Bloomberg Markets (01/20/2022)

Bloomberg Markets (01/20/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It is 30 minutes into the U.S. trading day Thursday January 20th. Here are the top market stories that we are following for you at this hour. Tumultuous tech now tourists and Netflix are streaming giant kicks off big tech earnings after the closing bell. Can Netflix turn around that tech sentiment. And Biden's Russian misstep. President Biden says Russia could opt for a smaller scale incursion into Ukraine making cohesive Western response harder. We're going to speak to Ian Bremmer Eurasia

Group president. And get back to your desks everybody. Goldman Citi asking London staff to return to the office. We speak to the head of another big bank Brian Moynihan. Bank of America chairman and C E O. From New York. I'm Alix Steel my co-host in London Guy Johnson. Welcome to Bloomberg Markets Guy. It's good to see you. I missed a doozy of four days of heavy news flow. Yeah. Just get the data out of the way and then I want to talk about what exactly you missed. Housing data just hitting the tape at the moment. Six point one million. Is the year a year. No that's certainly off the pace. Six point forty two is what we were expecting. Maybe signs certainly that a high prices a lack

of supply and mortgage rates rising starting to have an impact. That's just something you want to be folding in in terms of the numbers that we're watching. But let's get back to the fact that Alex had four days outs and the world changed I think in those four days Alex. So what we have we have the. I'm not I'm not blaming you. I'm just saying it happened. Yes. You have the NASDAQ correction. So we had a 10 percent down from the highs. You've got the market now pricing more than 25 basis points at the March meeting. So people are now talking about 50. You've got potentially an end to the bull market broadly. You take a

look at what the technicians are saying Alex. They're getting super excited. I could go on and on and on. But we've run out of time. But basically please don't take any more time off because it was a little bit hectic to be honest. Now I know when I saw the news flow I was like oh man. Guys can be mad at me for better work. Husband they're coming at me. Oh yeah. And I didn't

even mentioned the fact that the commodities market was absolutely on fire and oil prices were surging higher. That I know you would've been excited about but I know you were excited about all of it. But yeah please don't take any more time off. I'm not sure I can do another four days like we've just seen. Friday cannot come fast enough. Sarah Hunt joins us now to join in the fray. Sarah Hunt's Alpine Woods portfolio manager Sarah Alix Steel had four days off. The world has changed I think in

those four days. We certainly seem to now be pricing in a much more aggressive Fed tech has taken a tumble. How do you see the world right now. Well no. No harm to Alex but I think it was more than just the last four days. I think it was sort of people woke up at the beginning of 2022 and thought oh my goodness the world was actually changed. The Fed is going to not be at our backs. It's gonna be the wind is gonna be coming at us on that front. And I think that all of a sudden all the things that we were surprised that nothing happened in the back of 2021 when it started to become clear that the Fed was changing its its ideas about what they needed to do didn't seem to roil equity markets at all. And now it seems as if everybody woke up and thought oh my goodness we're gonna have to do something about this and this is going to change. Valuations is gonna change multiples and it's just gonna change the way we look at equity investing over the next 12

months. OK so what do you do. I mean that was my question over the last few days. As an investor and you're lucky this price action the volatility what do you do. Well to some degree you know people already had started changing some of their positioning at least we had last year and we were never really old all in on some of the very high valuation tech stocks to begin with. I mean we own some technology but I think there's gonna be a bifurcation between those profitable companies that are huge cash generators and those that are struggling to generate any kind of cash. And I think in that environment a higher rate backdrop is not particularly good for the ones who can't generate a lot of cash. I think that's going

to be true across the board. I think valuations are finally after quite a long period of time going to start to matter. And cash generation and balance sheets are going to be very important as we navigate what is no longer a very easy Fed policy going forward. Sarah there's been this narrative over the last few days while Alex has been out. I'd like to point that out just that that we shift to value that value is going to outperform. My question to us are some of these companies where we're strong free cash flow that look relatively well valued compared with some of the names that you've just been talking about some of these tech names. Are they going to outperform in absolute terms or are they going to outperform in relative terms. Well I think I think it's more about valuation versus value versus growth. Because I think that there has been an enormous amount of stretched valuations. We've been talking about it

collectively for the last couple of years. And it's only when you start to see a change in the backdrop that that starts to matter. So I think that companies with reasonable valuations are going to be able to perform fairly well but they're going to have to get that growth. It's going to have to be profitable. Margins are a huge question this year. And that's going to you're going to start to see where that differentiates. I mean you've already seen a huge move in consumer staples because

