Latest / Bloomberg Intelligence / Corporate Diversity, Fed Speak, Health of US Banks

Transcript

Corporate Diversity, Fed Speak, Health of US Banks · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
• 0:04
  Speaker 1: my co host Matt Miller.
• 0:05
  Speaker 2: Every business day we bring you interviews from CEOs, market pros,
• 0:09
  Speaker 2: and Bloomberg experts, along with essential market moven news.
• 0:14
  Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
• 0:17
  Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
• 0:21
  Speaker 3: We're about to speak with Angela Harrel. She's Chief Diversity
• 0:24
  Speaker 3: and Corporate Impact Officer at Voya Financial and she's here
• 0:28
  Speaker 3: to talk about corporate diversity initiatives and challenge to these
• 0:31
  Speaker 3: goals in recent years. So Angela, can you just start
• 0:34
  Speaker 3: us off by talking a little bit about what is
• 0:36
  Speaker 3: Voya Financial and what are the DEI initiatives that you're
• 0:40
  Speaker 3: working on now?
• 0:42
  Speaker 4: Absolutely, hello, I'm so happy to join you.
• 0:45
  Speaker 5: So, Voya Financial, we are an organization that is focused
• 0:49
  Speaker 5: on the health and financial wellbeing of our clients. So
• 0:54
  Speaker 5: think retirement plans, think employee benefits, think pension funds. We
• 0:59
  Speaker 5: also have an asset management management business. From a diversity,
• 1:03
  Speaker 5: equity and inclusion perspective, what we seek to do is
• 1:08
  Speaker 5: to look both inside and outside to ensure that we
• 1:12
  Speaker 5: are reflecting who we serve, providing a workplace where folks
• 1:18
  Speaker 5: can show up and be themselves, be valued, embraced for
• 1:22
  Speaker 5: all the differences that they have, and serve our clients
• 1:26
  Speaker 5: because they reflect our clients, so they can better understand
• 1:30
  Speaker 5: the diverse needs in the marketplace because they look like
• 1:34
  Speaker 5: the marketplace.
• 1:35
  Speaker 3: You know, it's a very interesting time for DEI initiatives
• 1:39
  Speaker 3: in the wake of last year's Supreme Court ruling ending
• 1:42
  Speaker 3: affirmative action, and I wondered if you could talk a
• 1:45
  Speaker 3: little bit about how you're coping with this. You know,
• 1:48
  Speaker 3: what kinds of legal advice in particular are you getting
• 1:52
  Speaker 3: on maintaining DEI programs.
• 1:55
  Speaker 4: Well, you know, the good thing, Jim, is we're all diverse.
• 1:59
  Speaker 5: That's one of the things that I always talk to
• 2:01
  Speaker 5: people about diversity is and about those people there everything
• 2:07
  Speaker 5: about us, our background, where we're from, our economic status.
• 2:12
  Speaker 5: It's not just gender, it's not just race. Of course,
• 2:15
  Speaker 5: those things are part of it as well, and so
• 2:18
  Speaker 5: we really have always thought about diversity in terms of
• 2:22
  Speaker 5: the differences that we're born with and those.
• 2:24
  Speaker 4: That we acquire throughout our lifetimes.
• 2:27
  Speaker 5: And so for that very reason, that's all of us
• 2:29
  Speaker 5: now we do look at who's not around the table,
• 2:33
  Speaker 5: who's not being represented. And we have been very clear
• 2:37
  Speaker 5: about continuing to make sure that we have all voices
• 2:41
  Speaker 5: around the table and that the voices are actually heard,
• 2:45
  Speaker 5: because that actually makes for better business, It makes for
• 2:48
  Speaker 5: better business decisions, and it means that we can actually
• 2:52
  Speaker 5: address the divers needs of the market. And so, although
• 2:55
  Speaker 5: there have been headwinds in terms of you know, there
• 2:59
  Speaker 5: being perhaps more of a political focus, this is about people,
• 3:05
  Speaker 5: is what I always say, and this is about how
• 3:07
  Speaker 5: we serve well.
• 3:08
  Speaker 6: Let's talk about challenges ahead for a diversity we had.
• 3:12
  Speaker 6: The results of the Iowa Caucus is clearly Donald Trump
• 3:15
  Speaker 6: is the front runner in his party. What would a
• 3:19
  Speaker 6: Trump presidency another Trump presidency mean on the diversity front.
• 3:25
  Speaker 5: You know, I have always believed in the understanding of
• 3:29
  Speaker 5: all of the very special dynamic the diversity brings. I
• 3:37
  Speaker 5: often joke with with colleagues and say, you know, although
• 3:41
  Speaker 5: you're an amazing individual, we don't want to have six
• 3:44
  Speaker 5: or seven of you around the table, because how then
• 3:47
  Speaker 5: do we challenge each other? How then do we force
• 3:50
  Speaker 5: each other to think differently and to solve complex issues
• 3:55
  Speaker 5: and problems. And so, for me, regardless of you know
• 3:58
  Speaker 5: who might be in off. I think that that understanding
• 4:03
  Speaker 5: of the value of bringing diverse perspectives and thoughts into
• 4:07
  Speaker 5: the room to solve some of the world's most critical
• 4:10
  Speaker 5: issues will prevail.
• 4:13
  Speaker 3: Can you talk a little bit about the programs that
• 4:15
  Speaker 3: you're working on at Voya. You've got you've got a
• 4:18
  Speaker 3: lot of focus on personal finance and financial education. Can
• 4:23
  Speaker 3: you talk a little little bit about how those are
• 4:25
  Speaker 3: playing out. You do a lot of work across a
• 4:27
  Speaker 3: range of diverse communities.
• 4:29
  Speaker 4: Absolutely so, we very much focus. In addition to.
• 4:33
  Speaker 5: My corporate hat, I also run our foundation and so
• 4:37
  Speaker 5: financial resilience is what we focus on there.
• 4:41
  Speaker 4: Boya's purpose is to fight for.
