Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along with my co host of Bonnie Quinn. Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news. Kind the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and on Bloomberg dot com. Let's bring in Ken Leon, Global Director of Industry and Equity Research at c f r A Research. Ken, we're pretty much through the bank
earnings already. It's been quite the mixed result. Talked to us about your overall impression and how much these banks are differentiating one from the other these days. That's a great question. And the gloom and doom from March to to really the summer seems to be over, so the level of provision for loan loss and reserve seems to have been stabilized. The increases for it's much much smaller in the third quarter. But it's really a tale of
two stories. We're excited about the capital markets for the pure plays like Goldman Sachs and Morgan Stowing Tomorrow. They're gaining wallets share and they're also disruptors in the traditional banking area for the main street type banks consumer and commercial, they're facing still risk as it relates to how do you get volume going again for credit card and for consumer lending um and it all seems to be a
steph function of the COVID nineteen. Will there be a stimulus bill and will that sprinkle into the economy, you know, more activity, you know, US economy seventy consumer And that's why Bank America stocks down today as well as some pressure, yes, they with JP Morgan and City. How much are these banks chasing investors right now and how much are they just trying to stabilize themselves until perhaps they can give out dividends again or you know, earn some money some
other way. Well, they have a dominant position. So looking at the u US banking industry, they are gaining deposits and the assets size, but they are learning their lessons from the last recession and crisis. You know, credit quality really matters, and they're letting on a lot of the lower qualified homeowners for for mortgages or other areas like or to go somewhere else in the shadow bank. You know, so there is a quality story and you know, I
think for investors. When you look at these stocks, the broad bank stocks, the FED says, you can't raise dividends, you can't buy backstock. We're going to tell you where we are at the end of this year. So there's enormous capital being built up, which is why the return on equity ratios and regulatory ratios are so great. So next year it creates pent up return of capital to shareholders with an economy that's probably gonna be better at some point. In all of this means that this is
a cheap group. You know, you know, got City trading at less than fift of that tangible book value, which is crazy. We also see that relative to the rest of the financial sector, investors are avoiding banks today, but don't forget what this could look like six to twelve months down down the line. And that's I think this quarter is a pivot from the dark days that we saw since March to trying to figure out what next year will be. Yeah, how much does that depend on
stimulus and how soon it comes. I think stimulus is important. So going back to the traditional banks, the consumer bank, which is loans and credit cards. Unless we see the stimulus, it's not going to raise consumer confidence levels for those who work, and it's not going to add to relief for those who are forbearance on thaying their credit cards. It's a big problem. Twelve million out of work. I think the question the market is not sure is the
election stimulus after the election or in January. This is the wild card. So that's why the banks box really aren't moving much this week. You know, can over the years, you've covered them all. You've covered the big banks, You've covered the boutique banks, you've covered the exchanges, you have covered you know, everything that I can and can think of when it comes to the financial sector. What is standing out to you as the most value right now?
What's your your strongest by let's say so in our team. So I covered just the large banks right now. The rest of it, the rest of the team, names like Visa, master Card just beautifully positioned, you know, for that rebound in terms of consumer and credit card and their platforms um you know, so I think that's the area. You know, Acid Management is consolidating, we like black Stone, and that will continue, you know. Morgan Stanley, I thought it was
a great deal. They paid a premium um, but you know what they got with eating dances that a global platform. So we're seeing consolidation and asset management, uh, and that will continue as well. Are the likes of Visa master Card, as you say, the perfectly positioned for the consumer. But are they under any threat at all from the more fintech E type companies out there? It's a good question. So for you and I as consumers, we think of Visa or master Card just the credit card in our wallet,
but it's not. They really have a clearinghouse platform for transactions and they really have less risk in terms of some of the startups you know in the card area. You know. So it's a complex business, but where these Visa and master Card are situated is really in a great position. And of course American Express has some of that with their own private system, um, but you know, they have a big travel business and we know what Covid has done to that. Yeah for now, that's for sure. Ken.
Are you dipping at all into these fin techs and and these different payment type companies and seeing which of them is likely to survive the longer term? So we are watching them, and mostly what we cover are the large incontents, which are also heavily and dusting, and actually, Ken, I'm sorry we'll have to continue this another day, but an extraordinary conversation with Ken Leon there of c f R A, and we really appreciate his time. Now we want to go to the Economic Club of New York.
President Trump is addressing the e C n Y excited to have with us. Now leading labor economist Danny Blanche Flower, pro pressor of economics at Dartmouth College, former Bank of England policymaker, and really, Danny, there are so many places where we could start. I definitely want Have we got an hour and a half, right, we need to make this extra long. Well, let's get straight to it then, because we will talk breaks it in Boris Johnson and
coronavirus in Britain in a moment. But let's start with stimulus. There is a little bit of head scratching I think as to why how speaker Nancy Pelosi is holding firm and not accepting the one point a trillion dollars. And I want you to explain why it might be better for people who are suffering right now if Nancy Pelosi
doesn't accept it. If that's what you believe, well, I mean, obviously there are There are arguments, strong arguments to suggest that the Republicans should have gone out for a stimulus expect especially in areas where their candidates are in trouble, to boost how well people are feeling. UM. Stimulus in this economy is needed because people are struggling. Um, they're furlowed.
Even if they have jobs, many of them have less hours than they would like, so they have less spending and that feeds through to the economy as a whole and has a negative impact on the economy. So what happened in earlier in the year when the economy tank we went into lockdown, stimulus came that prevented things from being a lot worse. Now, obviously, I think everyone's playing political games um in a sense that if checks show up prior to the election, perhaps that will boost the Republicans.
So this is in a sense, these of political games. In terms of the economy, we need to get stimulus in there, and we need to get it in there now, especially as we're starting to see slowing down of the economy and the virus spreading. So this is head scratching stuff. People are playing politics with people's lives, and it's time to go and get busy, as the old phrase said.
But Danny, there's stimulus, and there's stimulus, and I know that there's an argument forgetting people, you know, cash immediately because there are so many suffering out there. And we'll talk about the labor market in a moment, But is it the right thing to do just to send out once again and maybe give some targeted aid to airlines or whatever? You know, you know what targeted dates an
important thing. I mean, I mean, what we know at the moment is that people who are especially struggling need help. I mean, I'm a labor economist. I have never seen this phenomenon which I've seen in the last month or two, which is all of a sudden, wage growth in a recession has gone from two percent to seven percent. Well, why is that wage growth is rising? Well, actually the reason is at the bottom fifteen percent of so of
the wage distribution has dropped out. So it's like a baseball team's average improves because the two worst players drop out. I don't mean sucess. These people are worse, but these are these are people at the lower end with low earning. So so these folks have dropped out of the wage distribution. They need help to the economy. The great thing about these folks is if you give them money, they spend
it and that has a very positive effect. So what's happening in the labor market, what's happening to people's consumption is a really big deal. Yeah, down the road, you probably want to ensure that there are airlines out there. I mean, it's a great phrase, you want to ensure the commanding heights of the economy. But I think you're right, we need to target it to people who have limited income. It's not big and they're not working. They're not out
of work because they're lazy. They're out of work because there isn't demand for people. And especially the evidence this week is actually the job losses and the labor force drops have actually disproportionately hit women because you know, it's in the industries that they particularly working in restaurants and and so on. So so I think this is a really big deal. And it's interesting as a labor economist to watch people dizzering when they should be acting, that's
for sure. And Danny a story that just came out, and because it's in your wheelhouse most recently, I do want to mention it Here, we've found out that the number of Americans dying from drug overdoses hit a record in the twelve month period ending March seventy almost seventy four thousand drug overdose deaths reporting in the twelve months through March, and they increased significantly at the start of
the pandemic. And I know that you've written a lot about this, Yes, so of say you know that there's I mean, we're not we know this. They're suffering out there, Danny. What happens with the labor market. Let's say that stimulus is stalled for now and right, well, I mean we've done a lot of work, and Case and Deaton have done all this work. And what they call death of despair, I've been writing about distress. Well, let's just connect all
of this together. That the deaths of despair and overdose death disproportionately occur amongst prime age less educated white were more increasingly amongst minorities, but particularly amongst that group. So distress is that which is the group that's crying out for help, um, the prime age less educate particularly you look who's going to Trump rallies. These folks are have been left behind and are hurting, and no other country
in the world has an opioid epidemic like this. No other country has had this huge set of prescriptions from doctors of opioids that really haven't worked. And the crucial thing to look back and now at is that America has a crisis of pain. So even though these opioids have been prescribed, they don't work, they don't solve pain. So Americans are in pain. One in four visits to a doctor people report they're in chronic pain. And that's
before the COVID virus hit. So there's vulnerable people, vulnerable communities, and we have issues of suicide and overdoses. What are people doing? I mean, we need money to help communities. And what's happened in the last decade with lots of spending cups in in in public spending cups, we made communities vulnerable and these folks have nowhere to turn. So
I think this is really terrible. American needs to try and understand this in a state of where where Dartmouth is, New Hampshire is one of these states which has unbelievably high opioid death rates. So this is something I think that the American public needs to be aware of seventy people dying from opioid overdoses. I mean there's others dying
from drug overdoses and suicides. So so this is a real crisis that we're doing nothing about, and a stimulus should focus on that, should focus on communities, to focus on trying to help mental health. And the idea that you would remove healthcare for people who are hurting not just physically, not just from COVID, but from from this deep mental health crisis is hard to understand. Well, there's a lot that's hard to understand about the current environment, Danny.
