Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple car Playing and Broyd Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Let's get a preview here of what we may here from this ft of reserve, this affternoon. Dennis Lockhart is a former Atlanta Fed president, joining us from Atlanta, Georgia via that zoom thing. Dennis, thanks so much for joining us here. I guess the market's looking for a twenty five basis point cut today.
A do you think that's what we'll get? And be what kind of.
Message you think Jay Powell wants to get across today.
Well, I think it's almost a certainty that we'll get twenty five base points today. It would be a big surprise to everyone, so I put that aside. I don't think it's a question. The message coming out of this meeting will certainly describe the economy as strong, with the labor market cooling but not abruptly cooling, inflation coming down. I think you'll hear more of the same basic message that Powell has put out at previous press conferences, so
it's sort of a steady as she goes. He'll explain that the committee believes that they can continue to cut rates through twenty twenty five, and he's not going to make much noise about the election. I don't think he'll say anything that suggests any reaction to it at all. In the short term, at least, the election won't have much influence.
We don't know yet the impact on the economy of the new president's policies. Does that call for smaller rate increases in the future, or even applause until we get more clarity.
Well, I wouldn't surprise me if they consider a skip, not necessarily a pause of putting a policy path on hold, but just the slowing of the process as early as January. I really don't expect that in December, although I would point out that in the September Summary of Economic Projections there were seven people who were looking to only seventy five basis points this year in twenty twenty four. That's a constituency for skipping in December if they continue to
hold those views. So I think a skip in the one of the next two meetings, but more likely in January would allow them to take stock of what policies are likely to actually be implemented and rangers that they have in the outlook because of.
That pretty big political event earlier this week. Dennis, how should the Federal Reserve, if at all, address it today?
I don't think they should address it at all today. The formulation of monetary policy is not a political or politically influenced policy setting process. And you know, it's not as if he can ignore a question from the audience that brings it up. But I think what you'll find is power will stay very removed from anything that suggests a reaction to political events.
Does the FED, oh of the markets, any guidance.
The you know, the Fed, does it Fed oh the markets guidance? I think the Fed has been giving guidance that the direction of travel is in the direction of lower policy rates settings. They have to be indetermined as to where that will end. They just don't know. That depends a good deal on how the economy evolves over the coming months and next year or so. So I think guidance has been given. I doubt that you'll hear much in the way of amplification of that or elaboration
on that. In this meeting, the direction is to a lower overall rate setting.
Dennis, again, the FED cut race by fifty basis points, and as you just mentioned, there's the bias towards more rate cuts, yet yields to move sharply higher.
Is that what's going on there for the average investor?
I think there are a number of factors at work, but probably the one that deserves the most tension is the markets increasing their discount or pricing in some concern about the fiscal outlook both candidates. Basically, we're likely to be sustaining or even increasing deficits, and the proposals that are out there from Trump's campaign appear to be net inflation era and conceivably net fiscal fiscally unchanged in many respects,
if not worse. So I think what the markets are seeing is that the fiscal outlook coming to grips with the reality of deficits in the rising debt as of now at least don't appear to be a priority, and they're pricing that into the longer term rates.
WELLY ask you what you think the relationship should be between the President of the United States and the head of the Federal Reserve.
President of the United States should stay out of trying to influence the FED in the direction of monetary policy. The FED should operate independently. I happen to have pretty
strong feelings about this. I think it's globally a fundamental of good governance to allow your central bank to make its decisions independently, and the influence is simply in the nominations that the President makes for the Board of Governors and the chair, and after that, I think the setting up policy should be done independently with no interaction with the president.
Dennis, do you think what's the risk here if you're the Federal Reserve? Is it inflation coming back? Is it the economy tilting into a recession? Where do you think the FED is kind of folk here on that balance?
Well, I think they're focused on two things. Of course, as everyone knows, there's a dual mandate, so they have to pay attention to both employment and inflation. A stickiness of inflation at current levels, possibly a resurgence which could be based on some policy decisions that are made in the Trump administration. So that is a concern and a cracking of the good situation we have in employment markets today.
I pay attention to initial claims. If you saw initial claims shoot up, it would suggest that people are being laid off and something is changing. So I think they'll keep their eye on both and try to preserve a rather good economy we have at the moment, and particularly a good employment situation.
Can I ask you, being there in Atlanta, what was the message that you interpreted was sent by voters in the Atlanta, in Georgia and Atlanta in particular, and how should that be interpreted in the formulation of policy, whether it be monetary or fiscal.
