Surveillance: Democratic Debate with Howard Dean

fine night in Las Vegas. Mike Bloomberg owns more wealth from the bottom a hundred and twenty five million Americans, A billionaire who calls women fat broads and horse faced lesbians. He has not managed his city very very well when he was there one candidate who wants to burn this party down and another candidate who wants to buy this party out. The campaign memo from mayor. Bloomberg said this morning that the only way that we get a nominee is if we step aside for him. I'm a New Yorker.

I know how to take on an arrogant khan Man like Donald Trump that comes from New York. Jointing US now Terry Hynes Pangaea Policy Advisory found at Terry, we got to talk about the founder majority Andre of Bloomberg AMPE, the parent company of Bloomberg News. Mr Michael Bloomberg, how

tough was that night for him? Terry? I think it was very tough for him, John, and I think the bottom line effect is that the Democratic race is likely more modeled and not clarified after Nevada South Carolina Super Tuesday. Remember the Bloomberg case. According to a staff memo found a couple of days ago, is that Sanders is the likely nominee unless Biden, Clobachar, and Buddhajo would drop out after Super Super Tuesday. Make it Sanders versus Bloomberg after

that performance, that's much less likely to happen. Uh. By anyway, I'll stop there, no, Terry, I'm wondering whether Michael Bloomberg's entrance actually ended up how bang Bernie Sanders by taking some of the heat off him at Lisa. That's an awfully good question, and I think the short answer is I think it did. Uh combination of two things. One is it does take heat off of him. And secondly, you have people that I referred to and this morning

is second tier candidates. I mean no disrespect. Uh Warren, Clovachar, budda Judge all tore each other up in order to get a run up the ladder and stay alive. And the combination of that with the deflation of Bloomberg, I think really helped Sanders. Yes, Terry, good morning. This is the third tier radio guy talking right now. Terry, and you and I have been you know, seen this before, the niceties of Kennedy nixt and you and I don't go back to Lincoln Douglas. But I guess that was fiery.

Is well, something changed last night? What was it? I think what changed is that you have candidates to that. I mean, the market perception, I think in the general perception and political perception was that this race was going to get clarified and candidates were going to drop out. And I think what changed last night is that that is much less likely to happen. As I just mentioned.

The other thing that changed, I think is that, uh, the other candidates were supposed to get the memo that the race was supposed to come down to a two person battle between Sanders and Bloomberg, and they didn't get that memo. Instead, quite the opposite, Terry. Everything you've said just opens the door to Senator Sanders running away with this and a question I'm going to ask now is what many people are thinking on Wall Street at the moment.

When does this start to bleed into financial markets, Terry, When do we start to see that connection established with Senator Sanders and perhaps being the risk off candidate for off the people on the street. I think that takes a while, actually, John, the you know for a couple of reasons. One is that I think uh, markets and the general public both are slow to catch up to this um is that you know. Firstly, is that what happens is Super Tuesday, UH doesn't clarify as much as

it's supposed to because the delegates are proportional. Uh, so you know, it's not a winner take all situations. Secondly, the Super Tuesday states generally split between Sandra states like California and other ones, mostly in the South, where what I would call non Bernies do a lot better, places like Texas, Virginia, North Carolina. So it's gonna be quite

a while before that clarifies. And uh, you know, once if it clarifies in Sanders direction, I think I think frankly, that goes market positive because then it looks like Trump's likelier to win. But the longer this models, I think the longer, it's a market negative on balanced Tera Haynes, thank you so much. Appreciated this morning with pangea. Right now, we are thrilled to bring you a gentleman that some would say invented this ages ago, before Obama, before William