• 4:43
  Speaker 5: Everyone's opportunity for a better financial future. That comes through
• 4:47
  Speaker 5: in terms of many of the programs.
• 4:49
  Speaker 7: That we have.
• 4:50
  Speaker 5: One that is near and dear to my heart is
• 4:52
  Speaker 5: called the National Personal Finance Challenge. I think National.
• 4:56
  Speaker 4: Spelling Bee, but for financial services.
• 4:59
  Speaker 5: We have a fifteen thousand students that participate in this
• 5:02
  Speaker 5: program run by a nonprofit partner called Council for Economic Education.
• 5:07
  Speaker 5: These kids compete locally and then regionally and then nationally
• 5:13
  Speaker 5: putting together a financial plan for.
• 5:15
  Speaker 4: A fictitious family.
• 5:16
  Speaker 5: So Imagine being in a room with two hundred kids.
• 5:19
  Speaker 5: This was the finals at the Federal Reserve Bank in
• 5:21
  Speaker 5: Cleveland last year. Two hundred kids talking about HSA's health
• 5:27
  Speaker 5: savings accounts, talking about four old, one case, talking about
• 5:29
  Speaker 5: cole versus term life. They've got to put together a
• 5:32
  Speaker 5: plan in two hours for a family. They're talking about
• 5:36
  Speaker 5: things they understand things through the curricula that they've learned
• 5:40
  Speaker 5: that adults don't know. The grown people don't have any
• 5:43
  Speaker 5: idea about And so how do we get to young
• 5:46
  Speaker 5: people early, How do we make financial literacy fun? And
• 5:51
  Speaker 5: how do we give them the skills to actually make
• 5:54
  Speaker 5: sound financial decisions that will lead them to job security.
• 5:59
  Speaker 5: We infuse diversity into this program because when we first started,
• 6:04
  Speaker 5: we were first asked to become the title sponsor five
• 6:07
  Speaker 5: years ago, we noticed that there wasn't as much representation
• 6:11
  Speaker 5: in terms of the US population in the room. So
• 6:14
  Speaker 5: we specifically now make sure to recruit a Title I
• 6:17
  Speaker 5: schools where you know, the majority of kids are on
• 6:20
  Speaker 5: free or reduced lunches.
• 6:21
  Speaker 4: We have all.
• 6:22
  Speaker 5: Girls teams, which has amplified the number of women, young
• 6:26
  Speaker 5: ladies that are in the program.
• 6:27
  Speaker 4: We went from you know, thirty.
• 6:30
  Speaker 5: Percent people of color five years ago to fifty one percent,
• 6:34
  Speaker 5: thirty five percent.
• 6:35
  Speaker 4: Girls to now forty six percent girls. Competing is making
• 6:39
  Speaker 4: a meaningful difference in their lives and in their communities
• 6:43
  Speaker 4: and in their families.
• 6:44
  Speaker 3: Do you know we just have a minute left. There's
• 6:46
  Speaker 3: something I would love to talk to you a bit
• 6:48
  Speaker 3: more about this, but unfortunately there was one other question
• 6:50
  Speaker 3: I was very interested in asking you. Could you tell
• 6:52
  Speaker 3: us quickly going back to what you were discussing earlier
• 6:55
  Speaker 3: about the landscape now that we're looking at, how do
• 6:59
  Speaker 3: you think about hiring and how do you give advice
• 7:02
  Speaker 3: about what kind of hiring people can kind of hiring
• 7:06
  Speaker 3: practices are best for people in this environment?
• 7:09
  Speaker 8: Only about thirty seconds there best hiring practice always hire
• 7:14
  Speaker 8: the most qualified candidate, and always think about how diverse
• 7:18
  Speaker 8: and wide you can make that pool.
• 7:20
  Speaker 6: Angela a pleasure, It was great to talk to you.
• 7:23
  Speaker 6: Appreciate it. Angela Herrel, the Chief Diversity and Corporate Impact
• 7:26
  Speaker 6: Officer at Voya Financial Corporate Diversity. I guess we're making
• 7:30
  Speaker 6: progress but still have a ways to go.
• 7:32
  Speaker 3: It's certainly a very big focus for a lot of companies,
• 7:35
  Speaker 3: and I'm on the equality team as an editor at Bloomberg,
• 7:37
  Speaker 3: and I can tell you like there's a lot of
• 7:38
  Speaker 3: interest in our stories.
• 7:41
  Speaker 9: You're listening to the team can't live program Bloomberg Markets
• 7:45
  Speaker 9: weekdays at ten am Eastern on Bloomberg dot com, the
• 7:48
  Speaker 9: iHeartRadio app and the Bloomberg Business App, or listen on
• 7:52
  Speaker 9: demand wherever you get your podcasts.
• 7:55
  Speaker 6: Let's talk financials now Goldman, Sachs, Morgan, Stanley posting earning
• 8:00
  Speaker 6: jen that beat analyst estimates in some of the key
• 8:03
  Speaker 6: business areas. So let's take a deeper dive now with
• 8:05
  Speaker 6: Chris Whalen. He's the chairman at Whalen Global Advice.
• 8:09
  Speaker 10: Is good to see again, Chris Hey, John Y Jennifer.
• 8:13
  Speaker 6: First impressions of the earning so far from the big banks.
• 8:16
  Speaker 10: I think Bork and Stanley is the best of it
• 8:18
  Speaker 10: so far, both in terms of burnings and revenue. Most
• 8:23
  Speaker 10: of the other banks showed a lot of weakness going
• 8:25
  Speaker 10: into the fourth quarter. Jamie Diamond, for example, record year
• 8:31
  Speaker 10: went past the record earnings in twenty one, but fourth
• 8:35
  Speaker 10: quarter was single digits. And what that means is, I
• 8:38
  Speaker 10: think the industry is going to have another down quarter.
• 8:41
  Speaker 10: This is five quarters in a row of down earnings,
• 8:45
  Speaker 10: so you know, it's just part of working our way
• 8:48
  Speaker 10: through the last few years of the FED and everything else.
