Surveillance: Notre Dame's Past & Future

earnings and the data. I'm pleased to say here in New York, Monamaha, John joins US now Alliance is Global Investors, US investment strategist. Good morning to Mona. Good morning John. So let's explore that question, shall we, and try and answer it. Will we find support from the fundamentals? Yeah, you know, I think the market, you know, year to date up about from the December low up now, so really uh to to get a next leg higher, we're gonna have to see a really impressive set of fundamentals.

What we're looking at and where we're seeing signs of optimism is probably more towards the second half of the year, when not only China potentially rebounds um not only where we might get some European stabilization and the US earning story unfold. But some of the geopolitical tensions that we've talked about um US China trade, maybe even something around Brexit starts to clear up as well. So I think in order to get another leg higher here, one we'd

be hopeful for some sort of consolidation. I think that would be healthy. Uh. And then two, we'd really need to see the global picture improve, the global the global picture improve. But the fact is it's been a stunning rally. J and J earnings just came out. I guess they were midpoint John, you know, not much to talk about there. They delivered boring average goods. Fine, great, Great. Are you, as a strategist going to micro analyze every earnings report

the revenue and margin dynamics? You know? I think generally the earnings picture here in the US, where we were in the last quarter, revisions were moving downward, downward, downward. Now we are starting to see some basing in that, and we're seeing Q one earnings, which started in earnest last Friday, really beating expectations here. So Q one expectations are negative four percent, probably going to get closer to It's an expectation function. And as Pharaoh knows, it's out

six months up twelve months. What's the earnings view out six months or twelve months. It's going to drive John's two oh one k back to excellence. Yeah, you know, I think in the US we're looking at four to six percent earnings growth this year. And it's interesting when you run the analysis different earnings environments, the type of S and P returns you can get. In this negative tent positive tent earnings growth environment, you actually get high

single digits mid team returns. It's only when you're negative negative earnings that you get this negative What just John is so important. You can have flat earnings and stocks go up and there's silence in the room. How can that be? But there it is. That's what the math says. You know where the sonets in the room right now is with the financials. Some of these names can report record quarterly earnings and we've done even sniff. We just

sort of look away and it doesn't even matter. Bank for America coming out this morning with record quarterly earnings. The question still is, Okay, that's what we expect. Where's the growth and what am I willing to pay for these earnings. What's the answer to that. Yeah, you know, I think financials is a tough one because you have the flattening yield curve dynamic that's been going on from

nearly five years now. Um, when you look at rates coming down, yields coming down actually supports many other sectors except the banks. Banks don't thrive necessarily in a flattening yield curve environment, and certainly when when yields are lower in some cases around the world, negative not great for banks here, and so I think that's the story behind why financials have lagged somewhat. I think now we may see a bit of catch up here, given that earnings

are coming out ahead of expectations. But I think from a sector perspective, we see opportunities beyond financials, and in fact, you know, when we look at where you want to go for growth in a lower growth environment, we continue to see technology and discretionary in particular, where the U S consumer seems to be quite supported here. Uh. The other hand of our what we call our Barbell approach is really healthcare and staples. Those are sectors that have

lagged this year but really are defensive. Do well in a slowing growth environment. To be clear here, though, you don't buy the bank bologument, the financial valuations are going to rewrite higher, you know, I think it'll be tough in an environment where yields are going lower potentially and the FED is off the table for two thousand nineteen, many are expecting their right next move to be a rate cut. So I think that's a tough environment for banks. I do buy the US consumer story, which I think

it is a positive for banks. So let's talk about the regional till that you're looking. At the moment, there's a lot of people getting excited about the very small green shoots appearing in Europe, and slowly I can feel the bearish sentiment capitulating as the year progresses. Where do you stand on that, that whole Europe versus US debate that we've had for the last couple of years. Yeah, I know. It's interesting. We came into the year with

another very clear barbell. On one hand of that barbell was the US best on the block from a developed market perspective. Other hand of that barbell was China and parts of em Now, China, you know, has performed phenomenally this year, UM markets up plus we're looking at Oh no, I'm just gonna say quickly on the European question, we are you know what John was alluding to. We're starting to kind of come around to as well. Europe may

benefit if there is a resolution to trade. It's a great source of dividends potentially and clearly has lagged the markets and from evaluation perspective, starting to look somewhat interesting, but again very data dependent year to date. I mean Chinese stocks, this is in US dollars, John, they're up thirty one percent. It maybe they're up if you look at another is that a real stock market? I mean, does Alians actually say to people China to invest in

