --> 00:13:45,440
Speaker 1: him the United States that dates is really interesting right now.

265
00:13:45,480 --> 00:13:47,559
Speaker 1: It's actually quite difficult to get your hands around what

266
00:13:47,760 --> 00:13:50,720
Speaker 1: is happening with the U. S. Economy. You've pointed out, David,

267
00:13:50,800 --> 00:13:52,200
Speaker 1: and I'd love you to give us some more color

268
00:13:52,280 --> 00:13:55,360
Speaker 1: on this. That the high sentiment rates that we're getting

269
00:13:55,600 --> 00:13:58,319
Speaker 1: for the consumer, especially over the last week or so,

270
00:13:59,000 --> 00:14:02,200
Speaker 1: maybe a little bit miss leading. Well, you know, absolutely well.

271
00:14:02,240 --> 00:14:05,160
Speaker 1: The first thing is University of Michigan Index Consumer Sentiment.

272
00:14:05,240 --> 00:14:08,760
Speaker 1: They interview less than three people for their initial survey.

273
00:14:08,840 --> 00:14:12,000
Speaker 1: I'm sorry, three other people is not a survey in

274
00:14:12,280 --> 00:14:15,520
Speaker 1: economic terms, so I've been nervous that number anyway. But also,

275
00:14:15,960 --> 00:14:18,360
Speaker 1: sentiment gesture reflects what people are hearing about the state

276
00:14:18,440 --> 00:14:20,320
Speaker 1: of the economy. You ask people, well, how are how

277
00:14:20,440 --> 00:14:22,360
Speaker 1: is the economy and your neighbor how on earth would

278
00:14:22,360 --> 00:14:24,280
Speaker 1: you know? People don't talk about their money in their neighborhood.

279
00:14:24,320 --> 00:14:26,160
Speaker 1: People don't all sit around the local bar as if

280
00:14:26,200 --> 00:14:27,920
Speaker 1: it was cheers or something and talk about what's going

281
00:14:27,920 --> 00:14:30,520
Speaker 1: on the economy. They read the economy based on what

282
00:14:30,640 --> 00:14:32,120
Speaker 1: they hear in the news, and they're not hearing anything

283
00:14:32,160 --> 00:14:34,600
Speaker 1: bad on the news. So that's that's what's going on

284
00:14:34,800 --> 00:14:37,640
Speaker 1: right now. But also what you know is happening is

285
00:14:37,680 --> 00:14:41,520
Speaker 1: a consumer consumer income is now got a huge boost

286
00:14:41,760 --> 00:14:44,640
Speaker 1: from the tax cut, but that effect is fading. And

287
00:14:44,760 --> 00:14:46,840
Speaker 1: if later on this year you have hired another twenty

288
00:14:47,080 --> 00:14:49,240
Speaker 1: percent twiffs and Chinese goods, that's gonna be a further

289
00:14:49,320 --> 00:14:52,600
Speaker 1: squeeze on consumer income. So we know consumer incomes are fading.

290
00:14:52,640 --> 00:14:55,200
Speaker 1: We've no we've seen an inventory build. This economy is

291
00:14:55,280 --> 00:14:58,000
Speaker 1: actually slowing down from three percent to two percent. I

292
00:14:58,080 --> 00:15:00,800
Speaker 1: think the first are you talking about a two percent

293
00:15:00,920 --> 00:15:03,640
Speaker 1: run rate for global economy? No? No, for the US economy?

294
00:15:03,640 --> 00:15:05,960
Speaker 1: What about always CD? Always CD just goes from three

295
00:15:06,000 --> 00:15:09,200
Speaker 1: point three down to three point two? Are you there? Well? Yeah,

296
00:15:09,280 --> 00:15:10,640
Speaker 1: I mean I'm not. I'm not gonna argue with them

297
00:15:10,640 --> 00:15:12,920
Speaker 1: about a tenth. And but the more important point is

298
00:15:13,200 --> 00:15:15,240
Speaker 1: that's the three and we cannot sustain a three in

299
00:15:15,280 --> 00:15:17,640
Speaker 1: the US. We can't sustain it too. So if you're

300
00:15:17,680 --> 00:15:19,400
Speaker 1: a long term investor, do you want to be investing

301
00:15:19,440 --> 00:15:21,840
Speaker 1: an economy with a steady state growth rate of three

302
00:15:22,080 --> 00:15:23,840
Speaker 1: or steady state growth rate of two or less? And

303
00:15:23,920 --> 00:15:25,880
Speaker 1: that would be still a reason to be invested around

304
00:15:25,880 --> 00:15:28,520
Speaker 1: the world. But this is critical the run right now

305
00:15:29,040 --> 00:15:32,840
Speaker 1: for the global economy. In textbooks and studies, it's always

306
00:15:32,920 --> 00:15:36,120
Speaker 1: been four and five percent. Are those days over as

307
00:15:36,160 --> 00:15:39,600
Speaker 1: the new terminal rate for the global GDP three percent,

308
00:15:39,880 --> 00:15:42,960
Speaker 1: a bit over three, But yes, because because you can,

309
00:15:43,040 --> 00:15:45,920
Speaker 1: Because you can, you can. We What we're looking at

310
00:15:46,080 --> 00:15:49,200
Speaker 1: is throughout the developed world we've got very slow labor

311
00:15:49,280 --> 00:15:52,080
Speaker 1: force growth coming. When we're in the last ten years,

