We can talk about all this great
economic data, but at the end of the day, the market is narrow.
What we are really looking for is the rally to widen out.
There's other values within the market other than technology.
We just expect some of the other parts of the market that have lagged to start
to take the lead. I would like market breadth to improve,
not just concentration in in video, everything that nobody has paid any
attention to for a long time. This is Bloomberg Surveillance with
Jonathan
Ferro, Lisa Abramowicz and Annmarie Horden turn.
What was that coming at the end? Don't talk about in video.
Yeah. Broaden out.
Okay. Yeah.
Let's talk about Nvidia. Live from New York City this morning.
Good morning. Good morning.
For our audience worldwide, this is Bloomberg Surveillance nvidia up by 14%.
We said yesterday a few times, 4% of the s&p 505% of the NASDAQ 199% of the
enthusiasm to buy this equity market worldwide.
Lisa, just going through the numbers, the numbers are absolutely ri
diculous.
Fiscal fourth quarter revenue more than tripled to 22.1 billion as recently as
2021 in video didn't generate that much revenue in an entire year.
As for the profit, 486% year over year in earnings per share, largely driven by
their data center division. That is up 409% from the same period a
year earlier. How do we even comprehend these numbers?
We're talking astronomic growth, unseen since the time of the railroad or the
advent of the Internet or even beyond that.
And frankly, what we
heard is this is just the tipping point.
So how do you price that kind of growth, given that we don't know how far it can
go? We lost the Knives of Wedbush in just a
moment. Here's the response from the South side
so far. Morgan Stanley, remarkable strength of
I, D.A. Davidson, unprecedented growth, HSBC,
difficult to please, Lisa. It lacks shock and awe, apparently for
HSBC. Well, to be completely honest, when it
first came out, it didn't meet the highest expectation on the street.
And so beca
use of that, the shares kind of didn't skyrocket right away.
And then people looked at it and said, Hold on, guys, this is ridiculously
amazing. Can we just reassess here?
So, you know, maybe HSBC has one compatriot on the street.
What I'm looking at is that you're seeing a read through to other chip
manufacturers, to AMD, to other types of players.
How far can this go, given that people see this benefit going across industries
for the foreseeable future? The stock is up by almost 14%.
If it was
n't for China, Amari, this could have been even better.
You have to think if they were able to get the entire growth and their market
out of China, how much higher would profit be?
They talked about now in the data seven revenue center where they're able to get
all this money and profit, it's now single digits when it comes to China.
And to see you had this to say on the call.
Remember, the US government wants to limit the latest capabilities.
Nvidia's accelerated computing in aid to the Chinese
market and the US government
would like us to see be successful in China as much as possible.
So basically what he's saying is we're not going to give you the best we can,
but these downgraded versions, we're still we have the chip to China.
And the issue then becomes is when are these customers in China going to say,
we don't want the downgraded chip, we want the high highest processor in
computing chip you have available? Speaking of China, it's easy to sit here
and get carried away with this
being the only game in town.
Take a look at Chinese equities up for an eighth consecutive session.
European stocks, if they close right now, all time highs over in Japan, the
Nikkei to 25, Paramo reclaiming the 1989 peak.
Now we've been talking about this for the last couple of days.
GDP is negative in the UK, it is negative in Germany, it is negative in
Japan. And we're talking about all time highs
in Europe. How long can we continue if the US is
really the only game in town and artificial int
elligence is driving it?
If Nvidia is driving all of the gains, can we really get bullish about Chinese
equities and about Japanese equities and about European equities?
There is a question also we got the data, the PMI's out of Europe overnight
and basically we're talking about service sector expansion for the first
time in about six months just in Germany.
Holy cow, how can you be talking about some sort of expansion?
Talk about recessionary kinds of conditions.
You put this together. You're r
ight.
How long are we talking about something that's really driven by the US just
filtering out to others? It did you see the note from Marco
yesterday? Markets line of recovery.
Jp morgan I'll keep this quote short. We find current market developments
aren't is he alone? Unfortunately, very much so.
I mean, there are a lot of people who would agree with that sentiment.
But I have to point to what Julian Emanuel said, which is FOMO is going to
FOMO, and FOMO is going to keep on running until FOM
O can't run anymore and
then it will run out. But we're still in FOMO.
It's very much on the front burner, the FOMO.
We're still FOMO Inc this morning. Does that work?
We're going to stop. Let's just stop that right there.
Anthony. Futures on the S&P 500 with a real lift
off the back of this story, positive by 1.2% in the bond market, yields down by
a basis point to 430 ten. The euro, they say strictly off the back
of that data want to wait 52. It was surprisingly good service sector
data. It wa
s surprisingly bad manufacturing
sector data. But maybe.
Everyone just sort of has shrug this off because Germany is what the sick dog of
of Europe or whatever people like to call it.
So if that's the case, the fact that service sector spending can keep going,
giving it a boom, you know, that that cross that currency cross, it's been
boring for you in a mind numbing. You know, you can come up with whatever
whatever narrative you want and play it into the cross and you know you'll have
your story
. The Barcello for Europe, let's put it
that way. Coming up this hour, lots to discuss.
The Knives of Wedbush, as in video, sparks a global stock rally.
Tobin Markus of Wolfe Research says Capital One's bid to buy Discover faces
mounting opposition and set rescue in a Standard Chartered as the Fed weighs the
risk of cutting rates too soon. We begin with our top story and video
surging on the demand to power artificial intelligence.
Fourth quarter revenue growing by 265% in the current quarter.
T
he chipmaker expecting revenue to grow to 24 billion, surpassing Wall Street
expectations Once again. Dan Ives of Wedbush saying, quote, This
is a game changing moment for the tech bulls and puts jet fuel in the tech bull
market thesis as the derivatives of I play out over the coming 12 to 18
months. Dennis joins us now for more.
Dan, I don't know where to begin. Promise me this.
When you find me wrong on this nine, you have to turn up in a black suit with a
black tie. But today you get to wear
whatever you
want it dead on. Is this the only game in town right now?
Dan, look the godfather of I in Jensen
Nvidia. I mean, this is really the earnings
heard round the world the most important earnings in many years and it shows this
A.I. party it's just getting started in terms
of relative to what we're seeing in terms of peak demand.
And now I mean, Lisa talked about it, this tidal wave of spend, it's coming to
the rest of tech. And in our opinion, that's going to
continue to fuel this tech
bull market in what I almost view as a Taylor Swift
moment for the tech bulls, we can get into the broader tech universe.
But let's talk about the lack of competition.
How relevant is the competition down? It's had.
I look, I mean, for the next maybe two or three years you have AMD.
But Lisa, she's doing some others. But right now they're the only game in
town. And that's why when you look at the
godfather of agents in a video, it's the best read for what we're seeing on the
air revolution. It a
ll starts with GPUs, but then it
goes the rest of the software. This is a read for the Hyperscalers, for
Microsoft, for Google, for Amazon, obviously chip players.
But now it's coming to the rest of software.
And that's why this is such an important moment for the market.
And I think you talk about valuation. Look, I get it.
I mean, many with their throw spreadsheets and valuation models,
they're in their bear caves right now in hibernation mode because I think this is
a stock that that's going
to continue, you know, could be four digits.
The CEO is talking about how generative AI has reached a tipping point that has,
quote, kicked off a whole new investment cycle.
Where is the investment coming from? How far can that go in terms of how much
money some of these companies have to spend on generative AI?
Yeah, I think that's really the key question.
Look, the first piece of that puzzle we saw, the hyperscale players, Microsoft,
you saw Alphabet, Amazon and others. But but now we're actua
lly seeing an
acceleration. This could last for the next 2 to 3
years in terms of from a PS perspective, from a CapEx perspective.
And I think what you're really seeing is a transformation, a change in I.T budget
says or moving toward this. And that's why the ones that win the
from software to chips, anyone that plays in the supply chain, the food
chain, this is one outside of some black swan event.
I mean these are stocks that in my opinion are going to continue to go
higher and I think it fuel
s this tech bull market, which is why this was so
important. With all the market watching, what are
they going to do with all their money? I'm looking right now they generated
$18.4 billion of revenue in one quarter, just simply from the data center
division, which is up 409% from the same period a year earlier.
Where does that money go? Well, I think now The Godfather bargains
and puts that black leather jacket on and he's going to start looking at M&A.
I mean, you guys start looking at acquisi
tions to to to really accelerate
what NVIDIA is doing, flex their muscles, the obviously buyback and some
other things from a capital allocation perspective.
But the strong going to get stronger here from Microsoft to invest here, too.
I'd say big tech. And I think right now for big tech, this
is a flex the muscles moment because of what we're seeing on generative AI.
You look at that data center number, that's the key.
There's just nothing in those numbers that make you think that this is hype,
this is real. I think it's a 1995 movement.
That's what I equate this revolution to. I hate to pour some cold water on that,
but China is a massive market for semiconductors and you're looking at
single digit growth. And that's where they expected to be
when it comes to the Chinese market. What's your outlook given they're going
to be held back in this massive, potentially huge growth market?
Yeah, that's look, that's if there's the biggest I think risk is China now right
now they're navigating
and terms that tug of war they're able to still do over
the chips but it comes down to okay I don't want the B-minus chips I want the
pause. Eventually
the rubber is going to meet the road next year, year and a half.
I mean, with restrictions, this will start to become an issue.
But I think for now, they figured out that tight route and even some growth in
the second half of the year. And that's music to the ears.
And it look, if that happens for this overall tech market, I mean it's a get
out
the popcorn moment. And what do you see in terms of
competition in China at the moment? I mean, look, there's really no
competition because they are the only game in town in terms of that premium
cheap chip. Obviously, there's one that will be
there 18, 24 months from now. You look at AMD and some others are
doing everyone trying to accelerate that.
But Jensen continues to sit there and that's why when you look at it in video,
it's the best and only read for foundational GP you and I demand.
We
saw the first piece on earnings with the Hyperscalers.
Now you see this I think this is one for you is for the next quarter, 12, 18
months. This is actually an accelerating story,
not one where it kind of peaks out. It's and the market cap change.
Almost unbelievable. And not just for them for matter too
early this month matter in a single day added $196.84 billion to its market cap,
a record edition of market cap in a single day, a record in the history of
this equity market down. We might beat
that today within video.
Why is this 1995 and not 1999? Yeah, and I think that's the question.
Right. And the reason is 1985 and not 1989.
It's because of the numbers. In other words, the modernizations just
started. So when you actually now start to look
at these numbers that that tidal waves coming to software, it's coming to the
rest of the chip sector. It's coming to the supply chain.
So it shows now the growth that we're going to see from big tech from all of
the other 493 stocks, you know
, over the next 6 to 9 months.
And like I've said, this is biggest tech transformation, 30 years.
And you can maybe even argue longer in terms of star of the Internet and it
being led by Nvidia, being led by Redmond, Nadella.
And you look at this and I think this is one where it's really the start of what
we view as a two year tech bull market. Unreal.
Dan, thank you, sir. Dan ISE of Wedbush.
That name in a free market is up by a little more than 13%.
So just unbelievable to see this play out.
A
two year bull market on the heels of, what, a ten year bull market?
I mean, it's sort of the compounded gains of a decade and 12 months on that.
Exactly. Well, I mean, you had a decade and a
day. I mean, here's the question is now, what
does exponential kind of growth look like after exponential growth, given the
fact that at some point you have to think that they're going to be other
competitors, they're going to be some potential headwinds maybe at the moment
for me personally, is the ultimat
e employment insurance.
But you see it the same way. If A.I.
is going to be as terrific as everyone thinks it's going to be, and we're all
going to lose our tails because of it. You want to be in that name, don't you?
Well, that's true. That's sort of the downside risk.
Although I do wonder at a certain point what the barrier to entry really is.
I mean, at this point, is it sort of the hot thing now?
But could there be a queue, you know, later on that is going to somehow
revolutionize thing? I r
ealize it's just completely wrong.
I'm going to get all sorts of mail. You don't understand anything.
You're right. I mean, I'm joking, but it's amazing to
see the stock is higher by more than 13%.
Plenty more coverage on this name throughout this morning.
Don't worry about that. Let's get you an update on stories
elsewhere today. Here's your full Impact brief with
Sonali Basak Ali. Hey, John, Good morning.
Now, Japanese stocks are hitting a milestone.
The Nikkei 225 index extending its stellar
rally to a record high, closing
now above a peak last achieved in December of 1989.
Technology shares and chip gear producers leading the gains and global
funds are now piling back into a market that fell out of favor for faster
growing markets like China. Japan now on a path to sustainable
growth as it escapes deflation. Now a woman billed as one of the most
likely candidates to become the next CFO of Goldman Sachs is reportedly leaving
the firm. Beth Hammack has been with the bank for
three de
cades and she moved into her latest role running the financing unit
after being passed over for the CFO role in 2021.
No woman has ever been appointed to the role of chair, CEO, president, or CFO in
the company's history. Goldman and Hammack declined to comment,
and Rivian shares are lower in pre-market trading after delivering a
mixed earnings report and a disappointing forecast.
The EV maker also announcing plans to cut 10% of its workforce and aggressive
cost cutting measures now taken for th
e third year in a row.
Rivian struggling with stagnant demand and economic turbulence, with the CEO
citing historically high interest rates as a pain point, the company has aimed
to challenge market leader Tesla since it went public in 2021.
John, that's your Bloomberg brief. I certainly thank you.
Appreciate it. Just unbelievable some of the attention
and difficulties taking place in the EV space at the moment.
More on that a little bit later. I'm next on this program.
And video sparking a glob
al stock market rally.
What we are really looking for is the rally to widen out as what I would call
basically the cyclical overhang starts to lift.
Based on this morning's price action. Good luck with that.
That's coming up next. This is Bloomberg. Stocks.
They were in nicely here on the S&P 500, positive by a 1.3% on the S&P in video
running in the free market by something like 13% plus lower by a single basis
point on a ten year full, 3049 under surveillance this morning and video
sparking a
global stock market rally. Clearly, there's certain themes playing
out. But you know, what we're really looking
for is the rally to widen out as what I would call basically the cyclical
overhang starts to lift. Here's the latest this morning.
Global stocks rallying after insidious blowout earnings report in Japan.
The Nikkei reclaiming its 1989 high. In Europe, the Stoxx 600 reaching a
fresh record topping its previous peak from January 2022.
Ben Goodrich of INVESCO remaining positive on equity
saying a continuation
of disinflation, incrementally dovish policy and resilient growth bank Ulrich
joins us now for more. Ben, let's get into that.
Why this market's going to broaden now away from these big tech names any time
soon. Well, I mean, it may not and I'll do my
best to sort of contain my enthusiasm and remain measured.
I mean, what a fabulous day for markets. I mean, those things you mentioned about
sort of disinflation and easier policy and resilient growth, I mean, doesn't
really s
ort of pique the interest at the moment.
Life's all about earnings. And I mean, what a sensational set of
results from from NVIDIA. And there is there is great momentum
there. And I think I think the equity market
sort of really nicely sort of set up from here.
I have to say, you say I try to contain my enthusiasm, but oh my God, it was so
great. Which is sort of how the market feels
right now. Julian Emanuel over at Evercore ISI has
been talking about, you know, the potential for this just to b
e a pipeline
and think later kind of moment saying that the high valuations historically
lead to incredibly low returns and saying FOMO operates at its own
timetable. Stocks can get more expensive and the
momentum ends when it ends with which is often without warning.
FOMO for now stays bet. Do you agree with that characterization,
Ben, that this is a moment of FOMO that is going to run out?
Well. Well, I mean, of course it could.
But, you know, I know this is only sort of anecdotal, but within
my sphere, I'm
spending a lot of time speaking to fund managers.
And it's not obvious that lots of fund managers are overweight.
This stock, I mean, clearly the valuation is at a headline level has
been a bit nerve wracking for more disciplined fund managers, but they are
missing out and that is a huge pain trait for many fund managers.
So I think the FOMO traders as perhaps as ill disciplined as it sounds to base
an investment strategy of, you know, I think this likes to that.
And yeah, I think
I think that could be yeah, I think those suffering that pain
could could well sort of join this this and accentuate this rally which raises
this question and John really alluded to it.