Let me ask you in the just little literally thirty seconds that we've left. Unfortunately Boris Johnson, I mean, what's his plan? Does he have one? No, hasn't got a plan. I mean the cabinet is actually the cabinet of incompetence. They're actually there because they all have views about Brexit, but not not actually very competent. We're seeing disarray. I mean even before COVID, I think I said on to you and many times on Blumber, these guys don't know
what they're doing. Continuously mug by reality. They're supposed to have a plan out there tomorrow, and the only I think the only question now is how big an impact is this going to be? And we had a poll out yesterday which now says that fifty eight percent of if the Scotts want independence, So it's splitting the community islands. It's upset. It's just a disaster. Danny, thank you again. We'll have you on again soon to talk more about this.
Dannie Blanche for our leading neighbor economist of course at Dartmouth College, professor and former bo E policymaker. Let's get an opinion now on some retail with Sarah Holzag, numer Opinion consumer columnist. Sarah, we're in the middle of Amazon Primes festivities. Let's put it that way. It started as Prime Day and now it really is Prime Days. So over several days, Amazon gives out deals. How is it
going this year? So we don't have any information from Amazon yet on how is this on how it's going, but indications are people are participating in large numbers. Some third party data suggest that the hit items so far are Amazon's own items, So it's Echo Dot smart speaker, fire TV sticks, and Amazon gift cards. Yeah, no surprise because those seem to be the products that Amazon pushes
all the time. You know, I spend a little bit of time every now and then on Amazon's website, and even when you watch a Prime video, the ads in the video are for Amazon products. I guess it's it's not illegal, and why wouldn't Amazon do it? But does it to suggest that customers are just being pushed towards certain items that you know, they're not chopping maybe as
discerning lee as they would otherwise. I mean, Amazon does certainly give really permanent play to these devices on its home page, and you can see the reasons why they would do that. It's all part of creating this very sticky ecosystem where consumers have Amazon in all different parts of their lives. So perhaps if you buy a Fire TV stick, you're more likely to watch Amazon's video streaming programming.
Then your Prime membership feels more valuable to you, and you're likely to redo it next year, and the fly wheel kind of keeps going in that way. Um So that's clearly a big reason I Amazon is pushing those products today and will continue to do so throughout the holiday season. It doesn't even seem that long ago when analysts were speculating if Amazon would start its own sort of in house brand, remember, and now suddenly it's all Amazon.
The other thing is that many of these products are fulfilled by Do we know what kind of margin Amazon gets on the products that are fulfilled by other merchants. I think some of that is not terribly clear, but I think that you know, marketplace orders are clearly a
big part of this as well. Uh. They really tried to make a big push this year in their press release and such, emphasizing that small businesses we're going to be uh you know, part of Amazon Prime Day, and that they were going to try to create certain incentives. I think some sort of like ten dollar credit or something if he spent with a small business on Amazon Prime Day. So trying to make this a rewarding day in some ways for folks who use their film, that
services and such too. You point out a great insight in today's column. Prime Day is a bigger threat than ever for rivals, and I'd urge everybody to read it that this year, you know, well we usually see Prime Day in July. This year Amazon is using it as a sort of a holiday kickoff retail extravaganza. I mean, we're pretty much passed back to school, or maybe we're
right in the middle of it. But Amazon certainly trying to take advantage of the calendar this year too, Yes, they are, and that could have really big implications for its competitors. So estimates are that Amazon is going to have about six billion in online sales take place on
its website during Prime Day. For context, last year, on Black Friday, the entire retail industry so a seven point four billion dollars in online sales, and in a typical day during the holiday season, the entire retail industry sees
about two point three billion dollars in online sales. So if Amazon rakes in six billion dollars in sales during this period, that certainly would seem to be changing the entire rhythm of the holiday season this year and pulling forwards some of those sales that would have happened on marquee days like Black Friday and Cyber Monday. You know, it's particularly sort of um something to see when you see on the other side of the ocean a sauce
which started out a little bit like Amazon. It was as seen on screen, and it was where you went sort of to get your mail order a quick fix of clothing and other items. It could face a twenty five million pound hit from taras in the event of an odeal brexit. So obviously a sauce is not really a competitor to Amazon right now. It has other problems to worry about. What are the main competitors to Amazon? So Walmart and Target I think are the key ones.