Jefferson Clinton. There was a doctor from New York who was up in Vermont skiing and sugar bu and he said, I think I had to reinvent presidential politics. Hard Dean went on to reinvent the Iowa Caucus, and then he went on for leadership within his Democratic Party. Howard, we just got from Terry Haines sort of a grizzled, you know, strategy. Look from Washington, what did last night mean for the fabric of the Democratic Party, for the operatives, for the

people in the States. People that have been Democratic, the thick and thin, they haven't changed parties, They've always been Democratic. You mentioned the moderate Democrats. What did all this fireworks mean for them last night? Well, first of all, thank you for the overinflated resident a. Secondly, uh, in all due respect to all the analysts, people from Washington usually had the last out here. What's gonna happen? So let me tell you what I think is gonna happen, which

is very different. Uh, It's quite possible, although maybe won't happen, that all six of these candidates will go to Super Tuesday. That depends mostly on the finishes of Elizabeth Lawrence and Joe Bid if they finished decently in Nevada. Uh, in South Carolina, they're all going to Super Tuesday. Now, when you get to Super Tuesday, we have a rule that says if you don't get fiftent of the vote, you get zero delegate. That is gonna win out people out significantly. Uh.

People are saying that Bernie's the front runner. I think that's the or buddhas Judge is the front runner. I think that's the mistake. After two states, they are mostly white, don't look anything like the Democratic Party. So, um, I'm guessing we're gonna have a shake out. But I'm guessing all six of these they're all six of these candidates could go on and win the nominations. As we saw

last night. I thought it was a fantastic debate. What makes you think from the debate last night that all six could go on and win this Howard, because they're all attractive, they all did well, they're all smart and they all have their own different lanes. Okay, Well, let's talk about Matt Bloomberg. Because most people said he didn't have a good night. What did you say that suggests that he could go on and tite the nomination because he has so much money, he's all over the place,

he's on the air. Um. Yes, he didn't have as good night as some of the others. This is the first debate. Everybody else has already doing in five or six of them. Um, So I don't think that's going to harm him greatly. He had to up his game, he knows that. But he's the one person up there who could come on as a novice and continue to do just fine. My guess is he may meet the percent thresholds in a number of states on Super Tuesday,

and maybe even South Carolina. Howard, what do you think of Pete his criticism of Bernie Sanders and his followers and saying that he has to take responsibility for some of the vitriol that is being thrown by the people who are commonly known as Bernie prose I. Actually it helped two people. One was Pete Buddhi and the other was Bernie standards, that is an issue. There is a lot of resentment about that. I don't think that's anything close to the majority of Bernie Sanders, but that is

going to be an issue in the campaign. Bernie now knows that, and he's gonna have to do something that I think he will poward one more question and get you off in your busy morning. I'm sure in democratic politics, if you put Hubert Humphrey up there last night, Scoop Jackson, frankly, if you put Hillary Clinton up there last night, where do they fit in right to left? Would they be the most right candidate up there? I mean that how far your party shifted? I think our party shifting to

the center? I think, come on, I didn't hear that last night. Dr Dean, Well, you may you may not have, but I'll tell you what's on the ground. Five five congress people that we elected are significantly to the leftist center. Agreed, But Oklahoma, the voters are moving to the sound Howard. I totally take your point. I didn't see that in John Farrell's Las Vegas last night. I thought Budd was

clearly centers. Uh, Colob Charwood centers Bloomberg wasn't able to get his message out, but I would guess that he was center to center right, probably the most conservative guy on the stage, although Amy might have been conservative person on the stage. Okay, Howard Dean, thank you. I think we have to leave it there just because of the time, but Dr Dean, thank you so much. Former how did

the Democratic National Committee? Right now, we're looking at the Trade shares ahead of the market up twenty four percent, Morgan Stanley shares somewhat lower. This comes after Morgan Stanley so that it is buying e Trade in a thirteen billion dollar deal more than premium over where the shares price closed yesterday. Sationally Boss who covers all things financial here for us in Bloomberg Television and Bloomberg News, joining

us in interactive broker studios. And there really is a question what is Morgan Stanley getting with this deal given where the valuation istionally Morgan Stanley for the masses. Lisa, So you have a bank here that used to mostly serve wealthy individual and they want to go way downstream. They want to serve thirteen million customers and they want to create a full scale bank, a full scale digital bank, and which they have checking and savings accounts for millions

of people. All right, so back up. The idea here being that e trade caters to retail clients, not necessarily the millionaires and billionaires, and that bringing them in through their brokerage accounts will also generate more deposits and more wealth management and just that whole cross selling kind of chain of revenues. Correct, Yes, yes, and yes. So something interesting. Remember Morgan Stanley. If you googled it in the past, people would ask is Morgan Stanley and JP more even

the same thing. Most people don't relate to Morgan Stanley because it's an investment bank, it's a wealth manager for wealthier people. But now they're saying they want everyone to know what Morgan Stanley is. Will this do it? I mean? Is it worth it? Analysts saying that this deal seems like it could be really lucrative for Morgan Stanley. Listen, Initially, the stock is not doing well. Investors on the front end are have their concerns. Why did those concerns exist?