Well, I'm so maybe a little early to opine on what the message was from the electorate in Georgia, and Georgia, of course, was like many other states around the country where Trump carried the state and got the electoral votes
from the state. You know. I think one message is that higher prices as a result of inflation, even with the argument that inflation is declining, higher prices really do affect the thinking of the voter, and I think that that was one of several factors that was not favorable to the Harris campaign. Prices rose during the hyperinflationary period
we saw right after the pandemic. Inflation has been coming down, but the prices themselves have not been coming down, and that is a real constraint on consumptions in many households, and I think there was to some degree a vote against that reality.
Dennis Lockhart, thank you so much for joining us. Dennis Lockhart, former Atlanta Fed President, joining us from Atlanta via zoom thing. And when I think about Atlanta, phenomenal city, I've got, you know, just over my career, Senia experienced the growth of Atlanta, having gone there for so many times and had a lot of investment banking clients there. Every single street is named Peachtree Streeter.
I believe Dennis's firm is on peach Street.
Right, Yeah, Basically something like something like thirty six streets have the word Peachtree in the so it's very easy to get confused. And then there are a lot of other institutions that to use the word Peachtree. So it's a certainly a Peachtree crazy city, to say the least.
Dennis, thanks so much for joining us. Former FED president for Atlanta, Dennis Lockhart. Yeah, it's it's amazing. It's a huge city, cosmopolitan, global city, but yeah, somebody, you know what, it's Peachtree, but it's Peatree north West Southeast, and it's street, it's Avenue, it's this. And so before you had like GPS, you'd say, you give an address to a cab driver nine times at attendant, you take it to the wrong place because it's oh it's Peachtree Southeast you wanted, you know.
It's like and of course home to Coca Cola.
Yeah, it's an awesome town, that great stuff. And it's just been I tell you, it's just been one of those you talk about the you know, the growth of the sun Belt, and Atlanta was the first, you know, and just the dynamic growth just over the last.
Thirty forty years has been extraordinary.
So now I think like the fourth bag is market in the US, it's something huge like that.
It's on my bucket list. I haven't been yet, oh dude. I mean, I think I've been through the airport, but that was Yeah.
But the traffic is just brutal down there.
It's one of those again in the growth of the Southeast.
You know, these towns go.
So quickly the traffic, you know that the instructure can't keep up. But anyway, getting the latest from Dennis Lockhart.
Down there, you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty all.
Right, not nostiting it for Alex deal on Paul Swingeel Life here in our Bloomberg Interactive Brokers studio, streaming live on YouTube as well. It is FED Day, and after announcing what's widely expected to be a quarter point cut industrates, the FED will have to reassure markets it can manage the impact of a president elect who's valed a raft of new tariffs and tax cuts. What does that mean is FED Chairman j Palce did his job just get
more difficult after twas Tuesday's political election results. Katerina sara Eva joints us here, a Federal.
Reserve reporter from Bloomberg News.
Katerina did FED chairman pals job get a little bit more difficult given the presidential election results from Tuesday?
I think in a way, yeah, I mean, of course, you will try to you know, steer clear of anything politics related in his press conference, and you know, when he's asked about it going forward, they always try to remain a political But I think the reality of a new administration is that we are likely to see some policies that may stoke inflation a little bit or even growth. Right, it's not all negative, but it does mean, you know, it may change some things for the FED, and we've
certainly seen that in banks. You know, some of the Wall Street economists and financial markets kind of repricing what they expect for the FED going forward.
So what do you think we're going to get out of today? I feel like it's going to be a pretty boring FED meeting since they're locked in for twenty five basis points.
But they probably won't want to.
Say anything about the next meeting, certainly not about twenty twenty five.
Right, Yeah, I think that's right. I think today should be pretty boring. They're probably going to deliver what we're all expecting, which is that quarter point cut, like you're saying, and then it's it's not one of the quarterly meetings, so we don't get updated economic forecasts from them, so there's not kind of those extras that we would get at, you know, that we got in September and that we'll
get in December. And yeah, I think I think they're really going to want to leave the door open because we don't you know, we've had some economic data recently that has shown that things might be heating up a little bit again. So even outside of the election, we're seeing some strength in the economy that might have implications for the FED. And then also they we don't know
what policies will be implemented. We were not going to have a new government in place until January and then you know, these things take a while, so the FED isn't going to want to kind of subscribe itself to anything that hasn't happened yet.
