1 00:00:02,920 --> 00:00:10,799 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,840 --> 00:00:15,000 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,040 --> 00:00:17,520 Speaker 1: Eastern on Apple, card Playing and Broyd Auto with the 4 00:00:17,520 --> 00:00:21,400 Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,440 Speaker 1: or watch us live on YouTube. 6 00:00:24,880 --> 00:00:28,040 Speaker 2: Let's get more on those you Mish numbers hitting an 7 00:00:28,040 --> 00:00:32,040 Speaker 2: eight month low. Joanne Shu is the University of Michigan 8 00:00:32,159 --> 00:00:35,440 Speaker 2: Surveys of Consumer and Director, and she joins us. Now, hey, Joanne, 9 00:00:35,800 --> 00:00:37,080 Speaker 2: what led this lower? 10 00:00:39,479 --> 00:00:44,599 Speaker 3: Still are just vociferously frustrated with the pain of high prices. 11 00:00:45,120 --> 00:00:47,640 Speaker 3: This stands, of course, in contrast with the fact that 12 00:00:48,000 --> 00:00:51,120 Speaker 3: we know inflation has slowed and consumer expectations for inflation 13 00:00:51,200 --> 00:00:54,200 Speaker 3: have also slowed. Both of those things are trending in 14 00:00:54,240 --> 00:00:56,960 Speaker 3: a favorable direction for consumers. But at the same time, 15 00:00:57,600 --> 00:00:59,840 Speaker 3: forty nine percent of consumers tell us that high prices 16 00:00:59,880 --> 00:01:02,760 Speaker 3: are eroding their personal finances. That's pretty much the same 17 00:01:02,800 --> 00:01:06,200 Speaker 3: as what we were seeing two years ago when inflation 18 00:01:06,440 --> 00:01:07,319 Speaker 3: was hitting that peak. 19 00:01:08,120 --> 00:01:11,440 Speaker 4: They seem to conflict with each other. We're less confident, 20 00:01:11,520 --> 00:01:14,120 Speaker 4: but we're more confident that inflation is hidden in the 21 00:01:14,200 --> 00:01:14,720 Speaker 4: right direction. 22 00:01:16,360 --> 00:01:20,200 Speaker 3: I think they're not really in conflict because they do 23 00:01:20,280 --> 00:01:22,920 Speaker 3: believe that inflation is moving in the right direction, but 24 00:01:23,400 --> 00:01:28,120 Speaker 3: prices remain high, and so they are telling us how 25 00:01:28,120 --> 00:01:31,440 Speaker 3: painful it is to continue having their budgets eroded or 26 00:01:31,480 --> 00:01:34,920 Speaker 3: eaten away by these by these continued high prices. So, 27 00:01:35,120 --> 00:01:38,440 Speaker 3: you know, I think consumers are in a way separating 28 00:01:38,480 --> 00:01:42,800 Speaker 3: their feelings and their frustration with high prices with an 29 00:01:42,840 --> 00:01:45,720 Speaker 3: acknowledgment that inflation is moving in the right direction. 30 00:01:46,480 --> 00:01:50,080 Speaker 2: What about CPI from last week, last week, this week? 31 00:01:50,160 --> 00:01:53,560 Speaker 2: It all blends last week? Does that fact? Do we 32 00:01:53,600 --> 00:01:55,120 Speaker 2: factor that in? How do you think that's going to 33 00:01:55,120 --> 00:01:56,920 Speaker 2: affect the reading when you do the second read? 34 00:01:57,800 --> 00:02:00,760 Speaker 3: It's unlikely to affect the future reading because consumers aren't 35 00:02:00,800 --> 00:02:03,520 Speaker 3: really paying attention to the CPI print. You know, the 36 00:02:03,560 --> 00:02:07,080 Speaker 3: CPI print comes with a lag from real time data, 37 00:02:07,120 --> 00:02:10,120 Speaker 3: and consumers are really responding to what they're actually seeing 38 00:02:10,960 --> 00:02:15,040 Speaker 3: in the marketplace around them. So I don't expect a 39 00:02:15,600 --> 00:02:19,120 Speaker 3: jolt from the CPI print, the most recent CPI print. 40 00:02:19,680 --> 00:02:23,120 Speaker 3: But if inflation, if consumers continue to perceive inflation as 41 00:02:23,160 --> 00:02:25,520 Speaker 3: slowing down, we could continue to see that trending. 42 00:02:25,639 --> 00:02:28,679 Speaker 2: I should just point out that CPI was yesterday yes, 43 00:02:28,960 --> 00:02:33,280 Speaker 2: so clearly, clearly, my timeline is really tight. 44 00:02:33,320 --> 00:02:37,560 Speaker 4: Now all right, we moved to the intersection of economic 45 00:02:37,639 --> 00:02:42,760 Speaker 4: data and politics based on your reading maybe in the past. 46 00:02:43,080 --> 00:02:46,320 Speaker 4: What does this mean for the political setup? Can you 47 00:02:46,600 --> 00:02:47,320 Speaker 4: delve into. 48 00:02:47,160 --> 00:02:49,919 Speaker 2: That any Absolutely, so, consumers. 49 00:02:50,639 --> 00:02:52,840 Speaker 3: We ask consumers a lot of questions about where they 50 00:02:52,880 --> 00:02:55,000 Speaker 3: think the economy is going over the next year and 51 00:02:55,080 --> 00:02:57,079 Speaker 3: over the next five years, and we have a lot 52 00:02:57,080 --> 00:03:00,760 Speaker 3: of consumers who are responding with I'm I'm assuming I 53 00:03:00,800 --> 00:03:04,040 Speaker 3: answered all these questions assuming such and such candidate is 54 00:03:04,040 --> 00:03:05,880 Speaker 3: going to be winning the presidency. But if the other 55 00:03:05,960 --> 00:03:09,760 Speaker 3: candidate wins, all of my answers will change. And we're 56 00:03:09,800 --> 00:03:16,840 Speaker 3: seeing that for both presidential candidates, with views on both 57 00:03:16,840 --> 00:03:20,120 Speaker 3: positively and negatively based on either of those candidates. So 58 00:03:20,240 --> 00:03:24,440 Speaker 3: consumers are really acknowledging how much uncertainty surrounds their expectations 59 00:03:24,520 --> 00:03:26,320 Speaker 3: right now. So I think we can really expect a 60 00:03:26,320 --> 00:03:27,239 Speaker 3: bumpy right ahead. 61 00:03:28,040 --> 00:03:30,160 Speaker 2: Joanne, we really appreciate it. We always love getting this 62 00:03:30,200 --> 00:03:32,880 Speaker 2: incident analysis. Joan Shue, University of Michigan Survey as a 63 00:03:32,880 --> 00:03:35,760 Speaker 2: consumer director joining us there, you meash sentiment hitting an 64 00:03:35,760 --> 00:03:37,960 Speaker 2: eight month low. 65 00:03:38,320 --> 00:03:42,200 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 66 00:03:42,280 --> 00:03:45,800 Speaker 1: weekdays at ten am Eastern on applecard Play and Android 67 00:03:45,840 --> 00:03:48,600 Speaker 1: Auto with the Bloomberg Business app. You can also listen 68 00:03:48,720 --> 00:03:51,840 Speaker 1: live on Amazon Alexa from our flagship New York station. 69 00:03:52,200 --> 00:03:54,960 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 70 00:03:56,080 --> 00:03:57,520 Speaker 2: So we do want to go to the banks and 71 00:03:57,560 --> 00:04:00,320 Speaker 2: take a look at JP Morgan City and we'll Spargo. 72 00:04:00,360 --> 00:04:02,440 Speaker 2: Will Spargo also the worst performing stock right now within 73 00:04:02,560 --> 00:04:05,640 Speaker 2: the S and P. Allison Williams is Bloomberg Intelligence Senior 74 00:04:05,680 --> 00:04:07,800 Speaker 2: banks analyst and she joins us. Now this is when 75 00:04:07,800 --> 00:04:09,360 Speaker 2: I get to spend a lot of time with Allison, 76 00:04:09,400 --> 00:04:11,240 Speaker 2: like this week, two weeks of the year. It's a 77 00:04:11,240 --> 00:04:13,840 Speaker 2: good time for me. Allison. Let's just start with will 78 00:04:13,880 --> 00:04:14,720 Speaker 2: Spargo for a second. 79 00:04:14,760 --> 00:04:18,719 Speaker 5: What happened? So their net interest income is light and 80 00:04:19,000 --> 00:04:21,720 Speaker 5: they're guiding to the higher end of a seven to 81 00:04:21,800 --> 00:04:24,760 Speaker 5: nine percent drop in net interest income, so still a 82 00:04:24,760 --> 00:04:27,080 Speaker 5: lot of uncertainty, but you know, the loans are what 83 00:04:27,160 --> 00:04:29,680 Speaker 5: looks light there. So they're still talking about deposits and 84 00:04:29,720 --> 00:04:34,480 Speaker 5: the pressure there. But the deposits actually the costs arising 85 00:04:34,520 --> 00:04:36,359 Speaker 5: at a slower pace, so we think that's positive for 86 00:04:36,400 --> 00:04:39,680 Speaker 5: the industry. But it's the net interestingcom And then the 87 00:04:39,720 --> 00:04:42,640 Speaker 5: other thing is the costs. So they're operating expenses are 88 00:04:42,680 --> 00:04:45,000 Speaker 5: going to be are their overall expenses are gonna be 89 00:04:45,040 --> 00:04:47,840 Speaker 5: a lot higher. They have this line called operating losses, 90 00:04:47,839 --> 00:04:52,120 Speaker 5: which includes remediation and some of the regulatory related costs. 91 00:04:52,120 --> 00:04:56,280 Speaker 5: So that is also disappointing that those costs still continue 92 00:04:56,360 --> 00:04:59,039 Speaker 5: to weigh. The positive thing we're staying across all the 93 00:04:59,080 --> 00:05:02,320 Speaker 5: banks better fee This is something we were looking for though. 94 00:05:02,360 --> 00:05:06,360 Speaker 5: Equity markets are strong, that's no secret. Equity trading really good, 95 00:05:06,480 --> 00:05:11,159 Speaker 5: equity fees picking up, you know, Fick trading also doing well, 96 00:05:11,200 --> 00:05:13,440 Speaker 5: and so that's all great. We are going to see 97 00:05:13,480 --> 00:05:15,840 Speaker 5: I think higher expenses across the board because of that 98 00:05:15,920 --> 00:05:18,520 Speaker 5: City Group got it to higher end of expenses. But 99 00:05:18,920 --> 00:05:21,360 Speaker 5: that's okay with investors, right as long as you're getting 100 00:05:21,400 --> 00:05:24,920 Speaker 5: higher revenue. It's those sort of lingering regulatory costs. I 101 00:05:24,920 --> 00:05:26,200 Speaker 5: think that we're disappointing at Wells. 102 00:05:26,360 --> 00:05:30,440 Speaker 4: These banks are all very different businesses, aren't they, Wells Fargo. 