Surveillance: A Fed Minutes Preview With Vincent Reinhart

out a short term win? Good more and Jonathan uh So, Look, I think that we have to accept that the government's going to be shut down for a while, that it was pretty clearly a distinct standoff we saw yesterday, and that the Federal Reserve is on the sidelines for a bit. The minutes will be an interesting this afternoon, though. What are you looking for from the minutes? To South Benoon.

One thing you gotta remember is that the minutes are supposed to be an accurate depiction of what was discussed at the f MC meeting, But a lot of stuff is discussed at the FMC meeting. The transcript runs something like a d and twenty pages, and they just still look down to eleven or twelve pages in those minutes. Um. Therefore, there's some selectivity in the week or two after the meeting to nudge the boat in a in a better direction. Chair Pal came off a little tone death in the

in the press conference. They'll try to fix it in the minute. So you'll seem more responsive to financial conditions. You'll see him more worried about the world and emphasizing the range of views on appropriate monetary policy be a bigger tent. In an interview in The Wall Street Journal today, Jim Blad saying we're bordering on coming too far on rates and possibly tipping the economy into recession. If rights on left did vince, what do you think of that?

The idea that we're one right hunk away from a policy mistake at a federal reserve. So the first thing I would say is I believe in market economies. I don't think they're so fragile that if you get a quarter point wrong one way or the other, you are headed to the abyss. Uh. And so I hope that you know the world works better than that. Second, remember that president Board has had of you consistently over the

over the last five years or so. Uh that uh, it's not possible to predict where rates are going, and so your best estimate of where the neutral rate is is where it is right now. And so he could have repeated the concern uh he expressed in the in the journal, uh, this morning, just about any time over the last several years. So I'm not sure that's news, Vince Reynard. In the minutes, there's these key words some several several members several of this, John, it's like you

and me, some several, Vince Reynard. How is several different with Chairman Powell versus several with yelling bernankey in back to your time with Chairman Greenspan. I mean, is there an active discussion that Chairman Powell listens to or is he alone as Greenspan was alone. So I would say the first thing the minutes drafters, and remember I signed the minutes for six or seven years. Uh tried he used to quill John. It was with a quill can, candle light and a quill um. Uh, try to be

consistent across time. And so I probably everybody still has that dog eared cheat sheet on parchment paper. I would say that gives the translation of some and several and a couple and a few, So I don't think that that's not a part of the minute. Question is how consultative is chair Pal relative to other of his predecessors. My bed is is pretty consultative. He comes from a background, uh, you know, from a bush bush triggery from the private sector, some think tank um, in which you get along by

by by getting along. And he uh often said hey, I'm not an economist. That means he listens to economists. So I would suspect that, um, he does talk a lot. I think the concern you should have is he talks a lot to people who are just like him. That he had a material influence admiring the last eight bank presidents.

The board appointments are relatively you know, uh similar to his, to his they're basically rebuilding the bush triggery um, and so there's a question how much diversity of opinion there is that the you know, in FMC discussions, that's always a risk. Well, then being able to listen to the committee is important. Being able to present all the committee things coherently and consistently is something altogether different, and I

see a chairman that's really struggling to do that. We seem to have flip from one view to another in the emphasis every time he speaks seems to change. Do you think the chairman's struggling in the early part of his tenure events? So, I think the chairman's uh issue and he is that he has an ambition to explain monetary policy as as clearly as possible. His audience is not Bloomberg or the Wall Street Journal, It's the readership

of USA today. And the problem is when you try to simplify the message to a few key points, you're going to leave some stuff out, and global financial markets will very quickly remind you what you left out. And so I don't uh. So, I think there is an issue of how much financial market experience there is at the top of the house across you know, when you think about the leadership of the said and I think

there's also a sincere desire to keep it simple. But keeping it simple may mean you kept it too simple. How important is January thirty? I mean it's changed, I know in six, eight weeks, etcetera. But Vince, right now we're in ten twelve days away from January thirty. Whatever the math is, it's most more than that fifteen days or whatever. But but it's right now, how important is this January meeting become? So it's important in a couple of ways. One is it's how will we handle a

