Surveillance: Bright Spot Is The Consumer, Marangi Says

it all. This feels sort of exactly what we were expecting. This is all in line with all of the other banks. We knew that the net interest income was going to miss slightly. Of course this did, but not by a ton. I think the outlook will be for Bank of America what they can forecast going forward now because we know that margins and net interest income needs to come down

slightly for that full year. We've got a great top blog on the bloombook term it or just sort of breaking down the numbers and the commentary as these earnings come through from Wall Street and won't take away just the consumer business taking away revenue up, netting come up, credit provision staple. It's just taking over nicely, isn't it. John. This is my theme. I think this is a healthy consumer. We heard this from City Group, we heard this from

JP Morgan. I spoke with the Wells Fargo CFO last night. They're saying that they are still very very much betting on the consumer. So despite the fact that loans are growing a little bit slowly, you have some mortgages that are coming in low low, You're having the credit card business really BEI as standout performer both within the branded cards of City Group in JP Morgan, I think the consumer here is still a very very strong story and

something that the banks are betting on going forward. Well, Bank of America pretty much unchanged now in the pre market. We have the good fortune of having Chris Marangue in the studio as well. CA Belly Funds Co Chief Investment Officer. Chris, good morning to you your early take. Please, You've seen a lot of commonalities between Bank America Bank in New

York and the banks yesterday. That is, um the impact of a flat curve UH and then offset by cost cuts UH, investment of technology and very large capital returns. Big buy back from Bank of America slightly smaller one from Bank and you or, but pretty impressive. Nonetheless, the single line John that I saw when hearings came out, it was about two thirds of the way down the you know, the propaganda seven percent of shares in the last twelve months. That's what we call intel, Like, that's

what Intel did. They invented we almost twenty or thirty years ago. The use of cash by these banks speaks of everything Ben Bernanky talked about in the heat of early two thousand and eight. Well, they've had the big green light from the record. Can we do a shout out to Charles Peabody, I mean he called this absolutely nailed this four years ago. So we've got to try

to understand where the news hit. Where is the news hit, Chris, because sure then an interest income story is going to be weighing down some of these banks as the Federal Reserve cuts interest rates. That shouldn't be news for so many people. The buying back plants shouldn't be news. I think I think it's it's in the strength of the consumer franchise, the consumer business. Um. You know, again, we're

seeing kind of mixed data on the economy. Industrial is rolling over, but the consumer hanging in there of good retail sales yesterday obviously, and the consumer has got to put their spending somewhere, and they're putting it on the credit card. Isn't that what's amazing about this particular regime in the markets, that the data is still good, that the earnings look okay, and the federal reserves about a cut interest rates maybe not just once, maybe twice, maybe

even three times in the next twelve months. Chris, Yeah, So it makes you wonder what the FETE is seeing. And I guess the hope is that the FETE is wrong if they're seeing, you know, some really dark clouds on the horizon. Taylor, what else do you see here? I'll highlight trading revenue just because we know that we're looking at equity and fit. We do see that the trading revenue was abroad match I guess across the board, which is a good thing. Usually we've seen companies miss.

The fit came in better than expected two point one versus two point oh eight billion dollars. So I like FI because you did see a big bond move at the end of the second quarter that helped them a little bit despite the low ball in the acquity market. Chris, you've been in Wall Street Observer for years. Deutsche Bank going through massive triage right now, What is your view of New York trading? As Taylor mentions Thick and the rest of it. It's not that it's a dinosaur. I

know that's too inflammatory. But is there a future for these big banks to lock up capital to affect trading or does it drift away? Yeah? The outlook is not good and I mean you've seen that again, um in the earnings today for Bank of New York, which is obviously a very large custody business. Um. You know, the capital is going elsewhere. UM. You know, trading is a

much less profitable business for a lot of reasons. UM. So you know, the bright spot has been certainly in the consumer and um, and it's not been in the New York trading. You own away from the too big to fail banks. American Express is a large holding, but you've got many other holdings that are removed. Is that like a sidecar banking or do you look at it almost as a separate industry from the banks. We're talking about this week that the big banks have a habit

of blowing themselves up every decade or so. I don't know that. So you know, you know, one of the things that we're not talking about this morning, of course, our credit our charge offs because they've been pretty good. That's not gonna last forever. At some point that's going to turn over, and these companies, these banks are going to report losses. We try to stay away from those by owning um, you know, fee based banks like the

trust banks for example. I've got to talk about the technology sector with you as well, Chris, not just the financials before we let you go. G seven finance ministers meeting today to discuss the French proposal of a digital tax in Washington, d C. More tech hearings. What are your thoughts on what's going on just from a regulatory standford, from the tax standpoint, Not to get too cosmic at this hour of the morning before drinks, but you know, I think the this is a governments around the world

trying to put the genie back in the bottle. They've seen these tech companies disert to mediate a lot of companies, costing a lot of job just youate local taxing authorities and now DISERTI mediating potentially the core function of government.

