Surveillance: Impeachable Offenses With Newman

these big political issues? The headline coming from the team over at black Rock and Russ Coast Trick, as follows, The biggest risks are the hardest to quantify, trade friction, Brexit, and US twenty elections. Black Rocks, Russ Coast Rick joining me around the table right now, can monitor RUSS Good morning. What do you do with that? That's your line? What on earth do you do with it? I think all you can do is try to think about the link from the policy to what it may mean in the

real account. I mean, and some of these is too far out. We can't really handicap that thousand twenty election. The trade we're dealing with in real time, and what we do know is that you've probably put the manufacturing sector in a mode recession. Thankfully, so far, that has not leaked over to the households sector, which is why I think the economy is in decent shape. CNBC reporting in the last twenty four hours those talks will commence,

I believe October tenth, going into October eleventh. Rus. How hopeful are you the president talking up the prospect of a deal. It's getting closer, forever closer. I think at this point, you know, most investors will be happy with a true snodded deal. You know. The reality is a lot of these issues, particularly around technology, intellectual property, state sponsorship, These go to the core of the Chinese financial model. I don't think many people expect a long lasting deal.

What people would like to see is a d escalation of the tension, perhaps a rollback of some of the recent tariffs, and that this just goes to simmer for a while and it is off of the boil. Another company that would love to see that, and it's micro On the chip maker, releasing garnings and the forecast for profit really not good at all. The forecast for profit damaged by the trade tension. That the stock down by five point eight six percent in early trade in this morning.

The damage is being done. Whether you look at the Micron profit forecast whether you look at the economic confidence in Europe this morning for the euro Zone a four year low. Is that what you just continue to see as well rust in the not too distant future, just a drip feed of more negative economic data. Jean, I think you you expressed exactly in the right way. Some

damage has already been down. And even if you you get a temporary truce, you know, if you're a CEO, you're a CFO, you're thinking about your next large cap on investment, You're think about where to build a factory. Even if you have a temporary cessation of the friction, it is very hard to have a lot of confidence about that next decision, which means a lot of this

is getting put off. We've had a lot of volatility in between, but to your point, stocks have done nothing for eighteen months for us to have a high conviction call at the moment in this market, I think the high conviction call is there are segments of the market, and I think technology has been one the US household set. There's another where you've seen companies be able to generate, you know, phenomenal cash flow growth, maintain very high margins

despite all the uncertainty. So we're looking for those fast rivers. We've been raising our weighting technology, We've been raising our way to US consumer names because we do think up that we're not going to see a recession and these names can continue to grow even with the uncertainty. What do you hear from people. One of the great affinities of US costUS your first rate academics, and you actually go out and talk to a lot of people as well.

If we're very rangebone right now, what's the mood on which way we range is, particularly in the equity markets. Is it just an assumption that we're waiting for news and then we break higher. I think most people probably, you know, when you speak to individual investors, you speak to advisors, they're nervous, and if anything, I think the

break higher would be the surprise. People were worried about trade, they're worried about Briggs, that they're worried about US politics again, all these things that are very hard to quantify, and everyone still has a very fresh memory of not only two thousand and eight, of last December. You know that very sharp, abrupt, near near bear market in stocks has left people nervous about these quick flash crashes that can take stocks down and rust an economy that's at still

speed are caught up with pincome. In the last twenty four hours, you just put out that cyclical outlook going into they're looking for one percent GDP growth in the United States. In are we prepared for one percent GDP growth in America? I think we would be a bit more constructive if you have one percent growth, and I do think you're going to have some more volatility in stocks because the earnings estimates for two thousand, twenty ten

percent growth are gonna be very hard to hit. Any one percent real GDP environment, we'd be a bit more constructive. I think you're decelerating towards trend, maybe a bit below, but to my mind, that's still closer to two than to one percent. Link your world with nominal GDP. If we get a dampening or stability but sub pardominal GDP, how does it fold into revenues then down the statement to earnings. It means that your revenue growth the aggregate

is constrained. And this goes back to my point about fast rivers a cash flow. I think it does mean that investors like that just account who you know, this is what the the the dynamic has been really for the whole post crisis environment. You don't have that tailwind a faster nominal GDP growth. So the question is which companies are in segments of the market that can generate top line growth in raise margins, and those are the companies that can command that premium on their multiple Where

