Bloomberg Audio Studios, Podcasts, radio news. Now you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card playing and Broid Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
I'm Alex Deel longside false.
We need.
This is Bloomberg Intelligence Radio. We bring you all the top news and business, economics and finance right here at our Bloomberg World headquarters in the beautiful Midtown in Manhattan. So at the top of the hour of Federal Reserve Vice Chairmichael Barr commented in a speech in Washington, and this concerns Basil three endgame capital rules for banks, and he made some material changes to those bank capital proposals.
The biggest banks are now going to face just nine percent capital increase after some revisions, and some smaller banks will be exempt altogether. Michael McKee, Bloomberger inter National Economics and Policy correspondent, joins us now to go through all of this. Okay, So, if I'm a JP Morgan, I like this.
You like it better than what you had before. It's still higher than they would like to see, and it's sort of a compromise from the FED and the other regulators now. Michael Barr also noted that this hasn't been completely finalized yet. They're going to hopefully propose it next week and then it has to go through another comment period, and he noted that the other regulators haven't signed off yet,
but this is likely what we're going to see. The nine percent is still a fairly hefty additional level of cushion against financial shocks for them, So it is better than the nineteen percent that had been in a lot original proposal. And then the medium sized banks the one hundred to two hundred and fifty billion, They won't see any change in any additional change in their capital requirements, with the exception of capital held to maturity, the stuff
that got SVB in trouble. They if yours isn't in good enough shape, then you'll have to pay a bit more.
Is this still from great Financial Crisis?
All these rules.
Here is kind of I mean, are we done yet?
I mean, come on enough?
Maybe after endgame? Maybe this is why it's called endgame?
Well, jamis that's that's the laugh, you know. The Marvel The Avengers movie series did a movie as a two part movie called Endgame, which was supposed to be sort of the end wrapping up all these threads over the years, and now they're doing more Marvel super hero movies. So Endgame is not going to be the endgame. There will always be something that comes up. But this is a process that's been under way for a very long time.
BOZZL process started back in the nineteen nineties trying to harmonize international banking rules, and this Bozzle three process came after the Great Financial Crisis and to harmonize and agree on safety standards for banks around the world. And that goes a lot deeper than just capital it's what kind of models they can use. In this case, they're going to have to switch from using their own models for
risk to standardize risk models stuff like that. It has a major impact on how the regulatory offices in these banks will operate.
All right, Michael McKee, thank you so much. We appreciate it. Michael mcge is a our economics dude here for Bloomberg Radio TV JP Morgan is stock down four percent, no idea, why.
Well, we also have some the big banks are all talking right now. So Jimmy Pinto over at JP Morgan is saying that third quarter investment bank banking fees could rise about fifteen percent from a year ago. Not a big fan of acquisitions and asset management, David Solomon, Woman Sachs spoke yesterday at a conference talking about their trading revenue. So we're getting all that feedback right now.
So out there, it's September, which means it's conference time.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car 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 play Bloomberg eleven thirty.
So today the EU's top court delivered two final binding rulings against two US tech companies.
Apple lost its court fight.
Over a fourteen point four billion dollar Irish tax bill, and Google lost its challenge over a two point four billion euro fine for abusing its market power. EU Competition Commissioner Margaret Vasteier spoke to Bloomberg following the victories for the European Commission, and she said she hopes her record show she was willing to take the risks to prove that the market works for consumers.
You need to of course own your victories, but you also own your defeats, and we have had both, and hopefully that shows that we will to push the envelopes also sometimes to take a risk in order to try to make sure that the market serves the consumer and that we are not just small ponds or meet for the machine. And I hope that is what people take down from today's judgment, both that we won the Google case and it is final, and we won the Apple case and its final.
Now was Margaret Westdeyer joining us. All right, let's get more insight here with Tamlin Basin, Bloomberg Intelligence technology analysts who joined us on this.
Was this at all surprising to you? Tamlin?
Now, this wasn't terribly surprising, Alex. The Apple tax case, we start with that. In twenty sixteen, the European Commission made this finding. It assess the thirteen billion dollar penalty, which is basically what it said were unpaid taxes because the Irish tax authority had given these favorable opinions to Apple that essentially amounted to improper state aid. Now, what was interesting is that the Intermedia A court in twenty twenty did reverse that decision and said the Commission didn't
follow certain guidelines and setting that fine. But when we looked at the briefing going into this this final I'm hearing, it did seem like this was going to be the result. So I think this thirteen million dollar verdict against Apple wasn't entirely surprising. And this money has been held in s grow for a number of years, so I think people sort of saw this this coming this way.
