tv Bloomberg Surveillance Bloomberg January 14, 2022 6:00am-7:00am EST
>> a lot of money is going out of the more speculative parts of the market. >> you have to do your homework. >> this rally this year will be unlike last year. it's going >> bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: from new york city, forever audience worldwide, good morning, this is bloomberg surveillance life on tv and radio. your equity market is up seven, a little more than 1/10 of 1%. tom: i will go right to the united kingdom gdp which is the bellwether for what we will see here. they surprise better than good gdp data pre-omicron in the united kingdom and that's what i see on the tape this morning and that's what we will hear in the conference calls with the
bankers this morning. jonathan: it on to j.p. morgan and retail sales. tom: we will get through it all. i think the fed will be an interesting point. i'm not sure what to do with retail sales other than the beautiful fed conversation in the last hour which indicates they are slaves to the data. they will have to wait to see the data starting with retail sales at 8:30 a.m. jonathan: j.p. morgan numbers are about 45 minutes away. lisa: what is being priced in already? we see so much good news priced into so many of these cyclical stocks. over the past 12 months, where do we see the upside from here? does it come from rate hikes were lending or trading? these are some of the issues. jonathan: i didn't expect to start the morning on u.k. gdp. tom: its 18 leaf against the
gloom that is out there. jonathan: futures are up on the s&p 500. advancing 0.04%. we've got to move again with yield higher by 4%. euro-dollar had a look at 115. lisa: this is the most fascinating parlor game is whether the dollar heading into it year where the fed will diverge from other market banks and raise rates. the big story today will be earnings. i think this is the most important. j.p. morgan is kicking things off and that's followed up by wells fargo at seven and citigroup at 8 a.m. what is being priced in? citigroup has been the underperformer over the past 12 months. they are focused on cost cutting and how much as well fargo -- wells fargo been able to reshape their does this? they want to benefit from the
lending boom and jade p morgan is the focus on lending. how much our credit cards expanding? 8:30 a.m., u.s. retail sales in the issue is this is nominal. this is with inflation priced in. people are getting more concerned about inflation yet the higher prices are overcompensating for that. how much are we looking at a cpi year-over-year of 5%. how do you backout the actual consumer sentiment? we will get the actual sentiment. it's expected to decline a touch. danny blanchflower of dartmouth says you have to watch this looking for recession and other say if you look at indicators of consumer confidence, they are still strong stop if you look at the michigan survey, it's been
an outlier in terms of while the others show strength. jonathan: the dot is not changed. what a morning we got lined up for you. let's have a shout out for betty it morgan stanley. she went overweight on jp morgan. year to date, that name is up almost 17% in just a couple of weeks. tom: it's about looking at the numbers. they don't look at the gossip or the soundbites. they actually look at the segment numbers across these big institutions. the number one lesson of bank earnings like today and into
next week, we forget how large these institutions are. tom: jonathan: jonathan: a killer call to close out 2021. we had the chief market strategist with us. are you still optimistic for the year ahead. >> i love how you give credit to guys you give credit to guys get it right. this will be a year where we will end up on the plus. the problem you had is the fed is in a box with the unemployment rate throughout the middle part and into the end of last year, the reason for not raising rates are talking about talking about talking about raising rates is the unemployment rate had not come down enough. now the unemployment rate has come down further. we look at the national
federation that when it moves ahead four months, the on ointment hit an all-time high a couple of months ago and that will come down even further. you have fiscal policy uncertainty as well as economic policy which is a geopolitical issue. i think we will end the year on a good note. tom: it's a great idea of partitioning sectors. it's not apple or amazon, what does big tech do against banks, tanks, shanks and cranks? >> that's financials industrials and to throw it over to something, they reached an extreme on a rate of change.
if you can put up the value stocks against the growth stocks, the value has outperformed in such a significant way stop when it does show any further out performance near term, you give them back so our call is the favorite sectors is to wait for a bit of a pullback. i love to look at some history and what happens. since 1980, any time the s&p 500 has been of more than 25% in a calendar year, every single time, the next year, you have a drop earlier in the year by 5.2%. we are down about 2.5% so we are in this correction in the next leg of it might be to consolidate some of those gains in value stocks. lisa: there is such incredible
divergence in this time between different sectors. i'm wondering how tech will perform where you have expect tatian's baked in but the story has been driven by policy. >> it's been so macro and so extreme. you have high valuations in that space for a long time and when it goes away, it goes away. when you get exponential moves, you will get them back. they have given back a lot of the gains and you are trying to find a climactic level and timeframe around here but then you have to build a base. everybody doesn't just rush back
in when you have the kind of damage. it takes a while to get the confidence back stop our focus for the year is still in the value and cyclical areas. jonathan: we will hear from j.p. morgan in about 40 minutes time stuff for some people, the banks have already had a year and they are up almost 10%. wondering why that is compounding the valuation story for you? >> it's not necessarily a valuation story as it is -- you should transition from interest rates so you want to buy banks. now you've got to transition to interest rates going up a little bit more. to what lisa suggested, you got to see better data. even though we are overweight in those sectors, i want to be clear, i am not the greatest predictor in the world but i also don't want to chase some of the gains.
