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Banking, Markets, And The Fed (Podcast) · 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. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news on the Bloomberg Markets Podcast,
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. I've been in the
• 0:21
  Speaker 1: equity research game a long time on Wall Street, and
• 0:24
  Speaker 1: ever since I've been on the street, the folks at Keith,
• 0:27
  Speaker 1: Brett and Woods have been the acts in banking stocks.
• 0:31
  Speaker 1: And what I like about their research, Um, it's big
• 0:35
  Speaker 1: cap and it's small cap, and they cover it on.
• 0:38
  Speaker 1: If you want to get really smart on the banking biz,
• 0:40
  Speaker 1: you go to those folks at KBWI. There now with
• 0:42
  Speaker 1: Stephole Company, Chris McGrady joins us. He's head of US
• 0:46
  Speaker 1: bank Research. Chris, give us a sense of what your
• 0:51
  Speaker 1: banking call is right here. Um, you know, for just
• 0:56
  Speaker 1: a sector in general, people, we've seen the interest rates
• 0:59
  Speaker 1: rise to eight people like me. That's a good thing
• 1:02
  Speaker 1: for interest rate margin. But give us the expert call. Sure,
• 1:06
  Speaker 1: thanks for having me on. Um. Yeah, at the highest level,
• 1:10
  Speaker 1: higher rates are are actually very good for the banking industry,
• 1:13
  Speaker 1: one of the few sectors of the economy where rates
• 1:17
  Speaker 1: moving higher will actually expand profit margins UM. And so
• 1:20
  Speaker 1: our call on the group has been for the past
• 1:22
  Speaker 1: year that you want to own the banks. We we
• 1:25
  Speaker 1: made a call last September that we saw loan demand
• 1:29
  Speaker 1: returning after after a couple of years of absence. We
• 1:33
  Speaker 1: saw rates poised to move higher, and we really thought
• 1:36
  Speaker 1: the balance sheets were in great shape. So you put
• 1:38
  Speaker 1: those factors together and what you're seeing now is revenue
• 1:41
  Speaker 1: growth accelerating and that's leading to UM recently some better
• 1:45
  Speaker 1: performance in the group. So UM do you expect to continue?
• 1:50
  Speaker 1: I mean, how difficult is it to to look out
• 1:52
  Speaker 1: as the FED UM kind of fights the market, or
• 1:55
  Speaker 1: the markets fighting the FED, which Paul says they shouldn't do. Yeah,
• 1:59
  Speaker 1: visibilit it is tough, right, The markets can change on
• 2:02
  Speaker 1: a dime. UM. And as you've seen over the past
• 2:04
  Speaker 1: few days, UM inflation expectations UM coming down a bit
• 2:08
  Speaker 1: has actually put a bit into the market and so
• 2:11
  Speaker 1: visibility is improving UM and and right now we believe
• 2:16
  Speaker 1: that revenue growth is poised to accelerate, particularly for the
• 2:20
  Speaker 1: mid cap banks. UM. So you have the largest banks
• 2:23
  Speaker 1: which have capital markets pressures, and those those revenues are
• 2:25
  Speaker 1: really and have been in a recession for the past
• 2:28
  Speaker 1: couple of quarters. If you go down cap to your
• 2:30
  Speaker 1: earlier comments, we see some really strong growth emerging, and
• 2:34
  Speaker 1: we saw it this past quarter, and we see it
• 2:36
  Speaker 1: for the next several quarters. So so we think even
• 2:38
  Speaker 1: though inflationary pressures are with us, we think revenue growth
• 2:42
  Speaker 1: will accelerate and exceed that. And what you're gonna see
• 2:44
  Speaker 1: is expanding profit margins. What about head count? You know,
• 2:47
  Speaker 1: I was just walking back from the gym with a
• 2:50
  Speaker 1: guy who was on the buy side for the last
• 2:52
  Speaker 1: thirty years and he's now shifted over UM to investment
• 2:55
  Speaker 1: banking just because he saw the layoffs coming. And he says,
• 2:58
  Speaker 1: everybody on the streets sees it. You know, uh, right now, talent,
• 3:04
  Speaker 1: you know, good talent is hard to come by, and
• 3:06
  Speaker 1: so right now, UM, the employees have a lot of leverage. UM.
• 3:10
  Speaker 1: You know, what we've seen over the past year is
• 3:12
  Speaker 1: wage pressures increase UM and there maybe you know, this
• 3:16
  Speaker 1: is a cyclical industry. There could be layoffs over over
• 3:19
  Speaker 1: the cycle, but right now that the industry is fairly profitable,
• 3:23
  Speaker 1: they're fairly efficient, and they're figuring out how to work
• 3:26
  Speaker 1: in a world where it's, um, we're remote. Is part
• 3:29
  Speaker 1: of the part of the part of the narrative on Paul.
• 3:32
  Speaker 1: Weren't we just talking aboutale about bonuses, Like last year
• 3:35
  Speaker 1: everybody was like, pay me double and this year it's like,
• 3:39
  Speaker 1: please give me what you gave me last year. If
• 3:42
  Speaker 1: is that not the case? Chris? You know, talent is
• 3:45
  Speaker 1: always going to be in demand. If if if good talent.
