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Speaker 2: Let's get into it with big bank earnings. Carol Master,
Speaker 2: we got another big batch of earnings from the Wall
Speaker 2: Street banks from Bank of America, City Group in Goldman,
Speaker 2: Sachs all rallying at their highest today, Bava holding onto
Speaker 2: some of it, will City is selling off a little.
Speaker 3: Yeah, it's definitely been bouncing around here with a look
Speaker 3: at the quarter outlooks and the comps. Back with us
Speaker 3: as Cheryl Pate, She's senior portfolio manager at angel Oak
Speaker 3: Capitol Advisor. She joins us from Atlanta on this bank
Speaker 3: earnings Tuesday. Cheryl, good to have you back with us,
Speaker 3: so simon initial enthusiasm and even earlier in the trade.
Speaker 3: When it comes to the big three reporting today, it's
Speaker 3: playing out differently. Goldman just up about a quarter of
Speaker 3: a percent. It was up three point four percent earlier
Speaker 3: in the session. City was up nearly two percent at
Speaker 3: it TIES Today it's now down almost five percent b
Speaker 3: of a mean time was up about three and a
Speaker 3: half percent at of TIES, still holding on to a
Speaker 3: gain of about one point two percent. Walk us through
Speaker 3: the earnings from these big three, what it says to
Speaker 3: you and how you think they did.
Speaker 4: Yeah, absolutely, and I'm happy to be back on And
Speaker 4: I think the stock action today would line up with
Speaker 4: how we think the earnings really came out. I think
Speaker 4: we did have a preference for Bank of America into earnings,
Speaker 4: and I think we got a lot of what we wanted.
Speaker 4: There are certainly finds that the operating environment is becoming
Speaker 4: more positive. They highlighted that they think they're at the
Speaker 4: inflection point on NIM and that I think has been
Speaker 4: the key focus for a lot of investors when we
Speaker 4: hit that inflection point. Other than that, we also were
Speaker 4: positively encouraged by what we saw in consumer credit. The
Speaker 4: consumer continues to hold in well. We saw good trends
Speaker 4: on credit cards in terms of some of the charge
Speaker 4: of data improving from the prior quarter. That lines up
Speaker 4: with what we've been seeing in the monthly data as well.
Speaker 4: And then capital markets are strong too. If we loop
Speaker 4: that back to City. I think it's still a longer tailed,
Speaker 4: more of a self help restructuring story to go there,
Speaker 4: but a lot of the similar trends played out. I
Speaker 4: would say they were more cautious on the NIM guidance
Speaker 4: and guiding to flat, although that's probably a little bit
Speaker 4: better than what investors and analysts were expecting. And to
Speaker 4: round it out with Goldman, I think, you know, it
Speaker 4: was a very strong quarter capital markets across the board.
Speaker 4: I think there's still a little bit of question on
Speaker 4: the consumer division there, but all in all, I think
Speaker 4: it's been a good start to earning season.
Speaker 2: Cheryl, big picture you mentioned then a few times there.
Speaker 2: But if we take these three banks at what they
Speaker 2: said today, what's the picture of the American consumer they painted?
Speaker 2: And I know it's not monolithic. There's certainly some commentary
Speaker 2: from Bank of America about lower income consumers that differ
Speaker 2: from middle class and higher income consumers. But how would
Speaker 2: you characterize it taken together?
Speaker 4: Yeah, when we look at the consumer broadly, I do agree.
Speaker 4: I think we've seen really no weakness in terms of
Speaker 4: retail spending, particularly on the higher end, but still some
Speaker 4: pressures on a lower end. Lower FICO type consumer and
Speaker 4: that'll hit different banks and consumer finance companies differently based
Speaker 4: on their portfolios. But I think what we can see
Speaker 4: it is some credit normalization happening, but at a decelerating pace.
Speaker 4: So if we're moving into a rate cut environment and
Speaker 4: achieva soft landing, we feel pretty good about the consumer here,
Speaker 4: and you know, keeping eyes on the lower end, but
Speaker 4: some of the positive tailwinds should be helpful there.
Speaker 3: Hey, Cheryl, when you look at the big banks overall,
Speaker 3: of course, JP Morgan kicking off the earning season on Friday,
Speaker 3: and when you look at the group and the comps,
Speaker 3: who is best in class? Is it JP Morgan? In
Speaker 3: your view?
Speaker 4: I do agree with that. I think you do see that,
Speaker 4: you know, there is a valuation premium that comes along
Speaker 4: with JP Morgan, and I do think it is deserved.
Speaker 4: They've proven time and time again that you know that
Speaker 4: there really is this concept of the fortress balance sheet
Speaker 4: that has been talked about for years. But also they
Speaker 4: continue to deliver on sort of firing on all cylinders,
Speaker 4: so consistency and strength continues to play through there, and
Speaker 4: we do think that the premium valuation is deserving.
Speaker 3: Were you buying what have you been buying or selling.
Speaker 3: I am curious coming off of earnings, are heading into earnings,
Speaker 3: they're heading out of earnings yep.
Speaker 4: I would say we have been. We've been finding opportunities.