Which is to issue and maintain a currency. Um. So they probably gone a little bit far, and the governments are pushing back along a lot of vectors antitrust, um, privacy and obviously cryptome to these issues shape the kind of companies, shape the kind of ideas that you have on the companies that you want to own. Well, listen, I think we look at regulatory risk across a lot

of different industries. Certainly in media it is the key risk always will be the key risk, you know, owning cable companies for example, and so that's that's probably true for the for the tech companies as well, and that's time we got left. Give us some ringuey gabelly media update. You've been extraordinary in long term ownership of that, particularly with the elevation of Comcast over the last decade as well.

Is the enthusiasm still there? It is. I guess what the media world is changing, and the way to play it is to own the broadband pipes, and that's Comcast and Charter in the US, liberty Global outside the US. And then you've got to be selective on the content. You need the scale companies Disney, or you need the niches like sports content the Braves MSG. Will the tech companies go after those sports rights? Are they going to rip those away from the traditional vendors? So they're gonna

I think they will bid for them. Whether they win them or not is another question. I think the NFL would like to maintain football on broadcast for the foreseeable feature. Chris Rank, thank you so much, appreciated. Particularly thank you to the Bank Analysis Taylor Riggs, thank you so much as well to the Bank of America. With an erneys, John Fair and I felt that we really should touch and what is truly a changing day for the United States of Europe. Maria today, it's knee deep in this.

She is in Shantilly. Is that how you pronounce it? Maria Chantilly, France Shante And this is where whipped cream was invented. What's important for you to know. It's Maria's uh talking to us on her phone from from the castle. It's like this Gorgiosity castle where you think they do a you know, a fancy French film, and it's the place of the gastrom the whipped cream, where they figured out sugar and cream years ago. You were there with

a French finance minister. Uh, Maria and I thought he was extraordinary about the new Europe and their pushback to technology and particularly Libra. What was his tone about Facebook's technical effort. I think Tom and very simple terms. They hate it. They hate the idea behind uh Libra. They just don't like it because they don't understand what is

the endgame. They don't like the idea that Facebook to almost vibally row the Europeans are trying to prop up the euro This is an issue, and also that they take the scandals with the data and the privacy issues very seriously. So they really don't like it. John. The bitcoin, if I'm thinking French now, the bitcoin has moved forced standard deviations plus two the minus two in like six days. I mean that's the volatility of So Tom, you've identified a space, an area where there is some unity at

the G seven today for finance ministers. It's the era of division that I think is going to be revealing through the day between the Treasury Secretary Stephen Manuchin and Bruno La Maire. Maria talked to me about the digital tax that the French want to implement, who it impacts, and the pushback we could get from the United States. Today. Well, the French will tell you this is a country that is a sovereign nation, and uh, they want to go ahead with this, and they have already in fact voted

and favor up this and the Senate. So what happened unless there's an agreement and an we ce D level, which is frankly what the French are hoping for, But it hasn't really happened as quickly as they wanted to. They just decided to go ahead and do it alone. The Americans will do it. They think there's an almost anti American bias in many of the decisions that are taken in France, and that companies are punished just because they do well in the Europeans simply don't have that

kind of technology, so that could be an issue. And also the dollar. I think that the Europeans are aware the Trump's like the weak dollar and that could have an impact on the Europe. What's a digital tax? I mean, what do we tell who's taxing what when where? Well, this is the whole point of this thing. The French said,

let's just uh not being naive. We know that in Europe there's many low tax your dedctions like the Irish Republic, and we know the money that gets made in France ultimately goes UH Channeled or Ireland, so we don't like that companies and main money here will have to pay taxes in this country. It is also strange because these companies will tell you you don't really understand how we operate, and the French will tell you, well, we need to

raise money. This is something that the president has said he wants to do. The French are very keen on this idea of new capitalists and mostly respondent to the Yellow vest and they want to go ahead with this. Okay, fine, but great. What's the Irish response to this? Well, this is where it gets very tricky because the Irish will tell you we don't want our situation to change because jobs are on the line and we have to speak

as one voice. We don't like the fact that the French just came in and stormed the European Union with this idea and didn't actually to conscious like the Dutch the Irish and they're against it. So you can see it's so problematic to get done at an EU level. I recommend uh Maria la Capentannier like Cuisine de Vatel Chateau chant Oh, I love it when you speak French people say toma, but if but if I can just

stay very quickly. Their French are actually down playing the whole lavishness here, like his Amadal Macron and one his ministers was caught up in his Scandalcauds of his very lavish The French are pulling back from that. Well, what are you telling me? They're going to McDonald's and shenti all the number two value meal. Well they'll tell you. You know, we can just call back. Wait, wait, wait, we don't have to go all out. We gotta make some news today, Maria. Have you ever have you ever

been into McDonald's. I happen many times. Thank you so much, John Farewn, Tom Keane. Right now with what has become always an interesting and interview, but particularly across all of the Bloomberg world, has become exceptionally important. He is Mitchell Rochelle, and he's not selling real estate. He's an accountant at PwC where he counts the beans. Let's start with what Bloomberg eleven three oh Boston, one of six one FM in Washington care about, which is the taxes on real estate?

Now we're on a number of quarters. What have we learned about the Trump tax effect on real estate for these big Democratic cities that they went after. You used to have a partner when you own real estate in one of these states, which was the federal government, because you could could you could deduct your property taxes, which are exorbitant in some of those jurisdictions. And that partner's gone. And when people are making the decision to buy versus rent,

absent that partner, they're thinking rent makes it better. What have you learned in the last two quarters about what people are doing when they see those that decision tree of cash out the door. A lot of the are staying put. So if they're renting, um, they're staying in the in the place where they're renting. If they have a starter home, they're staying in the starter home UM. Or they're just picking up and moving to Florida or Texas.

And and that is a force of nature we're seeing it. Mitch, would love your thoughts on the economictics we've got this morning as well. We had to drop an apartment building outweighed by a pickup in single family projects. Is that something you're seeing play out too well. But it's interesting about apartment John is that's probably overbuilt. There's clearly the shift, and I would argue that it's almost become secular. People are just saying I'm never gonna own um. So there.

That's been happening for a while. Apartment developers and reads and have been building apartments and they're just pumping the brakes there because in some markets they're seeing rent reductions because they just have too much product in the market. We've seen that in New York City a little bit. New York is an island metaphorically and in reality. So it's hard to tell because there's a lot of gratification

and what's going on the market. But if you look at you mentioned University of Michigan, you look at ann Arbor, rents are dropping. My son's a student there and rents have fall in. That's what he says. No, that's for I'm the guarante or in the least. No, it's not all going into his venmo on the side. When you when you look at real estate, we're gonna have you

come back here. But when you look at the national picture right now, and everybody wants to know, is when the prices actually start going up with that enthusiasm, which you were we not. It ain't out there, is it. Well, what the problem is if you look at data nationally, home prices continue to go up because of the supply and demand in balance. But if you're selling your home and if it's above a maybe a six d thousand dollar price point, it certainly doesn't feel that way because

there's a lot less demand above that price point. The starter home market's interesting. What's going on right now? You have baby boomers who are selling their home and downsizing and competing with the millennial generation Asian buying their first so they're actually competing. Children are competing with their parents because starter homes in Washington, starter homes in New York, starter homes in Boston, and four other Sanford, good morning,

San Francisco. What's a what's the starter home? John in New York? One point five million? Right? But that's on again, this crazy island. That's the problem, isn't it. You take an hour car ride or train ride away, and the starter home can be four hundred thousand dollars and that's a conventional mortgage that's very accessible, and but that could be the same home that you know, a baby boomers

moving up and trying to get a smaller home. Mitch, I'd love you thought some more monetary policy hasn't hasn't done. We've seen a load of mortgage refinancing activity as rights have dropped, blower. Have we seen any increase in purchasing now? It's interestingly enough, John, I would have thought that it would have fueled more. But the problem is, I've said probably before on this show, you can't buy a house

that's not for sale. And when existing home inventory nationally is four point three months, it doesn't matter how they load the rates go, you just can't buy a house that's not Alowe, but you just said, you just said that. I contradict myself, you know, but you just said above six hundred thousand, there's a ton of houses for sale. There's a ton of house But the problem is the

buyers that they don't have a bid that high. Right, So the buyers are very robust in the six hundred thousand and below and then the six thousand above, because what's happening is those are the people who are downsizing in many cases and going into that lower price point. Let's come back, Mr Show with US always fascinating with p WC and some of the real estate trends that we see nationwide. There are little jewels you can get from JP Morgan. We protect the copyright of all our guests.

