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Let's get more on those you Mish numbers hitting an eight month low. Joanne Shu is the University of Michigan Surveys of Consumer and Director, and she joins us. Now, hey, Joanne, what led this lower?
Still are just vociferously frustrated with the pain of high prices. This stands, of course, in contrast with the fact that we know inflation has slowed and consumer expectations for inflation have also slowed. Both of those things are trending in a favorable direction for consumers. But at the same time, forty nine percent of consumers tell us that high prices
are eroding their personal finances. That's pretty much the same as what we were seeing two years ago when inflation was hitting that peak.
They seem to conflict with each other. We're less confident, but we're more confident that inflation is hidden in the right direction.
I think they're not really in conflict because they do believe that inflation is moving in the right direction, but prices remain high, and so they are telling us how painful it is to continue having their budgets eroded or eaten away by these by these continued high prices. So, you know, I think consumers are in a way separating their feelings and their frustration with high prices with an acknowledgment that inflation is moving in the right direction.
What about CPI from last week, last week, this week? It all blends last week? Does that fact? Do we factor that in? How do you think that's going to affect the reading when you do the second read?
It's unlikely to affect the future reading because consumers aren't really paying attention to the CPI print. You know, the CPI print comes with a lag from real time data, and consumers are really responding to what they're actually seeing in the marketplace around them. So I don't expect a jolt from the CPI print, the most recent CPI print. But if inflation, if consumers continue to perceive inflation as slowing down, we could continue to see that trending.
I should just point out that CPI was yesterday yes, so clearly, clearly, my timeline is really tight.
Now all right, we moved to the intersection of economic data and politics based on your reading maybe in the past. What does this mean for the political setup? Can you delve into.
That any Absolutely, so, consumers.
We ask consumers a lot of questions about where they think the economy is going over the next year and over the next five years, and we have a lot of consumers who are responding with I'm I'm assuming I answered all these questions assuming such and such candidate is going to be winning the presidency. But if the other candidate wins, all of my answers will change. And we're seeing that for both presidential candidates, with views on both
positively and negatively based on either of those candidates. So consumers are really acknowledging how much uncertainty surrounds their expectations right now. So I think we can really expect a bumpy right ahead.
Joanne, we really appreciate it. We always love getting this incident analysis. Joan Shue, University of Michigan Survey as a consumer director joining us there, you meash sentiment hitting an eight month low.
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So we do want to go to the banks and take a look at JP Morgan City and we'll Spargo. Will Spargo also the worst performing stock right now within the S and P. Allison Williams is Bloomberg Intelligence Senior banks analyst and she joins us. Now this is when I get to spend a lot of time with Allison, like this week, two weeks of the year. It's a good time for me. Allison. Let's just start with will Spargo for a second.
What happened? So their net interest income is light and they're guiding to the higher end of a seven to nine percent drop in net interest income, so still a lot of uncertainty, but you know, the loans are what looks light there. So they're still talking about deposits and the pressure there. But the deposits actually the costs arising at a slower pace, so we think that's positive for the industry. But it's the net interestingcom And then the
other thing is the costs. So they're operating expenses are going to be are their overall expenses are gonna be a lot higher. They have this line called operating losses, which includes remediation and some of the regulatory related costs. So that is also disappointing that those costs still continue to weigh. The positive thing we're staying across all the banks better fee This is something we were looking for though.
Equity markets are strong, that's no secret. Equity trading really good, equity fees picking up, you know, Fick trading also doing well, and so that's all great. We are going to see I think higher expenses across the board because of that City Group got it to higher end of expenses. But that's okay with investors, right as long as you're getting higher revenue. It's those sort of lingering regulatory costs. I think that we're disappointing at Wells.
These banks are all very different businesses, aren't they, Wells Fargo. To what extent are they into commercial real estate? And what does that mean for this bank?
