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Speaker 2: Let's get more on those you Mish numbers hitting an
Speaker 2: eight month low. Joanne Shu is the University of Michigan
Speaker 2: Surveys of Consumer and Director, and she joins us. Now, hey, Joanne,
Speaker 2: what led this lower?
Speaker 3: Still are just vociferously frustrated with the pain of high prices.
Speaker 3: This stands, of course, in contrast with the fact that
Speaker 3: we know inflation has slowed and consumer expectations for inflation
Speaker 3: have also slowed. Both of those things are trending in
Speaker 3: a favorable direction for consumers. But at the same time,
Speaker 3: forty nine percent of consumers tell us that high prices
Speaker 3: are eroding their personal finances. That's pretty much the same
Speaker 3: as what we were seeing two years ago when inflation
Speaker 3: was hitting that peak.
Speaker 4: They seem to conflict with each other. We're less confident,
Speaker 4: but we're more confident that inflation is hidden in the
Speaker 4: right direction.
Speaker 3: I think they're not really in conflict because they do
Speaker 3: believe that inflation is moving in the right direction, but
Speaker 3: prices remain high, and so they are telling us how
Speaker 3: painful it is to continue having their budgets eroded or
Speaker 3: eaten away by these by these continued high prices. So,
Speaker 3: you know, I think consumers are in a way separating
Speaker 3: their feelings and their frustration with high prices with an
Speaker 3: acknowledgment that inflation is moving in the right direction.
Speaker 2: What about CPI from last week, last week, this week?
Speaker 2: It all blends last week? Does that fact? Do we
Speaker 2: factor that in? How do you think that's going to
Speaker 2: affect the reading when you do the second read?
Speaker 3: It's unlikely to affect the future reading because consumers aren't
Speaker 3: really paying attention to the CPI print. You know, the
Speaker 3: CPI print comes with a lag from real time data,
Speaker 3: and consumers are really responding to what they're actually seeing
Speaker 3: in the marketplace around them. So I don't expect a
Speaker 3: jolt from the CPI print, the most recent CPI print.
Speaker 3: But if inflation, if consumers continue to perceive inflation as
Speaker 3: slowing down, we could continue to see that trending.
Speaker 2: I should just point out that CPI was yesterday yes,
Speaker 2: so clearly, clearly, my timeline is really tight.
Speaker 4: Now all right, we moved to the intersection of economic
Speaker 4: data and politics based on your reading maybe in the past.
Speaker 4: What does this mean for the political setup? Can you
Speaker 4: delve into.
Speaker 2: That any Absolutely, so, consumers.
Speaker 3: We ask consumers a lot of questions about where they
Speaker 3: think the economy is going over the next year and
Speaker 3: over the next five years, and we have a lot
Speaker 3: of consumers who are responding with I'm I'm assuming I
Speaker 3: answered all these questions assuming such and such candidate is
Speaker 3: going to be winning the presidency. But if the other
Speaker 3: candidate wins, all of my answers will change. And we're
Speaker 3: seeing that for both presidential candidates, with views on both
Speaker 3: positively and negatively based on either of those candidates. So
Speaker 3: consumers are really acknowledging how much uncertainty surrounds their expectations
Speaker 3: right now. So I think we can really expect a
Speaker 3: bumpy right ahead.
Speaker 2: Joanne, we really appreciate it. We always love getting this
Speaker 2: incident analysis. Joan Shue, University of Michigan Survey as a
Speaker 2: consumer director joining us there, you meash sentiment hitting an
Speaker 2: eight month low.
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Speaker 2: So we do want to go to the banks and
Speaker 2: take a look at JP Morgan City and we'll Spargo.
Speaker 2: Will Spargo also the worst performing stock right now within
Speaker 2: the S and P. Allison Williams is Bloomberg Intelligence Senior
Speaker 2: banks analyst and she joins us. Now this is when
Speaker 2: I get to spend a lot of time with Allison,
Speaker 2: like this week, two weeks of the year. It's a
Speaker 2: good time for me. Allison. Let's just start with will
Speaker 2: Spargo for a second.
Speaker 5: What happened? So their net interest income is light and
Speaker 5: they're guiding to the higher end of a seven to
Speaker 5: nine percent drop in net interest income, so still a
Speaker 5: lot of uncertainty, but you know, the loans are what
Speaker 5: looks light there. So they're still talking about deposits and
Speaker 5: the pressure there. But the deposits actually the costs arising
Speaker 5: at a slower pace, so we think that's positive for
Speaker 5: the industry. But it's the net interestingcom And then the
Speaker 5: other thing is the costs. So they're operating expenses are
Speaker 5: going to be are their overall expenses are gonna be
Speaker 5: a lot higher. They have this line called operating losses,
Speaker 5: which includes remediation and some of the regulatory related costs.
Speaker 5: So that is also disappointing that those costs still continue
Speaker 5: to weigh. The positive thing we're staying across all the
Speaker 5: banks better fee This is something we were looking for though.
Speaker 5: Equity markets are strong, that's no secret. Equity trading really good,
Speaker 5: equity fees picking up, you know, Fick trading also doing well,
Speaker 5: and so that's all great. We are going to see
Speaker 5: I think higher expenses across the board because of that
Speaker 5: City Group got it to higher end of expenses. But
Speaker 5: that's okay with investors, right as long as you're getting
Speaker 5: higher revenue. It's those sort of lingering regulatory costs. I
Speaker 5: think that we're disappointing at Wells.
Speaker 4: These banks are all very different businesses, aren't they, Wells Fargo.
Speaker 4: To what extent are they into commercial real estate? And
Speaker 4: what does that mean for this bank?
