Latest / Bloomberg Intelligence / Apple Ramps Up India iPhones, Hot U.S CPI Reading

Transcript

Apple Ramps Up India iPhones, Hot U.S CPI Reading · Bloomberg Intelligence

0:00
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:09
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
0:13
Speaker 2: weekdays at ten am Eastern on Apple car Play and
0:16
Speaker 2: Android Auto with the Bloomberg Business App. Listen on demand
0:19
Speaker 2: wherever you get your podcasts, or watch us live on YouTube.
0:25
Speaker 3: You're listening to Bloomberg Intelligence Radio. I'm Alex Steel alongside
0:28
Speaker 3: Paul Sweeney. We cover all the top news for you
0:32
Speaker 3: with our Bloomberg Intelligence analysts. They cover two thousand companies
0:35
Speaker 3: and one hundred and thirty industries worldwide, and we're going
0:37
Speaker 3: to do that now with one of them in relation
0:39
Speaker 3: to Apple, So that stock is down to over one percent.
0:42
Speaker 3: It's a tough tape for sure. But the news overnight
0:44
Speaker 3: was that Apple has assembled about fourteen billion dollars worth
0:47
Speaker 3: of iPhones in India in the last fiscal year. So
0:50
Speaker 3: we want to get perspective with anurag Rana. He's Bloomberg
0:53
Speaker 3: Intelligence senior technology analyst. He's the guy we go to
0:57
Speaker 3: for all these kind of headlines on AOG. Always a pleasure.
1:00
Speaker 3: Fourteen billion dollars worth of phone sounds like a lot,
1:03
Speaker 3: is it.
1:04
Speaker 4: No, it's not a whole lot, but at the end
1:06
Speaker 4: of the day. You know, one of the things we
1:08
Speaker 4: have seen that over the last two and a half
1:10
Speaker 4: three years, Apple has been assembling its phone outside And
1:14
Speaker 4: you know, for us, the real reason for that is
1:18
Speaker 4: a couple of years ago there was a COVID big
1:20
Speaker 4: issue in China. It had an impact on some of
1:23
Speaker 4: the phones coming out, that had an impact on sales
1:27
Speaker 4: and so forth. Now having said that, that was one reason.
1:29
Speaker 4: Second Apple prior to the you know, you could say
1:33
Speaker 4: the COVID issue was completely dependent on China for all
1:37
Speaker 4: the assembly and their parts. Now what we are seeing
1:40
Speaker 4: is they are moving out of the assembly from China
1:44
Speaker 4: into other areas, mostly India. But one of the things
1:47
Speaker 4: I tell everybody at the same time, they still make
1:50
Speaker 4: most of the parts. So it's you know, if we
1:52
Speaker 4: ever get into a problem with China in terms of
1:55
Speaker 4: geopolitical issues, we still lean those parts to assemble the phone.
1:59
Speaker 4: It's not as if you know, those those parts are
2:01
Speaker 4: available all over the world.
2:03
Speaker 5: An I just wonder how you know investors in Apple
2:07
Speaker 5: view this China risk. Are they of the opinion I
2:09
Speaker 5: assume that if they own stock in the company there,
2:11
Speaker 5: they have some level of comfort with the China risk.
2:13
Speaker 6: Here.
2:14
Speaker 5: Did they just believe it's hey, you know, it's kind
2:16
Speaker 5: of a mutually beneficial relationship Apple and China that at
2:20
Speaker 5: the end of the day, that's what's going to keep
2:22
Speaker 5: everything moving.
2:24
Speaker 4: So well, I've seen two people, I mean two different buckets.
2:27
Speaker 4: One is, people are extremely concerned about the US China
2:30
Speaker 4: relationship in the long run. They obviously have you know,
2:33
Speaker 4: they don't want to deal with Apple or any other
2:36
Speaker 4: companies that you know, fall into that bucket. But the
2:39
Speaker 4: others said, listen, this is spart and parcel of the
2:41
Speaker 4: global world chain, supply chains, and most manufacturing companies are
2:45
Speaker 4: dependent on China. Like it or not. They seem to
2:48
Speaker 4: be okay with it, you know from our side, you know, yes, absolutely.
2:53
Speaker 4: The biggest risk that Apple faces from a stock point
2:57
Speaker 4: of view, from a revenue point of view, from a
2:59
Speaker 4: supply chain point view, is if something happens between the
3:02
Speaker 4: US and China, and we've talked about that quite a bit.
3:05
Speaker 4: But from a sales point of view, I think it
3:07
Speaker 4: is to me that's a bigger issue right now in
3:10
Speaker 4: the medium term, because China accounts for eighteen to twenty
3:13
Speaker 4: percent of total of Apples sale and frankly speaking, that
3:17
Speaker 4: is the big growth engine, and we have seen over
3:19
Speaker 4: the last twelve months of problems in that growth engine
3:22
Speaker 4: because of whahweh do we how.
3:25
Speaker 3: Much do they make these phones for in India versus China,
3:29
Speaker 3: versus other areas, and trying to get a sense of
3:31
Speaker 3: where they make, where the margins are, and what they
3:33
Speaker 3: look like.
3:34
Speaker 4: That's a very good question. And frankly speaking, we thought
3:37
Speaker 4: when they started making more phones in China or sorry
3:39
Speaker 4: in India, or we started seeing new phones coming out
3:42
Speaker 4: of that, that would have an impact on their gross margins.
3:45
Speaker 4: But they have managed it very well. And remember one
3:47
Speaker 4: of these things, it's the factories that they outsource their
3:50
Speaker 4: stuff to, and you know, it's kind of somebody else's headache.
3:54
Speaker 4: But in the end, you know, Apple will have to
3:56
Speaker 4: make some you could say concessions. But at the same time,
4:00
Speaker 4: so far we have not seen any impact on Apple's
4:03
Speaker 4: gross margins. I mean, surprisingly, we have seen them, you know,
4:06
Speaker 4: hold up very nicely over the last two years.
4:09
Speaker 5: Can you just kind of characterize the competitive landscape for
4:12
Speaker 5: Apple in China visa the Huawei and other phones here
4:16
Speaker 5: are they maintaining share, losing share, gaining share? How's Apple
4:20
Speaker 5: doing so?
4:21
Speaker 4: Apple has not done this you know, same number of
4:25
Speaker 4: sales as WAWE over the last twelve months. Now. There
4:27
Speaker 4: are two elements of it. One is the competitive landscape.
4:30
Speaker 4: People are choosing Chinese phone so over a foreign brand,
4:34
Speaker 4: So that's one aspect. The second aspect, which I'm hoping
4:37
Speaker 4: is probably you know correct in the long run for
4:39
Speaker 4: Apple's sake, is that Wawei didn't have a very you know,
4:42
Speaker 4: brand new phone for several years, and this is their
4:45
Speaker 4: first big new refresh, which is why people who have
4:48
Speaker 4: been using Quawei phones in the past are going out
4:50
Speaker 4: and refreshing their phone at a much faster clip. So
4:53
Speaker 4: that could be the second reason Apple is doesn't have
4:57
Speaker 4: that same you know, I would say, I mean, the
5:00
Speaker 4: cache is still there. But typically what I would do
5:03
Speaker 4: is if I have an Apple phone, you know, I'm
5:05
Speaker 4: doing everything on it, you know, chat and the pictures
5:08
Speaker 4: and every but in China, what happens is you do
5:10
Speaker 4: a whole lot of your transactions using the the you know,
5:14
Speaker 4: the the apps that you have or the super apps,
5:17
Speaker 4: and for that you can download those app in any ecosystem.