For more financial reasons? More likely, what does this mean for buybacks and capital return to shareholders? Strategically, it makes a lot of sense. Why is that James Gorman, former mckensey consultant, took over Morgan Stanley, made them one of the biggest managers in America, pushed up those margins and now is making that even bigger. He's been successful the first time around. We're getting to get in some of

the numbers here. And Allison Williams was really clear about the overpaying here and what's fascinating here, and I like the equivalent of JP Morgan in their charge card business. Revenues are so dear and difficult in the business that everybody's extending out the x X axis the timeline, and they're making very clear the break even period on doing the trade is much longer than expected. If you heard from your sources, how long is long yet two to

three years? Well, I would say that short. Financially, it makes sense for them to do this big strategic thing about becoming America's bank. Right to build a full scale, full service digital bank will take many years. So think about how long it took Gorman for for his first I want to go into your expertise then on Goldman saction were just at the investor day as well. At Lisa brilliantly brings up that this is the retailizing of Morgan Stanley. Okay, great? Is this essentially they're trying to

get out front of Goldman Sack? Did they did they acquire a trade so somebody else wouldn't be able to buy it? This is a huge way to stay competitive, Tom, Yes, Right, Goldman sacs for for Gorman this morning to say that they are building a full scale digital bank. That is something that Goldman had said before. So how do they compete now in their own plan? Right? And we are seeing the Goldman Goldman Sacks shares down half percent in

pre market trade. Waiting, but it's you're gonna be spoking with James Gorman, correct, with James James Gorman and Morgan Stanley later today. What is sort of the main question that you're hoping to get from him? Well, one thing I want to know about him is does this extent his tenure as CEO of the company. So we've been

already looking at Morgan Stanley succession plan for some time. Also, remember Morgan Stanley is still the number one, two, or three investment bank every year depending on how you look at it, huge equity underwriter. Are the wealth managers now taking back the power of the bank. They are the number one stock trading firm in America. What does this acquisition mean for them? It's probably going to push them much further ahead. One thing, and this will be fascinating.

Your conversation with Mr Gorman uh later today and this goes to ubs where axel Vever was heated this morning with me and Francine Management. But it's where it's where wealth management is? Is e trade well management or I love this idea that I can't remember where the Lisa said it. Uh, it's just nothing more than a digital bank. I mean, I want to be very very stray about that. I want to be very clear that Morgan Stanley was a wealth manager. What they want to become is a bank.

They want to become a bank. What's a digital bank? What does that look like? I mean when you talk to Mr Solomon, Okay, but this is important. You talked to David Solomon, He's got a vision a digital bank. When you talk to Gorman today, is his vision the same? And how much is this just? You don't need the brick and mortar physical space which are being shown. Jamie is Jamie Diamond talking about a digital bank? He's just doing it. Can I give you somebody else here that

should be a little concerned about this deal? Goldman had to go to Apple right there, the Google's, the Amazons and all of these tech companies in the world that wanted to get into banking, and Morgan Stanley is saying we don't need you. They're saying we can do this right now without big tech. Exactly interesting, that's actually fascinating. I mean, the idea being that big tech isn't necessary really going to have the seat at the table that a lot of people thought. Okay, so what are you

gonna ask? Mr? Gorman? They give us an outline here. This is a really important interview. What the one one? Besides? You know, how long is he going to stay around? Listen, you're talking about Jamie Diamond. Jamie Diamond has been clipping up the heels of Morgan Stanley's massive stock trading business. So how does this deal fend off JP Morgan in

that business? That's something people have not asked about. The question you asked me for how long will this take for you to become that full scale, beautiful digit box? And what is where is David Solomon? Yeah? Well that's the point. John Our next guest is great for writing half sentence headlines that get your B T I G. Why here's the reason why Tesla one up? Are you ready? Why? Because the public is buying. I mean, you don't need