So they're all in the same businesses but to a different degree. And to your point, Wells Fargo is much smaller in these capital markets businesses where we're seeing a lot of the strength versus JP Morgan and City Investing, but still smaller. And commercial real estate, they are the biggest lender in office. JP Morgan's actually now the biggest commercial real estate lender overall after FRC. But you know, I did the office I think was not a big
factor for Wells' this quarter. They did increase their provision a little bit. We are seeing losses. JP Morgan sort of alluded to some losses. I think where we're seeing the issues or Wells has said the issues are really in the institutional space. So they do have an eleven percent or so reserve there, I believe, I didn't I didn't check this quarter, but the overall reserve is eight percent, and so that was about the same this quarter. But that's something that's going to be a long story. We're
going to continue to see that play out. But it's it's really I think the revenue side that's that's weighing on Wells. They are more lever towards net interest income and unfortunately seeing some of the pressure there.
So asking for a friend who may or may not be interviewing the Wells Fargo CFO later at three pm. What would be some good questions to ask, like, what like after getting through this these numbers and seeing achieving now it's not it is efficient because there are also is going to bugger later? What would be some questions you'd ask, I.
Mean, what you know in terms of the loan jaman they've they've said they're cautious. Is there a reason why they would have more caution than others or is it just a mixed issue? But really commercial, you know, commercial and industrial. We saw a big pickup in some of the industry data. Why aren't we seeing that at Wells? And what are they seeing?
Right?
And so we've gotten some news over the past couple of days with regards to change potential changes in the industry outlook, how does that impact their views going forward?
Yeah, we're supposed to get a rate cut. Everybody thinks September, So how does that affect everybody?
Right? And the hope for banks would be that it would spur some long growth.
But it like happened over twenty four hours, right, so it's like they haven't had enough time to really.
Act None of their views, you know, everything that they've prepared and they're talking about today, right, that would be you know, baked in as of the quarter end, and they did say there's a lot of uncertainty, right, so we we didn't see much movement. We saw one rate hike I think got taken off the table in the last three months. Entering the year, there's been a much bigger change, right, So we saw three rate hikes get
taken off the table in one queue. So we're people are feeling a little bit better today about prospects for the FED. But my guess as well as is going to continue to be conservative, and I think investors are going to want to try to feel out on the call. Is it conservatism or are there more reasons to be worried? And I would tell your friend to ask the CFO about that. Thank you.
I understand why Wells Fargo's shares are lower. I don't understand why JP Morgan and City Group shares are lower because those results were better than expected.
They were, but you know, JP Morgan, I think it's a matter of the expectations, right, So it's always about what are the expectations versus the delivery?
Okay, what was the big takeaway from the biggest US bank.
I thought so, I thought solid quarter. I mean, twenty percent return on tangible equity. That's that's pretty that's that's pretty amazing, you know, And they keep warning investors that we're you know, we're over earning seventeen percent. Is they're through the cycle target.
But you know what's the secret sauce for JP Morgan and Jamie Diamond.
I think what they've done over the very long term is invest and they just are enjoying a virtuous cycle of those leading market positions. Right. So they've invested in their trading business, they've invested in deposits, They've made some good purchases.
You know.
The one other key difference Wells Bargo versus JP Morgan and Bank of America is you know, they had this asset cap during the pandemic and that really limited for them the opportunity to pick up a lot of customers. And so while there's a lot of talk tracking those balances, right so we're moving down the balances all the fiscal stimulus,
et cetera. But if JP Morgan and Bank of America are holding onto those customers, that's a structural benefit that that well is missed out on a little bit again because of their regulatory issues.
So city is going through that five year restructuring stuff. Where are they in that? What did you learn?
I mean they're getting closer, right, but it's still it's going to take time, I think, to get through the numbers. But they did a lot of heavy lifting last year. Jane, I think is really you know, making some tough decisions and you know, made significant cuts and I think that that is really helping. But it's going to take a little while to flow through.
It's Jane Fraser's report card. Do you what do you give her this semester?
So I don't know, is that Adam am I allowed to give grades? I mean I will say, like I said, she's getting it done. So I think that she's doing a great job.