• 8:52
  Speaker 10: I think you're going to see the FED end portfolio
• 8:55
  Speaker 10: shrinkage soon, and that means they're going to want to
• 8:58
  Speaker 10: push reserves up and push bank to as it's up, so,
• 9:02
  Speaker 10: you know, not bad.
• 9:03
  Speaker 6: How much equity capital do they Is that a concern
• 9:06
  Speaker 6: at this point?
• 9:08
  Speaker 10: No, they're facing market risk. John. It has nothing to
• 9:11
  Speaker 10: do with equity capital unless you're going to sell these
• 9:14
  Speaker 10: securities and right off the loss. You know, think about
• 9:17
  Speaker 10: it this way. Jimmy May Three's are around ninety today,
• 9:21
  Speaker 10: so if a bank wants to get rid of them
• 9:24
  Speaker 10: and go buy something with twice the yield, they still
• 9:27
  Speaker 10: have to lose ten points on the sale. And I
• 9:30
  Speaker 10: think that's still the problem facing a lot of banks.
• 9:33
  Speaker 10: They have assets from twenty to twenty one that are
• 9:37
  Speaker 10: you know, yielding down in threes and they should be
• 9:39
  Speaker 10: selling and getting out. Jamie Diamond has done that very astutely.
• 9:45
  Speaker 10: He's taken losses every quarter because he can. He makes
• 9:48
  Speaker 10: a lot of money, but other banks not so much.
• 9:51
  Speaker 10: And I think you're going to see commercial losses this
• 9:53
  Speaker 10: year which are going to probably be the headline for banks,
• 9:57
  Speaker 10: not consumer. Really, consumer is still very quiet.
• 10:01
  Speaker 3: I guess one thing I wonder though, is if we
• 10:03
  Speaker 3: do indeed get FED rate cuts coming as soon as March,
• 10:08
  Speaker 3: how will that help the picture for banks.
• 10:11
  Speaker 10: On commercial real estate? Not at all, because these are
• 10:14
  Speaker 10: very idiosyncratic situations. They're all different. It's not going to
• 10:19
  Speaker 10: help if you've got an office building in downtown Chicago
• 10:22
  Speaker 10: that's not cash flowing. I don't think you're going to
• 10:25
  Speaker 10: see rate cuts in March, to be honest. I think
• 10:28
  Speaker 10: the FED will stop shrinkage of the portfolio. They'll start
• 10:31
  Speaker 10: reinvesting the runoff from the portfolio. We may not get
• 10:35
  Speaker 10: an actual FED funds cut until later in here. So
• 10:39
  Speaker 10: I think that's why financials are selling off today after
• 10:41
  Speaker 10: Waller's comments and some other bits and pieces.
• 10:46
  Speaker 6: Due to the margins. Then what's the expectation here?
• 10:50
  Speaker 10: Well, yields have been rising very briskly along with funding
• 10:54
  Speaker 10: costs in the past year, but now they've slowed. So
• 10:57
  Speaker 10: what I'm thinking is that we may not see that
• 11:00
  Speaker 10: much headroom. You see all the bond issuance that you
• 11:02
  Speaker 10: guys have been reporting at Bloomberg, investors are taking that
• 11:06
  Speaker 10: paper as fast as they can get it, because I
• 11:08
  Speaker 10: think they realized that rates may be going down now.
• 11:11
  Speaker 10: I still think that the Treasury is refunding and the
• 11:14
  Speaker 10: huge cash needs that they have this year is going
• 11:17
  Speaker 10: to pull a long end up eventually. John, that's going
• 11:20
  Speaker 10: to be the surprise the normal yield curve that we
• 11:22
  Speaker 10: haven't seen a long time, and I think that is
• 11:26
  Speaker 10: the big question mark in my mind going forward. Short
• 11:29
  Speaker 10: term rates will probably go down. I think that's a
• 11:32
  Speaker 10: fair bet. But it may go down initially because a
• 11:35
  Speaker 10: bet is just changing their policy on the balanceet. They're
• 11:38
  Speaker 10: going to be reinvesting those tea bills back in the
• 11:40
  Speaker 10: more tea bills and it'll pull rates down.
• 11:43
  Speaker 3: So I guess what do you think from a business
• 11:45
  Speaker 3: perspective is going to be the bright spot for banks
• 11:48
  Speaker 3: going forward. We saw in the Goldman Sachson and the
• 11:50
  Speaker 3: Morgan Stanley er earnings reports this morning a focus on
• 11:53
  Speaker 3: the wealth divisions.
• 11:55
  Speaker 10: Yeah, wealth is definitely one of the better things to own. Obviously,
• 11:59
  Speaker 10: if you can compair of City with Morgan Stanley, Morgan
• 12:02
  Speaker 10: Stanley was the winner there. City does not have that
• 12:06
  Speaker 10: component at all, so that's one of their problems. I
• 12:09
  Speaker 10: think the transactional banks Goldman. They did pretty well on
• 12:12
  Speaker 10: the trading side. This quarter will be okay. Credit is
• 12:16
  Speaker 10: the issue for big commercial banks, both in terms of
• 12:19
  Speaker 10: commercial real estate related business exposures and then thirdly consumers.
• 12:25
  Speaker 10: We're all waiting for consumers. But you know, like I say,
• 12:28
  Speaker 10: credit cards are prime auto by banks is still not
• 12:31
  Speaker 10: that bad. If you look at subprime auto, if you
• 12:34
  Speaker 10: look at lower FIICO borrowers in the FAHA market, the
• 12:38
  Speaker 10: delinquencies are much higher. And I think that's what people
• 12:41
  Speaker 10: are worried about. They look at that bottom third, bottom
• 12:44
  Speaker 10: quarter of the credit stack, which is definitely seeing stressed,
• 12:48
  Speaker 10: but the rest of it not so much.
• 12:50
  Speaker 6: So it's a division.
• 12:51
  Speaker 10: It's a weird picture.
• 12:52
  Speaker 6: You mentioned consumers, and I think i'm safe ian saying
• 12:55
  Speaker 6: that overall pretty healthy at this point. Yes, when you
• 13:00
  Speaker 6: look at the there is stress on the lower level.