press conference? Uh, the now that he's will be doing eight of them a year. But I think it's also important in that they have changed change their communications strategy. They don't want to be responsible for commun indicating the entire path of interest rates, because that then the headlines are the FED tightened and intense to tighten more. They want to be able to say the data drove them

to raise rates this meeting. They don't want the responsibility of a long term commitment, but they also don't want to comprise markets. So the question is do they lean into tightening in March or do they signal that they are pausing. That's the big question for January. This has been a wonderful Vincent Reynard, thank you so much for the briefing with standard Melon of course for years even decades with a FED serving as head of research for

Chairman Alan Greenspan as well. It was an original and historic moment for the nation. The President spoke last night, let's listen the border wall, when very quickly pay for itself. The cost of illegal drugs exceeds five billion dollars a year, vastly more than the five point seven billion dollars we have requested from Congress. The wall will also be paid for indirectly by the great new trade deal we have

made with Mexico. The President the United States, and of course Speaker Pelosi and Senate Leader Schumer speaking after the President last night. He is a Democrat from Texas, but that barely describes his visceral understanding of the border. There is no one I know in America more linked to Laredo and the border east and west. And Henry Quire of the twenty district in UH, Texas, and of course the Democrat and conservative Democrat, I might point out from Texas.

Mr Quaier, I am thrilled that you're with us today. What does President Trump get most wrong about what the people on the border want. Well, first of all, he makes it sound like it's a crisis and a very difficult place to live. If you look at the latest FBI stats, UH, and I've looked at him for years, that's the same thing. When you look at murder rates, crime rate, violent rape assaults and all that the border

crime rate is lower than the national crime rate. In fact, if you look at Laredo, my hometown on the border, that murder rate UH is about two or three times lower than Washington, d C. So when the President leaves tomorrow to the border, the most dangerous thing he's gonna see is when he leaves Washington to go to the border again. You have a visceral understanding with this, with the history of your parents, with the history of a

Laredo and folks, Laredo isn't Murdy Robin's song. Just for to get it straight, Laredo is a huge depot for trade in America. Now, it's completely different than the stereotype. We're gonna have funding and this is axios. Mike Allen just reporting moments ago oh MB is talking to Pentagon about a military refunding of this project. How would you respond to having the Pentagon come down and do this

infrastructure project for your Laredo. You know it's wrong, And I said on both the subcommittees are appropriations for homeland and defense. There are two different things. We're talking about a law enforcement issue at the border, not a military issue. And the President needs to understand this. If you wanted to stop drugs, and the latest d A report will tell you that most drugs that come into the United

States will come through ports of entry uh. Cars, drugs uh and And he just doesn't understand that a wall is not going to stop the drugs coming in the way he thinks it is. So he's got to have a better understanding the way the border works. And require you're you're on the edge of the Blue Dog coalition, you're a conservative Democrat. There's a lot of Republicans out there, we saw this at the election, who have moved away from the certitude of the president of belief in the president.

How lonely is this president within his Republican party. How many Republicans are over with the Blue Dog coalition. You know, it's interesting. That's a very good point. When you talk to a lot of the Republicans on on a private matter, they'll tell you that they understand that the President is not correct on this issue, but many of the times they have to stick with them because the party. But a lot of them understand that the wall is a

fourteenth century solution to a twenty one century problem. He thinks that the only way you're gonna secure the border is by having a wall, and that's wrong as China at you know, look at the Berlin Wall, look at the Germans and the French are in the World War One. You know, we just gotta look at technology and personnel and other ways of securing the border. Right, So so that Congressman, what you're calling for is more practical border security. Do we have any idea of how much that would cost?

What kind of training are you talking about? Well, you know, first of all, let's look at border patrol. Uh where? Now two thousand border patrols short from the higher lights that we used to half two thousand border patrol. So what does the administration do? They put a two million dollar contract to hire border patrol to show them how to hire border patrol. In fact, they just hired with fourteen point eight million dollars. They hired two new border patrol.

