Bloomberg Audio Studios, Podcasts, radio News.
This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio,
the Bloomberg Terminal, and the Bloomberg Business App. All we're gonna do is dive into earnings on a Friday. We've got three earnings coming out City Group later, which in itself will be fascinating. It was a reverse ten for when stock split fifteen years ago, and they're still trying to figure out to move forward. Wells Fargo with a very different platform, always challenged Damiens chomping at the bit to ask Allison Williams about that, But I'm gonna start
with Fortress Diamond. It just keeps continuing, Allison, you have lived this. Harrison was running JP Morgan in this young Turk Jamie Diamond at Bank one and the Midwest was going to come in and save the day, Save the day. He's built a juggernaut. Let's start with the JP Morgan distinction. Why are they different this Friday morning.
I think they just continue to reap the benefit of their investments. I think one of the things that JP Morgan has done is, you know, being willing to spend the money. You know, keep in mind, a couple of years ago they said, look, we need to invest. We're investing in technology. People were very upset about the operating costs. But they're proving, and they're proving that those investments are yielding results.
Trading at a twelve thirteen multiple, they're up sixteen percent per year for the last ten years. Nobody's even close. And I got a headline JP Morgan notch's profit on visa gain is at the SaaS summer House north of New York City, killing it for Jamie.
This is how they're paying for all the great things that Damien was just referencing. So they had they had an eight billion dollar gain related to tendering some visa shares. They announced this actually even prior to their investor day. So I think for the most part, investors saw this coming. But you know, you sometimes you don't know who's watching the stock and if they're seeing this extra billion and expenses related to that gain, and if there could be
some negative reaction to that. But we think it's smart. So they have this big eight billion dollar gain, they're gonna pull forward some of their charitable contributions by you know, funding that funding those contributions with shares, So we know that that's a great tax advantage. But that is upping their costs for the year by a billion, So we
think that that that's a smart move. I think on the more negative side, Wells Fargo guiding up on their cost which our investors are not going to be happy about. These operating losses or not operating losses as they refer to them, the customer remediation costs that relate to the ongoing issues the asset cap that have been sort of going on since about twenty sixteen.
I mean, look, Amy, net interest margin, op X, credit quality. Who cares? All we care about are banking revenues and trading results. Talk to us about fix trading, equity trading. I mean it's been a pretty good quarter. No, I mean, what's going on at JP Morgan. My man Matty Kolakowski and securitized sales over there said he had a big quarter. Is he getting paid?
Well, it is a good quarter. I mean, I think there's one of the things that investors are really keying on is the investment banking revenue. And perhaps that's just because it relates to all of our businesses, because the revenue itself, just investment banking is a huge lever for JP Morgan, but does help trading, which is a bigger lever. And we saw better than expected results two point five billion on the investment banking revenue side, and that helped
fix trading better than expected, equities trading better than expected. Really, we're seeing the lift from those strong equity markets as well as credit trading on the fixed side.
So you know, I'm just kidding, right, I mean, it does matter, but it matters more for Wells Fargo when we're looking at op X and we're looking at fundamentals. So talk to us a little bit about why that's different there. I mean, this is something that's been going on since twenty sixteen.
No, it's been forever. I mean when we think back and they first announced these issues, and you know, for those not familiar, there was a fake account scandal. We've seen a complete turnover of management. We've seen a couple of CEOs, the board's turnover, just years and years of trying to get it right. This has never happened to a bank.
This this.
You know, sort of the regulatory backlash, and so no one knows when it's going to end. It just keeps getting longer and longer, and we just keep seeing these these costs and so we should be getting to the tail end of those. But the fact that you know, there's two things, so the costs are going to be more than expected. The net interest income they've been guiding down seven to nine percent, and now they're saying that it's going to be on the higher end of that range.
Some of the banks that have more trading and have talked about like there's an impact there kind of goes out in the wash with fees. But we're going to want to hear more detail from Wells. Why are they a little bit more now?
You brought notes in Friday, we do Bloomberg Surveillance.
With Alison Williams. Come on prepared Alison. You know, look, I mean for me, you know, I'm a fixed income guy, and you know, for me, it's about credit quality. And you know, I'm curious what are your takeaways here? I mean, are they provisioning more? I mean, we're at that tail. I mean one would think we're in the eleventh inning of this of this of this cycle here in the US. I mean, does anything stand out to you in terms of credit quality on that end of the equation so far?