Speaker 5: So they're all in the same businesses but to a
Speaker 5: different degree. And to your point, Wells Fargo is much
Speaker 5: smaller in these capital markets businesses where we're seeing a
Speaker 5: lot of the strength versus JP Morgan and City Investing,
Speaker 5: but still smaller. And commercial real estate, they are the
Speaker 5: biggest lender in office. JP Morgan's actually now the biggest
Speaker 5: commercial real estate lender overall after FRC. But you know,
Speaker 5: I did the office I think was not a big
Speaker 5: factor for Wells' this quarter. They did increase their provision
Speaker 5: a little bit. We are seeing losses. JP Morgan sort
Speaker 5: of alluded to some losses. I think where we're seeing
Speaker 5: the issues or Wells has said the issues are really
Speaker 5: in the institutional space. So they do have an eleven
Speaker 5: percent or so reserve there, I believe, I didn't I
Speaker 5: didn't check this quarter, but the overall reserve is eight percent,
Speaker 5: and so that was about the same this quarter. But
Speaker 5: that's something that's going to be a long story. We're
Speaker 5: going to continue to see that play out. But it's
Speaker 5: it's really I think the revenue side that's that's weighing
Speaker 5: on Wells. They are more lever towards net interest income
Speaker 5: and unfortunately seeing some of the pressure there.
Speaker 2: So asking for a friend who may or may not
Speaker 2: be interviewing the Wells Fargo CFO later at three pm.
Speaker 2: What would be some good questions to ask, like, what
Speaker 2: like after getting through this these numbers and seeing achieving
Speaker 2: now it's not it is efficient because there are also
Speaker 2: is going to bugger later? What would be some questions
Speaker 2: you'd ask, I.
Speaker 5: Mean, what you know in terms of the loan jaman
Speaker 5: they've they've said they're cautious. Is there a reason why
Speaker 5: they would have more caution than others or is it
Speaker 5: just a mixed issue? But really commercial, you know, commercial
Speaker 5: and industrial. We saw a big pickup in some of
Speaker 5: the industry data. Why aren't we seeing that at Wells?
Speaker 5: And what are they seeing?
Speaker 6: Right?
Speaker 5: And so we've gotten some news over the past couple
Speaker 5: of days with regards to change potential changes in the
Speaker 5: industry outlook, how does that impact their views going forward?
Speaker 4: Yeah, we're supposed to get a rate cut. Everybody thinks September,
Speaker 4: So how does that affect everybody?
Speaker 5: Right? And the hope for banks would be that it
Speaker 5: would spur some long growth.
Speaker 2: But it like happened over twenty four hours, right, so
Speaker 2: it's like they haven't had enough time to really.
Speaker 5: Act None of their views, you know, everything that they've
Speaker 5: prepared and they're talking about today, right, that would be
Speaker 5: you know, baked in as of the quarter end, and
Speaker 5: they did say there's a lot of uncertainty, right, so
Speaker 5: we we didn't see much movement. We saw one rate
Speaker 5: hike I think got taken off the table in the
Speaker 5: last three months. Entering the year, there's been a much
Speaker 5: bigger change, right, So we saw three rate hikes get
Speaker 5: taken off the table in one queue. So we're people
Speaker 5: are feeling a little bit better today about prospects for
Speaker 5: the FED. But my guess as well as is going
Speaker 5: to continue to be conservative, and I think investors are
Speaker 5: going to want to try to feel out on the call.
Speaker 5: Is it conservatism or are there more reasons to be worried?
Speaker 5: And I would tell your friend to ask the CFO
Speaker 5: about that. Thank you.
Speaker 4: I understand why Wells Fargo's shares are lower. I don't
Speaker 4: understand why JP Morgan and City Group shares are lower
Speaker 4: because those results were better than expected.
Speaker 5: They were, but you know, JP Morgan, I think it's
Speaker 5: a matter of the expectations, right, So it's always about
Speaker 5: what are the expectations versus the delivery?
Speaker 4: Okay, what was the big takeaway from the biggest US bank.
Speaker 5: I thought so, I thought solid quarter. I mean, twenty
Speaker 5: percent return on tangible equity. That's that's pretty that's that's
Speaker 5: pretty amazing, you know, And they keep warning investors that
Speaker 5: we're you know, we're over earning seventeen percent. Is they're
Speaker 5: through the cycle target.
Speaker 4: But you know what's the secret sauce for JP Morgan
Speaker 4: and Jamie Diamond.
Speaker 5: I think what they've done over the very long term
Speaker 5: is invest and they just are enjoying a virtuous cycle
Speaker 5: of those leading market positions. Right. So they've invested in
Speaker 5: their trading business, they've invested in deposits, They've made some
Speaker 5: good purchases.
Speaker 7: You know.
Speaker 5: The one other key difference Wells Bargo versus JP Morgan
Speaker 5: and Bank of America is you know, they had this
Speaker 5: asset cap during the pandemic and that really limited for
Speaker 5: them the opportunity to pick up a lot of customers.
Speaker 5: And so while there's a lot of talk tracking those balances,
Speaker 5: right so we're moving down the balances all the fiscal stimulus,
Speaker 5: et cetera. But if JP Morgan and Bank of America
Speaker 5: are holding onto those customers, that's a structural benefit that
Speaker 5: that well is missed out on a little bit again
Speaker 5: because of their regulatory issues.
Speaker 2: So city is going through that five year restructuring stuff.
Speaker 2: Where are they in that? What did you learn?
Speaker 5: I mean they're getting closer, right, but it's still it's
Speaker 5: going to take time, I think, to get through the numbers.
Speaker 5: But they did a lot of heavy lifting last year. Jane,
Speaker 5: I think is really you know, making some tough decisions
Speaker 5: and you know, made significant cuts and I think that
Speaker 5: that is really helping. But it's going to take a
Speaker 5: little while to flow through.
Speaker 4: It's Jane Fraser's report card. Do you what do you
Speaker 4: give her this semester?
Speaker 5: So I don't know, is that Adam am I allowed
Speaker 5: to give grades? I mean I will say, like I said,
Speaker 5: she's getting it done. So I think that she's doing
Speaker 5: a great job.