Allison, thank you so much. See this this avoids me bugging her later. So now she can go and write her reports, look through slides. I can tell my friend, like, we're good. Alison Williams, the amazing, wonderful senior bank analyst for Bloomberg Intelligence. Great stuff going on there.
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Alex Deeal Paul Smuenia is off today. John Tucker is joining me for the two hours Change seats co host as well as doing our business flashes for us. This is Bloomberg Intelligence Radio. We cover all the top news in business and finance and economics. There are lens of Bloomberg Intelligence analysts. They cover two thousand companies and one
hundred and thirty industries worldwide. We also go outside, of course, to get your take of how the people on the street are going to be viewing this and how they're investing their money. Phil Orlando, Okay, so John Tucker just literally ran over and sat and sitting next to me now and now he readjusting at the moment he did need to be closer. Phil Orlando is chief Equity Marcus Strategist and head of Client Portfolio Management and Federated her Means.
And he is standing by all right, philm looking at the Russell. It's up one point seven percent. The glory day is of small caps. Are they here and will it be sustainable.
Small caps? Yes, And that is an important distinction that we had federated Hermes reiterated with an exclamation mark. At the beginning of this week. We had gone to a five percent equity overweight at the bottom of the market last October, and the S and P five hundred over that last eight or nine months up thirty five percent. The MAG seven over that same period of time is up like I don't know, one hundred and thirty percent or some ridiculous number, But the small caps and the
value stocks and the international stocks have really lacked. We think we're starting to see a reversion of the mean that's starting to happen with small caps. We think are going to be one of the beneficiaries of that, along with value names and along with em names. So our best guess is that this nascent move that we've seen with the small caps has legs, and we think this trend is going to continue.
Continue for how long And what happens to the mega cap stocks at this point.
Well, our again, our best guess is that the valuation of the MAG seven names is ahead of themselves. Our full year target for next year. The S and P five twenty twenty five is six thousand. We broke fifty six hundred a couple of days ago. The market, in our view, the broad market is well ahead of itself, largely driven by the significant outperformance of the MAG seven names.
So what we expect to see happening now through the balance of this year, maybe into next year, we'll see is some profit taking with a lot of these MAG seven names, because we think the valuations are extended, and a rotation in broadening out of this rally into the small cap names and the domestic large cap value names and the small cap names.
So you would characterize this as healthy for the overall market, would you know?
We think it's incredibly healthy, because the market the performance over the last eighteen months between the MAG seven and the Forgotten four ninety three was about north of one hundred percentage points. I mean, that's not sustainable. The valuation on this very select group of growth and technology names in our view, had just simply gotten ahead of itself. And so what is happening now, I'll use your words,
it is very healthy. We think some of this fraud that's come off the top and a rotation into these areas that frankly have been left for dad over the last eighteen months is a very rational move by the market.
Here's my question, it's why is this time different. I feel like small caps have made a bid for it over the last few years and it's never been sustainable. We may get those fed cuts, but where are we going to get the actual earning support.
Well, the earning support is coming that you look at, for example, the current quarter, which just started today, the second quarter earnings, it's going to be a pretty good quarter, right Revenues are going to be up about four and a half percent year on year, earnings will be up about nine percent year of the year. It's going to
be another terrific quarter. And as you look at the trajectory of the improvement in earnings, most of this over the last year, including the current quarter, has come from the very strong underlying fundamental prospects of these very select group of growth and technology names. But as we look at this trajectory of the balance of the year, the second quarter, even though it's going to be a good quarter,
is going to be significantly slower than the first. The third quarter is going to be significantly slower than the second, fourth quarter slower than the third. The areas that we like are are showing in improvement in revenues and earnings from the end of last year, beginning of this year, into the end of this year. So there's going to be sort of two ships passing in the night, if
you will. The underlying fundamentals, as measured by things like revenues and earnings will get better for small caps and value and ems, and will deteriorate for these mag seven names. The stock market, ultimately, as a forward looking discounting mechanism, will attempt to begin to price in these sorts of developments six to nine months before they happen. Now, if we think we're seeing this over the course of the balance of this year, let's say the fourth quarter is
when this truly manifests itself. The now is exactly the time when the market should begin to recognize this trend, as we're getting into the second quarter earning season and digesting the earnings and the guidance, and then begin to recognize that that valuations need to move in different directions for these different asset clasts.