So what do you think we'll hear from Chairman Pal today as it relates to the election. Is it just literally say nothing to dance around it, or just I guess kind of say, hey, you know, we're a political and we're fine.
Yeah, I think that I think that is you know, both of those is what we'll see. And we've seen that all year. You know, this has been a big question for them. But yeah, they just they love to say, look, we have nothing to do with this. Our job is to react to what the economy is doing. Right, They'll they'll say things like Congress has given us this dual mandate stable prices and maximum employment. What we're focused on, and we're looking at the data as it comes in
to figure out what we can do. And they'll probably repeat something that they've been saying this year as well, which is that policies well positioned to address anything that comes its way. So we're kind of in a you know, they've started cutting interest rates already, we're in a position where if they need to cut more, they can do that. If they need to pause for a while, they can do that. So I think they they see themselves as being kind of in a good place to be nimble and react.
Is policy really restrictive here?
I mean, I'm looking at six thousand right now on the S and P five hundred. Unemployment is at four percent, growth is at three percent? I mean, what are they restricting with these levels?
Yeah, and we just got some really hot you know, earnings number not earning like worker earnings numbers today, So yeah, I think that's been earnings.
Earnings also have been good, and we're.
Expecting fourteen percent earnings growth in Q four and Q one.
Yes, yeah, yeah, yeah, No, I mean that's been the million dollar question all along, Right, how are we restrictive? How restrictive are we? If we are, how is that even being transmitted to the economy right now? I mean, we know, for example, with mortgage rates, a lot of people are locked into low rates and it's not having the transmission effect it that it normally would. So it is,
it's it's I think that's an open question. And I you know, I do wonder if we're going to start hearing more chatter of are they going to have to start hiking again if things get really out of hand?
Paul, you're not locked into a low mortgage rate.
No, I'm at six percent?
And are your refinanced dreams dash by Trump dash Yeah.
I mean the rates just kick back up here, all right? Katherina sorry, a Federal Reserve reporter for Bloomberg News. Thank you so much for joining us there, matt Before we let you go here and we go to Joe Matthew and bounce of power.
What are you driving?
Oh?
Actually right now I'm driving a So for those who don't listen regularly, or watch my show. I drive a new car every week, so I'm always test driving a new vehicle for my podcast, Hot Pursuit with Hannah Elliott. Usually I'm in fancier cars, like maybe an Aston Martin or hot new Mercedes, a lot of BMW's I like a lot.
Right now, I'm driving a Chrysler pacifica minivan.
How's that going.
It's a hybrid. I gotta say I had never driven a minivan before.
Two kids, so you should be in the market.
Yeah.
And I've spent so many years and spent so much money trying to avoid going to the minivan. I get an SUV that functions like a minivan but still looks tough, and I feel like I've been wasting.
That cash because this is a pretty nice ride.
I mean, it's not amazing, you know, but it's got the low load floor, it's kind of smooth sailing with the hybrid engine.
It's pretty good.
See there he goes. Yeah, we were twenty years we had the minivan thing. Now no Moss, Katerina, thank you so much for joining us.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple car playing and broud Otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
John Tucker sitting in for Alex Steel on Paul Sweeney Your live here in our Bloomberg and Arctic Broker studio.
We are streaming live on YouTube as well.
What does Donald Trump and the White House mean for big tech? Dan ives Join says he's managing director and senior equity analysts for web Bush Securities. Dan, I mean a lot of the questions for investors as released to big tech and the Trump administration is I mean, what does it mean for big tech writ large? But I'm want to start with Tesla because that's an industry that depends upon cooperation with the government.
What do you think about Tesla?
I mean from mosque betting on Trump, it might be the best poker move he ever made, That's right, and when you think about now, this is gonna really catalyze autonomous full self driving. A lot of the regulatory issues that Tessa's been dealing with, I think essentially Mussim go out the window here, Tariffs get pulled, which is negative for the ev industreet bullish for Tessa. Look, if you're a Tessa's shareholder, for Trump getting in is basically a
Champagne moment, and I believe starts to unlock. We've told out on the show the trillion dollars of AI valuation now starting to get unlocked with Trump in the White House.