When do you see the broadening out and you're saying it doesn't necessarily
have to happen. You could just keep banking on NVIDIA
and do just fine. How much do you just have to bank on the
headline S&P market weighted index and forget about all the people who are
saying we're entering some new cycle that's going
to be some virtuous
beneficiary to all the other stocks. Well, I mean, you have to maintain, of
course, discipline in your investment strategy is sort of difficult as it is
if you're participating. You know, it's just so easy, isn't it,
to sort of sit and let this let this run.
I mean it to a degree. It depends where you're coming from and
don't wish to be sort of to blow trumpets too much.
But we have talked about our in the past, our enthusiasm for U.S.
stocks. And so our starting position is
one
where we can actually take some of these profits and maneuver them elsewhere it
into sort of small caps into into UK equities, international equities, even a
bit in emerging markets. But you know that the scale of profit
taking should not displace U.S. equities and U.S.
growth. Equities have been sort of the mainstay
in portfolios. Then you can't just drop the U.K.
in there and expect us not to notice. Let's talk about that.
How are you warming up to the U.K.? What's behind that GDP's negat
ive?
Is that a growth call about the global growth story, or is that an inflation
call, the inflation risk that might be just around the corner?
Well, how kind of you to give the U.K. some air time on this day of the year?
Yeah, I think there are some very downbeat expectations about the UK
economy that we were in technical recession at the tail of last year.
That could be the lows. I think the economy's proved more
resilient to this higher interest rate regime than anticipated.
Could be some fi
scal support coming through.
And of course, valuations maybe get us a bit of an eye roll because I know
valuations are a long talked about and and unrealized tailwinds for UK
equities, but there is an extreme there and that extremes got even greater
today. So I think, you know, there's a
geopolitical hedging there, you know, oil price type shocks, you know, U.K.
will you know, the U.K. stock market should benefit from that.
So some diversification elements in there as well.
Yeah, that valuation
gap has been a valuation trap for quite a while by
somehow this market stay sites played out.
I want to throw in Japan as well and really talk about the global market
backdrop to say Japan and the Nikkei to 25 reclaim that milestone all the way
back in 1999 is pretty phenomenal. We caught up with Becky Champion
Deutsche Bank yesterday, who basically just said look to the market daily ends
around 150. And I think what he's alluding to here,
Ben, is ultimately, can you get to 160, maybe 170?
That'
s a push. Can we drop all the way back in the
other direction? That's the ultimate risk.
And for him, Ben, he wants to avoid Japanese equities.
What do you think? Back to that?
Well, yeah, I think I'm a little bit cautious on Japanese equities as it
relates to the sort of proximity to sort of the China growth story, not totally
convinced about the sort of speed of sort of corporate governance change.
But, you know, Japanese equities that they if you're buying into them, I think
given that we hav
e all this enthusiasm over here for equities and US equities
in particular and portfolios is sort of leaning into that sort of rest on
position, you know, what's a good hedge against that will probably the yen.
And so whilst on a standalone position, you know the yen might sort of get
cheaper but for portfolio construction for diversification is probably better
off being a bit long. The yen.
So I would say sort of Japanese equities sort of give you some of that perhaps
more appeal than sort of J
GBs. And to give you that that yen exposure.
Ben, are you bearish on anything? Well, I think cash could be a an
unproductive asset for you this year. But look, that's a good point.
I mean, the 6040 that got so trashed in 2022, if you have disinflation and
resilient growth, you know, that's that's a nice backdrop to bonds and
equities. So it's hard to get sort of to you know,
I'm not I'm sort of permeable, but, you know, I think they're sort of set up
sort of direct equities and bonds here, but p
articularly equities.
Send your bearish cash. It's just another way to send your
bullish banker away. Ben, it's great to catch up that bank to
reach that an Invesco. That was such a non-answer.
That is such a non-answer. Theoretically, cash could be not a great
thing, but it's just that there are better places to put it.
But you know, it's not terrible either. Everything is good.
Honestly, the idea that people are coming out and they're trying to contain
their enthusiasm, there were multi patter
n shades of lavender and pink give
you a sense of where we are in the cycle right now.
The stock market's not the economy, I get that.
But to see Europe at all time highs off the back of the weakness we've seen
there, to see China on an eight day winning streak, I kind of get that
because they've effectively banned net selling at certain parts of the market
day. But Japan, Japan's struggling with
growth. And here we are with equities back to
where we were in 89. What Becky said yesterday was
fas
cinating. The great is a lot of the companies are
deeply tied to the United States and that that's what's benefiting a lot of
these companies, Becky. However, thanks.
They're also leveraged to some other areas which could be problematic given
that they're supposedly it's slowing down.
We just aren't seeing it. And the stock valuation.
Can I make a public service announcement?
Just a brief one. If you're about to leave the house and
you're connected to the Wi-Fi, just check you've got service on
your cell
phone stateside because many people left the house this morning, thought they had
it, then found out very quickly that they did.
And I think there's some problems out there.
Is this personal? No, I think it's personal to AT&T
specifically. Let's check out the chart.
So look out for that throughout this morning and let's see if they can get
their act together. Coming up, Senator Hawley agreeing with
Senator Warren. Opposition to Capital One's pursuit of
Discover continues to build that
conversation up next. This is what the stock market looks like
when the third biggest weighting on the S&P 500 is up something like 13%.
Equity futures are positive by 1.35% on the S&P.
The NASDAQ 100 is up by two percentage points yesterday, just squeezed out a
day of gains and snapped a two day losing streak on the S&P 500 this
morning, which is in far better than just squeezing out a day of gains.
If you get to the bond market, two year, ten year, 30 year, have I mentioned the
Federal Reserve
at all in the first 30 minutes of this program, the two year is
it for 66, 87, which is something like 40 basis points higher than where we
closed the day the Fed last met? Andrew John Horse to Citi set.
Those minutes were stale. Based on the data we've seen between
that meeting and those minutes later, I think a lot of people would agree with
him. Yes, there were some hawkish signals,
smoke signals under the hood that people kind of hooked into that they really
emphasized a risk of cutting too
soon rather than too late.
So people were saying maybe this is hawkish.
Then yields went to the highest since November.
Do you want to talk about effects? Your favorite cross?
This is Brad, most favorite currency. It's the euro against the dollar.
And really what it speaks to right now affects, as you all know, at home, it's
a relative game. And what we're seeing in America is
relative economic strength compared to weakness in Europe, weakness in Japan,
weakness in China. The euro is at one awa
y 50 this morning
and positive by a third of 1% because we've got a very low bar for
expectations. And relatively speaking, again, BMO, we
skipped that low bar. Okay, This is a reason why I really find
this frustrating. We can come up with these narratives
that make a whole lot of sense. The bottom line is us is growing much
more quickly than Europe. There's a question about whether Europe
is going to have to cut rates before the US, and basically we've traded in a
range between 109 and 107 for
the past, who knows how many months.
So trying to put a narrative to each incremental move, it's just feeling a
little tired to me. Markets go up and down, so it's
frustrating. I'm not one to wait 51 on the euro right
now. Under surveillance this morning,
confetti beats massive expectations. The stocks surging in pre-market trading
and sparking a global stock rally from Japan to Europe.
The chip maker surpassing estimates on its fourth quarter revenue and forward
guidance. Nvidia CEO Jensen Huan
g saying, quote,
Accelerated computing and generative A.I.
have hit a tipping point. Demand is surging worldwide across
companies, industries and nations. Dan Ives of Wedbush calling him what,
the godfather of AI. Yeah, just 30 minutes ago.
And what's he going to do with that money?
He's going to put on his leather jacket. He's going to go buy some and he's going
to buy some wine, which raises the question, who is he going to buy?
And will he be able to, given the fact that nothing has gotten th
rough,
including grocery store deals? So, yeah, here's this question of what
do they do with that cash and how do they remain the dominant player on this?
Yeah, Amari, JetBlue and Spirit, no Albertsons and Kroger, no Capital One to
discover, according to some senators, no.
But apparently in video is going to make a big deal.
I don't think so. Not in this I don't think not in this
market this given this FTC and DOJ. But, you know, one can hope and dream.
Also last night on top of this, another di
sclosure report from Nvidia.
It's not just the UK, the US, France, China looking into them.
UK regulators also are going to be looking into NVIDIA.
They disclosed that last night. Amazing to see this rally again this
morning. The stock up by something like 13%.
Dreadful to see this playing out over at Boeing.
The head of boeing 737 max program is out of a job after the mid-air blow out
aboard an Alaska Airlines flight earlier this year at Clark is stepping down
immediately after nearly 18 years
at the company.
The move is part of a shake up in management amid scrutiny over these 737
max jets executives will also face questions from FAA chief Mike Whitaker
during upcoming meetings in Washington. Whitaker visited Boeing Seattle area
factories earlier this week. Lisa, is this going to be enough?
It's to keep some of the wolves at bay around this company at the moment, no.
I mean, right now we haven't gotten answers really at the ultimate crux of
the issue. We haven't found out what the re
al
problem is and how they're going to remedy it.
It makes me a little sad. I have to be honest.
After watching planes take off this weekend, rather than getting on planes
and going anywhere with my son about the magic of an era that's bygone and kind
of what has gone wrong with these planes that have become mainstays of vacation
and business. Not to get all poetic, you've got to
talk about how good the food service was 20, 30 years ago.
You should be able to smoke aboard an airplane as well, wh
ich is scary.
Well, yeah, you know, really scares me. Getting on a plane and seeing the
ashtray there and a sign saying don't smoke.
But that's when you know you're on a really, really old plane.
Actually, I was looking at some of the old uniforms and they were designed by
Versace and things of that nature. I mean, for the for the flight
attendants, yes, it was a bygone era. But also back in the 1950s, flights were
$450. Van.
So think about transatlantic flights and think about what they were in
real time.
So, you know, it's a trade off, but hopefully not a trade off with things
getting blown out. The cost is the story, that's for sure.
Republican Senator Josh Hawley joining Democratic colleague Elizabeth Warren
opposing Capital One Steel to buy Discover for 35 billion.
If the deal were to go through, it would create the largest U.S.
credit card company by volume. Senator Hawley saying go next quote,
Sounds like the credit card companies are finding another way to screw the
American pe
ople. This merger should be blocked.
And Congress ought to cap credit card rates pronto.
HAWLEY Going on to say credit card rates should stop at 18% table.
Marcus, head of politics and policy at Wolf Research, joins us now for more.
So type and we'll go through the tables together.
JetBlue and Spirit Washington says no. Albertson's in Kroger.
Washington says no Capital One to discover.
According to these two senators, Washington says, no, it's bigger, always
worse in their eyes. And from a polit
ical perspective, the
wings of the two parties that these folks are speaking for, you know, the
left wing of the Democratic Party with Warren and Brown, the populist wing of
the Republican Party with Hawley. I do think there is a general allergy to
any kind of concentration. So it's not surprising to see those
folks in particular come out against the deal.
It's a relatively narrow swath of voices within both parties, but of course, a
politically influential set. You know, Warren's perspective is
very
well aligned with the DOJ and FTC leadership that's been put in place and
the sort of outside think tanks that come from that quote unquote, hipster
antitrust movement have also broadly been pretty skeptical of this deal.
So, you know, the pressure to scrutinize it, I think, is is very intense,
certainly to draw out the review. I see no reason to think this is going
to go through quickly. How it goes in courts is is a different
question, I think. And there, you know, the different
impacts
on the concentration on the issuance side of things and the kind of
pro-competitive impact of strengthening Discover as a competitor to Visa,
MasterCard cut opposite ways on this. You know, I tend to think the latter is
going to be more more compelling when it actually goes to litigation if it does.
But, you know, there are multiple different lens through which you can
look at this deal. But when you look at this kind of
pressure from a leading Democratic voice and as well as now a Republican vo
ice,
you have to think that this will weigh on this current DOJ and FTC, would you
say, already aligned with pretty much a lot of messages Elizabeth Warren has
already sent out? Yeah, I mean, the Hawley thing in
particular, I think is not going to make a difference them one way or another.
I have a really hard time believing that Jonathan Kantor is going to wake up and
see, you know, Josh Hawley statement on this and do anything differently one way
or another. The Warren thing too, I think mostl
y is
relevant in terms of shedding light on a pre-existing shared
perspective rather than as a sort of exhaustion of sorts of pressure on the
antitrust enforcers. Like, I don't think that they're taking
marching orders in real time from Warren.
But do you know, broadly share her kind of analytical perspective on this?
So, you know, it's it's a useful informal signal about what they're going
to do because they have such shared DNA, you know, more so than because they're
kind of directly responsiv
e to the political imperatives that are being
laid out by Warren Brown, Hawley and others of that kind.
There's a potential government shutdown next week.
So I want to get your take on how you see this playing out, given the fact
that we do have lawmakers in recess, do you think there could be a shutdown
given when they come back? They have 2 to 3 days to hammer out
appropriation bills to make sure the government is funded?
Yeah, I mean, certainly a possibility. I think the likelihood that they
actually get a bipartisan deal on an appropriations package in place in
advance of the March 1st deadline seems quite low to me.
I mean, they're theoretically making progress, but progress is always slower
when they're negotiating while Congress is on recess.
And by all accounts, there are a lot of sticking points remaining.
So the question is more about are we going to get another short term
continuing resolution? And I think the two possibilities are
either we get a C.R. or I would not be that
surprised to see
a short term shutdown of the four agencies for which appropriations lapsed
on March 1st. You know, in this sort of period between
the March 1st and March 8th, you know, laddered deadlines, I don't think that
there's much willingness to let defense appropriations in particular lapse.
But Speaker Johnson, I think, has shown he really does not want a shutdown.
You know, he promised he was never going to do another short term C.R.
in advance of the last shutdown deadline.
And of co
urse, he ended up doing so. So, you know, push is coming to shove
right now on whether or not we get a C.R.
or a lapse in funding. And I think he has made quite clear that
his political and substantive judgment is it doesn't really make any sense to
plow into a shutdown that nobody wants. So my operating assumption is that
they'll get another C.R. in place, despite the, you know, sort of
moaning and wailing that we get from the right wing on that.
But that remains to be seen in Johnson's decisio
n making has been somewhat hard
to predict more than a couple of days out.
TOBIN You said that nobody wants a shutdown.
Is that true? Does the former president want a
shutdown? Yeah.
I mean, that's fair, I guess. You know, neither party's congressional
leadership wants to shut down. You know, there are there are some
voices. I mean, I don't think that even Trump
really sees clear political advantage from this.
He and the policy writers at stake are not really the kinds of things like the
things
that would be triggers for a shutdown are not really that near and
dear to Trump's heart. Like he weighed in obviously, on the
immigration and Ukraine deal. That is something that is kind of core
to this case he wants to make to voters this year.
I don't really think that anything that's at stake in the current
appropriations negotiations have that character.
So, you know, at some level, he probably has a generic interest in kind of chaos
and dysfunction under Biden. But I don't think this is th
e thing that
he's, you know, sort of most mobilizing his persuasion efforts of the House
Republicans on. It seems like for the large point of
view, we're really moving on from the election as of all the issues and the
fact that he was killed or died by unspecified causes in a penal colony in
Siberia, in Russia, there is a question about whether this was going to actually
cause people to have more urgency to pass aid to Ukraine.
Have you seen that been borne out in any way ahead of the announced
potential
sanctions from President Biden tomorrow? Yeah, I don't think that the Navalny
developments really change the congressional calculations, even on the
sanctions front. My what I have heard is that this is
largely a sanctions package that has been under development for the second
anniversary of the war that's been kind of accelerated and rebranded around an
evolving thing. It's not as if this is the first conduct
from Russia that we have seen it to punish.
I think for the most part, we've
already sanctioned everything that we think it
it makes sense to sanctions. So this is not going to be the a,
I don't want to say symbolic, but it's not going to be a completely earth
shattering set of sanctions. You know, from a congressional
perspective, I continue to think that the way that aid for Ukraine either does
or doesn't get done is based on know sort of back room for calmness
negotiations between Johnson and the House and
Senate, Democratic and Republican leadership.
I think he's qu
ite genuinely cross pressured on this.
I think his political incentives not to allow a vote on Ukraine eight are quite
strong, but he has gotten the quote unquote responsible thing in some
surprising situations before with the surveillance extension issue being one
case in point, they were sort of an obvious path for him to behave as a
movement conservative, to take Jim Jordan's sort of version of that bill
and put it on the floor. And that's not what he did.