Both of them have really made major investments in their online infrastructure, expanding their assortment online and expanding their ability to get things to you quickly. I think that two days shipping promise used to be Amazon's key differentiator, and now a lot of items they're premising one day shipping. Walmart and Target are really racing to keep up with that.
Um Also, Walmart and Target are really going big on curbside pickup, which Amazon crewy does not have as many outposts to be able to offer that, and a lot of shoppers really like curbside pickup and they can get the items same day and they in that way, you can get it more quickly than if they waited for it to come to their doorstep. So those are the folks that are going to be really trying to duke
it out with the Amazon this holiday season most directly. Yeah, that data is proving a real eye opener, the curb side pick up part of things. I you know, not that I know anything, but I probably would have thought that it wouldn't be as popular as it is. But I guess for all the reasons you said, it is actually more popular than you might expect. Now, will Amazon
ever upgrade it's consumer facing experience? I was looking to perhaps buy a gift card on Amazon the other day, and honestly, it was just it was really difficult to find how to how to do that. Now, maybe I'm just not computer savvy. It does seem that Amazon is not putting much into its consumer experience. I completely agree with that, Vonnie. To me, it's just such a strange thing that Amazon is the online drug or not that it is, and that its website is as hard to
sort through as it is. I think what Amazon is really good at is when you know exactly what you want, when you just want to refill the same laundry detergent you always buy, or buy the same pack of diapers you always buy. Amazon makes it very easy to run an errand on the Internet. What Amazon is not good at is discovery type purchasing. So when you know you want addressed, but you don't know exactly which one do you want things? Do you want blue? Do you want long?
Do you want short? It's not very good at that. You know you want earrings, but none exactly which ones. It's very very difficult place to that, and I think they have a lot of work to do to fix that experience. Sarah hol Zac always spot on our consumer reck opinion columnists, Thank you. President Trump. Speaking to the Economic Club of New York and various economic clubs across the dream, he had questioning from Cindy O'Connell of the Economic Club of Florida, David Rubinstein of d C, and
Mike O'Neill of New York. We have Michael McKee with us now are chief correspondent for all things economic, both national and international, and Michael a very serious conversation here. The President putting out some ideas, a couple of inflammatory statements, like how a Joe Biden presidency would be a socialist dream in American nightmare. But at the end he was asked about things like infrastructure, stimulus, national debt. Did we hear anything new from the President? No, but we haven't
been hearing much new from him throughout this campaign. It's he mostly talks about what happened in the previous three or four years, and he talks a lot about, of course, what happened out of the Obama administration. UM the questions he was asked about infrastructure spending, he didn't answer. He said what he always says about many different things, that
he has a plan, but there's never any plan. They were coming close to a deal on infrastructure, at least Democrats in the House and the President when the President got upset with Nancy Pelosi and broke off the talks. And that was two years ago, and nothing's been done on infrastructure since. The House and Senate have a very big differences about how you would pay for infrastructure and how you'd structure the program. He said today the Wall
is one of the biggest infrastructure projects. Ever, that's not true. Um. He did shut down the border under the guys of pandemic protection, so that part of what he said about the wall was correct. He was asked about the deficit and has somebody else says quite often about this. This is one of those um up is down down his up Trump statements. He said the deficit was falling and we were going to pay off interest costs and start paying down principle on the deficit before the pandemic hit.