those companies finally have some pricing power. We were talking about pricing power last year. I think there are tech companies that have some pricing power. So I don't think it's a pure rotation out of tech and into pure value. But I do think that it's going to matter how people start to see earnings and how companies start to talk about earnings and whether or not as you see with some of the banks the compensation becomes a bigger issue because that's a much longer tail on inflation than simply supply chain bottlenecks which is what I think everybody was hoping that inflation was about. But you've got a couple of different issues on the inflation side. You've also got energy prices. And I know that's near and dear to Alex's art but there's very much an issue going on right now with energy and not having cheap energy complicates the inflation picture dramatically. So to that point I mean I feel like we're talking around tech at this point. We've seen a big rerating. And I wonder if the earnings that we're going to get for some of the big tech companies like Netflix today is going to justify the current valuation like how we rated enough here. Well I think Netflix is a difficult one to start with because

they've always had a pretty high valuation relative to the cash they were able to generate. They finally got to the point where they were able to do some but they spend a lot of money on content and that has not changed during the pandemic. So I'm not sure that they're the best bellwether for whether or not earnings are going to tech can turn it around as it sort of said before the break. But I do think that you're going to have to see some growth in some of this tech. And if you don't see it the fact that earnings are coming through is not going to be enough. Just in terms of the baby and the bathwater in all of this. And Netflix rates at 39 times forward which is still fairly punchy even relative to where it was before. Do we do we see the baby being thrown out with the bathwater or what I'm wondering here

Sarah is does even the good stuff go down in this kind of environments. It may outperform but does everything go down. Well I think that the knee jerk reaction at the beginning is to sell everything and to swap out of tech and into other things. The question is what part of tech is then going to come back as people start to say OK those earnings are not so bad and we still need growth. And that's part of the problem with values that sometimes there isn't a lot of growth there with value as a

whole as opposed to growth. So I think that there will be a knee jerk reaction. I think you've already seen it. I mean the top big mega caps have not been hurt as much as as much as the underlying stocks in some of these indices. But I think that there are places where I mean we like a stock called Akamai. They do Internet routing traffic but they also have a security business that's growing. That's not at a crazy valuation. And I think that the security business is going to continue to grow. Does it matter in the knee jerk first reaction when people just sell tech. Probably not. But you're going to see people come back to those stocks that can prove that they can generate cash and that their valuations that are still believable in that they can grow even further. So I think that that's really you're going to see some differentiation there for the stuff that's

still in the bath. You mentioned it earlier like energy for example up 16 percent so far year to date. Where would you be buying in the energy world when you're still looking at WTI at 80. You're looking at some super heavy call options in the triple digits where it still has the value. Well there are some industrials that play into the energy sector. A company to be

like it's called flow serve. They make a lot of the big valves that go into pipelines for both petro chem and for oil and gas as well as other things that need big pipelines. I think there are some places where you can find that supply into the sector. Unfortunately the desire to have cleaner energy has meant that there has been a sort of demonization of hydrocarbons in a way that complicates the picture right now because it's much more about politics than it is about the normal cyclicality of oil and gas. And right now that politics is sort of showing you that you're getting less supply at a time when demand is finally coming back and coming back pretty strong. There. It's always good to see you. Thank you so much for joining. Couldn't ask for a better guest on my day back. Yes that's right. I was out for four days as

they were hunting about penguins. Thank you very much. Coming up at Bank America's latest results getting a good boost from clients who were taken on debt. Once again we're going to have more. Brian Moynihan Bank of America chairman and CEO. Coming up next. This is Bloomberg. Live from New York I'm Alix Steel Guy Johnson over in London. This is Bloomberg Markets. Bank of America's stock is up about five tenths of one percent over the last two days after bank earnings came out. You're

gonna benefit from a growing economy as well as those rising rates. What isn't a future for the company wanted centered right overnight. Bloomberg's David Westin for Bloomberg television or radio audiences worldwide. I'm David Westin and we're delighted to welcome now the chairman and CEO of Bank of America. He is Mr. Brian Moynihan. Brian thank you so much for being with us. You announced earnings this week and one of the things everybody was interested in was loan growth. Give us your sense about where you are in loan growth but maybe as important where you see loan growth going. David it's nice to see you again. Yeah. So we announced our earnings. Thirty two billion dollars and record earnings in two

thousand twenty one for the company. The team did a great job delivering for their clients and shareholders and communities in each other last year. So I want to thank them publicly. But terms of loan growth. We had 50 billion dollars of loan growth in the quarter not in the year in the quarter of about 15 billion of that. So was in the markets business which can ebb

and flow depend on scares Asians and things like that. But 35 was core in the wealth manager business in a commercial banking business consumer businesses. And so that we see what we told people yesterday as you should expect us to grow faster in the economy it probably no upper single digits this year. And what's good about that is two things. One is there's tremendous capacity to borrow still. And our customers whether it's credit cards still 20 billion off the peak or whether it's line usage by our commercial clients it was at 35 went to 25. Now back up to 30 round numbers to give you a sense. So that means clients