Some stocks are more forward looking than others, with a lower interest rate regime. If that's where we're reheaded, what's your outlook for particular sectors.
Well, you're exactly right. We do expect interest rates to move lower. We're not quite as sanguine or optimistic as the consensus, which I guess believes that we're going to see the first rate cut this cycle in September. We're still in the camp that we do believe that there will be two one or two rate cuts this year, but we think that both of them, one of them or both of them is going to come after the election, So that would suggest the November seventh or the December
eighteenth FOMC meetings. We think that trend continues over the course of next year, with another one hundred basis points of cuts in the funds rate coming probably on in every other meeting base. So if you give me the luxury of looking out eighteen months, you've probably got the funds rate down one hundred and fifty basis points. That should be a very constructive tailwind for small cap companies that historically do well when interest rates come down.
What do you do with bonds then?
In that environment, So our view on bonds is that we should be lengthening out or looking for an opportunity to lengthen out duration, that if the funds rate is one hundred and fifty basis points lower eighteen months from now, then treasury yields are probably going to be lower as well, which means that if I had the opportunity to start to lengthen out duration at you know, five percent of four and three quarters or even four and a half percent,
I think that's a reasonable bet. So if we're going to again look out eighteen months, could we see benchmark ten year treasury yields, you know, down below four percent, three and a half percent something like that. If the answer is yes, and and that's the direction we think we're going, then extending that duration here, you know, in the four to four and a half percent neighborhood, in our view makes sense.
Do you expect a September swoon? It is coming up on that time of year.
You do, Which is why we took two points out of our five percent equity overweight at the beginning of this week. The stock market, in our view, is ahead of itself. Stocks are overbought. We could absolutely anticipate, you know, at a minimum of five to ten percent correction, which we think would be very healthy. Looking out, say between now and the election. So stocks have done really well, we would expect to see sort of a rotation here, a reversion of the mean, if you will, in which
disproportionately more money comes out from a profit. Taking standpoint on the stocks that have just gone vertical, and see this rotation into a lot of the same actors, like the value, like the small caps, like the em names that haven't performed anywhere near as well as the MEGS seven names have.
Wow, Okay, I better get that money another my money market fun Now, if we're going below four for the tenure, which.
Is also Ira Jersey's call before the end of the year.
I'm gonna be one of those people. All right, Hey Phil, thanks lot, We really appreciate it. How Every weekend, Fill Orlando, chief equity market strategist and head of client portfolio Management over at Federated Hermes.
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Let's get to the story that is really upsetting John Tucker, and it's this AT and T story. AT and T stock obviously falling disclosing some hack of calls and texts that affected its custom I'm John Butler is Bloomberg Intelligence senior telecom analyst, and he joins us. Now John Tucker's not getting on'sages.
Okay, John?
Should Should John Tucker be nervous right now?
What's happening?
No? John Tucker should not be nervous right now?
What was stolen was interview was Let's move on.
I recently had my ID stolen. I think it's become quite common. And what happened at AT and T is they had their call logs breached. So you know, when you make a call, AT and T logs the originating number and the call number, and they generate billions of those data points, and so they need to store that data off site with a third party provider. Bloomberg reported that it was Snowflake that was actually breached. It was housing the AT and T data. This all occurred back
in twenty twenty two. So John, if you were not a subscriber, then I think you're really But the risk is where the fear is that hackers could use that data to potentially blackmail politicians or other vulnerable parties who may not want that call information released.
We're like somebody like, hey, why was John texting Alex at two a m. I mean, that's godn't happen. I'm just saying, I.
Mean, I know, I don't know if that rises to the to the moment, but you know it's fair.
I pay good money to conceal that that data.
I don't understand the hackers are counting on that, John.
So so it came out you're saying in a regulatory filing that we saw this morning. Why now? Why did it come out? Now? Why did they tell us about this earlier?