Now maybe one of them is Captain America. I don't know, but if you're gonna spend that much money, you better get something good for for that money. So we gotta hire border patrol. We gotta give them the equipment. The military has a lot of technology that works very well. A lot of the tech companies out there have the latest technology that works very well. But again, we can't play defense on the one yard line called the US

Mexico border, where we spent over eighteen billion dollars. We got to expand that work with Mexico with Central America. A couple of years ago, if I can say this briefly, we added fourteen million dollars to help Mexico secure the border with Guatemala. Did you know with that amount of money they were able to stop over two d and twenty thousand people a year, people that would have come to our borders. We gotta be smart on how we secure the border. Congressman, how what kind of changes would

you also make to the American detention system? Well, you know, again the detention. You know, one of the things I've done is I make sure that there's transparency, make sure that you know we if somebody ends up in the detention, that we treat them with dignity and respect. But again, you know, uh, it's important to know that detention is a deterrence. We can and not have catch and release.

And I know that some of my Democrat party don't like detentions, but again, you gotta have some detention beds, because if somebody comes in, you gotta be able to hold them and then send them back. I want to stretch from Laredo up to the sixteenth District and help pass so and Congresswoman Escobar's district as well. That's the span in the reach. That's the emotion that the President talks about. Speak to liberal Democrats about their belief on

the wall. What the liberal Democrats get wrong, the cushion Democrats of California, even the President up on Fifth Avenue in New York, what do they get wrong about a liberal approach to our immigration and border activity. Well, you know, again, so without due respect. I think the extreme right and the extreme left don't understand the way the border works without due respect. Some people want open borders. I don't believe in open borders. I want to have a law

and order at the border. And we have that. Like I said, our our areas are very safe. That we have problems, of course we do, but it's safer than many other places. But the bottom line is, uh, you know, you've got to have some sort of deterrence. You cannot

just open up the border to anybody coming in. And if you're gonna have a wall too, And I say that to to to certain people a wall if you I've asked this question to all the border patrol chiefs since Bush, Obama, and Trump, and I've asked them how much time there's a border wall by you quote this is from from all of them, a few minutes or a few seconds. So we're gonna spend billions of dollars to uh to spend on a wall? Or do I spend a hundred dollars and buy you a ladder that

can jump people over that uh, that fence. One final question, I know Dr Quaire that the only reason you got elected is your affiliation with the University of Texas and what Texas A and m as well, folks, that is just in Texas. You don't do that, and Mr Quaire did as well. What is it signal to Texas that Apple computer is gonna drop another x thousands of bodies into austin Texas? What does that signal about Texas capitalism?

You know, let me tell you Texas some years ago was was creating about one third of all the private jobs in the country. One third. We were just growing, so we got trade is important to our area. Uh, energy is very important to oiline gas is very important to our area. But now the tech. If you go to Austin and I used to work there at Secretary of State and as a State rep. I've seen Austin now become a hub for technology for new startups and

so that that means a lot. They just got to work on the transportation because it's got a little congested in Austin. Congressman, thank you so much. Enquire the twenty eight district in Texas, thank you for joining us. Thanks so much. With us is the right person to speak to on the changes of Mr Trump's Republican Party, and he is John Braybender, working with Mr Santorum among others.

Mr Brabender has been in recovery from the lousy Steelers season that we've just seen, and we're thrilled that he could join us today as well. John. When I look at the Republican Party, it has to be a party of change. There's a lot of talk about Democrats, the new liberalism of the Democratic Party. With this crisis right now, what do you perceive is the change in Republicans as

they greet two thousand nineteen. Well, look, first of all, we're we're saying the President and the Republican Party are synonymous, and I'm not sure that on this particular shoe they are. I think everybody agrees with border security, everybody agrees with the importance of getting something done. The real question comes, do you do it at the expense of closing down the government? And you know, one thing that I've learned over time is that generally the White House owns problems,

whether they created them or not. And so what what I really believe is that last night turned out to be a non event because there was no major announcement. Uh. In fact, you know, the only thing I think we learned were two things. What is that President Trump is much more comfortable in front of twenty thousand people out an auditorium trying to free wheel it. And I think we also learned what Nancy Pelosi and Chuck Schumer will look if they were ever side by side at a