He sort of gone along with what the
Washington security establishment would
have hoped for from him. And so I think it's possible at the end
of the day that he just says, you know what, the political cost is going to be
real to me from the conservative side, but I'm going to go ahead and allow this
to be attached to the funding bills because it's the right thing to do in
the face of pressure from, you know, from the Senate and the White House.
But, you know, again, I think he's really going kind of day by day and hour
by hour. So
it's hard to have a terrible degree
of confidence about what what Johnson's going to do.
I mean, we've got to go. It's good to hear from you.
Toby Marcus there of Wolfe Research on the latest down in Washington and the
fact no one seems to like companies buying other companies.
We talk about that later. I need to check in on the house and
video. The stock is up by 14 and a half percent
laser in the pre-market, which really means that it's going to be something
like $240 billion of market cap add
ed up in one day, which is a new record.
Right. Potentially, this is the question.
Right. How do you price in astronomic growth?
It's not ending. I have no idea.
Other people are trying to and evidently it's up.
What multiple would you put on those kind of numbers we went through?
It's mind boggling. I mean, given the fact that there's,
what, 400 plus percent growth in a year in some of the revenue streams, how do
you multiply that? I checked the analysts recommendations
last night to see is any
one even saying sell the stock, don't hold it or buy it.
Last night, one analyst this morning, that individual has changed his setting
to hold no longer a sell. How do you see results like that and
forecasts like that and think, no, actually you should sell that?
Yeah, I think we call that career risk. When you see moves like this one and
you've got to sell on the stock, I think we call that career risk.
This stock is up by more than 14%. Let's get an update on stories elsewhere
this morning in
case your Bloomberg brief was Sonali Basak.
Additionally, good morning, John. More on nvidia.
Nvidia shares up in pre-market trading after the AI Darling delivered another
eye popping earnings report, the world's most valuable chip maker says revenue in
the current period will come in at a better than expected $24 billion.
CEO Jensen Huang says demand for Nvidia's newest products will continue
to outstrip supply for the rest of the year and that he is market cap has
increased by more than $400 b
illion this year, bringing its valuation to 1.7
trillion Mercedes shares trading higher in Germany.
The automaker's gloomy forecasts, offset by an announcement of a $3.2 billion
share buyback program. The CEO warning that its electric
vehicles will remain more expensive than their combustion engine siblings for
years to come, as it braces for cooling demand for cars with the plug.
And Apple is rolling out a free iPhone app to deliver real time scores, stats
and more to sports fans. The app.
It's
called Apple Sports and it's available for download in the United
States, the UK and Canada. It will include stats from the major
leagues, including the NBA, MLS and college baseball basketball.
Sorry. Apple says it plans to add more leagues
over time. That's your Bloomberg brief.
John, it's natalie. Thank you.
I just struggle to believe that's a real story.
But they're finally caught up and they're offering sports scores on a
mobile phone. Isn't that the ESPN app?
I mean, I just don't get it.
Live score.
Take your pick. It raises this.
I mean, they've been so behind on certain very specific things.
Does this mean they're going to sort of tiptoe into it and suddenly do sports
bundling and compete with me? Just I mean, I've got not much to say
about that. That's just ridiculous.
Up next on this program, the Fed weighing the risk of cutting too soon.
Since that meeting, you know, we in the Fed have gotten the CPI inflation data,
which came in very hot and a gangbusters employment report
.
That's next on the program live from New York.
This is Bloomberg. We are looking for a cool $200 billion
market cap move at the open on a single name and video.
That name is up by 14% in pre-market a beat on earnings and a bit on the
outlook as well in the equity market more broadly up by 1.36% on the S&P 500.
The NASDAQ absolutely flying in a bond market yield to low by single basis
point for 3029 hop. Even talking about the Federal Reserve
under surveillance this morning, the Fed weighing th
e risk of cutting too soon.
Since that meeting, you know, we in the Fed have gotten the CPI inflation data,
which came in very hot and a gangbusters employment report.
So as is often is the case, these are a little bit stale.
But my bottom line is maybe a bit more, a bit a touch more hawkish than perhaps
we got out of the chair's press conference in January.
Here's the latest this morning. Minutes from the Fed's January meeting
showing members were united in delaying rate cuts, only a couple of
officials
pointed to risk to the economy from waiting too long.
We'll get another peek into the Fed's thinking today.
Jefferson, Waller, Kirk, Harker and Kashkari all set to speak centric.
You and Standard Chartered joins us now for more.
Sara, let's get into the Fed. Does that sound like an FOMC set to cut
anytime soon? It certainly doesn't.
I think that we're looking at the earliest at the next quarter.
Our own view is June. I think markets are broadly in line with
that. Of course, we'll have
to see what
happens with the upcoming inflation data, the upcoming employment data.
We have a sense that Steve next Corp reading is going to be strong after
about three months of pretty subdued inflation reports on the PC front and of
course the all important February employment report.
Does it show January just to have been a surge in new hires at the start of the
new year? Does it show January to have been a
boost in wage earnings growth again, a New Year phenomenon, or is it something
which i
s likely to persist in the coming months?
Sarah I've been kind of nasty. I've been a little bit mean about the
Eurodollar cross and how it's not very interesting because it's the same story
that we know on both sides and it isn't changing.
And then people basically emphasize different things each day that come up
with incremental moves. Am I wrong or is this basically how it
feels to you to. I think so far it has done.
But I think what is interesting about Euro dollar is that we've had a lot of
very positive news on the US front. It hasn't done a huge amount to help the
dollar recently. We've had some very negative sentiment
around the euro area and yet today's PMIs suggest that it's not all one way
for the euro area. So there are some hints of of positivity
there. So it does feel as if there are there's
potential for euro to do better over the coming weeks and months as we get
perhaps a realignment of expectations, perhaps better expectations, or at least
not such bad expectations on
the euro area front and potentially sort of
fading enthusiasm on the U.S. front.
Well, do we get the sense that the boom is isolated to the United States or the
benefits are trickling elsewhere that people haven't kind of realized yet and
that that story has legs beyond Nvidia? That story definitely has legs, but it's
very much a structural story, and I think it's difficult for markets to
incorporate that into the sort of day to day.
What does it mean for, you know, activity data in Europe?
What
does it mean for policy in Europe? So it's an important, absolutely
fundamentally important aspects of economic activity and economic growth
over the coming years. But in terms of this sort of day to day
market moves, there seems to be more of an influence on the U.S.
than than elsewhere. When I look at Germany this morning,
manufacturing downturn unexpectedly deepened in February.
At the same time, you have Mercedes Benz, massive German manufacturer buying
back shares. How does the ECB look at
all of this
ahead of their rate decision? Manufacturing is important and clearly
it's very important for the German economy.
But overall, for the euro area, I suspect that the ECB is looking more
closely at what's happening to services, what's happening to activity in the
services sector. What does that mean for employment,
which is still at close to full employment, and what does that then how
does that then feed through into wages? We know that they're waiting for further
evidence that wage g
rowth is decelerating.
We had some indications that that's already in the fourth quarter, but ahead
of the meeting in April and in June, they'll want to see further clear
evidence that there's going to be no upward pressure from wage growth feeding
through to it to inflation and sort of disrupting that steady downtrend that we
see in inflation towards the 2% target. So with that in mind, could you explain
for our audience just how important the upcoming wage negotiations will be in
certain count
ries, including in Germany going into the middle of this year?
Yes, super important in terms of what information that gives to policymakers.
The wage data that we have here in Europe, in the euro area in particular,
is not so timely as we get in the in the U.S.
and therefore, it's very much a matter of what the current wage runs show.
You know how two individuals feel about the prospects for inflation.
There's some slightly sort of worrying trends in inflation expectations in the
euro area. And
policymakers will want to be clear
that wage growth is not echoing that. You know, those expectations that the
Fed has offered a threshold to reduce interest rates.
Basically, Chairman Powell said in the last news conference at the end of
January, we just need more good data, not better data, just more good data and
maybe not even as good. Sarah, what's the ECB said about what
the threshold is to reduce interest rates?
Well, it's inflation and inflation on the medium term horizon, if we want to
be technical about it. So the the it's clear that for the ECB,
the softness in economic activity is not a reason for cutting interest rates.
It could be a factor behind a future slowdown in the employment story.
And that in turn could dampen wage growth.
But it's all about inflation and what are the drivers of inflation.
From the ECB point of view, and it sees domestic drivers.
We're still seeing low goods inflation disinflation on the food front that
services inflation is still too high. It's 4
%.
And that's not consistent with getting overall inflation down to 2%.
Okay, Sarah, great to catch up. Sarah, here in the of Standard Chartered
on the difference between the ECB and the Federal Reserve, some might argue
the Federal Reserve has been a little bit clearer about the threshold to
reduce interest rates, the Federal Reserve in that minutes.
Paramo I have to say you can call them style.
You can say they're carefully crafted. I think what it speaks to overall, this
Federal Reserve is no
t in a rush to reduce interest rates anytime soon.
This line in particular caught people's attention.
Some officials noted the risk that progress towards price stability could
stall, particularly if aggregate demand strengthened or that progress in
improving supply chains could falter. This is a new kind of tone.
Fear of an upside risk to inflation that really wasn't present in the previous
press comment. Biggest risk right now cutting too soon
or waiting too long? Well, two weeks ago it was wai
ting too
long and now it's cutting too soon. So that sort of this subtle shift under
the hood on the margins has caused a 60 basis point increase in ten year yield
since the end of December. Isn't it funny if one says one data
point doesn't matter, but then one data point really changes the conversation,
that one data point last week with CPI and then you can make it too with PPI,
which is the reason why I think people are leaning into this idea that maybe
they have more ability to be patient. N
ow we're just pricing in a 30% chance
of a may rate cut. So this is how far people are pushing
back. We did see TD Securities actually
ratchet back their expectations for rate cuts to only five this year from eight
just fine. Yeah.
This is this is clearly shifting people's understanding of the what the
tail risks are. Marko Arnautovic of J.P.
Morgan mentioned him a few times this morning.
The 25% stock market rally since October was predicated on a repricing of the Fed
from cutting only twice in
24 to cutting something like seven times based on
January pricing. While most of those incremental cuts are
now priced out, the stock market did not correct it.
So that remains a mystery for people like Marco.
And then you get in video and history no more, because at the end of the day,
like Ben Gutteridge said, with not blowing trumpets and not too
enthusiastic, basically it's all about the earnings in video right now, up by
14% in the pre-market. Coming up next, look, count of UBS Asset
Manag
ement Hope. Tom Chesky, CFO, First Horizon, Stephane
Bancel, the CEO of Mattel, and Kathy Jones at Charles Schwab, the second hour
of Bloomberg Surveillance up next. We're not really sure when the Fed goes
the first time. Is it June is in July.
For most of our viewers, it simply doesn't matter.
The Fed is steady as she goes in many ways, and it's creating, I think, a lot
of volatility. I think inflation is is stickier than
maybe some folks would have thought. The lumpiness and inflation is just
part
and parcel of going through what we're going through, a normalization of
interest rates. A lot of the inflation data that we saw
recently was largely seasonal, and that will reverse in the next couple of
months. This is Bloomberg Surveillance with
Jonathan Ferro, Lisa Abramowitz and Annmarie Horden.
Never mind the S&P for 99. Let's talk about the S&P one, like from
New York City this morning. Good morning.
Good morning. Equity futures are positive by more than
1% on the S&P 500. Nvidia is h
igh by 14%.
Paramo, we talked about it yesterday. Here it is lighting up this market,
which would be equal to about $238 billion of market capitalization added
in a single day. You noted that that was more than the
one day record gain that we saw in matter greater than another.
Disney added to its market valuation three weeks ago, three weeks ago.
This is a new era. How do you frame out a seismic shift in
technology that seems to be adapted, being adapted at a record pace?
We've talked about the
reaction from the outside.
Bloomberg Intelligence found a tight air demand momentum, vital knowledge.
The report, the outlook quote, great Wedbush knives game changer was with us
an hour ago. He said it was 1995.
Let's sit on that. Why isn't it in 1999 when you see moves
like the one we saw a metta at the start of the month and on a video this
morning, because their profits, their revenues gained more than 400% year over
year. That is different than 1999 where
someone put up a shell company, ha
d a dot.com after the name and raised
$1,000,000,000. So this is sort of the difference right
now when you have companies where people can't get enough of their actual
products that seem to be delivering something that a lot of people want.
Revenue more than tripled. It's real.
It's now fictional. It's amazing.
It's just incredible. And what's incredible here, Marie, it
could have been so much better if we didn't have those problems in China.
This is where BA took it, beat Bloomberg intelligence
, took out of the report.
The fact that revenue was 22.2% a quarter earlier and it half in the
fourth quarter, 8.8% in China specifically.
So how much bigger could profit and revenue have been if they were able to
actually go after the biggest market in semiconductors and that's China?
And obviously they're being held back by export controls, which they said, of
course, they're going to make sure they're aligned with U.S.
law. I need to do a deep dive on the actual
construction of these things.
I'm very curious about it because I want
to see what the barrier to entry is. And when you have technology that's
moving so quickly, it's unclear what the next iteration of this is going to look
like. That's the big risk is that suddenly
these things become obsolete. Is it going to take five years, ten
years? Is it going to take two?
But we talk about the railroads. You talk about the car and Ford at the
time when that was a new product. Is this transformative technology seeing
only a two year d
ay in the sun or is it going to be five years or is it going to
be 15? So how important is Fed policy, given
what's taking place right now to emphasize that, given what's taken place
with the Citgo name, driving these massive gains in this equity market, not
just stateside, but arguably worldwide? Let's go back to that quote from Mark
O'Connor at Covid. J.P.
Morgan, The 25% stock market rally since October was predicated on a repricing of
the Fed. While most of those incremental cuts are
now pri
ced out, the stock market did not correct it.
So does this single name explain why Marco is struggling with this market?
I would say yes. And it's not just this name, but AMD and
their other names as well matter to matter as well.
And then if you think, okay, health care companies are going to adapt to certain
AI generative AI types of productivity gains, they too can benefit and see
maybe outsized type of expansion regardless of Fed policy.
This is why it's so tricky and this is why, frankly, a
lot of people's eyes are
glazing over. When you start talking about Fed policy
these days and video right now, a 14% Fed policy eyes glaze over.
Many Fed meeting taking place today. For those of you interesting tons of Fed
speakers, aka Jefferson, Cook, Kashkari and and Wallace, For those of you still
interested in what the Fed's got to say, because at the moment there doesn't seem
to be much interest at all. And video is up 14%.
The broader equity markets up 1.3% on the S&P 500 bond yields.
Wh
at are they? Bond yields look like this on a ten
year. We're down almost the basis point for
3089. Coming up this hour, look, kariv ups on
in videos blow out earnings report hope dump chatzky first the rise in bank CFO
on challenges facing the regional banks and Stefan Basile, the Bitcoin CEO on
the company's quote, year of transition. We begin with our top story.
It is in video flying in pre-market trading as the aig boom shows no sign of
slowing the chipmaker's outlook blowing past estimates a
nd driving the s&p 500
higher, much higher. The company CEO saying this accelerated
computing and generative A.I. have hit the tipping point.
Demand is surging worldwide across companies, industries and nations.
Luke Tower of UPS joins us now to discuss look good to catch up overweight
global like. Congratulations.
You've turned to neutral and stocks are still run it.
What do you think? It now certainly makes you a little
nervous whenever you see a report like that from world's most important
co
mpany. But no, our view is kind of been that a
lot of the juice has been squeezed in terms of what we got in the three months
ahead of going neutral. That was effectively your 97th
percentile move in global stocks, the kind of move you'd only ever gotten
historically in the past 30 years. When we were emerging from a recession
or during the heyday of the dot com bubble.
So, you know, the parallels do kind of run there.
Obviously, your promos pointed out the differences in fundamentals to that
po
int in view. But from our view, this is much not
really a bearish call on the economy. It's not really even a bearish call in
the stock market. It's really more about squaring up and
saying that, hey, after this big, big run, we just think the risk reward is a
lot more neutral in terms of the positioning metrics in particular that
we tracked. Those are the ones that inspired us and
kept us in the market even when we were kind of undergoing some wobbles last
year in Q3, Q4. And those now have tur
ned a lot more,
suggesting investors are a lot more engaged right now.