do you find them? What's sancta I'd say you find them in technology. You find them in software, you find them in segments of the consumer. You know, segment. We're talking about a lot of gloom and doom. One thing it's worth bringing up is that a household sector is in decent shape. You've got healthy growth and disposable income. You've got healthy growth and disposable income among parts of the household sector that have the greatest propensity to spend,

savings is up. Disposable income relative to dead is up. You know, if you don't have something blow up on trade. Our view as the household sector is in good shape right now. Jonathan Golobert Credit Swaste has got a decent take on this as well. The culprit at the moment that everyone is blaming for decelerating GDP is quite clearly the trade tension, and this is a quote that came

from the team at Credit Swiss yesterday. By contrast, the data shows that eighteen stimulus driven above trend economy is now mean reverting, weaken non recessionary economic should limit stock returns until the data shows sign to bottoming. So I guess that the one trillion dollar question is when do we start to see signs of bottoming in this decellaring,

de sturating data worldwide. Rus So, I actually think there is an answer to that, and my guess is that you will start to see some stabilization in early two thousand twenty. And the reason I say that is one thing that has gone right and why stocks have had you know, what has still a relatively good year is that central banks pivoted early in the year. And when you think about that lag between monetary accommodation of the

real economy, it's six to nine months. So that tells me as we get to the end of the year, we should start to see some signs of stabilization. Very good Risk Coasters, Thank you so much. Thanks briefing as well. Always interesting as we talked to Global Wall Street. When a major bank makes major changes, it has been a train wrecord well as far ago. There's no other way

to put it. And within all that is the history of the bank John Farrell Crocker National, first Interstate Bank of North America, first Security, meeting with Northwest, and finally pulling in from the Deep South, the venerable Wacovia Bank. And you distill it all into what John Stump rod. I was on stage with Mr Stump days weeks before he was shown the door, and it has been basically, I'm going to say what four years of chaos? Three years of chaos him slam was the follow up act

when you went over to Wells Fargo. Did you sit in the stage coach over in third Avenue? I haven't seen the stitch coach. Is that how you get to work in the morning? That's how they used to get to work. It is a venerable name. Boy, is it troubled? Glimpo finance reporter Shanali Bassett dropping by the studio to catch out with us. Wells Farco does indeed have a new CEO? Talked to me about the new man at

the top, Shinale. It's crazy. Charlie Sharp has only been at the top of Bank of New York Melon for about two years, and now he's making his next big move to Wells Fargo. Much harder story to clean up. Uh, you know a point that we had made earlier. Interestingly, he's had a lot of experience with the regulators also, I mean, he was one of the bank CEOs that

was down in Washington earlier this year. Um, and so he's going to be a very interesting choice to see how he how he deals with the rest of the regulatory issues. To clean a pact, it's a long list. What's it the top? Well, my goodness. Well, first of all, maybe the Fed's asset cap Wells Fargo cannot grow because the Feds said it cannot after so many issues that

it had in terms of the fake account scandal. So told me about what he has to do that they can get that lifted, to get that lifted, to make sure. So remember Wells Fargo, this is an outsider for the first time running the bank, John Stump, Tim Sloan. We had people who and even Alan Parker, the General Council, who was a lawyer by training, but still you know, seen as part of the inside of the bank. To clean up a culture is a difficult thing to prove

that you can do. And so Charles Sharf may bring in more people, right, that's one big thing he might do. And then he also has to show that he can turn around how fundamentally the bank behaves and how it treats customers. The legacy of this and this goes back to Sandy Wells. Saw him on with Marie the other day. Is good to see Mr wild out And about is James Diamond was thrown out to bank one off of

commercial credit. He had a assistance and one of them was the young young intern who is now going to take over Wells Fargo. And along the way this guy ran am I correct, he ran retail for James Diamond a chase and I think they did pretty well. Is he gonna JP morganize Wells Fargo? I mean that's certainly a thing to think, right, Well, well, what's the board think? What's the board think? Well? Remember Wells Fargo on like