wax museum. Beyond that, I don't think every you were left they're saying where where do we go? But it's an easier message for the Democrats. The presidents saying we need border security borders really means a wall, and I'm not opening until we did it. I mean, you know, but you've always had a more sophisticated message about GOP politics, and some people think it's a Whig Party forty going into oblivion. What is a gentleman from Kentucky need to

do to regain a voice for non Trumpian Republicans. Well, and that's a that's a really good point, because what I believe this president was elected on was a lot of disenfranchised Americans who had very little loyalty the either party that felt both sides and let them left them alone on the economic battlefield, and that it chronically took a billionaire to give them a loud enough megaphone to say I'm gonna go there, fight for you, give you a voice and change things. In fact, I think you

know more than you know. Everybody cheered the wall when Donald Trump keep these speeches. What I think was missed was what people were really cheering even louder for, was heven saying I was going to drain the swamp. And I think that where the party has gotten off here a little bit is uh number one, we're poor on messaging. Number two, it is more of this shake up Washington and make it for real people again. That is going

to get the president reelected. And honestly, I'm not sure that they go to bed at night worrying as much about the wall as they do about their next next paycheck and fuming over the fact that Washington politicians, in Washington insiders seem to have a lot of benefits and privileges that they don't enjoy. So Joel Nice, talk about the classic grid luck we have right now. Typically it's tension elsewhere the breaks the grid luck. What it's the

ten shouldn't come from? Is it the lines of the airport, Is it the employees that don't receive that paychecks? Where does it come from? But well, what it really comes from is who's gonna win in the poll data that's going to influence the next election. If one side or the other side feels that somebody else has all of a sudden gaining an advantage, they're gonna move on this. I mean, let's be honest. This is a public relations and pr problem. It is it is not a policy problem.

And and so you know, you have two sides who are trying to figure out how they can make the other side own this, which appears to be losing. John, We're gonna run out of time, but we would love to get you back on again with us, and of course with Kevin so early down a FM in Washington, John Brave Under, thank you so much, just way way too short a time. Today we'll have Mr brave under on away uh on again of course with brave Undercott Cox in Washington. This is a joy. We'd like to

see her every ninety days. We don't. Betsy is just happy. We have an adult in the room of Morgan Stanley and every everybody on the cell side is their own style. Ms Graci style is to do pristine work on the banks, involving a lot of analysis, math in numbers and the mathiness of Betsy Grazi or Morgan Stanley with your team. What's the Mathew number that sticks out right now for the banks loan loan or what's the math thing that

matters right now? The math thing that matters for the stocks is that they are pricing in recession level valuations even though radio you have to keep talking, okay, so even okay, even though we've got fundamentals that are flashing positive. So that's that's so, what's your level is strong by what's your level of conviction right now in the major banks, we'll overweight the group, and our top picks are State Street,

Bank of America and JP Morgan. So usually going into arning season, we've had some guidance on traving revenue from the big CEO, somebody's big banks. They got it this one way, then got us in another in the spice of a couple of weeks. So I have no idea what to expect this quota. What are we getting? That's why you read our stuff? So, um, why did that happen? Right? Because we had a conference it was second week in December.

Message was somewhere you know, trading revenues are going to be flat to plus, you know, maybe mid single digits. And then towards the end of the month you heard from I think it was b of a right, Brian Wayne hen CEO coming out and saying, hey, you know it's gonna be a little bit lower, it's gonna be sub zero. You know it's going to be negative. And does that surprise any of us really? Because we had such a market pullback, especially with bonds breads widening a

lot the last couple of weeks in December. You guys know that, right, I mean we would paying attention, Yeah, attention. So you've got if you've got exposure to high yield, if you've got exposure to leverage, finance revenues are probably coming in lower capital markets. Is going to be difficult. What are the positive signs, what are the green lights to say buy bank stocks that come from this? And Okay, so part of what you know we're doing here is we've got a four queue that's in the rear view

mirror and it's stock analysts. We want to look forward. So the rear view mirror is showing that it was a tough quarter. Four Q is a tough quarter because you had so much market this location, I mean, was the last time we had a quarter with SMP down.