One m Feroli with two simple pages in one more paragraph that is absolutely brilliant on the global ramifications, the global dimensions of all this, our starred Bologna of the modern federal bank. We begin with Michael farrowle looking at martially and crosses of our current accounts and global interest rates. Michael is Jerome Powell's central banker to the world. Uh. Well, the set has always been pretty central, at least in

the post war period. Uh. And he has been, of course of the past few weeks or months more sensitive to global development. So the set has always been influencing global developments, and more recently they've been taking I think larger account of what's happening abroadect. But even without global influences our start in the US, what would have come down meaningfully over the past twenty years. So we're in a disinflation lower terminal rate mode which you canonize four

or five years ago. Michael, explain the global ammifications. Is it just as simple is there exporting disinflation and outright deflation to the United States. Right, So interest rates are obviously low in the US, and we often talk about economists often talk about that as reflecting slower trend growth

due to demographics, productivity, etcetera. However, there's an important global dimension here, which is that the US obviously has run a large current account deficit over the past couple of decades, which means we import more financial capital, are a net importer of financial capital and all else equel that's pushing

down interest rates in the US. So it's not just the saving and investment balance in the US that's influencing our interest rates, but the saving and investment balance abroad, and those factories seem like they are almost surely pushing down interest rates in the US. And Paul, you know the equation, I are equals g plus omega alpha over are my eyes are alpha over tow. I think, what's he doing with all the Greek letters in the summer, Michael,

I was, I was sticking with the pictures, the graphs. So, Michael, I mean, we talk about in the globalization, the world's getting smaller, but boy, you take a look at the U s economy still relatively strong in the face of you know, just extraordinary weakness in Europe, deceleration in China. What's the great No one's really sure. How do you kind of square that circle here? How long do you expect the US to kind of remain relatively strong rest versus the rest of the world. Well, I think the

strength has really to two factors. One is, most importantly has been the consumer, which we saw yesterday, continues to just power ahead right through June and probably into the rest of the summer. The second factor is that government has actually been pretty strong at all levels state, local, and federal government spending. That is so I think that

has those two factors that helped inflate the US. UH. You know, we as in Greenspan famous words, we can't remain an island of prosperity forever, but we do think that we'll see some slowing in the second half, but that you know, some of these domestic factors should keep us doing all right in the second half, maybe a little a little flower than Michael. What is global autarchy

or estimated at what are we talking about? Our tarchy is a a state of the world, uh, an economic concept of a country that doesn't trade with the rest of the world. So you know, country like North Korea would be considered autarchy. Okay, but it's also at the margin the country the president Trump wines in that direction. Yes, yes,

in that direction, that's called at the margin, professor. To the extent we close ourselves off to trade to the rest of the world, we're also gonna close ourselves off to capital flows to the rest of the world. Just as a matter of arithmetic. Uh, that probably wouldn't be a good idea because the rest of the globe is financing a lot of our investment right now. We're not saving enough now, we couldn't move in a direction of saving more, which would involve, at least at the policy level,

reducing federal deficits. But that doesn't seem to be you know, a big priority right now. So an absence of higher domestic saving, we need for and say, I think to finance our investment. We need investment to continue to you know, increase growth and increase living standards. So, mich I'm just looking on my Bloomberg screen right now, the German tenure minus point to eight eight. How much longer can negative interest rates around the world, particularly in Europe, remain what's

the solution, if there is one. I mean, in Europe and Japan, they're in a more difficult spot than we are, obviously. I think the solution, uh you know, probably is to first of all, it's like when you're on antibiotics, you don't want to get off it before the work is done.

I think in those countries you are seeing progress towards tighter labor markets, and maybe over time and time being measured in years, we could start to see that show up in higher price pressures and inflation, which would invite eventually get us away from these negative interest rates. Fiscal policy could probably also help, particularly in the Eurozone, where uh you know, they're not they're no longer moving our direction of austerlity, but they're certainly not using the physical

space that could be there. Mica Faroli, your colleague Dr Casman was on with us the other day for a quick phone call, and he really emphasized JP Morgaret is certainly not going to go to a fifty bay fifty rate cut dynamic. I don't want to get in the parlor game with twenty five or fifty beeves. But what's your vector. If we get a twenty five basis point cut, is that that we're measured and that sets in place in inertial force to ever lower interest rates or can

it actually be one and done and wait to see. Well, I think after after the July meeting later in two weeks from today, when we are expecting a twenty five basis point cut, I think it becomes more data to and and I think we all agree that the July meeting is basically not data dependent. The FED as all but promise they're going to cut rates in two weeks. And I think the further you go in time, the