103 00:05:30,600 --> 00:05:34,000 Speaker 4: To what extent are they into commercial real estate? And 104 00:05:34,040 --> 00:05:35,359 Speaker 4: what does that mean for this bank? 105 00:05:35,600 --> 00:05:38,919 Speaker 5: So they're all in the same businesses but to a 106 00:05:38,920 --> 00:05:41,599 Speaker 5: different degree. And to your point, Wells Fargo is much 107 00:05:41,640 --> 00:05:45,000 Speaker 5: smaller in these capital markets businesses where we're seeing a 108 00:05:45,040 --> 00:05:48,480 Speaker 5: lot of the strength versus JP Morgan and City Investing, 109 00:05:48,560 --> 00:05:53,120 Speaker 5: but still smaller. And commercial real estate, they are the 110 00:05:53,160 --> 00:05:57,799 Speaker 5: biggest lender in office. JP Morgan's actually now the biggest 111 00:05:57,839 --> 00:06:02,839 Speaker 5: commercial real estate lender overall after FRC. But you know, 112 00:06:03,040 --> 00:06:06,200 Speaker 5: I did the office I think was not a big 113 00:06:06,240 --> 00:06:09,200 Speaker 5: factor for Wells' this quarter. They did increase their provision 114 00:06:09,200 --> 00:06:11,520 Speaker 5: a little bit. We are seeing losses. JP Morgan sort 115 00:06:11,520 --> 00:06:14,080 Speaker 5: of alluded to some losses. I think where we're seeing 116 00:06:14,080 --> 00:06:16,480 Speaker 5: the issues or Wells has said the issues are really 117 00:06:17,000 --> 00:06:19,800 Speaker 5: in the institutional space. So they do have an eleven 118 00:06:19,880 --> 00:06:24,600 Speaker 5: percent or so reserve there, I believe, I didn't I 119 00:06:24,640 --> 00:06:27,400 Speaker 5: didn't check this quarter, but the overall reserve is eight percent, 120 00:06:27,520 --> 00:06:31,039 Speaker 5: and so that was about the same this quarter. But 121 00:06:32,320 --> 00:06:34,080 Speaker 5: that's something that's going to be a long story. We're 122 00:06:34,080 --> 00:06:36,560 Speaker 5: going to continue to see that play out. But it's 123 00:06:36,640 --> 00:06:38,839 Speaker 5: it's really I think the revenue side that's that's weighing 124 00:06:38,839 --> 00:06:42,480 Speaker 5: on Wells. They are more lever towards net interest income 125 00:06:43,360 --> 00:06:46,400 Speaker 5: and unfortunately seeing some of the pressure there. 126 00:06:46,640 --> 00:06:48,560 Speaker 2: So asking for a friend who may or may not 127 00:06:48,560 --> 00:06:51,920 Speaker 2: be interviewing the Wells Fargo CFO later at three pm. 128 00:06:52,040 --> 00:06:54,159 Speaker 2: What would be some good questions to ask, like, what 129 00:06:54,320 --> 00:06:57,440 Speaker 2: like after getting through this these numbers and seeing achieving 130 00:06:57,920 --> 00:06:59,960 Speaker 2: now it's not it is efficient because there are also 131 00:07:00,120 --> 00:07:02,360 Speaker 2: is going to bugger later? What would be some questions 132 00:07:02,360 --> 00:07:02,760 Speaker 2: you'd ask, I. 133 00:07:02,760 --> 00:07:04,919 Speaker 5: Mean, what you know in terms of the loan jaman 134 00:07:05,040 --> 00:07:07,920 Speaker 5: they've they've said they're cautious. Is there a reason why 135 00:07:08,600 --> 00:07:11,280 Speaker 5: they would have more caution than others or is it 136 00:07:11,400 --> 00:07:16,080 Speaker 5: just a mixed issue? But really commercial, you know, commercial 137 00:07:16,080 --> 00:07:18,720 Speaker 5: and industrial. We saw a big pickup in some of 138 00:07:18,720 --> 00:07:23,680 Speaker 5: the industry data. Why aren't we seeing that at Wells? 139 00:07:23,680 --> 00:07:24,720 Speaker 5: And what are they seeing? 140 00:07:24,880 --> 00:07:25,040 Speaker 6: Right? 141 00:07:25,080 --> 00:07:27,880 Speaker 5: And so we've gotten some news over the past couple 142 00:07:27,920 --> 00:07:30,720 Speaker 5: of days with regards to change potential changes in the 143 00:07:30,720 --> 00:07:34,600 Speaker 5: industry outlook, how does that impact their views going forward? 144 00:07:35,040 --> 00:07:38,160 Speaker 4: Yeah, we're supposed to get a rate cut. Everybody thinks September, 145 00:07:38,280 --> 00:07:40,080 Speaker 4: So how does that affect everybody? 146 00:07:40,720 --> 00:07:42,600 Speaker 5: Right? And the hope for banks would be that it 147 00:07:42,600 --> 00:07:43,720 Speaker 5: would spur some long growth. 148 00:07:43,800 --> 00:07:45,600 Speaker 2: But it like happened over twenty four hours, right, so 149 00:07:45,640 --> 00:07:47,480 Speaker 2: it's like they haven't had enough time to really. 150 00:07:47,240 --> 00:07:50,600 Speaker 5: Act None of their views, you know, everything that they've 151 00:07:50,600 --> 00:07:53,080 Speaker 5: prepared and they're talking about today, right, that would be 152 00:07:54,320 --> 00:07:56,840 Speaker 5: you know, baked in as of the quarter end, and 153 00:07:56,920 --> 00:07:59,480 Speaker 5: they did say there's a lot of uncertainty, right, so 154 00:07:59,520 --> 00:08:02,160 Speaker 5: we we didn't see much movement. We saw one rate 155 00:08:02,240 --> 00:08:04,520 Speaker 5: hike I think got taken off the table in the 156 00:08:04,600 --> 00:08:08,040 Speaker 5: last three months. Entering the year, there's been a much 157 00:08:08,040 --> 00:08:11,600 Speaker 5: bigger change, right, So we saw three rate hikes get 158 00:08:11,600 --> 00:08:15,520 Speaker 5: taken off the table in one queue. So we're people 159 00:08:15,520 --> 00:08:18,320 Speaker 5: are feeling a little bit better today about prospects for 160 00:08:18,360 --> 00:08:21,640 Speaker 5: the FED. But my guess as well as is going 161 00:08:21,680 --> 00:08:23,880 Speaker 5: to continue to be conservative, and I think investors are 162 00:08:23,920 --> 00:08:25,880 Speaker 5: going to want to try to feel out on the call. 163 00:08:26,480 --> 00:08:31,000 Speaker 5: Is it conservatism or are there more reasons to be worried? 164 00:08:31,040 --> 00:08:33,280 Speaker 5: And I would tell your friend to ask the CFO 165 00:08:33,320 --> 00:08:34,840 Speaker 5: about that. Thank you. 166 00:08:35,080 --> 00:08:38,200 Speaker 4: I understand why Wells Fargo's shares are lower. I don't 167 00:08:38,280 --> 00:08:42,200 Speaker 4: understand why JP Morgan and City Group shares are lower 168 00:08:42,200 --> 00:08:44,480 Speaker 4: because those results were better than expected. 169 00:08:44,840 --> 00:08:48,480 Speaker 5: They were, but you know, JP Morgan, I think it's 170 00:08:48,520 --> 00:08:51,200 Speaker 5: a matter of the expectations, right, So it's always about 171 00:08:51,240 --> 00:08:54,040 Speaker 5: what are the expectations versus the delivery? 172 00:08:54,440 --> 00:08:57,720 Speaker 4: Okay, what was the big takeaway from the biggest US bank. 173 00:08:57,840 --> 00:09:00,600 Speaker 5: I thought so, I thought solid quarter. I mean, twenty 174 00:09:00,679 --> 00:09:04,080 Speaker 5: percent return on tangible equity. That's that's pretty that's that's 175 00:09:04,120 --> 00:09:07,120 Speaker 5: pretty amazing, you know, And they keep warning investors that 176 00:09:07,160 --> 00:09:09,840 Speaker 5: we're you know, we're over earning seventeen percent. Is they're 177 00:09:09,880 --> 00:09:10,920 Speaker 5: through the cycle target. 178 00:09:12,280 --> 00:09:16,079 Speaker 4: But you know what's the secret sauce for JP Morgan 179 00:09:16,120 --> 00:09:16,920 Speaker 4: and Jamie Diamond. 180 00:09:17,240 --> 00:09:19,640 Speaker 5: I think what they've done over the very long term 181 00:09:19,720 --> 00:09:23,520 Speaker 5: is invest and they just are enjoying a virtuous cycle 182 00:09:23,679 --> 00:09:27,200 Speaker 5: of those leading market positions. Right. So they've invested in 183 00:09:27,240 --> 00:09:32,480 Speaker 5: their trading business, they've invested in deposits, They've made some 184 00:09:32,480 --> 00:09:33,280 Speaker 5: good purchases. 185 00:09:34,480 --> 00:09:34,680 Speaker 7: You know. 186 00:09:34,760 --> 00:09:38,600 Speaker 5: The one other key difference Wells Bargo versus JP Morgan 187 00:09:38,640 --> 00:09:41,000 Speaker 5: and Bank of America is you know, they had this 188 00:09:41,160 --> 00:09:44,200 Speaker 5: asset cap during the pandemic and that really limited for 189 00:09:44,240 --> 00:09:46,719 Speaker 5: them the opportunity to pick up a lot of customers. 190 00:09:46,760 --> 00:09:50,080 Speaker 5: And so while there's a lot of talk tracking those balances, 191 00:09:50,160 --> 00:09:53,599 Speaker 5: right so we're moving down the balances all the fiscal stimulus, 192 00:09:53,559 --> 00:09:56,679 Speaker 5: et cetera. But if JP Morgan and Bank of America 193 00:09:56,720 --> 00:10:00,079 Speaker 5: are holding onto those customers, that's a structural benefit that 194 00:10:00,080 --> 00:10:01,720 Speaker 5: that well is missed out on a little bit again 195 00:10:01,760 --> 00:10:03,160 Speaker 5: because of their regulatory issues. 196 00:10:03,240 --> 00:10:06,559 Speaker 2: So city is going through that five year restructuring stuff. 197 00:10:06,600 --> 00:10:08,120 Speaker 2: Where are they in that? What did you learn? 198 00:10:08,280 --> 00:10:12,400 Speaker 5: I mean they're getting closer, right, but it's still it's 199 00:10:12,400 --> 00:10:14,400 Speaker 5: going to take time, I think, to get through the numbers. 200 00:10:14,440 --> 00:10:18,360 Speaker 5: But they did a lot of heavy lifting last year. Jane, 201 00:10:18,400 --> 00:10:22,040 Speaker 5: I think is really you know, making some tough decisions 202 00:10:22,160 --> 00:10:25,760 Speaker 5: and you know, made significant cuts and I think that 203 00:10:25,760 --> 00:10:28,240 Speaker 5: that is really helping. But it's going to take a 204 00:10:28,280 --> 00:10:29,600 Speaker 5: little while to flow through. 205 00:10:29,920 --> 00:10:32,240 Speaker 4: It's Jane Fraser's report card. Do you what do you 206 00:10:32,280 --> 00:10:33,480 Speaker 4: give her this semester? 207 00:10:34,280 --> 00:10:36,520 Speaker 5: So I don't know, is that Adam am I allowed 208 00:10:36,520 --> 00:10:40,360 Speaker 5: to give grades? I mean I will say, like I said, 209 00:10:40,440 --> 00:10:43,760 Speaker 5: she's getting it done. So I think that she's doing 210 00:10:43,800 --> 00:10:44,400 Speaker 5: a great job. 211 00:10:45,080 --> 00:10:47,520 Speaker 2: Allison, thank you so much. See this this avoids me 212 00:10:47,520 --> 00:10:49,240 Speaker 2: bugging her later. So now she can go and write 213 00:10:49,280 --> 00:10:51,880 Speaker 2: her reports, look through slides. I can tell my friend, like, 214 00:10:51,920 --> 00:10:57,240 Speaker 2: we're good. Alison Williams, the amazing, wonderful senior bank analyst 215 00:10:57,400 --> 00:10:59,800 Speaker 2: for Bloomberg Intelligence. Great stuff going on there. 