So that is a good question and one that I don't have an answer for, but I believe it probably has to do with, you know, understanding fully what the breach encompassed. I mean, it's one thing to discover a breach, and it's another thing to understand the details around it and work with the FBI to really understand the scope of the breach, you know, when they actually were able
to truly lock it down. So I can't speak to the specific timing here, but that's my guess is they had to do a lot with getting all their ducks in a row, so to speak.
Okay, but there's a lawyer out there where there are lawyers out there listening to this program saying, Wow, this is going to make a great class action lawsuit where I get lots of fees. How vulnerable that is AT and T to some sort of legal action in the money that would flow from that or just.
Like brand damage.
Yeah, well, I'm more worried about the latter. I think they're vulnerable on both fronts. So, John, as you suggested, I think the lawyers are sharpening their teeth here. I mean they are vulnerable to consumer lawsuits for breach of data. I think all companies are when something like this happens. What I worry about is this is the second breach this year. So they announced a separate breach back in March of equal scope, and here we are again now
in July, and it's a rerun of everything. And so my concern is that the AT and T brand gets tarnished, at least in the near term. When one thing I have noticed with the telecoms in other companies is people have a short memory on this, you know, fast forward a year from now. I don't think people are going to remember this, but in the near term they may. People who were thinking of switching to AT and T may in fact think twice.
Well.
Also, switching phone provider stinks. It's like really highigh fraction.
It's high friction. And so my concern is not higher churn or losing subscribers on the news. I think it's more getting those gross ads going as the they call it, people coming into the brand, and I think the risk is, at least for the next three months or so, people may think twice about it while the headlines are fresh.
John, we have earnings coming out at the end of July, so they're gonna before the market on July twenty fourth. What can we expect to What should we be paying attention to? I mean, they have a nice gross given and yield almost six percent.
What are you looking for?
Yeah, so two things for AT and T.
Number One, everyone focuses on their free cash flow because they're a bit over levered in the wake of that Time Warner acquisition and the underwinding of all that, and so they're trying to manage down to a debt leverage ratio of two point five times by I believe it's the end of next year, and they're getting there through free cash flow growth, and so for the investment community, that's a real focus. The other lightning rod for all of the telecoms is postpaid net subscriber editions, and so
that's the contract business, not the prepaid business. People like you and me that pay a bill on a monthly basis, but we're sort of on a contract. We don't have to prepay in front of the month, and those are higher price subscribers and the ability to drive net growth there through what are called net ads. So that's gross additions people you bring in, minus those that you lose. If that's a net positive and it's getting bigger every quarter,
that's good. If it's moving lower, which it is for all the carriers right now, that can be seen as a net negative. So there'll be a lot of focus on that number going into the quarter for all the carriers. AT and T included.
This one's kind of out of left field. I remember when the promise of the switch to five G. I didn't notice anything.
I did.
I went from like one G to five G. I didn't notice anything.
Yeah, really, yeah, It's funny.
Four G was much much more impactful for the consumer because it puts streaming video into our Palm tops, and five G will increase download speeds for sure, But it's much more impactful on the business to business side because it's a software defined upgrade. Without going into detail, that really gives a lot more flexibility for the carriers to
create very interesting news services. On the business side, I think I have to say I think five G has disappointed in that regard because even though the carriers are ready to deploy these services, I don't think the appetite on the business side has quite been there as originally expected.
Outlook for Telecom midyear outlook in how much time we got a minute left?
I think it's steady as she goes, John, You know, there's a lot as I said, there's slowing subscriber growth now post pandemic. All of the carriers, like every company on the planet, has been sort of edging up their prices, and so that actually is providing a bit of a floor to revenue growth. So as much as you're losing subscribers, price increases have a much broader impact across the whole
subscriber base and the revenue line. So I think revenue growth will be a tad lower from last year, but still I would again characterize it as steady as she goes. And as you mentioned before, we have very good yields at AT and T and Verizon, and so that will be a focus bring into the calls as well.
Yeah, particularly if the FED cuts and you get lower rates in the tenure.