JP Morgan, Wells Fargo is primarily a consumer bank. So when you say JP Morgan, you also think about sales and trading and invest in banking and all of these other things. I think, and it's Wells Fargo does have all of that, but primarily cleaning up the consumer businesses is what he's going to have to do. So JP morganized JP Morgan is the new financial supermarket, right, it's

the it's it's everything to everybody. So making it that is not really the game here, it's cleaning it up psychologically. Where is the center of wells Fargo? I mean we you know, the heritage of this John is a pony Express in the stage courch which they rand with going from St. Louis West, you know, chased by Indians. I mean, you know, it's part of the fabric of our history as well as Fargo is a huge deal, the Pony Express. Yeah, but you know, some of its mythology and some of

it's actually accurate. But but Shannale, we're psychologically I mean JP Morgan New York Park Avenue, Yeah, you're asking. Well. Well as Fargo is based in San Francisco, right, so it's a San Francisco bank, remember after Wacovia. Also they have deep roots in the South as well, and so again not like JP Morgan, which has this huge global expansion plan, this is America's bank, right, and what he

has to deal with is mortgages. To Americans across the country. Right, that's a very different thing from where he was just at Bank of New York, Melon, which is it's it's custody, it's clearing services. It's really much more plumbing of the financial system. Let's go bank to the beginning of this conversation, the cap on their ability to grow, their ability to remove that cap and then grow. Let's pretend the captadn't exists.

How easy would it be to get this company grunning again? Well, I mean it's really it's not easy, right, not easy. It's definitely a catch up game. Here. You have the biggest growing faster, JP Morgan, Goldman Sacks, Goldman Sacks getting into Wells Fargo's businesses with the consumer, and so how do you catch up to that when you do have all these regulatory problems? I'm not sure. Does he clean house? You know, I know it's really possible twenty or thirty people?

Does he bring him from B and Y Melon? Or does he what's he doing? Or can I tell you something? Let alone by Melon? What about JP Morgan? Is he going to go back to his old shop and say, hey, I need you guys to help me here. Shelly bassk. Thank you so much, correspondent John, that's a bit of news doesn't shake. So she goes she's breaking and just scrunning around the news room. Yeah, all that. Lindsay Newman is in London with Chatham House US and America's Program

Senior Research Fellow. When she was at Yale a few years ago there was partisan divide of the nineteenth century. Where were doing it right now? And she brilliantly captures it this morning in a note on all we've observed in Washington as well. I lead with that Lindsay an hour and a half ago with our Kevin Siilli and that I'm fascinated how the Senate Republicans, led by McConnell of Kentucky, how they actually adapt to fact an opinion, given this modern partisan did divide, What will you look

for from Senator McConnell. Well, first of all, thank you for having me on. And it's very kind of you to say it was just a few years ago I was at Yale, But thank you, thank you very much. Um. So, you know, right now we've seen the whist Whistleblow report as well as the TRANSPAP. We're getting a more complete picture of sort of the background of what will likely form the basis of this formal impeachment inquiry that Pelosi

has authorized as of Tuesday. UM. Interesting the overnight a lot of Senate Republicans were saying they hadn't had yet had time to read the repair the whistleblower report. UM. But what we're looking for is and you know, so far they're all just saying at most that it's troubling. UM. But as sort of we've seen pulling around public appetite shifting perhaps up about to the highest levels UM during

the presidency towards impeachment. Will this prospect of an impeachment inquiry going forward not just through the House but to the Senate UM, and all the details that are propped

going to come out right before election? UM? In fact, will that push them to have a more tempered view and pull back some of that unmitigated support that they continued to give trumpet this I was thunderstruck yesterday by the difference between Lieutenant Mueller, who served heroically in the his leadership was acclaimed as a frontline lieutenant in Vietnam, and the way he was treated by Republicans versus the Vice Admiral Yesterday you know, with his leadership across any

number of duties, with the Seals, where the Republicans are almost at the point where they can't posture the postures of the last three years. Have they run out of gas with this impeachment process or do you look for them to coalesce and defend their president. You know, it's certainly going to be a bit of mix of both. Um, there will certainly be those who continue to support President Trump.