It's been a while, right, So looking forward, we've got loan growth flashing positive, the hight fed data right comes out weekly see and I long growth five percent up here on your good morning everyone for Global Wall Street, Betsy Gray sick with us with Morgan Stanley, your colleague, and cry Magdalena Slosa does deuts your bad right correct? And they got a bonus issue And in all that, how are the bonuses going to be for American Global Wall Street? Are they gonna do a Deutsche Bank. Are

they gonna be okay? Are they going to be light? Are they gonna be a lot of bodies moving around?

You know, I'm not running comp at these companies, but what I can tell you is in our models, UM, we do have comp ratios coming down slightly, okay, year on here, but that's but that's been happening one to three q right, so you've had uh comp ratios coming down, But that's and it's it's really reflecting management discipline here to continue to drive towards target r o s. You know, in the US, the companies that I cover obviously, you know, be of JP City, we've got we've got three quarters

of you know, one to three q U eighteen very strong, four q weaker. But you know, compools we're expecting UM are going to trending line with with with what we saw the first three quarters of the year. Do they within camp and discipline, do they take apart divisions or sell divisions off or stop doing things in divisions or is it going to be labor rationalizations twenty at a time here, ten at a time here, which which expense

discipline model? Are they going to use? Okay, So can I like frame this a little bit You're what you're basically saying, frame means say it better than I just did basically what she's about today. Well, oh you agree, right, I'm going to use that line so many times over the next couple of weeks. Can I just frame this a little bit better? Can you frame it a little

bit better? For us? Well? What you what you're really asking is was the market dislocation so tough in December that managements are going to have to do something different from having been expecting to run their business the first part of the year, and in in the US in my group, you know, I don't I believe the answer. There's know, I think you're gonna have tweaking. You're not going to have you know, wholesale change. So let's talk

about the capital return programs. I'm going to catch up with an analyst from Oppenheimer who says the following, we haven't changed our dollar buy back assumptions, but with the recent price declines, we expect banks to be able to retire around six percent of their shares in How significant of these capital return programs going to be? The buyback programs? So from a stock perspective. You want to think about

where they're going to be increasing versus stabilizing. Right, and uh, there's many banks that have been doing four or five percent you know, buy backs for a couple of years now. We do have a couple of companies where we're expecting buybacks to increase, and that's you know, um Wells Fargo for example, State Street right. State Street had to had to stop their buy back program for the last two quarters of the year due to the c r D acquisition.

So there's a couple of places where we think they're going to see acceleration. But that's that doesn't surprise me. And and and Betsy Jargon. What does tech spend mean? You're hugely optimistic view on JP Morgan. They're gonna open forned branches, fifty new markets. I just want an a t M up where I live. I mean, you know, from from name the bank. I don't care. But but what does the phrase text spend mean? Okay, um, text bend. It basically means okay, Well, here's what I want to say.

You've got spending on tech plant, equipment, computers and software. You've got tex spend on people who are actually writing the code. You've got tex spend on, um, folks that are designing what your next ten years is going to look like. Right, so you asked the question away, Um, that's a really good way because there's plenty of people who say, look, my tex spend is different from yours because I'm only taking hardware and software and you're taking

in all the strategy folks too. The important message about out text Spend, in my opinion, is that this is a business that will continue to migrate towards UH speed. Right now. We've seen this in plenty of markets already that the banks are involved in equity trading, for example, but the need to have a super efficient plant took communicate with your conce How did the little guys compete

with this? How do the shared platform? Shared platform? I mean this is you know there are third parties that you can amortize your costs over by sharing the platform with others. Did I frame that? Okay? John did a decent chop. I think it's got to decide whether I honestly do and if we haven't want a third anchor, I would push Betsy. Could that person? I think? I think, I think, I think I could have a lot of fun with you every morning you think so, Betsy, Thank you,

m Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio