Surveillance: Fed's Bostic Doesn't Foresee Rate Hike

from go to cash? Well, Tom, don't They will be a time when I get on hair and say that, And it's not. Let's listen to the likelihood of having a recession unless something catastrophic shows up tomorrow is super low that the financial risk is is weeks and no, I think I think everything's great. Go back with credit Swiss research. This is off d l J and the merger with credit years ago. Tom Gelvan's great research price to sales. I think of Mark Flannery, who was iconic

in oil, the Excel spreadsheety of your shop. How do you fold the business data that you see now in America into what we just heard on the trade war? You know, I don't think they reconcile. And what I mean by that is is it when, when, if, if this trade stuff gets sloppy, it's going to hit the PE multiple the valuations we put on stocks, not on the underlying earnings, or if it's gonna hit earnings, take that. How do you you tell me it's all numerator based.

If the PE modiple comes in, it's all numerator based and on the dominator earnings, on on the stuff related to trade. Absolutely this right, right this minute. This is a sentiment issue that this is going to create. I mean, what is a concern that all of a sudden the consumer sees this, they stop spending because they get concerned about the economy and their jobs. Businesses get concerned because they don't know how to spend money, and they don't

know whether they deal with the future. And and mind you those might be there, but right now, in terms of actual basis points of earnings, very very little, John, You came out with a note you and the same I've a credit swats very recently and understanding got a bit of pushback, So won't me through it? The case for much higher valuations, make the case for much higher valuations, well, funny. It's a funny thing is is the second you put a piece like like that, you get pushed back from

all the time this. Yeah, I mean, here's here's the bottom line. Businesses in the United States have gone what I call capital light. They've gone towards services, they've outsourced production overseas, They've are they're running their businesses with much less capital and the result is that they are returning more of their cash flows back to shareholders in the

form of dividends and buy backs. When we think about a piece multiple on stocks, the reason we use earnings is because it's a proxy for the cash flows of the company over time. But if the businesses are generating more cash flow per dollar earnings, then the stock is worth more than it has historically. UM. Just to put in perspective, UM, right now PSU are about fift above long term averages, but the price to cash flow is

below its long term averages. That's a huge difference. So the immediate question you'll get asked, I'm sure, is that, okay, this is the index level. Stories it won't sect the scuming get or is it across the board? Lift the lid on the index floor us, what's happening beneath the su Yeah, and that's that's a that's a great question.

And I think that there's two stories here. The first is that tech companies are so much more cash flow rich, their margins are so much higher that as the market becomes more tech dominated, the cash flow generation for the whole market is lifted up about fifty five of the of the benefit is the fact that the SMP today does not look d SMP of a decade ago. Is individual companies literally doing something different today than they did ten years ago, And so it's it's a mix of both.

You're you're very Mathew. Today is this because there was no English football this weekend the walls there was the f A Cup final. While we're pivoting to small because Jonathan this, Mathew, the SMP is not what it was ten years ago. I mean, we get that with Amazon and Apple and the others expand on that. Well, just just say, Tom, you and I on on the TV show before this, we're talking about the consumer discretionary space. Just think about what a retailer is today and how

we purchase things. Think about the margins that we go to Amazon, right, and the and the margin potential there, The growth potential there is just much great. The efficiencies of the business models are are greater there, and that's really what's changing. And frankly, even companies you're talking about before, even businesses in old sect or is the you know

in airlines and autos are using technology better. They're outsourcing to oversee suppliers um in ways that that allow them to generate more cash well for a dollar or sale. Jonathan Golla, Great to have you with us, is monic. Appreciate your time. Shan Ali bask with us now on finance. But there's only one finance story that matters, and that's Deutsche Bank. Has been an ongoing story of Bloomberg reporting

and many other shops. The New York Times this weekend crushes Deutsche Bank, where they sort of knew what was going on and they didn't do it with an updation. How will the regulators in the United States, How will the regulators in Germany react to what The New York Times reported this weekend? What's a big deal about the