Speaker 4: I would say on the debt side of a lot
Speaker 4: of the money center banks, we have been adding to
Speaker 4: positions in names like JP Morgan and Bank of America,
Speaker 4: and we remain more cautious on the regional banks. Rate
Speaker 4: cuts could help the narrative there, but at this point
Speaker 4: in the cycle, we have a preference for the large
Speaker 4: cap given diversification of the business model, upside from capital
Speaker 4: markets and consumer exposure.
Speaker 3: We should put out JP Morgan Chase, the first of
Speaker 3: Wall Streets six biggest banks to tap the US investment
Speaker 3: grade bond market after reporting earnings, really setting the stage
Speaker 3: for a potential flood of issuance from the banking group overall.
Speaker 3: JP Morgan selling the bonds and as many as four parts,
Speaker 3: according to person with knowledge of the matter. So that
Speaker 3: talks about some of the debt, Cheryl, that you are
Speaker 3: suggesting and that may be interesting, Hey.
Speaker 2: Cheryl, any commentary or insight into dealing for the final
Speaker 2: quarter of the year and into next year. What m
Speaker 2: and A will look like, what IPOs will look like,
Speaker 2: and of course the fees associated with those for some
Speaker 2: of these banks.
Speaker 4: Yeah, I do think we are in sort of the
Speaker 4: early stages of the capital markets recovery, so we do
Speaker 4: expect continued strength coming out of both investment banking and
Speaker 4: the trading businesses in the fourth quarter and certainly into
Speaker 4: twenty twenty five as well. I think a little bit
Speaker 4: of relief on the rate side helps. We're hearing that
Speaker 4: pipelines are strong, and then even if we think about
Speaker 4: M and A within the banking sector specifically, we think
Speaker 4: there's a lot of reasons why that will increase over
Speaker 4: the next year or so, as efficiency gains and cost
Speaker 4: saves remain a key focus for the sector.
Speaker 3: In terms of City Group, which we know has been
Speaker 3: kind of changing in terms of strategy, and Jane Fraser
Speaker 3: making a lot of moods, you know, one of our
Speaker 3: stories that's on the Bloomberg talks about how she has
Speaker 3: had to deny that the bank had a secret regulatory
Speaker 3: straight jacket and took repeated questions by analysts for her
Speaker 3: to be clear that US regulators have not placed City
Speaker 3: under an acid cap, which has been one of the
Speaker 3: most feared and prohibitive penalties that we know regulators can
Speaker 3: place on us lenders. She's said, let me be crystal clear,
Speaker 3: we do not have an acid cap. We're not expecting any.
Speaker 3: But what does that say that she had to say
Speaker 3: that so many times and the concerns about you know,
Speaker 3: where city is going.
Speaker 4: Yeah, I think there is still some uncertainty as to
Speaker 4: the restructuring it and what city looks like when when
Speaker 4: we come through the other end of this. I think
Speaker 4: the first answer on the analyst call was was a
Speaker 4: little evasive and and you know, really was what was
Speaker 4: driving the need to be clear about that later. But
Speaker 4: but to me that signals there's there's still a lot
Speaker 4: of work to do in terms of execution on the strategy,
Speaker 4: and I think going to take some time for investors
Speaker 4: to buy into it.
Speaker 2: Kay, Cheryl, you mentioned that JP Morgan kind of stands
Speaker 2: out as a leader at least thus far when it
Speaker 2: comes to rounding out the earning season. Give us an
Speaker 2: update your view on who's at the other end of
Speaker 2: the pack right now, which which bank or which stock
Speaker 2: is lagging.
Speaker 4: If we're sort of looking at who's come out thus
Speaker 4: far in sort of the larger cap world. You know,
Speaker 4: I think I would say, you know, both City and Wells.
Speaker 5: On the lower end.
Speaker 4: Now, there's a lot of you know, sort of regulatory
Speaker 4: self help type narrative around both of those names. But
Speaker 4: I think also in terms of you know, forward guidance
Speaker 4: was a little less optimistic than what we're seeing at
Speaker 4: some of the other banks and just you know, maybe
Speaker 4: some more room in terms of improving confidence and driving
Speaker 4: valuations hired. It's a little bit of a longer tail,
Speaker 4: and there's some messiness around the numbers that that, you know,
Speaker 4: cause cause some uh, you know, varying views.
Speaker 3: Any indications in terms of the big bank earnings, what
Speaker 3: it tells you about kind of the US economic outlook
Speaker 3: or even the global economy since these are global banks.
Speaker 4: Yeah, I think most of the commentary, I would say,
Speaker 4: generally focused on on sort of domestic conditions, and I
Speaker 4: think it was a little bit more optimistic tone than
Speaker 4: last quarter. I think, you know, capital markets rebound is
Speaker 4: helping a lot here. But also we got the rate
Speaker 4: cut pretty late in the third third quarter, so there's
Speaker 4: you know, been some benefit that's played through in terms
Speaker 4: of AOCI and capital levels. But I don't think we
Speaker 4: saw the full benefit really in the numbers yet, and
Speaker 4: that's sort of to come in terms of the operating environment,
Speaker 4: and it seemed like a more optimistic tone generally speaking.
Speaker 4: I think Jamie Diamond was probably the more not not
Speaker 4: to say negative, but more cautious on sort of the
Speaker 4: more global environment, and that could play into some of
Speaker 4: the more international business lines, but that still tends to
Speaker 4: be a smaller piece that the next year or so
Speaker 4: is really I think going to be driven off sort
Speaker 4: of the fundamentals of key banking businesses.