That just means to us that there's a lot more susceptibility, a lot more
vulnerability to any negative shock, whereas the right tail is a function in
our view of a much more selective part of the market.
And you can get exposure to that in other ways or directly.
There is this issue with valuation, and I saw that from Julian Emanuel as well,
that typically in the past when you have this type of valuation gain, you have
less t
han a 1% increase on the S&P at best in the following year.
Has history been interrupted by generative AI and a transformative
technology that seems to have endless demand?
Well, you never kind of want to fight history too, too much.
But however, you know, that is part of you, that is part of the thesis, a big
part of the thesis for not being underweight at this juncture.
It's knowing that, hey, if we still have a positive view on the macro economy, if
we still think that, you know, and if anyth
ing, we think the the left tail for
the economy has come in over the past 1 to 3 months, not recession risk
increasing at all if we're still going to be a world in which the economy is
growing, whether it's 1.5 to 2.5%, do we really think, like you said, Fed policy
doesn't really matter to investors much? Does growth of 1.5 versus 2.5% really
matter that much in a world where, you know, some of the world's leading
companies are growing earnings that best are heavy?
No, it doesn't. So, you know t
hat that is something in
which it is a little different this time.
Hold on. Just to set the record straight, Fed
policy matters quite a bit, just maybe not for an idea.
It matters for a lot of the smaller companies that actually have been
struggling and haven't seen the kind of growth to catch up with the in videos of
the world. How do you sort of bet on a broadening
out without a view on the Fed? Or is the Fed instrumental there in
terms of how many rate cuts they do is directly correlated to t
he strength in
some of these smaller companies? Well, I certainly think that the the
biggest beneficiaries that we had seen of the of the Fed pivot were names that
effectively needed the cycle to extend. And the Fed was viewed as effectively
raising the risk of the cycle, not being able to extend because of the lagged
effects of monetary tightening or what have you.
But what happens as growth continues to stay strong, stay strong, stay strong,
even as the the Fed even pushes back the timing of r
ate cuts, that perhaps opens
up a bit of a window for broadening out. However, that is a desert that we've
we've largely closed in terms of that sense.
On the one hand, you do have, I think, some supportive signs from global PMI
starting to pick up that that's probably more of a measured rebound.
It has a lot more to do with inventory rebuilding than any kind of genuine
thrust to growth. That's quite, quite important.
And, you know, on the other hand, you do have the pushing back of that
expecta
tions. Do you find that quite important?
And we do find that earnings growth is becoming more concentrated.
We like to follow earnings growth. We know that even at rich valuations, it
is going to be earnings growth that is going to drive the market.
But the valuation does affect that forward risk reward proposition, which
is kind of how we end up in this more neutral position.
Look, I was looking at your most recent report.
You're looking for faith in a soft landing to be slightly shaken.
What d
o you think is going to shake it up?
I think it will be more slightly shaken than anything, not in terms of the
downside risk to the economy, but more kind of what we've seen on the inflation
front recently to start the year. So when we're kind of dividing into
different economic scenarios and your probability weighting where yields,
stocks, etc., are going to be in each one for us, the economy and the rates
market has more and more priced a kind of persistent inflation environment.
And if you t
ry to decompose the Fed's inflation forecasts, how do you get from
where we were to the 3.2 Q For Q4 to 2.4 at the end of this year, how do you get
there? What does that sequentially look like?
In our view, that really looks like almost what we've gotten so far.
It involves and it implies a three month annualized inflation on core PC picking
up closer to 3% in. Six month rising closer to 2.5% in the
months to come. So a Fed that's looking for greater
confidence. Even as I would argue, these read
ings
are probably very much in line with their internal forecasts on a sequential
basis. I think you have to look around and say,
well, how is the Fed getting greater confidence if they didn't have the
confidence to take a cut at 1.9, 6.6 month annualised for PCE and now we're
running closer to 2.5. So I think that's the kind of
environment where it leads to you leading a lot of the narrowness that has
supported the market in recent times to continue to be very constructive.
That just leads to a
narrower risk reward path that do again, we land
ourselves in a more neutral. Just quickly, before you go.
How much weight are you putting on the January data?
The early data for 2024? I would say not.
Not to too much. The January effect does matter insofar
as it's influencing expectations, and we've already seen some of the top
bottom up PC and inflation forecasters that we track saying, well, there's a
risk of this bleeding into February. So I think right now it's kind of just
reset the clock
on the degree of confidence the Fed needs and you
somewhat raise the bar that's required. Does it change our view fundamentally on
the economy? No, not very much.
Does it change our view on the kind of the balance of risks, particularly to
risk assets? Yes, a little bit.
Can you just whisper your foreign exchange call just in case Lisa reaches
over the table and punches it? Certainly, we we really do think the the
dollar is a very good place to be, especially in the especially relative to
G10.
And that's, again, a an assessment of
the changing balance of risks. Right now, the kind of no landing,
persistent inflation risk has become more and more central.
The dollar, in our view, is just the the top way to protect against that
environment in which stocks and bonds are both selling off.
And we do think that in that environment, the dollar is pretty much
the only place where you get protection. I'm not a violent person.
Thank you. I wish I would be punching.
Of course not. Never Just in
commercial breaks when
people aren't well. Oh, right.
UBS. Thank you.
Equities right now doing okay. She doesn't.
Ready? I promise.
We're okay. We're okay.
And Lydia in the pre-market up by more than 13%.
Let's get you an update on stories elsewhere this morning.
Here's your Bloomberg Daybreak wish Sonali Basak Haitian Ali.
Hey, John. We're looking at President Biden.
He is on a campaign fundraising swing through the West Coast and he's
sharpening his rhetoric against Russia and the Republicans.
At an event in San Francisco, he called Vladimir Putin a, quote, crazy S.O.B.
and laid into GOP front runner Donald Trump for comparing his legal battles to
the death of Russian opposition leader Alexei Navalny.
Biden's three day California tour has included fundraisers that will add $130
million to his campaign coffers. And the head of Boeing's 737 Max unit
has been ousted from the company. Boeing says Ed Clark is stepping down,
effective immediately after nearly 18 years of service.
The manag
ement change is the first since the door handle blowout on an Alaska
Airlines flight earlier this year. And Boeing CEO David Calhoun is expected
to meet with FAA officials in Washington next week as part of the ongoing
investigation. And mobile users in the United States
reported increasing trouble connecting early this morning, according to service
tracking website Downdetector. AT&T, Verizon and T-Mobile were among
the carriers affected, with Downdetector reporting a spike in complaints at
aro
und 3:30 a.m. New York time.
And that's your Bloomberg brief, John. It's not me.
Thank you. I was one of those complaints.
I'm sure I'm next on this program. Bank regulators under pressure
regular has to do their job. I understand what's going on in the
market and there's heightened concern, scrutiny associated with this specific
segment. They're coming in and spending more time
looking at that. That conversation is coming up next live
from New York City this morning. Good morning. Stocks on the
S&P 500 firm, a hair
higher, rallying by 1.26% on the S&P 500.
And video check if get many of them this morning.
Stock is up by 12 and a half percent of session highs in the bond market right
now. Treasury yields shaping up as follows.
The two year gap in nowhere, the ten year down about a basis point, going
somewhere to about four 3431 under surveillance this morning.
Bank regulators under pressure. Regular has to do their job and
understand what's going on in the market and that there's heigh
tened concern,
scrutiny associated with a specific segment, their death and coming in and
spending more time looking at that. But, you know, I don't think it's
anything out of the ordinary versus what would have happened if there was more
concerned within another sector. Here's the latest this morning.
The KBW Regional Bank Index is down almost 10% this year.
Concerns around commercial real estate weighing on lenders and regulators alike
who are looking to avoid a repeat of last year's bank fail
ures.
There isn't a lot that first Horizon hasn't seen before.
The bank is about to celebrate its 160 year anniversary.
And the CFO, Tom Chesky, joins us now for more.
How great to see you. Good morning, John.
Thanks for having me. So this quote directly from your
website, First Horizon has served clients through Civil War, two world
wars, yellow fever, epidemics, financial panics, the Great Depression and the
Great Recession. Worried about commercial real estate.
So, yes, always worried to make
it 160 years.
You have to think through every economic environment and be prepared to look at
whatever is coming at us. And so we look at how do we underwrite
through a cycle. And Kerry is one of the ones that we do
continually look at How will it perform? Is selling assets slowing originations?
If you have to change anything based on the difficulties of other lenders?
And I need to be specific about that because your stock has held up pretty
well so far. Year to date, we have not.
We really ru
n a client first relationship model.
And so these are clients of ours. We don't think of them as a loan.
We don't think of them as portfolios that we would sell.
We are lucky to have top tier capital. And so we've been able to continue to
lend to our existing clients as well as pick up market share from our
competitors who have had to scale down their balance sheet are coming out of
some of the markets that we're in, as well as shutting down some of their
verticals. We're seeing some of our comp
etitors
completely get out of some of the products that we love, like mortgage
warehouse. And so we've been able to lean in with
our top tier capital. Just to sort of underscore that.
Have you been expanding those books in response to distress elsewhere?
We've been trying. The pipelines are really, really come
down in the last two quarters. So last quarter was our first negative
growth. On the loan side, you know, 500 basis
points of rate increase has really stressed the sector.
So as we look at
the loans that are coming through, we see less loan demand
and less that can really hurdle in this environment.
We look at how will it perform through the environment.
Even though we're at 500 basis points, we're still looking at we could see
another 100 to 200 when we underwrite the loan.
We don't think that's likely. But we also didn't underwrite loans
three years ago, expecting it to go up 500 basis points.
And so it's a lot harder right now in this environment to originate loans that
we thi
nk will make it through the cycle. We talk a lot about where is the growth
potential for some smaller banks, particularly in the profitability
sector. And I was speaking with you offline and
I said, you know, where's growth? And you said growth is a dirty word.
Why is it a dirty word? Well, for investors right now, growth in
banks has been kind of tainted with the Silicon Valley failures or signature
failures, as well as first Republic. Those banks grew really quickly.
And so as we're out on the
road talking to investors, we're doing conferences.
They're nervous about growth and banks too quickly.
They see a lot of banks, as John mentioned earlier, selling off
portfolios, shutting down some of their product lines, and they want to make
sure the banking system is strong and stable.
So our investors look at growth in this environment.
You know, a 550 basis point Fed funds rate as a little bit risky.
And so as we are looking for loan growth, we're still hoping, you know, we
still are out
there meeting our clients needs and picking up market share.
It is harder, as I mentioned earlier in the investors know that.
So when they see some of it's picking up a lot of loan growth, they know that
there's probably some risk to that. You know, you guys have been talking
about more than I have, but nobody knows where interest rates are going.
And so how do you have a lot of loan growth right now not knowing what that
interest rate environment to underwrite it?
We talk about it far too much.
We've been talking about M&A all week as
well. Is this going to be the year of the
regulator or the year of M&A? Who.
I wish I knew, John. You know, I don't think there were as
many banks more surprised to see a big deal go through than first Horizon.
You know, we were in May or May of this past year.
We were a deal that was terminated after 14, 14 and a half months of working with
the regulators or going through the merger application process.
The same week that First Republic failed, we were
told that we were not
going to get approval for our deal to happen.
So we're really excited to see a new deal come through it.
This is the first big one since the TD first Horizon was terminated and we're
going to sit on the sidelines for this one and run our bank, but excited to see
what happens. There's two things we're really looking
at in the banking industry with this deal, which is one, how quickly does it
take? We used to see bank mergers go through
in about 6 to 9 months and the two befo
re us that did get approved, they
took 12, 13 and 14 months. That's a long time for an organization
to be looking at a merger. We'll be looking at one, the timeline,
but two, how easy is it to get a merger approved in this regulatory environment?
And nobody knows right now. And this is a big one.
So we're all anxiously watching to see how this one plays out or your potential
deal with TD has in common with. This Capital One Discover deal is some
of the calls from Congress saying they should bloc
k this.
Elizabeth Warren came after that deal. She's also saying the same about this.
So where does that leave the idea of M&A in the banking environment?
Like do you think in this environment actually gets done?
Kroger can't get done? Why would Capital One be able to get
done? I hope they can get it done.
But we are sitting here today saying that the last deal that went through got
declined. They didn't they are not publicly saying
why they would not let TD Bank buy First Horizon Bank, but that
there was some
concerns they had. So I think the bigger issue for us in
banking is scale matters, the cost of technology to run systems today that
clients expect and the cost of preventing fraud is just astronomical
and it's decreasing quarter after quarter.
You heard last year a lot of regional banks increase their fraud costs and
with scale you have the ability to better handle the client needs and
prevent fraud. And I think that's one of the big ones
that Discover and Capital One I've been t
alking about is how do they compete in
the market without that scale? If regulators do sign off on it, the
Capital One deal, are you looking to be an acquirer or are you looking to be
acquired? Are there talks going on currently ahead
of that potential allowance from regulators?
For us, no. We are happy to be running first
horizon. We're celebrating our 160th anniversary
next month. Our company is really excited about our
franchise. We're continuing to build our momentum
in the marketplace. We'r
e South Southeast Regional Bank.
There's nowhere better to be the Southeast markets right now.
We have the top market growth share and we look at population growth, economic
growth. And so we are not in merger talks right
now. We don't have any we don't have any
desire to do one in the near term. Longer term, as we start to see M&A open
up, we would look at what's opportunistic for us.
The bigger thing for us is that $100 billion line for the capital bank
capital rules with Basel three, we reall
y have to sit back and say what is
Basel three going to get implemented at and what will that cost us?
Going from an $83 billion bank to something over 100 with our next
acquisition. So what's the target?
What's the sweet spot in terms of size, in terms of the types of businesses that
you'd be in While for banks? I think JPMorgan is the only one that
thinks they have enough size. If you're a $100 billion bank, you want
to be 200. If you're under a $200 billion bank, you
say you want to be 500. A
nd the five and $600 billion banks are
saying they want to be a billion. Right.
And or a trillion. So I don't think right now anybody feels
they're big enough. I think Jamie Dimon would love to do
another merger. I scale just matters right.
It is such the the game of banking is more and more expense coming in and more
regulation that's impacting our ability to make money, whether it's the current
interchange charges, the cap on client overdraft fees.
So revenue is getting capped as expenses cont
inue to grow up.
And so scale is one way that we can improve shareholder value by being able
to spread those costs against across a bigger client base.
Do you think a change at the White House would change the mood music in
Washington towards regulation if Trump were to win again?
You know, we spent a lot of time talking about that with a lot of the agencies
and a lot of the policy groups we work with, and we're just not sure.
We're not hearing a lot out of this campaign trail about how they wil
l think
about mergers going forward. It was a big one in the last when Trump
won the first time, say we're going to make it easier to do merger, going to be
open. We're not hearing that rhetoric this
time. And so we really don't have a lot of
indication just yet as to whether we would see any change with a possible
Trump or Hailey campaign. That's absolutely fascinating.
And I think that's your big frustration right now that there is this feeling,
there is still this perception that lingers from
the last term that the
former president, Donald Trump, that he would be business friendly and open to
massive deals. We've talked about it a million times on
this show. Then you see things from, say, Senator
Hawley, overnight, a Republican you wanted which way the wind is blowing in
the Republican Party. And if you're wondering, this is what
really frustrates me. You're not hearing about it.
Instead, you're hearing name calling and all sorts of questions about, you know,
adequacy tests and diff
erent things of that nature, which just leaves business
executives, investors, rank and file Americans in the lurch, trying to
understand what any of this is going to mean.
What is the policy We're trying to find out.
Hope, it's great to have you with us. You're going to stay with us.
Some place to say. Hope them to ask you that first horizon.
Coming up on this program, Internet rating estimates as the company gains
vaccine market share will catch up. The CEO, Stephane Bancel, he joins us
next.
The equity markets positive by 1.3% on
the S&P 550 is absolutely flying good time in the free market by 13%.
From New York, this is Bloomberg. Stocks on the S&P 500.
The rally continues. Equity futures on the S&P higher by more
than 1% on the NASDAQ up by more than two.
And it's all down to this disadvantage this morning.
Nvidia has done it again. The chip maker delivering yet another
sales forecast that blew past estimates thanks to seemingly unstoppable demand
for its A.I. products.