5:20
Speaker 4: So I would say, on a on a you know,
5:22
Speaker 4: competitive basis, you are less prone to be an Apple
5:25
Speaker 4: customer than you are in the Western world.
5:27
Speaker 3: Well that's interesting. So and then to that point is
5:30
Speaker 3: that what the regulation or the penalties in the EU
5:33
Speaker 3: in the US is going to force Apple to do
5:35
Speaker 3: an essence so it won't become that ecosystem in the
5:39
Speaker 3: same way.
5:40
Speaker 4: Well, there is no super app in the US that
5:42
Speaker 4: is very much like v chat. I mean you could
5:44
Speaker 4: you could say WhatsApp could be one of them. But
5:46
Speaker 4: frankly speaking, I mean Apple has done such a good
5:49
Speaker 4: job of uh you know, I would say, maintaining their
5:52
Speaker 4: customer base in the in the US and in Europe.
5:56
Speaker 4: That I mean, I don't I don't see that happening.
5:58
Speaker 4: That is certainly a new app comes in and people
6:01
Speaker 4: start using that over what's going on with Apple or
6:03
Speaker 4: the habits that they have right now?
6:05
Speaker 5: All right, Hona rock, I've got the iPhone eleven? Do
6:09
Speaker 5: I upgrade? Now? Do? I? Wait? What am I doing here?
6:13
Speaker 4: You should look at Wait till the September October, you
6:17
Speaker 4: know framework, Because one of the things is, as we
6:19
Speaker 4: talked about it last week, if in June they are
6:22
Speaker 4: able to go out and convince the world that they
6:24
Speaker 4: do have an AI play with new features coming in,
6:27
Speaker 4: then you would need a little bit more firepower in
6:30
Speaker 4: terms of the memory and the CPO that's going to
6:34
Speaker 4: which means the next phone will have a faster version
6:36
Speaker 4: of that. You know, I would wait for that because
6:39
Speaker 4: you know you will you will have both the both
6:41
Speaker 4: bigger memory as well as faster speeds.
6:44
Speaker 3: Interesting, see, that's what they get you right, Like, once
6:46
Speaker 3: you start, you can't leave that and closed ecosystem. It's
6:49
Speaker 3: definitely a thing. So what's the next catalyst now for Apple?
6:52
Speaker 3: What are you looking at? Well, any catalyst I guess
6:54
Speaker 3: would be.
6:54
Speaker 4: A big way. The June I mean that's it's Tune's
6:57
Speaker 4: Worldwide Developers conference where there are to talk about AI
7:01
Speaker 4: and what's a of Apple's AI strategy. That is the
7:04
Speaker 4: only thing that can actually put some fire in this
7:07
Speaker 4: particular you know, where is it down thirteen fourteen percent
7:10
Speaker 4: year a year todate Because other than that, I mean,
7:13
Speaker 4: we don't see China bouncing back this year, We don't
7:16
Speaker 4: see any major new product announcement, and obviously Apple Vision
7:20
Speaker 4: pro is not going to drive the overall growth rate
7:22
Speaker 4: of the company. So it's the iPhone and if there
7:26
Speaker 4: is anything that's out there that can force Paul to
7:28
Speaker 4: go out and buy a new phone. I think that's
7:31
Speaker 4: going to drive the next cycle.
7:32
Speaker 5: All right, Well, I'm heading down to Duke tomorrow Anarox,
7:34
Speaker 5: so there's a reasonable chance I might bump into Tim Cook.
7:36
Speaker 5: I'm going to make my dividend increase. Pitch. Yet again, he's.
7:39
Speaker 3: Gonna run away from you probably, Yeah? Is that had
7:42
Speaker 3: that conversation though, as you say, he's like, leave me alone.
7:44
Speaker 5: Paul I said, would a kill you to put a
7:46
Speaker 5: two and a half or three percent dividend yield on
7:49
Speaker 5: this thing? All right, Honorrock, thanks so much for joining
7:50
Speaker 5: us on rog ran a senior technology analyst Bloomberg Intelligence
7:54
Speaker 5: from the Technology Growth Boomtown of Chicago, Illinois. Go figure that?
8:00
Speaker 5: So AnyWho? So, yeah, we'll see the Apple. I think
8:02
Speaker 5: if you're a shareholder, you just you have to be just.
8:05
Speaker 5: I'll take the China risk, you know. I think the
8:08
Speaker 5: bigger risk isn't necessarily so supply chain, but at the
8:10
Speaker 5: competitive risk and the risks of my sales people, for
8:13
Speaker 5: whatever reason, are in the we're not really buying American
8:15
Speaker 5: stuff if we don't have to.
8:16
Speaker 3: Well yeah, and also it disrupts the thesis that like
8:19
Speaker 3: all of India is going to go buy an iPhone,
8:20
Speaker 3: which is like all of China's going to go buy
8:22
Speaker 3: an iPhone. Like, clearly we're seeing a difference in that
8:24
Speaker 3: thesis too. So such a good point. Not a supply
8:26
Speaker 3: chain issue with China, but just straight up demands.
8:29
Speaker 5: Yeah, I think that could be the bigger issue.
8:32
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
8:36
Speaker 2: weekdays at ten am Eastern on Apple car Play and
8:39
Speaker 2: Android Auto with the Bloomberg Business. You can also listen
8:43
Speaker 2: live on Amazon Alexa from our flagship New York station
8:46
Speaker 2: just Say Alexa playing Bloomberg eleven thirty.
8:50
Speaker 3: I'm interested to see we are breaching those technical levels
8:53
Speaker 3: for the markets, but then what winds up happening to
8:55
Speaker 3: buying the dip? Does that materialize or do we actually
8:58
Speaker 3: get a proper longer. Francis Donald is chief a global
9:02
Speaker 3: chief economist and strategist for Manual Life Investment Management, and
9:05
Speaker 3: she joins us. Now, great person to talk to on this.
9:09
Speaker 3: Do you think investors buy the dip on this?
9:13
Speaker 4: Oh?
9:13
Speaker 6: I'm not sure I'm there just yet, Alex. I mean,
9:15
Speaker 6: we've been living in soft landing euphoria where everything is perfect,
9:20
Speaker 6: growth is coming in just fine, but inflation is declining.
9:24
Speaker 6: And we've said you can't have your cake and eat
9:26
Speaker 6: it too Either growth will hold in too long, inflation
9:29
Speaker 6: will reaccelerate and you will lose your rate cuts, which
9:33
Speaker 6: is what's happening, or and I think this is the
9:35
Speaker 6: next phase of this, growth will deteriorate and you will
9:38
Speaker 6: no longer be in this soft landing narrative. So we
9:41
Speaker 6: still have concerns that even though inflation is coming in sticky,
9:45
Speaker 6: growth is going to decline in the second half of
9:47
Speaker 6: the year. So what worries me. What worries me is
9:50
Speaker 6: this word stagflationary is probably going to come back a
9:53
Speaker 6: lot more in our narrative in the next three to
9:55
Speaker 6: six months. That's a very difficult place for the Federal
9:58
Speaker 6: Reserve to be. They're going to have to pick their
10:00
Speaker 6: favorite child, Sophie's choice. Is it inflation or is it growth?
10:04
Speaker 6: And I think it's a really difficult environment for risk assets.
10:06
Speaker 6: They're going to have to deal with the worst of
10:08
Speaker 6: both worlds.
