Housing Starts Fall to 3-Month Low: BofA Earnings Recap

I guess the only real question is at the next meeting will it be twenty five basis points or fifty. To get a sense of what to look for when the Fed does meet, we welcome Neil Data from Renaissance macro Research. He is ahead of economics there. Neil, thanks so much for joining us. So what is your sense that when we when the FED does meet on the thirty feet will they cut by twenty five or fifty? What is your sense, Neal? My sense is that they

cut by um? I think first, um, you know historically if you look at it, you took sickly get fifty basis point cuts going into recession or we have some sort of um, you know, crisis on our hands. Um, we don't have either of those things at the moment um, so this looks like a basis point cut. It is probably, um, what's more likely. At the same time, I mean, if you just sort of read the FED speak that we've seen, I mean, you have the most devish members calling for

twenty five basis point cuts. So if you can't convince them of a fifty basis point move, um, you know, I think it's it's it's pretty unlikely. So I think the first go is probably a twenty five basis point cut at the end of the month. So, Neil, I'm curious what your impression is just generally of where we are in the economic cycle, because we are getting these bank earnings and they show a very strong consumer yet

relatively muted capital markets activity. Is there some kind of leading indicator that you see in there of businesses perhaps slowing some of their big moves while the consumers stays strong right now? Yeah, maybe, I mean I don't I can't speak Lisa specifically to two bank earnings, but uh, I mean that my my sense is basically that, um, you know, these issues that we've been talking about a lot in the macro space. You know, trade tensions, um,

you know week overseas activity. UM. You know. My sense is that probably impacts um, you know, medium and large sized firms more than it does domestic consumers and so um. And you're seeing that largely reflected in the data. Business fixed investment has been quite sluggish, but consumer spending has been quite good. Now of course, UM, you know, at

some point something's going to have to give. A final demand is holding up reasonably well, um, you know, then businesses are going to have to play catch up and um. And that means that you know, you you may see sort of a pickup in in investment activity as as firm sort of real one well but with final demand good. But but Neil, I mean you could go either way here, right, So businesses may have to play catch up with the consumer and invest more, or you could say the other

way around. The consumers will have to catch up with the businesses if the businesses aren't investing and aren't necessarily hiring more people, are even cutting in the face of some of these trade tensions, right, I mean you could go either way. Lisa had that work in you want to make that mistake again. I mean, I think consumers ultimately are the sort of main driver, the primary driver of dynamics, you know, I mean, consumer spending tends to

lead investment. UM, even when you look at you know, sort of just changes in growth dynamics. So UM. And you know, even when you look at investments spending in the U S it's it's um. I mean compared now to to how it was that when we actually did have a Capex procession, which was in Capex is holding

up reasonably well all things considered. I mean, we were here talking about, um, you know how terrible things are in the global economy with the stock market at all time highs and you know, all this trade to trade uncertainty, and even then, UM, you know, investment spending is still

holding up reasonably well. So you know the fact that US investment spending is doing so much better than many other places in the world tells you that there's already something going on with respect to those companies respond but with respective firms responding to final demands. So um, you know, you're not seeing big declines and employment. Uh, you're seeing plum plumbing continue to expand your consumers um, continuing to spend money, and it's that final demand that firms ultimately

have to respond to. So you're one of the things that the FED is looking at is inflation. Where we right now with the inflation outlooking the US UM, you know, I mean, I think inflation is running persistently below the FEDS target. You know, I think if you have like if you look at it, you know, very very near term. I mean, it's pretty clear that, you know, the FEDS transitory story that they had been sort of pitching for a two months there, I mean, that's actually kind of

worked out. I mean, inflation has you know, co inflation has popped up a bit, but it's not enough to kind of, you know, change the underlying story about inflation. UM. Inflation is persistently below two percent, and that means that, you know, in my view, at least you know, the benefits of the FED doing something here in terms of you know, accommodating UM you know, outweighs the cost. So you're bullish. You're very bullish, it sounds like, and I'm

curious when you think that things. Yeah, I mean you're welcome, right, I mean, you know, yes, you know, I love it, absolutely love it. UM it's a happy Wednesday, Neale. I do want to look at it though, and wonder, you know, when you see these credit cycle perhaps aging, because people have been saying we're the ninth Inning for the past six years, and I'm just wondering, from your perspective, what will it'll what it will actually take to get there?