Speaker 2: Hey, Cheryl, election less than three weeks away at this point,
Speaker 2: three weeks away exactly certainly top of mind for us.
Speaker 2: Our editor in chief here at Bloomberg News, John Mickaelthwaite,
Speaker 2: just wrapping up an interview with former President Donald Trump
Speaker 2: at the Economic Club of Chicago. I'm thinking, in your seat,
Speaker 2: how are you thinking about the way that Harris administration
Speaker 2: or another Trump administration would affect these big banks.
Speaker 4: Yeah, I think when we sort of think about potential
Speaker 4: outcomes from the election, you know, the view, the view
Speaker 4: from my seat would really be, you know, a democratic win,
Speaker 4: I think is status quo in terms of where we
Speaker 4: are in terms of capital levels. There's you know, perhaps
Speaker 4: a faster path to getting the final details on Basil
Speaker 4: three end game, and a Republican win I think would
Speaker 4: really maybe help advance some of the M and A
Speaker 4: I was speaking about and sort of loosening some of
Speaker 4: the regulations around around combinations, but also speeding up the
Speaker 4: time of approvals, which has been a bit of a
Speaker 4: you know, a lengthening process over the last few years.
Speaker 4: So sort of status quo to positive.
Speaker 3: You know, sol real quickly though, Donald Trump did tell
Speaker 3: John mcil thwaite when it comes to the FED, I
Speaker 3: think that if you're oh, he said, he thinks it's
Speaker 3: a fair game for president till the head of the
Speaker 3: Central Bank, how he thinks interest rates she change. If
Speaker 3: there is a second White House with Donald Trump in
Speaker 3: it and he plays around with the FED, that's a problem, right,
Speaker 3: real quickly, just got fifteen seconds.
Speaker 4: Yeah, now I would agree. I think the independence of
Speaker 4: the FED is critical.
Speaker 3: All right, Gonna leave it there. Cheryl Pate, Senior portfolio
Speaker 3: manager at angel Okappal Advisors. You're listening and watching Bloomberg
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Speaker 3: Well, the property market, it has started to stir again,
Speaker 3: bolsted in part by the Federal reserves first interest rate
Speaker 3: cut in more than four years. It's not, though, necessarily
Speaker 3: full steam ahead. As Bloomberg's Abigail Dolittle reported recently with
Speaker 3: Natalie Wong, many parts of the commercial property market have
Speaker 3: started to hit a bottom, but offices remain an outline.
Speaker 3: This is according to one specific real estate investment from BGO,
Speaker 3: which oversees him more than eighty three billion dollars.
Speaker 2: Here to talk more about that is Amy Price, president
Speaker 2: at the private commercial real estate firm Bgo, along with
Speaker 2: the Bloomberg News Markets correspondent Abagail Doolittle, who follows and
Speaker 2: reports on the real estate space as well. They both
Speaker 2: join us here in the studio. Amy, I want to
Speaker 2: start with you and just get this idea from you,
Speaker 2: that the property market has started to stir again. Is
Speaker 2: when we hear that, when we see that, what is
Speaker 2: the time period that's referring to, is that referring to
Speaker 2: when we knew rates would get cut or when rates
Speaker 2: were actually cut.
Speaker 5: Yeah, it's a good place to start. I would say
Speaker 5: we will look back and see the latter half of
Speaker 5: twenty four as that churning point for commercial real estate broadly. Now,
Speaker 5: as you pointed out, office is a bit of an
Speaker 5: exception to that, and I think we started to see
Speaker 5: that even in anticipation of that first rate cut, we
Speaker 5: saw more liquidity in the market. We saw more activity
Speaker 5: both on the credit side and on the equity side.
Speaker 5: But we're also seeing it now to the fourth quarter
Speaker 5: of this year. So yes, i'd say with the anticipation
Speaker 5: of rates having peaked, with the anticipation of you know,
Speaker 5: values having found their bottom and starting to increase again,
Speaker 5: Office a little bit different liquidity is returning to the market,
Speaker 5: and that's healthy.
Speaker 3: I want to ask you, in anticipation of rates going lower,
Speaker 3: I'm curious, how important is it that rates actually continue
Speaker 3: to go lower a lot to have a dramatic difference
Speaker 3: and impact on real estate, Like how sensitive and in
Speaker 3: terms of what the FED does.
Speaker 5: Yeah, real estate from an income and yield perspective, it's
Speaker 5: quite sensitive, right, And so I think certainly where interest
Speaker 5: rates level out and where they get to is very important.
Speaker 5: I would say the pace is less critical. You know,
Speaker 5: as an investor in real estate, we are generally long
Speaker 5: term investors, so we're really looking for yield an opportunity now,
Speaker 5: but we're measuring that also aligned with just the demand
Speaker 5: drivers the or longer term and that are kind of
Speaker 5: acycle goal. So we're looking for both. And so from
Speaker 5: an investor's perspective, you know, certainly how quickly rate suggests
Speaker 5: will drive velocity in the market, but longer term it
Speaker 5: has less of.
Speaker 3: How much lower would you like to see it go though, well,
Speaker 3: we'd like to see it go, but realistically to really
Speaker 3: kind of get a.