312
00:15:52,120 --> 00:15:54,200
Speaker 1: we were coming out off the Great Financial Crisis, we're

313
00:15:54,240 --> 00:15:56,480
Speaker 1: employing people. But if you look you over the next

314
00:15:56,720 --> 00:16:00,880
Speaker 1: ten years, you're going to see um, actually no labor

315
00:16:00,960 --> 00:16:03,760
Speaker 1: force growth in Europe. You're going to see declining labor

316
00:16:03,840 --> 00:16:08,440
Speaker 1: force in uh in Japan, um. China is turning the

317
00:16:08,520 --> 00:16:10,440
Speaker 1: corner also, so you don't have the labor force growth

318
00:16:10,520 --> 00:16:13,120
Speaker 1: and you get some productivity growth, but it's again it's

319
00:16:13,160 --> 00:16:15,920
Speaker 1: not a huge build in manufacturing or agriculture, which tend

320
00:16:15,920 --> 00:16:19,040
Speaker 1: to have a lot of productivity growth. It's it's services.

321
00:16:19,080 --> 00:16:21,360
Speaker 1: So we're going to slow in productivity, we're gonna slow

322
00:16:21,400 --> 00:16:23,320
Speaker 1: in terms of labor force growth. The global economy is

323
00:16:23,320 --> 00:16:24,840
Speaker 1: going to grow more slowly, and by the way, that's

324
00:16:24,840 --> 00:16:28,520
Speaker 1: not necessarily bad. Because you know, we the global economy

325
00:16:28,560 --> 00:16:30,640
Speaker 1: cannot you know, if we grow as fast as we

326
00:16:30,720 --> 00:16:33,520
Speaker 1: are and people and in stuff, we're eventually going to

327
00:16:33,640 --> 00:16:36,680
Speaker 1: choke ourselves. So you know, I'm not an economist who

328
00:16:36,680 --> 00:16:39,040
Speaker 1: says we must always have strong long term growth. But

329
00:16:39,200 --> 00:16:41,920
Speaker 1: from an investment perspective, yes, the global economy will grow

330
00:16:41,960 --> 00:16:43,840
Speaker 1: more slowly. It's a find a question, and perhaps the

331
00:16:43,880 --> 00:16:46,200
Speaker 1: most important one given everything You've said, What do I

332
00:16:46,280 --> 00:16:48,760
Speaker 1: want to own right now? Um? Well, I think I

333
00:16:48,840 --> 00:16:51,240
Speaker 1: think you just it depends on how long you're investing for.

334
00:16:51,360 --> 00:16:53,560
Speaker 1: If you if you're investing for the long run, I'd

335
00:16:53,560 --> 00:16:57,000
Speaker 1: still be outside the United States. I'd overweight out. I think,

336
00:16:57,040 --> 00:16:58,720
Speaker 1: of course i'd be. I'd have a chip in every

337
00:16:58,720 --> 00:17:01,160
Speaker 1: square to start with. But if I had an extra trip,

338
00:17:01,200 --> 00:17:04,159
Speaker 1: I put it overseas and emerging markets. Because once you

339
00:17:04,200 --> 00:17:06,200
Speaker 1: get to the backside of this trade war, and eventually

340
00:17:06,240 --> 00:17:09,800
Speaker 1: you will, they've got the demographic growth and productivity growth

341
00:17:09,800 --> 00:17:11,960
Speaker 1: to do. Frankly, what the developed world can do? What's

342
00:17:12,000 --> 00:17:14,439
Speaker 1: the time arizon for this? Because some people might reflect

343
00:17:14,480 --> 00:17:16,200
Speaker 1: on the story of last year and say, well, that

344
00:17:16,280 --> 00:17:18,359
Speaker 1: doesn't add up. I'd expect the US to outperform in

345
00:17:18,400 --> 00:17:21,119
Speaker 1: this kind of disruptive period that we faced last year

346
00:17:21,160 --> 00:17:23,000
Speaker 1: and may will spill over into the next couple of years.

347
00:17:23,040 --> 00:17:26,040
Speaker 1: What's the time arising for this, David, Well, you know,

348
00:17:26,080 --> 00:17:28,720
Speaker 1: I would not be surprised if within the next year

349
00:17:29,400 --> 00:17:31,080
Speaker 1: e M and the rest of the world started out

350
00:17:31,119 --> 00:17:33,280
Speaker 1: performing in the US, because we're going to see that

351
00:17:33,359 --> 00:17:34,960
Speaker 1: slow down in the US one way or the other. Now,

352
00:17:35,400 --> 00:17:37,800
Speaker 1: if we see a slowdown and a crash into recession

353
00:17:38,200 --> 00:17:40,919
Speaker 1: or greater crisis, then yes, the U s may temporarily

354
00:17:41,000 --> 00:17:43,240
Speaker 1: outperformed the rest of the world. But if we stabilize

355
00:17:43,280 --> 00:17:45,119
Speaker 1: at a slow pace of growth, then I think there

356
00:17:45,119 --> 00:17:48,240
Speaker 1: will be a switch over to international equities doing better

357
00:17:48,240 --> 00:17:51,119
Speaker 1: than US equities. Very interesting. That debate will continue on

358
00:17:51,200 --> 00:17:54,280
Speaker 1: this program. David Kelly, JP, Morgan Investment Management VP and

359
00:17:54,320 --> 00:17:57,399
Speaker 1: Global market strategist. Great to catch up with your tag bit.