• 3:47
  Speaker 1: We always want to pay for talent. Um, but there's
• 3:51
  Speaker 1: still choices out there. A mobility is pretty high, but um,
• 3:55
  Speaker 1: you know, but talent is is something that that is
• 3:58
  Speaker 1: at a premium right now for sure. Hey, Chris, you
• 4:00
  Speaker 1: know what, I'm really a fan of the kind of
• 4:02
  Speaker 1: the you know, the small cap, the regional banks, the
• 4:05
  Speaker 1: mid cap banks, and I know for that business model,
• 4:07
  Speaker 1: loan growth is a big revenue driver. Talk to us
• 4:10
  Speaker 1: about loan growth out there. Are we seeing good signs?
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  Speaker 1: Where is it? Yeah, that's that's a great question. Um,
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  Speaker 1: you know what we've seen over the past several quarters.
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  Speaker 1: Is it building in the economy of loan demand? And
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  Speaker 1: part of it's coming out of COVID part of its
• 4:23
  Speaker 1: inventory is being rebuilt. But what we saw last quarter
• 4:27
  Speaker 1: and what we see into the back half of the
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  Speaker 1: year is we're seeing solid double digit loan growth and
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  Speaker 1: so you put that together with the benefit of higher
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  Speaker 1: rate and you get this dynamic, a one two punch
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  Speaker 1: of accelerating revenue growth. So um, you know, there are
• 4:40
  Speaker 1: questions about whether we are late cycle and whether the
• 4:43
  Speaker 1: banks should should be growing this quickly, but we've been
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  Speaker 1: in such an unusual period where loan demand hasn't been
• 4:49
  Speaker 1: with us that that we're finally starting to see it,
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  Speaker 1: and we think we think the banks have learned a
• 4:53
  Speaker 1: lesson in terms of underwriting and the quality of the
• 4:56
  Speaker 1: loans are putting under bounce she Chris Villanova, how's her?
• 5:01
  Speaker 1: I know you played baseball there? How's the hoops team
• 5:03
  Speaker 1: going to be the year? It's a transition year? Transition year?
• 5:08
  Speaker 1: Wait a minute, that's what you some companies say about
• 5:11
  Speaker 1: you know there. You can't do a transition year at Villanova.
• 5:14
  Speaker 1: By the way, what was it like playing college baseball?
• 5:19
  Speaker 1: I've always been it's kind of mysterious because everybody plays
• 5:21
  Speaker 1: either basketball or football, you know, maybe soccer if you're
• 5:25
  Speaker 1: kind of a stoner. But what's the baseball crowd like,
• 5:28
  Speaker 1: because I've always wondered about that. You know, it's a
• 5:31
  Speaker 1: it's a great group of guys, um. But but make
• 5:34
  Speaker 1: no mistake about it's a basketball school. Um. It's been
• 5:37
  Speaker 1: a basketball school and and we are going to have
• 5:39
  Speaker 1: a good year for the basketball team. It's just our expectations.
• 5:41
  Speaker 1: We've been spoiled over the past decade with Jay. Yeah,
• 5:44
  Speaker 1: Jay right, the great, great coach retired kind of unexpectedly. There.
• 5:48
  Speaker 1: I wonder where he's gonna land next. Chris McGrady, thanks
• 5:51
  Speaker 1: so much for joining us. He's head of US bank
• 5:53
  Speaker 1: Research and that means something, folks, because KBW they are
• 5:55
  Speaker 1: focused exclusively on the banking sector, research and investment banking.
• 6:01
  Speaker 1: KBW now is a staple company and steples a good
• 6:04
  Speaker 1: regional investment bank that maybe some people don't know of,
• 6:07
  Speaker 1: but they've been growing. They focus on kind of the
• 6:09
  Speaker 1: mid size um companies out there, good investment banking, good research,
• 6:14
  Speaker 1: and their acquisition of k b W made them an
• 6:17
  Speaker 1: instant player in covering all things financial services. So good
• 6:21
  Speaker 1: getting Chris McGrady on there. You know, a couple of
• 6:27
  Speaker 1: maxims I learned early on in my careers. Don't fight
• 6:31
  Speaker 1: the tape and don't fight the Fed. Well, the FEDS
• 6:35
  Speaker 1: raising rates not good, but the tape has been going
• 6:38
  Speaker 1: up for the last four or five six weeks. I
• 6:41
  Speaker 1: don't know what's going on, but hopefully our next guest does.
• 6:43
  Speaker 1: Lizzie Evans, managing partner Evans may Wealth. She got her
• 6:47
  Speaker 1: undergraduate degree from Indiana University, so maybe she can tell us,
• 6:51
  Speaker 1: Matt what a hoosier is, because I have no idea
• 6:53
  Speaker 1: what no one knows what. Lizzie, what are you doing
• 6:56
  Speaker 1: with this market here? What are you telling your clients here?
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  Speaker 1: Good morning, Paul and Matt. Excited to be here. UM this,
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  Speaker 1: you know, I think that we've seen what's you know,
• 7:08
  Speaker 1: what's the out look for the markets? We've seen are
• 7:10
  Speaker 1: very welcome reprieve in the markets over the last six
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  Speaker 1: weeks to really just an absolutely brutal first half of
• 7:17
  Speaker 1: the year. But you know, I think that, um, we
• 7:21
  Speaker 1: are certainly cautiously optimistic for the for the second half
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  Speaker 1: of the year, but I expect, well, we'll volatility is
• 7:28
  Speaker 1: here to stay. I think we'll have a lot of
• 7:30
  Speaker 1: volatility surrounding inflation and economic data points. So from an
• 7:35
  Speaker 1: investment standpoint, I think you have to be very selective
• 7:37
  Speaker 1: and you have to focus on quality. Know what you own,
• 7:41
  Speaker 1: know why you own it? All right? So what is
• 7:44
  Speaker 1: quality out there? What do you want to focus on?
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  Speaker 1: I think you need to, you know, you need to
• 7:50
  Speaker 1: be careful about making a broad call about the market
• 7:54
  Speaker 1: or a sector style of investment. You know. I think
• 7:57
  Speaker 1: if you think about how dollars will be spent if
• 8:01
  Speaker 1: the economy continues to soften, what what are what will
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  Speaker 1: customers cut? What won't they cut? What will CFOs or
• 8:08
  Speaker 1: business line managers cut? What won't they cut? So, in essence,
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  Speaker 1: you want to have companies that are the best, most
• 8:15
  Speaker 1: indispensable businesses in their particular sector or industry. All right, Lizzie,
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  Speaker 1: I mean I think I'm probably like a lot of
• 8:22
  Speaker 1: investors where my investment outlook has kind of been shaped
• 8:25
  Speaker 1: by the whole time period following the Great Financial Crisis,
• 8:29
  Speaker 1: when my portfolio did great because I just saw an
• 8:32
  Speaker 1: Apple and Amazon and the Microsoft, the big growth names,
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  Speaker 1: and then there was this rotation into some of the
• 8:38
  Speaker 1: cyclical names, maybe the reopening trades. I don't know, but
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  Speaker 1: I think I just feel more comfortable in lately owning
• 8:46
  Speaker 1: those big cap growth names are those companies you're talking about.
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  Speaker 1: Do you like my strategy? Well, I think I do.
• 8:54
  Speaker 1: I like the you know, particularly how much a lot
• 8:57
  Speaker 1: of the big mega cap text doox have been hit
• 9:00
  Speaker 1: since the first of the year. You know, you look
• 9:02
  Speaker 1: at Microsoft, Microsoft off it's high, Amazon's percent off its high,
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  Speaker 1: Google's twenty three percent off its high. Disney had a
• 9:12
  Speaker 1: great report. Um they're really, you know, finally showing signs
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  Speaker 1: of some resiliency both across parks and Disney plus or
• 9:20
  Speaker 1: streaming percent off its tie. So I think there are
• 9:23
  Speaker 1: certainly some companies that offer attractive values. But you know,
• 9:27
  Speaker 1: I think you want to be careful about moving in
• 9:31
  Speaker 1: or out of Do you have growth names and then
• 9:33
  Speaker 1: do you go into a more defensive play. I think
• 9:35
  Speaker 1: you need to have a balance because just like timing
• 9:38
  Speaker 1: in the market, you can't time when a style of
• 9:42
  Speaker 1: investment or a sector will outperform. So the key is
• 9:45
  Speaker 1: to know the companies you have and be selective as
• 9:48
  Speaker 1: opposed to just making you know, a broad call across
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  Speaker 1: a style or um a sector. Is the FED driving
• 9:56
  Speaker 1: this market? I mean, is it all about the FED
• 9:58
  Speaker 1: or um? Is it really the underlying economy? And earnings.
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  Speaker 1: I think all eyes have been on the FED, you know,
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  Speaker 1: all year. Certainly the CPI pp I figures we've seen
• 10:11
  Speaker 1: this week are encouraging. You know, for the last six weeks,
• 10:14
  Speaker 1: if you look at the softening and commodities future pricing,
• 10:17
  Speaker 1: we thought we had seen peak inflation. So I think
• 10:19
  Speaker 1: that's certainly that combined with a good earning season and
• 10:23
  Speaker 1: really the market thinking we're going to have somewhat of
• 10:25
  Speaker 1: a catastrophic earnings season has been positive. But um, you know,
• 10:31
  Speaker 1: I think there is still uncertainty as it relates to
• 10:34
  Speaker 1: the said there's still uncertainty geopolitically. Um, there there's a
• 10:39
  Speaker 1: lot of risks out there. So you know, I think
• 10:42
  Speaker 1: that right now where someone in a sideways trading pattern,
• 10:45
  Speaker 1: and we're likely going to be there until the fall
• 10:47
  Speaker 1: when we have some more certainty. So fe're earlier point.
• 10:51
  Speaker 1: Know what you own, know why you own it, owned
• 10:54
  Speaker 1: companies that are going to continue to do well even
• 10:57
  Speaker 1: in periods of time when there is prolonged economic slow down.
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  Speaker 1: All right, Lizzie, thanks so much for joining us. Really
• 11:03
  Speaker 1: appreciate getting your thoughts there. Lizzie Evans, managing partner for
• 11:06
  Speaker 1: Evans may Wealth. We think about the last seven days,
• 11:14
  Speaker 1: pretty good news on the economic front. We've had good
• 11:18
  Speaker 1: jobs number, We've had some better and expected inflation data
• 11:22
  Speaker 1: both at the consumer and producer level. Then today we
• 11:25
  Speaker 1: get the University of Michigan UH sentiment survey came in
• 11:28
  Speaker 1: better than expected in a nice improvement month the month.
• 11:31
  Speaker 1: So for a lot of market participants, a lot of
• 11:33
  Speaker 1: market watchers, the question now becomes, what is this economic
• 11:36
  Speaker 1: data mean to our Federal Reserve? And is our way
• 11:39
  Speaker 1: for them to screw it up? Maybe? Vince Signarella, Global
• 11:42
  Speaker 1: macro Strategistrom Bloomberg News, Hey, Fence, do you have any
• 11:45
  Speaker 1: opinion on this? Uh? Just a little um. Let's get
• 11:49
  Speaker 1: let's take a look at the fed's track record and forecasting.
• 11:52
  Speaker 1: And Paul, you've been on the street. If if you
• 11:54
  Speaker 1: traded like that, would would you have lasted long in
• 11:57
  Speaker 1: the trading room? So? Uh, neither would. I think we
• 12:02
  Speaker 1: would have probably gotten the hook after about three months
• 12:04
  Speaker 1: of losses because that's what the FED forecasts would have resulted.
• 12:09
  Speaker 1: I just want to make a point to this, I
• 12:11
  Speaker 1: think is a really serious point that no one on
• 12:13
  Speaker 1: the street is talking about at all. No one in
• 12:15
  Speaker 1: the media is talking about Today on the CNBC Interview,
• 12:19
  Speaker 1: Barkin was asked about the balance sheet and he gave
• 12:22
  Speaker 1: maybe the most NSS answer for the summer when he said,
• 12:25
  Speaker 1: we must believe the balance sheet shrinking has a tightening effect.
• 12:29
  Speaker 1: The real question is what is that tightening effect? And
• 12:32
  Speaker 1: every time a FED at representative as an asked that question,
• 12:35
  Speaker 1: they said, we don't know. So how in the face
• 12:38
  Speaker 1: of lower inflation data do you continue to high rates
• 12:42
  Speaker 1: blindly without knowing how the Fed's balance sheet shrinking is
• 12:46
  Speaker 1: going to tighten rates because they will tighten financial conditions.
• 12:50
  Speaker 1: I find that just uncontrocal. They always say it's a
• 12:52
  Speaker 1: blunt instrument, right, but it is still shocking to hear
• 12:55
  Speaker 1: that the FED knows so little about the effects of
• 12:59
  Speaker 1: it's know and that's that's actually not correct. The fact
• 13:03
  Speaker 1: that it's a blunt instrument is because they're in the
• 13:06
  Speaker 1: in the belly of the curve, not in the short
• 13:08
  Speaker 1: end of the curve. We grew up with um repurchase
• 13:12
  Speaker 1: agreements and reverse repurchase agreements, which is what the FED
• 13:15
  Speaker 1: did New York set did almost on a weekly basis
• 13:18
  Speaker 1: to try to control money supply, or realistically, the the
• 13:23
  Speaker 1: the base monetary base, the fat doesn't really control the
• 13:25
  Speaker 1: money supply, and they would do that almost on a
• 13:28
  Speaker 1: weekly basis and set funds. Traders always took that as
• 13:31
  Speaker 1: an indication of whether the said was leaning a little
• 13:33
  Speaker 1: barish or leading or leaning leading. Dubbish, Um, it's not
• 13:38
  Speaker 1: a blunt instrument. Raising the Fed funds rate is to
• 13:40
  Speaker 1: blunt instrument. It's shocking to me the policy they're using
• 13:44
  Speaker 1: to try to control us. So, Vince, what do you think,
• 13:47
  Speaker 1: given the economic data we've seen recently, what do you
• 13:51
  Speaker 1: think the Reserve should do? I think they should be
• 13:55
  Speaker 1: continuing to reduce the balance sheet. I think a really
• 13:59
  Speaker 1: good for them would be to do a reverse operation
• 14:02
  Speaker 1: twist and bring their purchases into the short end of
• 14:05
  Speaker 1: the curve where they belong, not into the belly of
• 14:07
  Speaker 1: the curve. And then they have two choices. If they
• 14:10
  Speaker 1: think things are should should be tightened, they can let
• 14:14
  Speaker 1: those short end maturities just roll off very comfortably. If
• 14:17
  Speaker 1: they think the economy needs help, they can repurchase them
• 14:20
  Speaker 1: very easily in the short end of the curve and
• 14:23
  Speaker 1: get the heck out in the middle of the market
• 14:24
  Speaker 1: where they don't belong. Let the market set rates where
• 14:27
  Speaker 1: medium term rates should be so, and why don't they?
• 14:29
  Speaker 1: I mean, I have no clue, to be honest, I
• 14:32
  Speaker 1: really don't. I don't see how they keep coming things that.
• 14:36
  Speaker 1: You know, they keep talking about inflation and we need
• 14:39
  Speaker 1: to see multiple prints with the last print was zero,
• 14:42
  Speaker 1: no inflation. So keep hiking rates in the face of
• 14:46
  Speaker 1: rolling over inflation. You know they have daily saying it's structural.
• 14:50
  Speaker 1: How did it become structural in six months? We've had
• 14:53
  Speaker 1: zero inflation to fifteen years, six months and six months
• 14:56
  Speaker 1: of inflation. Now it's structural. It makes no sense, I
• 14:59
  Speaker 1: mean to make all right, This is my suggestion to
• 15:02
  Speaker 1: you call Tom Keane, book a seat on the surveillance
• 15:05
  Speaker 1: golf stream going out to Jackson Hole and see if
• 15:07
  Speaker 1: you can talk some sense into these folks. What do
• 15:09
  Speaker 1: you think you know, if they would let me, I would,
• 15:12
  Speaker 1: but I think they would probably want to just bury
• 15:14
  Speaker 1: me somewhere in the background. They wan't want me getting
• 15:16
  Speaker 1: somewhere out in the desert. Is there? And if you
• 15:19
  Speaker 1: put your trader hat on, is there a way for
• 15:23
  Speaker 1: investors to make money in this market if they, like you,
• 15:27
  Speaker 1: think the FED is completely off base? Yeah, I think
• 15:30
  Speaker 1: there's a great opportunity. I think there's a couple of
• 15:32
  Speaker 1: things we're gonna say. I think we're seeing producer prices
• 15:34
  Speaker 1: fall faster than the prices that are being passed along.
• 15:37
  Speaker 1: We're seeing a real nice movement this morning that no
• 15:41
  Speaker 1: one's talking about, how import prices and export prices are
• 15:44
  Speaker 1: dropping considerably. That's profitable for companies on both sides of
• 15:48
  Speaker 1: the coin, especially the large caps, because as the market
• 15:51
  Speaker 1: continues to gain, the dollar is gonna fall and that's
• 15:53
  Speaker 1: going to give them some more leverage because those fellows
• 15:56
  Speaker 1: just don't hedge, and whenever the dollars goes up, they
• 15:58
  Speaker 1: lose money. So reversal of that trend going into the
• 16:01
  Speaker 1: fourth quarter, I think it's going to be positive earnings.
• 16:04
  Speaker 1: I think it's gonna be positive for stocks. And the
• 16:06
  Speaker 1: folks who are watching this rally and continue to call
• 16:08
  Speaker 1: it a bear market rally, I think they're gonna be
• 16:10
  Speaker 1: chasing this all the way through December, trying to get
• 16:14
  Speaker 1: their their books looking a little bit more like SMP
• 16:17
  Speaker 1: returns because they're gonna miss this book. So, so you're
• 16:19
  Speaker 1: a bold despite the fact that the FED um continues
• 16:23
  Speaker 1: on its hiking path, or you think that the FED
• 16:26
  Speaker 1: is gonna at some point um turn tail and run
• 16:29
  Speaker 1: back down. I think I think after September they're going
• 16:31
  Speaker 1: to realize they've made another policy mistake and just stop. UM.
• 16:35
  Speaker 1: There's really no reason to RaSE seventy five basis points September.
• 16:38
  Speaker 1: I believe they will, and I believe the best trade
• 16:41
  Speaker 1: on the street after September is going to be to
• 16:44
  Speaker 1: buy the short end because when the Fed realizes they've
• 16:46
  Speaker 1: pushed it too far, UM, the short end of the
• 16:50
  Speaker 1: curve is going to rally because they don't need to
• 16:52
  Speaker 1: be this aggressively oversold, expecting the Fed to continue to
• 16:56
  Speaker 1: raise raise rates. So the two year right now, let's
• 16:59
  Speaker 1: call that three to five. Where do you think that
• 17:01
  Speaker 1: goes by the end of the year. I think, for
• 17:03
  Speaker 1: sure back below three percent. It needs to be closer
• 17:05
  Speaker 1: to two point seven five. I think you'll actually see
• 17:09
  Speaker 1: something of an inversion between the FED funds rate and
• 17:12
  Speaker 1: the two year yield when as the marketers tries to
• 17:16
  Speaker 1: tell the Fed and insist to the Fed that it's
• 17:18
  Speaker 1: too tight, that you could very well push this economy
• 17:21
  Speaker 1: into a recession, and if they do so, they will
• 17:24
  Speaker 1: start to reverse and there's no way that the two
• 17:26
  Speaker 1: year you'll stay at these levels longer in May. I mean,
• 17:29
  Speaker 1: there's there's no real rush to lower, to be going
• 17:31
  Speaker 1: out into ten years and buying at at you know,
• 17:35
  Speaker 1: two point two point seven, um. But to have a
• 17:39
  Speaker 1: two year at three and a quarter inverted with Hen's
• 17:42
  Speaker 1: it doesn't make sense to me. But has the FED
• 17:45
  Speaker 1: always been um this political? Has there ever been? Um?
• 17:50
  Speaker 1: I know there's been, like high level economists at the
• 17:53
  Speaker 1: FED obviously, um, even in recent memory. But what about traders?