• 13:04
  Speaker 6: I'll call it the deposit balance. Is do they have
• 13:07
  Speaker 6: less of a cushion.
• 13:10
  Speaker 10: Well, if you're a commercial bank, a smaller bank, and
• 13:13
  Speaker 10: you've got big losses on your commercial real estate loans
• 13:16
  Speaker 10: and just commercial in general, you know you're missing deposits
• 13:20
  Speaker 10: right now because if you had to sell those loans,
• 13:22
  Speaker 10: you would take a loss. I think that's what's worrying about.
• 13:26
  Speaker 10: They almost want to force deposits into the system to
• 13:29
  Speaker 10: try and forestall some bank failures this here, and I
• 13:32
  Speaker 10: do think you will see more bank failures as here
• 13:35
  Speaker 10: related to commercial real estate.
• 13:38
  Speaker 3: But just to go back to the consumer point, I mean,
• 13:41
  Speaker 3: one point that's seems to me to be pretty positive
• 13:44
  Speaker 3: is the employment levels are still really really strong, and
• 13:47
  Speaker 3: I would have thought, you know, from the bank perspective,
• 13:49
  Speaker 3: that could have given them some confidence. But I feel
• 13:52
  Speaker 3: like you're a bit more negative on that.
• 13:54
  Speaker 10: Well, consumers are not a pain point for banks right
• 13:57
  Speaker 10: now at all. I mean, if you look at residential mortgages,
• 14:01
  Speaker 10: default rates net default rates are still negative. In other words,
• 14:05
  Speaker 10: they can't lose money on one of four family loans.
• 14:08
  Speaker 10: So if you're looking for problems for banks, it's not
• 14:12
  Speaker 10: where it was last time in two thousand and eight.
• 14:14
  Speaker 10: It's in commercial. It's much more like the seventies, the
• 14:17
  Speaker 10: oil patch in Texas. That's what we're facing. You have
• 14:20
  Speaker 10: a whole class of office buildings out there that people
• 14:23
  Speaker 10: don't want any more. This is a huge problem. We
• 14:27
  Speaker 10: have to redevelop parts of New York City. Look at
• 14:29
  Speaker 10: third Avenue. Nobody wants those buildings from thirty fourth Street
• 14:33
  Speaker 10: up to the fifty.
• 14:34
  Speaker 6: I can't get up Third Avenue in my car. No
• 14:37
  Speaker 6: I took out the bus lanes. It's fregetting triple.
• 14:40
  Speaker 10: You're not supposed to strive in New York. You're supposed
• 14:43
  Speaker 10: to be healthy walking.
• 14:47
  Speaker 6: Before I let you go. JP Morgan will get back
• 14:50
  Speaker 6: to that. Do they manage now to sort of a
• 14:55
  Speaker 6: different standard because they're so darn big at this point?
• 14:58
  Speaker 6: Are they too big?
• 15:00
  Speaker 10: Well, they have enormous mass. You're right, And Jamie could
• 15:04
  Speaker 10: run that bank on non interest income. In other words,
• 15:08
  Speaker 10: if you had a horrible recession, he could literally run
• 15:11
  Speaker 10: the bank on the income and devote all of his
• 15:14
  Speaker 10: interest earnings to loss mitigation. Why does this man need
• 15:18
  Speaker 10: more capital? Obviously he doesn't, but the regulators, you know.
• 15:23
  Speaker 10: The way I look at Jamie is he's a small country.
• 15:25
  Speaker 10: He has so much liquidity inside that bank, and they
• 15:28
  Speaker 10: also are a various student managing market risk and duration,
• 15:32
  Speaker 10: unlike some of the other banks. Compare them with Bank America,
• 15:35
  Speaker 10: which has retained everything from twenty twenty and twenty one,
• 15:39
  Speaker 10: huge mistake. So I think Jamie's just he runs a
• 15:43
  Speaker 10: better bank. They're very nimble, and they have all of
• 15:46
  Speaker 10: that interest earning non interest side from the investment business
• 15:50
  Speaker 10: and mutual funds everything else. It's like a small country.
• 15:54
  Speaker 6: Then switch over to Jane Frazier if you could City Chark.
• 15:58
  Speaker 6: Is that a completely different instant? Now got about a
• 16:01
  Speaker 6: minute left?
• 16:02
  Speaker 10: No, I think Jane frankly in a falling requirement. She
• 16:06
  Speaker 10: should break the bank up and sell it. I just
• 16:08
  Speaker 10: don't see any way for her to fix the business
• 16:11
  Speaker 10: model deficiencies, which basically is Smith Barney. They sold Smith
• 16:16
  Speaker 10: Barney to Gorman. He paid for it. Everybody criticized him
• 16:19
  Speaker 10: at the time, but Gorman was right. So Jane has
• 16:22
  Speaker 10: a two legged stool. And unless she can merge that
• 16:25
  Speaker 10: business with somebody who's got a big investment book and
• 16:28
  Speaker 10: give her some more stability than I don't know why
• 16:31
  Speaker 10: they're here. I wrote a piece about this on the
• 16:33
  Speaker 10: blog over the weekend.
• 16:36
  Speaker 6: And we'll leave it there. Good luck getting up the
• 16:38
  Speaker 6: I'm still driving. I'm not walking up Third Aven. I
• 16:40
  Speaker 6: forget that. Chris always a pleasure. Good to see a
• 16:43
  Speaker 6: chairman at a wheeling Global Advisors breaking down some of
• 16:47
  Speaker 6: the bank earnings that we got today.
• 16:49
  Speaker 9: You're listening to the tape. Catch a live program Bloomberg
• 16:52
  Speaker 9: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 16:56
  Speaker 9: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 16:59
  Speaker 9: You can also list and live on Amazon Alexa from
• 17:01
  Speaker 9: our flagship New York station. Just say Alexa play Bloomberg
• 17:05
  Speaker 9: eleven thirty.
• 17:08
  Speaker 6: Let's get the big picture of view of markets now.