360
00:17:57,520 --> 00:18:01,280
Speaker 1: Good to see it. So he is a gentleman from

361
00:18:01,320 --> 00:18:05,320
Speaker 1: Maine and from the outskirts of Boston, Robert Diamond. He is,

362
00:18:05,320 --> 00:18:08,520
Speaker 1: of course for years with Barclays and out of Colby College,

363
00:18:08,560 --> 00:18:12,080
Speaker 1: now with Atlas Merchant Capital. Bob Well, time to have

364
00:18:12,200 --> 00:18:16,160
Speaker 1: you here today. Deutsche Bank a mass in the ft today.

365
00:18:16,240 --> 00:18:21,399
Speaker 1: Patrick Jenkins dovetails a Golden Sas acquisition. I guess of

366
00:18:21,480 --> 00:18:25,159
Speaker 1: the good bank of Deutsche Bank. Do American banks of

367
00:18:25,320 --> 00:18:30,680
Speaker 1: any place in the salvation of European banking. That's a

368
00:18:30,760 --> 00:18:33,760
Speaker 1: really good question, Tom. I I wouldn't think that that

369
00:18:33,920 --> 00:18:36,560
Speaker 1: makes sense. I don't know what Goldman gets out of that.

370
00:18:36,960 --> 00:18:38,840
Speaker 1: I mean, Goldman is not going to have a stronger

371
00:18:38,920 --> 00:18:42,040
Speaker 1: investment bank by integrating with with Deutsche. And I think

372
00:18:42,080 --> 00:18:46,200
Speaker 1: the fundamental issue that the chairman Paul Older faces is

373
00:18:46,359 --> 00:18:49,240
Speaker 1: what is the business model going forward? I mean it's

374
00:18:49,240 --> 00:18:51,159
Speaker 1: a bit pejorative to say it this way, but I

375
00:18:51,280 --> 00:18:53,760
Speaker 1: believe it. If you go back ten years to the crisis,

376
00:18:54,480 --> 00:18:57,600
Speaker 1: then Deutsche was a trader built by traders for traders.

377
00:18:57,760 --> 00:19:00,320
Speaker 1: It was about risk, it was about assets, it about

378
00:19:00,359 --> 00:19:04,240
Speaker 1: balance sheet, and post crisis, that's not what the regulators

379
00:19:04,359 --> 00:19:06,920
Speaker 1: or the political leaders are going to allow. So it

380
00:19:07,000 --> 00:19:09,720
Speaker 1: takes a dramatic shift. And I think the struggles we've

381
00:19:09,760 --> 00:19:12,120
Speaker 1: seen with Deutscha and the lower share price are really

382
00:19:12,200 --> 00:19:15,000
Speaker 1: around what is the business model that's going to make

383
00:19:15,040 --> 00:19:17,080
Speaker 1: money going forward. So there was a jug yesterday that

384
00:19:17,160 --> 00:19:19,520
Speaker 1: the Article and White Government sect should not buy Deutsche

385
00:19:19,560 --> 00:19:22,000
Speaker 1: Bank would be about five times as long. I mean,

386
00:19:22,080 --> 00:19:25,040
Speaker 1: that's a story. I mean, granted it was a decent

387
00:19:25,080 --> 00:19:29,479
Speaker 1: pace Tom, but the idea that Patrick hatch that at

388
00:19:29,520 --> 00:19:31,160
Speaker 1: the end of the article, I think that just sounds

389
00:19:31,200 --> 00:19:33,080
Speaker 1: like insanity to a lot of people at the moment.

390
00:19:33,160 --> 00:19:34,879
Speaker 1: Let's talk about the kind of business model that does

391
00:19:34,920 --> 00:19:37,680
Speaker 1: work in Europe right now, Bob, what is it? So

392
00:19:37,840 --> 00:19:39,959
Speaker 1: if I look at my Alma monitor, if I look

393
00:19:40,000 --> 00:19:44,000
Speaker 1: at Barclay's, if investment banking is struggling, they have a

394
00:19:44,080 --> 00:19:47,359
Speaker 1: strong underlying retail business. They have a very very strong

395
00:19:47,440 --> 00:19:49,879
Speaker 1: credit card business, and they have an investment banking business.

396
00:19:49,960 --> 00:19:53,920
Speaker 1: All three on their own are credible market leaders and

397
00:19:54,000 --> 00:19:56,760
Speaker 1: can make money. I think in the Deutsche situation, one

398
00:19:56,800 --> 00:19:59,959
Speaker 1: of the challenges is they don't have that underlying retail

399
00:20:00,080 --> 00:20:02,240
Speaker 1: business in Germany, or it doesn't appear to me that

400
00:20:02,359 --> 00:20:07,320
Speaker 1: the post Bank acquisition has given him that that earnings juggernaut,

401
00:20:07,359 --> 00:20:10,240
Speaker 1: if you will. So they don't have the ballast or

402
00:20:10,280 --> 00:20:13,439
Speaker 1: the or the support. When you look at the French banks,

403
00:20:13,480 --> 00:20:15,560
Speaker 1: when you look at the Spanish banks, you see them

404
00:20:15,640 --> 00:20:20,399
Speaker 1: with that core underlying domestic retail and corporate business that

405
00:20:20,560 --> 00:20:24,760
Speaker 1: is strong. Italy Spain is Italy part of this story

406
00:20:25,359 --> 00:20:29,000
Speaker 1: you're in Italy right now. We are a lead investor

407
00:20:29,080 --> 00:20:31,760
Speaker 1: in a limity the bank that Crato Piscera has started.