10:10
Speaker 5: No bueno. So how about the Federal Reserve bump? FED
10:12
Speaker 5: Chairman J Powell. In the back of my mind, do
10:15
Speaker 5: I have a scenario where I don't cut rates with
10:17
Speaker 5: all this year.
10:19
Speaker 6: Of course, that's always a scenario. I mean that team
10:21
Speaker 6: and I sat down this morning. Our base case has
10:23
Speaker 6: been the FED would go later but faster, but we'd
10:27
Speaker 6: penciled in June to the starting point, and so I said, team,
10:30
Speaker 6: you know, are we moving to September? And all of
10:32
Speaker 6: us agreed. We got to wait. In the next twenty
10:34
Speaker 6: four hours. There is so much FED speak coming forward,
10:37
Speaker 6: and I think you know as well as I do.
10:39
Speaker 6: It's not uncommon to see extra FED speak pop up
10:41
Speaker 6: when you have big moves of this magnitude. So what
10:44
Speaker 6: we want to know is not the data itself, but
10:47
Speaker 6: what is going to be the interpretation of the data.
10:49
Speaker 6: There were many categories in today's CPI that are not
10:51
Speaker 6: going to flow through as strong to PCEE. Does Chair
10:55
Speaker 6: Powell want to emphasize that? What about that wages are
10:58
Speaker 6: decelerating fairly rapidly, and all of our leading indicators of
11:02
Speaker 6: wages say, well, there's not going to be a wage
11:04
Speaker 6: price spiral. If the FED wants to cut in June,
11:06
Speaker 6: they have enough data to be able to say, hey,
11:08
Speaker 6: we're going to cut in June. If they like to
11:10
Speaker 6: take the opening the bond market gave them to go later,
11:13
Speaker 6: then you'll probably hear a lot less from them in
11:15
Speaker 6: the next twenty four hours. They'll try to stay mute.
11:17
Speaker 6: But this is this part in the cycle where macro
11:20
Speaker 6: forecasting and FED forecasting becomes a little less science and
11:23
Speaker 6: a little more art. It's a lot more subjective. I
11:26
Speaker 6: need to hear what Powell says, not just what the
11:28
Speaker 6: data looks like.
11:29
Speaker 3: And just talking about sort of market reaction. Euro dollars
11:31
Speaker 3: down as much as one percent. We're now at one
11:33
Speaker 3: spot oh seven, biggest drop since July. So we'll just
11:36
Speaker 3: watch out for more of those superlatives as we go.
11:38
Speaker 3: You mentioned the PCE CPI thing of a bob, and
11:42
Speaker 3: I say a thing a bob because like, not everything
11:44
Speaker 3: counts in the same way to get different baskets. But
11:47
Speaker 3: you had the firmerical motor vehicle insurance costs and medical
11:51
Speaker 3: care and both of those are what feeds into PCE differently,
11:56
Speaker 3: So why how what does the FED talk about with that?
12:01
Speaker 6: Whatever they want? And this is what's been really challenging
12:04
Speaker 6: for us is there are measures like six month annualized
12:07
Speaker 6: CPI X shelter. Heading into this was stub two percent.
12:12
Speaker 6: That was totally enough for the FED to be cutting
12:15
Speaker 6: or they can lean on the shelter side of the picture.
12:18
Speaker 6: So this is a really challenging environment where the FED
12:20
Speaker 6: can choose what numbers it wants to focus on. They
12:22
Speaker 6: can tailor which data they reference to what they think
12:26
Speaker 6: is the appropriate outcome. We're talking a lot about inflation here,
12:29
Speaker 6: but let's not forget the job side of the picture.
12:31
Speaker 6: The job side of the picture, when you look at
12:33
Speaker 6: the leading indicators, is weakening and there on end, they
12:36
Speaker 6: can say headline job growth is good, or they can
12:38
Speaker 6: say full time jobs have been deteriorating very sharply, and
12:42
Speaker 6: that suggests it's going to be labor market weakness. That's
12:44
Speaker 6: why listening to the FED is going to become paramount,
12:47
Speaker 6: and unfortunately, especially for those of us that are trying
12:50
Speaker 6: to actively trade, it a lot more volatility and rates
12:52
Speaker 6: in the next couple months.
12:53
Speaker 5: All right, Well, if the underlying jobs data maybe is
12:56
Speaker 5: not as strong as the headline data, and we have
12:59
Speaker 5: persistent inflame here, it's got to be tough on the
13:01
Speaker 5: consumer out there. How do you think about the US consumer?
13:05
Speaker 6: Depends which consumer you are, I know there's a lot
13:07
Speaker 6: of depends coming through here, and it's because we have
13:09
Speaker 6: so much diversification and desynchronization. This is a really big term.
13:14
Speaker 6: I mean, this week we had a horrible, horrible small
13:17
Speaker 6: business optimism number. It was more like small business deep
13:20
Speaker 6: pessimism number. That's very consistent with dark recessions. And yet
13:24
Speaker 6: CEO confidence is off the charts. Look at consumer confidence
13:28
Speaker 6: by income. High income consumers are feeling gosh, are good
13:32
Speaker 6: and low income consumers are struggling. They're out of excess saving,
13:36
Speaker 6: their credit cards are too expensive, they're going to linquid.
13:39
Speaker 6: If you're a high income consumer, you're a saver. You're
13:42
Speaker 6: benefiting from investment returns and house prices returns. You're a
13:45
Speaker 6: really good shape. Let's not forget those high income consumers,
13:48
Speaker 6: the top twenty percent. They spend thirty five percent of
13:51
Speaker 6: all expenditures. So if you're a consumer right now that
13:54
Speaker 6: is interest rate sensitive, you are feeling recessionary. If you
13:58
Speaker 6: are not interest rate sensitive, then things look really pretty
14:02
Speaker 6: for you. The key here is not to cherry pick
14:04
Speaker 6: which side of theirs you're going to look at. It
14:06
Speaker 6: is to understand from a policy perspective that the economic
14:09
Speaker 6: experience across income groups and regions in the US is
14:12
Speaker 6: very different and from an aggregate perspective to look top
14:16
Speaker 6: down and say, what does this look like in totality,
14:18
Speaker 6: not just looking at one side of the picture or
14:20
Speaker 6: the other.
14:21
Speaker 3: So and to that point, sort of just looking at
14:23
Speaker 3: the areas where we saw increases versus decreases. I found
14:26
Speaker 3: it was so interesting, not to like bore you guys,
14:28
Speaker 3: but things like car insurance and clothing and personal care
14:31
Speaker 3: and education and furniture that all went up, right, But
14:34
Speaker 3: what went down on are things like the price of
14:36
Speaker 3: butter for example, Grocery store foods went down, cereals and
14:40
Speaker 3: bakery products so like go make croissants, so like it's hard.
14:43
Speaker 3: So I wonder, are we in like a rolling inflation
14:47
Speaker 3: scenario where we kind of saw that last year and
14:51
Speaker 3: the year before when it comes to rolling recession in
14:53
Speaker 3: certain areas of the equity market and industries. Are we
14:58
Speaker 3: in that place right now?
15:01
Speaker 6: Possibly? I mean on the flip side, goods are actually
15:04
Speaker 6: in straight up deflation right now. So where we're seeing
15:06
Speaker 6: the inflationary pressure is on the services side. But we
15:10
Speaker 6: were a little bit worried today we're going through the number.
15:12
Speaker 6: We said, Look, apparel is starting to pick up there's
15:14
Speaker 6: enough categories that the momentum is moving in the wrong way,
15:18
Speaker 6: So that's proving a little bit of concern for us.
15:20
Speaker 6: One thing I can't help but think about is last year,
15:23
Speaker 6: my team and I were saying constantly, hey, when the
15:25
Speaker 6: Fed cuts rates, you won't be asking why. And yet
15:28
Speaker 6: in December when Chair Powell pivoted, I constantly was asking
15:31
Speaker 6: myself why what changed from October to December to really
15:36
Speaker 6: create this movement? It didn't seem like a good idea.
15:39
Speaker 6: And there's going to be criticism on Share Powell, I
15:41
Speaker 6: think today, especially that he pivoted too early, He eased
15:45
Speaker 6: indirectly and therefore inflated the economy a little bit too early.
15:49
Speaker 6: I think that's going to be some of the pressure
15:51
Speaker 6: he gets now. On the flip side, if they say, okay,
15:54
Speaker 6: you know what, We're going to push out rate cut
15:56
Speaker 6: expectations till later this year, you might see some of
15:58
Speaker 6: that inflation come back. Is a veritable rollercoaster for our clients.
16:02
Speaker 6: We tell them focus on the two year horizon. Two
16:05
Speaker 6: years from now, rates will be much lower than where
16:07
Speaker 6: they are now, whether they start in June, September or
16:09
Speaker 6: frankly twenty twenty five is less relevant for most investors
16:14
Speaker 6: than that two year cycle. So that's what we're advocating,
16:17
Speaker 6: focusing on not big bets right now, not super tactical
16:20
Speaker 6: bets right now, unless, of course you have.
16:22
Speaker 5: To I like that too. Your view makes sense to me.
16:25
Speaker 5: That being said, we do have the warp function on
16:27
Speaker 5: Bloomberg terminal where people are kind of racing it out
16:30
Speaker 5: month the month here. So are you guys in the
16:32
Speaker 5: camp that says, hey, this Fed doesn't have to rush,
16:34
Speaker 5: they can wait as long as they want.
16:37
Speaker 6: Well, we're ver embarrassed on the economy compared to consensus.
16:40
Speaker 6: We still have a recession in our forecast, and actually
16:43
Speaker 6: today's inflation print, which tells us the Fed is going
16:45
Speaker 6: to stay a little bit longer, amplifies our concerns about
16:49
Speaker 6: recession risk for later this year and into twenty twenty five.
16:52
Speaker 6: So we see twenty twenty five as being really underpriced
16:55
Speaker 6: when it comes to easing. But for the rest of
16:58
Speaker 6: this year, as I said, we're going to listen to
16:59
Speaker 6: the a little bit in the next twenty four hours.
17:02
Speaker 6: It's going to be June or September. Of course, we're
17:04
Speaker 6: going to have a lot of short term focus on that,
17:06
Speaker 6: but big market moves should really be driven off of
17:09
Speaker 6: are we heading into a recession? Is it a traditional
17:12
Speaker 6: easing cycle with hundreds of basis points of cuts? That's
17:15
Speaker 6: going to be far more important for acid allocation decisions
17:19
Speaker 6: or bonds and stocks than June or September.
17:21
Speaker 3: Francis Francis Donald, thanks a lot, Manulife Senior chief chief
17:26
Speaker 3: economist and strategist over there. Yeah, And that's so interesting too,
17:29
Speaker 3: because when you take a look at what the forecast is,
17:34
Speaker 3: does it matter why they cut, Like are they cutting
17:37
Speaker 3: because the economy stinks? Or are they cutting because they're normalizing?
17:40
Speaker 3: And if they're normalizing, that's not going to be like
17:42
Speaker 3: three hundred bases points of cuts unless the economy super tanks.
17:45
Speaker 3: So does that change how you allocate?
17:48
Speaker 5: Yeah? Exactly right. And I think if I think what
17:50
Speaker 5: a lot of folks took from today's data is in
17:52
Speaker 5: any scenario, you can make a stronger case today that
17:56
Speaker 5: they can wait a little bit.
17:57
Speaker 3: Yeah or no, why aren't we talking about hikes?
18:00
Speaker 5: Why aren't we talking Yeah? Right, yeah, that's no fun though.
18:03
Speaker 3: No one always no fun and we don't like doing it,
18:05
Speaker 3: But like, why aren't we actually like talking about it
18:08
Speaker 3: at that point.
18:08
Speaker 5: Yeah, exactly.
18:11
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
18:15
Speaker 2: weekdays at ten am Eastern on Apple car Play and
18:18
Speaker 2: then broid Auto with the Bloomberg Business app. Listen on
18:21
Speaker 2: demand wherever you get your podcasts, or watch us live
18:24
Speaker 2: on YouTube.
18:26
Speaker 3: I should point out the SEP is off the lows
18:29
Speaker 3: of the session, just down eight tens of one percent.
18:32
Speaker 3: I feel like my buying the dip question isn't as
18:34
Speaker 3: crazy as maybe would have got two hours ago. So
18:36
Speaker 3: let's ask it now to Shanna Sizzle, president and CEO
18:39
Speaker 3: of better On Capital Management. She joints now on Zoom
18:42
Speaker 3: from Chicago, Illinois. Shanna, do you buy the dip?
18:46
Speaker 7: I always buy the dip?
18:48
Speaker 8: Okay, But I mean, the market goes up more than
18:51
Speaker 8: it goes down.
18:52
Speaker 7: Why wouldn't you buy the dip. It's not like the
18:53
Speaker 7: market's going to go permanently down.
18:56
Speaker 8: I'm a big fan of buying on weakness, and there's
18:59
Speaker 8: weakness today for good reason. Also, I feel the need
19:03
Speaker 8: to tell you I heard your earlier comments about Funco
19:06
Speaker 8: and I had to have my bubblehead in the shot
19:08
Speaker 8: for that reason.
19:09
Speaker 3: So is that a Funkco bubble head.
19:12
Speaker 8: It is it is is that your head had to
19:15
Speaker 8: do it.
19:16
Speaker 7: That is supposed to be my head.
19:20
Speaker 8: I don't know how accurate it looks, but that's supposed
19:22
Speaker 8: to be my head. But I digress. No, I'm a
19:26
Speaker 8: big fan of buying on weakness. We have strong economic growth.
19:30
Speaker 8: CPI coming in hotter than expected.
19:32
Speaker 7: Is an indication of that. We still have very strong demand.
19:36
Speaker 8: I think the markets week obviously on the fact that
19:38
Speaker 8: this makes a FED rate cut less likely. But I've
19:41
Speaker 8: been saying all along that I thought the sixth that
19:44
Speaker 8: was originally priced in earlier this year was a pipe
19:46
Speaker 8: dream that would be more like three. Now I'm actually
19:49
Speaker 8: going to go really far out on a limb here
19:51
Speaker 8: and say I don't think they're cutting this year.
19:54
Speaker 5: Torsten Slock over to Pollo Management agrees with you. He
19:57
Speaker 5: was at with a note this morning. We're affirming that
19:59
Speaker 5: call for him.
20:00
Speaker 7: Sean.
20:01
Speaker 5: So, when you think about your portfolio, think about the
20:04
Speaker 5: stocks that you like out there. How much do you
20:06
Speaker 5: worry about Federal Reserve policy, about the inst rate environment
20:10
Speaker 5: visa v the fundamentals of those companies.