any more than that. He's here to talk about his former boss at U B. S jude In Emmanuel strategist right now, disclaimers everywhere. So when you were, you were, you were brass Rey Lip there, I've been there many times in Zurich down the street you and Mr Mahdi where there? You know, what's the what's the body language? Are you seeing your former employer? Well, look, it has

been a difficult decade, let's say to be a European bank. Um. You know the question is it's not just uh specific to that company, it's are you going to get any relief from these just unremitting headwinds with regard to the zero interest rate environment? We would actually argue that there is a possibility you're going to get leadership transition in Germany. You right, if you looked at the debate stage last night, we know one thing. We are our deficit. You know,

I'm a trillion bid. You know you know it's yesterday was saying at Deutsche Bank with two days ago, with a with a GDP slowdown, the deaths that I believe was touristing could go out to two trillion dollars Jule, and I don't want to get you in trouble with your General Council of bt I G, but you brought up a really important point, and this goes to the heart of your matter and equity strategy. With the dampening that's out there, the zero bound that's out there is scale.

The only solution for corporations worldwide M and A combinations is that the only path forward on the revenue side. Well, it's not just the revenue side, it's just you know, the speed of innovation UM and the changing landscape along with our view that when you specifically look at this transaction in the financial industry, that the retail investor is likely to become an ever more important factor UM as millennials inherit the greatest wealth transfer of all time and

they're under invested chronically. So so the answer is, yes, it is. It makes sense. It certainly makes sense in the financial engage. Cannot just sort of take you a little bit further into the round of getting into troubles, just the culture difference of working at a Swiss bank versus a U S firm. How stark is that still

in Junion. Well, again, a lot of this has to do with if you think about the margin pressure of a European bank and and the tension, the extra tension that you're under in this zero interest rate environment, as opposed to this notion that you know, the FED, the US FED is the only central bank to successfully escape zero interest rates and to give you know, a margin

of profitability back to US banks. You're answering these rude questions so well, I think you could be a seventh debater in charge, just waiting for him to tell me that he signed an ND and he can't talk about what happened. To watch yourself, then we'll have a real disclaimer. Continued J and fantastic to have you with us. Let's talk about this teflon SMP five hundred. Shall we What

breaks the mood? What breaks this ragime? I always think it's important not to talk about where we think things should or shouldn't be, but think about where we are, what investors are responding to, and perhaps more importantly, what they are not responding to. Right now. What's your take on those kind of themes at the moment? Well, well,

Tom set set the table perfectly. You know. Our view is that, particularly when you look at your today and specifically the month of February, you are seeing something that you haven't seen in several years, and that is the public has become an engaged buyer of stocks, whether they're electric vehicle makers or you know, technology or what have you.

The public is back in. So from for where we stand, you know, you're at a very sort of unique juncture where you've shaken off a lot of the coronavirus and

the political concerns because the public is a buyer. I think a lot of at least the near term, is how the flow of news goes and does that cause the public to have less of an appetite over the next four to six weeks uh in terms of buy stock, we think long term, actually, the key to the public buying stocks and the key to moving markets higher is something you know, we've all talked about for a number of months in that the psychology of higher yields starts

to coalesce. And to that end, when you look at yesterday's numbers to c P p I come in very, very hot, whether it's explained away or not, tells you the environment may be changing. I want to pick up on that because today you're seeing a rally resoom in bonds, and you have seen a rally pretty consistently with yesterday, perhaps a slight pause in that. Do you think the story being told in bond markets right now is incongruent with the story being told in stocks. It's a massive disconnect,

there's no question about it. And when we look at it, it was a disconnect last year, and it's certainly a disconnect on the sector level and the equity markets, you know, with this incredible out performance in utilities for one um, and when you think about the evolution of last year, there was a time in in September when we made what we think is actually going to be a defensible global yield low. Is that the story came together. But the coronavirus has sort of put sand in the wheels.