Yeah, just because of the jump in the stock. Yes that Elon Mussey had a twenty six and a half billion dollars made back to Yeah, I guess it was a good trade. Can we talk regulation? What's the regulatory landscape gonna look like? What does that mean for tech? How do you gain that right now?
But I think the biggest take any horror movie you want, that's really been what Kansman to tech tech. So so when you look at con of the FTC has really been that nightmare for big tech in terms of M and A deals, anything they do. And that's really that's been an issue that's been overhanging a lot of these stocks, not just Google, Apple and some others. I think the view is heavy view that she's gone at the FTC and that ultimately will let a much more friendly deal environment for tech.
But doesn't that doesn't pertain to Europe though, what's uh or does.
It sure now? And you're a big tech I mean they're used to find almost like cups of coffee there, so that's always they're always gonna get that from Brussels. But the big issue has been you know, Winter Coon from FTC has really been the big issue with her looking to be out. That's another part of this rally here because I think what it's gonna do is gonna be a tidal wave of M and A. You're gonna
see big tech. You still have DJ and some other issues, but you see them more aggressive from an AI perspective, and and this is really what tack invessors want to see, less regulatory. And then we got to see a red sweep you combo that you know, that's something that's a that's a backdrop that's very very bullish for tech investors.
There's been some comments from Trump and from President elect Vice President elect jd Vance negative towards maybe some social media and tech in general.
How do you take that into account?
Yeah, I mean, look, they're not fans of Google meta. The irony is you look at TikTok Trump getting in basically means TikTok to they're not going to get banned, and I don't think anything changes from an ownership perspective.
So with President look Trump in the White House, what does that mean for TikTok?
So from a twilight zone, even though he started to get the actual looking to get TikTok banned, here we are one eighty, it's the opposite actually not supporting a TikTok ban. So now TikTok doesn't get banned.
Now.
Part of that is because Trump is very negative towards Google Meta. So when you think about it from a tech perspective and you started a whittling the stocks yesterday, i'd expect that little twelve round battle that they'll be going through with Trump. In terms of some of the the issues around you know, what we's on social media section two thirty, which has obviously been the shield. So section two thirty is really what shields social media comingies legally,
you know, and that's been a big contentious issue. The view is if Trump comes in, what happens to section two thirty. I don't think anything happens per se, But when you look at some of the risk quote unquote in terms of big tech, definitely on social media, and then clearly on the China issue in terms of He'll be a lot of harsher on tariffs. But now the
difference is who's to his right as the whisper. It's Musk, So Musk is gonna be able I think, and the view is on the street navigate these issues when it comes to China tariffs, AI with now being the sort of whisper.
Well, if you're an investor in Nvidio, how do you, for the instance, how do you view this?
The way you view this is that you know, initially you'd say maybe negative on China tariffs and what that could do for godfather of Ai Jensen and video. The reality is that with Musk in there, cool hand will ultimately prevail. I don't really see any major risk from an Nvidio perspective to some extent, maybe more of those chips going toward US instead of China, which is ultimately just bullish or big tech. That's why any which way you kind of take this, it's bullish US tech, bearish
China tech. But the Musk and the and just him being integral in sixteen hundred Pennsylvania Avenue is very important in terms of the view and the tech trade. It's not some two or two bureaucrat that that's ultimately grandstand. They're trying to get through some tariffs. Now you got Must that has I think the best pulse in terms of what's going on broader attack and AI.
So you seem to think that Elon Musk is gonna play a active role in this Trump administration.
He is going to play a significant role now unofficient. Now is he gonna be a cabinet No, because then that that's very complicated in terms of his ownership and what he'd have to do for his stock. But he's essentially gonna be called it AI ambassador, call it unofficial cabinet whisper. Must will have a very important role in
this White House, specifically around driving AI. And that's also why like autonomous is gonna be front and center, because that's he is very focused on autonomous in terms of potentially Trump accelerating some of those autonomous FSD issues. And that is key to the stock because we believe that's worth a trillion dollars alone in terms of the AI autonomous story.
Just a broader question for you can text satisfy the market expectations, I.
Think, and we've told about it on the show. I mean demand the spy is still fifteen to one. So the Bears in their spreadsheets ten four in New York City office building, they can see AI in those spreadsheets. I think numbers go up across the board ten to fifteen percent going into next year. And our view is it's goldilocks. Fed's gonna cut one hundred hundred and fifty BIPs. You still have six trillion sidelines and we are talking
about AI revolution. It is still call at nine to thirty pm in the AI party that goes to four am.