Speaker 2: Allison, thank you so much. See this this avoids me
Speaker 2: bugging her later. So now she can go and write
Speaker 2: her reports, look through slides. I can tell my friend, like,
Speaker 2: we're good. Alison Williams, the amazing, wonderful senior bank analyst
Speaker 2: for Bloomberg Intelligence. Great stuff going on there.
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Speaker 2: Alex Deeal Paul Smuenia is off today. John Tucker is
Speaker 2: joining me for the two hours Change seats co host
Speaker 2: as well as doing our business flashes for us. This
Speaker 2: is Bloomberg Intelligence Radio. We cover all the top news
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Speaker 2: hundred and thirty industries worldwide. We also go outside, of course,
Speaker 2: to get your take of how the people on the
Speaker 2: street are going to be viewing this and how they're
Speaker 2: investing their money. Phil Orlando, Okay, so John Tucker just
Speaker 2: literally ran over and sat and sitting next to me
Speaker 2: now and now he readjusting at the moment he did
Speaker 2: need to be closer. Phil Orlando is chief Equity Marcus
Speaker 2: Strategist and head of Client Portfolio Management and Federated her Means.
Speaker 2: And he is standing by all right, philm looking at
Speaker 2: the Russell. It's up one point seven percent. The glory
Speaker 2: day is of small caps. Are they here and will
Speaker 2: it be sustainable.
Speaker 8: Small caps? Yes, And that is an important distinction that
Speaker 8: we had federated Hermes reiterated with an exclamation mark. At
Speaker 8: the beginning of this week. We had gone to a
Speaker 8: five percent equity overweight at the bottom of the market
Speaker 8: last October, and the S and P five hundred over
Speaker 8: that last eight or nine months up thirty five percent.
Speaker 8: The MAG seven over that same period of time is
Speaker 8: up like I don't know, one hundred and thirty percent
Speaker 8: or some ridiculous number, But the small caps and the
Speaker 8: value stocks and the international stocks have really lacked. We
Speaker 8: think we're starting to see a reversion of the mean
Speaker 8: that's starting to happen with small caps. We think are
Speaker 8: going to be one of the beneficiaries of that, along
Speaker 8: with value names and along with em names. So our
Speaker 8: best guess is that this nascent move that we've seen
Speaker 8: with the small caps has legs, and we think this
Speaker 8: trend is going to continue.
Speaker 4: Continue for how long And what happens to the mega
Speaker 4: cap stocks at this point.
Speaker 8: Well, our again, our best guess is that the valuation
Speaker 8: of the MAG seven names is ahead of themselves. Our
Speaker 8: full year target for next year. The S and P
Speaker 8: five twenty twenty five is six thousand. We broke fifty
Speaker 8: six hundred a couple of days ago. The market, in
Speaker 8: our view, the broad market is well ahead of itself,
Speaker 8: largely driven by the significant outperformance of the MAG seven names.
Speaker 8: So what we expect to see happening now through the
Speaker 8: balance of this year, maybe into next year, we'll see
Speaker 8: is some profit taking with a lot of these MAG
Speaker 8: seven names, because we think the valuations are extended, and
Speaker 8: a rotation in broadening out of this rally into the
Speaker 8: small cap names and the domestic large cap value names
Speaker 8: and the small cap names.
Speaker 4: So you would characterize this as healthy for the overall market,
Speaker 4: would you know?
Speaker 8: We think it's incredibly healthy, because the market the performance
Speaker 8: over the last eighteen months between the MAG seven and
Speaker 8: the Forgotten four ninety three was about north of one
Speaker 8: hundred percentage points. I mean, that's not sustainable. The valuation
Speaker 8: on this very select group of growth and technology names
Speaker 8: in our view, had just simply gotten ahead of itself.
Speaker 8: And so what is happening now, I'll use your words,
Speaker 8: it is very healthy. We think some of this fraud
Speaker 8: that's come off the top and a rotation into these
Speaker 8: areas that frankly have been left for dad over the
Speaker 8: last eighteen months is a very rational move by the market.
Speaker 2: Here's my question, it's why is this time different. I
Speaker 2: feel like small caps have made a bid for it
Speaker 2: over the last few years and it's never been sustainable.
Speaker 2: We may get those fed cuts, but where are we
Speaker 2: going to get the actual earning support.
Speaker 8: Well, the earning support is coming that you look at,
Speaker 8: for example, the current quarter, which just started today, the
Speaker 8: second quarter earnings, it's going to be a pretty good quarter,
Speaker 8: right Revenues are going to be up about four and
Speaker 8: a half percent year on year, earnings will be up
Speaker 8: about nine percent year of the year. It's going to
Speaker 8: be another terrific quarter. And as you look at the
Speaker 8: trajectory of the improvement in earnings, most of this over
Speaker 8: the last year, including the current quarter, has come from
Speaker 8: the very strong underlying fundamental prospects of these very select
Speaker 8: group of growth and technology names. But as we look
Speaker 8: at this trajectory of the balance of the year, the
Speaker 8: second quarter, even though it's going to be a good quarter,
Speaker 8: is going to be significantly slower than the first. The
Speaker 8: third quarter is going to be significantly slower than the second,
Speaker 8: fourth quarter slower than the third. The areas that we
Speaker 8: like are are showing in improvement in revenues and earnings
Speaker 8: from the end of last year, beginning of this year,
Speaker 8: into the end of this year. So there's going to
Speaker 8: be sort of two ships passing in the night, if
Speaker 8: you will. The underlying fundamentals, as measured by things like
Speaker 8: revenues and earnings will get better for small caps and
Speaker 8: value and ems, and will deteriorate for these mag seven names.