New York Times story? As they said, yes, they saw suspicious activity, but they did not file suspicious activity reports to the Treasury depart what's the history of regulators in America on that kind of printed journalism, if you will. They're they're tough on it, right, I mean, and they also I mean it's not even just people familiar. They had somebody on the record exactly the division over the

weekend that was pretty staggerant. So what happens today? I mean, if somebody die, they go, okay, wait till Monday, they pick up the phone and they say that's it. Or do they lecture the German regulators? I mean, what's the history of our US regulators deal with what's in the New York Times when some Senator or some congressman sees it. Frankly, progress is very, very very slow, and you know, the U s could probably be better at working with their

international counterparts. But you know, you've got to be sure that when it comes to a bank of the scale that they are talking to each other. The dons can matter that one of the biggest money laundering scanals of all separate from this report. From this report, that's another issue that our own reporting also showed that they also didn't file suspicious activity report. It's when it in regard

to when they found it. Jackson did you see this this weekend, John, you were standing outside Glossier trying to get in. But um, but you know still you see that, I know you see this article. You see this article and you go, Okay, when is enough enough? What did you think is the story was advanced by the Times. The biggest piece of the story for me was, I mean, this comes in the middle of subpoenas by the House Financial Service Committee looking for more information about Donald Trump

and its relationship to Deeutge Bank. And then on top of that, some of this was found as early as seventeen, which is definitely. Um. You know, there are a lot of the same people working at Deutsche Bank now that there were then, So you can't keep on blaming the past when when some of the stuff was happening so soon. The ubs kind in the stock this morning. Pretty aggressive

price target. I guess that would have been aggressive many years ago at five seventy now seemingly set to bright six where it's six sixty five right now, So ups with the second lowest price target on the street, five seventy. Want me through the problems outside of the politics, Shinnale, It is not looking good right now. Right we were

just talking about some of the regulatory issues. But let's talk about how they have an annual meeting coming up just on Thursday, and how some people are very much against the current management, very much against the board, and so it might get pretty contentious. We have a story out this morning saying black Rock has outsourced um its decision making to another firm. That it means that no matter what happens, black Rock wants to say put their hands back and say we did the best possible thing

for our shareholders and got independent advice as well. Uh. The Deutsche Bank stories a complicated one, right, because there is not a really clear future ahead. Um, do you have the same people at the top of the helm who have been there forever, who know where all the bodies are buried, or do you have somebody else come in and carve a new, more aggressive future for this bank. So we're talking potentially a leadership change again at Deutsche Bank.

Rage right, that that's a question if there was a leadership change again, that how do you create a new strategy? Takes the years to implementage new strategy. Also, You're favorite question, Tom, is anyone going to ever buy Deutsche Bank? If you buy Deutsche bank, you have to buy all their legal

problems also, and so who's going to inherit firm? Where the trajectory is on the decline with mounting legal I took a long term trend study today from two thousand seven and two standard deviations, which is a hugely rare event for any bank, including Deutsche Bank. Is six point one zero euros per share? Where right now at six point six four. Folks, all you need to know is that's a lot closer than it was a week or two weeks ago. Is there a tip point in share

price where all this dialogue changes. It's funny. I feel like, um, you know, we've talked about this every other week and it doesn't seem nine exactly. I'll keep going lower. You don't. You don't have any single point like the three digits. I have no crystal ball for you on that one.

Where are we up? We're giving an update on the rest of the American banking I mean we're shaping up this may we get into on where everybody takes eight weeks of vacation, like John Farrell, we come back, we do the business plan for how are the American banks doing right now? You know, big question Mark right. I mean, there's some things that are kind of propping things up at the I p O market being one of them.

But after Uber being so shaky last week, we're going to see how these next big ones come to market, and that's kind of propping up a lot of activity right now. Um, But the question is it village just depends on how the markets hold up and whether people want to trade or stand the sideline or with business in business loans like confidence was the theme last week? Do they the loans flat? We got to thank sal

bloom Bag Investment Banking Report. And now, folks, someone we don't speak to nearly enough, one of our truly most pression viewers of American politics, William Schneider. You know Bill Schneider from CNN over the years now at George Mason and his exceptionally direct book standoff, How America Became Ungovernable was out a year ago, it was true, it was out now, it's true, and in a year from now it will still be true. Bill Schneider, How big is

the standoff right now? May two thousand and nineteen. It's getting bigger and bigger. They're about to take legal action between the President and Congress. The president Trump essentially won't respond to Congress. Uh, he's attacked yet high, he's attacked the CIA. Nothing gets done. It's gridlock. What you were great at, the charm of you and Gurgen going at it and the others as well, and seen and years

ago is parsing in always fractious Democratic Party. We had the royal years of the Clintons, maybe onto the Obamas, and we are back to the fractional tone of a Democrat. Synthesize that for us right now. Well, let me say this. I'm old enough to know when the Democrats was actually worse over civil rights, over the Vietnam War, started writing in the streets of a Democratic convention. It's not good now because look what have we got twenty four Democrats

running from president. But they're not in open warfare against each other. There's a division between the front runner, Joe Biden, and a lot of the progressive Democrats. But that's something we've seen in the Democratic Party for a long time. And then hot civil rights are Vietnam. But how does that play out? The certitude of Biden out front? How does that play right now? Well, Biden is out front, He's a familiar figure, and I think there is a

reason for it. Biden offers voters something they're longing for that they're not getting from President Trump. In one word, normalcy. Normalcy sounds kind of boring. It's not a very exciting thing. Democrats like to fall in love with John Kennedy and Bill Clinton and Barack Obama, someone who sweeped them off their feet. But I think after Donald Trump, what they may what they may want is not a great lover, but a good provider. And that's the way Joe Biden

is running. Well, Bill, didn't the electorate tell us seen that that's not what the American people want, That they want something radically different, And doesn't that not play into Mr Biden's hands? Uh, Well, that was in sixteen, that was two years ago. Things change. I think what's happened is there's a lot of Trump fatigue setting in. Uh. He's chaotic, he's disruptive. Every day we hear new shocks, firings, sudden policy reversals, insulting tweets, blaydon lies, angry threats. People

are really getting tired of that. And that's why Biden looks attractive. He looks you know, he is old. He would be the oldest president ever elected for the first time. Uh. But he looks like a return to normalcy, and to an awful lot of voters that's exactly what they want. We can talk to William Snyder about old. How do you think old will play in the campaign? Bill Schnyder, Well, it's going to be interesting because the top two Democrats in the field of what do we now have twenty

four with the mayor di Blasio getting in Oh my god. Um, But age doesn't seem to be a big issue at this point. My guess is that in the primary process, when we see a lot of candidates drop out, the race could very well end up between two sep two Gendarians. There would be Joe Biden, who next year will be seventy seven and Bernie Sanders, who will be seventy eight and represents a constituency that wants revenge because they figured

he was treated badly by the Democratic establishment. So we could see and I call it a steel cage deathmatch two dies in their late seventies. Interesting. He's joining US Coast Coast williams Center. Bill Snyder with us, you know for years with his excellence in driving the American discourse forward.

It's see that his book is Standoff Paul, So Bill, how about some of the more progressive members of the Democratic Party that are in the race, whether it's Senator Warren or or someone else, how do you think they are going to fare during the primary season? And do you think any one of those types of candidates I eat not a centrist, could in fact go up against Mr Trump. Well, I think the likeliest candidate to do

that would be Bernie Sanders. He's got a following. They're angry because they feel as if they were cheated out of the nomination and the Democratic establishment wasn't very nice to them. Uh, there were revelations of the emails from the Democratic National Committee. They want revenge and that's a powerful motive in politics. That's why I say it's going to be as a standoff at the end between Biden

and Sanders. And my guess is that Biden will win, although it wouldn't surprise me if Sanders wont He Sanders look right now, he's running ahead of Trump. Uh, you can't say he's unelectable, but he would be a very unusual candidate for the Democrats to nominate. So Bill. Let's assume that former Vice President Biden does win the Democratic nomination. Can he close? How do you think he will run against President Trump? Well, he's already running against President Trump.