408
00:20:31,840 --> 00:20:36,320
Speaker 1: It's going quite well now. No legacy loans, not a

409
00:20:36,480 --> 00:20:39,600
Speaker 1: single loan on the balance sheet, so no legacy technology.

410
00:20:39,640 --> 00:20:41,760
Speaker 1: We've been able to bring in all our own technology.

411
00:20:41,800 --> 00:20:43,639
Speaker 1: And as you know, in this day and age, you

412
00:20:43,680 --> 00:20:46,280
Speaker 1: don't have to develop technology. You can buy the packages

413
00:20:46,359 --> 00:20:50,760
Speaker 1: and put them together and compartmentalize them. So the Italian banks,

414
00:20:50,840 --> 00:20:54,080
Speaker 1: the traditional banks, are still riddled with non performing loans.

415
00:20:54,440 --> 00:20:57,359
Speaker 1: So I think there's a great opportunity, and I mentioned

416
00:20:57,400 --> 00:21:00,320
Speaker 1: this to you offline. In Spain and Portugal, I there's

417
00:21:00,320 --> 00:21:04,000
Speaker 1: a downright Iberian renaissance happening. I don't want to get

418
00:21:04,080 --> 00:21:06,280
Speaker 1: way out, but it wasn't that long ago that youth

419
00:21:06,359 --> 00:21:10,440
Speaker 1: unemployment in Spain was thirty five And we're really seeing

420
00:21:10,480 --> 00:21:14,160
Speaker 1: the periphery of Europe outpace core Europe, and I think

421
00:21:14,160 --> 00:21:16,720
Speaker 1: it's quite interesting. Can you explain to our global audience

422
00:21:16,760 --> 00:21:22,000
Speaker 1: of sophisticates but also everybody else, if investment banking is challenged,

423
00:21:22,760 --> 00:21:25,680
Speaker 1: why can't they just cut costs, whether it's Deutsche Bank

424
00:21:25,800 --> 00:21:29,560
Speaker 1: or any other bank. Is there such a fixed investment

425
00:21:29,800 --> 00:21:33,760
Speaker 1: nature to investment banking that if they're struggling, you can't

426
00:21:33,800 --> 00:21:36,000
Speaker 1: just cut costs like you would in any other division.

427
00:21:36,400 --> 00:21:40,080
Speaker 1: I think the good investment banks have learned that um

428
00:21:40,320 --> 00:21:42,920
Speaker 1: and I think there was a period post the crisis

429
00:21:43,000 --> 00:21:45,200
Speaker 1: where they were having a hard time figuring out what's

430
00:21:45,240 --> 00:21:48,920
Speaker 1: the core business or the appropriate size. But you know,

431
00:21:49,000 --> 00:21:52,000
Speaker 1: the US investment banks, although it was a tough fourth quarter,

432
00:21:52,119 --> 00:21:53,840
Speaker 1: in the first quarter, you know it's somewhat it will

433
00:21:53,880 --> 00:21:57,920
Speaker 1: always be somewhat SA decisions. US investment banks are doing well.

434
00:21:58,080 --> 00:22:02,040
Speaker 1: Why can't European banks make that same set of decisions?

435
00:22:02,160 --> 00:22:05,719
Speaker 1: It seemed to become easily under the Anglo Saxon model. Well,

436
00:22:05,800 --> 00:22:09,399
Speaker 1: I think one of the advantages for the I mean,

437
00:22:09,760 --> 00:22:12,560
Speaker 1: I think there's a good reason why the one credible

438
00:22:13,080 --> 00:22:16,360
Speaker 1: competitor to the US investment banks is still Barkley's Capital,

439
00:22:16,800 --> 00:22:21,600
Speaker 1: notwithstanding the the harsh regulatory environment in the UK, ring

440
00:22:21,720 --> 00:22:26,159
Speaker 1: fencing tax on your global balance sheet. Notwithstanding that, the

441
00:22:26,480 --> 00:22:30,679
Speaker 1: reason is the Lehman acquisition. They have a deep client

442
00:22:30,800 --> 00:22:33,200
Speaker 1: presence and a deep business here in the US, and

443
00:22:33,280 --> 00:22:36,600
Speaker 1: the US is really the if you don't have a

444
00:22:36,680 --> 00:22:39,159
Speaker 1: strong presence in the U, s a credible presence and

445
00:22:39,200 --> 00:22:42,000
Speaker 1: a profitable presence. It's unlikely that you're going to be

446
00:22:42,080 --> 00:22:44,560
Speaker 1: a great slobal investment bankage. Did you see how he

447
00:22:44,720 --> 00:22:47,680
Speaker 1: has two plugs for Barclay's just to the last five

448
00:22:47,720 --> 00:22:54,919
Speaker 1: minutes two seconds. It's still loyal to the front quite clearly. So, Pop,

449
00:22:55,040 --> 00:22:56,639
Speaker 1: you mentioned something that if you can't compete in the

450
00:22:56,720 --> 00:22:59,760
Speaker 1: United States, you can't be a global bank. Can you