So I mean, is this just another I guess hurdle that Apple and you know, other big tech companies have to deal with from a regulatory standpoint just all over the world.
Here, Yeah, I mean the hurdles are certainly stacking up. But I think what's interesting about this is I look at these two decisions as really some of the last ripples, some really regulatory actions that began kind of nearly a decade ago, and I think now we've certainly moved on and both and especially in Europe but also in the US, there are increasing hurdles there that the companies are having to face. I mean, especially if you look at Google and you know it's sort are locked up in another
trial this week with the DJ over competition concerns. So these these these challenges really are mounting up around the globe.
So put it all together. So I guess that's a great point.
What's on the dock at court wise for big tech in Europe, and then what's on the dock at big tech wise in the US. And do have like a spreadsheet that sort of outlines everything? So I honestly can't keep track, and also like what the money is associated with.
All of it?
Yeah, yeah, We've got quite a few spreadsheets. I do have one wide track all the ones that are in Europe. And if you look at Europe, what's I say that we've moved on from that is because after these these regulations or sorry, these litigations were started five, six, seven years ago, what the Europegian Commission did is they went back and they rewrote some rules where they said, we're going to make it easier to really go after some
of these anti competitive practices that we're seeing. And that's why we have the Digital Markett Act, That's why we now have the Digital Services Act, and we already see under the DMA that there are some probes facing both Apple and Google Google for sort of similar practices that were at issue here, where it was alleged to have abused its dominant position and search to elevate its own products over the products of peers. It's already facing investigation
for that. Apple's facing two DMA probes, both related to that store, and I think these ongoing have brying more of an operational risk because they really could go to how these companies are currently operating, not just sort of this backwards looking financial penalty thing that we saw today. Then if you look at the US, so of course, I think the biggest thing facing Google right now is this DOJ lawsuit that is going to trial this week
based on its ad stack. So I think that could have some really profound ramifications for the company, not just in terms of financial penalty, but really behavioral remedies, which is I think, moving forward, what could be the most frightening thing for a lot of these companies.
Camlin is the UK view of big tech different than the EU? And reason asks now that obviously the UK is out of the EU, do they look at tech any differently than the European Union?
Maybe there's some slight variations where they maybe trend slightly more towards the US, although I say that but US now is really fairly aggressive in their stance on big tech. But the UK doesn't really quite have the competition rules. But they also are saying that we're going to reevaluate how some of these rules are going to be applied
against these big tech firms. So I think it's difficult to find any real safe haven in terms of a regulatory standpoint for these big tech companies, whether it's EU, UK or even increasingly the US.
How do you handicap all of this within say valuations or how you model the stock.
I honestly think a lot of investors have a little bit of regulation fatigue when it comes to this. This is by no means a new story, especially if you look at how the EU has been going after the these dominant firms for over a decade now, and I can't say when you look at them you can see really a loosening of their grip on the markets here. So I do think in many ways that the investors
are sort of shrugging off these actions. And I think, you know, especially when you look at the the increasing trials that we're having, that we actually could see some huge sort of landmark litigations coming out, So it's definitely something to keep an eye on, even though we've been seeing it for years and years and years.
All right, Tamlin and Apple stockdown about eight tenths of one percent. Tamlin Basson joining us Bloomberg Technology a technology analyst.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, car Play and rout Otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Deal Paul Sweeney live here in our Bloomberg Directive Brokers studio. We're also streaming live on YouTube as well. I've been a loyal BMW customer for probably twenty five thirty years, currently driving the X three, which is the best vehicle I've ever driven. Period. Not a good day however for the stock of BMW down eleven percent today. That's the most since March sixteenth, twenty twenty, just the beginning of the pandemic, and it's the lowest since twenty
twenty one. So tough times out there for BMW. Let's get the latest of what's happening with them. Michael Dean, head of Global Autos of Bloomberg Intelligence, joins us from London via zoom. Michael, what's going on with BMW today? I saw that they took their earnings forecast down. What's driving that?
So BMW had a profit warning today and that was partly on the back of a warranty issue has with its breaks not on the xtreet. So you're fine, Paul, good, but they're going have to recall one point five million vehicles and that's going to cost a high three digits million in terms of earnings for twenty twenty four. But that doesn't tell the whole story because they've downgraded their margin by about two hundred basis points, which is about
two billion of v bits. So the balance of that is coming from we could China sales, lower pricing in Europe, lower demand in Europe. So just the demand and pricing environment globally has been very difficult and that's part of the reason for the profit warning, which.