Speaker 8: The stock market, ultimately, as a forward looking discounting mechanism,
Speaker 8: will attempt to begin to price in these sorts of
Speaker 8: developments six to nine months before they happen. Now, if
Speaker 8: we think we're seeing this over the course of the
Speaker 8: balance of this year, let's say the fourth quarter is
Speaker 8: when this truly manifests itself. The now is exactly the
Speaker 8: time when the market should begin to recognize this trend,
Speaker 8: as we're getting into the second quarter earning season and
Speaker 8: digesting the earnings and the guidance, and then begin to
Speaker 8: recognize that that valuations need to move in different directions
Speaker 8: for these different asset clasts.
Speaker 4: Some stocks are more forward looking than others, with a
Speaker 4: lower interest rate regime. If that's where we're reheaded, what's
Speaker 4: your outlook for particular sectors.
Speaker 8: Well, you're exactly right. We do expect interest rates to
Speaker 8: move lower. We're not quite as sanguine or optimistic as
Speaker 8: the consensus, which I guess believes that we're going to
Speaker 8: see the first rate cut this cycle in September. We're
Speaker 8: still in the camp that we do believe that there
Speaker 8: will be two one or two rate cuts this year,
Speaker 8: but we think that both of them, one of them
Speaker 8: or both of them is going to come after the election,
Speaker 8: So that would suggest the November seventh or the December
Speaker 8: eighteenth FOMC meetings. We think that trend continues over the
Speaker 8: course of next year, with another one hundred basis points
Speaker 8: of cuts in the funds rate coming probably on in
Speaker 8: every other meeting base. So if you give me the
Speaker 8: luxury of looking out eighteen months, you've probably got the
Speaker 8: funds rate down one hundred and fifty basis points. That
Speaker 8: should be a very constructive tailwind for small cap companies
Speaker 8: that historically do well when interest rates come down.
Speaker 2: What do you do with bonds then?
Speaker 8: In that environment, So our view on bonds is that
Speaker 8: we should be lengthening out or looking for an opportunity
Speaker 8: to lengthen out duration, that if the funds rate is
Speaker 8: one hundred and fifty basis points lower eighteen months from now,
Speaker 8: then treasury yields are probably going to be lower as well,
Speaker 8: which means that if I had the opportunity to start
Speaker 8: to lengthen out duration at you know, five percent of
Speaker 8: four and three quarters or even four and a half percent,
Speaker 8: I think that's a reasonable bet. So if we're going
Speaker 8: to again look out eighteen months, could we see benchmark
Speaker 8: ten year treasury yields, you know, down below four percent,
Speaker 8: three and a half percent something like that. If the
Speaker 8: answer is yes, and and that's the direction we think
Speaker 8: we're going, then extending that duration here, you know, in
Speaker 8: the four to four and a half percent neighborhood, in
Speaker 8: our view makes sense.
Speaker 4: Do you expect a September swoon? It is coming up
Speaker 4: on that time of year.
Speaker 8: You do, Which is why we took two points out
Speaker 8: of our five percent equity overweight at the beginning of
Speaker 8: this week. The stock market, in our view, is ahead
Speaker 8: of itself. Stocks are overbought. We could absolutely anticipate, you know,
Speaker 8: at a minimum of five to ten percent correction, which
Speaker 8: we think would be very healthy. Looking out, say between
Speaker 8: now and the election. So stocks have done really well,
Speaker 8: we would expect to see sort of a rotation here,
Speaker 8: a reversion of the mean, if you will, in which
Speaker 8: disproportionately more money comes out from a profit. Taking standpoint
Speaker 8: on the stocks that have just gone vertical, and see
Speaker 8: this rotation into a lot of the same actors, like
Speaker 8: the value, like the small caps, like the em names
Speaker 8: that haven't performed anywhere near as well as the MEGS
Speaker 8: seven names have.
Speaker 2: Wow, Okay, I better get that money another my money
Speaker 2: market fun Now, if we're going below four for the tenure, which.
Speaker 4: Is also Ira Jersey's call before the end of the year.
Speaker 2: I'm gonna be one of those people. All right, Hey Phil,
Speaker 2: thanks lot, We really appreciate it. How Every weekend, Fill Orlando,
Speaker 2: chief equity market strategist and head of client portfolio Management
Speaker 2: over at Federated Hermes.
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Speaker 2: Let's get to the story that is really upsetting John Tucker,
Speaker 2: and it's this AT and T story. AT and T
Speaker 2: stock obviously falling disclosing some hack of calls and texts
Speaker 2: that affected its custom I'm John Butler is Bloomberg Intelligence
Speaker 2: senior telecom analyst, and he joins us. Now John Tucker's
Speaker 2: not getting on'sages.
Speaker 5: Okay, John?
Speaker 2: Should Should John Tucker be nervous right now?
Speaker 5: What's happening?
Speaker 9: No? John Tucker should not be nervous right now?
Speaker 4: What was stolen was interview was Let's move on.
Speaker 9: I recently had my ID stolen. I think it's become
Speaker 9: quite common. And what happened at AT and T is
Speaker 9: they had their call logs breached. So you know, when
Speaker 9: you make a call, AT and T logs the originating
Speaker 9: number and the call number, and they generate billions of
Speaker 9: those data points, and so they need to store that
Speaker 9: data off site with a third party provider. Bloomberg reported
Speaker 9: that it was Snowflake that was actually breached. It was
Speaker 9: housing the AT and T data. This all occurred back
Speaker 9: in twenty twenty two. So John, if you were not
Speaker 9: a subscriber, then I think you're really But the risk
Speaker 9: is where the fear is that hackers could use that
Speaker 9: data to potentially blackmail politicians or other vulnerable parties who
Speaker 9: may not want that call information released.
Speaker 4: We're like somebody like, hey, why was John texting Alex
Speaker 4: at two a m. I mean, that's godn't happen. I'm
Speaker 4: just saying, I.
Speaker 2: Mean, I know, I don't know if that rises to
Speaker 2: the to the moment, but you know it's fair.
Speaker 4: I pay good money to conceal that that data.
Speaker 9: I don't understand the hackers are counting on that, John.