216 00:11:01,320 --> 00:11:05,199 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live 217 00:11:05,280 --> 00:11:08,800 Speaker 1: weekdays at ten am Eastern on Applecar Play and Android 218 00:11:08,840 --> 00:11:12,000 Speaker 1: Auto with the Bloomberg Business. You can also listen live 219 00:11:12,080 --> 00:11:15,240 Speaker 1: on Amazon Alexa from our flagship New York station, Just 220 00:11:15,320 --> 00:11:17,920 Speaker 1: Say Alexa playing Bloomberg eleven thirty. 221 00:11:19,360 --> 00:11:21,880 Speaker 2: Alex Deeal Paul Smuenia is off today. John Tucker is 222 00:11:21,960 --> 00:11:25,600 Speaker 2: joining me for the two hours Change seats co host 223 00:11:25,640 --> 00:11:28,800 Speaker 2: as well as doing our business flashes for us. This 224 00:11:28,840 --> 00:11:31,840 Speaker 2: is Bloomberg Intelligence Radio. We cover all the top news 225 00:11:31,840 --> 00:11:33,880 Speaker 2: in business and finance and economics. There are lens of 226 00:11:33,880 --> 00:11:37,200 Speaker 2: Bloomberg Intelligence analysts. They cover two thousand companies and one 227 00:11:37,280 --> 00:11:40,880 Speaker 2: hundred and thirty industries worldwide. We also go outside, of course, 228 00:11:40,880 --> 00:11:42,640 Speaker 2: to get your take of how the people on the 229 00:11:42,640 --> 00:11:44,240 Speaker 2: street are going to be viewing this and how they're 230 00:11:44,240 --> 00:11:48,599 Speaker 2: investing their money. Phil Orlando, Okay, so John Tucker just 231 00:11:48,640 --> 00:11:51,040 Speaker 2: literally ran over and sat and sitting next to me 232 00:11:51,080 --> 00:11:54,240 Speaker 2: now and now he readjusting at the moment he did 233 00:11:54,320 --> 00:11:56,760 Speaker 2: need to be closer. Phil Orlando is chief Equity Marcus 234 00:11:56,800 --> 00:11:59,840 Speaker 2: Strategist and head of Client Portfolio Management and Federated her Means. 235 00:11:59,880 --> 00:12:02,360 Speaker 2: And he is standing by all right, philm looking at 236 00:12:02,360 --> 00:12:05,680 Speaker 2: the Russell. It's up one point seven percent. The glory 237 00:12:05,760 --> 00:12:08,160 Speaker 2: day is of small caps. Are they here and will 238 00:12:08,160 --> 00:12:09,640 Speaker 2: it be sustainable. 239 00:12:11,559 --> 00:12:16,280 Speaker 8: Small caps? Yes, And that is an important distinction that 240 00:12:16,360 --> 00:12:20,760 Speaker 8: we had federated Hermes reiterated with an exclamation mark. At 241 00:12:20,800 --> 00:12:23,800 Speaker 8: the beginning of this week. We had gone to a 242 00:12:24,120 --> 00:12:27,360 Speaker 8: five percent equity overweight at the bottom of the market 243 00:12:27,480 --> 00:12:31,680 Speaker 8: last October, and the S and P five hundred over 244 00:12:31,760 --> 00:12:35,079 Speaker 8: that last eight or nine months up thirty five percent. 245 00:12:35,440 --> 00:12:38,839 Speaker 8: The MAG seven over that same period of time is 246 00:12:38,960 --> 00:12:41,160 Speaker 8: up like I don't know, one hundred and thirty percent 247 00:12:41,280 --> 00:12:45,680 Speaker 8: or some ridiculous number, But the small caps and the 248 00:12:45,800 --> 00:12:49,880 Speaker 8: value stocks and the international stocks have really lacked. We 249 00:12:50,360 --> 00:12:53,560 Speaker 8: think we're starting to see a reversion of the mean 250 00:12:53,800 --> 00:12:57,280 Speaker 8: that's starting to happen with small caps. We think are 251 00:12:57,360 --> 00:13:00,600 Speaker 8: going to be one of the beneficiaries of that, along 252 00:13:00,640 --> 00:13:04,760 Speaker 8: with value names and along with em names. So our 253 00:13:04,880 --> 00:13:08,520 Speaker 8: best guess is that this nascent move that we've seen 254 00:13:09,679 --> 00:13:13,400 Speaker 8: with the small caps has legs, and we think this 255 00:13:13,440 --> 00:13:15,280 Speaker 8: trend is going to continue. 256 00:13:15,840 --> 00:13:18,960 Speaker 4: Continue for how long And what happens to the mega 257 00:13:19,360 --> 00:13:21,280 Speaker 4: cap stocks at this point. 258 00:13:22,640 --> 00:13:27,120 Speaker 8: Well, our again, our best guess is that the valuation 259 00:13:27,280 --> 00:13:30,000 Speaker 8: of the MAG seven names is ahead of themselves. Our 260 00:13:31,360 --> 00:13:34,120 Speaker 8: full year target for next year. The S and P 261 00:13:34,240 --> 00:13:38,640 Speaker 8: five twenty twenty five is six thousand. We broke fifty 262 00:13:38,679 --> 00:13:42,840 Speaker 8: six hundred a couple of days ago. The market, in 263 00:13:42,880 --> 00:13:45,240 Speaker 8: our view, the broad market is well ahead of itself, 264 00:13:45,880 --> 00:13:50,400 Speaker 8: largely driven by the significant outperformance of the MAG seven names. 265 00:13:51,040 --> 00:13:54,319 Speaker 8: So what we expect to see happening now through the 266 00:13:54,400 --> 00:13:57,000 Speaker 8: balance of this year, maybe into next year, we'll see 267 00:13:58,080 --> 00:14:01,360 Speaker 8: is some profit taking with a lot of these MAG 268 00:14:01,480 --> 00:14:04,880 Speaker 8: seven names, because we think the valuations are extended, and 269 00:14:04,920 --> 00:14:09,200 Speaker 8: a rotation in broadening out of this rally into the 270 00:14:09,240 --> 00:14:12,600 Speaker 8: small cap names and the domestic large cap value names 271 00:14:12,679 --> 00:14:15,320 Speaker 8: and the small cap names. 272 00:14:15,480 --> 00:14:18,200 Speaker 4: So you would characterize this as healthy for the overall market, 273 00:14:18,200 --> 00:14:18,679 Speaker 4: would you know? 274 00:14:19,080 --> 00:14:22,800 Speaker 8: We think it's incredibly healthy, because the market the performance 275 00:14:22,840 --> 00:14:25,880 Speaker 8: over the last eighteen months between the MAG seven and 276 00:14:25,920 --> 00:14:29,960 Speaker 8: the Forgotten four ninety three was about north of one 277 00:14:30,040 --> 00:14:34,480 Speaker 8: hundred percentage points. I mean, that's not sustainable. The valuation 278 00:14:34,880 --> 00:14:39,160 Speaker 8: on this very select group of growth and technology names 279 00:14:39,360 --> 00:14:41,520 Speaker 8: in our view, had just simply gotten ahead of itself. 280 00:14:41,520 --> 00:14:44,240 Speaker 8: And so what is happening now, I'll use your words, 281 00:14:44,440 --> 00:14:46,600 Speaker 8: it is very healthy. We think some of this fraud 282 00:14:46,680 --> 00:14:50,800 Speaker 8: that's come off the top and a rotation into these 283 00:14:50,840 --> 00:14:53,360 Speaker 8: areas that frankly have been left for dad over the 284 00:14:53,440 --> 00:14:58,320 Speaker 8: last eighteen months is a very rational move by the market. 285 00:14:58,680 --> 00:15:01,520 Speaker 2: Here's my question, it's why is this time different. I 286 00:15:01,640 --> 00:15:03,920 Speaker 2: feel like small caps have made a bid for it 287 00:15:04,480 --> 00:15:07,080 Speaker 2: over the last few years and it's never been sustainable. 288 00:15:07,320 --> 00:15:09,600 Speaker 2: We may get those fed cuts, but where are we 289 00:15:09,600 --> 00:15:11,440 Speaker 2: going to get the actual earning support. 290 00:15:12,840 --> 00:15:16,240 Speaker 8: Well, the earning support is coming that you look at, 291 00:15:16,400 --> 00:15:19,200 Speaker 8: for example, the current quarter, which just started today, the 292 00:15:19,240 --> 00:15:21,560 Speaker 8: second quarter earnings, it's going to be a pretty good quarter, 293 00:15:22,280 --> 00:15:23,960 Speaker 8: right Revenues are going to be up about four and 294 00:15:24,000 --> 00:15:26,680 Speaker 8: a half percent year on year, earnings will be up 295 00:15:26,680 --> 00:15:29,200 Speaker 8: about nine percent year of the year. It's going to 296 00:15:29,240 --> 00:15:32,320 Speaker 8: be another terrific quarter. And as you look at the 297 00:15:32,480 --> 00:15:36,520 Speaker 8: trajectory of the improvement in earnings, most of this over 298 00:15:36,560 --> 00:15:39,760 Speaker 8: the last year, including the current quarter, has come from 299 00:15:40,560 --> 00:15:44,600 Speaker 8: the very strong underlying fundamental prospects of these very select 300 00:15:44,600 --> 00:15:47,640 Speaker 8: group of growth and technology names. But as we look 301 00:15:47,680 --> 00:15:50,720 Speaker 8: at this trajectory of the balance of the year, the 302 00:15:50,840 --> 00:15:53,000 Speaker 8: second quarter, even though it's going to be a good quarter, 303 00:15:53,760 --> 00:15:56,800 Speaker 8: is going to be significantly slower than the first. The 304 00:15:56,840 --> 00:15:59,640 Speaker 8: third quarter is going to be significantly slower than the second, 305 00:15:59,680 --> 00:16:03,600 Speaker 8: fourth quarter slower than the third. The areas that we 306 00:16:03,960 --> 00:16:08,240 Speaker 8: like are are showing in improvement in revenues and earnings 307 00:16:08,560 --> 00:16:10,720 Speaker 8: from the end of last year, beginning of this year, 308 00:16:10,880 --> 00:16:13,880 Speaker 8: into the end of this year. So there's going to 309 00:16:13,920 --> 00:16:15,920 Speaker 8: be sort of two ships passing in the night, if 310 00:16:15,920 --> 00:16:19,800 Speaker 8: you will. The underlying fundamentals, as measured by things like 311 00:16:19,880 --> 00:16:23,480 Speaker 8: revenues and earnings will get better for small caps and 312 00:16:23,680 --> 00:16:29,600 Speaker 8: value and ems, and will deteriorate for these mag seven names. 