have an ability to borrow to keep the economy going. And then secondly you have the good of Bank America shareholders. Long growth actually is a way we extract the value of this huge deposit franchise and that's good for their earnings. So Brian I've talked to some people in the industry maybe not who run banks but something the industry would say. They think the opportunity in future long growth may well be in the middle market sort of the the smaller and mid-sized businesses the big companies that bought bar with the borrow and consumers right now don't need. Does that sound right to you. Well David that's kept our local commercial banking business run by Wendy store and then we have a we have two businesses which go with quote the middle market. Found him rather with an eye runs business banking which is up

to 50 million in revenue. And Wendy runs up to two and a half billion. Those those businesses Wendy's team I think at 8 percent loan growth for the quarter. Yeah those are major corporate middle market America. And so there's two aspects. We're seeing more demand for loans there. We're doing more with more clients were actually deployed hundreds of relationship managers over the last four years investing in the future. And they're now taking you know having success. But importantly the second part of that is is this people use those lines. That means economic activities going forward. So they are the they

are the window into the into America's you know sort of economic soul in terms of mid-sized companies and small businesses. By the way in the all important small business segment with Share Miller runs for us. We actually have seen one in one hundred twenty five hundred fifty percent of monthly production quarterly production compared to where it was before the pandemics. And not only we've gotten it all the way back we're actually growing and creating more loans per quarter which again is good for the economy. And that shows you the economic activity continues to pick up. Brian one of the drivers for your

earnings you announced this week actually were investment banking fees up something like 26 percent if that's what banking mergers acquisitions has been very very hot in recent months. Do you see it continuing in 2022 or do you see it trailing off. Well Matthew Carter who runs our large corporate investment banking business for us not only in loans and in cash management fees and everything had a great year in investment banking. All four chords above to be in record numbers for us. The pipeline is still full. And you know some of that was always going to be is always market dependent. You know which deals. The equity offerings and stuff where they get pulled or not if

the market's bouncing around. But the pipeline is more than full. And they had a great quarter a great year. And the team has continued to drive good market share gains year over year. And we couldn't be prouder of them. But the reality is is that revenue can come a go based on market activity. Good news. We get a lot from financing activity which tends to be steadier. But the advisory business which is strong right now will really be dependent upon companies making decisions to buy and sell and things like that which right now is for the pipeline and hopefully it continues. Brian you know better than anyone. It's not just the top line. It's also the bottom line. You got a lot of credit for controlling expenses in their earnings. And you

announced on the other hand there's a lot of competition for talent when it comes to banking right now. You said that you will we will step up to the plate. You won't lose people. You need to lose. Can you manage expenses effectively and still pay the top dollar. That's really killing it for bankers. Now. I think if you think about the broad expense base the team's done a great job over the last twelve years they've been together doing it you know to bring the expenses of the company down in line to get the efficiency down. And then frankly the expenses rose during Covid know for a whole host of reasons including the success of you the more marketable to business revenue was the financial advisors of Merrill Lynch the private bankers and then the investment bankers and the traders under Jimmy tomorrow's leadership. So yes those compensation levels

have risen. But importantly David remember we've also in the last two years gone. You've gone from 20. Yep. First of all accelerate our move to 20 dollars an hour to start our wages to 21. We've increased the compensation the company dramatically across the years. But how do you how do you make that work. Well you keep engineering a company keep working on

processes to take out cost and reinvested in the people you have left. So our headcount last year went down by about 2 percent and that was just through the operational excellence we have and we continue to do it. So we have a company is a lot bigger now. When I became CEO we had 300000 people at the peak in my first year of being CEO. We now have two hundred and eight thousand people. The company is bigger has more activity and that's just by the operational excellence which everybody in a company

drives. Two thousand ideas last year alone to make our company incrementally more efficient. So you take that money and invest it back in client's capabilities and technology and people pay. And that's how we maintain our competitiveness for a Bloomberg television or radio audiences worldwide. We're talking with Brian Moynihan. He of course is chairman CEO of Bank of America.

And we're talking about banker compensation right now. And that goes really to the heart of what I was going to ask Brian. One of the powers of the wages is it's hard to cut him. It's easy to raise him. It's hard to cut. It's not like prices are for other things. How much of the compensation increase is baked into the structure for Bank of America and how much of it frankly varies with what the income is. Well it's it's a tale of many cities in the sense that there are

some businesses which you have not as much leverage in him as they called so therefore their compensation structure maintains constantly there's some there is bonuses. Overall we have about 30 odd billion 32 33 billion dollars in compensation and related expenses benefits compensation bonuses etc. for our team of our fifty nine billion expenses. So it is the biggest expense by a wide. And so the only way to really do you have to manage that is actually how many people you have going through it. You have to be competitive. You have to pay people. We don't want people want to work for less next year. Now if you have the equity markets drop that changes the way the grid works and the financial advisory in the revenue and the revenue comes down and that pay may go down. That is not something we ever hope happens. We'd rather pay people more and and grow the business.