Then leads us to Volkswagen.
So the latest news today is that it's ending its job protections for autoworkers in Germany as part of its cost cutting push.
There are several.
Agreements that were linked to a three decades old pack that was supposed to safeguard employment un till twenty twenty nine, but now those guarantees are going to run out by the middle of next year.
I mean, wow, yeah.
So you know, Volkswagen was in the news last week because it said it needs to close half a million units of capacity in Germany. So that's very difficult because
of workers' rights. And you know, worker's rights have been very one sided for Volkswagen in particular because you have VW law and this is where twenty percent of the ordinary shares, the voting shares are owned by the States of Lower Saxony, which is where Volkswagen's biggest battery is, and funnily enough, and they have the ability to block certain agreements. So worker's rights are very strong for Volkswagen employees. And now I think management are saying, Okay, hold on
a minute. The automotive world's changing rapidly. We need to do something to reduce costs, and part of that is the close factories and reduce jobs.
Michael, give us it just a thirty thousand foot view of kind of the global auto business here. I mean, the weakness that you're seeing in Europe. The weakness you're seeing in China. Is that just general economic weakness effect that we've seen in past cycles or is this something to do with this ongoing transition to electric vehicles.
Yeah, it's a bit of both. So you know, you have the transition to battery electric vehicles. It's going much slower than expected in Western markets. Other markets probably going quicker than expected, such as China. But the problem Volkstagener has is that the competition is so intense and has overtaken them in China, such as BYD So Volkswagen a couple of years ago was the market leader in China.
Now byd within two years has overtaken Volkswagen, and really it's going to be a survival of the fittest in these markets.
Well, I mean, these companies aren't going to go under or anything, right, So I guess I'm wondering when the trough is.
When do we know what is a trough actually going to look like?
Well, you say, well, a lot of companies could could go under, particularly the pure play battery electric vehicles.
I just meant that, like Germany's not gonna let Bolkswagen go bankrupt.
Now, of course, and the interesting thing if you look at the valuation of Volkstagen today is valued at forty five billion euros. I've had a lot of clients talk to me about this today. They have almost forty billion of cash on the balance sheet, there's seventy five percent
stake in Porsche is worth forty five billion euros. They own Lamborghini brands, which has higher probability rates that Ferrari, which is currently value at seventy seven billion, So we think Lamborghini's worth thirty billion to use a Ferrari valuation.
So there's some of the parts.
Is volksg is huge compared to the actual valuation at Volkswagen at the moment.
So you highlight an area for me that just kind of feels like a long term issue, which is China. I mean, if you they spend decades they being any auto company, Volkswagen, BMW, Mercedes, whatever, building brand value and brand loyalty in a market like China, and in a period of two years they've lost that, it seems like, I mean, is that the real barish case for some of these global auto companies.
It's a it's a big case.
So for the German automakers In the past few years, China was the most profitable market, accounted for thirty five to forty percent of their profits. Now this year it could be as low as ten percent, and you know what the market's pricing is is that could be zero in the future. And that's because the technology changing and the way that startups in China are pushing through so quickly. They're really fighting for market share at the moment and their future.
So then it goes back to my question, what does the bottom for either US car companies or for European car companies wind up looking like as the tariff's go into place, as China keeps producing these really cheapvs, as we have different restrictions here in the US, like what is that?
Well, you look at what GM and Ford have done.
I mean, in particulate, it's looked at different markets and if it's not profitable, it's pulled out at those markets. So China's one example, Europe's another example. So it's whether the German automakers take a view that can they be profitable in China in the future, And many foreign carmakers are saying no. Volksfagen at the moment is saying yes, we can and they've got this long term plan and
they've invested in xpaying so hopefully accelerate their transition. But it's going to be very, very difficult for foreign carmakers to continue to make profits in China.
I mean again, it feels like is there an even discussion on whether they should be there at some point.
Certainly within the market, but for the company itself that they've invested heavily in China and they've got a plan now to try and catch up with local producers, to catch up with BYD, which is with this partnership with xpang. So they think they've got an opportunity because they've got a good brand in China.
But it's going to be very tough. I mean, pricing in China is.
Really really competitive at the moment, so the point where battery electric vehicles are actually priced below internal combustion in the vehicles compared to that to Europe, where the average battery electric vehicle is thirty five percent higher than a ice vehicle, and they still can barely make a profit in Europe.
So yeah, it's a very tough environment.
Yeah, and then they'll have ev factory there, but then all of a sudden you're looking at potential losses then for workers in actual Germany.