20:14
Speaker 8: I think it affects some of the growthier names more
20:16
Speaker 8: than an effect say a name like Fang, which is
20:19
Speaker 8: on my list. That's an energy name. I think that's
20:23
Speaker 8: more a supplied demand situation. I think the demand for
20:26
Speaker 8: oil in particular isn't going anywhere anytime soon. But for
20:30
Speaker 8: the growthier names, FED policy can really impact, you know,
20:34
Speaker 8: the valuations and the potential upside because of just how
20:39
Speaker 8: time value of money works.
20:42
Speaker 7: Higher rates tend not to.
20:44
Speaker 8: Be helpful for growth names because you've got to have
20:48
Speaker 8: more growth and so you know, you can't get as
20:51
Speaker 8: much of a premium as when rates are really lower.
20:55
Speaker 7: But I don't worry about.
20:56
Speaker 8: It too much because I think the overall tailwinds are
20:59
Speaker 8: so compelling that even in a higher rate environment, higher
21:03
Speaker 8: rates mean the economy is doing well, which will mean
21:07
Speaker 8: that stock should do well.
21:10
Speaker 3: Fang is Diamondback Energy. Just to break that down, that
21:12
Speaker 3: stock trades about two hundred and five dollars and eighty
21:15
Speaker 3: five cents. So you mentioned that maybe the FED won't
21:17
Speaker 3: cut at all. Does that pair back the amount of
21:21
Speaker 3: cuts you expect overall in this cutting cycle, because that
21:24
Speaker 3: would also dictate kind of how the economy is doing.
21:28
Speaker 7: Yeah.
21:28
Speaker 8: So I think that the FED has a target interest rate,
21:32
Speaker 8: so I think they'll cut as much as they have
21:34
Speaker 8: to get to what that target is, I think it's
21:36
Speaker 8: probably somewhere between two to three and a half.
21:41
Speaker 7: It's not zero.
21:42
Speaker 8: I know we got used to zero, but it ain't zero,
21:45
Speaker 8: and so I think we'll get there. If they have
21:49
Speaker 8: to do it faster and there's less cuts, that means
21:52
Speaker 8: that we've had some sort of economic instability.
21:55
Speaker 7: That's how I look at it.
21:57
Speaker 8: If there's more cuts, that means that we've achieved the
22:00
Speaker 8: unicorn soft landing, which I'm still not convinced of, and
22:05
Speaker 8: so I don't have an opinion on that.
22:08
Speaker 7: I just think that.
22:09
Speaker 8: More cuts means smoother landing, right, that's stupid thing when
22:16
Speaker 8: you fly, you smooth landing.
22:17
Speaker 7: Air air Force pilot.
22:19
Speaker 8: Yeah, so we've achieved the smooth landing. The air Force
22:22
Speaker 8: is in control.
22:23
Speaker 3: Uh.
22:24
Speaker 8: And if they have to cut fast and they're bigger cuts,
22:27
Speaker 8: it's because there's some sort of economic stability and they
22:29
Speaker 8: have to hit the deck really hard.
22:31
Speaker 5: All right. So a name like in video, which is
22:33
Speaker 5: a name we've talked about with you before you've you've
22:36
Speaker 5: you guys own that. I can't think of an interest
22:39
Speaker 5: rate scenario that would get me off of that story
22:41
Speaker 5: because I mean, the fundamental drivers of AI. If you
22:45
Speaker 5: really believe the growth potential of AI, that has got
22:48
Speaker 5: to be a building block story in that. So how
22:52
Speaker 5: does it, you know, the movement in today's market kind
22:54
Speaker 5: of impact your thoughts about a big growth story like Nvidio.
22:58
Speaker 7: Well, you and me both. I don't think the it
23:00
Speaker 7: has any impact on Nvidia because of.
23:02
Speaker 8: The AI trend We're so early on there. It's training
23:06
Speaker 8: it like a twenty eight times forward earning multiple, which
23:10
Speaker 8: is insane to me. I still look at like just
23:13
Speaker 8: the sheer price of it over eight hundred and fifty
23:16
Speaker 8: dollars per share, and that's intimidating because my cost basis
23:19
Speaker 8: on it is two fifty. But not to brag or anything,
23:25
Speaker 8: I don't own that much, dude, I don't own that
23:28
Speaker 8: much and I haven't added to it. That just sounded
23:31
Speaker 8: really obnoxious. But yeah, so I'm not sure I'm necessarily
23:35
Speaker 8: a buyer, but I do find the twenty eight times
23:39
Speaker 8: forward earnings compelling. So maybe I jump in here, especially
23:44
Speaker 8: on weakness like today. If it got under say eight
23:47
Speaker 8: twenty five, I would be jumping in all day long.
23:49
Speaker 3: You also own Vertex Pharmaceuticals ticker VRT. X. It's a
23:54
Speaker 3: biotech company, tell us more so.
23:57
Speaker 8: That's a super volatile company. Biotech is not for the
23:59
Speaker 8: phantom heart. But I like some of these healthcare names
24:03
Speaker 8: right here, some of the more volatile ones actually, because
24:07
Speaker 8: drug development is always volatile. You you know, you might
24:10
Speaker 8: think you have something great and then you get to
24:12
Speaker 8: you know, the stage three trials, and all of a sudden,
24:15
Speaker 8: everything falls apart. Vertex has some great cystic fibrosis drugs.
24:20
Speaker 8: The stock has been super volatile, but volatile to the upside,
24:23
Speaker 8: so you get some really crazy movement in the stock,
24:26
Speaker 8: but the stock has positive returns. I think they have
24:30
Speaker 8: kind of a dominant position and system fibrosis, which is,
24:33
Speaker 8: you know, a major concerned that's a major disease that
24:37
Speaker 8: affects a lot of people, and those things are positive
24:39
Speaker 8: for the stock. They have some great R and D
24:42
Speaker 8: and those are the things that I think are the
24:44
Speaker 8: key drivers. It's good management, smart balance sheet, all the
24:49
Speaker 8: things you.
24:49
Speaker 7: Look for in a good stock. But it is biotech,
24:51
Speaker 7: so it.
24:52
Speaker 8: Is not for the faint of heart.
24:53
Speaker 5: Biotech not for the faint of heart. In Nvidia one
24:56
Speaker 5: gard you not for the faint of heart? How do
24:58
Speaker 5: you guys, screen for stock at your shop. I mean,
25:02
Speaker 5: do you tend to go for growth? How do you screen?
25:07
Speaker 6: So?
25:07
Speaker 8: Oddly enough, my entire background, in all the years have
25:10
Speaker 8: been in the business has been value. So I know
25:15
Speaker 8: that seems strange looking at like my recommendations here, But
25:20
Speaker 8: I don't screen the way that normal you would normally hear.
25:24
Speaker 8: I started my career in manager research, and so I
25:30
Speaker 8: used to meet with managers of funds, hedge funds, mutual funds,
25:34
Speaker 8: ETFs all the time, and they talk about their socks, right,
25:39
Speaker 8: So I got.
25:40
Speaker 7: A lot of my ideas from them.
25:42
Speaker 8: So I've met with thousands of managers at this point
25:44
Speaker 8: in my career, and there are like a handful that
25:48
Speaker 8: I think are amazing. And those handful are the ones
25:52
Speaker 8: that I will look at their portfolios. I'll look at
25:54
Speaker 8: their thirteen f's and and see what they own, maybe
25:56
Speaker 8: pick up the phone and ask them and and write
26:01
Speaker 8: out their reasoning, and then I'll do my own work
26:03
Speaker 8: on the stock. See does it make sense to me?