Best pick right here, Dan thirty seconds.
The messy of AI. Polunteer because the area and again when you look use cases, pouneers, they're in that mount rushmore of course with Jensen with Microsoft with what we names like service now as well Pounteer driving it from a use case perspective, and still many institutions, I mean, you know, very negative. Unpollunteer. I love the setup of this story over the coming years.
Jell me Buffett, will that shirt to you about the way again?
He did, And the thing is this was a shirt. I was actually gonna give it to Key, but he actually he said it was a little too little two.
John, I don't think he can go You can't go out like this after Labor Day. But Dan i'ves skin pull it off.
He can pull it off.
Dan I's managing director, Senior ecurianos a webush security securities traintings. Here in our Bloomberg Interactive Brokers Studio.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Matt Miller sitting in for Alex Steele here in this we appreciate that Paul Sweeney, you live here in our Bloomberg Interactive Broker Studio or streaming live on YouTube as well. Madam, not sure if you're aware of my Milwaukee theory and my Milwaukee theories pound for pound, some of the best money managers in the world are Milwaukee.
I had no idea.
I thought you were going to say motorcycles.
No, no, Early Davidson, Baby, I know, I know the hog Hog. I don't know what's going on out there. Maybe it's the University of Wisconsin. But one of those folks joins us right now. Janet Rilling, Senior portfolio manager, head of Plus fixed Income and Allspring Global, invests me because A. Maletti was one of my first clients and she's one of the smartest folks Bloomberg and Active Broker
Studios where Janet finds herself. Janet today versus maybe a couple of days ago, has your view of the bond market, the treasury market, the Federal Reserve? Is that change given what's happened politically here in this country in the past couple of days.
Well, we do have new information and we can remove some scenarios off the table because we do know some things about what our government's going to look like in twenty twenty five. When it comes to the Fed, however, I think the Fed is on the same path. They are looking to get off of restrictive level of rates. The expectation, of course today is that twenty five basis point rate cut, and I think as they look forward, they're going to continue to want to move in that direction.
But they two now have more information, though still not enough to really know what policies will be implemented. So I think they're going to be a cautious in terms of how they interpret the election results, but they are certainly aware of them, and I think down the road that is going to influence their path.
Yeah, we had priced in about one hundred and seventy basis points of cuts for next year for twenty twenty five, and right now the terminal with the WRP function is showing only about eighty basis points of cuts for next year. So the market has moved substantially in terms of pricing. Obviously you can see it in the long end well across the curve, but especially on the long end as well of the treasury yields.
Do you think that we turn that around?
Is that just a knee jerk reaction to Donald Trump winning the presidency. Is it possible that rates on the ten year go back under four or do you see them headed back towards five.
I do think it's possible that they move back under four. You know, we did learn with this change in government that you know, we'll probably have a pretty supportive fiscal outlook for growth, So that's something that you know will keep things growing. On the other hand, the prospect of tariffs leads to potentially more upward pricing pressure. So with that in place, I mean it's a balance. The tariffs will take quite some time to first of all get in place if the policy is successful, and then to
work its way through the economy. In the meantime, you know, I think there is the opportunity for rates to start coming back down after people have digested all all of the information. Inflation, though it does still need to be top of mind. You know, it is not at the Fed's target. It's been moving in the right direction, but it's been sticky, and you know that that is going
to be a focus for the bond market. And certainly if the bond market is of the view that we're going to continue to grow the deficit, that's going to weigh on rates, and so it's probably more likely we'll be in this range. But I do think it's possible we can go back below four.
All right, So given that backdrop, do I just sit in my two year treasury and get four point two percent?
Or are I take some credit risk out there?
Well, it's certainly tempting to stay at the front end, particularly money markets, right, We know a lot of folks have stayed in money markets. But what we have to remember is those yields will continue to reset lower as the FED continues to cut rates, and we do think that will persist. The FED does want to move off of this restrictive level, so to avoid that reinvestment risk, it can make sense to start moving out the curve.
And in terms of credit, we do know credit spreads are rich, but the economic outlook is quite good, and so credit spreads could stay narrow for quite some time. So we're not recommending a full overweight in corporate credit, but we do think some allocation there makes sense to get that incremental yield. Stay highly diversified, that's quite important.
But you know, if you're just huddled in the front end, you're really positioned for one scenario rather than be diversified for what is likely a wide range of scenarios.