A really interesting story.
Thank you very much, Michael Dean and joining us from bloom Intelligence.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard Play and Android Otto 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.
It's September, which means it's conference time. It's also time to talk about the hedge fund business. I'm not buying it, per se. I'm not a fan of the hedge fund business. I think the model's broken. I think it was broken in the mid two thousand's. That's just my personal opinion. Donald Steinberger joints us here. He's founder and CEO of Agecroft Partners. I know the term Agecroft. That's from Richmond, Virginia, and that's where he's based on a Richmond, which is
one of my fall time favorite towns. My twins are born there, I went to school down there, great town. Don I think those whole hedge fund games is scam. But tell me about what's going on in the hedge fund business in terms of can people raise capital? Are they what's the state of the hedge fund business these days?
Well, first of all, it's great to be back, and I think it's probably going to take a couple more interviews before I finally get you to buy into hedge funds, but it's going to happen. You're moving, you know a little bit each time. You know, hedgehont industry is pretty strong. I started an industry in two thousand and one. It
was six hundred billion industry. It's now five trillion. The market is pretty saturated, meaning when you look at who's investing in hedge funds, pensions and Downmans, foundations, softoign wealth funds, the ones that are going to invest in hedge funds tend to be pretty fully allocated. So you're not really seeing growth from an inflow standpoint. As matter of fact, you've had a little bit of money come out of the industry, but the industry has grown significantly because of performance.
For example, you know, year to date, the hedgehont industry is up seven point five percent. In addition to that, it's a great business to raise assets because you have huge divergence in performance between strategies and managers. There's always people getting fired. Average person owns a hedge fund for five years means twenty percent of the industry turns over trillion dollars to be had. But it's still difficult because ninety percent of assets are going to five percent of managers.
Wow, So what kind of strategies work right now?
Well, the one with the biggest demand right now is long short equity. And long short equity went through a real laughing at you right now, just yeah, a really long period where people just hated it. I mean, last decade, money just kept coming out and their performance was under the S and P five hundred over and over and over again, and a lot of people said, hey, you put all your money in the S and P five hundred, and what has that done. It's driven the S and
P five hundred to an extremely high valuation. It's dominated by a small handful of stocks. And reason people like long shred equity is some people are worried about the market. If you're worried about the market, be hedged. If you're not worried about the market, go all in.
Other people like the fact that.
There's huge divergencies between valuations between value growth, small cap, large cap US non US and over time, these these vergences have contracted. So it means a lot of people think fundamentals are going to add value. And the last thing is you can make money on the short book in your portfolio because short term rates are high. You might get another two percent return based on the interest on the short book.
You know, is it?
You mentioned that you know a lot of the most of the funds are with a relatively few managers, the citadels of the world. How did that come about? I mean, it used to be a day where if you had hotshot trader at Morgan Stander Goldensacks, you could go out and raise five hundred million dollar billion dollars. That's not as prevalent today, is it?
You know it's not, And I will say that that is one of the big issues at the industry is a lot of people by brand. They think you know their safety and brand. A lot of these top managers had phenomenal track records a long time ago. They're managing way too much assets. Their returns have been very mediocre for a lot of famous hedge funds. A lot of these pods have done recently, have done very well recently, but they've gotten very large. You're beginning to see some
money focus more on smaller managers. Smaller managers, if you want good returns, is where you want to invest. But you don't want to invest in them unless you understand the inefficiency that they're focusing on and what their differential advantages to capture that efficiency.
What about all the main strategies like volatility focused funds. CTA is like the trend followers. What's the interest there?
So there's been a pickup and interest for commodity trading advisors And basically they're people that invest in financial futures across the forming capital markets and their quantitative quantitative managers that are looking at price patterns historically, and they tend to do very well during markets selloffs. So they help protect markets if the market's going to sell off.
Help diversify a lot of.
People are worried about evaluations of the equity marketplace, so that's one way to diversify away from equity.
How about pricing fees? Is two and twenty still the game?
So is this why you don't like hedge fund because of the fees?
Yeah? No, No, I love the fees, so it likes the fee. But I just if I were managing money, I just don't think that fee of just the returns are worth it.
People need to focus on fees, and fees have come down a lot. You know that the prominent managers you pay two and twenty for performance that might not be you know, that great because now they're really large, but new managers, smaller managers, I mean typical fees probably one and a half and seventeen performance fee potentially less. It's
also diverted between individual investors and institutions. You know a lot of people listening to this radio broadcast may indirectly own hedge funds through their government pension fund or corporate pension fund. Big institutional investors on average are probably paying one in ten, maybe one in fifteen, so huge contraction. Also hurdles, you know, hurdle is for performance, and a lot of people don't want to pay performance fee on cash.