And a lot of Democrats were scratching their heads. They're saying, what he already thinks he's the nominee. Well, that's his strategy. He wants to make the point he can beat Donald Trump. And there are lots of polls of the elector that suggests that might be possible. Because in the polls that I saw, something interesting is happening. People are saying what they want is political experience, what they want is a political insider. There was a Monmouth University poll that asked

which candidate would you prefer as the party nominee? A Democrat you agree with on most issues but would have a hard time beating Trump, or a Democrat you do not agree with our most issues, but would be a stronger candidate against Donald Trump. Electability beat ideology hands down. One final question, because we have to go to some breaking news, but very simply, what does Vice President Biden have to do in a given state, Let's say Wisconsin,

its Secretary Clinton didn't do. He has to get voters excited. Uh, he has to resist the urge. And this is I think not part of Biden's personality to be condescending. I think Clinton lost in large part because she seemed condescending to most voters. She was a charter member of the political establishment. I remember she called the Trump people a basket of deplorables, the world's most condescending statement. Biden isn't like that, Biden. When Biden campaigns, uh, he's one of you.

He has has a connection with working class voters. Clinton, I think was a little remote from ordinary voters. Biden is making it clear that he's on the same wavelength. It is a premier The book is standoff, of course, from William Schneider at George Mason, of course for years at sen and Bill Snyder. Thank you so much. Really look forward to catching up you in the political months ahead. Is well. Our Michael McKee is in Florida, the Federal

Reserve Bank Atlanta meeting here is Michael McKee. Well, thank you very much, and we'd like to thank our guests, the President of the Atlanta Federal Reserve Bank, Raphael Bostick, thanks for joining us on Bloomberg Television. And radio worldwide. I know you've been traveling around your district a lot lately, and I want to find out from you what the district is thinking about the economy these days. What are companies thinking about the economy and what they're going to

do going forward. Well, first of all, it's good to have you here, thanks for coming down. And I would say that as I go around the sixth district, I talked to UNESS leaders. Um, they all pretty uniformly are pretty confident and please with how the economy is going

right now. Um, they know that the economy's growth is not going to be at the pace that it was last year and there was so much extra stimulus, but they're not expecting and they're not seeing a significant drop off to suggest that the economy is going to be weaker for them. Their consumer demands is remain strong and they're pretty optimistic now. The one thing I would say, though, is that as you go across the district, there is variation.

So if you go to the big cities, we definitely see a lot of robust growth, but there are many parts of the district where we're not seeing that same sort of robust and some of the smaller towns, places that are more rural. There's a lot of variation across the district, and I've been really trying to get my finger on that pulsive variation, UH, to really appreciate some

of the challenges that some particular communities are having. Well, the company is reporting higher input costs, either from tariffs or because your capacity constrained in this ecatom, So they are reporting that to date. What they're telling me is that, um the increases haven't been so great that they can't manage it, so they have passing through most of those

costs to the final product consumer. But they have expressed some concern that you know, there are limits to how far how long they can forbear, and we may be approaching those depending on how tariffs evolve and the negotiations. But what do they say about investment going forward? Are they going to be adding to capacity or is it tariffs holding them back, or is it uncertainty or is it just lack of enough demand to increasing enough. Well, there's some variation in this. Some say, you know, we

have we're meeting we're meeting demand. We're doing fine, and so they really aren't investment opportunities. Most are telling us that you know, there are going to be opportunities, but the uncertainty definitely has affected them. Uh. And until they're confident about what the rules of tomorrow are going to be, they're gonna wait and see. And and that's an important thing for us to be mindful of, is is my team goes around and tries to understand what's going to

happen moving forward. Uh. And then there are a whole host of others who are trying to figure out what opportunities might be. They're trying to incorporate new technologies to increase the productivity of their workers, and that's happening over a much longer arc, and so a lot of the the the resolution of that will just take time to play out. What about consumers. Earnings have been growing above three percent now, which has sort of been a rough

target for the FIT. Uh do they notice that? And do you think we're going to see a ramp up in consumer spending or people kind of sated with everything they bought. So that's a very good question. Consumer spending has been strong, and it's been robust for for quite some time, and I've not really heard or seeing any signs to suggest that that's going to fall off considerably now certainly, Um, I'm also not seeing signs that is gonna go ramp up. So so I'm not expecting to

see a big acceleration in consumer spending. But I'm not seeing anything that would suggest that we're gonna see any weakness. Are weak getting in the months to come. Well, when you put it together the businesses in the consumers in your district, do you get an impression that we're late cycle? Mid cycle? Where are we? So? I don't actually even like to talk about it like that. The economy is operating the way that is operated, and it's really operating