Very interesting.
All right, hey, JOm, I really appreciate I think you made John Tucker feel better. I was John Butler Bloomberg Intelligence and your telecom analyst. You're still worried, fair enough. You know what I have to do every day now? I have to turn my phone on and off because there else it doesn't work properly. What does that mean?
Means you need a new phone?
Like I just gets the iPhone fourteen. I don't understand.
I don't know what I have.
Oh he's a flip phone. No, I'm kidding, he doesn't. It's not that bad.
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So Paul Sweenie is out today. I'm Alex Steel and John Tucker is subbing. He's also himself and he's subbing for Paul Sweeney. This is Bloomberg Intelligence. We bring you all the top news and business, economics and politics through our lens of our Bloomberg Intelligence folks. They cover two thousand companies one hundred and thirty industries around the world. We are broadcasting to live from Interactive Broker Studio right here in Midtown Manhattan. Also check us out on YouTube.
So let's get to that news conference last night with President Biden. Nathan Dean, Bloomberg Intelligence senior policy analyst, is joining us on that. So here's the media narrative, right, the Democrat of Democrats seemed to be now calling for Biden to step aside. The headlines continue to not look good. That's the media side. Is any of that true on the polling side, Well, you know.
We watched the prediction markets very closely, which we can find it on the terminal at WSL Election and going into the press conference, Kamala Harris had quite a sizable lead in terms of who was going to be the nominee fifty to thirty seven.
Now, at the end of the.
Press conference, President Biden had actually changed the narrative and was up forty four to forty one. And I just checked about twenty seconds ago President Biden is up forty six to forty one. So in the eyes of the predictive markets, President Biden had a very good night. Now, you mentioned the Washington angle, though that has not stopped the calls from Democrats for President Biden to step aside.
In fact, we saw one just a few minutes ago. Now, I think what will happen here is with the Republican Convention starting next week, some of the news cycle is going to break away from whether President Biden should run or not and move over to Milwaukee and what President Trump will do. But for the Democrats, last night was a good night for Biden, but overall he doesn't change the narrative. They're sort of stuck in the status quo should he run or should he not?
Okay, in his response to some of the great questions that he received from some of the Bloomberg reporters at that did he sound a little more malleable is the word maybe to change.
Well, you know, I.
Would say that he was pretty stuck in. I mean when he was when Josh Wingrove gave that great question on should he stay or should he run? You know, he sort of just said, look, the polling suggests that I should stay. Now that's not some of the polling that we've seen across the news narrative. So the question here is for President Biden is it's an ultimate gamble. If he honestly believes that he is the best person to defeat Donald Trump, he's gonna stay.
But you know, we.
Saw House Minority leader had King Jefferies just say that he spent some time with the president last night talking about what should happen here. So I think there's going to be a lot of serious conversations in the Democratic Party that will take place over the next week, and eventually President Biden is going to have to make a decision before you know, they get him onto the ballot, you know, and so forth.
Is he going to stay as you get it go?
But as of right now, I think if you were to give President Biden trutstrom, he's going to say, I'm.
Going to stay.
But do we trust any of the polls. I mean, when have poles been reliable last?
You know, I tell clients all the time I don't trust polls until two weeks before then, and even then I still suspect. So you know what we should think about here is process. Now the Democrats have time because next week is the Republican convention.
Obviously the new cycle is going to turn to that.
But because of the way the Ohio state loss is, President Biden has to be nominated by August seventh to be on the Ohio ballot. This is before their convention in late August. Now, the Democrats have been talking about holding a virtual roll call. They're dusting off that COVID playbook. They have a virtual nomination per se for President Biden for the state of Ohio around July twenty first. That date is not set in stone, so up until that
point they can have these conversations. Once they nominate President Biden to the Ohio ballot, however, it's going to be extremely more difficult for him to say I'm not going to run, because then you would get into a situation where President Biden's on the ballot in Ohio, but he may actually be running for president who are.
The key people in all this who talk to the president. When does it happen this weekend?