They're saying, hey, you got to be cash before we're going to pay a performance fake.
Well, this is any other question, and this may be a really ignorant question, but with the dominance of Nvidia and the mag seven, how does a hedge fund compete against that because the end of the day, like wouldn't they do just as relatively well, just like buying the index.
Or like well, I guess it all depends whether you think that those companies can continue to go up the way they've gone up. I mean a lot of people we have.
To wait for the mag seven to sort of fall out for them. Those hedge fund strategies to pay off. Is that the idea, I just.
Don't think you can you know, I don't think you can time it. And if you think that the equity market is overvalued, then you want to You don't want to wait until certain things happen and then change your portfolio. You need to change your portfolio before it happens. And
so one way is to hedge it. Another is you could also overweight certain factors through mutual fund index funds if you wanted underweight the S and P overweight other types of indiscy that are cheap from a relative value standpoint, the S and P five hundred real quick thirty seconds.
Has the growth in ETF? Is that taking funds away from hedge funds, or is that the ETF growth just come from mutual funds?
Maybe.
Yeah, I think it's come from mutual funds. I think it's come from you know, long only managers. You know, as I mentioned, the hedge fund industry now is a little over five trillion dollars. I think it's you know, again fairly saturated, but it's it's growing through performance. And you know, the environment for a hedgehond manager is good if you're really good, and if you're not really good, it's a very difficult market to be in.
Yep.
Yeah, there's a life lesson there.
There is exactly right.
Donald Steinberger, he's founder and CEO of age Croft Partners, joinings live here in our Bloomberg Interactive Broker Studio. Get update on the hedge of fund business against five trillion dollars. Just extraordinary there and there are some obviously some big names out there.
You're listening to the Bloomberg Intelligence Podcast. Catch us live ten am Eastern on applecar Play and Android Auto with a Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa, play Bloomberg eleven thirty.
Alex Dealer alongside Paul Sweeney. This is Bloomberg Intelligence radio, we bring you all the top news in business, economics, and finance. There are lens of our Bloomberg Intelligence folks. They cover two thousand companies in one hundred and thirty industries all around the world. Let's check in with one of them right now, with Nathan Dean, Bloomberg Intelligence senior policy analysts. Yeah, shaker, there's a debate tonight in case
no one's been paying attention, So it's at nine pm. Well, a special coverage here at eight pm, simulcast on radio as well as television. Nathan, though from an equity side, is there a Harris or Trump trade evolving at all that we can sort of zone in on?
Now? I don't think exactly.
I mean, anytime you talk Trump trade or Harris trade, you know, we really just you know, there are certain sectors you can say we'll impact in certain.
Ways to the presidency.
But for I think for tonight's purpose is we really want to hear more about tax plans and we want to hear more about economic plans, because you know, both candidates have been fairly light, you know, over the past couple of weeks in terms of saying how they're going to actually change certain things Now, obviously for tonight's debate, we've heard President Trump say that he wants to cut the corporate tax right down to fifteen percent. Kyla Harris, the vice president wants to go up to the twenty
eight percent. But we would always just caution our clients and investors and so forth like that, just remember every statement that comes out of the candidate's mouth, you have to remember how they're going to get that through Congress or how they're going to get through Washington. And for a lot of these tax proposals that you're going to hear tonight, you know, the other folks down on the other side of you know, Pennsylvania Avenue the Congress, they
may have different plans. So it's just interesting to hear those thoughts, but you know, most likely they're not They're going to have to be curtailed.
They're restricted some.
Should a question be asked tonight of both candidates talk to us about annual deficits, talk to us about the total debt of the United States? Should that be a question?
I think it should be.
I mean, this is something that we get from New York a lot, especially from you know, asset managers that are concerned with the state of the US debt. But from the Washington perspective, you know, the US debt is not something that many people have thought about, or at least if they are thinking about it, it's certainly not reflective
in what Congress spending goals are. So, you know, I think when it comes to the debt, though, however, it's really gonna be whoever wins the election, because if Kamala Harris wins the election, you're gonna have a return of the debt ceiling fights that we saw under the first half or the end of the Obama administration, where you know, dead ceiling comes up, it's going to be negotiated, and then ultimately when the markets begin to react to it,
they kick the can down the road. Now, the dead ceiling doesn't expire till January first, twenty twenty five, which is good news because the lame duck it will probably be one of President Biden's last signature as president to kick the can down even more. But if President Trump wins, I don't think you're going to see many of this debt ceiling fights at all.