26:05
Speaker 8: Is this story something that I think is compelling? But
26:10
Speaker 8: that's how we get my ideas. I don't screen for
26:12
Speaker 8: stocks like most folks who sit there and pick you know,
26:17
Speaker 8: twenty thirty forty stocks because they have to manage a
26:20
Speaker 8: portfolio at any given time. I might be following ten
26:22
Speaker 8: names because that's not the core of our business, but
26:26
Speaker 8: that's kind of how I get my ideas.
26:28
Speaker 5: Got you all right, Shannon, thank you so much for
26:30
Speaker 5: joining us. Really appreciate that. Shanna Sissel, President and CEO
26:33
Speaker 5: of ban Rhenn Capital Management.
26:37
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
26:41
Speaker 2: weekdays at ten am Eastern on applecar Play and Android
26:44
Speaker 2: Auto with the Bloomberg Business Act. You can also listen
26:47
Speaker 2: live on Amazon Alexa from our flagship New York station,
26:51
Speaker 2: Just say Alexa Play Bloomberg eleven thirty.
26:54
Speaker 5: All right, let's check in with one of our favorite
26:56
Speaker 5: e congress. We'd like to talk about macro stuff Withjeffrey Cleveland.
27:00
Speaker 5: He's the chief economist at paid In and Regal. He's
27:03
Speaker 5: in that little hamlet out west called Los Angeles. Jeffrey,
27:06
Speaker 5: thanks so much for joining us here. Boy, the kind
27:09
Speaker 5: of a look at what's happened in the financial markets
27:10
Speaker 5: here today. I don't think they were discounting this kind
27:13
Speaker 5: of inflation print. What did you make about the CPI.
27:17
Speaker 1: Well, someone said uggs earlier, and I just I just thought, ugly,
27:21
Speaker 1: that's all I could think about. Yeah, I mean so
27:23
Speaker 1: I think, as I always say, context matters for markets,
27:27
Speaker 1: and the context going into this number was that January
27:31
Speaker 1: was a fluke and February was a bump in the
27:34
Speaker 1: road and things were going to settle down. And this,
27:39
Speaker 1: this morning's number for CPI in particular, at another point,
27:43
Speaker 1: for that tells me it's more than just a fluke.
27:46
Speaker 1: A colleague just texted me and said, what's the technical
27:49
Speaker 1: definition of a trend? And I said, you know, three months,
27:52
Speaker 1: three months is a trend. And so I think we
27:55
Speaker 1: have to have a trend here of stickier inflation, and
27:59
Speaker 1: that's what's playing out. And you could say, now the
28:02
Speaker 1: two year yield maybe is more fairly priced than it
28:06
Speaker 1: was certainly at the start of the year, but we
28:09
Speaker 1: still have a couple of rate cuts priced in, so
28:12
Speaker 1: there might be more room for repricing here. Still, even
28:16
Speaker 1: after today's number, do.
28:18
Speaker 3: You believe that there'll be two cuts or do you
28:21
Speaker 3: think we could be in a situation where we're talking
28:23
Speaker 3: hikes in the next couple of months, or are we
28:25
Speaker 3: talking about no cuts?
28:27
Speaker 1: Last week I said June was off the table, and
28:29
Speaker 1: I felt a little nervous about that until we saw
28:32
Speaker 1: this number. So I think June is off, and then
28:34
Speaker 1: I think you have to really wonder about July, and
28:36
Speaker 1: then September is tough for me. I'm not saying the
28:39
Speaker 1: FED is political. I'm just saying, do you really want
28:42
Speaker 1: to start a cutting or an easy or to even
28:46
Speaker 1: do just one right before an election? I think, you know,
28:50
Speaker 1: if the data justified it, maybe, but if there's any
28:54
Speaker 1: question mark, you wait.
28:56
Speaker 5: So I think that.
28:57
Speaker 1: Should really reduce the market should be reduce seeing the
29:00
Speaker 1: probability of that September cut as well, so everything I
29:03
Speaker 1: think is just going to get pushed out as possible.
29:05
Speaker 1: We only get one, and that would be contingent upon
29:08
Speaker 1: a second half that looks more like last year's second half,
29:12
Speaker 1: which could happen here. I don't want to get too
29:14
Speaker 1: caught up in the inflation many at the moment too
29:17
Speaker 1: emotional about it, but it's entirely possible that we could
29:21
Speaker 1: run the year without without.
29:22
Speaker 6: Getting the caught.
29:22
Speaker 1: At this point, I think that's a likely scenario that
29:25
Speaker 1: investors should consider.
29:27
Speaker 5: Jeffery, how about just kind of the economic call here,
29:29
Speaker 5: soft landing, no landing, how do you kind of think
29:32
Speaker 5: this see economies behaving right now?
29:34
Speaker 3: I heard hot landing, hot landing. Yeah, I don't really
29:37
Speaker 3: know what that is, but I heard about that today. Okay,
29:40
Speaker 3: so we've been sort of operating with the no landing.
29:43
Speaker 1: You know, it would be an acceleration in GDP and
29:45
Speaker 1: acceleration inflation, a new low in the unemployment rate. We're
29:48
Speaker 1: not quite in that scenario yet. Maybe that's more the
29:51
Speaker 1: hot the hot landing scenario. Then we said, okay, sticky,
29:54
Speaker 1: sticky inflation. That's where inflation on core CPI hangs out.
29:58
Speaker 1: I don't know three, you know, three eight to four percent,
30:01
Speaker 1: somewhere in that range on a year on year basis,
30:03
Speaker 1: good growth above trend growth, the unemployment rates stays low.
30:07
Speaker 1: So it feels like that's the scenario we're with. We're
30:09
Speaker 1: in the sticky inflation scenario. The soft landing is if
30:12
Speaker 1: you need to see a further moderation and inflation. So
30:15
Speaker 1: at present we're in we're not in the soft landing
30:18
Speaker 1: scenario in my view. Now the ones I would say,
30:21
Speaker 1: if people are getting too pessimistic about things, I mean,
30:24
Speaker 1: there's a worse scenario, which would be a stagflation type
30:27
Speaker 1: scenario where we do have this inflation that we're seeing,
30:29
Speaker 1: but growth is struggling, and that is not what we're
30:31
Speaker 1: seeing the jobs report on Friday. We're still seeing aggregate
30:35
Speaker 1: income growth six to seven percent, So we're seeing good
30:39
Speaker 1: income growth that is feeding into spending, that is keeping
30:43
Speaker 1: price pressures. It's not a terrible situation. Good growth, higher
30:47
Speaker 1: than expected inflation. So don't be too bearish about things
30:51
Speaker 1: out there. I'm looking for a bond firm here, but
30:53
Speaker 1: I feel like this is advice to the equity investors
30:56
Speaker 1: in some way.
30:57
Speaker 3: We get it. We get it. We were talking to
30:58
Speaker 3: a Francis Donald a Manu Life earlier in the last hour,
31:01
Speaker 3: and she basically, if I summarize that there is a
31:04
Speaker 3: narrative out there that this is Powell's fault that he
31:06
Speaker 3: called sort of the pivot in December two early and
31:09
Speaker 3: that actually reignited the economy, I'm really loose in financial conditions.
31:14
Speaker 3: Is is there truth to that?
31:16
Speaker 1: I don't think so, you know, I want to defend
31:19
Speaker 1: Chair Pally. I think he's done a great job. I'm
31:21
Speaker 1: not being paid for this defense. But look, he said, hey,
31:24
Speaker 1: we had great progress in the second half of last year.