451
00:22:59,800 --> 00:23:02,680
Speaker 1: have banks become global banks? Then? Because taking the client

452
00:23:02,720 --> 00:23:04,439
Speaker 1: that can compete in the United States. I don't think

453
00:23:04,520 --> 00:23:06,879
Speaker 1: European banks should be focused on being global banks. They

454
00:23:06,920 --> 00:23:09,800
Speaker 1: should be focused on being number one great in their

455
00:23:09,920 --> 00:23:12,560
Speaker 1: country and number two great in the region. And I

456
00:23:12,640 --> 00:23:15,960
Speaker 1: do think there's an opportunity over the next what three

457
00:23:16,119 --> 00:23:19,359
Speaker 1: five seven years to start to see some cross border

458
00:23:19,400 --> 00:23:22,600
Speaker 1: consolidation in Europe, but it's not going to happen until

459
00:23:22,640 --> 00:23:26,480
Speaker 1: we see domestic consolidation and capacity needs to be cut to.

460
00:23:26,560 --> 00:23:29,000
Speaker 1: I would assume that somebody's country, So how do they

461
00:23:29,040 --> 00:23:33,000
Speaker 1: swatted that? So you know you, I was surprised, quite

462
00:23:33,040 --> 00:23:37,000
Speaker 1: honestly that the Deutsche Bank Commerce Bank didn't go through it.

463
00:23:38,040 --> 00:23:40,800
Speaker 1: Please you're the only one who thinks that. Continue um,

464
00:23:41,119 --> 00:23:43,160
Speaker 1: So I didn't see the numbers so I'm I'm dealing

465
00:23:43,240 --> 00:23:49,040
Speaker 1: without those but um uh, the opportunity to UM, you know,

466
00:23:49,240 --> 00:23:53,840
Speaker 1: be more of a UM high presence domestic player, to

467
00:23:53,920 --> 00:23:57,160
Speaker 1: have more of that market to take out costs UM

468
00:23:57,600 --> 00:24:00,200
Speaker 1: and the government already owns part of commerce bank could

469
00:24:00,240 --> 00:24:02,720
Speaker 1: just seem to be a natural for kind of a

470
00:24:02,800 --> 00:24:04,960
Speaker 1: resolution to some of the challenge. I'll agree with you,

471
00:24:05,119 --> 00:24:08,320
Speaker 1: but the behavior, the culture of executives wasn't there to

472
00:24:08,440 --> 00:24:12,960
Speaker 1: make tough decisions, right. Uh. You know, I'm from a distance,

473
00:24:13,280 --> 00:24:15,480
Speaker 1: but I would have a hard time arguing with you.

474
00:24:16,280 --> 00:24:19,280
Speaker 1: You're a new Italian bank? Well, what you mean? Golden

475
00:24:19,320 --> 00:24:20,920
Speaker 1: sax is doing a bank? I can't remember what the

476
00:24:21,000 --> 00:24:23,640
Speaker 1: name of it is right now, you know, yeah, thank

477
00:24:23,680 --> 00:24:25,600
Speaker 1: you whatever it is that. I mean, everybody's got a bank.

478
00:24:25,640 --> 00:24:27,479
Speaker 1: What's going to be your angle? So I have an

479
00:24:27,520 --> 00:24:29,760
Speaker 1: a t M at the Spanish Steps right next to

480
00:24:29,800 --> 00:24:34,800
Speaker 1: the Gucci store. Our angle is no legacy loans, all digital,

481
00:24:35,720 --> 00:24:38,320
Speaker 1: all digital. So are well, we'll have a few branches,

482
00:24:38,400 --> 00:24:40,280
Speaker 1: but most of our deposits are coming in. So what

483
00:24:40,320 --> 00:24:43,000
Speaker 1: do you learn from my angel? Lending is too small business?

484
00:24:43,040 --> 00:24:44,800
Speaker 1: What are you learning from my n G is sort

485
00:24:44,800 --> 00:24:49,680
Speaker 1: of an all digital early early provider. I'm not sure

486
00:24:49,760 --> 00:24:52,800
Speaker 1: they've been. The model is is uh, as much as

487
00:24:52,920 --> 00:24:56,520
Speaker 1: just what the what the environment proposes. It's not hard.

488
00:24:57,320 --> 00:25:00,440
Speaker 1: It's not hard to build a digital bank if you're

489
00:25:00,440 --> 00:25:03,560
Speaker 1: starting from scratch. It's very hard to build a digital

490
00:25:03,600 --> 00:25:07,800
Speaker 1: bank starting from decades and decades and decades and decades

491
00:25:07,960 --> 00:25:10,920
Speaker 1: of non cloud based old technology. It was the last

492
00:25:10,960 --> 00:25:13,320
Speaker 1: time you were in a branch in a bank prompt

493
00:25:13,520 --> 00:25:16,720
Speaker 1: I was like maybe weeks or something really something like that,

494
00:25:16,760 --> 00:25:18,560
Speaker 1: I will tell you, And I wish we had Bob

495
00:25:18,640 --> 00:25:23,760
Speaker 1: for longer. The way, okay, retail banking has changed versus say,

496
00:25:23,800 --> 00:25:27,280
Speaker 1: the United States, I'm willing to say the US is

497
00:25:27,359 --> 00:25:31,480
Speaker 1: perhaps five years behind, maybe even behind some spaces five years.