tom: anthony dwyer with us. what's so important is he stands in front of the acclaimed fireplace. it's great to see tony dwyer today. >> i'm in the u.k., this is a u.k. chateau. you started in the u.k. so you have to finish in the u.k. jonathan: futures update on the snp and we have a lot to discuss. the bank numbers start in about 40 minutes. tom: we've got wonderful releases from the banks and we will give you the headline data but there will be a back story to each of these earnings reports.
they are literally going to hide or play down their prosperity and their profit. jonathan: you see that over the last 12 months. they build up these reserves for really long time. i am more interested in these guys as an employer and what they are doing to pay people, that will be a big push on wall street this year to get paid a whole lot more. futures are up nine on the snp. the fed x from this white house are in and that's the conversation next from new york city on radio and tv, this is bloomberg. ♪ ritik morea signals the: fed's rep to save -- to raise rates in the next few months.
senate confirmation hearing could be in greece as early as march. the fed governor said three hikes this year would be a good baseline. for a second time, australia has rejected the visa of novak djokovic. no response yet from the tennis player. the u.s. senate has walked sanctions on russia for their pipeline. they say is necessary to retain the threat sections to prevent the russian invasion of ukraine. president biden has all but conceded defeat on major voting rights legislation, a creed democrat issue.
-- a key democratic issue. they would have to change rules in the senate to get the bill passed. there is a new report out into the investigation of the prime minister on downing street. there is no evidence of criminality. they say he showed a lack of judgment in attending a party. this is bloomberg. ♪
♪ >> three hikes, it still a good baseline. we will have to wait and see what inflation looks like in the second half of the year and if it continues to be high, the case will be made for four or five hikes. jonathan: let's go with the fed seems to be the message. from new york city with tom keene and lisa abramowicz, i am jonathan ferro and your equity market is up 8%. in two hours time, we will have retail sales in america and in 20 minutes, numbers from jp morgan. the president in one of his
worst weeks, he has stopped -- president biden has been stung by the supreme court and losing on voter reform. tom: let's dovetail that into our terrific news flow. i think it's understood the president is having a challenging moment much of this -- much of it a centrist politician saying he is paying homage to the liberals and the progressives. we have the fed appointment in raskin who is well-known known and to wonderful academic professors both completely live just. and lisa cook from your michigan state. tell us about michigan state economics this morning. >> lisa cook is poised to be the
first woman to serve on the fed board. the big question will be what happens with this nomination process. we have heard concerns from pat toomey over her nomination. she has concerns about climate change policy. there is some concern there. it's really going to come down to joe mansion and kristin cinema whether these appointments will go through. tom: there is a new social instrument. professor jefferson addresses that. >> you have jefferson on policy
and there is a lot of impact into race on policy. raskin has focused on climate so this is a way for the biden administration to try to take it policy and nominate people to the fed who are diverse. they want to be choosing individuals that speak to some of the priorities of the left including the progressive left. elizabeth warren up with concerns so this is a way for biden to try to appeal to the wider swath of his party when you combine his five nominees to the fed. lisa: the commentary has been scathing most none of these fed nominees will likely get through. they confuse the message at a time when the focus is on inflation. these are dovish members of does
this take conversation away from biden? >> he has to message on so many different fronts. he's trying to send a message to his base. many american people are concerned about inflation. there are number of things biden is trying to address. this has been a tough week for him with losses on covid, voting rights, social policy and tax bill is halted. we are almost not hearing leaders in washington talk about that. seems many things he was pushing for, the doors are shutting in his face he's looking for ways to continue moves -- moving his administration forward. this will be a very tough midterm for democrats. lisa: they say consensusbuilding no longer works in washington, d.c. emily: biden will talk more