I mean, we haven't done fully into it, but it looks like what we had expected, which is we're seeing provisions for the credit card business and a lot of that just relates to growth. You know, charge offs looked like they were in those are kind of today's cause they're as expected. But as those portfolios grow, you have to reserve for the life of the loan, and cards have the highest a loss rate of all the categories.
As you know, I want to go bigger, broader here. Both of you got you know, a lot of experience on this, and of course the carnage of the Great Financial Crisis and that day where Jamie Diamond brought the bear Stearns building for what ten bucks or one buck or whatever it was, Allison Williams. JP Morgan has global aspirations. Are the governments Allison Williams going to let JP Morgan expand and be America's bank abroad.
I think the key thing from a regulatory standpoint really relates to the capital standard. And you know, this is something that all the US banks have been complaining a little bit about because they look tougher than the implementation of some other regions. So after the crisis, BOSEL came out with some guidelines. All the different jurisdictions have implemented them in their own way, and the US rules are pretty tough. You know, we call it gold plating. In terms of.
Five years, do you see JP Morgan dominant in Europe?
I mean they're pretty strong there now. Exactly, they're pretty strong there now. So I think that the most interesting thing for JP Morgan on the international front. People don't talk a lot about, but they're looking to expand their retail presence. They're looking to span their retail presence in the UK.
The digital retail experiment in the United Kingdom work.
Yes, well, they haven't talked about it a lot, but from what we hear, it's been meeting their metrics.
Ellison, thank you so much. We can't wait for you to publish at Bloomberg Intelligence. If you're in the money business, there is exactly one Whitney. He is Whitney Tilson. And to put things in perspective, we'll sit over a beverage of our choice and go, gee, someday I think I'll climb kill him in Jarrow. Right, he's actually climb kill him in Jarrow. The academics are bulletproof. He's a Baker scholar. Which it's like planning for Billy Clearot at Harvard Hockey.
I mean yeah, it's like a Baker scholar. And he's been on fire. The author of Poor Charlie's Almanac, The witt and Wisdom of Charles T. Monger, Whitney Tilson has been on fire about his Democratic Party. Let me make clear he is a supporter of Democratic politics. Whitney, thank you so much for joining. You've been a voice of sanity for Republicans and Democrats out on Twitter. How'd the president do last night?
Well, let me give you a football analogy. If I told you that, hey, your favorite quarterback your favorite team just completed a ten yard pass, you'd say great, moves the chains one step closer to victory. But what if I told you that you're down by fourteen with two minutes to play at the fifty yard line, and your quarterback has an obviously sprang dannkle if not a broken leg, then you'd say, oh my god, that's terrible news that we completed a ten yard pass. Because it's a hopeless situation.
Our only chance of victory is a couple hail Mary passes, So completing a ten yard pass actually reduces our chances of victory. So I hope that's not too complex of an analogy. But Biden was solid last night. Couple little gaffs. But the problem is is it did nothing to dispel the concerns of eighty percent of American people that he's too old for the job, and basically the belief of now every single Democrat in Congress that he needs to step aside to give us any chance of beating Trump.
In November, Whitney I observed first and the Kennedy Klan at a Democratic invention in Boston garden across at a senator from Illinois, a kid from Chicago take the trophy. This is when Obama rose to national presidents versus an elderly aging Ted Kennedy as well, that dialogue, that tension, Whitney Tilson of the Democratic Convention as in Chicago soon seems to have evaporated into an elite, almost tribal class.
Now you're on the edges of that, you're a donor, etc. But does your party, and frankly the Republicans, do they need to get back to an older and more fractious convention process.
Well, look, I'm what I'm actually looking forward to when Biden steps aside, And at this point it's a question not of if, but when I think it's now ninety five percent likely that he will step aside, And then I think it would be a disastrous decision to simply anoint Kamala Harris. I'm for supporting her if she earns it and can demonstrate that she's got the idea's vision, can capture the imagination of the American people and one
beat Donald Trump and two be a great president. But they're also at least it does and if not twenty other people whose names are being tossed around, and I think there should be an incredibly exciting free for all. Yes, chaotic, but it would rivet the attention of the nation, energize the Democratic Party, and then in the next five weeks going into the convention, hopefully we've narrowed that down and
what we're looking for. To your point, there is someone who catches lightning in a bottle the way Obama did and can becomes the clear front runner, can ride that to not just I don't want to just beat Donald Trump. I want to beat him like a rented mule and throw him on the dustbin of history where he belongs. So that's what I'm looking for. Now. Maybe we don't get that, but right now I think Biden's got a
fifteen percent chance of beating Trump. If you just told me, hey, we can find somebody who gives makes it a jump ball, it's fifty to fifty. That's a massive improvement from sticking with the You know, I want to switch horses if I can shift the odds that much. But maybe we can get it up to eighty or ninety percent and really beat Trump.