How long can this divirgins happen exist? For I would say that given the dynamics of we're gonna know over the next month or two what the path of this exogenous variable, being the coronavirus, is likely you know, in the expectation is will clear up in April, but also you know the uncertainty surrounding the election. It's going to be resolved sometime between now and an election day. Julian

Emmanuel will this bt I G Chief Equity and derivtive strategies. Julian, I want to go and I don't want to talk about E trade Morgan Stanley, I understand it's inappropriate, but I want to speak to you about the kind of companies that are seeing low single digit flat revenue growth right now? What bogey do they need to desire? Do they just to get back to nominal GDP four percent of those days done? Can you get valued in this market with mid single digit revenue growth? Well, the issue

there is that kind of low and slow grower. Actually, for the most part, their stock price has outperformed massively over the last couple of years, explainers because they are in sectors that are perceived as to be defensive and

bond proxies. For the most part, what we would say is if we are about to go into an environment where yields however gently because central banks are still behind uh, you know, monetary accommodation, but yields on the long end, if they do pick up, that will become a challenge stock proprice performance metric. Well, what's your number on revenue growth? Will you say? In any sector? Is it? Five percent? Revenue growth? Is the appropriate numbers. That's what we're thinking

about this year. And that's reasonably consistent with earnings growth progressions. Huge statement because I thought, you know, honeywell out with eight percent organic sales like twelve eighteen months ago. All these companies are doing two in three ish four percent? Is that good enough? So, Judian, what supports an eighteen nineteen times multiple? Exactly? Well, at this point it is the yield for the most part, and the monetary accommodation.

But our view is what will continue to support it after we look through some of the headwinds facing markets. Is the rotation out of you know, trillions of dollars of fixed income exposure and trillions of dollars of money market exposure as high as the depth of the financial crisis and intests having that conversation ten years ago, Julian, ten years ago, I remember having those conversations in London, people talking about the big moves coming out of fixed

income and into equities. You watch, it will be the equity guys will fixed income world. It has been for the last ten years. I know we've had a great bullmarket, but just in terms of the flows, haven't really left fixed income, have they? No, they haven't. And actually that's part of the surprise of this year. Our thesis was is that you'd start to see them move out and intaquities, but you're seeing the wall of cash going into fix coom and equities. Don't be a stranger. This has been

really good, Jillian Emmanuel, thank you so much. As BT let us digress here. We got a lot going on this morning, and we need to get back to econ one on one. How about American economic growth? And of course the backdrop here is the oddities of the labor market. Brett Ryan really slices and dices for Deutsche Bank. They've got a wonderful team over there. And what's interesting isn't what I would call as a general statement an optimistic house.

I've got more cautious Brett. Have you marked down your g d P recently? Can you even tell me twelve months run rate of GDP is two point zero or dare I say below two? Hey? Tom good morning, and uh yeah, I mean the data this morning. The silly said seems to be speaking of fly Me to the Moon, um in terms of of Frank Sinatra tunes. But that's probably a weather impact there. But on our GDP call, you know, we're still a two two on Q four over Q four basis, but we are Q one number

is one four. And what we're trying to point out here is that the Fed's narrative and the markets narrative is that the strong labor market and consumer spending is going to carry the day, you know, through this soft patch and business investment in trade right. And what we're doing is we're pointing out some where there could be some cracks in that story. And we've been talking about

this for a few months now. The slowing in an hour's worked, the slowing and wage growth, and more recently the spiked down in job opening and job openings have been um, you know, a bit of a leading indicator. Passengers a payroll. I want to get out of front of Richard Claren. He's on the desk start right now speaking to Steve Lisa, and I'm sure that's a good conversation. Clarid is of course out with the headline fundamental, the US economy are strong. Give us an update on your

your FED rate cuts right now? One or two this year? Where's Deutsche Bank? We actually, we don't think they cut

this year. We think they're able to hold off until next year as they transition to a soft form of average inflation targeting, and we think their initial move will be to, you know, use forward guidance to try to gin up inflation expectations and then when you know, our inflation forecast, we don't see core core PC getting back above two percent wow in the next year, and so eventually they're going to have to be They're going to be forced to, you know, sort of prove that they're

committed to the strategy. I just don't. I just want to say we're killing it. Maria has Greenspan on it right now. We talked him a couple of weeks ago. Our good friend Richard Clarence on CNBC. We have Brett Ryan of Deutsche Bank. We are winning. Brett's crushing it. But Brett says something really important, So let's not bury the lead. Ethan is crashing the labor market right now, Bret.