313 00:16:30,040 --> 00:16:34,720 Speaker 8: The stock market, ultimately, as a forward looking discounting mechanism, 314 00:16:34,800 --> 00:16:38,200 Speaker 8: will attempt to begin to price in these sorts of 315 00:16:38,280 --> 00:16:43,400 Speaker 8: developments six to nine months before they happen. Now, if 316 00:16:43,440 --> 00:16:45,640 Speaker 8: we think we're seeing this over the course of the 317 00:16:45,680 --> 00:16:47,840 Speaker 8: balance of this year, let's say the fourth quarter is 318 00:16:47,840 --> 00:16:51,880 Speaker 8: when this truly manifests itself. The now is exactly the 319 00:16:51,920 --> 00:16:54,600 Speaker 8: time when the market should begin to recognize this trend, 320 00:16:54,800 --> 00:16:57,600 Speaker 8: as we're getting into the second quarter earning season and 321 00:16:58,240 --> 00:17:01,760 Speaker 8: digesting the earnings and the guidance, and then begin to 322 00:17:01,800 --> 00:17:05,359 Speaker 8: recognize that that valuations need to move in different directions 323 00:17:05,520 --> 00:17:06,920 Speaker 8: for these different asset clasts. 324 00:17:07,640 --> 00:17:11,199 Speaker 4: Some stocks are more forward looking than others, with a 325 00:17:11,320 --> 00:17:15,040 Speaker 4: lower interest rate regime. If that's where we're reheaded, what's 326 00:17:15,040 --> 00:17:17,400 Speaker 4: your outlook for particular sectors. 327 00:17:18,560 --> 00:17:21,840 Speaker 8: Well, you're exactly right. We do expect interest rates to 328 00:17:21,880 --> 00:17:25,960 Speaker 8: move lower. We're not quite as sanguine or optimistic as 329 00:17:25,960 --> 00:17:29,480 Speaker 8: the consensus, which I guess believes that we're going to 330 00:17:29,480 --> 00:17:32,840 Speaker 8: see the first rate cut this cycle in September. We're 331 00:17:32,880 --> 00:17:35,680 Speaker 8: still in the camp that we do believe that there 332 00:17:35,720 --> 00:17:38,320 Speaker 8: will be two one or two rate cuts this year, 333 00:17:38,320 --> 00:17:40,439 Speaker 8: but we think that both of them, one of them 334 00:17:40,520 --> 00:17:42,399 Speaker 8: or both of them is going to come after the election, 335 00:17:42,920 --> 00:17:46,000 Speaker 8: So that would suggest the November seventh or the December 336 00:17:46,000 --> 00:17:49,720 Speaker 8: eighteenth FOMC meetings. We think that trend continues over the 337 00:17:49,720 --> 00:17:53,399 Speaker 8: course of next year, with another one hundred basis points 338 00:17:53,440 --> 00:17:57,600 Speaker 8: of cuts in the funds rate coming probably on in 339 00:17:57,680 --> 00:18:01,440 Speaker 8: every other meeting base. So if you give me the 340 00:18:01,520 --> 00:18:05,480 Speaker 8: luxury of looking out eighteen months, you've probably got the 341 00:18:05,520 --> 00:18:08,479 Speaker 8: funds rate down one hundred and fifty basis points. That 342 00:18:08,560 --> 00:18:14,240 Speaker 8: should be a very constructive tailwind for small cap companies 343 00:18:14,280 --> 00:18:17,080 Speaker 8: that historically do well when interest rates come down. 344 00:18:18,200 --> 00:18:19,680 Speaker 2: What do you do with bonds then? 345 00:18:19,960 --> 00:18:24,639 Speaker 8: In that environment, So our view on bonds is that 346 00:18:24,680 --> 00:18:27,040 Speaker 8: we should be lengthening out or looking for an opportunity 347 00:18:27,080 --> 00:18:30,480 Speaker 8: to lengthen out duration, that if the funds rate is 348 00:18:30,480 --> 00:18:34,640 Speaker 8: one hundred and fifty basis points lower eighteen months from now, 349 00:18:35,200 --> 00:18:37,680 Speaker 8: then treasury yields are probably going to be lower as well, 350 00:18:38,520 --> 00:18:40,960 Speaker 8: which means that if I had the opportunity to start 351 00:18:41,000 --> 00:18:43,520 Speaker 8: to lengthen out duration at you know, five percent of 352 00:18:43,520 --> 00:18:45,679 Speaker 8: four and three quarters or even four and a half percent, 353 00:18:46,640 --> 00:18:49,159 Speaker 8: I think that's a reasonable bet. So if we're going 354 00:18:49,240 --> 00:18:53,480 Speaker 8: to again look out eighteen months, could we see benchmark 355 00:18:53,480 --> 00:18:57,040 Speaker 8: ten year treasury yields, you know, down below four percent, 356 00:18:57,080 --> 00:18:58,919 Speaker 8: three and a half percent something like that. If the 357 00:18:58,960 --> 00:19:01,080 Speaker 8: answer is yes, and and that's the direction we think 358 00:19:01,080 --> 00:19:05,919 Speaker 8: we're going, then extending that duration here, you know, in 359 00:19:05,960 --> 00:19:08,639 Speaker 8: the four to four and a half percent neighborhood, in 360 00:19:08,720 --> 00:19:09,800 Speaker 8: our view makes sense. 361 00:19:10,960 --> 00:19:14,439 Speaker 4: Do you expect a September swoon? It is coming up 362 00:19:14,480 --> 00:19:15,640 Speaker 4: on that time of year. 363 00:19:16,320 --> 00:19:18,760 Speaker 8: You do, Which is why we took two points out 364 00:19:18,760 --> 00:19:22,000 Speaker 8: of our five percent equity overweight at the beginning of 365 00:19:22,000 --> 00:19:25,080 Speaker 8: this week. The stock market, in our view, is ahead 366 00:19:25,080 --> 00:19:31,600 Speaker 8: of itself. Stocks are overbought. We could absolutely anticipate, you know, 367 00:19:31,760 --> 00:19:35,040 Speaker 8: at a minimum of five to ten percent correction, which 368 00:19:35,400 --> 00:19:39,120 Speaker 8: we think would be very healthy. Looking out, say between 369 00:19:39,160 --> 00:19:43,600 Speaker 8: now and the election. So stocks have done really well, 370 00:19:44,119 --> 00:19:47,000 Speaker 8: we would expect to see sort of a rotation here, 371 00:19:47,200 --> 00:19:49,600 Speaker 8: a reversion of the mean, if you will, in which 372 00:19:49,640 --> 00:19:54,639 Speaker 8: disproportionately more money comes out from a profit. Taking standpoint 373 00:19:54,640 --> 00:19:58,000 Speaker 8: on the stocks that have just gone vertical, and see 374 00:19:58,000 --> 00:20:01,080 Speaker 8: this rotation into a lot of the same actors, like 375 00:20:01,119 --> 00:20:05,040 Speaker 8: the value, like the small caps, like the em names 376 00:20:05,080 --> 00:20:10,280 Speaker 8: that haven't performed anywhere near as well as the MEGS 377 00:20:10,280 --> 00:20:10,919 Speaker 8: seven names have. 378 00:20:11,880 --> 00:20:14,560 Speaker 2: Wow, Okay, I better get that money another my money 379 00:20:14,560 --> 00:20:20,119 Speaker 2: market fun Now, if we're going below four for the tenure, which. 380 00:20:19,880 --> 00:20:23,040 Speaker 4: Is also Ira Jersey's call before the end of the year. 381 00:20:23,080 --> 00:20:25,040 Speaker 2: I'm gonna be one of those people. All right, Hey Phil, 382 00:20:25,040 --> 00:20:27,320 Speaker 2: thanks lot, We really appreciate it. How Every weekend, Fill Orlando, 383 00:20:27,480 --> 00:20:30,760 Speaker 2: chief equity market strategist and head of client portfolio Management 384 00:20:30,800 --> 00:20:33,159 Speaker 2: over at Federated Hermes. 385 00:20:34,240 --> 00:20:38,120 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 386 00:20:38,200 --> 00:20:41,280 Speaker 1: weekdays at ten am Eastern on fo cardplay and Android 387 00:20:41,320 --> 00:20:44,440 Speaker 1: auto with the Bloomberg Business App. Listen on demand wherever 388 00:20:44,480 --> 00:20:48,320 Speaker 1: you get your podcasts, or watch us live on YouTube. 389 00:20:49,400 --> 00:20:51,639 Speaker 2: Let's get to the story that is really upsetting John Tucker, 390 00:20:51,680 --> 00:20:54,639 Speaker 2: and it's this AT and T story. AT and T 391 00:20:54,720 --> 00:20:58,359 Speaker 2: stock obviously falling disclosing some hack of calls and texts 392 00:20:58,480 --> 00:21:01,680 Speaker 2: that affected its custom I'm John Butler is Bloomberg Intelligence 393 00:21:01,680 --> 00:21:04,679 Speaker 2: senior telecom analyst, and he joins us. Now John Tucker's 394 00:21:04,720 --> 00:21:08,119 Speaker 2: not getting on'sages. 395 00:21:08,480 --> 00:21:09,359 Speaker 5: Okay, John? 396 00:21:09,359 --> 00:21:11,840 Speaker 2: Should Should John Tucker be nervous right now? 397 00:21:11,840 --> 00:21:12,399 Speaker 5: What's happening? 398 00:21:13,359 --> 00:21:16,040 Speaker 9: No? John Tucker should not be nervous right now? 399 00:21:17,520 --> 00:21:19,920 Speaker 4: What was stolen was interview was Let's move on. 400 00:21:23,560 --> 00:21:26,600 Speaker 9: I recently had my ID stolen. I think it's become 401 00:21:26,720 --> 00:21:29,919 Speaker 9: quite common. And what happened at AT and T is 402 00:21:30,000 --> 00:21:33,800 Speaker 9: they had their call logs breached. So you know, when 403 00:21:33,880 --> 00:21:37,400 Speaker 9: you make a call, AT and T logs the originating 404 00:21:37,480 --> 00:21:40,800 Speaker 9: number and the call number, and they generate billions of 405 00:21:40,840 --> 00:21:43,840 Speaker 9: those data points, and so they need to store that 406 00:21:43,960 --> 00:21:48,240 Speaker 9: data off site with a third party provider. Bloomberg reported 407 00:21:48,280 --> 00:21:51,399 Speaker 9: that it was Snowflake that was actually breached. It was 408 00:21:51,480 --> 00:21:54,800 Speaker 9: housing the AT and T data. This all occurred back 409 00:21:54,840 --> 00:21:57,239 Speaker 9: in twenty twenty two. So John, if you were not 410 00:21:57,280 --> 00:22:01,040 Speaker 9: a subscriber, then I think you're really But the risk 411 00:22:01,200 --> 00:22:04,600 Speaker 9: is where the fear is that hackers could use that 412 00:22:04,680 --> 00:22:11,000 Speaker 9: data to potentially blackmail politicians or other vulnerable parties who 413 00:22:11,960 --> 00:22:15,440 Speaker 9: may not want that call information released. 414 00:22:15,800 --> 00:22:19,359 Speaker 4: We're like somebody like, hey, why was John texting Alex 415 00:22:19,440 --> 00:22:21,840 Speaker 4: at two a m. I mean, that's godn't happen. I'm 416 00:22:21,880 --> 00:22:22,520 Speaker 4: just saying, I. 417 00:22:22,440 --> 00:22:24,000 Speaker 2: Mean, I know, I don't know if that rises to 418 00:22:24,040 --> 00:22:26,240 Speaker 2: the to the moment, but you know it's fair. 419 00:22:26,240 --> 00:22:29,600 Speaker 4: I pay good money to conceal that that data. 420 00:22:30,480 --> 00:22:33,359 Speaker 9: I don't understand the hackers are counting on that, John. 421 00:22:34,240 --> 00:22:38,520 Speaker 4: So so it came out you're saying in a regulatory 422 00:22:38,920 --> 00:22:43,520 Speaker 4: filing that we saw this morning. Why now? Why did 423 00:22:43,520 --> 00:22:45,600 Speaker 4: it come out? Now? Why did they tell us about 424 00:22:45,600 --> 00:22:46,720 Speaker 4: this earlier? 