• 17:10
  Speaker 6: Brad Bernstein, Managing director at UBS Private Wealth Management, joins us,
• 17:14
  Speaker 6: good to see you, Thanks for being with us, appreciate it, Bred,
• 17:17
  Speaker 6: thanks you so much for having me. Is the FED
• 17:19
  Speaker 6: still pretty much in the driver's seat for markets and
• 17:22
  Speaker 6: risk assets in particular?
• 17:25
  Speaker 11: Oh, I agree with you. Yeah, I think so. I
• 17:28
  Speaker 11: think you know right now what we're seeing is some
• 17:32
  Speaker 11: walking back a little bit from the FED. But where
• 17:34
  Speaker 11: we are, we're strongly in the soft landing camp.
• 17:37
  Speaker 7: This year.
• 17:38
  Speaker 11: We just changed our projections for FED cuts this year.
• 17:41
  Speaker 11: We see four not three. We were at three recently
• 17:46
  Speaker 11: starting in May. Four quarters this year, you know, and
• 17:50
  Speaker 11: we think markets look pretty good this year with the
• 17:54
  Speaker 11: backing of the FED changing from last year.
• 17:57
  Speaker 3: So what's the advice for investors at this point?
• 18:00
  Speaker 11: Right now? We're advising our clients to add to their
• 18:04
  Speaker 11: two diversified balanced portfolios. We really like the bond market
• 18:08
  Speaker 11: here and we like the stock market. We just upped
• 18:12
  Speaker 11: our target also on the SMP for the year at
• 18:14
  Speaker 11: about five thousand, so we see modest, you know, appreciation
• 18:18
  Speaker 11: from these levels. Keep in mind, we were up ten
• 18:21
  Speaker 11: out of the last eleven weeks, so we probably pulled
• 18:24
  Speaker 11: forward a lot of the year's returns in the last
• 18:27
  Speaker 11: couple of months. Coming into the new.
• 18:29
  Speaker 6: Year in a deflationary or disinflationary environment, is that necessarily
• 18:35
  Speaker 6: good for company earnings, especially with the respect of the
• 18:39
  Speaker 6: top line and margins.
• 18:42
  Speaker 11: So we're actually thinking earnings are going to pick up
• 18:44
  Speaker 11: this year. So for the quarter that just began to
• 18:47
  Speaker 11: the fourth quarter, we're seeing four to five percent year
• 18:50
  Speaker 11: of a year earnings growth and for the year, we
• 18:52
  Speaker 11: still see eight percent earnings growth, about two hundred and
• 18:55
  Speaker 11: forty dollars per share on the SMP this year. Why
• 18:58
  Speaker 11: you know, we're in that soft planting campus I mentioned.
• 19:01
  Speaker 11: We think growth will come down slightly below trend. We
• 19:06
  Speaker 11: think inflation will get to central banks targets to two
• 19:09
  Speaker 11: and a half percent second half, and earnings will be
• 19:12
  Speaker 11: better than than I think a lot of people think,
• 19:14
  Speaker 11: and that's why we're saying five thousand s and p
• 19:17
  Speaker 11: year ed two hundred and forty this year, you know,
• 19:20
  Speaker 11: and and and you know, markets look pretty pretty decent
• 19:23
  Speaker 11: at these levels. But you know, we think we think
• 19:26
  Speaker 11: the by market looks extremely good at these levels.
• 19:30
  Speaker 3: Can I can you dig a little bit into your
• 19:33
  Speaker 3: sector calls for equities and in particular, can you talk
• 19:36
  Speaker 3: about tech? Where do you see that headed this year?
• 19:39
  Speaker 11: So tech is our preferred sector for twenty four coming
• 19:41
  Speaker 11: into the year, we see the best earnings growth of
• 19:45
  Speaker 11: all the sectors globally is in tech. Why AI AI
• 19:49
  Speaker 11: beneficiaries are going to benefit the most from from growth
• 19:54
  Speaker 11: specifically within tech, We like semis and we like software. Also,
• 20:00
  Speaker 11: we're adding in modest overweight right now to small cap.
• 20:05
  Speaker 6: Why why small cap.
• 20:07
  Speaker 11: Multiple reasons number one For the first time in a
• 20:11
  Speaker 11: few years, we think it can now perform large. Why
• 20:15
  Speaker 11: because they are going to be one of the better
• 20:18
  Speaker 11: beneficiaries of declining rates. They're more levered to borrowing than
• 20:24
  Speaker 11: large companies. Clearly, also, the valuation compared to large hasn't
• 20:30
  Speaker 11: been this compelling in a long time, and they the
• 20:33
  Speaker 11: small cap acid class was really impacted by the regional
• 20:36
  Speaker 11: banking crisis we had in the spring and these you
• 20:40
  Speaker 11: know that that has hurt the index and it's still
• 20:43
  Speaker 11: off ten to fifteen percent since March of last year.
• 20:46
  Speaker 11: So we think there's a lot of reasons why small
• 20:48
  Speaker 11: cap could actually outperform large cap this year.
• 20:51
  Speaker 6: You also mentioned bonds. What the ten year four point
• 20:55
  Speaker 6: zero three percent? I mean, I Jenn and I missed
• 20:58
  Speaker 6: the boat at five percent, just over four percent of
• 21:01
  Speaker 6: this that's still a screaming buy.
• 21:03
  Speaker 7: Yeah.
• 21:04
  Speaker 11: Yes, November was the best month for bonds since the
• 21:07
  Speaker 11: nineteen eighties, right after bonds being terrible for a year
• 21:11
  Speaker 11: and a half. We see the ten you're getting a
• 21:13
  Speaker 11: three and a half by the end of the year.
• 21:15
  Speaker 11: So we really like the bond market. We think the
• 21:18
  Speaker 11: risk reward looks outstanding. The conversations we're having right now
• 21:21
  Speaker 11: with clients are you know, everyone has too much in
• 21:25
  Speaker 11: cash these days. Cash shields are going to decline as
• 21:28
  Speaker 11: the Fed cuts. We see four cuts, as I said,
• 21:30
  Speaker 11: so that five something money market will be for something
• 21:33
  Speaker 11: by the end of the year, maybe three something next year.