Speaker 4: So so it came out you're saying in a regulatory
Speaker 4: filing that we saw this morning. Why now? Why did
Speaker 4: it come out? Now? Why did they tell us about
Speaker 4: this earlier?
Speaker 9: So that is a good question and one that I
Speaker 9: don't have an answer for, but I believe it probably
Speaker 9: has to do with, you know, understanding fully what the
Speaker 9: breach encompassed. I mean, it's one thing to discover a breach,
Speaker 9: and it's another thing to understand the details around it
Speaker 9: and work with the FBI to really understand the scope
Speaker 9: of the breach, you know, when they actually were able
Speaker 9: to truly lock it down. So I can't speak to
Speaker 9: the specific timing here, but that's my guess is they
Speaker 9: had to do a lot with getting all their ducks
Speaker 9: in a row, so to speak.
Speaker 4: Okay, but there's a lawyer out there where there are
Speaker 4: lawyers out there listening to this program saying, Wow, this
Speaker 4: is going to make a great class action lawsuit where
Speaker 4: I get lots of fees. How vulnerable that is AT
Speaker 4: and T to some sort of legal action in the
Speaker 4: money that would flow from that or just.
Speaker 2: Like brand damage.
Speaker 9: Yeah, well, I'm more worried about the latter. I think
Speaker 9: they're vulnerable on both fronts. So, John, as you suggested,
Speaker 9: I think the lawyers are sharpening their teeth here. I
Speaker 9: mean they are vulnerable to consumer lawsuits for breach of data.
Speaker 9: I think all companies are when something like this happens.
Speaker 9: What I worry about is this is the second breach
Speaker 9: this year. So they announced a separate breach back in
Speaker 9: March of equal scope, and here we are again now
Speaker 9: in July, and it's a rerun of everything. And so
Speaker 9: my concern is that the AT and T brand gets tarnished,
Speaker 9: at least in the near term. When one thing I
Speaker 9: have noticed with the telecoms in other companies is people
Speaker 9: have a short memory on this, you know, fast forward
Speaker 9: a year from now. I don't think people are going
Speaker 9: to remember this, but in the near term they may.
Speaker 9: People who were thinking of switching to AT and T
Speaker 9: may in fact think twice.
Speaker 7: Well.
Speaker 2: Also, switching phone provider stinks. It's like really highigh fraction.
Speaker 9: It's high friction. And so my concern is not higher
Speaker 9: churn or losing subscribers on the news. I think it's
Speaker 9: more getting those gross ads going as the they call it,
Speaker 9: people coming into the brand, and I think the risk is,
Speaker 9: at least for the next three months or so, people
Speaker 9: may think twice about it while the headlines are fresh.
Speaker 2: John, we have earnings coming out at the end of July,
Speaker 2: so they're gonna before the market on July twenty fourth.
Speaker 2: What can we expect to What should we be paying
Speaker 2: attention to? I mean, they have a nice gross given
Speaker 2: and yield almost six percent.
Speaker 5: What are you looking for?
Speaker 6: Yeah, so two things for AT and T.
Speaker 9: Number One, everyone focuses on their free cash flow because
Speaker 9: they're a bit over levered in the wake of that
Speaker 9: Time Warner acquisition and the underwinding of all that, and
Speaker 9: so they're trying to manage down to a debt leverage
Speaker 9: ratio of two point five times by I believe it's
Speaker 9: the end of next year, and they're getting there through
Speaker 9: free cash flow growth, and so for the investment community,
Speaker 9: that's a real focus. The other lightning rod for all
Speaker 9: of the telecoms is postpaid net subscriber editions, and so
Speaker 9: that's the contract business, not the prepaid business. People like
Speaker 9: you and me that pay a bill on a monthly basis,
Speaker 9: but we're sort of on a contract. We don't have
Speaker 9: to prepay in front of the month, and those are
Speaker 9: higher price subscribers and the ability to drive net growth
Speaker 9: there through what are called net ads. So that's gross
Speaker 9: additions people you bring in, minus those that you lose.
Speaker 9: If that's a net positive and it's getting bigger every quarter,
Speaker 9: that's good. If it's moving lower, which it is for
Speaker 9: all the carriers right now, that can be seen as
Speaker 9: a net negative. So there'll be a lot of focus
Speaker 9: on that number going into the quarter for all the carriers.
Speaker 9: AT and T included.
Speaker 4: This one's kind of out of left field. I remember
Speaker 4: when the promise of the switch to five G. I
Speaker 4: didn't notice anything.
Speaker 7: I did.
Speaker 4: I went from like one G to five G. I
Speaker 4: didn't notice anything.
Speaker 6: Yeah, really, yeah, It's funny.
Speaker 9: Four G was much much more impactful for the consumer
Speaker 9: because it puts streaming video into our Palm tops, and
Speaker 9: five G will increase download speeds for sure, But it's
Speaker 9: much more impactful on the business to business side because
Speaker 9: it's a software defined upgrade. Without going into detail, that
Speaker 9: really gives a lot more flexibility for the carriers to
Speaker 9: create very interesting news services. On the business side, I
Speaker 9: think I have to say I think five G has
Speaker 9: disappointed in that regard because even though the carriers are
Speaker 9: ready to deploy these services, I don't think the appetite
Speaker 9: on the business side has quite been there as originally expected.
Speaker 4: Outlook for Telecom midyear outlook in how much time we
Speaker 4: got a minute left?
Speaker 9: I think it's steady as she goes, John, You know,
Speaker 9: there's a lot as I said, there's slowing subscriber growth
Speaker 9: now post pandemic. All of the carriers, like every company
Speaker 9: on the planet, has been sort of edging up their prices,
Speaker 9: and so that actually is providing a bit of a
Speaker 9: floor to revenue growth. So as much as you're losing subscribers,
Speaker 9: price increases have a much broader impact across the whole
Speaker 9: subscriber base and the revenue line. So I think revenue
Speaker 9: growth will be a tad lower from last year, but
Speaker 9: still I would again characterize it as steady as she goes.