425 00:22:47,119 --> 00:22:50,479 Speaker 9: So that is a good question and one that I 426 00:22:50,560 --> 00:22:53,919 Speaker 9: don't have an answer for, but I believe it probably 427 00:22:54,040 --> 00:23:00,199 Speaker 9: has to do with, you know, understanding fully what the 428 00:23:00,240 --> 00:23:03,840 Speaker 9: breach encompassed. I mean, it's one thing to discover a breach, 429 00:23:03,920 --> 00:23:08,080 Speaker 9: and it's another thing to understand the details around it 430 00:23:08,240 --> 00:23:11,560 Speaker 9: and work with the FBI to really understand the scope 431 00:23:11,600 --> 00:23:15,600 Speaker 9: of the breach, you know, when they actually were able 432 00:23:15,640 --> 00:23:18,280 Speaker 9: to truly lock it down. So I can't speak to 433 00:23:18,359 --> 00:23:21,960 Speaker 9: the specific timing here, but that's my guess is they 434 00:23:22,040 --> 00:23:24,520 Speaker 9: had to do a lot with getting all their ducks 435 00:23:24,520 --> 00:23:25,720 Speaker 9: in a row, so to speak. 436 00:23:25,840 --> 00:23:28,199 Speaker 4: Okay, but there's a lawyer out there where there are 437 00:23:28,280 --> 00:23:31,199 Speaker 4: lawyers out there listening to this program saying, Wow, this 438 00:23:31,320 --> 00:23:33,640 Speaker 4: is going to make a great class action lawsuit where 439 00:23:33,640 --> 00:23:37,000 Speaker 4: I get lots of fees. How vulnerable that is AT 440 00:23:37,119 --> 00:23:40,720 Speaker 4: and T to some sort of legal action in the 441 00:23:40,800 --> 00:23:42,920 Speaker 4: money that would flow from that or just. 442 00:23:42,840 --> 00:23:44,040 Speaker 2: Like brand damage. 443 00:23:45,080 --> 00:23:48,400 Speaker 9: Yeah, well, I'm more worried about the latter. I think 444 00:23:48,440 --> 00:23:52,119 Speaker 9: they're vulnerable on both fronts. So, John, as you suggested, 445 00:23:52,160 --> 00:23:54,600 Speaker 9: I think the lawyers are sharpening their teeth here. I 446 00:23:54,640 --> 00:23:59,600 Speaker 9: mean they are vulnerable to consumer lawsuits for breach of data. 447 00:23:59,600 --> 00:24:02,800 Speaker 9: I think all companies are when something like this happens. 448 00:24:02,840 --> 00:24:06,000 Speaker 9: What I worry about is this is the second breach 449 00:24:06,160 --> 00:24:09,720 Speaker 9: this year. So they announced a separate breach back in 450 00:24:09,960 --> 00:24:14,040 Speaker 9: March of equal scope, and here we are again now 451 00:24:14,119 --> 00:24:17,520 Speaker 9: in July, and it's a rerun of everything. And so 452 00:24:18,359 --> 00:24:22,480 Speaker 9: my concern is that the AT and T brand gets tarnished, 453 00:24:22,520 --> 00:24:24,840 Speaker 9: at least in the near term. When one thing I 454 00:24:24,920 --> 00:24:29,679 Speaker 9: have noticed with the telecoms in other companies is people 455 00:24:29,720 --> 00:24:32,600 Speaker 9: have a short memory on this, you know, fast forward 456 00:24:32,600 --> 00:24:34,560 Speaker 9: a year from now. I don't think people are going 457 00:24:34,640 --> 00:24:37,960 Speaker 9: to remember this, but in the near term they may. 458 00:24:38,160 --> 00:24:40,679 Speaker 9: People who were thinking of switching to AT and T 459 00:24:40,920 --> 00:24:42,600 Speaker 9: may in fact think twice. 460 00:24:43,240 --> 00:24:43,440 Speaker 7: Well. 461 00:24:43,480 --> 00:24:48,280 Speaker 2: Also, switching phone provider stinks. It's like really highigh fraction. 462 00:24:48,600 --> 00:24:52,960 Speaker 9: It's high friction. And so my concern is not higher 463 00:24:53,119 --> 00:24:56,360 Speaker 9: churn or losing subscribers on the news. I think it's 464 00:24:56,480 --> 00:25:00,439 Speaker 9: more getting those gross ads going as the they call it, 465 00:25:00,480 --> 00:25:03,960 Speaker 9: people coming into the brand, and I think the risk is, 466 00:25:04,000 --> 00:25:06,280 Speaker 9: at least for the next three months or so, people 467 00:25:06,320 --> 00:25:09,600 Speaker 9: may think twice about it while the headlines are fresh. 468 00:25:10,080 --> 00:25:12,680 Speaker 2: John, we have earnings coming out at the end of July, 469 00:25:12,800 --> 00:25:15,439 Speaker 2: so they're gonna before the market on July twenty fourth. 470 00:25:16,080 --> 00:25:18,040 Speaker 2: What can we expect to What should we be paying 471 00:25:18,080 --> 00:25:21,520 Speaker 2: attention to? I mean, they have a nice gross given 472 00:25:21,560 --> 00:25:22,960 Speaker 2: and yield almost six percent. 473 00:25:23,040 --> 00:25:23,800 Speaker 5: What are you looking for? 474 00:25:25,520 --> 00:25:27,520 Speaker 6: Yeah, so two things for AT and T. 475 00:25:27,720 --> 00:25:31,199 Speaker 9: Number One, everyone focuses on their free cash flow because 476 00:25:31,200 --> 00:25:33,520 Speaker 9: they're a bit over levered in the wake of that 477 00:25:34,080 --> 00:25:37,399 Speaker 9: Time Warner acquisition and the underwinding of all that, and 478 00:25:37,480 --> 00:25:40,679 Speaker 9: so they're trying to manage down to a debt leverage 479 00:25:40,760 --> 00:25:43,840 Speaker 9: ratio of two point five times by I believe it's 480 00:25:43,880 --> 00:25:47,280 Speaker 9: the end of next year, and they're getting there through 481 00:25:47,440 --> 00:25:51,960 Speaker 9: free cash flow growth, and so for the investment community, 482 00:25:52,040 --> 00:25:56,440 Speaker 9: that's a real focus. The other lightning rod for all 483 00:25:56,480 --> 00:26:02,920 Speaker 9: of the telecoms is postpaid net subscriber editions, and so 484 00:26:02,960 --> 00:26:07,040 Speaker 9: that's the contract business, not the prepaid business. People like 485 00:26:07,080 --> 00:26:10,720 Speaker 9: you and me that pay a bill on a monthly basis, 486 00:26:10,800 --> 00:26:12,879 Speaker 9: but we're sort of on a contract. We don't have 487 00:26:12,960 --> 00:26:15,800 Speaker 9: to prepay in front of the month, and those are 488 00:26:16,320 --> 00:26:21,040 Speaker 9: higher price subscribers and the ability to drive net growth 489 00:26:21,119 --> 00:26:25,600 Speaker 9: there through what are called net ads. So that's gross 490 00:26:25,640 --> 00:26:29,040 Speaker 9: additions people you bring in, minus those that you lose. 491 00:26:29,119 --> 00:26:32,439 Speaker 9: If that's a net positive and it's getting bigger every quarter, 492 00:26:32,480 --> 00:26:35,520 Speaker 9: that's good. If it's moving lower, which it is for 493 00:26:35,640 --> 00:26:39,560 Speaker 9: all the carriers right now, that can be seen as 494 00:26:39,600 --> 00:26:42,040 Speaker 9: a net negative. So there'll be a lot of focus 495 00:26:42,119 --> 00:26:45,040 Speaker 9: on that number going into the quarter for all the carriers. 496 00:26:45,800 --> 00:26:47,000 Speaker 9: AT and T included. 497 00:26:47,359 --> 00:26:49,399 Speaker 4: This one's kind of out of left field. I remember 498 00:26:49,480 --> 00:26:53,480 Speaker 4: when the promise of the switch to five G. I 499 00:26:53,480 --> 00:26:54,720 Speaker 4: didn't notice anything. 500 00:26:55,520 --> 00:26:55,720 Speaker 7: I did. 501 00:26:57,240 --> 00:27:00,040 Speaker 4: I went from like one G to five G. I 502 00:27:00,080 --> 00:27:00,919 Speaker 4: didn't notice anything. 503 00:27:01,000 --> 00:27:02,959 Speaker 6: Yeah, really, yeah, It's funny. 504 00:27:03,080 --> 00:27:07,240 Speaker 9: Four G was much much more impactful for the consumer 505 00:27:07,359 --> 00:27:11,360 Speaker 9: because it puts streaming video into our Palm tops, and 506 00:27:12,119 --> 00:27:17,120 Speaker 9: five G will increase download speeds for sure, But it's 507 00:27:17,200 --> 00:27:20,879 Speaker 9: much more impactful on the business to business side because 508 00:27:21,200 --> 00:27:25,640 Speaker 9: it's a software defined upgrade. Without going into detail, that 509 00:27:25,720 --> 00:27:28,679 Speaker 9: really gives a lot more flexibility for the carriers to 510 00:27:28,760 --> 00:27:33,639 Speaker 9: create very interesting news services. On the business side, I 511 00:27:33,680 --> 00:27:35,880 Speaker 9: think I have to say I think five G has 512 00:27:35,960 --> 00:27:39,520 Speaker 9: disappointed in that regard because even though the carriers are 513 00:27:39,600 --> 00:27:44,240 Speaker 9: ready to deploy these services, I don't think the appetite 514 00:27:44,280 --> 00:27:48,879 Speaker 9: on the business side has quite been there as originally expected. 515 00:27:49,480 --> 00:27:53,439 Speaker 4: Outlook for Telecom midyear outlook in how much time we 516 00:27:53,480 --> 00:27:54,560 Speaker 4: got a minute left? 517 00:27:56,560 --> 00:27:58,960 Speaker 9: I think it's steady as she goes, John, You know, 518 00:27:59,040 --> 00:28:02,439 Speaker 9: there's a lot as I said, there's slowing subscriber growth 519 00:28:02,480 --> 00:28:06,640 Speaker 9: now post pandemic. All of the carriers, like every company 520 00:28:06,640 --> 00:28:10,280 Speaker 9: on the planet, has been sort of edging up their prices, 521 00:28:10,440 --> 00:28:13,800 Speaker 9: and so that actually is providing a bit of a 522 00:28:13,840 --> 00:28:17,720 Speaker 9: floor to revenue growth. So as much as you're losing subscribers, 523 00:28:18,359 --> 00:28:21,760 Speaker 9: price increases have a much broader impact across the whole 524 00:28:21,800 --> 00:28:25,960 Speaker 9: subscriber base and the revenue line. So I think revenue 525 00:28:25,960 --> 00:28:29,000 Speaker 9: growth will be a tad lower from last year, but 526 00:28:29,240 --> 00:28:33,200 Speaker 9: still I would again characterize it as steady as she goes. 527 00:28:33,800 --> 00:28:36,480 Speaker 9: And as you mentioned before, we have very good yields 528 00:28:36,760 --> 00:28:39,880 Speaker 9: at AT and T and Verizon, and so that will 529 00:28:39,920 --> 00:28:42,040 Speaker 9: be a focus bring into the calls as well. 530 00:28:42,120 --> 00:28:43,880 Speaker 2: Yeah, particularly if the FED cuts and you get lower 531 00:28:43,960 --> 00:28:44,719 Speaker 2: rates in the tenure. 