What about some of the sectors on the key sectors that are kind of most exposed here.
Yeah, So, you know, we just put out a large report on the Kamala Harris versus Donald Trump race. In some of our key sectors to watch where we're like renewables tied to the Inflation Reduction Act.
There's a lot of tax carrots, if you will.
In there that are spurring renewable investment, especially in cap BACX and a lot of GUP states. Others involve the banks, you know the Basil three end game. You know, a proposal that would increase CAPPER requirements around nine percent for the investment banks. If President Trump wins, that may not
go forward. Other things are global manufacturers due to the tax changes that we just talked about healthcare, they're twenty five hundred twenty five billion dollars in Obamacare subsidies that are up for renewal next year.
And finally, big tech.
You know, whether if you Kamala Harris wins, are going to have a continuation of the very stringent M and a anti trust authority that the Biden era regulators are putting on big tech.
But if JD.
Vance's idea of economic populism gets into the White House, you could see a Republican president also be.
Very skeptical of big text. So a lot of what ifs.
But a lot of you know, you know, scenarios in which those industries could be heavily impacted.
You know, I listened to former President Trump's Economic Planet Economic Club of New York. I don't know hard time making heads or tails out of it, but I guess it was lower taxes, higher tariffs. Is that kind of the basis of his economic I guess platform.
Yeah.
I think that's the really good point to point out, because I think it's almost like a phase one, phase two type of deal with President Trump wins.
Phase one is tariffs. You know, this is something that he can do.
The power of the presidency is a lot more powerful there, and so sorry the first half of twenty twenty five, you could see a lot more tariffs coming in.
Now.
I would argue that a lot of these tariffs are negotiation ploys.
You know, if he holds up an executive order and says I'm going to sign a tariff, there's probably language in that executive order saying two hundred and seventy days from now, it won't go into fruition until then, because you're gonna give the opposite side multiple times to negotiate. But it's certainly something that he's comfortable with and I think, you know, would easily put out if he feels that
it's necessary. But then the tax reform debate is what's going to come next, because at the end of twenty twenty five, those Trump Ara tax cuts for individuals expire. Now President Trump is said fifteen percent corporate tax rate. I'm not sure he'll be able to get that. You know,
he's gonna have to negotiate. We've seen a little bit of statements from House Republicans saying, yeah, maybe we should go down to twenty or nineteen or eighteen percent, But being able to pay for that fifteen percent is going
to be somewhat difficult for these deficit hawks. So, but there's a lot of provisions of the tax era Trump are tax cuts that have already expired for industry, and I think President Trump is going to try and institute those, though at a large level, think Trump two point zero is going to do another version of the same tax cut.
I literally remember having the exact same conversation in twenty fifteen, twenty sixteen, like the phase two how you get it done, et cetera. So what's interesting to me though, is the lack of response though in say, high tax companies versus low tax companies, like the things that would make sense because those policies are so different, say on corporate taxes. Are we seeing that reflected within market moves?
You know?
I think so, But you know a lot I've been talking to a lot of investors over the last few weeks, and a lot of folks come to me and they say, we just really don't know what's going to happen on tax until we know the makeup of Congress. And the reason being is is that if Trump wins but the Democrats take the House, pretty much all of his tax vision, if you will, is going to be curtailed, negotiated, and
a lot more restricted. Now, if he ends up winning the House and the Senate, they can use reconciliation to essentially bypass the Democrats, and they have a very.
Broad net that they can cast.
So a lot of people that I've been talking to you of saying, look, we understand the Trump era desires, and we understand that these broads deficit inducing tax cuts potentially could be on the horizon, but we're not excited about it. Just yet because we need to see how the House and Senate races play out.
What is the thinking currently in Washington, Nathan about how that will play out in Congress?
Well, look, I mean, you know, if you go to the function on the terminal WSL election, you can see all the data there.
But I think you know when.
It comes to the Senate, that's going to be somewhat very difficult for the Democrats to control because right now it's fifty one to forty nine. You're gonna lose West Virginia because Senator Joe Manchin is retiring, So now you're at a fifty to fifty and the Democrats are sent have to run the board just to keep that fifty to fifty. Think of Senator Shery Brown in Ohio, Senator John Tester, and Montana Senator Jackie Rose in Nevada.
So assuming that if the Democrats.