And NVIDIA
also saw a fourth quarter revenue more than triple to 22.1 billion
USD. The company's market cap has increased
by more than 400 billion this year alone, bringing its valuation to 1.7
trillion. And Lisa, maybe another something like
$200 billion in market cap added at the opening bell this morning.
I don't understand these numbers. I mean, yes, they're big and they're
getting bigger and that's great. But I don't understand the trajectory of
exponential growth. How long can it continue?
What is t
he multiple that you put on a stock that is growing more than 400%
with respect to revenues in a year? Very difficult to understand, especially
in light of the rally that we've already seen.
Know your customer? I think the customer base is really,
really important here. This is a number that I wasn't aware of.
Amazon matter, Microsoft, Google, the largest customers of and video 40% of
its revenue. So if you're worried about where the
revenue is coming from, we're talking about the most dominant
firms on the
planet that are absolutely minting cash. And this is where they spend to get this
company right here. So if you're worried about it running
out, don't be so worried because they've got plenty of cash to spend.
To your point, this is the issue, though.
At what point is there pushback about how much the margins are, about how much
they're charging for chips that they need for their cloud computing
generative offerings? So far, the sky's the limit.
It seems like even with China, it doe
sn't seem to matter when it comes to
how much they can increase their revenue.
Stock is up by 13%. I've mentioned a few times we haven't
talked about the Fed enough, so let's do that now.
Have you kind of minutes from the Fed's January meeting showing members were
united in delaying rate cuts? Only a couple of officials pointed the
risk to the economy from waiting too long, hotter than expected inflation
print since then, adding to concerns J.P.
Morgan's market come out of sync risks of stagflat
ion.
Right. And this investor should be open minded
that there is a scenario in which rates need to stay higher for longer and the
Fed may need to tighten financial conditions.
And then harking back to at least the 1970s for Marco and a team over at Jp
morgan, he's very much alone in that. I just want to put that out there.
He's been a load on a lot of calls. He's been quite lonely this year.
He's been lonely last year too. But this is really a question going
forward is how is the Fed going to r
espond to inflation that seems to be
continuing and how do we deal with what the ramifications of that is,
considering what the ramifications are, considering that artificial intelligence
has been such a game changer? It doesn't even matter for so many
companies for the economy. Sure.
But does the economy even matter if you're invested in the S&P one?
A based on these Fed minutes overnight yesterday afternoon, there's going to be
some Democratic senators that are pretty lonely.
They remember tho
se letters they were sending to Chairman Powell.
I'm not sure they registered Elizabeth Warren, Senator Whitehouse sending these
letters saying you cannot keep rates this height and restrictive.
They're talking about issues for individuals trying to get on the
mortgage property ladder. And when you look at the Fed minutes,
it's only a couple of participants pointed to the downside risks.
What this means for the economy. So is there's a big gap between what
some of these senior Democrats are sayi
ng and what the Fed actually thinks.
Where we are right now in the economy. Huge.
That's enough for the fed. Let's turn to this stock.
Materne rising after the pharmaceutical manufacturer reported fourth quarter
revenue that beat estimates. The company saying it captured a greater
share of the COVID vaccine market in the fall.
What it also expects regulators to approve its second commercial product
this year, a vaccine for RSV. CEO Stephane Bancel calling 2023 a,
quote, year of transition as we
adapted to the endemic market.
Stefan, I'm pleased to say, catches up with us again.
Stephane, you've been a wonderful friend to this program over the last year or
so. It's great to catch up with you again,
sir. I just want to go to that market share
story around COVID vaccines. How did you do that?
Where did that come from? So a lot of hard work and also being
able to communicate to doctors that the two remaining vaccines are not the same.
And so if you look at the real world evidence, we have
actually less
hospitalization of people on the Moderna vaccine than the oral vaccine.
We've also been partnering with pharmacies to make sure we get the
message out. So the team has done a lot of different
activities to ensure that we get the share that we think we deserve.
We had 30% share in 2022, and we're very pleased to have 48% share in the for
2023. Stefan Do your investors still ask about
COVID vaccines or are they much more interested in, say, a melanoma vaccine
or some sort of using th
is technology to prevent cancer?
I mean, both if you think about Moderna very much multimodal now having COVID.
So on the one hand, they want to understand the COVID cells and how we're
going to grow the COVID cells and layer on that always be sales have been
through sales because of the respiratory franchise.
He's going to be in there across the middle now forever because those virus
are not leaving the planet. But of course, we are very excited about
the future. I mean, we have a new product i
n the
pipeline if you need cancer, but also, you know, we have genetic disease.
And so it's a very exciting time for Moderna because they're getting the
existing products, but they are looking forward to the sales growth delivered by
the pipeline. So on one hand, when you talk when you
talk about RSV or you talk about COVID, there's the question we were talking
about regulatory risk, the regulatory boon of, say, the CDC coming out and
recommending that everybody get these shots every year or man
dating it for
certain positions. Are you expecting that to be the case
with things like RSV? I mean, you bothers me.
It is mostly a risk for the elderly and the very young children.
So I think the current guidelines of vaccinations for the elderly makes a lot
of sense. And we we were all very surprised,
actually, about the number of people who got to be shot last year.
You know, it was much higher than any analyst forecasted.
So we're very excited because not only we have a great product efficac
y, a very
good safety profile, but every product is approved by the regulators, which
could come as early as May 12. That's the FDA approval date.
We could be the only product available to health care professionals in a
preview to syringe. And that's really important.
As we know, there's a lot of labor shortage in health care professional,
especially very acute in pharmacy retail chains.
And if you think about the fall season, the pharmacists are very busy.
They have to do their usual work. Ther
e are a lot of products for people
and flu shots and COVID shots and now RSV shots.
But the two products available on the market are pretty obvious.
One of them is nine steps of preparation.
The other one is full steps of preparation.
One model that, again, if approved, would be the only product that is
grippy. So when you take it out of a fridge, you
clean the arm, you inject it, you put the ball back, you are done.
I really believe that health care professionals are going to be delighted
with
our product so far. And that's what I want to ask you.
You mentioned Covid, flu, RSV, so many vaccines individuals need to get in the
winter. So if you had this one shot, it would
save a lot of time and frankly, it'd be a lot easier probably, and appetizing
people to actually go out and get it. But what is the timeline?
When can we see that actually go to market?
So that's one of the very exciting news coming for 24 is we shared last year the
phase two data of a COVID plus flu combo in a single
dose.
We should see this year the Phase three data based on the platform that we have
and what we've seen with COVID, we've always been through, I expect the Phase
three to be positive. If it is positive, it will fail.
It will regulate all. So you could see this available in
pharmacies as early as a fall of 25. So that's an exciting differentiation we
will have as you see traditional flu playoffs and traditional Covid playoffs.
Stefan, I know we're against the clock with you.
You've got a busy m
orning. I just want to squeeze this in the rest
of Asia. What are you learning about the
durability of the protection it offers? Because as we understand, based on
recent reports coming from you, maybe it doesn't last as long as the competitors
and their offering does. It makes me wonder, does that affect
approval? Is that going to affect your competition
against that competitor as you run and roll that one out?
Yeah. Actually, if you look at the data, we're
very confident about our profile. And
if you look at the data, our view of
vaccine, they also wane. And so if you look at what we're going
to have in the marketplace, I think it's going to be very, very similar to what's
available today. So I don't think that's going to be an
issue at all. Stefan, I'm going to leave it there.
We promise that you escape at about 730 actually.
Account Stephane Bancel, the mRNA CEO. Thanks, Stefan.
Great to catch up. Thank you, sir.
Hope Time Chesky, CFO. First, the rise of bank is still where
us hope
. I don't want to talk about a pandemic.
I want to talk about what's happened since.
Have you been surprised by how much has changed or by how much has remained the
same? Both.
I'm very surprised by how much changed. And we thought the change was here for
good. And now it's going back.
If you talk about we'll start with remote work, nobody was going to go back
in the office. Everybody was efficient.
And then you see a lot of CEOs going back to the office two days a week,
three days a week. We're
back in the office five days a
week, four managers, four days a week for employees.
We've seen a huge uptick in productivity, especially for our junior
associates at being in the office, are talking to people and we're seeing our
branches uptake again. We thought everybody had figured out how
to use digital and nobody was going to go in a branch member.
There was like talk. There's never going to be cash again.
The US system is going to go cashless. And so everything changed pretty
materially a
nd I think we thought it was going to be for good and we're seeing it
swing back. You know, same thing was we talk about
Siri earlier. We saw huge vacancy rates two years ago
and the expectation was everyone's going to just shed office buildings.
You going to hear huge corporate real estate headquarters just being shut down
all across. And we're not saying that because even
if you're in the office two or three days a week, you need a seat for those
people. You mentioned junior bankers and they
c
oming back beyond the junior bankers, the whole staff, and they're coming back
because they want to or because you're forcing them to.
I mean, I would like to say it's because they want to they will all say, I'm sure
it's because we're forcing them to. But there's a mix in it, right?
We do still have the same flexibility we had before, but it's important to be in
the office working together, getting to know your colleagues, that
collaboration. We lost a lot of that with virtual work,
especially
as we were onboarding new employees.
When you try to build a culture, one of the things first Horizon's very proud of
is we have long tenured employees and that leads to long tenured clients.
And to build that relationship, that mentoring with our junior associates, we
really saw that fall away. So let's talk about what has changed.
We talk about consumer behaviors, YOLO trends, the fact that everyone's been
traveling, the fact that people spend in a different way.
How is that manifesting in you
r business, in what your clients are doing
and how you're sort of seeing opportunities and areas that are less
appealing? I don't think there are any areas that
are less appealing. We love our clients and we want to be
there for whatever they want to do. You know, on the consumer side, we
haven't seen spending fall off the way that we thought it would.
If you would have model three years ago 500 basis points of rate increase, we
would have thought we'd see a lot more unemployment.
And we're just
not seeing that. Consumers are very healthy in this
economy. They still have discretionary money in
the commercial side. They're still employing they're still
creating jobs in our local markets. I love being in regional banking.
One of the great things I get to do as a CFO is go meet with our clients and see
the new projects are putting up and go. I was in middle Tennessee in December
and I visited two sites. We were creating 300 jobs in some of our
smaller cities by the loans that we were givi
ng.
So we're continuing to see a really strong economy, especially in the
Southeast. This sets up the obvious question why
America needs more than 4000 financial institutions, why we need 4000 plus
banks. When we don't see that model in Canada,
we don't see that model in my home country, in the UK.
Why do we need it here? I don't know that we more than 4000, but
I'm not sure that we also want to go to five either.
Right there. The US economy is so healthy and our
average loan size for first hori
zon for our commercial banks is 2 to 3 million.
And so the clients that we're serving are not the same clients that are going
to be able to get the loan terms from JPMorgan or Citibank that have I don't
know what their average size, as you might know more than me, but I'm sure
it's not 2 to 3 million on commercial loans, probably three or four times
that. And so the regional banks are really the
main street banks. Our bankers are in the markets.
They live there. They know their clients.
They're
excited to fund a you know, a new project that brings 100 jobs to
their community. And so there is an ecosystem in the US
as a booming economy that the banking system here provides for.
We're looking forward to talking interest rates and the Federal Reserve
with you would do that in just a moment. Think this one over higher rates, good
or bad for bank stocks? Because Lisa and I've been talking about
that now for the last 18 months, still haven't got an answer of why some people
say it's the shap
e of the curve, that if you get an inverted curve, that's going
to be the change. And so that's the reason why we're
struggling with hope. He's going to answer that question next
on this program. Let's get you an update on stories
elsewhere this morning. We can do that with Sonali Basak.
Hi, Sonali. Good morning, John.
We're looking at the latest Quinnipiac Quinnipiac University poll showing that
a majority of voters think President Biden's age is a major issue heading
into the election. 67% of
respondents say the 81 year old
Biden isn't fit for a second term and only 34% says he has the mental fitness
to remain in office. Meanwhile, Donald Trump got slightly
higher marks with 41% of respondents saying he is too old to run.
Trump is 77 years old and would be the oldest person to be inaugurated if he
wins. Now a woman billed as one of the most
likely candidates to become the next CFO of Goldman Sachs is reportedly leaving
the firm. Beth Hammack has been with the bank for
three decades a
nd she moved into her latest role running the financing unit
after being passed over for CFO in 2021. No woman has ever been appointed to the
role of chair, CEO, president, or CFO in the company's history.
Goldman and Hammack declined comment. Now, Contas and Air New Zealand have
been impacted by aircraft delivery delays.
Qantas said the delivery of its ultra long haul Airbus A350 would be pushed
back, delaying the start of direct flights from Sydney to London and New
York. While Air New Zealand
now expects its
new Boeing 787 Dreamliners to arrive next year, delaying the roll out of bunk
beds in economy class that were due to be introduced on flights to New York and
Chicago this year. That's your Bloomberg brief job.
Sonali, thank you. Appreciate it.
I'm next on this program looking for clarity on the path to rate cuts.
We should not overreact to one month of data markets, in my opinion, really did.
And I don't think the Fed did. They look through a lot of the noise
like from New York
City. That conversation up next. Live from New York City.
Good morning to you. Equities on the S&P 500 up by 1.2% on
the s&p and video is absolutely flying. Tweeting the day comes from zerohedge.
I'm going to talk with guests about this.
I think it is great to put a dollar down to between invidious revenue forecasts
and estimates translates in over $1 trillion in market cap gains this
morning, all time highs in the US, Japan and Europe.
More on that comment a little bit later on.
Event is this m
orning looking for clarity on the path to rate cuts.
They want more data. The data need to be good, not better or
a lot of January effects. There were a lot of anomalies in that
data. We need to see more.
And yet we should not overreact to one month of data.
Markets, in my opinion, really did, and I don't think the Fed did.
They look through a lot of the noise. Here's the latest this morning.
The Fed minutes from the January meeting showing officials warning against
cutting interest rates too so
on since that meeting hotter than expected
inflation data muddying the path to rate cuts.
Cathie Jones at Charles Schwab sticking with her call, writing the Fed would
likely initiate the first rate cut at the May or June meeting, assuming
inflation continues to trend lower. Kathy, I'm pleased to say, is with us
now. Kathy, let's get to that.
Your takeaway from the Fed minutes yesterday.
How stale were they? They were a bit more hawkish than I
expected because they contrasted with the tone of Fed
Chair Powell's comments
in the press conference. So I was a little bit surprised to see
more that more reluctance on the part of the committee to initiate cuts.
I don't think that changes the story one way or another.
And I would agree with those comments from Claudia Sohn not to overreact to
one month's figures, but that does seem to be more hesitancy than we thought
there was at the Fed to start rate cuts. I guess they just need more data as they
keep saying they need more evidence that that
inflation is going to stay down.
We now have to wait until July for the first rate cut to be fully priced into
the market, although it's almost fully priced by June.
And I'm wondering, Kathy, how you're thinking about what this new
hawkishness, this one data point or two data points that doesn't necessarily
make a trend but does make a market how much that is affected your view going
forward? Well, we're still in the May or June
camp. We've been sort of on the more moderate
side of things all al
ong, expecting the Fed to take its time.
So I haven't changed that call yet. If we were to get a blockbuster
employment number again, where we see a huge jump in jobs or a huge jump in wage
growth and we might push it back even further.
But I think at this stage of the game, just like the Fed, we're waiting for
more data just to try to assess what they're thinking in terms of the first
rate cut and the path after that. Kathy, how much weight to put on current
market prices do you think we should
consider current market pricing just as
a weighted average of multiple views? That's a view that's come up on this
program a few times. We spoke to Mike Schumacher of Wells
Fargo yesterday who said that once the weakness kicks in, we're going to price
in 200 basis points of cuts like that really fast.
How much weight would you put on what's currently priced?
Yeah, it's it's going to vary like we've seen so much volatility and expectations
over the last year or so that I would agree that it's go
ing to shift very
quickly if we get real economic weakness, which we haven't seen.
I mean, let's face it, the economy keeps chugging along at a pretty good pace,
even though inflation's coming down, the economy's pretty resilient.
So I think that if he's right that we're going to see weaker economic data, sure,
we'll price in faster rate cuts. Kathy, do you want to just give me do
you have a view on how big that cutting cycle would be?
So our expectation is that in this year they'll cut 3 to 4 t
imes.