498
00:25:31,520 --> 00:25:34,199
Speaker 1: It is a radical difference for me my experience here,

499
00:25:34,280 --> 00:25:37,080
Speaker 1: even farther behind China. They're getting so tech enabled so

500
00:25:37,440 --> 00:25:41,639
Speaker 1: so quickly. It's it's it's James Diamond catch up. Uh.

501
00:25:42,600 --> 00:25:44,399
Speaker 1: You know, I'm not close enough to what he's doing,

502
00:25:44,480 --> 00:25:46,679
Speaker 1: but it seems to me that he's putting the appropriate

503
00:25:46,760 --> 00:25:51,080
Speaker 1: focus on technology and partnerships. UM, so he certainly has

504
00:25:51,160 --> 00:25:53,960
Speaker 1: the attention. Is he leaving or does he get to stay?

505
00:25:53,960 --> 00:25:55,280
Speaker 1: I don't know. I'd love to keep Bob, can you

506
00:25:55,359 --> 00:25:57,359
Speaker 1: hang out with us for a little whimp up? What

507
00:25:57,480 --> 00:26:01,240
Speaker 1: do we have next? I think? But Bob can somebody

508
00:26:01,280 --> 00:26:06,119
Speaker 1: from the red okay column? Okay, well we can do

509
00:26:06,200 --> 00:26:08,600
Speaker 1: that with Bob Diamond too. This is fun Bob Diamond

510
00:26:08,600 --> 00:26:12,680
Speaker 1: with us, of course, formerly with Barclay's Atlas Merchant Capital,

511
00:26:12,840 --> 00:26:18,480
Speaker 1: a banker in Italy. Yeah, sot Deep I reported earnings today,

512
00:26:19,000 --> 00:26:22,360
Speaker 1: stock trading off today a couple of points four points here.

513
00:26:22,640 --> 00:26:25,080
Speaker 1: Coles also had some disappointing numbers here to help us

514
00:26:25,080 --> 00:26:29,320
Speaker 1: break down the HD earning, Seamas Shop Bloomberg Intelligence consumer

515
00:26:29,359 --> 00:26:31,919
Speaker 1: analyst following all things retail for us, joining us here

516
00:26:31,960 --> 00:26:34,520
Speaker 1: on a Bloomberg and Active broker studio. So Seema, let's

517
00:26:34,520 --> 00:26:36,560
Speaker 1: start with home Depot. As Tom said, it's they're just

518
00:26:36,800 --> 00:26:40,600
Speaker 1: everywhere they are. Um, what happened today? So basically what happened?

519
00:26:40,640 --> 00:26:43,200
Speaker 1: They had a very wet February that was the only

520
00:26:43,320 --> 00:26:45,719
Speaker 1: month where they had negative comps. They saw acceleration through

521
00:26:45,760 --> 00:26:48,760
Speaker 1: the rest of the quarter, so that negatively impacted their

522
00:26:48,800 --> 00:26:51,359
Speaker 1: top line. And they also a significant lumberd deflation. I

523
00:26:51,400 --> 00:26:53,400
Speaker 1: think they said it could have impacted sales by about

524
00:26:53,400 --> 00:26:56,800
Speaker 1: two hundred million. So going forward deflation that means the

525
00:26:57,280 --> 00:27:01,199
Speaker 1: price of commodities, which is not included their guidance. And obviously,

526
00:27:01,240 --> 00:27:03,399
Speaker 1: as a building products company, they sell a lot of

527
00:27:03,480 --> 00:27:05,840
Speaker 1: lumber um and I would say that going forward, as

528
00:27:05,880 --> 00:27:09,879
Speaker 1: you look to their guidance, the potential of tariffs that

529
00:27:09,960 --> 00:27:13,840
Speaker 1: we've been talking about recently and the unknown about lumber

530
00:27:13,880 --> 00:27:17,119
Speaker 1: prices are really what's gonna be the factor for the sales.

531
00:27:17,280 --> 00:27:19,920
Speaker 1: So what specific comments that they have about the tariffs?

532
00:27:19,920 --> 00:27:22,800
Speaker 1: So they just kind of a generic kind of home depot,

533
00:27:23,240 --> 00:27:26,000
Speaker 1: I mean a Walmart kind of warning, like it's not

534
00:27:26,119 --> 00:27:28,600
Speaker 1: good for the consumer. It's probably gonna if it comes through,

535
00:27:28,680 --> 00:27:31,320
Speaker 1: it's not gonna be good for us. Yes, they just

536
00:27:31,400 --> 00:27:33,840
Speaker 1: said that they're still going through this fourth tronch to

537
00:27:33,880 --> 00:27:36,400
Speaker 1: see sort of what happens with it. But I think

538
00:27:36,440 --> 00:27:38,439
Speaker 1: if you step back, like Walmart, they have a very

539
00:27:38,560 --> 00:27:42,920
Speaker 1: diversified product assortment and very diversified vendors um so to

540
00:27:43,040 --> 00:27:45,560
Speaker 1: the extent that they might be able to um have

541
00:27:45,760 --> 00:27:49,240
Speaker 1: some impact there and probably push price as well. Do

542
00:27:49,359 --> 00:27:52,240
Speaker 1: they do they make money on lumber? I mean, is

543
00:27:52,240 --> 00:27:55,720
Speaker 1: it like cosmetics or something? Is like when we walk