So you know there are parts that move that way. There are parts that don't move that way as much. But the reality is is it's a multifaceted complex discussion. But our job is to be fair be a great place where for all our teammates and that's what we do with our compensation practices. Brian as we look forward in 2022 we're looking at something we haven't seen in a good long

time and that is the tightening of monetary policy rather than loosening monetary policy. Give us a sense of what you're looking at. And just to be specific as you make projections of Bank of America how many rate hikes do you expect the Fed in 2022. Well there are two parts that one or our research team led by Candice Browning part in a team is terrific and they have four rate hikes next year. But internally we model our future income off the curve. We don't for ourselves let anybody make a projection. But look inflation is here. The economy is going to grow at 6 4 2. So think 6 last 6 and 21 4 and 22 and to get them to 2 percent growth rate and 23. And think of it this year as

making that adjustment. That is based on the tightening. First the fiscal climate fiscal stimulus you have stopped last year and now the monetary system is to be pulled out because the economy is as big as it was growing faster. Unemployment below 4 you know the conditions are right to go ahead and actually reduce the accommodation with one big caveat. Does this virus go

in some direction that caused some damage that people don't understand. And the good news is we're winning the war on a virus the vaccines and everything you know about. So. But remember the key is that 6 4 2 the economy is slowing down. And part of that is the engineering that goes on to bring it into a more of a sustainable growth rate because it was growing faster than it usually grows. And so will rates go up. Yes. Four times this year is a prediction. The reality is does that help our earnings. Yes. But the real reality is is that's to bring the economy to take the inflation out of the system. And if they get it right because the economy is growing very fast and inflation is growing very fast as that slows down we should get back to normal economy. And you know think about our economy being bigger and it is night. It wasn't 19 already on nominal terms and predicted grow at twice the rate. Of course we have to worry about inflation and that's why they have to raise rates. What is

your level of concern about a possible policy error. A lot of people are talking about that because the inflation numbers are rather alarming including to Jay Powell the chair of the Fed. And the question is how much does the Fed have to intervene as opposed to how much they can take advantage of some of the things you're talking about which is the economy slowing down in its own. Well I think the question is this as if we are sort of finally normalizing rate policy in the night you know 17 18 19. And you know that then had they were able to do that the economy kept being predicted to grow 2 percent or so which meant that it was working. Right. And now the problem is

now they have to go through it again. Could they overshoot. The answer is absolutely possible. Do they want overshoot. I guess the answer would be absolutely. They don't want to. But the reality is this is trickier because the velocity of the change here much different than we've seen. The velocity down and the velocity back up has been unbelievable 30 percent down and of course 30 percent back up or 20 whatever percent and then moving. And so that that's you know that's the question. So

could you overshoot it. Yeah. Because this is a completely different set of circumstances going on underneath. What's going on to think about inflation. The inflation aspects of wages you talked about earlier. But I also think that housing increase in prices. Think about goods increases. Think about supply chain shortage. So it's a much trickier case than before. So I think the market expects and raise it. The expert expects and to keep that inflation above their target rate if they can't because frankly it taken a decade to get it back there. And so all that's going to expect a market. The mistake Mark will be worried about is worried about a mistake because it's tricky execution. Now the key David is what's going on that we see in our consumer spending you know in the fourth

quarter was much stronger than the third quarter the second quarter the first quarter of either over 19 or 20. You can pick your year. Last year it grew at 30 percent over in December of twenty one versus 19. Think about that dimension coming into January. It's still growing at double digits. So consumers are out spending money and that's good for the economy. But also

that means that you have to be careful that people aren't getting it. They're just going to you have to fast growth in has to be managed. And that's what the Fed is trying to do. Finally Brian what is the likely path of that mean for Bank of America in terms of loan growth. I know you'll make more money if the yield curve statements but what a long growth. Well that we make more money. Yoko Stevens Because you know that the normal rate environment goes up and we have two trillion

dollars of deposits and that are huge core deposits and they had zero flaws when rates come down that's that. That's sort of six and half billion dollars 75 percent should occur on the short end the curve driven by the deposits on the loan growth. It's really gonna come down to economic growth. So what I would expect is the economy normalizes. You're going to see companies borrow back up to the line levels they

had in 19 which is 35 percent and that drive another chunk of long growth force. And then if our teammates are as good at the mark as they think they are they'll get more customers and get more from them. But you're basically at it. We always have thought that our long growth should be slightly better in the economy. But largely as economy goes from a 64 to two growth rate you're going to see long growth more normalize and we should grow mid single digits or better which we have been doing before the pandemic and growing a little bit and growing market share but also just growing on a core basis. Okay Brian really appreciate your time. That's Brian Moynihan. He is the chair and CEO of Bank of America. Now back to you.

David Westin thank you very much indeed. Fascinating conversation. Lots to digest and think about coming out of that conversation. Alex he talks a lot about the business. He talks a lot about the macro story as well. My sense was that Brian was thinking a lot about the rate of change here. Things went down very fast. They've come up very fast. The Fed is going to have

to manage that. Rates are going to go higher. But this is a really difficult environment at the moment just because of the pace at which things are moving. And the same thing really goes for calm. That's what I found most interesting as well. Obviously compensation the biggest expense for B of A but would rather pay more people and grow the business. And that's sort of I think the theme is what we've heard from many bank CEOs. I guess the question becomes just how much more you have to pay

and how sustainable is that or how far how much faster does your business have to grow to offset that. Absolutely and this is gonna to be one of the real challenges we've had to deal with the supply side shortages within the economy driving inflation does that now start to come into the wage inflation story. We've already heard from the banks so the answer to that question is yes. But yes as you say we don't know yet how sustainable it's going to be. I wait now for the rest of

the earnings season. What are other CEOs going to be saying in the service sector the industrials etc. in terms of managing their story. And is that ultimately going to end up hurting margins. We're going to talk more about this next. Where does the economy grow. President Biden marking his one year in office today entering a press conference yesterday. We'll talk about it next.

Flying from New York I'm Alix Steel Guy Johnson over in London this is a Bloomberg Markets we're about an hour into trading right here in the US. Bloomberg's Abigail Doolittle is looking at the moves. OK we're getting a bounce but I have to question how sustainable it actually is going to be. Well that is the question. Will this prove sustainable. Because we're looking at the best day of the year for the S&P 500. Many of these other indexes you can see greater than 1 percent gains for the S&P 500 the NASDAQ. Take a look at the China. The Golden China Dragon Index. A lot of those Chinese 80 hours up about 5

percent. Its best day of the year as well. And then the Russell 2000 which is really in a technically difficult waters holding on to support by just a thread or it is up. Also up one point one percent. So after the intense selling we're seeing some green on the screen. And of course one area of relief. This was not the case yesterday but we do of course have yields down for a second day. That 10 year yield coming in not even a lot down four basis points. Yesterday yields were coming in did not help

out stocks all that much. But today it seems as though investors looking at this as a bit of a tailwind so that we don't have to look quite as closely as liquidity coming out of the system and valuation. Not surprisingly and also based on the fact that that Nasdaq 100 in that China index China tech index in particular up so much.

We have big gains for some of the tech stocks. We had the likes of Microsoft up two point two percent its best day of the year by do excuse me. Tesla up three point six percent by do these Chinese tech ADR is getting a huge lift. Some saying that that KW Web that K Web ETF that perhaps it has bottomed up 5.5 percent. And Netflix of course kicking off earnings today after

the bell right now up seven tenths of one percent but down an incredible 25 percent off of the November peak. A lot of analysts expecting the subscriber growth is not going to be what they were expecting three months ago 8 million. Now some analyst JP Morgan in particular looking for six point to five subscriber million subscriber ads. So again this stock up a little bit but lots of nerves around what that quarter will mean. And overall tech earnings expected to slow to 14 percent. Earnings growth for the fourth quarter coming in from 40 percent. So let's put this together with the

technicals. This is the Nasdaq 100 one hundred. So of course yesterday the Nasdaq reached that 200 day moving average in a pretty serious way. You can see that over the last year or so the Nasdaq 100 has basically been in this trend channel more recently breaking it. However hitting down on the support of its 200 day moving average. The Nasdaq 100 of course is all those big tech names that we were talking about. So it doesn't have some of those

smaller cap names. You can see the RSI momentum indicator also starting to round up. The point here is maybe this is after a conversation from Steve Sosnik yesterday that maybe instead of talking about buying the dips we now need to start talking about selling the rips because we do have lower highs here. So it's not to say that we're not going to go back up into that range but maybe that would be a good time to take profits guy. That's an interesting angle that were finally coming around to. Abigail thank you very much indeed. Bloomberg's Abigail Doolittle on the markets where an hour into trading over in the United States here in Europe. We're continuing to digest what is happening on the Russia and fronts. We're thinking about what was said yesterday by the president over in Washington. We're thinking about what Emmanuel Macron talked about as well in