So 75 to 100 basis points. I'm not sure we're going to get to that
terminal rate of two and a half percent that the Fed has been talking about
because it does look like we have a more resilient economy.
And if we get a productivity boom, that at least seems to be slightly on the
horizon, or we can be hopeful that we're getting an improvement in productivity
that raises our underlying growth rate and raises the underlying neutral rate.
It's not inflationary, but it certainly can raise the n
eutral rate because our
growth rate is stronger. So that might mean that the end rate is
more like 3% rather than two and a half. Kathy, just before you go, one final
question. Top call right now, we've had a 40 basis
point repricing since the end of last month, the front end of the curve.
What do you like and why do you like it across the curve?
We still like investment grade corporate bonds that that yield curve and the
corporate bond space is positively slowed by just a little bit.
So we want
to extend duration without taking a lot of credit risk.
We still think that that's a good place to be.
Kathy, you're one of the best. It's great to hear from you.
Kathy Jones there, Charles Schwab. Kathy, thank you.
Have done. Chatzky, CFO, first, the rise of banks.
Stay with us around the table for some final thoughts.
So let's finish with this one then. I promised I'd ask this.
So I've got to ask this Are higher rates good or bad for bank stocks?
Because over the last 18 months we've had some
difficulties.
The answer is yes. Both.
That's the problem is there's not one answer for banks.
First Horizon's an asset sensitive bank. 70% of our balance sheet has repriced.
And so we have one of the best margins and net interest income in the industry
right now. So higher for longer is better for us.
We're seeing credit really is still stable, it's deteriorating, but really
stabilizing to the pre-COVID level. However, there's a lot of banks that are
liability sensitive, that are sitting on un
derwater bonds and securities, and
they need rates to go down. And I think that's the current issue.
What's good for banks is certainty. As soon as we figure out whether it's
going to be higher for longer or whether running it down to a terminal rate of
350, is it going to end up at 400, then? I think it's good for the banking
system. Uncertainty on either side rising or
decreasing rates is really hurting bank stocks.
How frustrating is it to you that smaller banks have to pay out five and a
hal
f percent to their CDS holders and to their depositors, whereas the JPMorgan's
of the world can pay out? Maybe, I don't know, you know, 3% to
their CDs because they are JPMorgan. It's frustrating as a CFO, but as we
look at the funding mix, but as I think about these, these are clients.
We don't use our CDs, We don't use our money markets as a way to fund the bank.
They're really long, deep client relationships.
We announced after the TD deal was terminated, we went out and got 32,000
new client
s for $6 billion of deposits of 45 days and 98% of our 96% of those
have stayed with us. And so when you're paying a client five
and a half percent as a CFO, you get a little bit more comfortable with it.
But it is frustrating. You know, the frustrating thing was how
much of the non-interest-bearing deposits left the regional bank during
the banking crisis and went up to, you know, the too big to fail banks and
haven't quite come back down. That's the harder part for me.
That's why I want free m
oney, which is free.
So that's why that's where I wanted to go.
How difficult has it been to retain those non-interest bearing deposits?
Have you been able to attract them back due to the relationships or has that
ship kind of sailed? I don't think it's sailed.
It's getting harder. We've had to push more into marketing
than we've had to push in in probably a decade.
On the retail side of acquiring new clients, we've had to do a lot more with
our branches. As I mentioned earlier, more and more
pe
ople are coming into branches. It's amazing.
We have a brilliant chief marketing officer.
He's done a great job and the first time is like, I need this much money to set
up mailers. I was like, Who looks at mailers?
And yet we saw that campaign results and people still walk into a branch in the
mail and say, I want a 5.25% CD. And so we're having to get back to kind
of old banking tactics and zero rate environment.
People weren't shopping their deposit accounts.
It's amazing. Can we just finish
on deposit insurance
just quickly and regulation, What kind of reforms are you advocating for?
A first horizon? The biggest one for us at first horizon
is the tailoring in Basel three, treating a $100 billion bank like
$1,000,000,000,000 bank for long term debt.
Capital hold It is it is a really hard pill for us to swallow.
For us, we estimate that Basel three, if implemented with the TLAC and the long
term debt would be about a $75 million expense add to our $2 billion expense
base. How do you
tell shareholders that
tripping over 100 billion is that much more valuable to them when we have to
add that much more long term debt onto our balance sheet?
We've heard that a lot. Lisa just wants to know whether you're
sending out toasters, set up accounts, mugs.
You know, that comes up a lot. I've had we've been asked whether people
should have toasters, bobbleheads or a big one Dawn of who are you going to
have a bobblehead of you? I grew up in New Jersey, so I still have
a Derek Jeter bobbl
ehead back when the Yankees used to give out bobbleheads.
You remember that opening day? Yes.
That's amazing. Oh,
well, they didn't give out bobbleheads. I'll just take the cash.
I'm happy to deposit wherever you just take the cash from the cash bonuses.
I stood around my first account and I was like 11 or something, a child
account. I got a little folder and I got little
pens. And it was very exciting for me.
But I was 11. I'm still with that bank in the UK.
The same one. Seriously, this one sa
ying What can I
open to account for you? John We can see that we might be able to
get you a bobblehead if you want one. I
need one bobblehead. Take that.
I'm not sure we can negotiate this stuff live on air, but I'll take a cash
deposit, a toaster, a bobblehead and whatever else is going over.
It's good to see you. Thanks, John.
Thank you so much. Thank you.
And the next hour of Bloomberg Surveillance, Madam Mahajan, Edward
Jones, Henrietta Tracer, Veda Partners, Michael Tata, Ralph MKM, and Jan
e
Serota, executive director of the Port. Of Los Angeles.
The third hour of Bloomberg Surveillance is coming up next.
With equity futures on the S&P higher by 1.3%.
And video still flying. We're not really sure when the Fed goes.
The first time is a June is a July. For most of your viewers, it simply
doesn't matter. The Fed is steady as she goes in many
ways. And it's creating, I think, a lot of
volatility. I think inflation is is stickier than
maybe some folks would have thought. The lumpiness
and then inflation is just
part and parcel of going through what we're going through, a normalization of
interest rates. A lot of the inflation data that we saw
recently was largely seasonal, and that will reverse in the next couple of
months. This is Bloomberg Surveillance with
Jonathan Ferro Lisa Abramowitz and Anne Marie Hordern.
Live from New York City this morning. Good morning.
Good morning. For our audience worldwide, this is
Bloomberg Surveillance with a focus on one name, nvidia.
It is
the best performance stuck on the S&P 500 over the last 12 months here
today and this morning, too. The stock is higher by almost 13%.
The numbers are amazing. The price reaction is incredible.
So let's start with the numbers and then we can talk about the price action
elsewhere. The numbers revenue more than triples to
22.1 billion USD. Go back to 2021.
They didn't even generate that much revenue in an entire year.
The profits, incredible reporting a 486% year over year growth in earnings per
s
hare. Okay, you've registered that.
So let's talk about the reaction to the outlook.
This from ZeroHedge. I think we need to chew over this
because they're on the money. A $2 billion down to between invidious
revenue forecast and estimates translates in over $1 trillion in market
cap gains this morning. We've got all time highs in Europe.
We're back to the highs of 1989 over in Japan and the US maybe is going to make
a high of it. Sounded a bit later we asked the
question, how do you extrapolate
out exponential growth at a company that
does seem to be at the vanguard of a sea change in society?
And the question is this is how you do it really imprecisely with a dart board
basically throwing it out, just saying it's going to keep going up.
And that's essentially what ZeroHedge was pointing out.
But this is the issue. When do you stop?
When do you go neutral to look? How is point, which isn't a bearish
neutral, it's just a how much further can we go neutral?
MH We talked about the career
risk of not being long.
This name, based on these gains we've seen not just over the last few months,
over the last 12 months plus, Oh yeah, overnight.
There was one lonely seller last night who now is a hold this morning.
So no one is saying on Wall Street, if you look at analyst recommendations that
you should sell the stock, hold it or buy it overweight on this.
I like what the Saxo head of equity said because what I said looked at the
numbers, quote, insane. You almost can't absorb how well
they're
doing. And I still go back to and I feel like
I'm a little bit about you, Lisa. Lately, I feel like I'm a little gloomy,
but I look at China. This is the biggest market for
semiconductors. And what they're looking at is revenue
is at 22%. At one point, it's now 8.8% and have to
stay there because they cannot with these export controls, they cannot get
the best chips they have into China. And China doesn't want to downgrade some
of these companies. So these have to maintain this.
And eve
n with China being the largest semiconductor space, they're still
putting out these numbers. So I keep thinking, what would these
numbers look like? They were able to tap into Chinese
growth. You don't even need to sit that close.
It just sort of rubs off on you. It's only been a month, so just wait 12
and no one even knows that. I walked in this morning, were wearing
the same colors with black turtlenecks, just sort of the bearishness sort of
kicks in. You start dressed in the same, I'm with
yo
u, I'm with you. I feel it rubbed off on me as well over
the last few years. The fact that, although bearish, I'll be
wearing teal and turtlenecks and the whole thing.
So let's talk about politics. Let's play this game.
Guess whose quote this belongs to? Okay.
This is on the Capital one Discover potential merger Get together.
This is destructive corporate consolidation of stocks.
If consummated, this merger will create a juggernaut in the credit card market
with unprecedented powers to extort Am
erican consumers.
That cannot be allowed to happen. That is not the senator from
Massachusetts. That is the senator from Missouri.
Senator Hawley has got something in common with Senator Warren.
Well, politics, sometimes you have strange bedfellows and we have seen
Senator Hawley and Senator Warren also have a lot to say about the banking
sector last year when you saw those regional banks fail, saying these
executives you should call claw back some of their pay.
But the tone now is firm in Washi
ngton about some of what's going on in M&A.
We've reported the FTC's not going to go through or they're going to sue for the
merger of Kroger and Albertsons. We've know what's what's happened with
JetBlue. And now you have Capital One to
discover. And we just had a regional bank CEO join
us, CFO, join us who said our deal from TD was the last going to be the last big
major mega-merger in banking sector. Do they actually think this deal can go
through when senior Republicans and a senior Democrat
are saying absolutely
not. I hope time, Charles of first horizon
with us just moments ago. And I think you got to the heart of the
issue big time and the frustration that you have, Lisa, with the political
debate of the moment. Here's the problem.
There is a view based on the last administration that the former
president, if he becomes the next president, will be easier somehow for
business, that these deals will just come together, executed, and we'll move
on based on what we heard from Senato
r Hawley yesterday and according to Axios,
that letter that they produced, I wonder which way the wind is going to be
blowing in the Republican Party, given this populist stance that's quickly
emerging on this front. And if the wind blow where the wind
blows is where people's views are going to be, how do you create policy?
If you're an executive with an actual balance sheet and actual money you got
to put at work? This is the frustration with Washington
DC and the reason why I'm trying to remai
n engaged and disciplined
throughout this process. You want to talk Washington, you want to
talk policy 100%. And that's the issue.
We're not talking policy. I mean, whether it's the deficit,
whether it's actually which mergers are accurate, whether it's how to protect a
regional banking system that did experience stress and did experience a
flight of non-interest bearing to. Posits, There are some real issues.
This question of entitlements, this question of our international footprint,
after ye
ars of having a reputation that really were hinged on that.
All of these things are valid conversations that we should be having.
They don't always win elections. They don't want to get up on the podium
and talk about the deficit and cutting your entitlements.
No one. That's why I've got a bit of an issue
with politicians in case anyone wasn't aware anyway.
Equities right now, honey. S&P 500 firm up by 1.2% on the S&P.
In the bond market, yields look like this a little bit higher by two basis
po
ints for 3365. Coming up this hour on the program,
Manny Mahajan of Edward Jones on why she doesn't see bubble behavior for air
stocks. Henrietta tries to evade partners
Bipartisan efforts to stop the Capital One Discover Deal and Port of L.A.
Executive director Jason Rocha on global trade disruption.
That one is a must watch a little bit later this hour.
We begin with our top story. Global stocks moving higher on the back
of invidious blockbuster earnings. Mona Mahajan of Edward Jones saying mo
re
room to run. Writing this.
We don't see bubble behavior in this age cohort because the earnings and growth
opportunity seem quite real in this backdrop of pending Fed rate cuts,
inflation potentially moderating, and the economy showing scope for
reacceleration in the back half of the year, we believe remaining fully
invested is a sound strategy for the year ahead.
Mona is with us right now. I want to go to that quote we've been
referencing from ZeroHedge. I understand the numbers are tremendo
us,
but let's talk about the price action and the response to them.
They're pointing out quite clearly, and we can see it in the numbers, there was
only a $2 billion, I'd say only, but given the stock we're talking about,
that matters. Only a $2 billion difference between the
revenue forecasts and the estimates, and it's unleashed the monster of all
rallies money. What explains that?
Yeah. Thanks, John.
And look, I think there's a couple of things that we can take away from the
video call last n
ight. One, you know, there were still
questions of whether this generative A.I.
trade was real or their real revenue is being generated or is there real demand.
And I think Nvidia continues to answer that question for us in an extremely
positive. Yes, there is.
And in fact, I think CEO Jensen said last night, generative AI's at a tipping
point. We are at the start of a very solid
investment cycle in this trend. So number one, generative AI, while
people have had thought perhaps it's a 510 year c
ycle, which we still think
we're at the early phases of a 5 to 10 year bull market, we are starting today.
And number two, and we talked about this briefly, is the valuations that have
come out of these magnificent seven names broadly and in video in
particular, you would expect after a 200% plus rally over the last year in
videos, valuations may have skyrocketed. In fact, we've seen valuations come in a
bit. So for those that have been comparing
this cohort to the 1999 2000 tech bubble.
In fact
, we're not seeing all that much similar behavior, especially from a
valuation perspective. So we do think there are positives,
positives that have come out of these earnings calls.
What we will say broadly is, yes, we're starting with the Magnificent Seven, the
enablers of AI, the building blocks of AI.
But over time, we see the gains and the positivity spreading to those that will
be benefiting from the productivity. So areas like industrials, health care,
etc., that should benefit down the ro
ad. An old friend of mine in London, Ken X,
that just wrote to me this quote I want to share with you all.
I want to be right or do want to make money.
A ten is old as time itself, intellectual gratification versus
actually doing the job you're there to do.
Mona It's easy, I think, to throw mud at some of the rallies that we're seeing,
particularly in a magnificent Seven, particularly in the Magnificent One.
Mona, how difficult is it just not to be invested in big tech given the gains
we're seei
ng over the last 12, 18 months?
Yeah, I think when we think about how these indexes have kind of evolved over
time, we know the S&P 545 to 50% now is in three sectors, and that's telecom
services and consumer discretionary. And all of the Magnificent Seven is
housed there. So if you are an investor or even
invested in an index ETF, you have about 50% exposure to large cap technology.
And so it almost has become intertwined with investing in the US market.
And, you know, from our perspective, it
does make a lot of sense to be involved
early on in some of these gains where we see this long term secular trend
emerging over time. We would expect, as we noted, a
broadening of leadership. We do think, you know, if we are in a
cycle where we're not only in a generative cycle, we're in a Fed
potentially rate cutting cycle. And by the way, there's an election
cycle coming up in the background as well.
But we do think in that backdrop, backdrop where the Fed may be cutting,
where you're probably
going to get over time at least better inflation trends
and that those both will help the consumer and the economy.
We may see early cycle behavior re-emerge, and that includes a
broadening to areas like cyclical parts of the market, areas like small caps and
mid-caps and perhaps even international play some catch up as well.
So we want to make sure that we are diversified, but we don't want to give
up that 45% exposure to the S&P 500 large cap technology space or US
government bonds. Diversifi
er is still.
Yeah, you know, we still think in this environment where yields are still
relatively high, we don't see the Fed coming back to the zero bound.
We think they'll stay somewhere in their neutral range of two and a half to 3%.
Longer term, that still is a pretty good environment for investment grade bonds.
And if you think about, you know, the environment post-crisis, where we were
at the Zero bound, it was a primarily growth story.
We think the next 5 to 10 years look like growth and v
alue.
But importantly, bonds do play a more meaningful part of your portfolio.
And if you think about duration broadly, of course at this point you're not only
locking in if you do extend your duration to some extent, especially away
from those CDs and money market funds or at least complement them, you're locking
in some of these better rates for a longer period of time.