You know, I think this weekend is actually going to be a good, you know, reset moment for President Biden. He may go I don't know, I can't recall a schedule. He may go back to Delaware or not. But he obviously has his inner circle of allies. But then you also have heard through the news cycle that, you know, President Obama is beginning to opine on this.
You know, it was.
Reported that he spoke with je spoke with George Clooney before George Clooney put that opt ed calling for President Biden to step aside. So I think there's just a lot of people that are going to be talking to the president. I think the problem here is is that you get a difference of opinion depending on.
Who you are.
In the Democratic part. Most of the people that are calling for President Biden to step aside represent Democrats in either bipartist Purple states or red states. You see a lot of Midwestern Democrats calling for President Biden to resign, sorry, to step aside. It's those Democrats that are in more safer seats I think in you know, think New York City if you will, that are saying no, President Biden,
Biden should stick it out. So I'm not exactly sure who's going to have the president's ear this weekend, but I know a lot of people are going to be trying to get that get that voice.
Time.
For investors, what should they care about because you just you cannot hedge or price in political strike. I mean since Brexit and even that was like what six or eight weeks that you could price that in. What do investors do with all of this?
Yeah, so you have here the micro view and the macro view. So if you're thinking micro, like what's the individual impact on a company whether you get President Bien or let's say Vice President Kamala Harris, I'd say about ninety five percent of the policies that we cover BI would be the same outcome whether you have President Harris or President Biden. So on the company specifically specific impact, I don't think there's much uncertainty there.
Now.
The question then comes from what's the uncertainty on the macro level? And obviously this is the more important at the market perspective. Now, if President Biden were to say that, I think the worst case scenario for the markets would be if President Biden says I'm going to stick in, I'm going to stay, and then after the Ohio date or after the convention he announces he's going to resign.
Then you have an election where essentially people will have to go to the ballot to vote for Joe Biden, but knowing that he's not going to be the president, and then it would be in the hands of the DNC to figure that out. That's a lot of uncertainty there.
An open convention in Chicago may not be a good thing for markets, but ultimately, you know, when you look at the differences between President Trump and whoever the Democratic convention or the Democratic nominee will be, you know, you get a prestarty start contrast there, and you'll be able to at least pick and play scenario analysis with either of those.
Does Vice President Harris have a role in talking to the president at this point or just be self certain?
That would be so dicey, like, hey, can you step aside so I can run?
Thanks God, I wish we knew the answer to that one, but I will say that, you know, the Vice President Harris has been on the road lately, she was in Texas just recently, you know, saying the same message, and you know, we've heard behind the scenes that you know, President Biden is the nominee, we need to get behind him. I would just say that, you know, this is one of those situations where I think she is more likely just to say I'm supportive of the president, but let's
let the process play out. But again, it's just really hard to tell.
Before I let you go. Rnc's next week, we haven't even really talked about that. What's the number one thing you're looking at?
The number one thing I'm looking for is the vice presidential candidate. You know, is it going to be you know, Senator Vance from Ohio, Governor Bergham from North Dakota. Does Nicky Haley even have a chance. There's a couple of people spring around Washington that she could be a surprise pick.
I'm not sure about that.
But what I'll say is the vice presidential pick is important because it may show how presid Trump is going to try and appeal to moderate voters Going.
Into the election.
He pulled strong abortion reproductive right language from the RNC platform, and maybe his vice presidential pick could be an additional playoff of that.
Yeah, but that that all makes sense. But you know, in the world of Donald trumality, do you want somebody who's gonna maybe upstage you and look better than you?
Oh, Johnny, we got to bring it down to DC because that is the conversation every single one of us has been having. You know, if he picks Senator Vance in two years, you have your you know your replacement.
They're right for you.
Hey, Nathan, we appreciate it. Thanks a lot, Nathan Dean, Bloomberg Intelligence Senior policy analyst. Joining us there.