terms of his approach to this problem. We're talking about Russia and Ukraine here. Anthony Blinken the I think you have states in Berlin meeting with some of his counterparts making comments right now. Anthony Blinken saying that pizza Vladimir Putin doesn't believe that Ukraine is a sovereign nation. The crisis is about Ukraine's right to be a democracy. Some argue

that this is the biggest challenge to Vladimir Putin a successful and democratic Ukraine. Russian aggression will only bolster the NATO alliance. Some are talking about joining it. If we were to see Russian aggression certainly up in the Nordics we won't solve the Ukrainian crisis at the Geneva meeting Friday. Remember he's talking there about the conversation that he's

going to have with Mr. Lavrov tomorrow in Geneva. This all comes I say hot on the heels of the comments we had yesterday from President Biden marking his first year in office today. But he delivered that press conference yesterday. And the real standout story was his comments on Russia. But if they actually do what they're capable of doing with the force the massed on the border it is going to be a disaster for Russia if they further engage invade Ukraine and that our allies and partners are ready to impose severe cost and significant harm on Russia and the Russian economy.

What is that cost going to be. I think that's a question that a lot of people are trying to figure out right now. If it's a small incursion does that generate a small response a big incursion a big response. We did have to have some clarification post press conference from the team at the White House. Let's get further insight into what happened yesterday and what it means going forward from here for the rest of the Biden presidency. Ian Bremmer president of Eurasia Group and G. Zero Media joining us now. Ian always a pleasure. Pleasure. Just give us your take away on what happened yesterday at that press

conference or what it means for Russia Ukraine NATO etc.. Look the United States is clearly preferring diplomacy over escalation on Ukraine. We've made it very clear to the Russians that there would not be any direct military defense if Ukraine if there is an invasion they are not a NATO state that was taken off the table by Biden. But he made it clear it was never really on the table. I think that's true. The allies of the United States are completely committed to a very tough economic response and a military response outside of Ukraine. If there is a full invasion of Ukraine in other words tanks roll in

airstrikes they take out the landscape. The president having said that and you saw this in the press conference yesterday. You saw it also what statements recently from the German chancellor and most importantly the French president that short of a full Russian invasion the Americans and the Europeans are not as a light on what kind of consequences would befall the Russians. And President Putin is completely aware of that. So I mean the Russians have always been more successful in operating inside the lines in the gray zone cyber attacks little green men. I mean you'll even remember they they've invaded Baltic sovereignty and and taken going across the border and taken an intelligence officer. And the Baltic states didn't want to make a big deal out of that because they didn't want to end up at war with the Russians. So what happens when it's not tanks rolling into Ukraine. Yeah. But it's something short of that. I think what you saw from President Biden yesterday was a recognition of

that. So it's been categorized as a misstep. Does that mean it was not a misstep but it was just reality. And we can continue to sort of expect this banter to go back and forth. This reminded me of when President Obama was asked about Russia back in the day and he said look it's not a superpower it's a regional power. I mean it is true that Russia's only a regional power there. Their economy is smaller than candidates. On the other hand if you're present the United States. Do you want to say that. Is that helping you. So I think it is. I mean there's no question in my mind that what President Biden said at

yesterday's press conference accurately reflects the state of play between the US the NATO allies and Russia. Did he say that in the most artful way that advances American diplomatic influence. These are these the allies and these appease Russia. I'm not sure that's the case. And I think that's especially when the US is so politically divided when America's worst enemies are inside the country as opposed to outside the country just looking to score political points and look for any weakness then. I mean taking a quote or two and making it seem like sleepy Joe Biden he's got oatmeal for brains all of this. I mean

you saw what happened on social media. There's the big gotcha moment those gotcha moments whether they're against Trump or against Biden or not helping the United States globally. And that means that if Biden is less than extremely careful in what he says there's more vulnerability. OK we'll come to domestic policy in just a moment if we may. And I want to stick with foreign policy for just a moment and just get a quick thoughts on China. Again realpolitik. It is it we're not in a position where we can significantly downgrade the sanctions and the tariffs that have been applied. Is that just

again a statement of reality. This is where we are. This is a great power conflicts. We're not going to back away. Well you can't disentangle this from the domestic politics. I mean President Biden knows well that he lost votes in 2020 in the general election because he was seen as Beijing Biden. He was seen as too soft on China. And they will not let that happen again. And Ron Klain the chief of staff was functionally the prime minister inside the Biden administration is very clear on that with the staff. So that's why you have the US leading a diplomatic boycott against the Beijing Olympics. That's why it's