What in terms of credit I mean for the business cycle, I mean, when are we actually see a downturn? What is what do I think it's going to be looking less rosy? Um? Well, I mean I think when you have a sharp upturn in real interest rates, uh, you know, then I think that would be something that would that would concern me. Um. But at the moment, I mean, you still have you know, nominal growth running well above

the level of overnight interest rates. I mean that's that's that's as reasonable and indication as any of the business cycle still has room to run. Um. You know, you have you know, when you take a look at sort of the kind of classic sort of check boxes that people have when they want to make a recession call um there, no, they're not and um and so it's

gonna be a while. Yeah. And I just think that the housing market in the U s is arecovering and it's really unusual to see, you know, some kind of a big downturn in the economy with residential with residential investment accelerating. Neil Data, thank you so much, love having you on. Neil Data, head of economics for Renaissance Macro Research,

joining us. Seeing positive signs ahead. Well, it has been obvious for sometime the President Trump is not a fan of the US Federal Reserve and its chairman j Pal. The question is whether the President's tweets and other commentary influences the FED to get some analysis. So this we welcome our next guest, Christopher Condon. Christopher is a reporter for Bloomberg News covering the Federal Reserve. Chris, thanks so much for joining us from Washington. So let's go to

that big question. To what extent, if any, do you think President's Trump's commentary and tweets about j Pal about the Federal Reserve influences the FED at all? I really don't think it has that much influence. The Fed has a pretty clear process. It goes through a very rigorous an intense process UH to prepare for each of the

f O m C meetings. They happen eight times a year, and it's a it's a big deal, and the participants have to really have their act together, um when they come and make arguments at that table about what they should do with policy. And by all accounts, current members, former members, people who understand this process, staff people, politics just doesn't have a place in there now. At the same time, we have to grant that, you know, these are human beings. They don't sit there talking about the

president's pressure, but they must feel it. They really see the tweets, they see the news about it. Uh and if anything, you know, um, former senior staff have told me, it may actually make it harder for the president to get what he wants when a decision is a real close call. So let's hold hold one, okay, But before we get into, you know, the idea that they might try to rebel against him and show that their independence

by not doing what he wants. In on the margins, I want to talk about moves that President Trump could actually make that economically would create a better picture for

a rate cut or further rate cuts. And I'm talking about tariffs because President Trump is cutting out now, coming out now and threatening additional tariffs in China saying he can levy them whenever he wants, and a lot of people are saying, you know, is this perhaps an effort to push the FED into cutting rates even more ahead of the election, In other words, that the FED would be compelled to do so from an economic perspective, even

though it's a politically driven economic perspective. Yeah, that it does seem like a bit of a circular. I'm not sure how strategically he thinks about what the he wants the FED to do when he considers imposing tariffs and China. There's a whole other agenda there, obviously, with respect to our trade relations with China, and what's he what he wants to achieve there. Um, that may be putting too

many uses in play at once. It certainly is true that the FED has to deal with the reality of those terrorists and the extent to which they hurt the economy. They certainly are hurting business sentiment and the way companies think about investing and hiring. That seems to be showing up. So it is factoring in to their analysis of whether the economy may need a rate cut or not, that's

for sure. So Chris one of the issues. I think is probably maybe even more potentially impactful on the Fed um than tweets is you know, kind of an effort on part of the president too, you know, arguably quote unquote pack the Fed with uh not with people that are more amenable to his uh easing of FED policy. So it gives a sense of kind of where that

stands within the Fed, how how are they? That is that it represents a big turn of events that happened gradually, and I'm told that has set folks inside the FED much more than the barrage of tweets and comments attacking the Fed over monetary policy. It represents a serious potential

threat in a couple of ways. First of all, it could be a direct a way to get political partisans inside uh the f O m C. You know of course that he Trump made a number of nominations some of which they cut through that were entirely conventional and have support helped the Fed. But this year the nominations where the people considered for nominations has changed. Currently we have a couple of people, uh and one and one person in particular represents this kind of change. Her name

is Judy Shelton. She has been an economic advisor to Trump during the campaign. Um, she's a she is, uh, I would say, a classic libertarian thinker and author, has been a long standing UM advocate of the gold standard. Now she's been talking despite that at around strangely has

been talking about wanting to lower interest rates. So that makes people think she represents just a sort of partisan loyalty to the president, and if confirmed, that puts that partisan political agenda potentially right inside the rate setting meetings. And second, UM, she also uh just really does not seem to agree with the fundamental mission of the Central Bank of the United States. She does not think they should be setting a benchmark interest rate to guide the market.