31:27
Speaker 1: If that progress continues. There's a case that we don't
31:31
Speaker 1: need to be at five point thirty on the funds rate.
31:33
Speaker 5: We can reduce.
31:34
Speaker 1: We don't want to over type. That's what he said.
31:37
Speaker 1: And he also said, we need to see greater confidence.
31:39
Speaker 1: We want to see more data like we've seen in
31:41
Speaker 1: the second half of last year. Well, guess what, everyone,
31:43
Speaker 1: every investor can look at this. We have not seen
31:46
Speaker 1: more data like we saw in the second half of
31:48
Speaker 1: last year. It's come in hotter. So I think he
31:51
Speaker 1: set it up nicely. The problem is investors they hear
31:54
Speaker 1: what they want to hear. I do think a lot
31:56
Speaker 1: of mom investors. It's been a painful couple of years.
31:59
Speaker 3: I get it.
32:00
Speaker 1: They wanted they wanted rates to go lower, they wanted cotts,
32:03
Speaker 1: and so there was more hope than it was you know,
32:06
Speaker 1: actual reading of the economic data. In my view, so
32:09
Speaker 1: I don't blame the I don't blame the FED for this.
32:12
Speaker 1: Investors need to look in the mirror and not find
32:14
Speaker 1: some scapeboat out there and you know in foggy bottom
32:18
Speaker 1: and d C.
32:19
Speaker 5: All right, Jeffrey, thank you so much for joining U.
32:21
Speaker 5: Jeffrey Cleveland, chief economist at paid in and regal based
32:24
Speaker 5: in La joining us via zoom. In just moments, we're
32:26
Speaker 5: going to be going to former US Treasury Secretary Larry Summers.
32:30
Speaker 5: He'll be sitting down with Bloomberg's David Weston talk about
32:32
Speaker 5: the CPI print.
32:33
Speaker 4: YEP.
32:34
Speaker 3: There's some interesting tidbits though that you just want to
32:37
Speaker 3: dive into a little bit with the numbers. So apparently
32:39
Speaker 3: care of invalids and the elderly at home soared five
32:42
Speaker 3: point nine percent from February. Okay, how does the and
32:47
Speaker 3: that's just you. You would imagine that's going to get
32:49
Speaker 3: so much worse as the baby boomers age. It's gonna
32:53
Speaker 3: be pretty dicey.
32:56
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
33:00
Speaker 2: weekdays at ten am Eastern on Apple car Play and
33:03
Speaker 2: Android Auto with the Bloomberg Business Act. You can also
33:06
Speaker 2: listen live on Amazon Alexa from our flagship New York station,
33:10
Speaker 2: Just say Alexa play Bloomberg eleven thirty.
33:14
Speaker 3: So lots of drama unfolding after that hot CPI pause,
33:18
Speaker 3: I'm bringing it up the verb function WRP. That's where
33:21
Speaker 3: you go to see what everyone's sort of thinking about
33:24
Speaker 3: Wall Street and investors alike, about what the Fed's going
33:26
Speaker 3: to do, and it's currently pricing in about two cuts. Man,
33:30
Speaker 3: that is a very different kind of scenario than we
33:33
Speaker 3: saw just a few months ago. Well, let's break it down.
33:36
Speaker 3: Sally Bakewell is Bloomberg US Finance team leader and she
33:39
Speaker 3: joins us. Now, Sally, as we dig through here, how
33:42
Speaker 3: many reports are in your inbox about pushing a FED
33:44
Speaker 3: cut back from June two?
33:48
Speaker 9: Yes, approximately two thousand of the mire in my in box.
33:53
Speaker 9: And I think the sort of the level of uncertainty remains,
33:56
Speaker 9: but I guess they are. There is this sort of
33:58
Speaker 9: clear expectation of a path to cutting and around that.
34:01
Speaker 9: Wall Street banks which will start reporting on Friday, are
34:05
Speaker 9: probably going to have to be rethinking some of the
34:08
Speaker 9: guidance they've given on one of their key sources of revenue,
34:10
Speaker 9: which is.
34:11
Speaker 3: Net interest income.
34:12
Speaker 9: They had, you know, just a few months ago worn
34:15
Speaker 9: that they would probably have to probably see a slide
34:18
Speaker 9: in this metric. But it's looking like they'll be able
34:21
Speaker 9: to up some of the guidance on this now.
34:23
Speaker 5: Yeah, it's interesting. I'm looking at the reporters in this
34:26
Speaker 5: story on your team here put in some you know,
34:28
Speaker 5: showed some of the big banks for providing twenty twenty
34:31
Speaker 5: four guidance and pretty conservative looking, and I guess it
34:34
Speaker 5: reflected kind of what they were thinking at the time,
34:36
Speaker 5: which is the markets pricing and six rate cuts. We
34:39
Speaker 5: have to reflect that in our P and L. So
34:42
Speaker 5: do you think we'll see revised guidance here? Is that
34:44
Speaker 5: some of the issues?
34:46
Speaker 9: I mean, I think that's what analysts expect. I think
34:50
Speaker 9: investors are also optimistic of that. And the big question
34:53
Speaker 9: seems to be JP Morgan. It is being looked at
34:57
Speaker 9: as one that did have particularly conservative guidance at about
35:00
Speaker 9: ninety billion of net interest income for twenty twenty four,
35:04
Speaker 9: and it may have to up that based on the
35:08
Speaker 9: fact that you know that was they brought that out
35:10
Speaker 9: when you know they're expecting as many as six rate cuts,
35:13
Speaker 9: and now if they're only two, they'll they'll probably have
35:15
Speaker 9: to revise it. And Wells Fargo is another one being
35:17
Speaker 9: discussed in the same vein. But I think analysts is
35:19
Speaker 9: saying a lot of the big banks, which are sort
35:21
Speaker 9: of more asset sensitive than the regional lenders, could have
35:24
Speaker 9: to rethink their guidance.
35:26
Speaker 3: But that only holds in a good way if the
35:29
Speaker 3: loan demand is also good, right, I mean, that's the
35:31
Speaker 3: whole idea. Will loan demand be good?
35:35
Speaker 9: Well, I think for the as we see banks reporting
35:39
Speaker 9: earnings on Friday, we are expecting to see quite a
35:42
Speaker 9: subdued loan demand because the sort of lagging effect of
35:45
Speaker 9: higher rates is still ongoing. But yes, interest rates come down,
35:49
Speaker 9: that is in theory sort of big tail wind for
35:52
Speaker 9: lending because people start to borrow more. And I think
35:56
Speaker 9: it should in theory be a sort of positive thing.
35:59
Speaker 9: But there are there remain uncertainties here that might sort
36:02
Speaker 9: of cloud the kind of expectations that loan demand could
36:06
Speaker 9: come roaring back.
36:07
Speaker 5: Yeah, I mean just on Monday, just looking in this
36:11
Speaker 5: article here from Bloomberg. On Monday, JP Morgan chief executive
36:13
Speaker 5: Officer Jamie Diamond delivered a warning on the economy. So
36:17
Speaker 5: you know, he might say, there was CFO and investor
36:20
Speaker 5: relations person saying, well, wait wait wait, wait, wait wait wait,
36:22
Speaker 5: I don't think we need to be taking up our
36:24
Speaker 5: guidance here a little bit because he may have some
36:25
Speaker 5: underlying concerns about the economy exactly.