very hard for the Biden administration to move on reducing some of the tariffs that the United States placed on Chinese goods during the Trump administration. Even though we're facing inflation at a 40 year high. And one of the things that Biden could easily do if it weren't for domestic politics to reduce prices for the average American worker would be to get the Americans and the Chinese to reciprocally actually take those tariffs off. It's very hard to do in this domestic environment. But one thing I will tell you is that U.S. trade with China is going up. It's not going down. Most American CEOs and bankers

that appear on your show intend to do more business with China as they move towards becoming the largest economy in the world not less. And the Biden administration is very aware of both that reality and the deep interdependence of the American and Chinese economies. So when we look at those things together you do recognize that we are not in a cold war with the Chinese. The Chinese don't want that fight with the Americans. We don't want that fight with the Chinese. We're not going to cut off our noses despite our collective faces. And that's why the relationship between the U.S. and China is in a more stable

place today than it was during that somewhat shambolic first meeting that occurred in the Biden administration in Anchorage between Blinken and Jake Sullivan and their counterparts in Asia. And you mentioned that you can't sort of divorce international politics from domestic politics. And you know you you mentioned inflation and sort of an easy quick fix. In some ways an easy quick fix would also be call up oil producers in the U.S. and say pump more. Gasoline prices have to come down. What do you think the Biden administration is up against when it comes to tamping down inflation. Build back better is great. Voting rights Bill. OK. But what people really want to see is lower prices everywhere. Yeah and that's one of the reasons why you saw the release from the Strategic Petroleum Reserve which was larger than most analysts expected at the time. It's one of

the reasons that the Buy demonstration has put some pressure on OPEC plus to produce more. But so far the idea of pushing the American producers to do more fracking is to do more energy independence. The United States has been a step too far for Biden. Why is that. Well because the buy demonstration prioritizes climate change as well. And one thing that they

understand that Democratic voter base feels very strongly about is that that is a priority. Younger voters feel that that is a priority. So I think that that is an area of pretty significant tension internally in the Bush administration. In We're One year in. We're looking ahead to the midterms in November. We're trying to figure out what ultimately the result

of that is going to be. But certainly judging by current polling the Democrats are going to lose and lose big. They're going to lose control of both houses. What is the second half of the Biden administration look like. Well you lose the House you can't get legislation done. You lose the Senate. You can't get judicial and other appointees confirmed. You'll lose both. And it's unclear how you can ensure a free and fair election. Assuming that Trump or a Trump appointee is running on the other side that doesn't get broken in terms of certification and doesn't become a constitutional crisis. So as we put in our top risks back on January 4th of this year we said that the midterm elections of United States were the most important in history precisely because it represents a turning point in whether or not we have a legitimate election. Look the fact is that if you want to have a democracy a functional democracy requires national free and fair

elections that are seen as legitimate by both the winning and losing side. In the past months you have had such elections no problem in Japan in Canada in Germany. In the coming months you will have them no problem in South Korea and in France. You no longer can say that about the United States. President Biden made that clear in his press conference yesterday. The Trump

presidents former President Trump and his supporters have made that clear as well and continue to talk about the fake news of stopping the steal. This is a serious problem both for the United States as well as for allies that count on the U.S. and adversaries that are looking to take advantage of American weakness. And you paint a very stark picture. It's going to be passing to see the development being played out. We'll get back to you with that as well. Ian Bremmer president Eurasia Group thank you so much for your time. And of course G. 0 Media. Thank you. All right. Coming up a tech sell off is taking a pause today. We're going to speak to Gina Freeman NASA president and CEO of many

different things. But first and foremost RTX performance can actually affect their business model. When a couple of markets do when you have this kind of move in Texas in the last few weeks. This is Bloomberg. This is Bloomberg Markets. I'm just the Morton live in the principle room. Coming up Barbara Laverne knows El Oriole deputy

CEO. That's at 2:00 3:00 p.m. in New York. Seven thirty p.m. in London. This is Bloomberg. January has been a volatile month for tech companies and if you're long the NASDAQ it's been really rough. You have stocks has lost about 2.5 trillion dollars from their market cap so far this month and 53 percent of that comes from the Nasdaq 100.

Well joining us now to discuss her outlook for capital markets is Deena Friedman at NASDAQ. President and CEO of the Nasdaq also released its 20 22 outlook for capital markets. Each year China releases it around. This time you can catch the whole thing on LinkedIn and we'll get to that in a moment. It talks a lot about how capital markets will affect this sustainable future as well as financial stability and fighting financial crime. Dina thanks for joining us. We're going to break down all of that in just a second but I think it's important to set the stage because the last few weeks have been very tumultuous. If you're a long tech investor and I'm interested into how it affects your business. Are there a lot of participants. How is