That's one hund degrees opposite from what was happening. The deficit was rising significantly be for the pandemic because of the tax cuts. So um, it's hard to know exactly what he was trying to do other than insult Joe Biden and stir up his base. Yes, absolutely, and I think that's probably what we can expect from him as
we approach the election. Is only what three weeks left, and we're going to get you know, viewers questions, you know, at some point tomorrow night, um and tonight in fact, as we will be hearing a lot more from the president on economic matters and so on. But really nothing moves the needle until we get some more idea of what happens with stimulus. And certainly Nancy Polosi doesn't look like she's about too given to to President Tom's requests
or whatever Republicans are requesting. Not that that's clear. Now. Well, even here's the thing. We have to remember that even if the Speaker of the House and the Secretary of the Treasury agree on some kind of deal, it would have to pass the Senate as well as the House. A number of House members have already suggested. House Democrats have suggested they would vote against it because they don't think it's big enough. And the question then becomes how
many Republicans would vote for it. If it's not considered big enough, then in the Senate you don't have fifty senators who approve of it. The Democrats pretty united against it, and half of the Republican senators say they don't want to spend anything. So at this point, there's a lot of focus on Wall Street about the talks talks in quotation marks between Nancy Pelosi and Stephen Manuchen. But the odds of something actually happening, particularly before election day, are
very very small. Yes, and for some reason, and she wasn't quite clear about it yesterday when she was speaking with wolf Blitzer. Non say, Pelosi is not willing to even consider this one point a trillion dollar stimulus. What is it in there? Michael? Can you decipher that she's so against She was actually quite angry with the two Democrats that said that they should be accepting this. H The part of the plan. Part of it is the
way the money is distributed. Part of it is the amount of money for states and localities is not enough, they believe, And part of it, obviously is politics. They don't want to give Donald Trump any kind of victory before the election. You remember the last time when the Care's Act was passed and was going out for those who got it in check form, Trump held up distribution of the checks until he could have his name printed
on it. And last thing Nancy Pelosi wants is for voters to be opening their mail the day before the election and seeing Donald Trump giving them two Yes, that is true, I'm sure, and also presumably that machine is up and running now, so there may not be so much of a delay this time around. But there is an argument to suggest that people need cash now, no matter how it comes and no matter who gets the credit, right Michael be Danny Blanchflower on earlier saying this country
is in trouble. There is particularly because pore people are losing their jobs now as we're finding more companies go out of business, and the airlines are a perfect example, not going out of business, but laying off tens of thousands of people because they don't have any business to do at this point, and that was one of the hopes of the stimulus bills that they could get aid to the airlines in the short term. But another interesting
statistic came out from the New York Fed yesterday. Of the people who got the stimulus checks the first time around, average of about dollars each either saved the money or paid down debt, and they have money in the bank. And so if this rebound continued to go faster than expected, we might have a tailwind and we might need less of the stimulus checks. I think the biggest difference now is that there are going to be people who didn't save or don't have the money, who are losing jobs
permanently who may need something. Yeah. I found that phenomenal as well, when you consider just how many people are at food banks and food lines as well who were once you know, happily employed, or all of the people around Orlando that are living in motels because they lost their job at Disney, for example, and they have to move every two weeks otherwise they risk you know, uh, being a problem for the motel owner because after two weeks you can't you know, get evicted. Normally you have
to go through the court process. I mean, there were in an array of stories out there about people suffering Michael. What should we be concentrating on over the next couple of days. It feels like Joe Biden needs to get more of an economic message out there. Actually, Biden probably needs to publicize it. Joe Biden, if you look on their website, has a very extensive economic plan that involves taxes, infrastructure, UM,
various pandemic recovery ideas. And Donald Trump UM. And I'm not saying this to be part of Donald Trump has nothing. If you go to his website, there are literally no proposals for a second term, and so it's kind of hard to know, uh what he would do, and Biden perhaps wants to make that case a little bit more. Donald Trump talk today about UM Biden plans, but if you're not us, in his speech, he didn't say what he would do. He talked a lot about how bad
the Biden and the Democrats are. And that's one of the problems people have suggested that we're seeing with Trump's poll numbers is that at this point he is talking about the previous four years and a lot of people didn't like what happened in the previous four years outside of the tax cut, and he's not talking about what happens in the next four years or even in the next year, and that makes it hard to make a
case for your reelection. Yeah, it's it's it's a phenomenal time and and you know a lot of people pointing out now that if we don't get something before the election, it's going to be January before we're even able to do more stimulus. Michael, thank you. We really appreciate your input and listening to that for us. That's Michael McKee, International Economics and Policy correspondent. Thanks for listening to Boomberg Markets podcast. You can subscribe and listen to interviews at
Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter on equin and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.