Speaker 9: And as you mentioned before, we have very good yields
Speaker 9: at AT and T and Verizon, and so that will
Speaker 9: be a focus bring into the calls as well.
Speaker 2: Yeah, particularly if the FED cuts and you get lower
Speaker 2: rates in the tenure.
Speaker 5: Very interesting.
Speaker 2: All right, hey, JOm, I really appreciate I think you
Speaker 2: made John Tucker feel better. I was John Butler Bloomberg
Speaker 2: Intelligence and your telecom analyst. You're still worried, fair enough.
Speaker 2: You know what I have to do every day now?
Speaker 2: I have to turn my phone on and off because
Speaker 2: there else it doesn't work properly. What does that mean?
Speaker 4: Means you need a new phone?
Speaker 2: Like I just gets the iPhone fourteen. I don't understand.
Speaker 4: I don't know what I have.
Speaker 2: Oh he's a flip phone. No, I'm kidding, he doesn't.
Speaker 2: It's not that bad.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 2: So Paul Sweenie is out today. I'm Alex Steel and
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Speaker 2: So let's get to that news conference last night with
Speaker 2: President Biden. Nathan Dean, Bloomberg Intelligence senior policy analyst, is
Speaker 2: joining us on that. So here's the media narrative, right,
Speaker 2: the Democrat of Democrats seemed to be now calling for
Speaker 2: Biden to step aside. The headlines continue to not look good.
Speaker 2: That's the media side. Is any of that true on
Speaker 2: the polling side, Well, you know.
Speaker 10: We watched the prediction markets very closely, which we can
Speaker 10: find it on the terminal at WSL Election and going
Speaker 10: into the press conference, Kamala Harris had quite a sizable
Speaker 10: lead in terms of who was going to be the
Speaker 10: nominee fifty to thirty seven.
Speaker 6: Now, at the end of the.
Speaker 10: Press conference, President Biden had actually changed the narrative and
Speaker 10: was up forty four to forty one. And I just
Speaker 10: checked about twenty seconds ago President Biden is up forty
Speaker 10: six to forty one. So in the eyes of the
Speaker 10: predictive markets, President Biden had a very good night. Now,
Speaker 10: you mentioned the Washington angle, though that has not stopped
Speaker 10: the calls from Democrats for President Biden to step aside.
Speaker 10: In fact, we saw one just a few minutes ago. Now,
Speaker 10: I think what will happen here is with the Republican
Speaker 10: Convention starting next week, some of the news cycle is
Speaker 10: going to break away from whether President Biden should run
Speaker 10: or not and move over to Milwaukee and what President
Speaker 10: Trump will do. But for the Democrats, last night was
Speaker 10: a good night for Biden, but overall he doesn't change
Speaker 10: the narrative. They're sort of stuck in the status quo
Speaker 10: should he run or should he not?
Speaker 4: Okay, in his response to some of the great questions
Speaker 4: that he received from some of the Bloomberg reporters at
Speaker 4: that did he sound a little more malleable is the
Speaker 4: word maybe to change.
Speaker 6: Well, you know, I.
Speaker 10: Would say that he was pretty stuck in. I mean
Speaker 10: when he was when Josh Wingrove gave that great question
Speaker 10: on should he stay or should he run? You know,
Speaker 10: he sort of just said, look, the polling suggests that
Speaker 10: I should stay. Now that's not some of the polling
Speaker 10: that we've seen across the news narrative. So the question
Speaker 10: here is for President Biden is it's an ultimate gamble.
Speaker 10: If he honestly believes that he is the best person
Speaker 10: to defeat Donald Trump, he's gonna stay.
Speaker 6: But you know, we.
Speaker 10: Saw House Minority leader had King Jefferies just say that
Speaker 10: he spent some time with the president last night talking
Speaker 10: about what should happen here. So I think there's going
Speaker 10: to be a lot of serious conversations in the Democratic
Speaker 10: Party that will take place over the next week, and
Speaker 10: eventually President Biden is going to have to make a
Speaker 10: decision before you know, they get him onto the ballot,
Speaker 10: you know, and so forth.
Speaker 6: Is he going to stay as you get it go?
Speaker 10: But as of right now, I think if you were
Speaker 10: to give President Biden trutstrom, he's going to say, I'm.
Speaker 6: Going to stay.
Speaker 2: But do we trust any of the polls. I mean,
Speaker 2: when have poles been reliable last?
Speaker 10: You know, I tell clients all the time I don't
Speaker 10: trust polls until two weeks before then, and even then
Speaker 10: I still suspect. So you know what we should think
Speaker 10: about here is process. Now the Democrats have time because
Speaker 10: next week is the Republican convention.
Speaker 6: Obviously the new cycle is going to turn to that.
Speaker 10: But because of the way the Ohio state loss is,
Speaker 10: President Biden has to be nominated by August seventh to
Speaker 10: be on the Ohio ballot. This is before their convention
Speaker 10: in late August. Now, the Democrats have been talking about
Speaker 10: holding a virtual roll call. They're dusting off that COVID playbook.
Speaker 10: They have a virtual nomination per se for President Biden
Speaker 10: for the state of Ohio around July twenty first. That
Speaker 10: date is not set in stone, so up until that
Speaker 10: point they can have these conversations. Once they nominate President
Speaker 10: Biden to the Ohio ballot, however, it's going to be
Speaker 10: extremely more difficult for him to say I'm not going
Speaker 10: to run, because then you would get into a situation
Speaker 10: where President Biden's on the ballot in Ohio, but he
Speaker 10: may actually be running for president who are.
Speaker 4: The key people in all this who talk to the president.
Speaker 4: When does it happen this weekend?
Speaker 10: You know, I think this weekend is actually going to
Speaker 10: be a good, you know, reset moment for President Biden.