• 17:57
  Speaker 1: I mean, has anybody in there ever said done? No? No,
• 18:02
  Speaker 1: With all due respect to the Federal Reserve, they glorified academics,
• 18:05
  Speaker 1: I mean their college professors. They start out that way,
• 18:08
  Speaker 1: they've become an economist, and then they end up back
• 18:10
  Speaker 1: in college teaching or unless you're lucky like Bernanke or Clarada,
• 18:15
  Speaker 1: you joined the one percent and go work for Pimco. Well,
• 18:19
  Speaker 1: or I mean Powell also wasn't a professor, right, No, No,
• 18:23
  Speaker 1: he's probably the only one on the board, but you know,
• 18:26
  Speaker 1: I think he's I think they're so petrified they're going
• 18:29
  Speaker 1: to be tattooed with the with the burns a FED
• 18:33
  Speaker 1: situation of the seventies which really let inflation get out
• 18:36
  Speaker 1: of control, and you have to remember the difference females
• 18:38
  Speaker 1: two times is significant because Burns was very political. Every
• 18:41
  Speaker 1: time something in cp I started to rise, he instructed
• 18:45
  Speaker 1: the economists that defended to take it out of the equation. Alright, Vince,
• 18:49
  Speaker 1: awesome stuff as always. I mean that is a strong
• 18:53
  Speaker 1: bullish call. They're very clear. By the short end. Uh,
• 18:57
  Speaker 1: he's saying he's gonna see some good fourth quarter earnings
• 18:59
  Speaker 1: as well. We'll see here Vincegnarella, global macro strategist for
• 19:03
  Speaker 1: Bloomberg News, with his hot take on these markets. It's
• 19:10
  Speaker 1: gonna run next, guess Hugh Johnson. He's chairman of Hugh
• 19:13
  Speaker 1: Johnson Economics. Hugh, I was just mentioning you for the
• 19:16
  Speaker 1: last seven days, starting with the jobs data and then
• 19:18
  Speaker 1: inflation data and today with the mission sentiment. If I'm
• 19:22
  Speaker 1: the economy, I'm feeling pretty good here. What's what's your takeaway? Well,
• 19:26
  Speaker 1: it's pretty important. And it's important obviously because one of
• 19:29
  Speaker 1: the big focuses has been on obviously what the federal
• 19:32
  Speaker 1: Reserve is going to do in the future, most importantly
• 19:36
  Speaker 1: probably September. The focus is on September, and the question
• 19:39
  Speaker 1: is seventy five basis points are fifty basis points, and
• 19:43
  Speaker 1: then of course what happens after that, particularly when we
• 19:45
  Speaker 1: get to two thousand twenty three, that's really going to
• 19:49
  Speaker 1: determine the outcome for the economy. And and candidly that
• 19:53
  Speaker 1: the numbers that we're getting not so much. The employment numbers,
• 19:56
  Speaker 1: which were very good, are very strong, and I think
• 19:59
  Speaker 1: they've got a soften up and they will soften up.
• 20:01
  Speaker 1: But obviously the inflation numbers were well below expectations. No
• 20:06
  Speaker 1: matter which inflation number you look at, consumer prices and
• 20:09
  Speaker 1: producer prices, uh, the export and import prices today softer
• 20:14
  Speaker 1: than expected, and the question is will the Federal Reserve
• 20:16
  Speaker 1: respond to those softer numbers. Keep in mind those were
• 20:20
  Speaker 1: softer numbers for the month in July. We're going to
• 20:23
  Speaker 1: see the August numbers in September before that meeting. And
• 20:26
  Speaker 1: I might add importantly that taking a look at some
• 20:30
  Speaker 1: of the more recent sort of data and commodity prices
• 20:33
  Speaker 1: and particularly food prices, agriculture prices, and non agriculture prices,
• 20:37
  Speaker 1: you might get some more numbers inflation numbers for the
• 20:41
  Speaker 1: month of August in the middle of September, just before
• 20:44
  Speaker 1: the September twenty one meeting that are also very good
• 20:47
  Speaker 1: or very soft soft consumer price index numbers not only
• 20:53
  Speaker 1: the month, but also on a year over year basis
• 20:55
  Speaker 1: So the Fed, the Fed is going to have to
• 20:58
  Speaker 1: grapple with some really really a tough decision. September is
• 21:01
  Speaker 1: going to be a tough decision. Well, we were just
• 21:04
  Speaker 1: talking Vince Ignarella. He says he still expects the FED
• 21:07
  Speaker 1: to go seventy five. Even if they go fifty, um,
• 21:11
  Speaker 1: they're still on a pretty steep rate rise, rate hiking path.
• 21:16
  Speaker 1: Can they hold that up if these numbers continue this often,
• 21:19
  Speaker 1: especially if the um G d P numbers get softer
• 21:23
  Speaker 1: into or will they have to cut Let's not say
• 21:27
  Speaker 1: cut yet, let's just say reduce the number of increases.
• 21:32
  Speaker 1: The real question is I think, first of all, I
• 21:34
  Speaker 1: think seventy five basis points is too much in September,
• 21:37
  Speaker 1: and when we get there, it'll end up being fifty.