China stocks? Is actually normal? Biddess dynamics, you know the they've opened up their a shares market that we think is a real story. UM will become a larger and larger part of the m c I index. We agree though a lot of the Chinese equity market retail driven, and so that can be more volatile than than the average market. Okay, Mona, thank you so much for coming and just lights from Alians. But today I like John what you're framing there between the europe US dynamic, which

means almost a May June story. George Cassidy with this RBC Campital Markets. His research note is, you know, the occasional small bank, lots of regional work, and he doesn't look at the two big defails like Bank America gerod. If I could go to one slide in the Bank of America first presentation, the power point, I'm going to guess it's twenty pages. The digital build out page is just extraordinary. Are we underestimating the speed of digital growth

within American banking? Tommy, you bring up a really good point because I was looking at that page as well this morning, and what took my breath away was the person to person payment. When I sent John Farrell money, you know I lose on Liverpool, I sent him in rather having to write him and check. And so that that growth has been very impressive. And I think you

put your thumb on something here. As much as there was a threat from the you know, tech area of the financial tech companies two or three years ago, companies like Bank America, JP Morgan, even some of our big regionals are spending incredible amounts the money and are at the cutting edge. And Bank America's right there, as evidenced by slide five. I mean, Jared, compared to say, the rest of Europe, the United States well behind on this

kind of initiative. That's still people in this country that regularly pay their rent with the check and the check book is something that many people in Europe don't have in their pocket anymore, Gerard. So I just wonder how much growth is left here. And it sounds like a law. John, You hear a great point. I'm always when I travel over to Europe, I'm always amazed at how much further

along they are. And one thing I remind myself is that we have legacy systems in our banking industry, as you well know, and because we have fifty seven hundred banks still, you've got to convert all fifties seven hundred over to these new systems. It takes time, and as why Canada and Europe are well ahead of us in our banking technology. But to your point, there's a lot of growth coming from our banks in this area, So jareded, loads of growth coming. We've got to talk about a

complete bank. Just how much this moves the overall dial? Does they shifted? It's all I think over time it does because as you know, there will be a less of a need for branches, and branches is probably where the branch delivery channel is one of the most expensive parts of a retail bank. And because of this technology, we just won't need as many branches over the next ten years, and those branches will transport themselves more into sales centers and doing everyday transactions. What is the job

dynamic when all these people say we need expense control? Right? Is Gerardcassity looking at any given big bank. Let's say, if a round number a hundred and fifty employees, is it a hundred year a hundred there? Is it divisions where they're going to take out five or ten thousand or are we missing the point? It could be something bigger.

I think it's a hundred here and a hundred there, because you might remember tom coming out of the financial crisis, the banks had thousands of employees working on bad credit, and as you know, credit quality today is very strong, and so those people were either let go or moved into other areas. So I think what you'll see it won't be entire divisions. Technology I think will complement the human element of it. But it will change, no doubt about it, over the next ten years. Let's get the

earning school counts now. He was a really rough session for Goldman yesterday. The stock was down three point eight percent. Sock GM coming out cutting the price target for Goldman to a street love once seventy. We closed yesterday just south of two hundred. What's the story there? I think a big loser of this quarterly earning season so far. I would say that because they're so concentrated in the

capital markets. We all know from all the big banks, trading revenues were down year of a year, whether it was an equity or fick. But because they don't have the diversity of revenues of JP Morgan, Bank America and City Group, their results were more concentrated in capital markets. And even those diversified revenue companies like a Bank America today, their revenues were acted by the market. So I think you're right Goldman was affected more because they're more concentrated