That's a nonconsensus cold isn't it. Yeah, I think I think it's it's what the let's mean to be clear, all of the you know, the um you know, unemployment rate says, you know, job markets really healthy, right, And what we're saying is that you're seeing some cracks in labor demand, right. You know, first firms start to slow hours worked, then they start to slow wages and wage growth and push back on that. If margins are being squeezed or demand seems to be falling off, the last

shoe to drop is blame workers off. And that's when you get a recession, right, And so firms are reluctant to lay workers off because it is still a tight labor market, but the hiring trend has been falling. I mean, you know, and that that's to be expected somewhat um. But now we're just seeing a few more signs where of of where demand may be slowing for labor. And you know, if if it can, if it continues on

on a gradual trend, then that's okay. But you have to be you just have to be worried a little bit more concerns than it. Most people seem to be appreciating of how strong the labor market will break. Give me a sense of just your conversations with clients at the moment, your market participants. How receptive are they to this argument? Did they turn around to you and say, but you might be right, but until I see it in claims, I'm not going to do anything. What kind

of responses do you hear? Yeah? It definitely claims is a common argument. Um, And and that's that's for sure. Claims are the best labor market indicator out there, and we've written about that, especially continuing claims until you see can continuing claims in an eighteen fifty type range or at seventeen twenty six today. Um, you really don't have

to be that concerned. Uh, but you know, for sure, I think people are recognizing that, you know, as we get into the back half of the year in political uncertainty sets, and maybe you want to end given the credit spreads are at tights, maybe you want to take a little bit of risk off here and start to question, you know, where could everybody be wrong? My head is

spinning here. I've got Brett Bryan on, folks, and he's giving me this caution on labor John, as you brilliantly caught and I got Richard Claire to given me headlines saying it's a good picture in monetary policy's accommodative. Brett, why are we talking about a rate cut? Well, I think the market certainly like praising a rate cut by the middle of the year. Um, you know, some on the back of the coronavirus. I think that's that's feeling

some of it. But you know, maybe you know the bond markets seeing sort of similar things that we are. But what does Deorger Banks say, what are you telling me we're going to justify a rate cut with a

two point two percent GDP growth? Yeah, it's hard, it's hard to envision that, right, But you know, the Fed cut seventy five basis points last year and the economy is still managed to eke out close to two percent growth, And so you know, it's it's I think it's it's finding a calibration of we're in a permanently low rate environment, or not permanently, but at least for a long period of time a low rate environment. Just how low that

is in order to be accommodative. The Feds still sort of you know, feeling around in the dark around about that. When you talk about the cracks in the labor market. There's a question of how long it is before people start using the R word again, the recession, because that's pretty much off the table at this point. What where did we push that back to. Well, I think, you know,

we we haven't been calling for recession yet. UM. I think it's notable that the Fed's preferred measure of the of the yield curve these three months and then the eighteen months forward is inverted again. And that's been what the their research has shown has been one of the best indicators in terms of recession from a curve perspective. Um. You know, it's it's hard, it's it's it's hard to call these things, very difficult to call these what's going

to be the straw that breaks the camel's back? You know, is it going to be? Um? You know, a financial story of financial conditions story. UM. But I think one of the things that we're focused on, you know, financial conditions look really good, but that's in contrast to what some of the fundamentals the I s M and the non manufacturing is M, which have they've stabilized, but they're

not strongly rebounding. Um. You know, Today's Philly Fed. The headline looks really good, but that's there's gonna be that's definitely a weather boost there. The details are more mixed, and so you know, I think. And it's also what does the recession look like? Right? It's you're gonna you know, you're gonna get a recessions sometimes in the next few years. The question is how deep is it? What does it

look like? It's two thousand type scenario where you have two quarters of cap acts down and two quarters of rising and the poignant or is it, you know, eight disasters. It's probably not going to be two nine, right, Bratt, We're gonna leave Brett Ryan, we gotta leave it. I'm sorry, Brett Ryan with Deutsche Bank at this point. 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