But in fairness, right now, a lot of people in the market are very unclear of what the Fed's mandate actually is because it was on one at one point, inflation at one point, it was employment at one point. People are speculating it's just keep the markets propped up. Well, the law is pretty clear they have a dual mandate to keep prices stable through their inflation target and to maximize employment in a sustainable way. UM. It can't be

much clearer than it is in the law. UM, and of course, as as economic and financial conditions change, um, the FED focuses on one area another. If they're meeting one mandate, then they they look at the other and how they can try to guide the the economy back

to a point where they're meeting both of those targets. Um. And of course, when it comes to you know, Judy's argument about the market should be setting rights, I don't think it can be reasonably said that the Fed just sets a rate and expects everyone to fall in line. Actual borrowing costs are kind of a result of a dance between the Fed and the markets. They're very much listening to each other. Um. So her her thinking is

a bit more fundamentalist. I think and and and does what Whether it's right or wrong, The bottom line is it really disturbs folks at the FED. Christopher Conton, thank you so much as always for joining us, as well as for your Bloomberg Business Week piece about just the political pressure on the Federal Reserve and whether it will actually have any impact on their decision making. It looks like it may not, despite the fact that the pressure

is rising from President Trump. Chris Condon of Bloomberg News, Well, we have read on the screen. As Greg reported, let's see where the action is in small caps with Bloomberg stocks that or Dave Wilson, Dave, what are you looking at? I'm looking at more red than I'm seeing with the larger companies, that's for sure. The RUST of two thousand index down seven tenths of a percent, of the SMP five hundreds lower by just three tenths of a percent.

One of the Russell's deepest declines belongs to Beyond Spring, who's ticker is b y s I, the cancer drug developer has fallen more than fifteen percent after raising thirty five million dollars in a share sale, representing more than an eight percent steak, and Obio Pharmaceuticals ticker i n O was dropped fourteen percent. The drug developer ended research on a bladder cancer treatment and said its workforce would be reduced by twenty eight percent as part of an

effort to cut costs. Malan Krott ticker m n K has lost about nine and a half percent. The drug maker end of the study of its biggest selling product, hp acthar gel as a treatment for Luke Garrig's disease. Now the Russell's biggest game belongs to avro Bio ticker a v r O, the stem cell therapy developer has risen more than sixteen percent. Avro Bio raised twenty million dollars by selling the equivalent of a twenty one percent steak and may Come Technology Solutions to m t s

I has added more than eight percent. The chip maker was raised equivalent buy from Neutral and Piper Jeffrey David Wilson, thank you so much for being with us, Steve Wilson, always with those great updates. Bank of America shares up a little bit about four tens of a percent after reporting earnings. UH that had good had bad. You basically could plug in the name of a number of different

banks this earning season and have the same story. Told Alison Williams joining us here, she is the hardest working woman at Bloomberg these days of Bloomberg Intelligence senior financial analysts. So, Alison, what's the deal with b of A? So UH net interest margin MS guidance coming down. That's similar to what we saw across the big four banks that that I cover, UM, but the differentiator has been costs and so for Bank of America. Basically they had said Um, they expected cost

to be flat this year. Now they're saying there may be some opportunity for those to come down, so offsetting the net interest margin. Pain, Let's back up for a second. When they have opportunity to reduce those costs, is that another way of saying we can cut jobs. Well, it depends where the costs are coming from, right, So to some extent, um, they don't want to be cutting jobs in certain areas, right because there there's a pickup in