Speaker 10: He may go I don't know, I can't recall a schedule.
Speaker 10: He may go back to Delaware or not. But he
Speaker 10: obviously has his inner circle of allies. But then you
Speaker 10: also have heard through the news cycle that, you know,
Speaker 10: President Obama is beginning to opine on this.
Speaker 6: You know, it was.
Speaker 10: Reported that he spoke with je spoke with George Clooney
Speaker 10: before George Clooney put that opt ed calling for President
Speaker 10: Biden to step aside. So I think there's just a
Speaker 10: lot of people that are going to be talking to
Speaker 10: the president. I think the problem here is is that
Speaker 10: you get a difference of opinion depending on.
Speaker 6: Who you are.
Speaker 10: In the Democratic part. Most of the people that are
Speaker 10: calling for President Biden to step aside represent Democrats in
Speaker 10: either bipartist Purple states or red states. You see a
Speaker 10: lot of Midwestern Democrats calling for President Biden to resign, sorry,
Speaker 10: to step aside. It's those Democrats that are in more
Speaker 10: safer seats I think in you know, think New York
Speaker 10: City if you will, that are saying no, President Biden,
Speaker 10: Biden should stick it out. So I'm not exactly sure
Speaker 10: who's going to have the president's ear this weekend, but
Speaker 10: I know a lot of people are going to be
Speaker 10: trying to get that get that voice.
Speaker 11: Time.
Speaker 2: For investors, what should they care about because you just
Speaker 2: you cannot hedge or price in political strike. I mean
Speaker 2: since Brexit and even that was like what six or
Speaker 2: eight weeks that you could price that in. What do
Speaker 2: investors do with all of this?
Speaker 10: Yeah, so you have here the micro view and the
Speaker 10: macro view. So if you're thinking micro, like what's the
Speaker 10: individual impact on a company whether you get President Bien
Speaker 10: or let's say Vice President Kamala Harris, I'd say about
Speaker 10: ninety five percent of the policies that we cover BI
Speaker 10: would be the same outcome whether you have President Harris
Speaker 10: or President Biden. So on the company specifically specific impact,
Speaker 10: I don't think there's much uncertainty there.
Speaker 6: Now.
Speaker 10: The question then comes from what's the uncertainty on the
Speaker 10: macro level? And obviously this is the more important at
Speaker 10: the market perspective. Now, if President Biden were to say that,
Speaker 10: I think the worst case scenario for the markets would
Speaker 10: be if President Biden says I'm going to stick in,
Speaker 10: I'm going to stay, and then after the Ohio date
Speaker 10: or after the convention he announces he's going to resign.
Speaker 10: Then you have an election where essentially people will have
Speaker 10: to go to the ballot to vote for Joe Biden,
Speaker 10: but knowing that he's not going to be the president,
Speaker 10: and then it would be in the hands of the
Speaker 10: DNC to figure that out. That's a lot of uncertainty there.
Speaker 10: An open convention in Chicago may not be a good
Speaker 10: thing for markets, but ultimately, you know, when you look
Speaker 10: at the differences between President Trump and whoever the Democratic
Speaker 10: convention or the Democratic nominee will be, you know, you
Speaker 10: get a prestarty start contrast there, and you'll be able
Speaker 10: to at least pick and play scenario analysis with either
Speaker 10: of those.
Speaker 4: Does Vice President Harris have a role in talking to
Speaker 4: the president at this point or just be self certain?
Speaker 2: That would be so dicey, like, hey, can you step
Speaker 2: aside so I can run?
Speaker 10: Thanks God, I wish we knew the answer to that one,
Speaker 10: but I will say that, you know, the Vice President
Speaker 10: Harris has been on the road lately, she was in
Speaker 10: Texas just recently, you know, saying the same message, and
Speaker 10: you know, we've heard behind the scenes that you know,
Speaker 10: President Biden is the nominee, we need to get behind him.
Speaker 10: I would just say that, you know, this is one
Speaker 10: of those situations where I think she is more likely
Speaker 10: just to say I'm supportive of the president, but let's
Speaker 10: let the process play out. But again, it's just really
Speaker 10: hard to tell.
Speaker 2: Before I let you go. Rnc's next week, we haven't
Speaker 2: even really talked about that. What's the number one thing
Speaker 2: you're looking at?
Speaker 10: The number one thing I'm looking for is the vice
Speaker 10: presidential candidate. You know, is it going to be you know,
Speaker 10: Senator Vance from Ohio, Governor Bergham from North Dakota. Does
Speaker 10: Nicky Haley even have a chance. There's a couple of
Speaker 10: people spring around Washington that she could be a surprise pick.
Speaker 6: I'm not sure about that.
Speaker 10: But what I'll say is the vice presidential pick is
Speaker 10: important because it may show how presid Trump is going
Speaker 10: to try and appeal to moderate voters Going.
Speaker 6: Into the election.
Speaker 10: He pulled strong abortion reproductive right language from the RNC platform,
Speaker 10: and maybe his vice presidential pick could be an additional
Speaker 10: playoff of that.
Speaker 4: Yeah, but that that all makes sense. But you know,
Speaker 4: in the world of Donald trumality, do you want somebody
Speaker 4: who's gonna maybe upstage you and look better than you?
Speaker 10: Oh, Johnny, we got to bring it down to DC
Speaker 10: because that is the conversation every single one of us
Speaker 10: has been having. You know, if he picks Senator Vance
Speaker 10: in two years, you have your you know your replacement.
Speaker 6: They're right for you.
Speaker 2: Hey, Nathan, we appreciate it. Thanks a lot, Nathan Dean,
Speaker 2: Bloomberg Intelligence Senior policy analyst. Joining us there.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: just say Alexa playing Bloomberg eleven thirty.
Speaker 2: Let's get to some of the news here, and that
Speaker 2: is NATO. Over the last few days. President Biden of course,
Speaker 2: had that news conference yesterday. We had yng Stoltenberg, out
Speaker 2: going NATO head speaking to Bloomberg earlier talking about how
Speaker 2: he expects the US will remain a strong NATO ally.