in that business. Jeri Cassie, if you didn't know the name, I'm glad. John brought up Golden Sacks ten year track record with dividend five point four nine percent a year in any other industry. That's just totally unacceptable. What's the magic of Goldman Sacks at five point four per year? I think it still has amongst the trading community, in particular the hedge funds. UM. They still have an attraction. People know that they can trade. This name is very liquid,

it's volatile because of the capital markets. It's not a boring bank to say say the least. So I think that's the attraction rather than a long term you know investor who wants to buy and hold here's your valuable drug cassidy, thank you so much. After Bank of American and RBC cap, let's bring in bloom Bag intelligence, maybe analyst either Rack and Athan on Netflix armies which come

after the closing about Gaithera subscriptions. What would they look like? Yes, yes, it is always a story, um a subscriber story, and as always the focus will be on some sub numbers. Management has guided to about eight point nine million new additions for this quarter, about one point six million in the U S and the rest international. But I think the bigger question John this quarter is really going to be the two que guide, uh that there really two concerns.

I think that the market is looking at one, is the rising competition, especially with a very aggressive price point coming in from the Disney Plus service. Uh and then a thirteen to eighteen percent price hike that is actually taking effect for domestic subscribers in two que So gather how difficult historically is it to get any kind of clarity of what's about to happen in the future where Netflix adjust priced. We have pretty noisy quarters. Um, yeah,

it is. There has been some volatility in the past, but actually the last time that they instituted a price increase, we did not see a whole lot of turn So kind of just showing how with the breadth, the quality and the quantity of their content um users are willing to digest even substantial price hikes. Netflix is Netflix, But it's also to me a mystery. We sort of vastly understand the sweat at Disney, the sweat at the old

Time Warner, etcetera, and HBO management change. How is Netflix management responding to everybody wanting to be part of their streaming world? So Netflix has I mean they've they've been asked this question quartering and quarter out, and they've always kind of downplayed the competitive threat. I mean at the end of the day, Tom, Netflix offers consumers and a very compelling entertainment experience at a relatively low cost, without

commercials and on any device. And if you look at the global market and the secular shift to streaming, they're relatively underpenetrated. And that's something that you know, Netflix management drives home, quadring and quarter out. Okay, so let's talk about this sentulist shift to streaming. Let's talk about what is ultimately driving it. I can tell you from my own personal perspective, what drove me to cut the cord was because it costs less just to buy Hulu and

to have all the channels on that. We're now going towards this world where I need Hulu, Disney plus Netflix, HBO am I just going back to the cost of cable again. Yeah, I mean, you know that is kind of becoming an existential question. But I think what's going to happen, especially with the new Disney services, it might actually end up accelerating cord cutting a little bit. At

the end of the day. I mean, there are there's a whole plethora of services out there, but once the dust settles, stay in the next two to three years, time. I think what we're going to see is they're going to be winners and losers. But I see both both Netflix and Disney emerging as winners. What about the news side? You know all the YouTube TV is John mentioned Hulu and and and all those do they compete against each other?

Are they essentially monopolistic activity? So what we've actually seen so those tom are what we refer to as the virtual m v P d s or they're basically live TV services over the internet. Um, they have those services have managed to rack up about eight million subscribers so far, which is which is a pretty substantial number. But we've also seen but they're they're essentially not making any money.

Uh and at some point, and we've actually seen this, direct TV now and some of the other services have been raising prices gradually and with that there has been some increased churn. So I'm not sure everything is hunky dory on you know, the school TV services front, Jennifer. I think what she just said there's absolutely critical and and and that we're not sure it's all new territory. Yeah, just that simple. I mean, how many soccer games are

you watching a weekend? John? Two or three? Oh? You lie, you're watching five six three Max. Okay, I mean sports get very quickly her. Sports is still a big draw with YouTube TV right. Sports is absolutely a big drawing And and um, you know that was the whole bed that Fox made when they kind of sold their entertainment assets but kept sports and kept news writes to catch you with your great update, gething Rock and A and

then Bloomberg Intelligence media analysts. We can't be down to Netflix earnings coming after the closing Bolt MATCHI Zeddi with US Chief Fields Economists doing your bank. And the joy of his research report is it is beyond loaded, not only with charts but with intelligence charts. It's like a it's like a you know, three hour interview happening right now. Um, John, I want to go to something pretty obscure mental lozette to begin with. You really slice and dice inventory dynamics