• 21:36
  Speaker 11: And yet there's opportunity to lock in duration. So for
• 21:39
  Speaker 11: the ask for the liquid cash that's sitting in money
• 21:42
  Speaker 11: markets that shouldn't be is it is still time to
• 21:45
  Speaker 11: get in and they're still upside in the bond market,
• 21:48
  Speaker 11: not to mention locking in yields that won't be available
• 21:51
  Speaker 11: six to twelve months from now.
• 21:53
  Speaker 6: He sounds like a sixty to forty guy. Are you
• 21:55
  Speaker 6: what's your allocation? What's the ideal allocation? If I'm your.
• 21:58
  Speaker 11: Client, it depends on you, the client, right, So we're
• 22:02
  Speaker 11: agnostic when it comes to the strategic allocation of a portfolio.
• 22:06
  Speaker 11: It's always about the client's goals an objective. It's always
• 22:09
  Speaker 11: about what the goals are for the portfolio that dictates
• 22:12
  Speaker 11: what the allocation will look like. But yeah, we believe
• 22:15
  Speaker 11: at a high level in diversification and owning, you know,
• 22:19
  Speaker 11: broad diversity within a portfolio such as small, mid large caps,
• 22:24
  Speaker 11: and then overweighting areas within those areas, and then within
• 22:26
  Speaker 11: fixed income. We like duration here specifically, to get into
• 22:30
  Speaker 11: more detail, municipals, high quality, investment grade and CNBS is here.
• 22:36
  Speaker 3: What's the biggest risk to your outlook? Is it geeopolitical risks?
• 22:40
  Speaker 3: Is it the FED not proceeding as you expect?
• 22:44
  Speaker 11: I think number one would be the Fed disappointing and
• 22:47
  Speaker 11: not delivering what the markets really help now. Obviously, right
• 22:50
  Speaker 11: now the Fed, I think the market's ahead of the
• 22:52
  Speaker 11: Fed a little bit. I think we're not going to
• 22:53
  Speaker 11: get six cuts. We'll probably get four. That's what we're projecting,
• 22:58
  Speaker 11: and I think the markets will be fine in that scenario.
• 23:00
  Speaker 11: But if we get two or less cuts, I think
• 23:03
  Speaker 11: the markets would not be happy about that. And then
• 23:05
  Speaker 11: obviously overnight we saw you know, some escalation globally with
• 23:09
  Speaker 11: some geopolitical risks. Hopefully those don't get worse. As long
• 23:13
  Speaker 11: as as I think, you know, geopolitical risks don't get
• 23:17
  Speaker 11: much worse with the United States, you know, our military
• 23:21
  Speaker 11: and oil being impacted, I think we'll be fine as well.
• 23:25
  Speaker 11: And that's our base case that that won't happen.
• 23:28
  Speaker 6: Oh, he's a pleasure of Brad Bernstein, Managing director at
• 23:30
  Speaker 6: UBS Private Wealth Management. Just to recap so year in
• 23:33
  Speaker 6: five thousand s and P five hundred four rate cuts
• 23:37
  Speaker 6: from the Federal Reserve in May and earnings growth of
• 23:41
  Speaker 6: something like what four to five percent. It's good to
• 23:44
  Speaker 6: talk to you, Brad, Thanks very much, you appreciate it.
• 23:46
  Speaker 9: You're listening to the tape. Cat's are live program Bloomberg
• 23:49
  Speaker 9: Markets weekdays at ten am Eastern on Bloomberg Radio, tune
• 23:53
  Speaker 9: in app, Bloomberg dot Com, and the Bloomberg Business App.
• 23:56
  Speaker 9: You can also listen live on Amazon Alexa from our
• 23:59
  Speaker 9: flagship New York station, Jo Say Alexa play Bloomberg eleven thirty.
• 24:05
  Speaker 6: Let's bring in our next guest to look at the markets,
• 24:08
  Speaker 6: Mike Mulaney, as director of Global Markets Research for Boston Partners.
• 24:13
  Speaker 6: He's got the shades close behind him, so I don't
• 24:14
  Speaker 6: know where he is. I'm guessing Boston. Right, did you
• 24:17
  Speaker 6: get snow backed?
• 24:18
  Speaker 7: And it's snowing outside still here?
• 24:19
  Speaker 6: So all right, well it's let up, so maybe you'll
• 24:22
  Speaker 6: get some relief in a couple of hours. Are you
• 24:25
  Speaker 6: a sixty forty guy at this point?
• 24:29
  Speaker 7: Yeah, we would be definitely.
• 24:30
  Speaker 12: Actually, we have still a smattering of bench balanced accounts
• 24:35
  Speaker 12: here at Boston Partners, and the balanced neutral ratio is
• 24:39
  Speaker 12: fifty to fifty and currently we're at fifty five forty
• 24:43
  Speaker 12: five stocks to bond, so we are still leaning towards
• 24:46
  Speaker 12: overweight stocks versus bonds and our portfolios.
• 24:49
  Speaker 3: So tell me what's your take on what the Fed's
• 24:52
  Speaker 3: next move is? And more importantly, when it's going to come.
• 24:56
  Speaker 12: Well, I thought, you know, Waller today was less dubbish
• 25:00
  Speaker 12: then obviously the market anticipated and I think that's why
• 25:02
  Speaker 12: we see in the negative action of the treasure market
• 25:04
  Speaker 12: which is spilling over now to the equity market. And
• 25:08
  Speaker 12: we're not in the camp that it's going to be
• 25:09
  Speaker 12: a March cut. We just think that's too early because
• 25:13
  Speaker 12: haven't seen I guess you can say sustained improvement on
• 25:16
  Speaker 12: the core PCE that would be necessary to be more
• 25:20
  Speaker 12: aggressive on cuts. Doesn't mean they don't cut, you know,
• 25:23
  Speaker 12: three times or perhaps four times in twenty twenty four,
• 25:26
  Speaker 12: but we think it's later in the year as compared
• 25:28
  Speaker 12: to starting in March.