• 21:39
  Speaker 1: But it's a tough call. Obviously, I think fifty. And
• 21:42
  Speaker 1: the question is, and I think we'll see in November
• 21:45
  Speaker 1: and December. Really, I think the question is is when
• 21:49
  Speaker 1: we get into two thousand twenty three, and right now,
• 21:52
  Speaker 1: the consensus expectation or guests is that they're going to
• 21:56
  Speaker 1: start to reduce rates when we get to the second quarter,
• 21:59
  Speaker 1: maybe the third order, and I think that's probably a
• 22:01
  Speaker 1: good call, because I think we're going to see more
• 22:04
  Speaker 1: better inflation numbers, or inflation numbers that get more towards
• 22:07
  Speaker 1: their target. Forget the two percent target, but just inflation
• 22:11
  Speaker 1: numbers that are better. And most importantly, you're gonna get
• 22:14
  Speaker 1: employment numbers, which is the best measure of the economy.
• 22:18
  Speaker 1: You're gonna get employment numbers. They're gonna soften and soften
• 22:21
  Speaker 1: quite a bit as we move through two thousand twenty
• 22:24
  Speaker 1: two and two thousand twenty three. They're gonna it's certainly
• 22:26
  Speaker 1: in the in the room of public opinion, they're necessarily
• 22:29
  Speaker 1: going to be left with, I think no option except
• 22:32
  Speaker 1: to either put a whole on rates or probably start
• 22:35
  Speaker 1: to reduce in the second quarter of two thousand twenty three.
• 22:39
  Speaker 1: Things are slowing down. The economy is slowing down, inflation
• 22:42
  Speaker 1: is going to be coming down, and they all headed
• 22:44
  Speaker 1: in the right direction. But this is gonna be this
• 22:46
  Speaker 1: is gonna be a really tough economy for the remainder
• 22:49
  Speaker 1: of two thousand twenty two and twenty three. It's gonna
• 22:51
  Speaker 1: be kind of an on again, off again one soft
• 22:54
  Speaker 1: landing after another soft landing, maybe a hard landing in
• 22:57
  Speaker 1: there somewhere in some of the quarters. All right, Hugh, great,
• 23:00
  Speaker 1: great stuff. As always, you've been doing us a long time.
• 23:04
  Speaker 1: You've got great perspective, um and we always appreciate you
• 23:07
  Speaker 1: taking some time and sharing that with us. Hugh Johnson,
• 23:09
  Speaker 1: Chairman of Hugh Johnson Economics. All let's talk a little healthcare,
• 23:16
  Speaker 1: maybe a little biotech. Some smart people there, and boy,
• 23:19
  Speaker 1: they really delivered. I'm saying they they being the healthcare industry,
• 23:22
  Speaker 1: the farming industry, the biotech industry. Man on this COVID
• 23:26
  Speaker 1: nineteen vaccines. I mean, how good were those folks there?
• 23:29
  Speaker 1: So yeah, gotta gotta give them props, as we do.
• 23:31
  Speaker 1: Daphne Zohar, founder and CEO of pure Tech Health, joins us. Daphnie,
• 23:35
  Speaker 1: thanks for taking the time to check in with us,
• 23:38
  Speaker 1: talk to us about what pure tech Health is. What
• 23:40
  Speaker 1: are you guys doing over there? Hi? Following that, thanks
• 23:44
  Speaker 1: so much for having me on so up youre Tech
• 23:46
  Speaker 1: is a biofarma company that's dedicated to changing the treatment
• 23:49
  Speaker 1: paradigm for patients by bringing forward new classes of medicines
• 23:53
  Speaker 1: that address devastating diseases. So like what I mean when
• 23:57
  Speaker 1: I think of the worst cancer, obviously is there, but
• 24:00
  Speaker 1: Alzheimer's and Parkinson's are close behind. Yes, So we've been
• 24:04
  Speaker 1: working on some really serious diseases, like for example, oncology.
• 24:10
  Speaker 1: UM we have been working on schizophrenia. For example, one
• 24:13
  Speaker 1: of the programs that we invented UH and which we
• 24:17
  Speaker 1: advanced through a company called Kiruna, just had really stellar
• 24:21
  Speaker 1: results this week, which we believe could be game changing
• 24:25
  Speaker 1: for patients living with schizophrenia. There's twenty one million people
• 24:28
  Speaker 1: in the world who have schizophrenia, and many of the
• 24:33
  Speaker 1: existing drugs have significant issues that UM and and this
• 24:38
  Speaker 1: new treatment actually offers both UH potentially improved efficacy, but
• 24:44
  Speaker 1: also UM really doesn't have the debilitating side effect that
• 24:48
  Speaker 1: those other treatments have. The side effects are they just
• 24:50
  Speaker 1: sort of turned into zombies when they take the medicine, right, Yeah,
• 24:53
  Speaker 1: and also really significant weaken and you know, for UM,
• 24:57
  Speaker 1: if you think about it, a lot of time schizophrenia
• 24:59
  Speaker 1: gets diagn in early adulthood, and you know, people can
• 25:03
  Speaker 1: gain thirty to fifty pounds on some of the existing medication.