Well, Waitney Tilts, then what you're suggesting here is that the Democratic Party will not go to its backup quarterback. I mean, that's interesting. So then what do they do? Do they go to the free agency. I mean, do they go to tilt, I mean Pritzker, I mean Newsome. Who do you suggest here? Who's the favorite?
You know?
Honestly, I don't know, and I probably know half of the twenty candidates who might throw their hats in the ring personally, but all twenty are incredible. The Democrats have an incredible bench. So to use a football analogy, again, we've got a chance to hit the reset button and instead of being down by fourteen with two minutes to play, we can start the game all over again. So right there,
that's great news. Secondly, our quarterback with a broken leg is out, so we got to find a new quarterback. Now we've got a long time backup, but a lot of questions about what there that that backup is the best quarterback. So what We've got five weeks to have a training camp and we put the word out anyone who thinks they can be quarterback of our team come to our training camp and we're gonna show us what
you got. And if Kamala Harris can you know, emerge us from that process as that one most likely to beat Trump and most likely to beat the Great, the Great President, then I'm all in, But she or whoever earns that job, they have to earn it.
Wait, I got to be quick here. It's a huge news. I got to get to Michael Barr. You and Michael Porter were definitive in studying how to jumpstart inner cities. The Democrats are losing black and Hispanic youth to Republicans. How does President Bidener, whoever runs, how do they get back at the margin black and Hispanic youth.
Yeah, now it's a good question. At the end of the day, I think young and especially young minority voters are inclined to vote on the Democratic ticket, but they share the same concerns that eighty percent of Americans share that you know, a year ago, the majority of voters said, we don't like either of these guys. Both. The message to both parties was give us somebody fresh and new and exciting. We don't like either of these guys. And now only one party has the opportunity to deliver on
to give the American people what they've asked for. So I think if we do that, a wide swath of voters, not just young and minority voters, are going to vote Democrat and carry us to victory. In November.
Wennie Tilson, thank you so much for joining us today. Clearly a democratic donor and supporter of course, legendary with a hedge fund work and also is academics out of Harvard University. Right now on the equity markets in America. Thrilled to bring Cam Dawson new edge wells. She'll be spending both Saturday and Sunday at Brooklyn Crab having the Crab cakes in Brooklyn. Kim Dawson yesterday was odd. Let's not go over the details. Small caps win mag seven hammered.
Was it nothing more than a constructive adjustment on the way higher?
Well, we do know that positioning got incredibly skewed, where hedge funds were very positioned into large caps in tech and growth and very underweight and short in small caps. So part of this is just a positioning snap and then a chase of that short covering. The question is can it continue, and that really depends on the path of yields. It's good to remember that small caps rally twenty percent in November and December last year because the
tenure yield felled one hundred basis points. If yields can continue to fall, small caps likely can continue to rally, but maybe it only lasts a month or two because there's still profitability issues, balance sheet issues, so a lot remainspeaki.
Yah, that's great, but the reality is a month or two is long term for Damien.
Well, Cam, you know, talk to me a little bit about you know what we just kind of take away from this latest CPI print. I mean, are we really thinking the Fed's going to move here in September? And if it does, what's the dollar going to do off the back of that.
Well, now we got this PPI print this morning that came in hotter than expected, So now there's a big question mark about where PCEE comes in, which is the Fed's preferred inflation metric. So we think that the odds of a September hike certainly went up after yesterday's data. But if we have a couple more data points that look like that PPI, maybe we do get pushed out
to November. So this is still a very data dependent FED, and we could see this kind of saw pattern within inflation data, which could keep us kind of in an uncertain place.
Well, Kam, what I'm really asking is September December, it doesn't matter. When the FED does eventually cut, what do you think the dollar will do? Will it finally start to depreciate relative to G ten and EM.