UM opportunity. So mortgage banking is an area actually where you might be see some additions across uh, some of the companies well as far Ago yesterday also saying that was an area for for higher costs. They're also saying they're not going to cut tech spending. So that's, um, you know, something that you don't want to see banks doing, especially given sort of the battleground in some of the

U S companies winning on that front. UM. But you know, in terms of other areas cutting back, you know, uh, Paul, you can remember the days when um, you go through the department and everybody gets a little bit more focused on where no certain expenses are coming from, and everybody just sort of keeps and keeps a closer eye in terms of what you're spending, what travel, you're technical, lunch necessary, where you guys are going out for lunch, the number

of black cars that are lined up outside um the investment banks. So you guys have lived a different life than I had. That's like it was a different time. So yeah, So there are some expenses that very very with revenue, and then there are some where you can be a little bit more efficient, and so technologies, uh, you know, we were we've been talking more recently about technology helping on the revenue front, but that's also helping

helping on the efficiency front. Right, So mobile deposits are a great experience for the customer, but they're also like three cents on the dollar for some of these. So also when I worked on the street, the big trading desk were really drivers of profitability, whether it's the you know,

fixed income trading desk, the equities, the commodities. Are we ever going to get back to a time on the wall street where they can be consistently profitable and really drive some of the returns for these big global banks. I think that, you know, one of the big changes is really the electronification UM and again, and you know, Paul and I have been tortured by this throughout our

careers in terms of seeing what's happened on the equities front. Right, So UM a business UM that has really shifted over time to be more UH to be traded a lot more through the electronic venue, and we're seeing a lot more UM progress on that front on the fixed income side. So I think as volumes continue to go electronic, that does UM you know obviously has it has an impact

of thing go low touch versus high touch UM. And in general, you know, the volatility there there are some cyclical factors that that may get better in terms of volatility and quantitative easing. But the other big pressure is the pressure on customers, right, so passive versus active. You think, you know, an active customer is doing trades, they're providing

flow for desks. A passive customer UM is generally not And so I think that's you know, hedge hedge funds are another area where we've seen a lot of fee pressure. Less fees, broadly for the end stry is less revenue. If your customers have less revenue to pay, you know, that's less opportunity for you. Just real quick here. We talked earlier, perhaps year or two ago, that the banks would have to pass along some of the increase in interest rates to their depositors. Was there any talk about

that this time around? The increases that you've seen, so you've seen increases in two businesses, the wealth business and the commercial small business side of things, right, So that's where you get people where sort of the shopping around

is going to pay off. So when you have you know, ten customer let's let's say you know, ten customers with a hundred dollars versus one customer a thousand, you know, multiply that, right, So someone with a million dollars is going to shop around, whereas someone with like a thousand dollars isn't likely. So when you look at UM the core franchises, you're still seeing, you know, things pretty sticky there, but you are seeing a pick up in terms of UM.

As I said, the wild small business, you know, City Group also had sort of a notable pick up. They're building digital, So when you're gonna go digital again, you're probably paying up for those deposits. Alison William, thank you so much. Allison Covers all Things Banks for Bloomberg Intelligence, joining us on a Bloomberg Interact the Broker Studio. Funds are having a very good year by historical standards, although I will note that equity funds are still lagging the

SMP five hundred the broader market. Here to get a sense of which strategies are performing better, we welcome UH Don Steinbruger. Don is the chairman UH and founder and CEO of Agecroft Partners. John Don joins us here in the Bloomberg Interactor Broker Studio. Don, thanks so much for joining us again, just give us a sense, just kind of We're six months into the books for the year.

How are the hedge funds, broadly defined doing so? From an absolute standpoint, they're doing the best they've done in ten years. The average hedge fund for the first six months of the year was up seven point five percent based on the h f R I index, and that's significantly better than the acid weighted index. It is dominated by large hedge funds. Smaller hedge funds outperform large hedge

funds for the first six months of this year. So here's my question, and this is going to be the question that everyone's wondering which is it's two and twenty worth it. I mean, it's not really two and twenty anymore of the fee structure because it's come down dramatically. But if these hedge funds are performing the best at an absolute level and still under performing the broader market,

is it worth it? So when you think of first of all, relative defease, I don't think anyone should pay two in twenty less they find just an absolutely fabulous hedge fund manager, there's no reason to do it. There's a lot of hedge funds that are offering founders share fees at one and ten. Fees matter, and if you're analyzing a hedge fund, you should focus on fees, all things being equal, always go with the manager that has

less fees. But looking at hedge fund performance, you know, hedge funds are a fund structure, they're not an asset class. So you really gotta look at what the strategy is and what the underlying benchmark is that specific strategy. And although I think most hedge funds are not very good, there are a lot that have outperformed indicas and I think add values, so yes, I think there is a place for hedge funds in UM sophisticated large institutional investors portfolios.