But right now the information that's come out, between the Whistleblow Report and the transcript there everybody is sort of trying to digest this information. Um, what's what's what is you know, troubling to take the Republican word here? Is that the whistle Blow report, you know you're hearing, are we going to find a smoking gun? And and this is all just living linguistics and language. But what it

does provide, first and foremost is a roadmap. And in particular, it's a roadmap that includes details that are already corroborated by the transcript, not the least of which is information around you know, encouraging further investigation into crowds, right, encouraging this further investigation into Biden encouraging working with Giuliani and and the Attorney General bar all of which we we saw in in fact, in the transcript of the White

House ultimately released. Lindsay, are we dealing with any legal issues here or purely political issues? Question? Really? Smart? Well, that that is an excellent question. And when we when we talk about impeachment, you know, we all have to remember impeachable offenses are treason, bribery, and the high crimes and misdemeanors. And President Gerald Ford so family famously said high crimes and misdemeanors are just really whatever the House

of Representatives of the day thinks that they are. But what we we're talking about with high crimes and misdemeanors, and I think that's where um, the Democrats House Democrats are going to be focusing their attention as we're talking about a abuse of trust, abuse of office, unbecoming conduct

um And there's that's quite a large bucket. The founding fathers of the Constitution intended it to be quite a large bucket that official presidential and particular behavior could could be captured by Lindsay, these are actually reactions, of course, that the Democrats have been throwing at the president since really since day one, there is a concern among money that they've spent so much political capital in doing so that they're going to struggle to bring the public along

this time around. How do you think that's going to play out? So they're two key stories. The first is the public sentiment one, which is the one that you're alluding to and I mentioned earlier, which we're starting to see is very very prepliminary. But polling that's been done since Pelose you meet her announcement has suggested that public sentiment is inching towards impeachment. Now there does seem to

be the second part of the story still partisan divide. Right, it's still very low amongst Republicans, something you know in the just single high single digits into the low double

digits um. But the partisan divide issue is key because Democrats want to move quickly on this, because they don't want this dragging through taking up all of the attention um because ultimately, you know, some of the potential um individuals who are gonna lose us from this, or anybody whose name is not Biden and Warren who are front running the Democratic side right now, because the attention moves away from healthcare, it moves away from uh, immigration and

gun control and all these issues that the you know, the vibrant Democratic field is dealing is you know, is raising and just get focused on impeachment. Obviously Biden um is coming out very strongly to address these issues. And then Warren, who's you know, who's surging in the polls. Let me be republican for a moment. Is a constructive

plan here to just delay in a collegial way. I mean, it takes a process and is the best not weapon, but best strategy of the president's supporters to just stress things out by a day here, a week here, a weekend there. It's a good question, Tom, but I don't know how they do that. If Democrats seem to think they already have a majority in the House and that's what they need to pass this along to the Senate.

So they'll just need a majority um one day once they dropped the article of impeachment, and so that will so Republican delay tactics, Um, whatever it may be, it's still going to land in the Senate. Well, no, I'm sorry, I mean Lindsey, Tom does this. He stamps all out with the guests, and then they don't completely Thank you so much. We look forward to seeing you in London with shadow House. Uh this morning, I'm looking at the it might have been a vital conclusion. It was. I'm sorry,

it's Friday, give me a break. I'm focused on arsenal menu Monday. Why don't you bring in the woman who writes beautifully terst notes for Rabbo Bank. She has fantastic to read. Name is Jane Foley, Rubber Bank ahead of foreign exchange strategy. Do you wanting to us out of London? Jane,

great to have you with us. Let's just talk about Michael Saunders, shall we the hawk at the Bank of England turning very dovish your thoughts well, indeed he used to be a hawk and this is why perhaps his case comments are really even more devish tone than if any any of the other members of the Bank of England were to say this now of course what he is or what the Bank of England official guidance have said. And and this has printed even just a few weeks ago.

In the last policy meeting, was even on a on a on a smooth brexit, even if a deal was done, well, we could see an interest rate hike, and that would be because there would be an unleashing of demand. And what Saunders this saying is that global growth or softwa global growth is actually opening up, but he says a modest amount of spare capacity, So he is basically saying that the headwinds to growth probably mean that even on a smooth and Brexit now we would probably see an

interest rate cut. Another money market, of course, had already been pricing that in, but his comments did reinforce that move, so the market began to think, well, perhaps we will see the interest rate cut by maybe the middle of next year. Jane, what are your thoughts on that economic argument that we had a supply side problem for the

last three years. That was the basic argument of the Bank of England that the rate of acceleration, the rate of where we limit out in the United Kingdom, has come lower, and therefore you don't need much demand to bump up against supply constraints. Therefore rates need to go up a little bit. That used to be the argument, Jane, what's changed. What's changed is of course really Germany and