532 00:28:45,480 --> 00:28:45,920 Speaker 5: Very interesting. 533 00:28:45,960 --> 00:28:47,800 Speaker 2: All right, hey, JOm, I really appreciate I think you 534 00:28:47,840 --> 00:28:50,440 Speaker 2: made John Tucker feel better. I was John Butler Bloomberg 535 00:28:50,480 --> 00:28:53,480 Speaker 2: Intelligence and your telecom analyst. You're still worried, fair enough. 536 00:28:53,520 --> 00:28:54,920 Speaker 2: You know what I have to do every day now? 537 00:28:55,080 --> 00:28:56,880 Speaker 2: I have to turn my phone on and off because 538 00:28:56,920 --> 00:28:59,040 Speaker 2: there else it doesn't work properly. What does that mean? 539 00:28:59,600 --> 00:29:00,880 Speaker 4: Means you need a new phone? 540 00:29:01,120 --> 00:29:03,840 Speaker 2: Like I just gets the iPhone fourteen. I don't understand. 541 00:29:04,360 --> 00:29:05,360 Speaker 4: I don't know what I have. 542 00:29:05,840 --> 00:29:08,400 Speaker 2: Oh he's a flip phone. No, I'm kidding, he doesn't. 543 00:29:08,440 --> 00:29:09,120 Speaker 2: It's not that bad. 544 00:29:10,640 --> 00:29:14,520 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 545 00:29:14,600 --> 00:29:18,120 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 546 00:29:18,160 --> 00:29:20,920 Speaker 1: Auto with the Bloomberg Business app. You can also listen 547 00:29:21,040 --> 00:29:24,120 Speaker 1: live on Amazon Alexa from our flagship New York station. 548 00:29:24,520 --> 00:29:27,280 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 549 00:29:28,600 --> 00:29:30,360 Speaker 2: So Paul Sweenie is out today. I'm Alex Steel and 550 00:29:30,440 --> 00:29:32,920 Speaker 2: John Tucker is subbing. He's also himself and he's subbing 551 00:29:32,920 --> 00:29:36,320 Speaker 2: for Paul Sweeney. This is Bloomberg Intelligence. We bring you 552 00:29:36,400 --> 00:29:38,920 Speaker 2: all the top news and business, economics and politics through 553 00:29:38,920 --> 00:29:41,200 Speaker 2: our lens of our Bloomberg Intelligence folks. They cover two 554 00:29:41,200 --> 00:29:43,880 Speaker 2: thousand companies one hundred and thirty industries around the world. 555 00:29:43,960 --> 00:29:46,520 Speaker 2: We are broadcasting to live from Interactive Broker Studio right 556 00:29:46,520 --> 00:29:49,560 Speaker 2: here in Midtown Manhattan. Also check us out on YouTube. 557 00:29:49,640 --> 00:29:51,640 Speaker 2: So let's get to that news conference last night with 558 00:29:51,680 --> 00:29:55,760 Speaker 2: President Biden. Nathan Dean, Bloomberg Intelligence senior policy analyst, is 559 00:29:55,840 --> 00:29:58,600 Speaker 2: joining us on that. So here's the media narrative, right, 560 00:29:59,000 --> 00:30:01,800 Speaker 2: the Democrat of Democrats seemed to be now calling for 561 00:30:01,800 --> 00:30:05,760 Speaker 2: Biden to step aside. The headlines continue to not look good. 562 00:30:06,160 --> 00:30:08,680 Speaker 2: That's the media side. Is any of that true on 563 00:30:08,760 --> 00:30:11,200 Speaker 2: the polling side, Well, you know. 564 00:30:11,160 --> 00:30:14,239 Speaker 10: We watched the prediction markets very closely, which we can 565 00:30:14,280 --> 00:30:17,680 Speaker 10: find it on the terminal at WSL Election and going 566 00:30:17,760 --> 00:30:20,680 Speaker 10: into the press conference, Kamala Harris had quite a sizable 567 00:30:20,760 --> 00:30:22,240 Speaker 10: lead in terms of who was going to be the 568 00:30:22,280 --> 00:30:24,360 Speaker 10: nominee fifty to thirty seven. 569 00:30:24,480 --> 00:30:25,240 Speaker 6: Now, at the end of the. 570 00:30:25,160 --> 00:30:28,440 Speaker 10: Press conference, President Biden had actually changed the narrative and 571 00:30:28,560 --> 00:30:31,120 Speaker 10: was up forty four to forty one. And I just 572 00:30:31,240 --> 00:30:34,440 Speaker 10: checked about twenty seconds ago President Biden is up forty 573 00:30:34,480 --> 00:30:36,520 Speaker 10: six to forty one. So in the eyes of the 574 00:30:36,560 --> 00:30:40,040 Speaker 10: predictive markets, President Biden had a very good night. Now, 575 00:30:40,200 --> 00:30:43,240 Speaker 10: you mentioned the Washington angle, though that has not stopped 576 00:30:43,280 --> 00:30:46,640 Speaker 10: the calls from Democrats for President Biden to step aside. 577 00:30:46,720 --> 00:30:49,240 Speaker 10: In fact, we saw one just a few minutes ago. Now, 578 00:30:49,280 --> 00:30:51,520 Speaker 10: I think what will happen here is with the Republican 579 00:30:51,520 --> 00:30:54,480 Speaker 10: Convention starting next week, some of the news cycle is 580 00:30:54,480 --> 00:30:56,680 Speaker 10: going to break away from whether President Biden should run 581 00:30:56,760 --> 00:30:59,200 Speaker 10: or not and move over to Milwaukee and what President 582 00:30:59,240 --> 00:31:02,120 Speaker 10: Trump will do. But for the Democrats, last night was 583 00:31:02,160 --> 00:31:04,680 Speaker 10: a good night for Biden, but overall he doesn't change 584 00:31:04,720 --> 00:31:06,920 Speaker 10: the narrative. They're sort of stuck in the status quo 585 00:31:07,040 --> 00:31:08,080 Speaker 10: should he run or should he not? 586 00:31:08,440 --> 00:31:11,280 Speaker 4: Okay, in his response to some of the great questions 587 00:31:11,320 --> 00:31:13,760 Speaker 4: that he received from some of the Bloomberg reporters at 588 00:31:13,800 --> 00:31:18,240 Speaker 4: that did he sound a little more malleable is the 589 00:31:18,280 --> 00:31:20,800 Speaker 4: word maybe to change. 590 00:31:21,840 --> 00:31:23,080 Speaker 6: Well, you know, I. 591 00:31:23,080 --> 00:31:25,680 Speaker 10: Would say that he was pretty stuck in. I mean 592 00:31:25,720 --> 00:31:29,440 Speaker 10: when he was when Josh Wingrove gave that great question 593 00:31:29,520 --> 00:31:31,880 Speaker 10: on should he stay or should he run? You know, 594 00:31:31,920 --> 00:31:34,080 Speaker 10: he sort of just said, look, the polling suggests that 595 00:31:34,160 --> 00:31:36,600 Speaker 10: I should stay. Now that's not some of the polling 596 00:31:36,600 --> 00:31:39,480 Speaker 10: that we've seen across the news narrative. So the question 597 00:31:39,600 --> 00:31:42,840 Speaker 10: here is for President Biden is it's an ultimate gamble. 598 00:31:43,240 --> 00:31:45,760 Speaker 10: If he honestly believes that he is the best person 599 00:31:45,800 --> 00:31:47,960 Speaker 10: to defeat Donald Trump, he's gonna stay. 600 00:31:48,400 --> 00:31:49,560 Speaker 6: But you know, we. 601 00:31:49,480 --> 00:31:53,520 Speaker 10: Saw House Minority leader had King Jefferies just say that 602 00:31:53,600 --> 00:31:56,200 Speaker 10: he spent some time with the president last night talking 603 00:31:56,240 --> 00:31:59,080 Speaker 10: about what should happen here. So I think there's going 604 00:31:59,120 --> 00:32:01,920 Speaker 10: to be a lot of serious conversations in the Democratic 605 00:32:01,960 --> 00:32:04,680 Speaker 10: Party that will take place over the next week, and 606 00:32:04,760 --> 00:32:06,640 Speaker 10: eventually President Biden is going to have to make a 607 00:32:06,680 --> 00:32:09,920 Speaker 10: decision before you know, they get him onto the ballot, 608 00:32:10,000 --> 00:32:10,760 Speaker 10: you know, and so forth. 609 00:32:11,040 --> 00:32:12,240 Speaker 6: Is he going to stay as you get it go? 610 00:32:12,560 --> 00:32:14,080 Speaker 10: But as of right now, I think if you were 611 00:32:14,080 --> 00:32:16,600 Speaker 10: to give President Biden trutstrom, he's going to say, I'm. 612 00:32:16,440 --> 00:32:16,880 Speaker 6: Going to stay. 613 00:32:17,120 --> 00:32:19,160 Speaker 2: But do we trust any of the polls. I mean, 614 00:32:19,440 --> 00:32:21,240 Speaker 2: when have poles been reliable last? 615 00:32:21,840 --> 00:32:23,760 Speaker 10: You know, I tell clients all the time I don't 616 00:32:23,800 --> 00:32:26,320 Speaker 10: trust polls until two weeks before then, and even then 617 00:32:26,360 --> 00:32:29,160 Speaker 10: I still suspect. So you know what we should think 618 00:32:29,160 --> 00:32:33,240 Speaker 10: about here is process. Now the Democrats have time because 619 00:32:33,280 --> 00:32:34,760 Speaker 10: next week is the Republican convention. 620 00:32:34,960 --> 00:32:36,800 Speaker 6: Obviously the new cycle is going to turn to that. 621 00:32:37,320 --> 00:32:41,040 Speaker 10: But because of the way the Ohio state loss is, 622 00:32:41,440 --> 00:32:44,240 Speaker 10: President Biden has to be nominated by August seventh to 623 00:32:44,280 --> 00:32:46,880 Speaker 10: be on the Ohio ballot. This is before their convention 624 00:32:47,280 --> 00:32:49,960 Speaker 10: in late August. Now, the Democrats have been talking about 625 00:32:50,000 --> 00:32:53,160 Speaker 10: holding a virtual roll call. They're dusting off that COVID playbook. 626 00:32:53,360 --> 00:32:56,920 Speaker 10: They have a virtual nomination per se for President Biden 627 00:32:57,040 --> 00:32:59,880 Speaker 10: for the state of Ohio around July twenty first. That 628 00:33:00,080 --> 00:33:02,720 Speaker 10: date is not set in stone, so up until that 629 00:33:02,880 --> 00:33:06,640 Speaker 10: point they can have these conversations. Once they nominate President 630 00:33:06,640 --> 00:33:09,160 Speaker 10: Biden to the Ohio ballot, however, it's going to be 631 00:33:09,200 --> 00:33:11,600 Speaker 10: extremely more difficult for him to say I'm not going 632 00:33:11,640 --> 00:33:13,800 Speaker 10: to run, because then you would get into a situation 633 00:33:13,880 --> 00:33:16,800 Speaker 10: where President Biden's on the ballot in Ohio, but he 634 00:33:16,840 --> 00:33:19,040 Speaker 10: may actually be running for president who are. 635 00:33:18,880 --> 00:33:22,200 Speaker 4: The key people in all this who talk to the president. 