It certainly seems so, and we saw that in some of the price action yesterday of US. The dollar dropped a lot, and we saw a perking up of EM stocks. And it's still very much in a down trend if we look at EM versus S and P five hundred, but there is some movement and action there. So if there is follow through and the FEED is cutting more and being more dubvish than other central banks, then yeah,
it could set up for a week er dollar. The question is, though, if other central banks are having to cut further, then the dollar may still be the best game in town.
Kim.
Yesterday we had some diminished organic revenue growth, right, I mean Dawson's house, it's just loaded with freedom Lake. Oh Dorito's She's like the queen we had cam Yesterday's some organic revenue growth shortfalls outside of the mag seven. Does a pro like you extrapolate that revenue shortfall over to those seven wonder stocks or is it discrete and separate.
I think this is so important and maybe the most important trend or theme going into twenty twenty five is that we're seeing pricing power fade. And it's really interesting because as long as CPI remains weak, this is effectively the market or the economy saying that companies cannot pass through price increases to their end consumer. Look at the chart of shipping costs and durable goods prices in twenty
twenty and twenty twenty one. They went right up together, meaning that as shipping costs went up, durable goods prices went up because it got passed through to the end customer. Now, shipping costs are soaring, but durable goods prices aren't moving higher. This means that companies are having to absorb them in their margins, which means that there is very much risk to the margin forecast in twenty twenty five.
APS estimates Why I'm so happy you brought up affordability, and we know that home affordability here in the US is really really poor right now. But I mean, if you just look at some of the other other autos for example, I mean or Travel for that matter, I mean CAM talk to us about you know, just generally speaking, FT back out all of those fixed costs, all of the discretionary you know, what's left for the consumer today? Have any spending power left?
We're certainly seeing or hearing anecdotes of them getting pinched. Look at Delta's earnings from earlier this week saying that they're seeing fading pricing power. I was at JFK yesterday. Certainly seemed no evidence of a waning in demand, but certainly there is signs that consumers are getting pinched. We continue to hear this wonderful word choicefulness out of the likes of.
People like j Walmart.
Come on, stop?
Was choicefulness in Graham, Dot and Koddle when you read it in gam.
Certainly not. But again this is a reflection of consumers hitting a wall as far as how much more price increases that they can take, which means that companies are taking it on the chin.
In margin Cam, it's Friday. I got to quote Doug cass in a moment. Help me here, what's your new adjustment off yard Denny's fifty eight hundred on SPX? Can I get us six thousand aut of you this morning?
The one thing I'd note is that if we trade to fifty eight hundred by the end of the year and assuming that the market is right for their two hundred and seventy seven dollars a share for twenty twenty five earning sestiments, you would be training at a higher pe multiple on the year head forward than you were at the peak in twenty twenty one.
Thank you.
Never to say never, but that's pretty high.
Gotta go, Kim Dawson, Thank you so much for will talking fifty eight hundred is well. This is a joy and always an honor. Joining us. Iconic at Golden Sachs for years is Robert Hormantz. He has a book I'm going to mention here in a moment, but his work has been profound on America's relationships, particularly across the broader Middle East into China, where he'll be traveling too soon.
Ambassador Horrmantes joins us and do everything I can, Bob not to say what do you have think think about Biden? We don't have time to waste on that. I got to go back to your book. It is the best book on the domestic and fiscal responsibility of this nation. Is we project a foreign policy? The only one that can tire shoelaces is Richard Haas, who reformulated the consul and foreign relations. With this debt and deficit, how do we prosecute a foreign policy?
It's going to be more and more difficult. I think you've put your finger on something. It's the elephant in the room that no one wants to talk about, and that is the inexorable increase in debt and deficits is going to mean that, first of all, future generations are going to inherit a huge debt and a huge interest burden. But also the competition for money within the US government
is going to intensify. And if you need more money for defense and national security, you're competing with a variety of other parts so the government who want money for their elements of their policy, like social issues, and we're going to have a social problem if we cut those programs, and we're going to have more and more security risks if we don't fund security. And our allies see this and they see us as less reliable as an ally and less reliable fiscally.
Right, Bob, This is important when you and Secretary Clinton and whatever you are, folks, Republican or Democrat. Clinton and Hormet said, it's about economics, It's about our relationships across the world. You're going to need someone encyclopedic on Asian derivatives, swap rates and how they fold into the governments of Asia. Yes, so the new under secretary for you is Under Secretary Damien.