Speaker 5: Jolt, well, you know, listen, I think the jolt is
Speaker 5: probably you know, more than fifty basis points, okay, right,
Speaker 5: another twenty five to fifty is probably expected. More ordinary course. Again,
Speaker 5: question is the timing going beneath that we'll start to
Speaker 5: see more of a jolt from what's already been baked
Speaker 5: into the market today.
Speaker 6: So that's a pretty bold call. Amy on the idea
Speaker 6: that this last half of twenty twenty four could be
Speaker 6: the bottom and what's been a pretty painful cycle. So
Speaker 6: many people saying that it's going to take a long
Speaker 6: time to work out work it out. But one piece,
Speaker 6: as you were mentioning office that's still in pain. I
Speaker 6: was talking to one of the top private credit guys
Speaker 6: recently and he was saying that while the rest of
Speaker 6: them are it may be starting to recover that office
Speaker 6: is so painful. It's almost acting like this big weight
Speaker 6: around the leg of real estate. Are you seeing that
Speaker 6: at all? And to what degree could it remain a
Speaker 6: problem into twenty twenty five? Understanding that the bottom may
Speaker 6: be made right.
Speaker 5: So office is idiosyncratic this cycle, for sure. We're seeing
Speaker 5: the headwinds from return to office, you know, start to
Speaker 5: normalize the pendulum to kind of find it's I think
Speaker 5: it's equilibrium. But there's questions on the horizon about what
Speaker 5: does AI do for the future of office jobs, et cetera.
Speaker 5: So if you look forward in office, there's just you know,
Speaker 5: a much murkier picture ahead, and that is a bit
Speaker 5: of a weight against a diversified pool or diversified strategy.
Speaker 5: So I think that's part of why we're seeing more
Speaker 5: interest in you know, sometimes people refer them as a
Speaker 5: niche sectors, but specific strategies where you say, okay, I
Speaker 5: can invest into You know, some of these sectors that
Speaker 5: that are countercyclical, right, don't have the same headwinds's office.
Speaker 6: Does it eat into the dry powder though, of say
Speaker 6: some of the big sovereign funds that are in office
Speaker 6: that they can't get out of it, so they just
Speaker 6: don't have the money to allocate to these other sectors
Speaker 6: you're talking about.
Speaker 5: There is definitely capital tied up in office that would
Speaker 5: like to be out of office, but at the same time,
Speaker 5: probably more than you would think. At the same time,
Speaker 5: there's also what matters is the overall allocations to real
Speaker 5: estate as well, and what we are seeing now with
Speaker 5: rates normalizing hopefully beginning to decline, a renewed interest in
Speaker 5: real estate outside of office as an alternative for credit
Speaker 5: and yield strategies. So we're seeing some of that capital
Speaker 5: come back in to compliment the holdings in office.
Speaker 2: You operating twenty seven cities around the world, where exactly
Speaker 2: are you seeing strength and where are you seeing weakness
Speaker 2: in the US and outside the US.
Speaker 5: So one combin I make globally is that we see
Speaker 5: strength in Asia. I don't invest heavily into China, but
Speaker 5: we do in other markets Japan in particular, and so
Speaker 5: some of the what we've been talking about in office,
Speaker 5: for example, this conversation is not relevant the same way
Speaker 5: in Japan and in Asia. So we see opportunity and
Speaker 5: momentum there. And then i'd say in North America and
Speaker 5: in the US in particular, there are some markets. What
Speaker 5: we try to do is just obviously you're trying to
Speaker 5: be predictive. Where do we expect population growth to be,
Speaker 5: where do we expect job growth to be. So we
Speaker 5: are looking at markets that are both the anchors in
Speaker 5: New York absolutely a market that we are figuring out
Speaker 5: how to you know, we want to invest into at
Speaker 5: this point in the cycle, and then complementing that with
Speaker 5: growth markets. So some of the markets we think are
Speaker 5: compelling for industrial, for residential markets like Atlanta, you know,
Speaker 5: the Virginia market, Charlotte, they're they're seeing a lot of
Speaker 5: anything spand well not too far well, but yes, can
Speaker 5: I ask you.
Speaker 3: Something though, when you talk about office properties and concerns
Speaker 3: class A too, Our is class A still okay? Because
Speaker 3: we keep hearing that from everybody like class fine, it's
Speaker 3: the other.
Speaker 5: Step, yes, excellent point. It is absolutely the winners and
Speaker 5: the losers. So even beyond Class A, what I'd say
Speaker 5: is the highest quality, the best amendatized office, very strong demand.
Speaker 5: And if you one statistic I'll share is that if
Speaker 5: you look at buildings that have been built just in
Speaker 5: the last ten years as one metric of quality, there's
Speaker 5: positive net absorption i e. More demand for that space
Speaker 5: in the last three or four years. Now everything else
Speaker 5: built before that negative net absorption by multiple So you
Speaker 5: really see that in what tenants are looking for in
Speaker 5: terms of making occupancy decisions today.
Speaker 6: So that reminds me of industrial actually because one of
Speaker 6: the niche sectors that BGO likes is industrial and in
Speaker 6: part because seventy percent of it just does not really
Speaker 6: fit our lifestyle anymore. Talk to us about building that
Speaker 6: up and those investments that you're making in that space
Speaker 6: that you favor.