• 25:07
  Speaker 1: So UH, this is you know, we believe and many
• 25:10
  Speaker 1: others believe potentially a big breakthrough. And it all started
• 25:14
  Speaker 1: out pure tech and when we were looking at schizophrenia
• 25:18
  Speaker 1: and UM and this is something that we've done multiple times,
• 25:21
  Speaker 1: is that we'll look at an area, work with some
• 25:23
  Speaker 1: of the leading experts and and really think of where
• 25:27
  Speaker 1: we can build on validated biology but have an invented
• 25:31
  Speaker 1: stepth that really unlocks the new class of medicine. And
• 25:35
  Speaker 1: what I'm proud to say is in terms of our
• 25:37
  Speaker 1: track record of clinical development, our record of clinical success
• 25:41
  Speaker 1: is now you know, five times in the industry average,
• 25:43
  Speaker 1: and we've now taken twenty seven new therapeutics and therapeutic
• 25:47
  Speaker 1: candidates forward, of which UM sixteen or in the clinic,
• 25:50
  Speaker 1: and two have been granted FDA new regulatory approvals. I'd
• 25:55
  Speaker 1: love to to say more about pure tech, but also
• 25:57
  Speaker 1: happy to talk about the industry. It's just such an
• 26:00
  Speaker 1: exciting area. And as you mentioned, UH, the industry was
• 26:03
  Speaker 1: able to really change people's lives in areas like vaccines,
• 26:07
  Speaker 1: but we're also there are many other major needs including
• 26:12
  Speaker 1: you know, for example, oncology, all times disease as you
• 26:14
  Speaker 1: mentioned Parkinson's, rare diseases, childhood pediatric diseases, so it's an
• 26:20
  Speaker 1: industry that is one that's really cool to work in
• 26:23
  Speaker 1: because we get to work on these big problems with
• 26:25
  Speaker 1: smart people, as you said, UM, and it's created huge
• 26:28
  Speaker 1: value for patients, but I think also poised to outperform
• 26:31
  Speaker 1: for investors generally. So are we going to see cures
• 26:35
  Speaker 1: in our lifetime for these big diseases? I mean it's
• 26:38
  Speaker 1: something like schizophrenia or cancer curable? Yeah, well, and I
• 26:45
  Speaker 1: think what we've seen as a tremendous improvement in UH
• 26:49
  Speaker 1: moving for example, many forms of cancer from what we're
• 26:53
  Speaker 1: previously fatal to now you know, chronic conditions, so people,
• 26:59
  Speaker 1: you know, are a to live with these conditions longer.
• 27:01
  Speaker 1: And you know, we've seen, for example, companies like Vertex
• 27:04
  Speaker 1: secure cystic fibrosis in the case of UM schizophrenia. I
• 27:09
  Speaker 1: think this is what we saw this week, which I
• 27:12
  Speaker 1: think also really will impact the sector. UH is something
• 27:17
  Speaker 1: that could really change the lives of the one million
• 27:21
  Speaker 1: people who are living with schizophrenia. So I think definitely
• 27:24
  Speaker 1: making a change in people's lives. He definite. One of
• 27:26
  Speaker 1: the things I noticed, at least with this whole COVID
• 27:28
  Speaker 1: in the vaccines and was the speed with which they
• 27:31
  Speaker 1: were able to get to market, and does this mark
• 27:34
  Speaker 1: a change perhaps and how the FDA will approve treatments, therapeutics, vaccines,
• 27:40
  Speaker 1: i e. Make it faster for some of these products
• 27:43
  Speaker 1: to get the market, to get the testing and all
• 27:45
  Speaker 1: that kind of stuff. I think what we've seen is
• 27:48
  Speaker 1: that FDA can move really quickly when it's necessary, and
• 27:52
  Speaker 1: they're able to prioritize areas of importance. And recently, for example,
• 27:56
  Speaker 1: we saw that FDA scent really positive regulatory signal to
• 28:01
  Speaker 1: key areas of our sector. For example that inherto breast
• 28:04
  Speaker 1: cancer drug was approved in two weeks UH, and part
• 28:07
  Speaker 1: of that was thanks to the cancer moon shot. So
• 28:09
  Speaker 1: we see FDA able to move quickly when necessary. But
• 28:14
  Speaker 1: I also think what we saw with COVID is the
• 28:16
  Speaker 1: industry collaborating, people sharing data. Everything was happening in real time,
• 28:21
  Speaker 1: sort of for the good of humanity. And I believe
• 28:24
  Speaker 1: that the industry has learned from that and UH is
• 28:27
  Speaker 1: able to move things forward, potentially, you know, in a
• 28:29
  Speaker 1: more accelerated fashion. All right, Daphne Great Stuff really appreciated
• 28:33
  Speaker 1: Daphne's Zohark, founder and CEO pure Tech Health Trades on
• 28:37
  Speaker 1: the London docket change pr TC, but they are based
• 28:41
  Speaker 1: in Boston, Massachusett. That seems to be where a lot
• 28:43
  Speaker 1: of the really good biotech companies come from. Thanks for
• 28:48
  Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
• 28:51
  Speaker 1: listen to interviews of Apple Podcasts, or whatever podcast platform
• 28:55
  Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
• 28:59
  Speaker 1: Miller nineteen seventy three, and I'm Fall Sweeney. I'm on
• 29:02
  Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
• 29:05
  Speaker 1: catch us worldwide at Bloomberg Radio