• 25:30
  Speaker 6: All right, but still the trajectory is a disinflationary path
• 25:35
  Speaker 6: or outright deflation in some sectors. I would imagine how
• 25:39
  Speaker 6: does that add up for earnings.
• 25:43
  Speaker 12: I go back actually to a macro standpoint on earnings
• 25:46
  Speaker 12: and earnings I do based upon if you do a
• 25:48
  Speaker 12: trickle down effect, you start with nominal GDP, then you
• 25:52
  Speaker 12: look at revenues of the S and P five hundred,
• 25:55
  Speaker 12: and you wind up with earnings. And the quandary that
• 25:58
  Speaker 12: we have for twenty twenty four nominal GDP is supposed
• 26:01
  Speaker 12: to drop from six point five percent in twenty twenty
• 26:04
  Speaker 12: three to about three point five percent in twenty twenty four.
• 26:09
  Speaker 7: Yet revenue growth is supposed.
• 26:11
  Speaker 12: To be in the mid to mid teens going forward
• 26:14
  Speaker 12: for twenty twenty four, and there's a ninety nine percent
• 26:17
  Speaker 12: correlation between nominal GDP and revenues of the S and
• 26:20
  Speaker 12: P five hundred, So you got two things going potentially
• 26:23
  Speaker 12: in the opposite direction, which is somewhat confounding to us.
• 26:27
  Speaker 7: And if you.
• 26:27
  Speaker 12: Continue that, earnings are very much linked towards revenue, about
• 26:32
  Speaker 12: a ninety seven percent between S and P five hundred
• 26:35
  Speaker 12: earnings and SMP five hundred revenue. So if revenue is
• 26:38
  Speaker 12: going to slow, which is what we think the case
• 26:40
  Speaker 12: is going to be, we don't think it's going to
• 26:42
  Speaker 12: be as high as probably what the analyst of forecasting
• 26:45
  Speaker 12: or the strategist of forecasting right now. Then we do
• 26:48
  Speaker 12: think there's probably going to be some pressure in earnings
• 26:50
  Speaker 12: not to attain that eleven point eight percent growth for
• 26:54
  Speaker 12: twenty twenty four, which is the current consensus forecast for
• 26:58
  Speaker 12: the S and P five hundred.
• 26:59
  Speaker 7: We think it's going to be something less than.
• 27:00
  Speaker 3: That, So do companies have the wherewithal to weather that
• 27:04
  Speaker 3: kind of slow down, you know, without taking measures such
• 27:08
  Speaker 3: as shutting some jobs.
• 27:11
  Speaker 12: We're beginning to see jobs being shed, especially in the
• 27:14
  Speaker 12: larger corporations. You know, the announced layoffs now that are
• 27:16
  Speaker 12: coming in more in a fevered pace. That wouldn't surprise
• 27:22
  Speaker 12: us to see that continuing in twenty twenty four.
• 27:25
  Speaker 7: You know.
• 27:25
  Speaker 12: Obviously, City Group last week, you know, stating they're going
• 27:27
  Speaker 12: to cut you know, twenty thousand employees during the course
• 27:30
  Speaker 12: of this year the next.
• 27:31
  Speaker 7: Couple of years.
• 27:32
  Speaker 12: We think that's probably going to be more of the
• 27:34
  Speaker 12: norm because I think first and foremost what's going to
• 27:37
  Speaker 12: happen is that companies are going to try to protect
• 27:39
  Speaker 12: their profit margins, which are very high right now, but
• 27:42
  Speaker 12: they now getting pressure from wages. Wages have remained sticky
• 27:46
  Speaker 12: at a high level, and that is beginning to erode
• 27:49
  Speaker 12: some of the prospects for profit margin expansion obviously in
• 27:52
  Speaker 12: twenty twenty four, and maybe cost some contraction in twenty
• 27:56
  Speaker 12: twenty four, which ultimately will impact will impact earnings.
• 28:00
  Speaker 6: You can't talk individual stocks. What about sectors? What do
• 28:04
  Speaker 6: you like?
• 28:06
  Speaker 7: You know, you have to still like tech.
• 28:09
  Speaker 12: If you look at where the earnings growth is supposed
• 28:11
  Speaker 12: to be in twenty twenty four. Tech is still coming
• 28:14
  Speaker 12: in in second place, and you know, you don't want
• 28:17
  Speaker 12: to change chase the you know, necessarily some of the
• 28:20
  Speaker 12: multiples of the Magnificent seven, but you know, other companies
• 28:24
  Speaker 12: in that sector are still a price at reasonable levels.
• 28:26
  Speaker 12: So I think tech is still a place to be
• 28:29
  Speaker 12: and you may want to try to bar bel it
• 28:31
  Speaker 12: if you do see kind of a no landing scenario
• 28:35
  Speaker 12: for the economy, and we think it's almost a jump
• 28:37
  Speaker 12: call between recession and no landing quite frankly, but if
• 28:40
  Speaker 12: you do see a no landing, then some of the
• 28:42
  Speaker 12: cyclical sectors probably do better earnings.
• 28:45
  Speaker 7: I mean, excuse me.
• 28:46
  Speaker 12: Energy has been beaten down badly and deservedly so based
• 28:50
  Speaker 12: upon the weakness and energy prices, but they have once
• 28:53
  Speaker 12: again a negative prospect for earnings per share growth for
• 28:55
  Speaker 12: twenty twenty four. And based upon what you just said,
• 28:58
  Speaker 12: given what's going on in the in the Middle East
• 29:00
  Speaker 12: right now, you might see some firming advantage prices just
• 29:03
  Speaker 12: on geopolitical risk, and if that's the case, you'll see
• 29:06
  Speaker 12: the earnings come through better for energy companies in twenty
• 29:09
  Speaker 12: twenty four. So that would be a typical kind of
• 29:11
  Speaker 12: Barbell chech and energy and play and play both sides
• 29:16
  Speaker 12: of the card.