the global economy. I mean, if we look back to the year of the referendum twenty sixteen, and if we go into seventeen, what we saw in seventeen was the backdrop in the Eurozone being far better than expected, the political outcomes and saying the French election that were better than expected, that we didn't have this rise of populism that many people have assumed. The growth data almost from the first to January were coming in much better than

the spected. So, if you like, the better the better backdrop in the US, and particularly with respect to growth, was was protecting the UK economy. It was it was given allowing all boats to rise, if if you like. And now of course we have the opposite. We've got the German industrial sceptor in recession markets talking about the German economy that potentially being close to fall in into recession. Peer my data across the Eurozone they've been falling low

enough for almost two years. So that is not a very pretty backdop and that of course comes against the bigger global backdop or slow down in China, slow and global growth. And and therefore, can you get the UK economy to self sustaining if you like, behave in a way that we need an interest rate hike when all of these global headwinds the wrong direct. Jane Woods. So scary about your research is you'll always have a chart where you can extrapolate it worldwide. You do that with

New Zealand. You have a spectacular chart wondering if quantitative easing in New Zealand needs to house price inflation. Let's take that globally and it goes right into the repo debate here in the United States. Does Jane flow folly in The team at Rabble Bank figured out that a Quei expansion actually reflates an economy. Can can you state that? Well, you know, this is interesting because I think you can

definitely see signs of this. I mean, of course they have a news contitutes in New Zealand yet, but they have got very low interest rates for the New Zealand economy. And this is the same, of course, for for all developed economies. And you can look at you can look

at um various parts of the globe. Look at Germany, you can look at parts of Canada, you can at New Zealand, Australia, you can look at Sweden, um and all of these countries London have inflated house prices and this of course is something which many central bankers have denied. Central bankers exactly, they're all saying no, and you're saying, wait a minute, well, you know some of the smaller

central bankers haven't denied it. This is interesting if you got up to Scandinavia, if you look at Sweden when they do talk about this more openly, they are concerned about the impact of house prices. And it's not Hans passes per Sae. It's basically when people chase young people who haven't had a house before, if they chase house prices higher, they end up with an awful lot of household debt. And of course this is a real concern.

If this begins tip over, that's the real concern. And also it's inequality, and of course we are here in an awful lot more about in equality of asset prices go higher, of course, not the and not the not the people say, there are so many aspects of this. And I think now if we go into another round of contenta using from maybe cuentral banks like New Zealand or Australia where they haven't used it before, perhaps they're more aware of these potentials. I mean, this is brilliant

and John ross Cast which you mentioned this today. In his Travels with Black Rock, he says the Chase Field now is the story. Being in a news conference with Governor Carne and he was asked about the housing bubble and the United Kingdom, and it was in London where things were really blowing up. It was in and around that's when you have the four bedrooms in Kensington, I wish and Jane, and you might remember this line as well.

Governor Carney turned around and I remember being in the room and he said, we don't set monetary policy for inside the circle line. And essentially what he was saying is that if there was a problem, he's in London and it wasn't their problem. And Jane, these are the kind of things that I actually hear from monetary policymakers sometimes that they focused on the broader story and these pockets of risk taking that they don't think a systemic They just assume it's not their problem. Jane, what do

you make of that approach? Well, I think really what we know about monetary policy and whether or not there's is contituvising or interestrate policy, is that it is a blunt tool. And if you use a blunt tool then you are I'm will like you to have you know,

these decide effects. So we have seen in some countries, Australia being one of them, Canada another one where they have used macro potential measures and these was perhaps to control some of the side effects of the quantity of these and so for instance, it was in Canada they were making it so that it was more difficult to get a big mortgage and this is really the effect of maco potential in other countries too, So there was a side effect in so far as wealth or as

the paces rather were expanded, people were chasing those house prices higher and then it was like, well, actually you can't have the mortgage, so you cannot chase the house price higher. And that was designed to give some control

over the pace of acceleration of house places. But ultimately, again we do have to turn our attention back to governments and what does government policy going to do to try and contain some of these side effects of monetary policy or indeed in in in countries such as Germany or countries such as New Zealand Australia, what is the government going to do to be able to fine tune the stimulus to where we need it without relying much on the on the on the very on the tools

of monetary policy. Um, you're very blood Jane. Great to catch up with you. Jane Fluddy really fourful staff for Rather Bankhead of Effect Strategy. 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