about the infrastructure bill. you have seen other areas where congress has been able to work in a bipartisan manner. be totally honest, partisanship in congress has risen since last year, since the trump residency as well and that has contributed to the attitude in washington where each party is looking out for themselves, perhaps sometimes more than the american people. tom: let's go to the democratic party. one author talks about a multinational -- multidimensional lattice of party. which side is the president on? emily: he is representing his party but the party is a big tank. he knows he needs to appeal to progressives but the person who
is holding things up a senator joe manchin and senator kyrsten sinema. they can't get their social care tax plan done and that's why they are not able to move forward on voting rights at this point. it's a difficult balance work biden is trying to appease two different sides of the democratic party who are sometimes at odds with each other with what they want. tom: i jonathan: think lisa cook got the not for the nomination. i think that could be pretty smooth. i have serious concerns she would abuse the feds monetary standpoint to have the fed at -- actively boldin capital allocation stop things play out
politically in strange ways. tom: there is enough other baggage or analysis to avoid the personal here but i take the point that the raskin not is very different and separate from the book in jefferson not. jonathan: it could be difficult. lisa: how much is this trying to cater to the progressives. this is a very interesting timing. we are also dealing with the confirmation hearing of chair powell. jonathan: that's an interesting point. tom: lisa made an interesting point? jonathan: she often makes an interesting point. lisa: some people say it makes a
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♪ jonathan: live from new york city on tv and radio, heading toward a week of losses on the s&p 500. bank stocks in america are not changed. jp morgan then onto citibank. wells fargo is up almost 17% year to date. betsy gray sick of morgan stanley in early december, looking through the news and pricing in rate hikes and going overweight wells fargo and well has that stock delivered over the last couple of weeks. that's coming into bank earnings this morning.
david george will join me later for the 9:00 hour for the 9:00 bill. we have added these rate and then some and that's the word from the fed stop the yield curve, let's finish there. the two-year is now 93 with yields of four basis points. tom: what we need to do now is get a scale of where we are in this is the markets driving the banks are made the banks driving the markets. we are thrilled to bring you kenneth leon, director of equity research at cfra and he is more than generous away from his clients. for all of us, thank you so much for your financial leadership here. jp morgan gets $34 million every
day. we don't understand how big these people are. how big are they? >> the six largest banks in the united states dominate they continue to take over the investment banking area. they haven't gone away entirely from bricks and mortar so they have small business and consumers coming to these large banks, making it difficult really for midsize were small banks to compete. on top of that, fintech has disruptors to tech knology or how millennials will be banking today are in the future. the largest banks have the cash for the new world. tom: when you take the dividend and the use of cash, what is the
percentage return to shareholders on january 1? do you model in a return? >> banks have ample cash for the business and for return. what it means is that they are sitting well above the regulated capital ratio. that's the game that most investors don't see is how stringent it is with regulations. it's a cash machine and that's driving the attraction of banks. here we are in 2022 with a cyclical favor versus growth given the rising rates and the stress of the economy. this is a perfect storm but not so good for some industries but
for banks, this will be a good year. lisa: i was looking at jp morgan's return over the past 12 months, up 22% but it's lagging behind the kbw bank index. why has it not been able to keep up? >> like betsy, we upgraded wells fargo and bank of america to buy. there is more of a play here to rising rates and interest income going up. jp morgan is more of a hybrid work needs another great print in 2022 for the capital markets. there are banks that have a greater waiting to loan activity that will impact the net revenue. that will be bank of america and wells fargo and we will see it jp morgan but the market is saying let's find something that
has more velocity. we have a hold on jp morgan. lisa: you are looking for more lending so what type of lending do you expect to see growing, consumer or corporate? >> it's going to be more of the consumer going forward for the first quarter of this year. what i'd like to see in the fourth quarter is low balances and other consumer personal loans to get back to normal levels. the personal savings rate which was at 18% is back down to a normalized rate of 7%. with the holidays extending, the cart loans will be the first indicator. tom: the total return of jp morgan is 15.3%.