Speaker 3: And we have about a minute.
Speaker 5: Left, okay, So industrial, and more specifically, I'll touch on
Speaker 5: cold storage as one component of an indul austrial strategy
Speaker 5: because it exemplifies this.
Speaker 1: Well.
Speaker 5: What we look for is one where are there those
Speaker 5: secular shifts?
Speaker 1: Right?
Speaker 5: So e commerce, technology, robotics, automation, This is transforming the way,
Speaker 5: real estate is a critical piece of the supply chain
Speaker 5: and the delivery of those goods. So what are we
Speaker 5: looking for. We're looking for the barriers to entry, if
Speaker 5: you will, right, and the opportunity to kind of develop
Speaker 5: a high quality building, a modern building that's distinct from
Speaker 5: what was built, you know, twenty years ago and is
Speaker 5: really not meeting the millions of tenants today. So for example,
Speaker 5: sealing heights. You know, there's physical characteristics that you can't
Speaker 5: you know, renovate, you have to build.
Speaker 3: Come back, both of you. I'd love to continue this conversation.
Speaker 3: Really cool insight. Amy Price, President of BGO, and of
Speaker 3: course our Abigail Doolittle, markets correspondent. Here at Bloomberg News.
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Speaker 3: Got to get to one of the big market stories today,
Speaker 3: and that is a semi space.
Speaker 2: Yeah, taking a look at the socks right now, it's
Speaker 2: down more than five percent. A cloud hanging over the
Speaker 2: industry got ASML shares plunging the most in more than
Speaker 2: twenty five years. It booked only half the order's analysts
Speaker 2: expected in the third quarter at lowered guidance for twenty
Speaker 2: twenty five, and Nvidia shares also following today after reaching
Speaker 2: a record yesterday. Biden administration officials have discussed capping sales
Speaker 2: of advanced AI chips from Nvidia and other American companies
Speaker 2: on a country specific basis. People familiar with the matter
Speaker 2: telling our own Mackenzie Hawkins, Bloomberg News US Economic and
Speaker 2: Industrial policy reporter. She joins us from our Washington, DC bureau.
Speaker 2: Ian King is also joining us. He's Bloomberg News US
Speaker 2: semi conductor and networking reporter. He joins us from our
Speaker 2: San Francisco bureau.
Speaker 7: Ian.
Speaker 2: The video story is certainly a big one. But when
Speaker 2: you think of the entire chip sector also reacting to
Speaker 2: the news that we got mid morning New York time
Speaker 2: from ASML shares plunging today, what's the signal that they sent.
Speaker 8: Yeah, I mean, orders are obviously an indicator of future revenue,
Speaker 8: and what they said was we're getting a lot less
Speaker 8: in the future. Than you guys have been expecting, and
Speaker 8: that was not welcome news. It was done in a
Speaker 8: haphazard way. The report was published by mistake ahead of time,
Speaker 8: so cause basically a panic. And you've got to remember
Speaker 8: that this company is very much a leading indicator of
Speaker 8: what it's selling to the world. Is something which tells
Speaker 8: us something about what people feel about what's going to
Speaker 8: happen perhaps next year.
Speaker 3: Hey, is it though, Ian all about Intel, which is
Speaker 3: one of its biggest customers. Is that where the problem is?
Speaker 8: Yeah, I mean, obviously they're not going to name specific
Speaker 8: customers and call them out, particularly if things are bad
Speaker 8: for them, but you know, passing through the numbers, it's
Speaker 8: hard to go past the fact that this is probably
Speaker 8: at least partially Intel's doing that. Intel, as you know,
Speaker 8: and is going to spend a lot less money on
Speaker 8: plants and equipment because it can't afford to. And that
Speaker 8: has a real, you know, huge impact on a company
Speaker 8: like ASML and the chip equipment sector in general.
Speaker 2: In one more for you, and then we want to
Speaker 2: bring in Mackenzie on her in video scoop from earlier today.
Speaker 2: When you think about where ASML is in the semiconductor
Speaker 2: manufacturing process in the universe with these huge, incredible machines.
Speaker 2: What are the other companies we need to be watching
Speaker 2: as a result of the news we got from ASML today.
Speaker 8: Yeah, I mean it's a good question. We've seen that
Speaker 8: happen already. We've seen applied materials trade off. We've seen
Speaker 8: KLA ten core trade off. We've also seen LAM Research
Speaker 8: get hit, and we should probably look out for when
Speaker 8: Asia opens. What's going to happen to Tokyo Electron. These
Speaker 8: are all companies that are key suppliers of this technology.
Speaker 3: As we should point out, twenty eight names in the
Speaker 3: Philadelphia Semiconductor Index are lower today, only too to the upside.
Speaker 3: Mackenzie Hawkins, come on in on your scoop here. What
Speaker 3: do we know? What's the Biden administration seriously considering?