544
00:27:56,040 --> 00:27:59,840
Speaker 1: think it's a low margin. Yes, the bigger some of

545
00:28:00,040 --> 00:28:02,800
Speaker 1: then the bigger ticket items like appliances and building products

546
00:28:02,840 --> 00:28:06,000
Speaker 1: are lower margin compared to some other categories. I mean,

547
00:28:06,040 --> 00:28:11,680
Speaker 1: I'm looking at a premium two by twelve, Paul, premium

548
00:28:11,760 --> 00:28:16,280
Speaker 1: two by twelve to their immense credit. In their overview,

549
00:28:17,040 --> 00:28:20,480
Speaker 1: they show that the two by twelve is actually one

550
00:28:20,520 --> 00:28:22,560
Speaker 1: and a half inches by eleven and a half inches.

551
00:28:23,160 --> 00:28:31,680
Speaker 1: I think I needed eighteen I needed eighteen foot two

552
00:28:31,720 --> 00:28:34,159
Speaker 1: by twelve. And this is serious stuff. I mean they

553
00:28:34,240 --> 00:28:36,159
Speaker 1: move a lot of this stuff, right, yes, they do,

554
00:28:36,359 --> 00:28:39,720
Speaker 1: so that is really what UM the big question is.

555
00:28:39,760 --> 00:28:41,640
Speaker 1: But I think the fact that so far they've reaffirmed

556
00:28:41,680 --> 00:28:45,080
Speaker 1: guidance UM that makes people feel much better, and a

557
00:28:45,240 --> 00:28:47,800
Speaker 1: lot of the negative impact to their top line was

558
00:28:47,880 --> 00:28:51,120
Speaker 1: driven by exogenous factors that they don't control lumber prices

559
00:28:51,200 --> 00:28:54,280
Speaker 1: and they don't control what the what's the revenue drive?

560
00:28:54,360 --> 00:28:56,160
Speaker 1: What are the two or three key revenue drivers for

561
00:28:56,200 --> 00:28:59,160
Speaker 1: this company that investors really focus on? Number one, it's

562
00:28:59,200 --> 00:29:04,000
Speaker 1: the pro customer. I think it's like over their sales, yes,

563
00:29:04,120 --> 00:29:07,680
Speaker 1: and much less. Pro customer is very important to continue

564
00:29:07,720 --> 00:29:11,479
Speaker 1: to develop UM products and services to service this pro

565
00:29:11,680 --> 00:29:14,360
Speaker 1: and gain loyalty and increase engagement. So I would say

566
00:29:14,440 --> 00:29:17,280
Speaker 1: that is number one, and then other sort of macro

567
00:29:17,440 --> 00:29:20,240
Speaker 1: factors that you look at his home price appreciation, existing

568
00:29:20,320 --> 00:29:23,320
Speaker 1: home sales, housing turner, and the age of the housing stock,

569
00:29:23,480 --> 00:29:26,440
Speaker 1: which the houses are pretty old in the United States

570
00:29:26,640 --> 00:29:28,840
Speaker 1: and so. And I think another thing that they didn't

571
00:29:28,880 --> 00:29:30,720
Speaker 1: highlight here but that we've been looking at is the

572
00:29:30,760 --> 00:29:33,880
Speaker 1: demographic shift. Millennials can't afford big houses. They often have

573
00:29:34,000 --> 00:29:36,840
Speaker 1: to buy smaller houses and remodeled them. And there's more

574
00:29:36,920 --> 00:29:39,320
Speaker 1: aging in place as the baby boomers age, and they

575
00:29:39,400 --> 00:29:41,200
Speaker 1: also have to remodel their house and they can still

576
00:29:41,200 --> 00:29:43,840
Speaker 1: live there. For a while. It was a duopoli. But

577
00:29:43,920 --> 00:29:46,520
Speaker 1: it seems like Lows has drifted away. Is that just

578
00:29:46,640 --> 00:29:49,640
Speaker 1: my Northeast bias and the fact there's a home depot

579
00:29:49,680 --> 00:29:53,880
Speaker 1: beneath me, Lows has drifted away. They had struggled recently.

580
00:29:53,920 --> 00:29:57,120
Speaker 1: They got a new CEO in July. He's all about

581
00:29:57,200 --> 00:30:00,880
Speaker 1: quote unquote going back to retail basics, hottyum, you know,

582
00:30:01,080 --> 00:30:05,280
Speaker 1: improving the technologies of technology, cutting costs, having better services

583
00:30:05,320 --> 00:30:07,560
Speaker 1: and products for the pro But I think in that

584
00:30:07,680 --> 00:30:11,360
Speaker 1: investment they're significantly behind home depot so and there tends

585
00:30:11,400 --> 00:30:14,240
Speaker 1: to be a spread between home depot comps and lows.

586
00:30:14,320 --> 00:30:17,440
Speaker 1: So I think this ways negatively on lows for tomorrow.

587
00:30:17,680 --> 00:30:19,800
Speaker 1: So tom I'm looking at the p g O function

588
00:30:19,880 --> 00:30:22,160
Speaker 1: on the terminal for home Depot and I see only

589
00:30:22,160 --> 00:30:24,880
Speaker 1: about eight or nine percent of their revenue comes from international.