36:27
Speaker 9: And actually, you know people are saying that potentially JP
36:30
Speaker 9: Morgan anyway, waits till it's invested a if it wants
36:33
Speaker 9: to boost its guidance and does it then, and that's
36:35
Speaker 9: in late May, but definitely, I mean Jamie Diamond, he
36:39
Speaker 9: kind of gave his his couched assessment of the economy,
36:42
Speaker 9: which is that consumers remain healthy and they are spending,
36:45
Speaker 9: but there are all kinds of inflation repressures. There's this
36:49
Speaker 9: very difficult geopolitical backdrop the transition to sort of green,
36:54
Speaker 9: a greener economy, ongoing fiscal spending, all these inflationary pressures
36:58
Speaker 9: that actually are a big overhang to sort of, you know,
37:00
Speaker 9: a really robust economy continuing, and that could definitely end
37:05
Speaker 9: up dampening sort of the consumer's ability to borrow.
37:08
Speaker 5: And that investor day for JP Morgan is May twentieth.
37:10
Speaker 3: All right, marketing calendar. Maybe we should yeah, oh good,
37:14
Speaker 3: idea take radio down there. Okay, here's my pet, Peeve Marcus.
37:19
Speaker 3: So we are familiar with Marcus. Okay, it's Goldman Sachs's
37:22
Speaker 3: high yield savings account. Right. They lowered their rate ten
37:25
Speaker 3: basis points on what Friday. That's not okay. The Fed
37:30
Speaker 3: hasn't done anything. What's going on? And that's my personal
37:35
Speaker 3: way of talking about the deposit beta when it comes
37:38
Speaker 3: to these big banks. And then what the Fed's doing.
37:40
Speaker 9: Right, I mean I think that all they continue to
37:42
Speaker 9: be under pressure to stop customers going to other high
37:47
Speaker 9: yielding options, and I suspect that's you know what Marcus
37:50
Speaker 9: is doing.
37:51
Speaker 3: Oh they cut it. Oh, I say cut it ten
37:54
Speaker 3: basis points Okay, okay, to be fair, right, it's like
37:58
Speaker 3: four point six percent. They took it to four point
38:00
Speaker 3: five or something like that.
38:01
Speaker 5: Put it on an account of your size. That's real money.
38:04
Speaker 3: I mean, we're looking like billions at this point. But still,
38:07
Speaker 3: I mean, but the idea that they're already kind of
38:09
Speaker 3: front running cuts that may not happen or September.
38:11
Speaker 7: Wow, I mean that's fascinating.
38:13
Speaker 5: So what are the bank? Yeah? So what are the banks?
38:15
Speaker 5: I mean, as we were talking about before, one of
38:18
Speaker 5: the things is just simply are they making loans out there?
38:23
Speaker 5: Are they suffering charge offs? So what do we think
38:25
Speaker 5: that we're going to hear from the banks as relates
38:27
Speaker 5: to credit quality and charge offs of their loans? They
38:30
Speaker 5: think things like that because I know that's a big metric.
38:32
Speaker 9: Well, I think charge offs are expected to be pretty
38:36
Speaker 9: stable actually, and again I think that's another sort of
38:39
Speaker 9: signifier and indication of consumers being in relatively decent health,
38:43
Speaker 9: but of course they were reliant to a degree on
38:46
Speaker 9: a lot of the savings they are massed during the pandemic,
38:49
Speaker 9: and those of course have faded and will continue to fade.
38:52
Speaker 9: So again, the situation with charge offs seems pretty stable
38:57
Speaker 9: at the moment, but there are those headwinds. And I
38:59
Speaker 9: think also a lot of banks are expected to set
39:02
Speaker 9: aside more money in provisions this quarter than they have
39:06
Speaker 9: done in the previous quarter a year ago, which is
39:09
Speaker 9: another indication that they see sort of storm clouds on
39:11
Speaker 9: the horizon and that people will start to default on
39:14
Speaker 9: their loans, and loans will sell, and they all need
39:16
Speaker 9: to be able to cover the cost of those.
39:18
Speaker 3: We've seen M and A started to pick up, investment
39:20
Speaker 3: banking started to pick up. Is that going to be
39:22
Speaker 3: squashed a bit if we still have higher for longer?
39:25
Speaker 3: I think this.
39:26
Speaker 9: Is really interesting. It seems like a lot of the
39:30
Speaker 9: investment community and companies have gotten somewhat used to this,
39:34
Speaker 9: the current interest rates situation and the current uncertainty, which
39:39
Speaker 9: sounds a little bit paradoxical to say, and for that
39:41
Speaker 9: reason they have been more willing to do some deals.
39:45
Speaker 9: We've seen a pickup in deals. We've seen IPOs sort
39:48
Speaker 9: of start to slightly rebound, so I think higher for
39:52
Speaker 9: longer hasn't been a huge there's been a persistent deal
39:57
Speaker 9: slump for months and months and months. But investors have
39:59
Speaker 9: started to get used to to this sort of uncertain
40:01
Speaker 9: rate path, I think, and so they have been coming
40:03
Speaker 9: out of the woodwork a little bit interesting.
40:05
Speaker 3: Or could you see the certainty Well you're the former
40:07
Speaker 3: investor there coming in us in banker. Is it the
40:09
Speaker 3: rate or is it just a certainty or the trajectory?
40:12
Speaker 5: It's just the trajectory here. So I mean, I think,
40:14
Speaker 5: you know, we're I think the market's more normalised. We're
40:17
Speaker 5: seeing investment grade market be very robust because you know,
40:21
Speaker 5: they can get deals done and so they're going to
40:23
Speaker 5: get them done. Could they have gotten them done at
40:25
Speaker 5: a lower rate two years ago, Yeah, but that's that's
40:27
Speaker 5: two years ago. Here we are, I mean need to
40:29
Speaker 5: we need to fund growth. So again just a trajectory
40:32
Speaker 5: of where things are going. So anyway, Sally, thank you
40:35
Speaker 5: so much. We appreciate it. Sally bake Well, us finance
40:38
Speaker 5: team leader for Bloomberg News uh with the article out
40:41
Speaker 5: today from her team Wall Street banks may redo key
40:44
Speaker 5: profit guidance on fewer red cuts, i e. Take net
40:47
Speaker 5: interest income forecast a little bit higher.
40:50
Speaker 3: Yeah, that'd be really interesting to be and just that
40:52
Speaker 3: even if they don't do it for their earning season,
40:54
Speaker 3: like recalibrating it, just the commentary on the calls will
40:57
Speaker 3: be quite interesting and I'm sure that analysts will be
40:59
Speaker 3: all over them to add that question. So that'll be
41:02
Speaker 3: very interesting indeed. And also for the JP Morgan, the
41:04
Speaker 3: city in the Bank of America, the consumer part of
41:06
Speaker 3: it and how their charge offs are doing and what
41:09
Speaker 3: their read is on the consumer. As Frances Donald was
41:11
Speaker 3: talking about, just two totally different worlds, two totally different consumers.
41:15
Speaker 5: Yep. Absolutely, So we'll see JP Morgan reporting on Friday,
41:19
Speaker 5: so that'll be You're off though, I'm off you darnel right,
41:22
Speaker 5: I'm long.
41:22
Speaker 3: He's not going to care till Monday.
41:24
Speaker 2: This is the Bloomberg Intelligence podcast, available on apples, Spotify,
41:28
Speaker 2: and anywhere else you will get your podcasts. Listen live
41:31
Speaker 2: each weekday ten am to noon Eastern on Bloomberg dot Com,
41:35
Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business app.
41:38
Speaker 2: You can also watch us live every weekday on YouTube
41:42
Speaker 2: and always on the Bloomberg Terminal