Speaker 7: So? For the past two years since the US first
Speaker 7: implemented sweeping export controls on advanced SEMDY conductors, a lot
Speaker 7: of the focus has been on China, and around a
Speaker 7: year ago, the US actually added trade restrictions to more
Speaker 7: than forty additional countries because of concerns that if Nvidia
Speaker 7: or AMD or some other AID ship maker sent those
Speaker 7: chips to places like the United Arab Emirates or Saudi Arabia,
Speaker 7: they could somehow wind up in Beijing's hands. But over
Speaker 7: the past couple of months, in particular, Biden administration officials
Speaker 7: has been looking at a range of other national security
Speaker 7: risks specific to these regions in the Middle East, Central
Speaker 7: and Southeast Asia, and parts of North Africa, things like
Speaker 7: human rights and surveillance concerns, counterintelligence risks to US intelligence
Speaker 7: personnel around the world, And they're beginning to think, you know,
Speaker 7: how high volume shipments are, how high of volume shipments
Speaker 7: should we allow in Nvidia and other AI ship makers
Speaker 7: to send to these countries to let them stand up
Speaker 7: their own AI infrastructure. So the latest development is that
Speaker 7: they're considering capping the total volume of sales that in
Speaker 7: Vidia and its rivals would be able to ship to
Speaker 7: places like countries in the Persian Gulf.
Speaker 2: Are there ways that countries and companies that operate in
Speaker 2: these countries can get around restrictions such as ease by
Speaker 2: using compute power in other parts of the world.
Speaker 7: So these countries are actually trying to stand up massive
Speaker 7: amounts of compute power themselves. Of course, an AI company
Speaker 7: can train its models on data centers that aren't located
Speaker 7: physically next door. But a big part of the Middle
Speaker 7: East AI push is to actually stand up these data centers.
Speaker 7: And so they're desperate to import ships from Nvidia, which
Speaker 7: is the far and away industry standard, the gold standard,
Speaker 7: and several generations ahead of any offerings from China. But
Speaker 7: the US government is not wholesale blocking the sales of
Speaker 7: these chips. They're saying, Okay, you can have these chips
Speaker 7: so long as you meet certain security requirements of ours
Speaker 7: in the licensing process, and all of the licenses together
Speaker 7: won't add up to more than a threshold that will
Speaker 7: have to wait and see if they are able to determine.
Speaker 3: You know, And it makes me wonder, you know what
Speaker 3: about just kind of believing in capital markets, letting companies
Speaker 3: do what they need to do. I know we've talked
Speaker 3: a million times with you about national security concerns when
Speaker 3: it comes to high tech companies, particularly some of these semiconductors.
Speaker 3: But I wonder how crippling this could be ultimately for
Speaker 3: a company like Nvidia. If at the same time as
Speaker 3: you guys write in this story or this as Mackenzie's story,
Speaker 3: and I know you also worked or gave some input.
Speaker 3: You know, you've got China and other companies looking to
Speaker 3: figure out their own Nvidia.
Speaker 7: Yeah.
Speaker 8: I mean this is the argument that the companies push
Speaker 8: back with, which is, look, if you don't allow us
Speaker 8: to supply them, if you don't allow us that window
Speaker 8: into what they're doing, ay, that hurts your visibility, will
Speaker 8: be it doubles their incentive to try harder and to
Speaker 8: get equivalent products. For now, as Mackenzie just said in VideA,
Speaker 8: is over the horizon, in the lead in this particular area.
Speaker 8: But it keeps quotioning, and it keeps telling everybody, including
Speaker 8: in the White House. Look, you need to be aware
Speaker 8: of the fact that we are giving them an incentive
Speaker 8: to catch up.
Speaker 2: Mackenzie, what's the next bit of this story that our
Speaker 2: investing audience needs to understand or needs to watch out for.
Speaker 2: What are you looking out for?
Speaker 7: So the big thing is after months of the Biden
Speaker 7: administration basically slow walking in Vida and other AI chip
Speaker 7: licenses to countries in the Middle East and elsewhere, but
Speaker 7: with a primary focus on the golf, we're going to
Speaker 7: be waiting to see whether any of these massive data
Speaker 7: center licenses are approved. A great example to watch out
Speaker 7: for is Microsoft's partnership with G forty two, which is
Speaker 7: the top AI company in the UAE. Microsoft is investing
Speaker 7: a billion and a half dollars. They want a stand
Speaker 7: up data centers in the UAE and in Kenya. But
Speaker 7: that's all contingent on getting this license application approval from
Speaker 7: the US US government, and that's one of many licenses
Speaker 7: that's been held over the past couple of months. So
Speaker 7: we'll be waiting to see if that ones comes through.
Speaker 3: Mackenzie, can we make an assumption this is a Biden
Speaker 3: administration policy that this could potentially carry over if there
Speaker 3: is a Kamala Harris in the White House? Just got
Speaker 3: about twenty five seconds.
Speaker 7: I don't think anyone thinks that these chip restrictions are
Speaker 7: going away, so that's probably a safe bet.
Speaker 3: All right, Gonna leave it there. Hey, guys, thank you
Speaker 3: so much, really appreciate it. Mackenzie Hawkins, US Economic and
Speaker 3: industrial policy reporter at Bloomberg News. Check out our scoop.
Speaker 3: You can find it on the Bloomberg terminal and at
Speaker 3: Bloomberg dot com, and of course always Ian King, US
Speaker 3: semiconductor and networking reporter at Bloomberg News. Out there in
Speaker 3: our San Francisco. You're the SOXO. Definitely underperformance in today's session,
Speaker 3: Tim still down about five and a half percent. A bromacle.