636 00:33:22,920 --> 00:33:24,920 Speaker 4: When does it happen this weekend? 637 00:33:25,840 --> 00:33:28,160 Speaker 10: You know, I think this weekend is actually going to 638 00:33:28,160 --> 00:33:30,760 Speaker 10: be a good, you know, reset moment for President Biden. 639 00:33:30,880 --> 00:33:33,080 Speaker 10: He may go I don't know, I can't recall a schedule. 640 00:33:33,080 --> 00:33:34,680 Speaker 10: He may go back to Delaware or not. But he 641 00:33:34,720 --> 00:33:37,880 Speaker 10: obviously has his inner circle of allies. But then you 642 00:33:38,040 --> 00:33:40,520 Speaker 10: also have heard through the news cycle that, you know, 643 00:33:40,600 --> 00:33:42,719 Speaker 10: President Obama is beginning to opine on this. 644 00:33:43,080 --> 00:33:43,600 Speaker 6: You know, it was. 645 00:33:43,560 --> 00:33:46,560 Speaker 10: Reported that he spoke with je spoke with George Clooney 646 00:33:46,720 --> 00:33:49,120 Speaker 10: before George Clooney put that opt ed calling for President 647 00:33:49,160 --> 00:33:51,600 Speaker 10: Biden to step aside. So I think there's just a 648 00:33:51,680 --> 00:33:54,280 Speaker 10: lot of people that are going to be talking to 649 00:33:54,320 --> 00:33:57,040 Speaker 10: the president. I think the problem here is is that 650 00:33:57,080 --> 00:33:58,880 Speaker 10: you get a difference of opinion depending on. 651 00:33:58,800 --> 00:33:59,200 Speaker 6: Who you are. 652 00:33:59,200 --> 00:34:01,600 Speaker 10: In the Democratic part. Most of the people that are 653 00:34:01,600 --> 00:34:05,760 Speaker 10: calling for President Biden to step aside represent Democrats in 654 00:34:05,840 --> 00:34:08,759 Speaker 10: either bipartist Purple states or red states. You see a 655 00:34:08,800 --> 00:34:12,439 Speaker 10: lot of Midwestern Democrats calling for President Biden to resign, sorry, 656 00:34:12,680 --> 00:34:15,399 Speaker 10: to step aside. It's those Democrats that are in more 657 00:34:15,440 --> 00:34:17,879 Speaker 10: safer seats I think in you know, think New York 658 00:34:17,920 --> 00:34:20,440 Speaker 10: City if you will, that are saying no, President Biden, 659 00:34:20,680 --> 00:34:23,879 Speaker 10: Biden should stick it out. So I'm not exactly sure 660 00:34:23,880 --> 00:34:26,239 Speaker 10: who's going to have the president's ear this weekend, but 661 00:34:26,320 --> 00:34:27,440 Speaker 10: I know a lot of people are going to be 662 00:34:27,480 --> 00:34:29,240 Speaker 10: trying to get that get that voice. 663 00:34:29,239 --> 00:34:29,479 Speaker 11: Time. 664 00:34:30,160 --> 00:34:33,960 Speaker 2: For investors, what should they care about because you just 665 00:34:34,040 --> 00:34:37,719 Speaker 2: you cannot hedge or price in political strike. I mean 666 00:34:38,120 --> 00:34:40,279 Speaker 2: since Brexit and even that was like what six or 667 00:34:40,280 --> 00:34:42,719 Speaker 2: eight weeks that you could price that in. What do 668 00:34:42,800 --> 00:34:44,160 Speaker 2: investors do with all of this? 669 00:34:44,960 --> 00:34:46,840 Speaker 10: Yeah, so you have here the micro view and the 670 00:34:46,880 --> 00:34:49,040 Speaker 10: macro view. So if you're thinking micro, like what's the 671 00:34:49,120 --> 00:34:52,319 Speaker 10: individual impact on a company whether you get President Bien 672 00:34:52,440 --> 00:34:54,959 Speaker 10: or let's say Vice President Kamala Harris, I'd say about 673 00:34:55,040 --> 00:34:57,520 Speaker 10: ninety five percent of the policies that we cover BI 674 00:34:58,120 --> 00:35:00,840 Speaker 10: would be the same outcome whether you have President Harris 675 00:35:00,920 --> 00:35:05,160 Speaker 10: or President Biden. So on the company specifically specific impact, 676 00:35:05,520 --> 00:35:07,520 Speaker 10: I don't think there's much uncertainty there. 677 00:35:07,760 --> 00:35:07,920 Speaker 6: Now. 678 00:35:07,920 --> 00:35:10,440 Speaker 10: The question then comes from what's the uncertainty on the 679 00:35:10,440 --> 00:35:13,000 Speaker 10: macro level? And obviously this is the more important at 680 00:35:13,000 --> 00:35:16,400 Speaker 10: the market perspective. Now, if President Biden were to say that, 681 00:35:16,520 --> 00:35:19,239 Speaker 10: I think the worst case scenario for the markets would 682 00:35:19,239 --> 00:35:21,239 Speaker 10: be if President Biden says I'm going to stick in, 683 00:35:21,280 --> 00:35:24,480 Speaker 10: I'm going to stay, and then after the Ohio date 684 00:35:24,560 --> 00:35:27,040 Speaker 10: or after the convention he announces he's going to resign. 685 00:35:27,640 --> 00:35:30,080 Speaker 10: Then you have an election where essentially people will have 686 00:35:30,120 --> 00:35:32,160 Speaker 10: to go to the ballot to vote for Joe Biden, 687 00:35:32,680 --> 00:35:34,640 Speaker 10: but knowing that he's not going to be the president, 688 00:35:34,840 --> 00:35:35,960 Speaker 10: and then it would be in the hands of the 689 00:35:36,000 --> 00:35:39,080 Speaker 10: DNC to figure that out. That's a lot of uncertainty there. 690 00:35:39,200 --> 00:35:41,319 Speaker 10: An open convention in Chicago may not be a good 691 00:35:41,320 --> 00:35:44,080 Speaker 10: thing for markets, but ultimately, you know, when you look 692 00:35:44,120 --> 00:35:47,480 Speaker 10: at the differences between President Trump and whoever the Democratic 693 00:35:47,520 --> 00:35:50,799 Speaker 10: convention or the Democratic nominee will be, you know, you 694 00:35:50,840 --> 00:35:53,839 Speaker 10: get a prestarty start contrast there, and you'll be able 695 00:35:53,880 --> 00:35:56,160 Speaker 10: to at least pick and play scenario analysis with either 696 00:35:56,160 --> 00:35:56,480 Speaker 10: of those. 697 00:35:56,680 --> 00:36:00,560 Speaker 4: Does Vice President Harris have a role in talking to 698 00:36:00,600 --> 00:36:03,600 Speaker 4: the president at this point or just be self certain? 699 00:36:03,719 --> 00:36:05,560 Speaker 2: That would be so dicey, like, hey, can you step 700 00:36:05,600 --> 00:36:06,640 Speaker 2: aside so I can run? 701 00:36:06,719 --> 00:36:09,319 Speaker 10: Thanks God, I wish we knew the answer to that one, 702 00:36:09,360 --> 00:36:11,360 Speaker 10: but I will say that, you know, the Vice President 703 00:36:11,360 --> 00:36:13,200 Speaker 10: Harris has been on the road lately, she was in 704 00:36:13,200 --> 00:36:17,279 Speaker 10: Texas just recently, you know, saying the same message, and 705 00:36:17,320 --> 00:36:19,040 Speaker 10: you know, we've heard behind the scenes that you know, 706 00:36:19,360 --> 00:36:21,839 Speaker 10: President Biden is the nominee, we need to get behind him. 707 00:36:22,520 --> 00:36:24,279 Speaker 10: I would just say that, you know, this is one 708 00:36:24,320 --> 00:36:26,839 Speaker 10: of those situations where I think she is more likely 709 00:36:26,920 --> 00:36:29,919 Speaker 10: just to say I'm supportive of the president, but let's 710 00:36:29,960 --> 00:36:32,560 Speaker 10: let the process play out. But again, it's just really 711 00:36:32,560 --> 00:36:33,040 Speaker 10: hard to tell. 712 00:36:34,080 --> 00:36:36,680 Speaker 2: Before I let you go. Rnc's next week, we haven't 713 00:36:36,680 --> 00:36:38,960 Speaker 2: even really talked about that. What's the number one thing 714 00:36:38,960 --> 00:36:39,920 Speaker 2: you're looking at? 715 00:36:40,239 --> 00:36:42,040 Speaker 10: The number one thing I'm looking for is the vice 716 00:36:42,040 --> 00:36:44,480 Speaker 10: presidential candidate. You know, is it going to be you know, 717 00:36:44,600 --> 00:36:47,879 Speaker 10: Senator Vance from Ohio, Governor Bergham from North Dakota. Does 718 00:36:47,960 --> 00:36:50,239 Speaker 10: Nicky Haley even have a chance. There's a couple of 719 00:36:50,239 --> 00:36:53,520 Speaker 10: people spring around Washington that she could be a surprise pick. 720 00:36:53,600 --> 00:36:54,600 Speaker 6: I'm not sure about that. 721 00:36:54,680 --> 00:36:57,200 Speaker 10: But what I'll say is the vice presidential pick is 722 00:36:57,239 --> 00:37:00,799 Speaker 10: important because it may show how presid Trump is going 723 00:37:00,800 --> 00:37:03,320 Speaker 10: to try and appeal to moderate voters Going. 724 00:37:03,080 --> 00:37:03,760 Speaker 6: Into the election. 725 00:37:04,160 --> 00:37:08,880 Speaker 10: He pulled strong abortion reproductive right language from the RNC platform, 726 00:37:09,160 --> 00:37:11,400 Speaker 10: and maybe his vice presidential pick could be an additional 727 00:37:11,440 --> 00:37:12,040 Speaker 10: playoff of that. 728 00:37:12,400 --> 00:37:14,719 Speaker 4: Yeah, but that that all makes sense. But you know, 729 00:37:15,000 --> 00:37:18,680 Speaker 4: in the world of Donald trumality, do you want somebody 730 00:37:18,680 --> 00:37:21,719 Speaker 4: who's gonna maybe upstage you and look better than you? 731 00:37:22,000 --> 00:37:26,120 Speaker 10: Oh, Johnny, we got to bring it down to DC 732 00:37:26,239 --> 00:37:28,440 Speaker 10: because that is the conversation every single one of us 733 00:37:28,520 --> 00:37:31,160 Speaker 10: has been having. You know, if he picks Senator Vance 734 00:37:31,480 --> 00:37:34,240 Speaker 10: in two years, you have your you know your replacement. 735 00:37:34,239 --> 00:37:34,799 Speaker 6: They're right for you. 736 00:37:35,000 --> 00:37:37,399 Speaker 2: Hey, Nathan, we appreciate it. Thanks a lot, Nathan Dean, 737 00:37:37,520 --> 00:37:41,560 Speaker 2: Bloomberg Intelligence Senior policy analyst. Joining us there. 738 00:37:43,080 --> 00:37:46,960 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 739 00:37:47,040 --> 00:37:50,560 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 740 00:37:50,600 --> 00:37:53,360 Speaker 1: Auto with the Bloomberg Business app. You can also listen 741 00:37:53,480 --> 00:37:56,600 Speaker 1: live on Amazon Alexa from our flagship New York station 742 00:37:56,960 --> 00:38:00,920 Speaker 1: just say Alexa playing Bloomberg eleven thirty. 