in a sustained way. That growth is robust and it is there's something that looks like I can go on for quite some time for me. I think about the cycle if you want to talk about it, uh, in the context of risk taking and are we starting to see signs that businesses and consumers are taking more risks than than they might have otherwise and starting to take

a risk that some might consider to be imprudent. When you start to see those kind of risks, that to me is the equivalent of this late cycle that you would talk about and I'm really not seeing that. You know, businesses are being pretty prudent. The debt that consumers are taking on is happening mainly at the higher credit quality levels among housholds with higher credit quality. So I'm not seeing risks to suggest that that we're at a tipping

point where the economy should um or might turn. But do you think at this point the markets are then ahead of themselves and thinking that you've got to do a rate move either one way or another. They're betting at the moment on on rate cuts. Yeah. Well, I am not in the position right now where I think that a move in one direction or the other is

more likely. There are a lot of risks out there which, if they come to fruition, might have the economy weekend, and if that happens, then a rate cut might be appropriate. But there are also a lot of sources of uncertainty that if there resolves in particular ways, the economy might actually get a whole lot stronger, which could suggest that we might want to do a rate hike right now. There are still uncertainty right so so it's hard to

say what the next move will likely be. But I am certainly not in a case where if you ask me how the scales are, I don't feel like for me, they are tilted more to the cut than to the hike. I think we're pretty much in balance. Well, monetary policy works with long and variable lags, as they say, So, do you think that the December rate hike was still justified? Could it be a mistake? Could the Fed be slowing the economy as the year goes up? So I actually

don't think it was a mistake. You know, it fit in my model. I was very supportive of the cut in December. I thought that that was going to be one, probably the last one, and we'd have to see what happened with the economy. And you know, when I talk about the arc of my policy, um, it really goes to the feedback I was getting from businesses. Early businesses were excited, they were energized. We had just had the

tax reform. They saw a lot of possibilities. When I got to the middle of the year, to the about September, business leaders were telling me something very different. They's like, you know, we're comfortable, we're gonna move on, but they're uncertainty in and you guys might want to just hold off for a bit, and that became sort of a common theme in what I was hearing. So I I listened to them frankly, and you know, they said, you

guys are good. We think that you should look and take your time and don't be rushing to a number. And that's pretty much how we're operating. So so I actually think that the policy course that we've done has been exactly on point. I think the economic performance would bear that out. We've seen growth continue above the long term trend, and we haven't seen very much inflation as well to suggest that the economy is overheating. And so

I think we're in a pretty good place. Before we let you go, you get to travel around and talk to all these people. And I'm curious the media live in these bubbles in Wall Street bubble in New York, political bubble in Washington. What do people tell you about their economic decision making? How much is it affected by what happens on Wall Street, in the stock market, or what happens with Donald Trump? So there are two those

are two very different issues. First, with the stock market, it's important to remember that almost half of Americans don't have a position in the stock market. And so their decisions are really based on other things, what's happening in the dollar store and Walmart versus their prospects for having

a job. And what we've seen the last there would be a ten year expansion is growing confidence that the job they have today is going to be around tomorrow, and also growing confidence that the economy is going to continue to perform in a way that they can start to make longer plans. So I think that from an economic perspective, UM is much more the general performance that is more important than Walton than stock market per se In terms of Washington, you know, I hear a lot

of your different viewpoints on the politics of Washington. UM, there's frustration, UH. There are a lot of folks who feel that, UM, we should be able to get to more bipartisan positions that could really get policies that would help the economy move forward. But in general, I think that even the political UH landscape has not been one UM that has really caused people to lose faith in

the economy. And I'll tell you, the president's approach is very different than his predecessor, and it's taken people a while to get comfortable with that. But in our last board meeting, um one of my board members said she feels that on some level we've adjusted and adapted and so are less being less affected by the day to day swings and the new things that come on a dated on a regular basis. Well, thank you very much, Raphaelbustic Keith, the president of the Atlanta Federal Reserve, Thank

you very much for joining us. 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.