Speaker 7: A journal.
Speaker 3: Now about you let me drive? Oh no, no, no, no, honey, please,
Speaker 3: I'll do the riding gravels.
Speaker 8: Mate, I want to drive to check.
Speaker 2: It's a good question, good time.
Speaker 1: This is the drive to the globe down think well
Speaker 1: by on Bloomberg Radio.
Speaker 3: All right, everybody, we've got eighteen minutes to go until
Speaker 3: we wrap up this trading day. On this Tuesday, October fifteenth,
Speaker 3: Carol Masser along with Tim Stanovic live here in our
Speaker 3: Bloomberg Interactive Broker studio. And as Charlie mentioned, as Bill
Speaker 3: Maloney mentioned, we are seeing stocks hovering near the lows
Speaker 3: of the session. Taking look at Trump Media that stock
Speaker 3: two is down in today's session. I'm just bringing it
Speaker 3: since we did see our John Micklethwaite have an in
Speaker 3: depth conversation from the Chicago Economic Club with the former
Speaker 3: president talking about a lot of different policies, and we
Speaker 3: do see Trump Media down about fourteen percent, so hovering
Speaker 3: near its lows the days.
Speaker 2: Yeah, interesting, chair slid as much as twelve percent. Well,
Speaker 2: that was an earlier article.
Speaker 3: It raised it down sixty percent lows today.
Speaker 2: Yeah, and it was briefly halted for volatility.
Speaker 3: Yeah, so just interesting. Just on the backdrop of that conversation,
Speaker 3: I bring it up, and that's why it is relevant.
Speaker 3: Let's talk to market.
Speaker 2: Yeah, let's see what Jason Bronketti has to say, Chief
Speaker 2: investment officer at Lincoln Financial, joining us from Pennsylvania. Jason,
Speaker 2: good to have you with us this afternoon. How are
Speaker 2: you watching things? I mean, we hit a new record
Speaker 2: yesterday for the S and P five hundred. We're seeing
Speaker 2: chip stocks really way on the trade today. A couple
Speaker 2: different stories out about that. We talked about that throughout
Speaker 2: our program. What's the view from your perch?
Speaker 9: Yeah, Well, first of all, thanks for having me on
Speaker 9: with you again. It's great to be back with you.
Speaker 9: And I think, you know, as we think about the market,
Speaker 9: I mean, today's a choppy day, but the last time
Speaker 9: I was with you, we were talking a lot about
Speaker 9: the economy and the market backdrop and kind of where
Speaker 9: we might be headed. And I think there was a
Speaker 9: fair amount of debate at the time as to, you know,
Speaker 9: whether we were going to be in a soft landing
Speaker 9: or a hard landing, no landing, and what that might
Speaker 9: mean for markets. And I think if we take a
Speaker 9: step back and think about where we are today, you know,
Speaker 9: it looks like we're in this kind of soft landing
Speaker 9: category at least for the moment. Growth is is still
Speaker 9: positive clearly Q two GDP coming in over three percent.
Speaker 9: Q three is looking about the same, Inflation is approaching trend,
Speaker 9: and employment remains pretty healthy. So I think earnings are
Speaker 9: in focus. Obviously this week and last week the banks
Speaker 9: setting a healthy tone, So I think the economic backdrop
Speaker 9: is looking pretty good. Now we're bound to see some volatility,
Speaker 9: and that's one of the top things that we've been
Speaker 9: talking about with folks, particularly as we head into the
Speaker 9: election here and as the FED kicks off and continues
Speaker 9: it's easying cycle.
Speaker 3: Hey, Jason, you bring up the election former President Donald
Speaker 3: Trump saying his policies would inspire growth despite adding to
Speaker 3: the debt as he sought to assuage business leaders who
Speaker 3: were his economic plans will fuel inflation. He says, we're
Speaker 3: all about growth. He told that to Bloomberg News editor
Speaker 3: in chief John Mickelthwaite earlier today, and interview at the
Speaker 3: Economic Club of Chicago, He says, we're going to bring
Speaker 3: companies back to our country. Is there a Trump factor
Speaker 3: though in the trade and here we are pretty much
Speaker 3: just hovering near our lows of the day. Is there
Speaker 3: some nervousness among vestors about what a second term by
Speaker 3: Donald Trump might be?
Speaker 9: You know, I think I think anytime you're in the
Speaker 9: in the throes of a presidential election cycle, you're going
Speaker 9: to see volatility. And that's what we've seen. If you
Speaker 9: look back in history, markets tend to be pretty volatile
Speaker 9: during election years leading up to the actual presidential election
Speaker 9: and the outcome there. That being said, what we have
Speaker 9: seen is that once we get through that, markets tend
Speaker 9: to be less concerned about the about the political situation
Speaker 9: as some of that cloud lifts. So whether it's a
Speaker 9: whether it's concerned about Trump, where it's concerned about, whether
Speaker 9: it's concerned about Harris or what those policies might be.