590
00:30:24,960 --> 00:30:27,280
Speaker 1: Has that just been a stated strategy of the U

591
00:30:27,440 --> 00:30:29,200
Speaker 1: S markets? Just a great market, We don't need to

592
00:30:29,240 --> 00:30:32,320
Speaker 1: go anywhere else. Yeah, they're in uh, Canada and Mexico.

593
00:30:32,480 --> 00:30:34,760
Speaker 1: Mexico had a positive comp Canada has been a little

594
00:30:34,760 --> 00:30:37,920
Speaker 1: bit softer, which is not surprising. But I just think

595
00:30:38,120 --> 00:30:40,440
Speaker 1: that they think there's a lot of productivity and opportunity

596
00:30:40,560 --> 00:30:43,040
Speaker 1: United States, so they don't want to go too far

597
00:30:43,120 --> 00:30:47,200
Speaker 1: out of there. Let's go join us in studio with

598
00:30:47,240 --> 00:30:50,440
Speaker 1: Bloomberg Intelligence. Go bigger, broader down and let me give

599
00:30:50,440 --> 00:30:52,240
Speaker 1: you an assignment. You need to write a paper for

600
00:30:52,280 --> 00:30:56,880
Speaker 1: Bloomberg Intelligence. Right now, of Amazon forward twelve months, how

601
00:30:56,920 --> 00:31:01,040
Speaker 1: would you attack that theme in terms of thevaluation or No,

602
00:31:01,200 --> 00:31:04,160
Speaker 1: not so much Amazon itself, but the Amazon effect on

603
00:31:04,360 --> 00:31:07,600
Speaker 1: all of retail the next twelve moments. Right. The Amazon effect,

604
00:31:07,640 --> 00:31:10,240
Speaker 1: in my mind is that there is this shift in

605
00:31:10,360 --> 00:31:13,240
Speaker 1: purchasing not just to digital, but to mobile and Amazon

606
00:31:13,400 --> 00:31:16,280
Speaker 1: and even Walmart's trying to have this marketplace, and so

607
00:31:16,480 --> 00:31:19,160
Speaker 1: for typical retailers, they must invest in a mobile app

608
00:31:19,200 --> 00:31:21,760
Speaker 1: and a website and in this omni channel strategy, but

609
00:31:22,040 --> 00:31:24,120
Speaker 1: they will not get the return for that investment. That's

610
00:31:24,160 --> 00:31:27,640
Speaker 1: the risk for retailers omni working because all these people

611
00:31:27,720 --> 00:31:30,520
Speaker 1: tread out omni and I'm like, how omni is it?

612
00:31:30,720 --> 00:31:33,400
Speaker 1: Right now? Omni is necessary, It doesn't work as smoothly

613
00:31:33,440 --> 00:31:36,160
Speaker 1: as they will tell you on the conference call. Shipping.

614
00:31:36,280 --> 00:31:39,000
Speaker 1: Free shipping costs them a lot of money developing the

615
00:31:39,120 --> 00:31:42,160
Speaker 1: infrastructure to manage where somebody returns something and where it

616
00:31:42,240 --> 00:31:45,480
Speaker 1: is in supply chains. It's very expensive. And I don't

617
00:31:45,520 --> 00:31:47,560
Speaker 1: think with this shift to marketplaces and the fact that

618
00:31:47,640 --> 00:31:50,240
Speaker 1: real estate on your phone is precious, that all these

619
00:31:50,240 --> 00:31:51,880
Speaker 1: apps are gonna work. And that's what I think is

620
00:31:51,920 --> 00:31:54,400
Speaker 1: also contributing to the fact that many retailers are struggling.

621
00:31:54,520 --> 00:31:56,800
Speaker 1: See tom Unlike a lot of retail annal Seema has

622
00:31:56,880 --> 00:32:01,960
Speaker 1: consistently been barished on retailers ability to I need against

623
00:32:02,040 --> 00:32:05,840
Speaker 1: Amazon and do the moment it's all the rage. Amazon

624
00:32:05,920 --> 00:32:08,160
Speaker 1: is also allowed to be in a rational competitor right

625
00:32:08,280 --> 00:32:11,320
Speaker 1: everybody else, meaning that when other retailers say We're going

626
00:32:11,360 --> 00:32:13,840
Speaker 1: to have an investment year. Operating margin is going to

627
00:32:13,920 --> 00:32:17,680
Speaker 1: be hit over ramping up marketing. Their stock suffers, and

628
00:32:18,280 --> 00:32:20,040
Speaker 1: you know, if they don't turn things around and see

629
00:32:20,080 --> 00:32:23,080
Speaker 1: an immediate improvement in sales, usually the CEO is out,

630
00:32:23,400 --> 00:32:26,600
Speaker 1: whereas Amazon is has been given a lot more leeway

631
00:32:26,680 --> 00:32:30,000
Speaker 1: to just invest and be very price competitive. You see that,

632
00:32:30,120 --> 00:32:39,240
Speaker 1: Michael bar she just called us irrational in here, We're rational.

633
00:32:40,200 --> 00:32:43,480
Speaker 1: Seem a brilliant Thank you so much yesterday, just really brilliant.

634
00:32:44,880 --> 00:32:48,960
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

635
00:32:49,160 --> 00:32:54,440
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

636
00:32:54,520 --> 00:32:58,760
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

637
00:32:58,800 --> 00:33:02,600
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg

638
00:33:02,720 --> 00:33:03,000
Speaker 1: Radio