In terms of stocks, we're just thirty five points away from S and P six thousand. I mean, it's pretty unbelievable as I look down at my screen and I see fifty nine to sixty six on the S and P five hundred right now, you know, there are very few strategists who even have this as a year end target, let alone a twenty twenty five target.
Do you think we have more room to run here?
Well, you know, again, I think we're setting up for a good growth environment. We have more clarity on tax policy, and from the corporate side, I think that is supportive. It allows companies to make decisions to invest, you know, to continue to add to capital expenditures to fuel that future growth. So I think that is about a lot of the optimism that's baked in. But we have seen in the past, you know, the knee jerk reaction after elections,
people extrapolating things. It's not going to be totally clear sailing. There's going to be you know, more talk about what is the tariff policy? What impact will that have working its way through the supply chain. You know, the input costs could be impacted. Retailers that you have a lot of goods that come from China could impact their margins or else they have to pass that along to the consumer. So we're going to have to continue to watch how
the consumer is doing through all of this. But I think at the outset, certainly having more certainty and tax policy and decision making by corporate America is helpful in the fixed income world.
What is a structured product or what are structured products? Because a lot of people tell me that's where I need to look.
How do you guys think about that?
Well, first of all, we would agree, I think that's a good place to look.
Those others vage backed securities, asset backed securities, that kind of thing.
Yeah, it's really a range of securities. So agency mortgage back securities is the largest part of that market, but abs or asset backed securities, which actually has a wide range of exposures. I mean it can be consumer like credit cards, it can be auto exposures, but also some company exposures, franchise deals like five Guys as an example of a franchise deal. So it's delicious, delicious. Yeah, So that's the way you could get exposure to that, you know,
very diversified exposures there. That's part of our our view of what the appeal is to structured product and a very important part of the investment grade part of the fixed income market.
So you're not talking like buffer products, You're not talking like you know, capped gains and protect in against losses.
When you talk about structure.
No thinking about you know, cash flow streams, that are packaged in a way that focus on different parts of the market. So you know, a pool of credit card balances would be one example of ABS.
There's other exposures too.
Commercial mortgage backed securities is another segment of structured product. Certainly an area where like office properties have been under pressure, but it's a very wide space, and so there are things beyond commercial or office properties, things like leisure, retail, and many of those properties are doing quite well. So that's another avenue for structure product.
Student housing, adult living or senior living facilities.
US versus non US. What do you guys at all spring do we do both?
We think that being diversified globally makes a lot of sense. European credit, for example, is an interesting area. You can look at valuation there compared to the US currently it slightly tilts in the favor of European credit, and it's a way to just diversify your portfolio bit more. We like the triple B area of European credit and then that higher rung and high yield the double B.
All right, good stuff, Jennet, thanks so much for joining. You're based in monomy. Can pronounce this and I've been doing it for four Yearsnomine.
Falls Menomine falls, right, and that.
Was originally Dick Strong Strong asset Management. We're out there, and I think he just went to University of Wisconsin picked out like the best students every year.
I mean, I've heard your Milwaukee theory before.
Yes, and it's.
Yeah and so and downtown Milwaukee. There's some old, krusty little firms down there that have been managing little money you'd never heard of, but they've been doing it for like generations.
I don't know what's going on there, but it sounds.
Fantastic to me. I love Laverne and Shirley.
Yeah.
Who didn't Donald Trump say it wasn't a very nice place to I don't.
Know it wasn't He he used a more colorful term.
I thought that was the truth.
Or is that all that too?
You could have been as well, right, Janet Really, senior portfolio manager and head of plus fixed income Allspring Global Investments in a greater Milwaukee area.
Will call it.
Deputy's here in our New York in Orector Brokers studio. Coming to New York because it is the world capital.
Of course, you're listening to the Bloomberg Intelligence podcast Catch US live weekdays at ten am Eastern on Apple card Play and Android Otto with the Bloomberg Business Act. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Kanucker sitting in for Alex Steele on Paul Sweeny. Were live here in our Bloomberg Interactive Broker's studio, and we're also streaming live on YouTube. In a few minutes, we're going to check on with Alison Williams. She covers the big banks for Bloomberg Intelligence and what blew me away yesterday, John, was the move in the banks. You had companies a good jillion dollars in market cap like JP Morgan, Goldman, Sachs up ten eleven, twelve percent.