Speaker 9: I do think you're right that that's weighing on things,
Speaker 9: and we would expect to see that volatility and perhaps
Speaker 9: heightened volatility even up for the next few weeks. But
Speaker 9: once we get through that, what we've seen historically is
Speaker 9: really that in you know, all but four of the
Speaker 9: last twenty four elections, going back to the nineteen thirties,
Speaker 9: you saw positive returns for the equity markets during presidential
Speaker 9: election years. And the years in which three of those
Speaker 9: where we didn't have positive returns were those that were
Speaker 9: marked by crisis in nineteen thirty two, two thousand, two
Speaker 9: thousand and eight. So what I'd say is, I'd expect
Speaker 9: to see more volatility for whatever reason, but once you
Speaker 9: get through that, wouldn't be surprised to see things firm
Speaker 9: up as we move forward from there.
Speaker 3: Hey, there's you know, candidates on a campaign trail, and
Speaker 3: then there's you know, a president in the White House,
Speaker 3: and then there's also the Congress that goes along with it.
Speaker 3: Whether or not it's of the same party or of
Speaker 3: a different party determines what policies ultimately get get done.
Speaker 3: How do you like who's better for investors? What president
Speaker 3: come November, come January is better for investors in your view?
Speaker 9: Yeah, I mean, we all have our views. But the
Speaker 9: reality is, if you look back through history and you
Speaker 9: look at the you know, the ten year annualized performance
Speaker 9: in the S and P five hundred post an election year,
Speaker 9: whether a Democrat wins or Republican wins, the returns have
Speaker 9: been about the same bet but eleven point two percent
Speaker 9: annually for when a Democrat wins, about ten and a
Speaker 9: half when a republic and wins. And that's been the
Speaker 9: case since World War Two. So I think that while
Speaker 9: we care a lot about politics and we care about
Speaker 9: the markets, and notably near term, I think you're going
Speaker 9: to see volatility around that. But when you have the
Speaker 9: likelihood of some degree of divided government, the hard policy
Speaker 9: shifts are certainly less likely. And I think that that's
Speaker 9: more than likely the outcome in this case that regardless
Speaker 9: of few wins, the clouds will the clouds will lift,
Speaker 9: and we'll see pretty positive returns over the long term.
Speaker 9: And so focus on you know, zooming back out, widening
Speaker 9: the aperture, and being less focused on any given trade
Speaker 9: and more focused on what markets have done over the
Speaker 9: long term.
Speaker 2: We're just focused on you, like every other person out
Speaker 2: there who's focused on the folks who live in a
Speaker 2: swing states, because there you you're like the most Pennsuvania.
Speaker 9: We're in the hot we're in the hot bed.
Speaker 2: Yeah, every every four years, this happens to you right
Speaker 2: where it's like you turn on every other I did
Speaker 2: go to Georgia back in August, Carol, and you know,
Speaker 2: watched a little local tell Actually I watched, I watched
Speaker 2: uh yeah, TV, national TV. I couldn't get away from
Speaker 2: the ads. Every other ad was for a political candidate.
Speaker 2: I bet more money being spent.
Speaker 3: Yeah, I mean, right, Well, I don't know, I just
Speaker 3: I get what you're saying about, like historically what happens
Speaker 3: obviously in election years and coming after it. But when
Speaker 3: you do have, you know, potentially a candidate who talks
Speaker 3: about increasing dramatically tariffs on foreign goods, Doesn't that doesn't
Speaker 3: you're smart guy like tariffs like don't doesn't that make
Speaker 3: you a little concerned potentially?
Speaker 9: Yeah, I mean I think that I think it's.
Speaker 3: Trade war, right, would not be great?
Speaker 9: Yeah, yeah, I mean, any any kind of any kind
Speaker 9: of upheaval in that regard is certainly has the potential
Speaker 9: to be quite negative or or stoke that inflationary impulse
Speaker 9: as well. I mean, I think when you look at
Speaker 9: what the what the FED has done, we've gotten to
Speaker 9: a pretty good place in terms of the trajectory around inflation.
Speaker 9: I think any policies like that that that would be
Speaker 9: inflationary certainly should should give some cost for concern as
Speaker 9: far as that goes.
Speaker 3: And at the same point, both seem to talk about
Speaker 3: a lot of spending, right, and you worry about the debt.
Speaker 2: That's what I wonder, I mean, look on market, lets
Speaker 2: them do yeah, exactly.
Speaker 9: I mean, nobody's really talking seriously about reigning in any
Speaker 9: degree of fiscal spending. And so I think when we
Speaker 9: think about the short end of the curve, you're likely
Speaker 9: to see rates come down in the front end, just
Speaker 9: given the direction of travel with the FED. And I
Speaker 9: think that direction is clear and the pace and the
Speaker 9: destination are a little bit uncertain. But the policies out there,
Speaker 9: and regardless of who wins, probably have the potential to
Speaker 9: be a little bit more long term inflationary. My friend
Speaker 9: Henrik Vay talks about we've been in this marketplace, in
Speaker 9: this economic backdrop of thirty years of benign globalization, inflation
Speaker 9: coming down, interest rates going lower. I think when you
Speaker 9: think about the amount of debt that's out there, and
Speaker 9: some of the policy ideas that are being floated certainly
Speaker 9: have the possibility of stoking that inflationary impulse and leading
Speaker 9: longer rates higher. Over the longer term.
Speaker 3: All right, good stuff. Fun to check in with you.
Speaker 3: Jason Brikay He's chief investment officer at Lincoln Financial, joining
Speaker 3: us from Philadelphia.
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