743 00:38:01,360 --> 00:38:02,920 Speaker 2: Let's get to some of the news here, and that 744 00:38:03,080 --> 00:38:06,319 Speaker 2: is NATO. Over the last few days. President Biden of course, 745 00:38:06,320 --> 00:38:10,520 Speaker 2: had that news conference yesterday. We had yng Stoltenberg, out 746 00:38:10,560 --> 00:38:14,400 Speaker 2: going NATO head speaking to Bloomberg earlier talking about how 747 00:38:14,600 --> 00:38:17,600 Speaker 2: he expects the US will remain a strong NATO ally. 748 00:38:17,680 --> 00:38:20,319 Speaker 2: Of course, who wins the presidential election will have a 749 00:38:20,360 --> 00:38:22,319 Speaker 2: lot to do with that. So we want to check 750 00:38:22,360 --> 00:38:25,560 Speaker 2: in with doctor Ariel Cohen, senior fellow at the Atlantic Council. 751 00:38:25,719 --> 00:38:28,879 Speaker 2: He joins us. Now, Doctor Cohen, what is my NATO 752 00:38:28,960 --> 00:38:30,960 Speaker 2: takeaway right now over the last few days. 753 00:38:32,480 --> 00:38:37,560 Speaker 7: First of all, this was a celebratory meeting of the 754 00:38:37,640 --> 00:38:41,640 Speaker 7: seventy fifth anniversary, and I think NATA is getting a 755 00:38:41,680 --> 00:38:43,080 Speaker 7: little bit long in the tooth. 756 00:38:44,000 --> 00:38:48,040 Speaker 6: It is not facing the real challenges. I would like 757 00:38:48,120 --> 00:38:49,160 Speaker 6: to see. 758 00:38:49,400 --> 00:38:55,120 Speaker 11: Much more vigorous leadership there that you and I may 759 00:38:55,360 --> 00:38:59,839 Speaker 11: agree or disagree whether President Biden provided it. But more importantly, 760 00:39:00,640 --> 00:39:03,879 Speaker 11: we see a lot of redundancies in NATO procurement. 761 00:39:04,440 --> 00:39:06,600 Speaker 6: We see shortages of equipment of. 762 00:39:06,680 --> 00:39:11,319 Speaker 11: Material, we see shortages of soldiers or grunts on the 763 00:39:11,320 --> 00:39:14,560 Speaker 11: ground in Europe. But on the other hand, we also 764 00:39:14,640 --> 00:39:20,280 Speaker 11: saw for the first time NATO expressing grave concerns about 765 00:39:20,400 --> 00:39:25,600 Speaker 11: China supporting Russia. So NATA is increasingly a global alliance 766 00:39:25,680 --> 00:39:29,320 Speaker 11: led by the United States, and President Biden, if elected, 767 00:39:29,680 --> 00:39:33,040 Speaker 11: will be ill advised to discard NATA. We all are 768 00:39:33,160 --> 00:39:38,880 Speaker 11: aware of his pessimism about NATA, his rhetoric about me. 769 00:39:39,320 --> 00:39:42,400 Speaker 4: You mean Donald Trump, right, I'm. 770 00:39:42,280 --> 00:39:48,160 Speaker 11: Sorry Donald Donald Trump, of course, so Trump will be 771 00:39:49,480 --> 00:39:54,560 Speaker 11: ill advised to discard NATO. In the era of confrontation 772 00:39:54,760 --> 00:39:58,160 Speaker 11: with Russia and serious friction was China. 773 00:39:58,880 --> 00:40:00,239 Speaker 6: We need our ally. 774 00:40:00,600 --> 00:40:05,160 Speaker 11: Coalitions and industrial potential win wars. 775 00:40:05,400 --> 00:40:07,759 Speaker 6: We saw it in the twentieth century World War One, 776 00:40:08,120 --> 00:40:09,080 Speaker 6: World War Two. 777 00:40:09,920 --> 00:40:13,640 Speaker 11: The Allies had a bigger and stronger coalition an industrial 778 00:40:13,680 --> 00:40:16,600 Speaker 11: base in World War One and World War Two. 779 00:40:17,560 --> 00:40:22,320 Speaker 4: Has NATO been able to trump proof itself? 780 00:40:25,000 --> 00:40:30,840 Speaker 11: NATO is not sufficiently trump proofing. If by trump proofing 781 00:40:31,680 --> 00:40:37,640 Speaker 11: we mean the US that disconnects from Europe or focuses 782 00:40:37,760 --> 00:40:42,840 Speaker 11: on China. As some experts in Washington suggested, just forget Europe, 783 00:40:43,280 --> 00:40:46,600 Speaker 11: let's put in Ukraine. Let's all focus on the Pacific. 784 00:40:46,960 --> 00:40:51,239 Speaker 11: This is not the way to go. But Europe has 785 00:40:51,560 --> 00:40:54,400 Speaker 11: multiple models of fighter aircraft. 786 00:40:54,600 --> 00:40:59,960 Speaker 6: They don't have strategy bombers. They have multiple models. 787 00:40:59,520 --> 00:41:05,279 Speaker 11: Of main battle tanks and insufficient production of hundred and 788 00:41:05,280 --> 00:41:11,360 Speaker 11: fifty five millimeter shells, not enough missiles. Although they're capable 789 00:41:12,000 --> 00:41:16,759 Speaker 11: of producing the missiles and the drones we need in 790 00:41:16,800 --> 00:41:21,400 Speaker 11: today's world, the production is shifting. It's no longer these single, 791 00:41:22,360 --> 00:41:28,359 Speaker 11: very over engineered, very expensive platforms that I think f 792 00:41:28,400 --> 00:41:36,040 Speaker 11: thirty fives F twenty two's think the sentinel ICBMs. We 793 00:41:36,080 --> 00:41:39,960 Speaker 11: need mass production of cheap drones, and this is something 794 00:41:40,080 --> 00:41:45,040 Speaker 11: China may excel in. The warfare is shifting. We need 795 00:41:45,080 --> 00:41:51,200 Speaker 11: a balance between the sophisticated and expensive systems and mass 796 00:41:51,200 --> 00:41:51,880 Speaker 11: produced drones. 797 00:41:51,960 --> 00:41:55,160 Speaker 4: I mean, and that's a fascinating point that the cheaper drones. 798 00:41:55,200 --> 00:41:57,960 Speaker 4: But even in that area, you have some of the 799 00:41:58,000 --> 00:42:02,840 Speaker 4: big technic technology companies in the US, because of political pressures, 800 00:42:02,960 --> 00:42:06,840 Speaker 4: refusing to go down that route, and certainly the US 801 00:42:07,440 --> 00:42:12,319 Speaker 4: defense industry may not have the wherewithal in terms of 802 00:42:12,360 --> 00:42:19,960 Speaker 4: spending to develop the drones that could potentially be a big, 803 00:42:20,040 --> 00:42:24,240 Speaker 4: big threat to the structure that we now have in place. 804 00:42:25,120 --> 00:42:32,360 Speaker 11: Well, think about the current naval structure twelve tabletops, aircraft 805 00:42:32,400 --> 00:42:33,879 Speaker 11: carriers flattops. 806 00:42:35,280 --> 00:42:38,080 Speaker 12: Each one costs billions and billions of dollars and many 807 00:42:38,120 --> 00:42:41,759 Speaker 12: more billions to protect and can be taken out by 808 00:42:41,960 --> 00:42:45,479 Speaker 12: swarm of drones even you know, to go into sci 809 00:42:45,520 --> 00:42:48,719 Speaker 12: fi area that ceases to be. 810 00:42:48,760 --> 00:42:54,760 Speaker 11: Sci fi an AI control swarm of drones taking out 811 00:42:55,440 --> 00:43:00,719 Speaker 11: an aircraft carrier. Think about the consequences six thousand plus 812 00:43:00,760 --> 00:43:06,960 Speaker 11: sailors and soldiers on that aircraft carrier and massive. 813 00:43:06,640 --> 00:43:11,680 Speaker 6: Escalation of the Pacific. For example, think about. 814 00:43:13,160 --> 00:43:17,120 Speaker 11: These two thousand dollars drone taking out a two million 815 00:43:17,160 --> 00:43:21,839 Speaker 11: dollar tank in Europe. Ukrainians are planning to produce one 816 00:43:21,880 --> 00:43:24,360 Speaker 11: million drones, the Russians. 817 00:43:23,960 --> 00:43:26,880 Speaker 6: Are planning to produce two million drones. 818 00:43:27,160 --> 00:43:31,400 Speaker 11: And now Russians are getting technology from unexpected sources like 819 00:43:31,480 --> 00:43:36,600 Speaker 11: Iran and North Korea and China. By the way, this 820 00:43:36,640 --> 00:43:42,640 Speaker 11: is the reason for NATA mentioning China so sturdily and 821 00:43:42,680 --> 00:43:49,600 Speaker 11: severely in the NATO document. So the shift of warfare 822 00:43:49,640 --> 00:43:52,400 Speaker 11: and production is moving very fast. 823 00:43:52,640 --> 00:43:54,560 Speaker 6: And I'm not convinced that. 824 00:43:54,440 --> 00:43:58,280 Speaker 11: The Pentagon has the procurement procedures that are broken. 825 00:43:58,560 --> 00:44:01,240 Speaker 6: I'm in Washington, d C. I'm doing it for a living. 826 00:44:01,480 --> 00:44:04,880 Speaker 11: I talk to people who know the Pentagon procurement in 827 00:44:04,960 --> 00:44:08,400 Speaker 11: and out, inside out, and they are complaining that the 828 00:44:08,440 --> 00:44:13,400 Speaker 11: procurement system is broken. And because of the revolving doors 829 00:44:14,080 --> 00:44:17,560 Speaker 11: with the military industrial complex, the generals are not ordering 830 00:44:17,880 --> 00:44:21,520 Speaker 11: the cheap systems the military industrial complex doesn't want because 831 00:44:21,520 --> 00:44:24,680 Speaker 11: they're not making as much money on cheaper drones visa 832 00:44:24,760 --> 00:44:26,080 Speaker 11: v F thirty fives. 833 00:44:26,239 --> 00:44:29,959 Speaker 4: Yeah, it's interesting. I just want to add that Peter Thiel, 834 00:44:30,840 --> 00:44:34,239 Speaker 4: no matter what you think of the investor. He's kind 835 00:44:34,239 --> 00:44:36,799 Speaker 4: of taken up the slack in terms of investing in 836 00:44:36,880 --> 00:44:40,839 Speaker 4: small startups that specialize in these advanced drones. So there's 837 00:44:40,840 --> 00:44:43,399 Speaker 4: a lot of tension being paid to that because it's 838 00:44:43,520 --> 00:44:46,880 Speaker 4: just not coming from other avenues, and that seems to 839 00:44:46,960 --> 00:44:50,960 Speaker 4: be as a doctor Conor just mentioned, one of the 840 00:44:50,960 --> 00:44:54,200 Speaker 4: big threats we're facing, especially in the Pacific, with the fleets, 841 00:44:54,200 --> 00:44:57,759 Speaker 4: the carrier fleets, So take that for what it's worth. 842 00:44:58,160 --> 00:45:02,680 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify, 843 00:45:02,880 --> 00:45:06,080 Speaker 1: and anywhere else you get your podcasts. Listen live each 844 00:45:06,120 --> 00:45:09,480 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 845 00:45:09,600 --> 00:45:13,000 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 846 00:45:13,120 --> 00:45:16,120 Speaker 1: You can also watch us live every weekday on YouTube 847 00:45:16,320 --> 00:45:18,200 Speaker 1: and always on the Bloomberg terminal.