they struggled over the past two decades, only up 8.3 percent per year and in the last 30 years, jp morgan has delivered 15.7% per year. i am fascinated by this. his jamie dimon and the rest of them working within it double digit or single digit framework? >> they have been double digits and when you look at most metrics over 10 or 15 years, jp morgan will rank at the top stop during the low rates of the last five years, jp morgan was the only one to show positive growth in that category. this is a strong management and it goes back to 2008. the market knows that and this is obviously a great core holding for investors. then again, we're looking for
some of the other performers to begin to pull their weight. tom: when they pull their weight, they've got to compete strategically. let's go to citigroup. it's down the road this morning but the basic idea of the strategic shift of citigroup, who do they want to be like? >> they are increasingly becoming more like a ubs. ubs is the world leader in terms of global wealth management. i think the ceo is doubling down on that strategy particularly outside the u.s. and asia. they are fraught with issues of either local economies that are unstable or not growing as fast as perhaps the u.s. and they feel that in terms of driving returns, there best move as an
institutional corporate thank and having a strong wealth management profile in areas in which they are known, some of the developed markets in southeast asia. it's an interesting story but it's one that will take three years. they had the announcement monday of mexico was one of the top three banks. they will get out of there as well and maybe it's the politics or the consumer but if they are on the right track, when we get to the story of wells fargo, there is a much shorter time horizon once these senior management's go into transformation. lisa: big question many employees will have is about the
work from home policy. is it working and will shareholders reward jp morgan and goldman sachs that are still trying to move forward with return to office policies while allowing for citigroup flexibility? >> great question. i cover office real estate and for jp morgan or goldman sachs, they want their employees in the office even if they have to test them three times. we have to see where we are with home costs and maybe in february or the spring, we look back to getting people back in the office. the office landlords and the large banks are open hybrid models and making it more for collaboration versus putting your head down in a cubicle to do the work you can do at home.
we had the great resignation of employees. they have more power to get up and get another job. for strong talent at these banks , you can go to private equity and fintech so we will just have to see. jonathan: fantastic to have you with us this morning and we appreciate it . this is not just about the quarterly numbers to day. we've got to get some insight into these companies, not just as businesses but employers. lisa: how much they have to pay people and where they have to pay it. but really, how important is it to bring people back to work and keep a footprint? this might be a leading indicator for the entire wave of the work from home movement. jonathan: what is the impact of being a pure employer? tom: you've been out front on
this. for all of you outside of global wall street, it's been a lifesaver for these banks during the pandemic. i don't think it's going away. the technology is driving it every day and maybe you will hear them talk about the technology to retain the best labor. jonathan: looking forward to jp morgan numbers literally minutes away stop your equity market is unchanged on the s&p 500. this is bloomberg. ♪ ritika: here is first word news. the u.s. supreme court may have rejected president biden's push
for covid testing but they might be forced to implement a mandate anyway so they can protect their workers and keep factories open. they might still have businesses require vaccinations. there is a plan to nominate emily raskin. they would be a black woman on the fed board. north korea appears to have fired to have fired two short range ballistic missiles hours after kim jong-un wounds regime warned it would take stronger action to the u.s. sanctions. there were two separate lunches this month alone. in china, trade is booming.
the country's record-breaking exports continued in december. they went to a new high that included chinese products of all kind. the u.s. is still feeling the impact of the pandemic. to variants have cut regional flights due to pilot shortages. global news, 24 hours a day, on air and on bloomberg take powered by 2700 journalists and 120 countries. this is bloomberg. ♪
>> it worries me that these companies have done very well and they are about to report earnings. i like the companies that recently underperformed but i am confident about their earnings coming out. that's not true of energy or financials. jonathan: morgan stanley looking at the banks coming into earnings season. jp morgan numbers are moments away. your equity market is unchanged on the s&p 500. the nasdaq 100 is down 22. we will break down the numbers for you. tom: let's get to sanali right
now. james is going through 20% compensation. what is the sweat to retain the 10 or 50% of the people that generate 80% of the profits. sanali: those are capital light bankers that don't need a lot of capital. it's 50 or 70% in some places. traders could be making $30 million. even beyond that, this is a year in were many executives disclosing 25 million dollar pay packages over five years with performance targets attached. this is now the new standard. tom: what is the base pay like? what is the new base pay for a
mere mortal in manhattan. sanali: you are either a star banker these days are getting technology wiping you out later on. it's a year when we don't talk about it enough and executives are setting the tone for their employees saying don't expect these pay rises into the future. we will be investing in technology because we need to be competitive. tom: what are you looking for at jp morgan? sanali: i'm going right to return on tangible equity. you have to look at efficiency and profitability as things moderate stop investors are expecting goldman sachs and jp morgan to been connect when it comes to profitability. tom: how to the commodity reporting change for the other banks? sanali: investor expectations
are low. for goldman sachs, they are below what the commodity figure shows. jp morgan has the biggest fixed income trading desk on wall street stop the idea that they need to bring in more than goldman will be a big deal to retain the dominance to a high degree. tom: why you jump in with some of the early numbers? jonathan: 30.35 billion dollars. managed income 31 point $7 billion. the numbers keep pouring down on the fourth quarter closed at 1.8 billion dollars net credit. we saw a lot of that over the last year and you are seeing it this morning. investment banking revenue, 3.2 billion dollars. we may hear a lot about am and a which is a record in the united states.