more the data does matter. And I think if we get data like we have received over the past four weeks, which have been quite stellar, that that continues for the next two months, and I think September is not a done deal in terms of the cut. However, if we do see some of the global UH weakness we talked about feed into some of the domestic measures, and then we probably UH stay on a meeting until we feel that those risks are no longer there. So, Michael, you've

mentioned earlier the relatively strong consumer consumer remains resilient. Do you think the consumer strength is enough to keep the US economy out of a possible recession in certainly, I think we saw something like that play out in twenty fifteen when we also had a global slowdown, somewhat different in nature of a you know, the same same general idea, which is the globe flowed um manufacturing sload captex was even we domestically, even weaker than then it is now,

but the consumer kept us going. And so I think that's a pretty recent template for how we can like recession next. Michael, I hate you. I'm gonna have to read every single word of US Global Dimensions of the Load Domestic are started as a terrific essay, clearly the lead for research piece of the summer. By that, I mean it's exactly two pages, one paragraph long, which is my kind of research piece. Michael Faroli is the Jpe Morgan, always thinking outside the box. Right now, we want to

talk to uh Nathan Hagar right now about John Paul Stevens. Nathan, Uh, he is a giant of the judiciary and he has died at a ripe old age. Tell us about John Paul Stevens. Yeah, it's a solemn occasion. Tom. In this often Divided City. Retired Supreme Court Justice John Paul Stevens

was ninety nine years old when he died yesterday. Seen as a moderate conservative when first selected to join the federal bench by Richard Nixon in n Seventy five years later, Stevens was nominated to the Supreme Court by Gerald Ford. Judge Stevens is held in the highest esteem by his colleagues and the legal profession and the judiciary, and has had an outstanding career in the practice and the teaching

of law. As well as i'm the Federal Bench, I am confident that he will bring both professional and personal qualities of the highest order to the Supreme Court. The Republican President appointed him. Stevens went on to become a leading liberal voice on presidential powers, individual rights, and the death penalty, an issue he addressed recently in an appearance on the PBS News Hour My Own Thing. It took quite a well to really reach the inclusion that the

death penalty does more harm than good. Is it terribly expensive and really pointless process because it I think it accomplishes very little that can't be accomplished with more humane punishment. Stevens also voted in the majority of the controversial Roe v. Wade decision on abortion, no matter he discussed as recently as this year. In the long run, it seems to me that the abortion is a necessary procedure that will be recognized and will be performed lawfully. Stevens was fond

of writing separate opinions to make fine legal distinctions. He eventually evolved into a coalition builder whose handiwork included the two thousand four opinion that said US courts had authority over suspected terrorists held at Guantanamo Bay. Stevens retired in two during the presidency of Barack Obama. At the age of ninety. He was the second oldest justice in US history. Justice Stevens has courageously served his country from the moment he enlisted the day before Pearl Harbor to his long

and distinguished tenure on the Supreme Court. During that tenure, he has stood as an impartial guardian of the law. He's worn the judicial robe with honor and humility. In retirements, Stevens remained engaged in public debate. Just last year, he

called for the repeal of the constitution Second Amendment. Stephen spoke about the push to curb gun rights with ABC S George Stephanopolis, the amendment would merely prevent UH our humans being made that Congress doesn't have the power to do what I think is in the best public interest. But to be clear, if Congress passed a national ban on individual gun ownership, that would be constitutional under your amendment.

I think that's right. And following word of Justice Stevens, passing the White House, issued a statement saying his work will continue to shape the legal framework of our nation for years to come. In his passion for the law and for our country will not soon be forgotten. And a Chief Justice John Roberts says that Stevens brought kindness, humility, wisdom and independence to the Supreme Court again. John Paul Stevens died at a hospital in Fort Lauderdale, Florida, yesterday,

complications following a stroke at the age of nine. And Tom and Paul really does hearken back to a different time in the Supreme Court where nowadays you can see the divide so starkly on the High Court. UH, the kind of consensus building that Stevens aimed for UH seems to be at times a lost art. In Washington, Nathan Hager Thank you so much. Just a terrific summer there. Of the Justices live Paul Sweeney, what's extraordinary about the

span of his American history? As a child, he was at the game where Babe Ruth pointed to center and he has recollections of Ruth pointing to center field. And of course part of the Greatest Generation World War Two with enlisting. Uh oh, yeah, absolutely, but you know, yeah, the only equivalences I know in the modern time would be April Harriman. And to go back to the middle of the history, John Hay who was of course a Lincoln secretary uh and then ended up at Secretary of

State with Teddy Roosevelt. But uh, an extraordinary public and private life of John Paul Stephen. 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 Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.