Most of this is based on what they think is going to be the new regulatory regime or lack.
There lack thereof I think is how I understand it. This basl and it's just basle endgame, bazil three. These are global rules for banking that were enacted after the Great Financial Crisis.
And yes, how do you get rid of global rules or you just ignore them?
Well, we basically I think you're just going to kind of ignore them. But I think that's kind of the deal. But I mean, it just it just means greater profitability potentially for some of the big banks in the US. And we saw just huge moves here, so we want to figure out what's going on. Alison Williams can help us there. Alison Williams, she's the senior ALM. She covers
all the big global investment banks for Bloomberg Intelligence. Alison, why did the banks rally so much yesterday on the news of Donald Trump becoming the president elect?
So we see three things.
So the big one is less regulation. Secondly, higher industrates, and then third we really see some momentum for fee revenue, which has really been powering the big banks that I cover.
So the regulation is the big one, and it's not just some of the specific issues for the banks as a whole and one or two banks, but it is just, you know, the feeling that the pendulum can swing the other way right, so that there won't be new regulations and that some of the things that are sort of in the pipeline could be watered down or pushed out.
So you were just speaking about BOSO three, So that BOSO three endgame has been the big one for the largest banks, and you know, Basil dictates that all jurisdictions around the world have to do.
Some form of implementation.
But the US proposal that came out in twenty twenty three was really much stricter than we saw in other regions. We had already had some expectations that would be watered down from you know, comments that Powell had made and also comments from bar in September, so some of that was sort of in the stocks, but I think the feeling is, you know, from our regulatory group that the things could either get pushed further out or they could
be watered down even further. And so that's good for the banks because their excess capital is something like five to fifteen percent of their market caps. So definitely that was something aiding a city group in Wells Fargo as well as someone like Morgan, Stanley and Goldman, where even with the water, even with the sort of lighter touch in September, they were still going to have a deficit in their capital.
So some positive news on that front.
Also, as you know, you know, Wells Fargo has had this asset cap for a long time.
City Group.
There's been some concerns, especially around when they reported their results, that they could face more scrutiny. So just a particular easing I think also benefited those couple of banks. And then there are some other things related to card and consumer and finance as well. On the interest rate funds, all these banks are positioned for higher rates, so we know that we'll be watching the FED in terms of short term rates, but I think in general that also
got a lift. And then finally from our viewpoint, the big thing is that we see momentum fees and that's been a huge boost to the earnings for these banks.
Just back to the Bunzel three endgame rules, the idea is give me the dummies version. You had to set aside more capital basically in case things went south, so the financial institutions wouldn't ruin the economy, right, So that's freed up. Does that now go back to shareholders? Is that the idea?
That that is the idea, and so Boso three endgame rules. So, as you know, Baso three is something that sort of came after the financial crisis, and there's been many iterations. Thus the reference to this last set of rules as endgame.
And basically what that.
Dictated was that as they measure their risk weighted assets, there would be big increases in that and thus they'd be having to hire, you know, hold more capital against that. And so based on third quarter earnings and fourth quarter requirements, their excess capital was five to fifteen percent of their market cap. Under the BOSO three rules, that would turn to deficits across the bank, so they would have to
find a way to increase their capital. There is a timeline, so they probably would have done that through internal capital generation. But to your point, they that would have been capital that they could not return to shareholders.
Has the most capital to be returned to shareholders.
Well, based on the requirements today City Group, their excess capital is something like fifteen percent of their market cap.
Okay, all right, and.
I would and I would point out also that you know these banks have and so by the way, like the banks do sort of target holding a buffer to the requirement. So there's a little bit of that, but I.
Think you know, in general, it is the fact that buybacks will likely go up.
These banks already have buy back programs in place so they can execute on them.
But it's also the math.
If you have higher equity, your return on equity is going to be lower, and that's how investors' value stock. So there is definitely the higher buybacks, but also I think it is the sentiment that is helping bank multiples. This specific regulation, but also less regulation in general. I didn't talk about with regard to regulation is less antitrust. So that's good for M and A and that's really why you saw Goldman and Morgan Stanley very the stocks reacting to that.
Allison, thanks so much for joining us. Alison Williams, senior analyst covering the global banks around the world for Bloomberg Intelligency Space down in our Princeton office.
Again, the banks had a big, big.
Move higher yesterday that really got people's attention thinking that they will be a better regulatory place under a Trump administration.
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