• 29:17
  Speaker 3: What is your take on how the US election will
• 29:20
  Speaker 3: play into things in the second half of the year.
• 29:24
  Speaker 7: You know, that's a really good question.
• 29:27
  Speaker 12: So generally the market's pretty choppy in the first half
• 29:31
  Speaker 12: of the year space, particularly in the first quarter in
• 29:33
  Speaker 12: an election year, and you see that until you get
• 29:36
  Speaker 12: more definitive, you know, kind of vision as to who
• 29:40
  Speaker 12: the candidates are going to be and what their their
• 29:42
  Speaker 12: platforms are into the election. My guess is right now,
• 29:47
  Speaker 12: you know, you've got to think that once again, Donald
• 29:49
  Speaker 12: Trump would be the favorite right now based upon either
• 29:52
  Speaker 12: polls or the betting markets. Right now, you know, Trump
• 29:55
  Speaker 12: is a head of is ahead of Biden. We see
• 29:58
  Speaker 12: probably the market doing well if that's the case, because
• 30:02
  Speaker 12: the market seems to like obviously reduction in taxes, which
• 30:05
  Speaker 12: is what you know. Trump is obviously a champion in
• 30:09
  Speaker 12: the past, but I'm not so sure after the election
• 30:12
  Speaker 12: with some of the things that he's put forth as
• 30:14
  Speaker 12: far as his next administration what he intends to do
• 30:17
  Speaker 12: are going to play all that well in the market
• 30:18
  Speaker 12: continuing into twenty twenty five. But I would guessed that
• 30:21
  Speaker 12: the mark would be relatively firm going into the election
• 30:24
  Speaker 12: and just out of the election as well.
• 30:26
  Speaker 6: All Right, conventional wisdom dictates the FED stays away from politics,
• 30:30
  Speaker 6: so stays away from any sort of decision around election time.
• 30:35
  Speaker 6: I think you said, what, March is too early, So
• 30:38
  Speaker 6: when do they act?
• 30:41
  Speaker 12: Well, you know, I would imagine that you're going to
• 30:42
  Speaker 12: try to do it around when they're releasing statements formal
• 30:46
  Speaker 12: statements in the Summary of Economic projections.
• 30:49
  Speaker 7: So I would put it probably out there. We'd have
• 30:52
  Speaker 7: it at the June meeting. It starts with June.
• 30:54
  Speaker 12: And they could go every meeting after that if they
• 30:56
  Speaker 12: continue to get the kind of progress on core piece
• 31:00
  Speaker 12: that they've seen so far. The six mic annualized rate
• 31:03
  Speaker 12: right now is basically pretty close to what their target is.
• 31:07
  Speaker 12: So if they continue to see that kind of progress,
• 31:09
  Speaker 12: I think you could see them go every meeting once
• 31:11
  Speaker 12: they start in June.
• 31:13
  Speaker 7: Albeit unless we don't get if we don't get.
• 31:15
  Speaker 12: A reacceleration inflation, which is still a little bit of
• 31:18
  Speaker 12: a wild card because quite frankly, if you look at
• 31:21
  Speaker 12: supercore PCE, which is one of you know, Chairman Poll's
• 31:25
  Speaker 12: favorite indicators, that's still very sticky to a high level,
• 31:28
  Speaker 12: and it's very much influenced by wages, and wages is
• 31:31
  Speaker 12: showing no sign right now basically of collapsing at this juncture.
• 31:36
  Speaker 3: Wages are not collapsing, and the labor market's quite strong.
• 31:39
  Speaker 3: So where does that leave us with the outlook for
• 31:41
  Speaker 3: consumer spending? You know, I wonder how rich consumers are feeling.
• 31:46
  Speaker 3: They're just coming off the holidays and a massive spending binge,
• 31:48
  Speaker 3: which looking at my gift hall, was not what I expected.
• 31:52
  Speaker 3: But still, you know, I know, I know, but you know,
• 31:55
  Speaker 3: you could think that, you know, they're going to be
• 31:57
  Speaker 3: pulling back a little bit.
• 32:00
  Speaker 7: I think it's very bifurcated.
• 32:02
  Speaker 12: I think that, you know, the upper echelons, whether it
• 32:05
  Speaker 12: be the top quintile or the top forty percent of
• 32:07
  Speaker 12: way journers, are going to be perfectly fine. But the
• 32:10
  Speaker 12: bottom twenty percent, the bottom quintile definitely beginning to struggle
• 32:14
  Speaker 12: right now.
• 32:14
  Speaker 7: If you look at delinquencies.
• 32:16
  Speaker 12: And defaults and the increase in credit card balances, it
• 32:20
  Speaker 12: seems to me that they're beginning to borrow to maintain lifestyle.
• 32:23
  Speaker 12: So I would think that the lower quintile is going
• 32:26
  Speaker 12: to be basically in somewhat of a struggling situation that's
• 32:29
  Speaker 12: more goods related than it is service services related. The
• 32:33
  Speaker 12: EP two quintiles obviously are going to continue to spend
• 32:36
  Speaker 12: on services. I think they're going to continue to spend
• 32:38
  Speaker 12: on experiences in twenty twenty four, much like they did
• 32:42
  Speaker 12: in the mid to latter part of twenty twenty three.
• 32:45
  Speaker 6: All right, Mike, thanks appreciate it. Michael O'Laney from Boston,
• 32:49
  Speaker 6: Director of Global Markets for Boston Research Global Markets Research,
• 32:53
  Speaker 6: I should say.
• 32:55
  Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
• 32:58
  Speaker 2: subscribe and listen to interviews, Apple Podcasts, or whatever podcast
• 33:02
  Speaker 2: platform you prefer. I'm Matt Miller. I'm on Twitter at
• 33:06
  Speaker 2: Matt Miller nineteen seventy three.
• 33:08
  Speaker 1: And I'm Faull Sweeney. I'm on Twitter at pt Sweeney.
• 33:10
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 33:13
  Speaker 1: Bloomberg Radio