it going to affect things like IPO is and sparks. What do you say. What do you see. Well first off I think it's important to recognize that when we look at when I look at the Covid markets I was look at long term performance. And of course the technology industry has always and will continue to be a long term performer that I think that is is a bright spot in our economy. But I think that in the very short term where we're dealing with a lot of a very dynamic

environment both in terms of the political environment in terms of the economic environment and then you overlay that the need for central banks around the world to make some adjustments to their monetary policy. And I think that is really what's creating a lot of volatility as investors don't like uncertainty. And right now it's really the adjustments that seem to be forthcoming or at least being predicted around some monetary policy changes that I think are creating that unpredictability for investors in terms of the capital markets and what that means in terms of raising capital. We continue to have an incredibly strong pipeline of companies that will be seeking to tap the public markets. If you look at last year we

had about you know there were about one hundred and thirty three filings at the FCC for companies looking to come to market on NASDAQ. And when we look at that same number at this time this year it's double that. It's in it's about two hundred and fifty. So we have we have a very very strong pipeline of companies looking to tap public markets. The volatility in the markets might put a pause on that. But at the end of the day when they the windows will open and I think we will see a very active issuance environment as we said and get into 2020 to. Adina it's guy. First up. I think it's Netflix tonight's not Apple 2 not Disney. Loving the baby Yoda though behind you. Very nice. Laurie and Yoda. Yes.

Absolutely. I will enforce those Netflix results Netflix results. Let's talk a little bit about what happens in the near-term though. Do you expect a pickup in volatility. What does that mean for volumes. Do you expect in the near term to Alex's point that we are going to see some of these these listings being pulled just as we as we watch the dust settles. How long do you think that process is going to take. Well we've seen periods of volatility ever since. For many years now. But I would actually point to since the beginning of the pandemic because different industries are affected by the pandemic in different ways. On you overlay that on top of that very very significant military action that was taken at the

beginning of the pandemic. And then you overlay on top of that the global supply chain challenges that we've had that I think have been exacerbated by the pandemic. And you create a very dynamic environment. We've had episodes and periods of volatility throughout the last two years and we're going into 2022 with with a new period of that. But we've also seen periods of great performance. We've seen more and more involvement from individual investors in the markets than we've ever experienced. And so you have this incredibly engaged investor base. They're very dynamic an economic environment. And you have the potential for changes in monetary policy. And I think those three things are just creating a more volatile environment right now. But I

also you know we've been managing through that since the beginning of a pandemic. And we've had record number of new listings and capital raised to the public markets. We had. If you look at the US in total it was almost 300 trillion 300 billion dollars raised through into the public markets last year. One hundred and eighty billion on NASDAQ. So we do feel that there continues to be a very active and exciting pipeline of companies looking to come. Well and that's what brings you to the report that the NASDAQ published. Like I mentioned you can check it on LinkedIn page at capital markets can really help the

shift to sustainable and decarbonise the global economy. What are you noticing in that as ESG is now the buzzword literally everywhere. It is definitely the topic of conversation. In most meetings I've had I have with with company CEOs with investors with industry groups. It's amazing. I do think it's really important to recognize that when we think about E the environmental social and governance impact that companies can have it's very very significant in the financial system. And the capital markets can be a great solutions provider to corporate as they're making their transitions. That transition to a net zero carbon economy is is a very very significant undertaking. There is an estimate that in order to do to meet the Paris Accord obligations in 2050 we're going to need something like one hundred and fifty trillion dollars of investment. So that is why the capital markets play such an important role in helping companies

transition through that. Athena it's the Wild West out there though. Is this going to be the year when we finally start to get some clarity on what exactly ESG is. There are rules but nobody quite knows exactly what they are. When does that start to stabilize. Is it this year or are we going to have to wait. So that is actually a big

point of our piece that we published today which is we DAX we really do need kind of global regulatory framework that we can operate under when it comes to transparency around ESG. How do you define carbon output. How do you make sure that we can we only manage what we can measure. So if we come up with some more common measurements that companies can provide to investors and that regulators can say these are the these are the key measurements that we need to be focused on in order to meet the net zero obligations. I think that that the claims have been made. The path is set. And now it's a matter of making sure we have the transparency that investors can rely on. And we have the I would say in an organized way for corporate sphere to

manage through this through that through a framework common framework globally. This is a global problem. So if Herzog ever fired global collaboration we hear you. Athena thank you very much indeed. Indeed. Freeman NASDAQ president and CEO plus the man's glory. Thank you very much indeed. This is Bloomberg. Thirty three minutes to the European close. Let's talk about the price action stocks 600 up by four tenths of one percent. We do

still have a negative German 10 year negative 2 basis points nearly three. We're also watching what is happening with the Russian ruble. We'll talk about all of this in the next hour. The close is coming up. This is Bloomberg.

2022-01-24 09:02

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