and business investment. Exactly where are the inventories of American business right now? Yeah, you're you're absolutely right. I think it's really important for the near term growth outlook, UM, on some measures inventories. You know that we've had a recently big inventory build in the back half of last year. Um, and some people I think have built in an inventory drag on growth in the first half of this year. When we look at it, it doesn't look like it's

something that should significantly way on production. Instead, it looks to us like you had a big import increase ahead of people that were expecting tariffs UM and that that really has not built into manufacturing inventories. And if you look at the I s M, when manufacturing firms don't think that their inventories are too high at this point. So we do not see a big inventory drag coming in the coming quotas from from the US. And as a result of that, I think we're a bit above

consensus on on US growth. We we expect two point three percent growth this year. We're consensus is probably a little bit closer to two looking at this year in our survey, we've got it about two point four for the median estimate going into next year. Is when a lot of people see the deceleration. Matt one point nine percent the median estimate there, what's we have some something

very similar to that. I think you know, most people are looking out to they're expecting a modest fiscal drag versus the positive fiscal impulse you had this year, there's some delay in the tightenings from the said which can take about eighteen months to work its way through the system, and so we have one nine percent growth again next year. I think more maybe more interestingly as you go out to one, which is a very long time from now. But I think a lot of people expect a continued

deceleration in the US and global economy. We actually have to pick up. And I think the reason is with the Fed on hold, with them not getting to restrictive stance, and with the fiscal not being either a strong either driver or a a drag. There's really no good reason, I don't think for the economy to deviate materially from two. You buried the punchline. Did I hear you say next year one point nine? We do. Yeah, if you add on any kind of Peter Hooper Deutsche Bank inflation calculation,

you're talking about a sub four percent nominal GDP. Right, that's correct? Is now? You studied this at u c l A. You wanted they got a library out at U c l A. Folks like Game of Thrones. You went into the library U c l A. Is there any politician in the history of mankind that can deal with a four percent or less nominal g d P, don't they By definition they have to always revert to fiscal expanse. Yeah, I think you know, there is a new normal in terms of thinking about growth, both on

the real and the nominal side. Um Whereas historically potential growth was three above, we now take a potential growth in real terms closer to two percent. And so along with that two percent real growth, you actually have pretty good labor market conditions. You have wage growth continue to pick up. We have the unemployment rate falling to three point six percent, which would be the lowest level in decades.

And so all that from a you know, a voter perspective, from consumers perspective, actually think looks a lot better than you would expect given two real four percent nominal done. What Mr Lozettie just said there, I have never framed on the American economy. It's just absolutely original. Where we are given a suburb GDP shouldn't surprise you. Two percent real GDP is is basically potential in the minds of many for the US economy. This shouldn't come as a shock.

It was unthinkable in my how do they have that run rate. It is a brand new world out there, but this is the new normal, absolutely it is. You know, we I think we're a little bit more optimistic on getting productivity a bit higher. There is this tendency as the labor market tens, as wage growth picks up and incentivizes businesses to do capex, and productivity move higher. Uh so we see potential a little bit above two. But we're absolutely right. The new normal is that potential growth

is much lower than it's been historically. The FED fund rate is much lower than it's been historically. We think the FED is not at this point um and so for per markets, it's it's a new normal and thinking about how far the fact how much volatility you're gonna have. So just finally and quickly your assumption here, the base case for the trajectory for the US economy is based on a FED that goes nowhere, no heights next two years. It is, it is, And I think there's two countervailing

forces here on on growth. We we're still pretty optimistic the labor market tight and wage growth picks up. On price inflation, on the other hand, we don't see that that moving to really higher, and in the context of the said reviewing their two percent inflation target, perhaps wanting to get inflation a bit higher if they moved to an average inflation targeting regime. We don't see them tightening as a result of that. This is wonderful path that

was Zetti, thank you so much with Deutsche Bank. The mood in Paris this morning after what we would yesterday simply somber in the aftermath of the great fire that ripped through the cathedral of Notre Dame. The iconic structure took more than two hundred years to build. In just a few hours, that roof from back to medieval times it is gone, of course, the history extraordinary, from the liberation of Paris of the Nazis to the modern day.