You have the potential still, we believe, for price appreciation as the
Fed begins its rate cutting cycle. And so very much,
yes, we think bonds
are actually going to become a mainstay in portfolios more than we've seen
really in any time in recent history. I asked this of Ben Goodridge earlier
today, Are you bearish on anything? You know, what we'd say is we want to be
cautious about, you know, last year was the trade of Magnificent Seven, Mega-cap
Tech and probably CDs and money market funds.
So why are we cautious about remaining too overweight in those cash like
instruments? And we've seen a little bit of that
com
placency in that behavior from investors who have benefited from 5%
plus yields. You know, keep in mind there is some
reinvestment risk on the horizon as the Fed starts cutting rates.
There is an opportunity cost to those CDs and money markets, especially as
we've seen, the S&P has been up 24% in 2023.
We're up. 5 to 6% this year already well exceeding
money market rates. And so that's the only area that I'd say
just be mindful of the complacency that comes with just reinvesting into money
marke
ts and CDS. Amount of.
Thank you appreciate the answer was the same as the answer of the last person
who answered that question most. Thank you, John Edward Jones.
It's like spitting at a vase face. What do you parish about cash that's
about. And literally that's a great way of
putting it. It's basically everything that you like
we don't like because you're too cautious.
This is just sort of giving you a sense of how full bull everyone's gone.
Equities right now, Full Bull up by one point to 1.3
% higher on the S&P.
Let's get you an update on stories elsewhere this morning.
Here's your bloomberg brief which Sonali Basak audi.
Hey, john. The head of boeing 737 max unit has been
ousted from the company. Boeing says add clark is stepping down
effective immediately after nearly eight years of service.
The management change is the first since the door panel blowout on an alaska
Airlines flight earlier this year. And Boeing CEO Dave Calhoun is expected
to meet with FAA officials in Washington
next week as part of the ongoing
investigation. Now, minutes from the Fed's January
meeting showed the most officials remain more worried about the risk of cutting
interest rates too soon and keeping them too high for too long.
Policymakers want to see more evidence that inflation is firmly on a path to
their 2% target before they lower interest rates, with some concerns that
progress could stall. Officials agree that interest rates were
likely at their peak, but the exact timing of the first r
ate cut remained
unclear. And we're also watching President Biden
because he is on a campaign fundraising swing through the West Coast and he's
sharpening his rhetoric against Russia and the Republicans.
At an event in San Francisco, he called Vladimir Putin a, quote, crazy S.O.B.
and laid into GOP frontrunner Donald Trump for comparing his legal battles to
battles to the death of Republican opposition leader Alexei Navalny.
Biden's three day California tour has included fund raisers that will a
dd $130
million to his campaign coffers. And that's your Bloomberg brief, John.
It's not a thank you. Angry Biden is part of a strategy.
That's the campaign strategy now. Angry Biden?
Yes, he has been angry, has come out with a little bit of a temper, which
he's known to have, and he's kind of sounding off.
And he does this more so when he gets into a room with donors at a campaign
event. Yeah, but do you think this is really
about the campaign who believes that this shows and demonstrates he's
more
engaged? There's not a fragile, disconnected old
man potentially more engaged. He's angry about these issues.
But this is about because we're sitting around the table at 8 a.m.
talking about it. So potentially that is working.
Anger sells, period. Full stop.
Whether it's populist anger about credit card bills or whether it's the anger
that people feel when they log on to social media.
And that's what sort of is the algorithm.
What's also interesting, he was talking about climate.
This is th
e full quote, full quote. This is the latest, the last existential
threat. It is climate.
We have a crazy S.O.B. like that guy, Putin and others.
And we always have to worry about nuclear conflict.
But the existential threat to humanity is climate.
So it was in within a pitch about climate that he mentioned that this
Putin S.O.B.. Okay.
More angry Biden coming up later this year.
I'm next on this program. Senator Hawley and Senator Warren
agreeing on something that kind of pro-competitive impact
of strengthening
Discover as a competitor to Visa, MasterCard are going to be more
compelling when it actually goes to litigation if it does.
That's next on the program live from New York City, this is Bloomberg. Stocks on the S&P 500 higher by a little
more than 1%, about one hour and 12 minutes away from the opening bell on
this events this morning. Senator Hawley and Senator Warren
agreeing on something. I do think there is a general allergy to
any kind of concentration. So the pressure is s
crutinized, I think
is is very intense, certainly to draw out the review.
I see no reason to think this is going to go through quickly.
How it goes in courts is is a different question.
I think the kind of pro-competitive impact of strengthening Discover as a
competitor to Visa, MasterCard are going to be more compelling when it actually
goes to litigation if it does. Here's the latest this morning.
Republican Senator Josh Hawley joining Democratic Senator Elizabeth Warren in
speaking out agains
t Capital One's proposed $35 billion mega-deal to buy
discover Hawley write in. This sounds like the credit card
companies are finding another way to screw the American people.
This merger should be blocked and Congress ought to cap credit card rates
pronto. Joining us to discuss antitrust is
Henrietta Trace of Veda Partners. You get the Good Stuff this morning.
Shut down antitrust, these two agreeing with each other.
What is that about? What do you think the wind is blowing
and the Republican P
arty is wholly alone or is he got company?
I think he's in good company and he's bringing more people to the party.
As Lisa said before, anger sells and it brings, you know, all the girls to the
yard. The most important person to watch,
though, is always going to be Sherrod Brown in this situation.
And his commentary is much more sanguine.
He's in a very difficult reelection race right now.
He's not going to allow anything to happen that upsets and ruffles feathers.
If you want to skip over the
anger and exciting TV, that's that's where you
would go. And he still put out a letter almost
immediately saying they need to look at this.
Yeah, what could Congress do? Because obviously this lies with the FTC
in the DOJ. I mean, I'm afraid to answer that
question because Congress obviously can't do very much.
Right. They can barely keep the lights on.
So I don't anticipate much beyond maybe hearing I can't anticipate them getting
too in the weeds for the regulators who will very much be doing
this of their
own volition. Members are going to talk about it, but
I don't think they'll do much. Speaking of keeping the lights on,
they're struggling to do that potentially.
Next week we could see a government shutdown.
The Freedom Caucus is saying this. We're not going to secure significant
policy changes. We're not going to do that or even keep
spending below the caps adopted by the bipartisan majorities less than one year
ago. Why would we proceed when we could
instead pass a yearlong fund
ing resolution that would save Americans 100
billion in year one? They're talking about this McCarthy
Biden deal. What's your expectation?
Because they have basically two days to get this done.
Yeah, exactly. They have two days and it's only $300
billion worth of the overall government spent.
The big tranche is not till the following Friday when we get 1.2
trillion that would fall off effectively.
What I think here is we'll get another short term C.R.
because there's $100 billion in cuts go into
effect May 1st.
And we're just waiting and kicking the can till then.
So my the reason I'm up here in talking to clients is basically to say we're
going to have one more punt. And then in mid-March to mid April,
we'll get a big deal that'll tackle the sequester, it'll tackle Ukraine.
Israel border may be something to do with the tax bill potentially, although
I have low odds there, and a $55 billion domestic aid package with the Freedom
Caucus letter to Speaker Johnson basically proves this ver
y difficult
position he's in. He either deals with the Democrats and
keeps the government open, but deals with the Democrats and loses his job.
Is that a potential for him? I think the losing your job potential is
real. However, that October period when they
went three weeks without a speaker is something that's still very fresh on the
hill. If you go and talk to members, they
remember how awful that was and be mindful that they went through many
members on their roster. It's not like there's fo
lks waiting in
the wings to step in as the next speaker.
So I don't think Johnson said immediate peril.
I think he can get one more shot on goal with another short term C.R.
and then the real fight will happen in April.
So when you talk to clients who are in the market, what are they do with this?
I mean, there's an understanding that on Friday it's only $300 billion.
I've been with clients all week and they're basically like, oh, this one
doesn't matter. No one cares about these.
It is military
construction, VA amongst others, energy and water,
transportation, HUD. It's not irrelevant or anything, but you
could see from the temperature and urgency on the Hill, no one really much
cares. It's the following Friday, March 8th.
And the interesting thing about that week is that Super Tuesday is on Friday
the fifth, the state of use on the seventh and the real government shutdown
is on March eight. So it's going to be a lot just to go
full circle. It used to be that the Republican Party
was
considered the party of business. Is it still?
No, definitely not. You can talk to the US Chamber of
Commerce about that. They they do not have that business
lobby that is able to just railroad through the Republican Party, whatever
they say it goes. Now, it's a tremendous amount of
pushback. I hear things from Senate Finance
Committee and tax staff basically saying, you know, we didn't get any
points for lowering the corporate tax rate.
And then the business community came back and suspended fu
ndraising after
January 6th. There's a lot of hurt feelings.
And that animosity grew and exploded during the Trump administration and it
has not cooled off. And in fact, I think it's gotten quite a
bit worse. I think this is really interesting that.
Because there is this lingering perception lingering from the last
administration that Trump is business friendly and we get more of that if he
gets back into power. Are you saying maybe we won?
I think Tom Donohue in the US Chamber of Commerce will
tell you that he is not
business friendly and Republicans will go to the mat to combat ESG
aggressiveness, any kind of corporate wokeism.
We didn't get a tax extenders bill last year when we very easily could have it.
I don't think we're going to get one this year because the R&D tax credit,
the data image shift, the bonus depreciation provision, those are
giveaways to corporations that are not necessarily exclusively siding with
Republicans anymore. They donate to Democrats and
Republicans. Rem
ember that, saying what kind of
policies you expect in that? And as a Trump administration, if it is
indeed the next one, we're going to extend the 2017 tax cuts.
Just keeping things neutral will cost $2.7 trillion.
And one of the things I find really interesting is that the Street considers
that a fiscal easing. But it's incredible because if you look
at history, since tax cuts started, you can go back to Reagan.
They don't go up. They just keep going down and we get
extenders packages. The sam
e thing happened in 2010 when we
extended the oh 1 to 3 tax cuts again in 2012, both under Democratic presidents.
And that's what the Democratic agenda in President Biden's budget is very likely
to show when it comes out. Most, if not all, of the tax cuts for
individuals, at least under 500 K are going to be extended given the cost
associated with that. You saying that once they've done that,
there's not much space to do anything else?
They don't raise taxes, they cut taxes, they do not raise th
em.
They let some expire, but that's as close as they get.
Henrik, it's great to see you going to see it here in New York.
Henry To trace the effect of partners from, I think that go to some of the
issues you focused on. Yeah.
The fact that essentially there's not going to be any financial discipline in
Washington. So this raises this question about
auctions. You know, there was a 20 year auction
yesterday. It didn't go that well.
It's not because of the deficit. But anyway, maturity is an art f
orm.
I know, but it still is cause a sell off, whatever.
But moving on there really raises a question.
They're not going to deal with taxes only go down.
They don't go up. Right.
And guess what? Entitlements don't go down either.
So what has to give and what does this become?
A real conversation. Peter, chair of Academy Securities, is
talking about exactly the same thing. Brendan Murray, our colleague out of
London, wants us to ask a Chinese made Port Crane spying on us, which seems to
be an iss
ue at the moment. Port of our director coming up a little
bit later, cybersecurity effort coming from the president as well.
That's actually a focus in some ways. You know, very much so.
Front page of The New York Times this morning has a lot to do with this in
terms of Chinese spying on a bunch of companies as well as US allies around
the world. That's the back half of the show account
for that. Coming up next on the program, before we
get that breaking jobless claims, we'll get you the reactio
n with Michael McKay
and Michael Doughty of Rough MKM from New York City with actually futures on
the S&P 500 positive here by 1.3%. Live from New York, this is Bloomberg. Equity futures on the S&P 500 shaping up
as follows. We're positive here by 1.3%, about one
hour away from the opening bell. In the bond market, yields higher by a
single basis. Point your ten year for 3345 and foreign
exchange the euro 1 to 839 positive here 5.2% waiting for jobless claims.
The estimate is to 16. The previous
number is to 12.
Jobless claims exceptionally low if you take the chart stretching back decades.
We haven't seen numbers like this one. And Mike, it gets better.
It gets better. And this is interesting news because
this is the week that represents the February payrolls survey, 201,000
initial jobless claims last week. That's down from 200 and
to what it was last week. It's a decrease of 12,000 from the
previous week. So we only went up by 1000.
So to 13 last week, 201 this week, continuing clai
ms up to 1,862,000.
Actually, that's a decline from a revised 1,889,000.
The continuing claims are a week behind the initial claims.
So because initial claims fell last week, we're catching up with the
continuing claims were basically the bottom line of all these numbers is
nothing wrong with the Labor Department labor market at the moment.
Amazing. Let's just run through the reports,
Mike, very quickly in the equity markets still near session, highs up by like 2%
on the NASDAQ 100, on the S&P 5
00, up by one point to five.
The equity market because of an idea and I could not care less about what's going
on the bond market seemingly, but we should talk about what's going on in the
bond market. We've got a four basis point move higher
at the front end of the curve. The two has just gone three for 70.
So if you go back to when the Fed last met at the close that day, the two year
closed at something like 420. So we've reprice your time by 50 basis
points off the back of decent payrolls, da
ta, hot CPI, hot pie, the systems were
pretty decent as well. And now jobless claims, Lisa, dropping
back to 201,000. What I find interesting is not so much
the front end from this response. It's what we're seeing in the ten year
yield. It's now at the highest going back to
November of last year, and it's rising absolutely faster.
And this, to me, is raising a question about whether people are now considering
what happens when you get strong growth despite five and a half percent Fed
funds rate.
Does this mean that the actual inflation
rate is going to be higher and that the growth rate is much greater than many
people think? The stock market is ignoring this.
The bond market is not a fixed market. It's an eighth out.
The dollar is stronger. The euro is almost unchanged on the
session now at 1.27 Nikkei. Let's talk about this.
This data over the last month or so seems to be shaking up market based
expectations of the Fed, but doesn't seem to be shaking up the Federal
Reserve just yet.
How much weight are you putting on it?
Well, we put weight on it because obviously the data are suggesting
something is happening in the economy. The question is these are all one offs
so far, one CPI report and basically one jobs report that revised a previous one.
We have to see if that's continuing. But you go to the minutes yesterday and
usually the minutes don't mean a whole lot.
But in this case, the markets have taken it as having some meaning because that
was pushing back against the ide
a of early cuts, which was the market
thinking at the time. But now the market is taking this as
well. Maybe they knew something that we didn't
know about how strong the economy was. So right now we're seeing a repricing
toward where the Fed has been. So it's not going beyond that yet.
And it does tighten up financial conditions, which helps do the Fed's job
for it. You mentioned the potential growth rate
maybe being higher. That's going to be the next debate is
when the Fed starts cutting. How
low do they go?
There's already been comment from Fed officials about the possibility that the
neutral rate is higher. We'll see if they can calculate it.
When you look at the calculations, there are about 20 different models.
It seems to be a little bit higher. But does it stay there?
You said financial conditions are tightening.
Sure. You get a couple of basis point move in
the bond yield higher. But we just heard from person after
person. The biggest risk out there is having
cash because you
really just need to be invested in absolutely everything
because it's going to be an amazing year.
At what point does that become problematic for a Federal Reserve?
That did give a nod to that in the meeting minutes by saying that this
could stall some of the progress on disinflation?
Katie Greifeld and I yesterday were reminiscing about Alan Greenspan in his
irrational exuberance comments and the fact that then the market, a couple of
years after that blew up. Does that happen again?
We don't k
now. When you say invest in everything, it's
basically invested in seven things, it seems like.
So the Fed looks at that and says, what about the rest of the market?
Is the rest of the market being overpriced, which we saw in the late
1990s? And the Fed officials I've talked to
have said they don't think so at the moment.
They're keeping an eye on Nvidia and all these others because obviously bubbles
can pop if if it is indeed a bubble, but it isn't broad.
My mic. Thank you, sir.
Equities still
in a session, highs at 1.3%.
Let's run through. Bond yields are higher off the back of
hotter than expected jobless claims. The right kind of downside surprises, we
like to say yields are up by three or four basis points, three, four, seven C
on a two year lease. So looking at further along the curve,
up two or three basis points to four $34, just a little stronger off the back
of this against the euro. Want to wait 32.