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Let's get to some of the news here, and that is NATO. Over the last few days. President Biden of course, had that news conference yesterday. We had yng Stoltenberg, out going NATO head speaking to Bloomberg earlier talking about how he expects the US will remain a strong NATO ally. Of course, who wins the presidential election will have a lot to do with that. So we want to check in with doctor Ariel Cohen, senior fellow at the Atlantic Council.
He joins us. Now, Doctor Cohen, what is my NATO takeaway right now over the last few days.
First of all, this was a celebratory meeting of the seventy fifth anniversary, and I think NATA is getting a little bit long in the tooth.
It is not facing the real challenges. I would like to see.
Much more vigorous leadership there that you and I may agree or disagree whether President Biden provided it. But more importantly, we see a lot of redundancies in NATO procurement.
We see shortages of equipment of.
Material, we see shortages of soldiers or grunts on the ground in Europe. But on the other hand, we also saw for the first time NATO expressing grave concerns about China supporting Russia. So NATA is increasingly a global alliance led by the United States, and President Biden, if elected, will be ill advised to discard NATA. We all are aware of his pessimism about NATA, his rhetoric about me.
You mean Donald Trump, right, I'm.
Sorry Donald Donald Trump, of course, so Trump will be ill advised to discard NATO. In the era of confrontation with Russia and serious friction was China.
We need our ally.
Coalitions and industrial potential win wars.
We saw it in the twentieth century World War One, World War Two.
The Allies had a bigger and stronger coalition an industrial base in World War One and World War Two.
Has NATO been able to trump proof itself?
NATO is not sufficiently trump proofing. If by trump proofing we mean the US that disconnects from Europe or focuses on China. As some experts in Washington suggested, just forget Europe, let's put in Ukraine. Let's all focus on the Pacific. This is not the way to go. But Europe has multiple models of fighter aircraft.
They don't have strategy bombers. They have multiple models.
Of main battle tanks and insufficient production of hundred and fifty five millimeter shells, not enough missiles. Although they're capable of producing the missiles and the drones we need in today's world, the production is shifting. It's no longer these single, very over engineered, very expensive platforms that I think f thirty fives F twenty two's think the sentinel ICBMs. We need mass production of cheap drones, and this is something
China may excel in. The warfare is shifting. We need a balance between the sophisticated and expensive systems and mass produced drones.
I mean, and that's a fascinating point that the cheaper drones. But even in that area, you have some of the big technic technology companies in the US, because of political pressures, refusing to go down that route, and certainly the US defense industry may not have the wherewithal in terms of spending to develop the drones that could potentially be a big, big threat to the structure that we now have in place.
Well, think about the current naval structure twelve tabletops, aircraft carriers flattops.
Each one costs billions and billions of dollars and many more billions to protect and can be taken out by swarm of drones even you know, to go into sci fi area that ceases to be.
Sci fi an AI control swarm of drones taking out an aircraft carrier. Think about the consequences six thousand plus sailors and soldiers on that aircraft carrier and massive.
Escalation of the Pacific. For example, think about.
These two thousand dollars drone taking out a two million dollar tank in Europe. Ukrainians are planning to produce one million drones, the Russians.
Are planning to produce two million drones.
And now Russians are getting technology from unexpected sources like Iran and North Korea and China. By the way, this is the reason for NATA mentioning China so sturdily and severely in the NATO document. So the shift of warfare and production is moving very fast.
And I'm not convinced that.
The Pentagon has the procurement procedures that are broken.
I'm in Washington, d C. I'm doing it for a living.
I talk to people who know the Pentagon procurement in and out, inside out, and they are complaining that the procurement system is broken. And because of the revolving doors with the military industrial complex, the generals are not ordering the cheap systems the military industrial complex doesn't want because they're not making as much money on cheaper drones visa v F thirty fives.
Yeah, it's interesting. I just want to add that Peter Thiel, no matter what you think of the investor. He's kind of taken up the slack in terms of investing in
small startups that specialize in these advanced drones. So there's a lot of tension being paid to that because it's just not coming from other avenues, and that seems to be as a doctor Conor just mentioned, one of the big threats we're facing, especially in the Pacific, with the fleets, the carrier fleets, So take that for what it's worth.
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