Lose one, the Republicans are most likely going to take the Senate, and if President Trump wins, then obviously allow him the ability to put in judges and his regulatory leadership when it comes to the House, I've seen pulling up both sides. But my general view, and this is just my personal view, is that whoever wins the president also wins the house.
Okay, interesting, How excited are you for tonight? Is this like a super Bowl for you?
Like?
Do you get out popcorn? Do you have like guawk, do you have avocados? There's an avocado debate happening right now on rading.
I think I'm rich.
I think I'm gonna try and take as much Bloomberg popcorn away from the pantry. I canned home with me tonight. So nice, It's gonna be a fun night.
That was awesome.
All right, Hey, Nathan, we really appreciate Nathan Dean Bloomberg Intelligence senior policy analyst and the most recent deep dive on the impact of the US election.
It's one of those things. I mean, it's one of those things where it's like I want to cringe, but watch it.
It's like you want to watch it through your hands, like a scary movie or something, because you just don't know what's going to rap him, what's going to happen.
Yeah, and again, as Nathan's just pointing out, this research report, which you can get a bi go, is just really in depth, basically just saying from an economic Wall Street financial perspective, you know, under two different presidencies, which industries are winners and losers.
So it's great research.
B I go on the terminal and that's where you can find it good stuff.
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 App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Let's talk about the broader markets. One of the things we like to do is get a sense of what is investor sentiment out in the marketplace. It's one of the factors that Genie, Martin Adams and Bloomberg Intelligence factors in. And I think if you want to do that on the retail side, nobody better than talk to than the folks at Charles Swap because they've got like a jillion customers out there. Joe missola It joins us head trading and derivative strategist for Charles Schwab, joining us here in
our studio. He's based out in the Bay Area, but he joins us here in a New York studio because why wouldn't be in New York if you're in your financial services business. That's what I say. Talk to us about your STACKS index. What is it and what's it telling you these days?
Yeah, hey, thanks for having me. I appreciate that. And the STACKS index, what it does is it measures our SCHWAB Trading Activity index, or measures are our SWAB clients what are they doing?
You know?
So it's the behavior over the attitudinal. Basically, what we do is we look at thirty two million accounts, we take a little subset of that and say where we buyers or where we sellers over the course of the month, and you learn And there was a little bit of selling in August, so it basically pulled back a little bit from what we saw in July. Still you know, still above levels that are above moderate, but for the
most part we did see some selling. And what I would say is this was almost a tale of two months. So beginning of the month, we saw clients kind of step in and buy that dip from the August fifth sell off, saw a lot of activity and AI stocks a lot of buying there, but as a month kind of trailed on. What we saw was a little bit more of shifting towards away from equities and interfixed income.
All right, So this index typically ranges between a reading of thirty five and seventy, and then I guess the reading for August was somewhere in the fifty three range, so it's kind of right in the middle there. Does that kind of suggest to you that your clients are neither overly bearish or bullish.
So we always follow that up with an attitudinal study as well. So we have the behavioral study that we're talking about now, but we always like to do like a trader sentiment study where we actually asked the clients, you know, how they're feeling about going forward, and what we found out is that they're still feeling moderate to positive kind of as they're heading into the September month.
There's a little bit of concern around interest rates, so that's giving them a little bit of a pause in terms of, you know, what the federal action will be. We're hearing a little bit of concern in terms of the political cycle and what the elections could do for the markets as well. But overall, yeah, Paul, you're right, I would say for the most part, they're moderately bullish.
Oh, what are they buying more of the selling.
So what we saw on the buy side is some of the typical names kind of rose to the top, in Video being one of them. Amazon is new to the list, it's been off for a little bit, so that one came back. One of them that we haven't seen. I was shocked to see this one was Intel, and I think part of that, yeah, I think part of that is just because we got about a thirty thirty five percent pullback right off for earnings and we saw some dit buyers kind of step in on the cell side.
What was interesting about the cell side is these were a lot of the names that kind of flipped lop between both sides. But what was interesting to me is out of the mag seven names, you had Metta and Apple, and if you think about kind of how those stocks performed relative to the other ones, they actually held up pretty well throughout throughout the month. I mean, Meta even
put in a fifty two week high. So I think what we saw was some profit taking maybe from some of the dip buying that we saw earlier in the month. And then the last one was Starbucks. And if you remember star Wars as a new CEO came over from Chipotle, got a nice little pop there, and we saw some clients trim some profits after that occurred.
Yeah, interesting, I'm going to stock that. Remember that day was up eighteen percent just when the news I must.
Be really good, like you leave a job and everyone's like yeah exactly.