Sasower, Bob, But I really want to know you were just in China and we know that centement China is weak. You know, just how weak is it? Unemployment, youth, unemployment, the property sector. You know was what was your take? Boots on the ground, well, booths on the ground.
The average Chinese, I think, is suffering from a series of uncertainties that need to be cleared up. And they're having, as you know, this so called third planet. They have it every five years, and that sets policy for the next five years. The whole Central Committee of the Communist Party needs huge and brain gives a big speech, and that essentially is a policy for the next five years. They have to improve consumer confidence, They have to deal
with a very difficult real estate problem. They have with huge amounts of debt, state and local debt. Foreign investment, which they need in order to create jobs, is leaving the country at a fairly rapid rate. The private sector is feeling a lot of uncertainty. Which is the most productive part of the economy is feeling a lot of uncertainty because they're not quite sure what role the government
wants to play. Does it play a more involved role in the economy, or does it give more latitude to the private sector and private companies America companies and foreign companies want to know what the rules of the game are, not just today tomorrow, but over the next several years, because some of them are, as i say, are leaving. Some would be interested in coming, but they want to make sure that the rules are such that they can survive and that they're not interfered with in particularly in
the technology area, where China really wants to excel. But you need not just Chinese companies, which are quite good doing research, but you need to collaborate to a degree with foreign companies and we and they are both pulling apart on technology not coming together.
Well.
I agree with you on the level of uncertainty in China about foreign policy, about domestic policy. But here's my question for you. If there's one certainty in China, and you begin this conversation by talking about debt levels and how high they've gotten there, I mean, they're through the roof in China. So you know, isn't president She's trying to do the right thing. And why aren't markets rewarding him for his efforts to try and bring down debt levels in China.
That is one of the interesting things that doesn't get very much publicity. He is not a big spender. I knew him when he was head of Jijan Province Party secretary and he took a very conservative view of spending and what they're doing. And they used to for a while to get growth going, spend money like crazy for every kind of rose bridges. I said, they're not doing
that now. What they're doing now is keeping a relatively conservative budget but spending it on a number of things which increase what he calls the dynamic productive forces of the economy, which is technology. So they're spending money, but they're much more focused. It's much more on technology, both for economic reasons and because advanced technologies like quantum and AI are good for the military too, and they want to build their military.
Tape we have a three hour conversation now. I just like to talk about the new Modi and the future of India, but we can't do that. You're going to put me in the Harmatt's time out chair. But I got to go here. It's a public service and that's what we do at Bloomberg Surveillance. You've done it for multiple party people. You're maybe associated a Democrat, but you've done a lot of Republican service as well. You've been around the block. I know you're seventy nine in holding,
but you're not. You're the same year as the president. Your thoughts on your colleague Joe Biden and politics when you at eighty one see Joe Biden, How do you interpret that different from Damien sass Hour and Tom Keen and all of our listeners and viewers.
Well, I'm pretty well staying away from the domestic politics, and this tell us about.
The medical side that you're in great shape.
I mean, I would I'd make a broader point which gets just what you're saying, that age really is not the central issue. The issue for people, and I'm in my eighties is how much energy you have and how you project yourself and how well your mind works and your body works. So I would say that all this emphasis on how many, how old he is is not really the issue, and people have to judge for themselves
the other elements of age. But I don't really want to get into a domestic political base on if I were a doctor, I would give you my prognosis, but I'm not.
So is Secretary Blincoln running our foreign policy unit?
Almost singularly, I would say that Biden actually does know farm policy quite well, and I thought gave a very good press conference yesterday at the NATO. There were some mistakes, but generally he had a pretty good command of the issues. On the second part of the point, I think he's very fortunate that he has Tony blinkoln who's the terrific Secretary of State, and Jake Sullivan. Jake and I shared offices when we worked for Hillary Clinton. He was her
farm policy advisor. I was for economic policy advisors, so we worked very closely together. And he's extremely good and
he's got a really good team. I met with a joint chap joint chiefs of staff about three or four months ago to discuss the interaction between geo strategic issues and geoeconomic issues, and they're very aware of the fact that economics plays a key role in our geostrategic strategy, and you need strong economic alliances to undergird political and strategic alliances, and he gets I'm sure he's getting that kind of advice from investor Harmetz.
Thank you so much for joining us today. Robert Hormantz's Public service to the Nation. Vice Chairman Kissinger Associates. This is a Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am
Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.