You can see this on the chart as jobless claims drop dollar strengthens euro
just
a touch weaker on the session. Still the euro against the dollar is
positive by about 0.1%. My data of Ross MKM joins us now to get
it into these numbers. Mike, let's talk about them right now.
Jobless claims coming at 2a1 we look if it's 216 previous week to 13, how much
weight, Mike, are you putting on this data?
Payrolls, hot CPI, PR, ICM, decent claims, lower.
How much weight are you putting on that? You have.
Thanks for having me on, John. If we just focus on, though.
I mean, the disc
ussion would probably rapidly shift to when is the Fed going
to raise rates again, which you at least have a small minority of folks talking
about. But we had some other data that was
actually quite soft. Retail sales for January missed fairly
weak internals. Industrial production and manufacturing
were also soft. So in the broad context, I think the
data is more mixed. But no doubt about it, those Fed minutes
I do think were revealing in the sense that we do see the Fed continuing to
push back
on both the timing and the magnitude of the easing that was
expected coming into the year. And one of the things that we've been
writing about is the consensus view seemed to shift to this idea that we'd
have no recession or an economic acceleration, double digit profits
growth and six rate cuts anyway. And it didn't seem to make a lot of
sense. Our view was you get the rate cuts if
the economy really weakens and if it doesn't, then the Fed is going to be
pushing back on those expectations. And
that's what we have here with the
ten year yield. Now, each of them or 30 to last I saw,
Mike, you said timing and magnitude. Talk to me about timing and then we'll
get to magnitude. What kind of timing are you thinking
about now? Well, it's interesting.
I mean, the Fed funds futures markets. The implied yields over a three year
horizon, I think are up about 70 basis points from the lowest last year.
So that's a fairly big move. That explains why the ten year yield is
rising. We're not really se
eing a breakout in
bond market inflation expectations here, but it looks like the cuts now have been
pushed not just from starting in March to May, but perhaps not until this
summer. And it'll really depend on that data.
You know, what Fed Chair Paul was saying is that we don't know where the neutral
interest rate is. Tom likes to say that this solely an
equilibrium rate. It'll depend on how the economy
performs. If the labor market is holding up, if
financial, so-called financial conditions are
accommodative, then the
Fed is not going to have a compelling reason to start cutting rates in any
meaningful sense. And so I think it really is a dependency
to an extreme for the Fed here now. So, Mike, let's talk about the data.
We can have 12 months of economic data. Look at 2023.
Growth was strong, unemployment was low, It was south of 4%.
Mike, We were at 5.5% for much of the back half of that year.
What did we learn from that? Well, you know, what I learned was that
I think we had a fairl
y big positive supply side shock last year.
That was really the surprise. If we look at real growth, it
accelerated last year. Nominal growth actually decelerated and
that is the textbook supply and demand definition of a positive supply shock.
Yet some of the early reads on inflation coming into this year don't look so hot.
You mentioned the CPI. The pie was also hot, so we're probably
looking at a fairly warm PC E deflator for January as well.
So if that positive supply side shock is mostly be
hind us, then I do think we're
going to see the economy decelerate through the course of the year.
But expectations are pretty high here given the surprise last year, which is
that real growth accelerated. But for the Fed, you know, they really
control nominal variables. So if the policy stance is restrictive,
then one would expect nominal growth to slow.
That's been happening and continue to slow.
The question is, can can the Fed really thread the needle here on the neutral
rate in a way that p
reserves the business cycle?
And that is yet to be seen. Even though you had a lot of people
jumping up and down and taking victory laps on the soft landing last year.
Sure. Soft landing so far.
But the final Chapter seven been written just yet.
There's a lot to unpack there. I want to just sit, though, on the idea
that continuing claims fell last week and that this is going to be one of the
key contributors to the February jobs report, given the fact that we're
looking at a decline in initial j
obless claims on the week.
Mike, at what point does this data speak to a resilience that you were not
expecting that makes you change some of your expectations for the year?
Yeah. I mean, I certainly think that the
claims data has surprised to the upside. No doubt about it.
We did see a spike in both initial and continuing claims last year that now
seems to have unwound. In fact, we are getting a fairly strong
recession signal out of the continuing claims data up year over year, 20 plus
percent.
And now those numbers have started to
pull back. So we'll see whether that's sustainable.
One thing that makes me a little bit nervous about just completely embracing
the claims data in an unadulterated way is that the NF NFIB small business data
that we got for January, the hiring claims index, made a new cycle low in
January. That's a very powerful, although a bit
volatile, six month forward indicator for the unemployment rate.
Sometimes claims actually tend to lag the cycle a little bit goin
g into the
0709 downturn. Jobless claims really didn't make a
recessionary move until the spring of oh eight.
And so they're important. Let's watch the claims data.
Let's give them credit for hanging in there.
The picture looks good if we just isolate the claims numbers.
But there's a broader story to tell here.
Is that broader story that you still see recessionary signals later in the year?
I'm still worried that we have a soft landing yet.
I mean, I think the Fed is going to really be pushing
back on that on the
timing and magnitude of the rate cuts. And that does create the risks that if
and as things slow we think they will, the Fed will fall behind the neutral
rate curve. And that's how business cycles tend to
end. We've had 18 months of an inverted yield
curve. So historically that's fairly rare when
we have seen that we've either been at a cycle peak or about six months from
recession. So the lags do look longer here than
than than the average historically, but we're just not qu
ite out of the woods
yet. And the consensus view seems to be
pretty coalesced around this idea that we've successfully soft landed.
We really are out of the woods. We've dodged the recession bullet.
And that's really not our view. Hey, Mike, it's another hot data point
might data of rough and Cam appreciate it Mike self lending so far Mike's words
the final chapter hasn't been written yet.
The data looks pretty tremendous. Again, jobless claims dropping at two
one. The estimate to 16 May to get
you an
update on the network outages here stateside.
Here with the latest is Olympics Sonali Basak.
Hi, Sonali. Don, the latest is that AT&T, the
largest wireless carrier in the United States, is confirming network issues and
service disruptions. According to Downdetector, thousands of
customers reported issues starting around 3:30 a.m.
Eastern. And AT&T spokesman Jim Greer saying in a
statement, quote, We are working urgently to restore service and we
encourage the use of Wi-Fi calling until se
rvice is restored.
The cause of the issues or the number of people affected remains to be seen.
Verizon and T-Mobile both say networks are working normally.
Now, the latest Quinnipiac University poll shows a majority of voters think
President Biden's age is a major issue heading into the election.
67% of respondents say the 81 year old Biden isn't fit for a second term and
only 34% say he has a mental fitness to remain in office.
Meanwhile, Donald Trump getting slightly higher marks with 41% of
respondents
saying he is also too old to run. Trump is 77 years old and would be the
oldest person to be inaugurated if he wins.
Google is pausing Image generation of people on its AI service Gemini.
The platform is coming under criticism for how it handles race.
Users on social media pointed out historical figures, including popes and
founding fathers, were being portrayed in a variety of ethnicities and genders.
Google responded, saying Gemini's AI image generation does generate a wide
range o
f people, and that's generally a good thing.
But it's missing the mark here. That's your Bloomberg brief, John.
It's not a thank you. I'm not going to comment on that story.
I'll avoid that. Can I just say turning around and
telling people to use the wi fi, it's the most ridiculous thing I've ever
heard. I mean, seriously, what did they think
we were going to do? Yeah, exactly.
Just use the phone. Yes, sure.
Yeah. Yeah, I hadn't thought of that.
Thank you. How many hours sleep before they
actual
ly acknowledged it? It's literally been more than 5 hours.
Exactly. Any engineers that are listening to
this. But it's like when they tell your
computer is not working well, did you turn it off and turn it on?
This is what it feels like. Yeah, some of the wi fi and the thought
of that. Thank you.
18. So you appreciate it.
Up next on this programme, Global Trade Disrupted.
We have rejigged our network completely selling everything south of the Cape of
Good Hope and expect to do that for a while u
ntil we have really safe passage
reopened in in the Red Sea. So this could be with us for a while.
That conversation up next. Live from New York City this morning.
Good morning. Equities positive here by 1.3% on the
s&p under savannah this morning. Global trade disrupted.
We have rejigged our network completely selling everything south of the cape of
good hope and expect to do that for a while until we have really safe passage
reopened in in the red sea. So this could be with us for a while.
But
we also working constantly with all stakeholders to try to shorten this
crisis as much as possible and get back to a normal trading round.
Here's the latest. Red state tensions and the drought in
the Panama Canal disrupting global trade as President Biden steps up US port
security. The White House implementing
cybersecurity requirements for port owners, with officials saying over 200
ship to shore Chinese cranes can be serviced and programmed remotely.
Port of L.A. Executive director Gita Rocha
saying his
team is ready to work with the Biden administration on this effort after
establishing cybersecurity operations back in 2014.
Jane, I'm pleased to say Johnson roundtable here in New York.
Jane, it's always great to catch up. Good to see you.
Good morning, John. Let's get to the big Question of the
Day. A Chinese cranes spying on us.
They're collecting data. They're looking at information.
53% of the Port of Los Angeles businesses trade with China.
What they're using that data for is t
he question.
Yeah, that's basically a yes. Then this is what an Neuberger, the US
deputy national security adviser for cyber had to say about it.
In the Wall Street Journal report. We felt there was a real strategic risk
here. These cranes because they are
essentially moving the large scale containers in net of port.
If they were encrypted in a criminal attack or rented or operated by an
adversary, that could have real impact on our economies, movement of goods and
our military's movement of goo
ds through those ports they own, The US ports use
80% of these cranes owned by China. This is a massive risk.
It is a risk. But Anne-Marie, who else makes the
cranes? And that was the emphasis and part of
this discussion that the NSC, DHS, as well as the Coast Guard had with the
media the other night and further onward discussion is taking place today.
How can we create that industry here in the United States to build these big
shoreside cranes that are 175 to 200 feet tall managing these large
ships
that come into our nation's ports? Have you been made aware, aware of any
wrongdoing, though, that has actually gone on, or is this just at this moment
a concern? This is a great watch out for all of us
in the port industry. At the port of Los Angeles, we
implemented the nation's first cybersecurity operations center with the
help of DHS back in 2014. Last year, that cybersecurity operations
Center or C SOC, as we call it, stopped nearly three quarters of a billion cyber
intrusion attempts
at the Port of LA. We then created the Cyber Resilience
Center, bringing in nearly two dozen private sector entities partnered with
IBM, and that's stopping now intrusion attempts at the private sector level
that folks weren't aware of it. This is a crazy busy time for your
corps. So we've got ships rerouted around the
Red Sea, away from the Red Sea. We've got low water levels in the Panama
Canal. What kind of capacity you're going to
get? What percentage of capacity up right
now? Right now, Jo
hn, we're between 75 and
80% capacity. January was a big month, up 20 about 18%
from last year. A combination of a number of things,
long term labor deal in place with our dockworkers, confidence returning to the
marketplace and a four percentage point jump in market share.
I was over in India and Southeast Asia last month and what customers were
telling me was suddenly they're starting to move a little bit more of their cargo
away from traditional routes going through either the Suez or Panama
and
targeting that towards the west coast of the United States.
Specifically, what I want to get to, how much of this increased business is down
to just an increase in underlying activity because business economic
growth is doing okay and how much of it is just rerouted from other places?
It's a combination of all three. Again, stability in the market,
rewriting of cargo. And we've had six consecutive months of
cargo growth at the Port of Los Angeles. There continues to be stocking and
distribut
ion through fulfillment centers of goods that the American consumer is
buying. How much is the the activity being
rerouted not only from the Suez Canal and the Panama Canal and some of these
other hotspots, but also from the East Coast because of concerns about a labor
shortage or a labor strike that's going to disrupt some of the activity there.
All of it, we say kind of anecdotal right now and off one on one
conversations we've had. What I don't see yet are traditional
vessels in those other r
outes being pointed at the direction of Los Angeles.
So it would be akin to go into the airport and instead of flying over
London to get to Mumbai, you're going over Singapore and coming the other way.
That's basically what it looks like. More folks are booking on our
traditional services coming to LA across the Pacific and those other services, as
our friend Vincent Clark said, are rerouting around the Cape of Good Hope,
adding more vessels into the existing strings.
To make up for that weekly
transit need to tie these ideas together.
The idea of Chinese cranes and the idea that they're not being made in the US
and trade picking back up even if people have to reroute boats, is the whole
concept of near shoring a fiction and is what you're seeing right now essentially
that we have the same economy that we used to, where things are manufactured
outside of the US and brought in maybe through different ports of entry, but
ultimately from the same places. What we're seeing, Lisa, in these
conversations with companies or that it's front of mind every day and in our
industry, whether it was building containers that chassis or trailer
wheels that haul the cargo or the cargo handling equipment and shoreside cranes,
many folks from Washington to the manufacturing community are asking, how
can we take over that manufacturing process, at least on a percentage basis,
and bring it a little bit closer to home?
Again, you talked about the labor contract on the West Coast.
I remember talking
to Marty Walsh every month about it when he was in the
administration. That's in your past.
It might be in the East Coast future. What are the lessons from your
experience and what are you expecting to take place in the year to come on the
East Coast? Well, interestingly enough, I was
texting with acting Labor Secretary Julie Sue last night.
She's going to be in Los Angeles for an L.A.
Chamber of Commerce meeting this Saturday where we'll visit the East
Coast. Folks have their contract coming u
p this
summer. Time for expiring.
But please remember, they haven't gone on strike since the midnight.
1970s. Now there are big issues.
These workers have to be paid. The companies must be resilient to bring
more cargo in. And there are specificity around
automation and robotics that have to be addressed.
It's a big issue and you'll see some folks get a little bit nervous and ship
their cargo away, just like we witnessed.
Did you see the forces that led to that? Did you see that as just a moment
in
time or a new regime? How did you view that that labor
contract? Well, I think it was part and parcel of
an entire labor movement across the country.
Back home in L.A., whether it was the school district, the actors and writers,
the UAW in Detroit and the upper Midwest.
And now what we're seeing in our transportation industry, the UPS
contract with Teamsters, right? Folks worked through the pandemic with
no regard for health and safety. They were out there trying to keep this
American econom
y moving. Record profits in our industry got to
pay these folks what they're worth. What was notable about the contract in
L.A., the ports there is that it was a six year contract.
Most notably, these are four year deals, Right.
Do you expect that going forward that we can potentially make these contracts
longer? And maybe it all depends.
Traditionally, in our PMA, ILWU contract on the West Coast.
They had been six years in duration, but of more recent times we saw protracted
negotiations gettin
g us a little bit off calendar and then some extensions in the
last presidential administration in in Washington, because there was some
trepidation about how that group would react to the labor movement.
So it's kind of all over the board, but getting back on a more normal calendar
would be great for the industry, the workforce and companies.
Busiest, January 2nd. Busiest January on record, am I right?
That's right. Amazing.
Just amazing numbers, Jane. It's good to catch up.
Great seeing you al
l. Thank you.
Jane Soroka, Port of L.A. executive director.
And I think he said that that kind of spying on us, but not really spying on
us because we don't know what they do. He danced around in it, but it sounded
like a yes to me, just in a lot of words, just a slight yes my way
elections. It's kind of everyone spying on us.
I mean, this is sort of a who isn't spying on AT&T.
AT&T this morning. Not this morning.
They're not. But it's sort of you can call it spying
or you can call it data colle
ction, You can call it whatever you want.
The question is, what do you do with it and what are they going to do with it at
a time where trade's really at the forefront of a lot of tensions?
Jane, it's good to see you. Always say thank you, sir.
Coming up tomorrow, tomorrow morning, we'll be catching up with Mohammed Al
Aaron of Bloomberg Opinion Queens College, Cambridge Pay Peter, Chair of
Academy Securities, ABC's Amy Silverman and Jake Pilarski of TV Advisory.
All of that and a whole lot more
. Let's touch base on the price action
going into the up in about 34 minutes away.
Equity futures on the S&P 500 positive by 1.35% on the S&P in video check if we
can just briefly that we are off session highs up a mere 12%, just 12% Paramo.
Yeah, well, I'm this morning going to be, what, just $200 billion market cap.
Just amazing, isn't it, to see a big market cap move in about 34 minutes
time. Live from New York City, we'll catch up
with you tomorrow. Thanks for being with us.
This was Bloombe
rg Surveillance.
Comments
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