Speaker 2: Of course, who wins the presidential election will have a
Speaker 2: lot to do with that. So we want to check
Speaker 2: in with doctor Ariel Cohen, senior fellow at the Atlantic Council.
Speaker 2: He joins us. Now, Doctor Cohen, what is my NATO
Speaker 2: takeaway right now over the last few days.
Speaker 7: First of all, this was a celebratory meeting of the
Speaker 7: seventy fifth anniversary, and I think NATA is getting a
Speaker 7: little bit long in the tooth.
Speaker 6: It is not facing the real challenges. I would like
Speaker 6: to see.
Speaker 11: Much more vigorous leadership there that you and I may
Speaker 11: agree or disagree whether President Biden provided it. But more importantly,
Speaker 11: we see a lot of redundancies in NATO procurement.
Speaker 6: We see shortages of equipment of.
Speaker 11: Material, we see shortages of soldiers or grunts on the
Speaker 11: ground in Europe. But on the other hand, we also
Speaker 11: saw for the first time NATO expressing grave concerns about
Speaker 11: China supporting Russia. So NATA is increasingly a global alliance
Speaker 11: led by the United States, and President Biden, if elected,
Speaker 11: will be ill advised to discard NATA. We all are
Speaker 11: aware of his pessimism about NATA, his rhetoric about me.
Speaker 4: You mean Donald Trump, right, I'm.
Speaker 11: Sorry Donald Donald Trump, of course, so Trump will be
Speaker 11: ill advised to discard NATO. In the era of confrontation
Speaker 11: with Russia and serious friction was China.
Speaker 6: We need our ally.
Speaker 11: Coalitions and industrial potential win wars.
Speaker 6: We saw it in the twentieth century World War One,
Speaker 6: World War Two.
Speaker 11: The Allies had a bigger and stronger coalition an industrial
Speaker 11: base in World War One and World War Two.
Speaker 4: Has NATO been able to trump proof itself?
Speaker 11: NATO is not sufficiently trump proofing. If by trump proofing
Speaker 11: we mean the US that disconnects from Europe or focuses
Speaker 11: on China. As some experts in Washington suggested, just forget Europe,
Speaker 11: let's put in Ukraine. Let's all focus on the Pacific.
Speaker 11: This is not the way to go. But Europe has
Speaker 11: multiple models of fighter aircraft.
Speaker 6: They don't have strategy bombers. They have multiple models.
Speaker 11: Of main battle tanks and insufficient production of hundred and
Speaker 11: fifty five millimeter shells, not enough missiles. Although they're capable
Speaker 11: of producing the missiles and the drones we need in
Speaker 11: today's world, the production is shifting. It's no longer these single,
Speaker 11: very over engineered, very expensive platforms that I think f
Speaker 11: thirty fives F twenty two's think the sentinel ICBMs. We
Speaker 11: need mass production of cheap drones, and this is something
Speaker 11: China may excel in. The warfare is shifting. We need
Speaker 11: a balance between the sophisticated and expensive systems and mass
Speaker 11: produced drones.
Speaker 4: I mean, and that's a fascinating point that the cheaper drones.
Speaker 4: But even in that area, you have some of the
Speaker 4: big technic technology companies in the US, because of political pressures,
Speaker 4: refusing to go down that route, and certainly the US
Speaker 4: defense industry may not have the wherewithal in terms of
Speaker 4: spending to develop the drones that could potentially be a big,
Speaker 4: big threat to the structure that we now have in place.
Speaker 11: Well, think about the current naval structure twelve tabletops, aircraft
Speaker 11: carriers flattops.
Speaker 12: Each one costs billions and billions of dollars and many
Speaker 12: more billions to protect and can be taken out by
Speaker 12: swarm of drones even you know, to go into sci
Speaker 12: fi area that ceases to be.
Speaker 11: Sci fi an AI control swarm of drones taking out
Speaker 11: an aircraft carrier. Think about the consequences six thousand plus
Speaker 11: sailors and soldiers on that aircraft carrier and massive.
Speaker 6: Escalation of the Pacific. For example, think about.
Speaker 11: These two thousand dollars drone taking out a two million
Speaker 11: dollar tank in Europe. Ukrainians are planning to produce one
Speaker 11: million drones, the Russians.
Speaker 6: Are planning to produce two million drones.
Speaker 11: And now Russians are getting technology from unexpected sources like
Speaker 11: Iran and North Korea and China. By the way, this
Speaker 11: is the reason for NATA mentioning China so sturdily and
Speaker 11: severely in the NATO document. So the shift of warfare
Speaker 11: and production is moving very fast.
Speaker 6: And I'm not convinced that.
Speaker 11: The Pentagon has the procurement procedures that are broken.
Speaker 6: I'm in Washington, d C. I'm doing it for a living.
Speaker 11: I talk to people who know the Pentagon procurement in
Speaker 11: and out, inside out, and they are complaining that the
Speaker 11: procurement system is broken. And because of the revolving doors
Speaker 11: with the military industrial complex, the generals are not ordering
Speaker 11: the cheap systems the military industrial complex doesn't want because
Speaker 11: they're not making as much money on cheaper drones visa
Speaker 11: v F thirty fives.
Speaker 4: Yeah, it's interesting. I just want to add that Peter Thiel,
Speaker 4: no matter what you think of the investor. He's kind
Speaker 4: of taken up the slack in terms of investing in
Speaker 4: small startups that specialize in these advanced drones. So there's
Speaker 4: a lot of tension being paid to that because it's
Speaker 4: just not coming from other avenues, and that seems to
Speaker 4: be as a doctor Conor just mentioned, one of the
Speaker 4: big threats we're facing, especially in the Pacific, with the fleets,
Speaker 4: the carrier fleets, So take that for what it's worth.
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