So what are some of the strategies that are particularly performing well here in the first half of the year. Well, you know, obviously, anything to do with the equity markets did very well. The UM average long shot equity manager was a nine in four four percent. But what I think is really interesting is, for the first time in

a long time, fundamentally oriented hedge funds did well. UH. The average fundamental manager, and you've got to remember they only have about half the exposure of the of the broad market, were up ten point eight eight percent, and they significantly outperformed systematic UH long shirt equity managers that were only up about six point nine one So fundamental fundamentals for the first time in a long time worked. It'll be interesting to see if they work going forward.

You know, some sectors within the long shirt equity area sector managers did pretty well. Those focused on healthcare technology were up over eleven percent, and from a regional perspective, managers have focus on China, We're up thirteen point one percent. I can touch on a couple others if I have time, you know, I want to actually ask something about what you said earlier, which is there are good fund managers out there, and if you find them, they can add

some real value to your portfolio. How do you judge? How do you herman whether a fund manager is good or not? Because it's not just past performance. It is definitely not past performance. So I think you've got to use multiple factors and analyzing the hedge fund, I think you need to look at the organization and make sure that it's institutional quality. You've got to go to the office, meet the people there. I think you need to look at the people managing the portfolio. What are their bios

look like? You know, what is it? What edge do they have to implement the process? You need to listen to what their investment processes. Can they articulate what inefficiency in the marketplace or trying to take advantage of and clearly explain how they're able to take advantage of that inefficiency. You need to look at risk control. As far as

performance goes, you need to decouple it. You need to really understand that was their performance, but why did they do what they did and how is that going to the strategy going to do going forward? For example, you know this year there's been broad rallies of the fixed income marketplace. You've had um the ten year treasury rally by you know, over sixty basis points. You've had high yield spreads come down almost a hundred and fifty basis points.

The more risk you took into fixed income portfolio, the betty you did. But that doesn't mean you're gonna do better going forward. So you need to understand why performance was what it was and also have some idea of you know, what you think the markets you're gonna do going forward, and how that strategy in a stress tested environment will do going forward. So it's interesting. So they don't outperform. So the equity hedge funds kind of about half what the SMP has done on the upside this year.

How about when we have a down market, did they do better than the market, Because I'm wondering what I'm paying for again, I'm not getting performance on the upside, but I am not gonna are they gonna protect me on the downside? Well, first of all, on the upside, I do think they're When you start looking at niche oriented, long shoot equity strategies that focus on more inefficient markets, I think they've done a better job beating whatever the

relevant benchmark is. For example, if you go over to Asia, UH, managers that focus on Asia or China um have some of them have outperformed their indicas by very large margins over long period of time. You know, if you're talking about US equity managers that are focusing on you know, the apples and the very large cap stocks, I mean, it's really hard to get information advantage and most of

those have underperformed. But just a real quick here, we just have about thirty seconds and a listener is writing in who does manage a lot of money and isn't in charge of determining what investments there are? And he was asking, how long of a track record do you require? You know, I think the longer the track record the better, And I would want to see a track record at least three years UM. And you know, you just need to make sure that when you analyze the track record,

you understand what the track record is. There's a lot of discrepancies as far as showing net performance and what fees people are using to show net performance versus what their normal benchmark is. Don Steinbruger, thank you so much for being with us. Really appreciate it. Don Steinbruger is Agecroft Partners founder and CEO, joining us here in our Bloomberg Interactive Broker's studios. Thanks for listening to the Bloomberg

P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woits. I'm on Twitter at Lisa A. Bramwoits. One before the podcast, you can always catch us worldwide on Bloomberg Radio