One of the sectors that was most pronounced of buying was energy, which is interest because we were just talking to Mike mcglon our commodity and also we were just talking about the decline in oil prices.
But maybe maybe.
Some of your customers clients are seeing value there.
Maybe I think that's probably what it is, Paul. I think you're right. I think that there's some day buying in there looking for some opportunities with what I found interesting as well to consumer discretionary was another sectors in buying. I think a lot of that has to do with the Amazon, right, the Amazon buying that we saw. When you look at the sectors that were sold, a couple of rides at the top there and communication services being number one. A lot of that has to do with
some large sales and meta and there as well. What I when I look at kind of what our clients did relative to where maybe we saw some of the rotations in the market. I think it's interesting because the breadth right, you know, where we saw kind of a breadth thrust would have been more on the interest rate sensitive sectors financials right, utilities, reads. Didn't see a lot of retail movement into that. To me, that says it's a little bit more institutional buying there.
Here's a numb for a question. How do you feel like retails looking at the election?
Well, I don't know what side they're picking, but I know that.
Yeah.
But in terms of like do you see any hedging, Like yes.
Yeah, absolutely, no, absolutely, how are doing it? Yeah? So there's a couple couple different things we're saying we're seeing on the broader side. And I don't know if that's retail over its institutional, but you're definitely seeing some put buying in the SPX and that's kind of pushing up the VIX a little bit. You're seeing the skew kind of get bit up a little bit more, the difference between the puts and the calls and the twenty five delta.
So we're starting to see that as well. We do see that on the retail side, you know, I'd love to say that our clients are educated. I mean, we have a lot of educational opportunities for them. A lot of them utilize options in their strategies, and we're starting to see more and more activity and on the option side heading into the elections.
Do you see your your clients do they trade around events like we kind of think that they do, whether it's the FED Day or jobs Day? Do you see like a spike and volume, a spike in trading. Does that happen on that platform or your people just I'm just I'm along, I'm holding well.
I mean, I think you have to look at it two ways, right, you have the investor base and then you have the trader base, and a lot of that trader base came over from the td ror Trade acquisition. So they are pretty active clients and they love you know, event risks, they love earnings, they love trading around that different type of strategies specifically alex As you were talking
about some option type of strategies around there. So yeah, we do see a pickup around those events, and you know, and how they had it or how they play it, that kind of depends on the client themselves. But we do see activity.
It's so cool. I love all of this insight. How are how's retail trading bonds right now?
Yeah, we've seen a rotation into fixed income and what I think what we're seeing from the from that side is that they're probably trying to maybe front run the FED announcement on September eighteenth, maybe trying to buy bonds four yeels come down a.
Little bit at the front end of the long end.
We're seeing it more in the middle. Yeah, definitely in the middle, a little bit, a little bit of the belly ETFs.
It's just I mean, Alex and I have just been amazed at the growth of the ETF business. Maybe yet to some extent that the expense of the mutual fund business. How much or how often are to what's agree or your client's use using ETFs.
Yeah, I mean think about think about the flexibility that ETFs offer, right whether it's you know, being able to trade intra day on them or not having to wait to end to day settle you want to use option type strategy. So yeah, that's something that's employed quite a bit by our clients just because, like I said, the flexibility and it gives them the ability to have some diversification choose sector ETFs. That's another thing we've been looking at, and you know it's wy We offer a lot of
thematic type trading. That's just something that we've really seen start to pick up as well too, so clients they don't have to necessarily pick a stock, they can pick a theme and it gives them the ability to have exposure to that.
This is a super weird question.
We had an article out a couple weeks ago, I think that said that as online gambling has picked up, you've seen more of that and less actual retail trading. Have you noticed like any correlation of like when you see surges and not for retail or is it the same kind of volume and stuff that you were seeing back in twenty twenty.
I mean, I would say if you look at the options market, ash Pole, right, I mean we're doing I mean, not schwapping in general. The whole market is doing fifty million contracts a day. So I don't know how much of that's being pulled from gambling. I guess we'll find out now the football season started again, to see if that pulls some of the money away. But at this
point I just continue to see. You know, the options market continue to expand, so I'm assuming it's pulling some of that gambling dollars in there.
So cool, all right, Joe, thanks a lot, Joe Mazzola, Charles Schwab, head of Trading and the Rivetive strategist.
I'd definitely come back.
This is the Bloomberg Intelligence Podcast, available on apples, Spotify, and anywhere else you get your podcasts. Listen live each weekday, ten am to noon Eastern on Bloomberg dot com, the iHeart Radio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg termal
Out round the