As well. French authorities they assess the damage and craft plans to rebuild the monument. Here is our Bob Moon. If there was any good news to report, His firefighters finally got control of the flames late into the night. It was word that they were able to save the two rectangular bell towers at the front of the twelfth century building, although it will undoubtedly be years before those

bells are hurt again. It was considered the gem of French Gothic architecture, painstakingly constructed by hand, its cornerstone laid in eleven sixty three, and in the more than eight hundred fifty years since it had survived numerous challenges, ransacked, desecrated, and when it fell into serious disrepair, nearly the victim of calls to tear it down. It came through two World wars and through the will of the people. Notre

Dame Cathedral has always managed to rise again. A dressing his shock nation last night, President Emmanuel mccron declared as her through a translator, we will rebuild this cathedral. The place we have it is the epicenter of our life. That was no overstatement. For centuries, all streets in Paris, all roads in France for that matter, led there. But during the French Revolution it was viewed as a symbol of oppression and fell victim to numerous acts of vandalism.

People took swipes at it with axes and hammers, beheading many statues. It was there that Napoleon chose to be crowned emperor in eighteen o four, but by then the long neglected building on an island in the middle of the river Sende was plagued by a lead roof full of leaks. An architect, determined to say the dilapidated building,

enlisted the help of a friend, writer Victor Hugo. His resulting novel, Notre Dame de Paris or Our Lady of Paris, was later republished in English as The Hunchback of Notre Dame. The book helps spark a movement for its restoration thanks to his rapturous descriptions of the architectural treasure has reflected in the nineteen thirty nine movie version of his classic story. In every city the stand cathedrals like this one, triumphal

monuments of the past. They tower over the homes about people like mighty guardians, keeping alive the invincible faith of the Christian. Every art, every column, every statue is a carved leaf out of our history, a book in stone, glorifying the spirit of French. Hugo himself summed up its beauty with just three words, symphony in Stone. He helped make it one of the most popular tourist destinations in the world, with more visitors even than the Eiffel Tower.

As Bloomberg News Paris reporter Greg Vescuzzi noted the most visited monuments in Paris, it's about, you know, fifty people a day can visit it. It's a terrible cultural loss. Perhaps it was the splendorous architecture that drew so many, or the trove of fine art and religious relic inside, among them the crown of Thorns, believed by Catholics to have been worn by Jesus Christ himself before his crucifixion.

The Mayor of Paris had in a tweet that it and other relics had been saved, something in which New York Cardinal Timothy Dolan found special significance to see that reduced to ashes. Myle my, I remember our song from the ashes, we rise up. We want to rise up with Jesus at Easter, and I believe that there will

be surrising from this dying. Much of the building's attraction, no doubt, was fascination with the heart tugging subject of Hugo's fictional story, shunned for his deformed appearance and death from his years of ringing the cathedral's bells. Kasimodo, big here, she made me dead. I can hear I've been lately. The ringing had been limited to a single bell and only on special occasions because of more than thirteen tons, that was concerned it could shake the tower more than

it could withstand. A six point eight million dollar renovation project had been underway for the past couple of years, and much speculation has focused on that as a possible cause of the fire. Now, in many ways, they will be starting again from the ground up. Restoration expert Copoli Crouche is an associate dean at Indiana's University of Notre Dame and says it will take years to even start rebuilding.

There has to be a complete understanding of the construction reconstruction of this building, which may take at least a period of five years. But again, the will of the people seems clear. People who see their lives reflected in a building. Journalism students Celia Hedeberg notes, they are drawn to it. Still. People have been standing here for hours now taking pictures. Earlier um a group of Catholic people

gathered and started singing different songs. In passing. People are making half hearted jokes about how silly it is to be crying for a building, But to be honest, that's the case for a lot of people here. That's the case for so many people around the world. I'm Bob Moon Bloomberg Radio. 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.