3 billion is the estimate and 2 billion, the numbers help. tom: anybody looks at these double-digit returns, these ratios and compare and contrast of equity return and they are really something. the 19% statistic and tangible is extraordinary. jonathan: the economy continues to do well despite the ohmic on headwind. lisa: it will be interesting to see what jamie dimon has to say not only about compensation but the companies they speak with an wage inflation. these numbers look wonderful and now we learn what has been baked into the share price. jonathan: equity and sales revenues comes in a little bit lighter. you have had some time to pour through this a what are you
looking at? sanali: it's not just the investment banking number but the average loan increase. a 6% increase on average with loans compared to last quarter, it was a 5% increase. we are seeing loans coming back but it's not at a very fast clip yet. that starts to set the tone for the rest of the banks and people get excited about loans coming back.i'm tom:. i will go to the technology of the moment. every conversation i have, they are all based on technology. jp morgan active mobile customers up 11%. we live on our phones now. jonathan: and lisa's looking at deposits.
lisa: the average deposit is up 17% while the average loan was only up 6% stop people are stockpiling cash. this has been one of the big questions and based on the increase in deposits, what's driving it? is it the wealthy trying to cash in on stocks were is it more? jonathan: ken can you jump in and give us some perspective? >> i think the investment banking is old your own. we will not see results that will outperform 2021. i think back to the point of loan activity and i haven't heard yet what the interest earnings yields are or the spread with an improvement on a higher yield. we see that spread with the fed increasing rates four times this year. that will be part of the story
of net interest income and volumes. it's still important with loans at 70. the loan to deposit ratio is still at a 10 year low and that's why the management called the narrative for the first quarter of 2022 on perhaps 50 basis points doing for net income. he will hear that from bank of america next week but if any of these things talk up net interest income with, they have to calibrate of every 25 or 50 basis points once they break to the bottom line. tom: looking at jp morgan and 265 thousand employees, is it an expense regime where they will keep the chosen few and jettison others? >> we have had this conversation for years. what's important is the mix of the employees, what percentage
of their employees are being hired in the size related to technology. technology plays in a norms part in not only the traditional banking but also where banking is going. for goldman sachs, it's 40% of their total employees and jp morgan, that number has risen significantly versus where we were five or 10 years ago. lisa: what is your sense of why loans are not increasing more and when we might see a shift? >> aiko back to personal savings rate and household debt. the personal savings rate just got back to the normalized historic levels of 7% back in november. they were as high as 18%. it's interesting whether the consumer has changed. it's like a 9/11 or the financial crisis.
does the pandemic make consumers more conservative, not willing to be spending on their credit cards and maybe trying to save up to buy a house which are so expensive. it's a behavior issue that we won't know maybe for another four quarters. jonathan: supply chains are part of this story. you get the commentary from the ceo jamie dimon saying we benefited from allocated capital markets that picked up in lending activity. the lack of vehicle supply is slow to originations. how does the supply chain story way on the demands for some of these banks? sanali: on the one hand it's a consumer issue and it's a business issue. there is a sentiment early this year the bank customers, the biggest clients will continue to best and leverage loans and
engage investors but if the supply chain remain such an issue and higher interest rates start to become more of a scare, you start to have issues that kind of thinking and wonder if that 19 percent return on equity can keep its case. jp morgan headcount and its costs tied to its employees rose more than any other cost. jp morgan like every other business in the world is experiencing that wage inflation while adding more employees. we will see a lot of that this morning and a lot of that through next week. jp morgan down about one point 33%. jonathan: what's the top line? emily: they have to keep their costs in line and wells fargo
has to give investors something to write on in terms of controlling expenses and a stiff regulatory environment. jonathan: that stock is up another 1.8 percent in that stock is absolutely flying most over the next hour, we should get citibank later this morning. we will put this together and look ahead to morgan stanley and jp morgan. tom: each bank has a different story that goes to the european banks as well and part of this is the regional banks, the competition out there with a five-year year perspective is extraordinary. mobile activities up 11% at jp morgan and technology is the future. lisa: but how do you compete with fintech that has a lower overhead when deposits are climbing so much and people are not borrowing as much?
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♪ >> earnings are going to have to drive the market here. >> valuations support is not particularly good in some segments. >> a lot of money has gone out of some of the more speculative parts of the market. >> this is an opportunistic stock pickers market, but you have to do your homework. >> this year is going to be volatile. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: earnings season gearing up. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance ," live on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. your equity market down a single point on the s&p. j.p. morgan numbers out 10 minutes ago. tom: and a good opening salvo of what we are going to see per you mentioned morgan stanley, and goldman sachs i believe into next week. all i can thing about as we go to